SECURITIES & EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
                                    ---------
(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the quarterly period ended September 30, 1998
                               ------------------

                                       or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from            to           

Commission File No. 1-106
-------------------------


                                LYNCH CORPORATION
                                -----------------
             (Exact name of Registrant as specified in its charter)


            Indiana                                             38-1799862
            -------                                             ----------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                              Identification No.) 

401 Theodore Fremd Avenue, Rye, New York                           10580   
----------------------------------------                           -----      
 (Address of principal executive offices)                        (Zip Code)


                                 (914) 921-7601
                                 --------------
               Registrant's telephone number, including area code

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes  X    No    

Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practical date.

       Class                                   Outstanding at October 30, 1998
       -----                                   ------------------------------- 
Common Stock, no par value                                 1,418,248



<PAGE>

                                      INDEX

                       LYNCH CORPORATION AND SUBSIDIARIES


PART I.     FINANCIAL INFORMATION
-------     ---------------------


Item 1.   Financial Statements (Unaudited)

          Condensed Consolidated Balance Sheet:
               -      September 30, 1998
               -      December 31, 1997 (Audited)

          Condensed Consolidated Statements of Operations:
               -      Three and nine months ended September 30, 1998 and 1997

          Condensed Consolidated Statements of Cash Flows:
               -      Nine months ended September 30, 1998 and 1997

          Notes to Consolidated Financial Statements:


Item 2.   Management's Discussion and Analysis of Financial Condition 
          and Results of Operations


PART II.    OTHER INFORMATION
--------    -----------------


Item 5.   Other

Item 6.   Exhibits and Reports on Form 8-K




SIGNATURES
----------


<PAGE>

Part 1- FINANCIAL INFORMATION
-----------------------------
Item 1- Financial Statements
-----------------------------


                       LYNCH CORPORATION AND SUBSIDIARIES
                       ----------------------------------
                      CONDENSED CONSOLIDATED BALANCE SHEET
                      ------------------------------------
                                 (In thousands)
<TABLE>
<CAPTION>

                                                           September 30   December 31
                                                                1998          1997
                                                           (Unaudited)         (A)
                                                           -----------         ---
ASSETS

CURRENT ASSETS:
<S>                                                          <C>          <C>      
   Cash and Cash Equivalents .............................   $  20,491    $  33,557
   Marketable Securities and Short-Term Investments ......       1,249          985
   Receivables, less Allowances of $1125 and $1448 .......      62,699       54,480
   Inventories ...........................................      50,966       35,685
   Deferred Income Tax Benefits ..........................      17,993       17,993
   Other Current Assets ..................................      11,935       10,059
                                                             ---------    ---------
    Total Current Assets .................................     165,333      152,759

PROPERTY, PLANT AND EQUIPMENT:
   Land ..................................................       2,767        1,742
   Buildings and Improvements ............................      29,932       25,272
   Machinery and Equipment ...............................     229,231      190,579
                                                             ---------    ---------
                                                               261,930      217,593
   Accumulated Depreciation ..............................     (73,877)     (60,064)
                                                             ---------    ---------
                                                               188,053      157,529

INVESTMENTS IN AND ADVANCES TO PCS ENTITIES ..............      23,419       25,448
EXCESS OF COSTS OVER FAIR VALUE OF NET ASSETS ACQUIRED ...      91,407       73,257
OTHER ASSETS .............................................      15,907       14,645
                                                             ---------    ---------
    Total Assets .........................................   $ 484,119    $ 423,638
                                                             =========    =========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Notes Payable to Banks ................................   $  55,599    $  29,021
   Trade Accounts Payable ................................      37,314       21,381
   Accrued Liabilities ...................................      41,107       37,104
   Current Maturities of Long - Term Debt ................      11,579        9,302
                                                             ---------    ---------
    Total Current Liabilities ............................     145,599       96,808

LONG-TERM DEBT ...........................................     246,810      242,776
DEFERRED INCOME TAXES ....................................      33,835       33,764
PENSION LIABILITIES AND OTHER POST- RETIREMENT BENEFITS ..       3,047            0
MINORITY INTERESTS .......................................      15,333       13,839

SHAREHOLDERS' EQUITY
   COMMON STOCK, NO PAR VALUE-10,000,000 SHARES
     AUTHORIZED; 1,471,191 shares issued (at stated value)       5,139        5,139
   ADDITIONAL PAID - IN CAPITAL ..........................       8,537        8,644
   RETAINED EARNINGS .....................................      26,451       23,414
   ACCUMULATED OTHER COMPREHENSIVE INCOME ................          98            0
   TREASURY STOCK OF 52,943 AND 54,143 SHARES, AT COST ...        (730)        (746)
                                                             ---------    ---------
    Total Shareholders' Equity ...........................      39,495       36,451
                                                             ---------    ---------
    Total Liabilities and Shareholders' Equity ...........   $ 484,119    $ 423,638
                                                             =========    =========
<FN>

(A) The Balance  Sheet at December  31,1997  has been  derived  from the Audited
Financial  Statements at that date, but does not include all of the  information
and footnotes required by generally accepted accounting  principles for complete
financial statements. </FN> </TABLE>

<PAGE>


                       LYNCH CORPORATION AND SUBSIDIARIES
                       ----------------------------------
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                 ----------------------------------------------
                                   (UNAUDITED)
                      (In thousands, except share amounts)

<TABLE>
<CAPTION>
                                                          Three Months                  Nine Months
                                                        Ended September 30           Ended September 30
                                                      1998           1997            1998           1997
                                                      ----           ----            ----           ----
SALES AND REVENUES ............................          
<S>                                               <C>            <C>            <C>            <C>        
    Multimedia ................................   $    14,196    $    12,739    $    40,520    $    34,901
    Services ..................................        39,135         38,293        114,629        111,137
    Manufacturing .............................        81,300         67,685        227,715        202,884
                                                  -----------    -----------    -----------    -----------
                                                      134,631        118,717        382,864        348,922
                                                  -----------    -----------    -----------    -----------
Costs and expenses:
    Multimedia ................................         9,958          9,396         28,410         26,188
    Services ..................................        35,856         34,821        105,217        101,674
    Manufacturing .............................        70,910         57,164        197,529        170,369
    Selling and administrative ................        10,362         11,049         31,576         32,052
                                                  -----------    -----------    -----------    -----------
OPERATING PROFIT ..............................         7,545          6,287         20,132         18,639

Other income (expense):
    Investment Income .........................           760            554          2,527          1,411
    Interest expense ..........................        (7,087)        (5,901)       (20,621)       (17,178)
    Share of operations of affiliated companies            44             20            169             91
    Reserve for impairment of PCS licenses ....             0         (7,024)             0         (7,024)
    Gain (Loss) on Sale of Subsidiary Stock ...         2,127            (91)         2,082            169
                                                  -----------    -----------    -----------    -----------
                                                       (4,156)       (12,442)       (15,843)       (22,531)
                                                  -----------    -----------    -----------    -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
 INCOME TAXES AND  MINORITY INTERESTS .........         3,389         (6,155)         4,289         (3,892)

Provision for income taxes ....................        (1,423)         2,041         (1,801)         1,139
Minority interests ............................           183           (160)           549           (783)
                                                  -----------    -----------    -----------    -----------
NET INCOME (LOSS) .............................   $     2,149    ($    4,274)   $     3,037    ($    3,536)
                                                  ===========    ===========    ===========    ===========

   Weighted average shares outstanding ........     1,418,000      1,417,000      1,418,000      1,414,000

Basic earnings per share:
     Net Income (Loss) ........................   $      1.52    ($     3.02)   $      2.14    ($     2.50)
                                                  ===========    ===========    ===========    ===========
Diluted earnings per share:
     Net Income (Loss) ........................   $      1.52    ($     3.02)   $      2.14    ($     2.50)
                                                  ===========    ===========    ===========    ===========
</TABLE>


<PAGE>

                       LYNCH CORPORATION AND SUBSIDIARIES
                       ----------------------------------
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                 ----------------------------------------------
                                   (UNAUDITED)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                               Nine Months Ended
                                                                 September 30
                                                                 ------------

                                                               1998        1997
                                                               ----        ----

OPERATING ACTIVITIES

<S>                                                             <C>       <C>    
Net income (loss) .........................................     3,037     (3,536)
Adjustments   to  reconcile  net  income  
to  net  cash  provided  by  operating
activities:
   Depreciation and amortization ..........................    18,925     15,984
   Net effect of purchases and sales of trading securities       (264)      (763)
   Deferred taxes .........................................         0     (2,388)
   Share of operations of affiliated companies ............      (169)       (91)
   Minority interests .....................................      (549)       783
  Gain on sale of stock by subsidiaries ...................    (2,082)      (169)
   Reserve for impairment of PCS licenses .................         0      7,024
   Changes in operating assets and liabilities:
     Receivables ..........................................    (3,620)    (4,449)
     Inventories ..........................................    (3,911)       216
     Accounts payable and accrued liabilities .............    21,250      1,259
     Other ................................................    (3,133)      (635)
                                                              -------    -------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................    29,484     13,235
                                                              -------    -------

INVESTING  ACTIVITIES

Capital Expenditures ......................................   (16,636)   (13,700)
Investment in Coronet Communications Company ..............         0      2,995
Investment in Upper Peninsula Telephone Company ...........         0    (25,721)
Investment in Spinnaker Coating - Maine ...................   (47,734)         0
Investment in Spinnaker Electrical Tape Company ...........    (2,000)         0
Sale of Investments - Cellular partnerships ...............         0      8,576
Investment in Personal Communications Services Partnerships     3,726      2,145
Other .....................................................      (416)       (82)
                                                              -------    -------
NET CASH USED IN INVESTING ACTIVITIES .....................   (63,060)   (25,787)
                                                              -------    -------
FINANCING ACTIVITIES

Issuance of debt, net .....................................    21,389      3,219
Treasury stock transactions ...............................        90        657
Minority interest transactions ............................      (969)       286
                                                              -------    -------
NET CASH FROM FINANCING ACTIVITIES ........................    20,510      4,162
                                                              -------    -------
Net decrease  in cash and cash equivalents ................   (13,066)    (8,390)
Cash and cash equivalents at beginning of period ..........    33,557     33,946
                                                              -------    -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................    20,491     25,556
                                                              =======    =======
</TABLE>

            See Notes to Condensed Consolidated Financial Statements.


<PAGE>

<TABLE>

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A.   Subsidiaries of the Registrant
--   ------------------------------
<CAPTION>
                                                                          Owned by
Subsidiary                                                                  Lynch 
----------                                                                  ----- 
<S>                                                                         <C>   
Brighton Communications Corporation .............................           100.0%
  Lynch Telephone Corporation IV ................................           100.0%
    Bretton Woods Telephone Company .............................           100.0%
    World Surfer, Inc. ..........................................           100.0%
  Lynch Kansas Telephone Corporation ............................           100.0%
  Lynch Telephone Corporation VI ................................            98.0%
    JBN Telephone Company, Inc. .................................            98.0%
      JBN Finance Corporation ...................................            98.0%
    Giant Communications, Inc. ..................................           100.0%
    Lynch Telephone Corporation VII .............................           100.0%
      USTC Kansas, Inc. .........................................           100.0%
       Haviland Telephone Company, Inc. .........................           100.0%
         Haviland Finance Corporation ...........................           100.0%
  DFT Communications Corporation ................................           100.0%
    Dunkirk & Fredonia Telephone Company ........................           100.0%
      Cassadaga Telephone Company ...............................           100.0%
        Macom, Inc. .............................................           100.0%
      Comantel, Inc. ............................................           100.0%
        D&F Cellular Telephone, Inc. ............................           100.0%
    DFT Long Distance Corporation ...............................           100.0%
    DFT Local Service Corporation ...............................           100.0%
        Erie Shore Communications, Inc. .........................           100.0%
LMT Holding Corporation .........................................           100.0%
 Lynch Michigan Telephone Holding Corporation ...................           100.0%
    Upper Peninsula Telephone Company ...........................           100.0%
    Alpha Enterprises Limited ...................................           100.0%
        Upper Peninsula Cellular North, Inc. ....................           100.0%
        Upper Peninsula Cellular South, Inc. ....................           100.0%

Global Television, Inc. .........................................           100.0%

Inter-Community Acquisition Corporation .........................           100.0%

Home Transport Service, Inc. ....................................           100.0%

Lynch Capital Corporation .......................................           100.0%

Lynch Entertainment Corporation .................................           100.0%
Lynch Entertainment Corporation II ..............................           100.0%

Lynch International Exports, Inc. ...............................           100.0%

</TABLE>



<PAGE>

<TABLE>
<CAPTION>
                                                                          Owned by
Subsidiary                                                                  Lynch 
----------                                                                  ----- 

<S>                                                                         <C>   
Lynch Manufacturing Corporation ..................................          100.0%
  Lynch Display Technologies, Inc. ...............................          100.0%
    Lynch Systems, Inc. ..........................................           91.0%
 M-tron Industries, Inc. .........................................           91.0%
   M-tron Industries, Ltd. .......................................           91.0%
 Spinnaker Industries, Inc. ......................................           61.2%
    Entoleter, Inc. ..............................................           61.2%
    Spinnaker Coating, Inc. ......................................           61.2%
      Spinnaker Coating-Maine, Inc. ..............................           61.2%
    Central Products Company .....................................           61.2%
    Spinnaker Electrical Tape Company ............................           61.2%

Lynch Multimedia Corporation .....................................          100.0%
  CLR Video, L.L.C ...............................................           60.0%

The Morgan Group, Inc. ...........................................           68.06%(V)/53.06%(O)
  Morgan Drive Away, Inc. ........................................           68.06%(V)/53.06%(O)
    Transport Services Unlimited, Inc. ...........................           68.06%(V)/53.06%(O)
  Interstate Indemnity Company ...................................           68.06%(V)/53.06%(O)
  Morgan Finance, Inc. ...........................................           68.06%(V)/53.06%(O)
  TDI, Inc. ......................................................           68.06%(V)/53.06%(O)
    Home Transport Corporation ...................................           68.06%(V)/53.06%(O)
    MDA Corporation ..............................................           68.06%(V)/53.06%(O)

Lynch PCS Communications Corporation .............................          100.0%
  Lynch PCS Corporation A ........................................          100.0%
  Lynch PCS Corporation F ........................................          100.0%
  Lynch PCS Corporation G ........................................          100.0%

Lynch Interactive Corporation ....................................          100.0%
Lynch Telecommunications Corporation .............................          100.0%
  Lynch Telephone Corporation ....................................           83.1%
    Western New Mexico Telephone Company, Inc. ...................           83.1%
    WNM Communications Corporation ...............................           83.1%
    Wescel Cellular, Inc. ........................................           83.1%
      Wescel Cellular of New Mexico, L.P. ........................           42.4%
    Wescel Cellular, Inc. II .....................................           83.1%
      Northwest New Mexico Cellular, Inc. ........................           40.6%
      Northwest New Mexico Cellular of New Mexico, L.P............           20.7%
        Enchantment Cable Corporation ............................           83.1%
 Lynch Telephone Corporation II ..................................           83.0%
   Inter-Community Telephone Company .............................           83.0%
     Inter-Community Telephone Company II ........................           83.0%
 Lynch Telephone Corporation III .................................           81.0%
   Cuba City Telephone Exchange Company ..........................           81.0%
   Belmont Telephone Company .....................................           81.0%

<FN>
 Notes: (V)=Percentage voting control; (O)=Percentage of equity ownership
</FN>
</TABLE>


<PAGE>

B.    Basis of Presentation
--    ---------------------

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial  statements.  In  the  opinion  of  the  management,  all  adjustments
(consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
presentations have been included. Operating results for the three and nine month
periods ended September 30, 1998 are not  necessarily  indicative of the results
that  may be  expected  for the  year  ended  December  31,  1998.  For  further
information,  refer  to the  consolidated  financial  statements  and  footnotes
thereto  included in the  Registrant's  Annual  Report on Form 10-K for the year
ended December 31, 1997.

C.    Acquisitions
--    ------------

On July 31, 1998, Registrant's subsidiary,  Spinnaker Industries,  Inc. acquired
tesa tape,  inc.'s  pressure  sensitive  electrical  tape  product  line and its
Carbondale,  IL  manufacturing  plant. The purchase price totaled $10.7 million,
comprising 200,000 shares of Spinnaker common stock, cash and a seller note. The
newly acquired plant produces  electrical tape for insulating motors,  coils and
transformers for customers in Europe,  Canada and the U.S. Sales in 1997 totaled
approximately $20 million.

On March 17, 1998, Spinnaker Coating-Maine, Inc. acquired the pressure sensitive
adhesive-backed  label stock  business of S.D.  Warren.  The purchase  price was
approximately $52.0 million,  plus the assumption of certain liabilities and was
funded by issuing the seller a  convertible  subordinated  note of $7.0  million
with the remainder funded by Spinnaker's  revolving credit facility. As a result
of this  transaction,  the Registrant  recorded  approximately  $19.6 million in
goodwill which is being amortized over 30 years.

On March 18, 1997,  Lynch Michigan  Telephone  Holding  Company,  a wholly-owned
subsidiary of the  Registrant,  acquired  approximately  60% of the  outstanding
shares of Upper Peninsula  Telephone  Company for $15.2 million.  The Registrant
completed the  acquisition  of the remaining 40% on May 23, 1997. The total cost
of the  acquisition  was $26.5  million.  As a result of this  transaction,  the
Registrant  recorded  approximately  $7.4  million in  goodwill,  which is being
amortized over 25 years.

All of the above acquisitions were accounted for as purchases,  and accordingly,
the assets  acquired and  liabilities  assumed were recorded at their  estimated
fair market values.

The operating results of the acquired companies are included in the Consolidated
Statement of Operations from their respective  acquisition  dates. The following
unaudited proforma information shows the results of the Registrant's  operations
as though the acquisitions of tesa tape, inc.'s pressure  sensitive tape product
line,  S.D.  Warren's  adhesive-backed  label stock business and Upper Peninsula
Telephone Company were made at the beginning of 1997.


<PAGE>
<TABLE>
<CAPTION>

                                                Three Months Ended       Nine months Ended
                                                   September 30             September 30
(In thousands, except per share data)          1998         1997         1998        1997
                                               ----         ----         ----        ----
<S>                                          <C>         <C>          <C>         <C>      
Sales and Revenues .......................   $ 135,887   $ 139,420    $ 403,772   $ 413,167
Operating Profit .........................       7,862       8,569       23,000      26,684
Income from Continuing Operations
 Before Income Taxes and Minority Interest       3,664      (4,789)       5,903         618
Net Income ...............................       2,225      (3,743)       3,497      (1,956)
Net Income Per Share .....................        1.57       (2.65)        2.47       (1.38)

</TABLE>


D.    Inventories
--    -----------

Inventories  are stated at the lower of cost or market  value.  At September 30,
1998, inventories were valued by three methods: last-in, first-out (LIFO) - 48%,
specific identification - 50%, and first-in,  first-out (FIFO) - 2%. At December
31, 1997, the respective percentages were 48%, 43%, and 9%.

<TABLE>
<CAPTION>
                                                        Sept.30         Dec. 31
                                                          1998            1997
                                                          ----            ----
<S>                                                     <C>              <C>    
Raw Material and Supplies ....................          $15,016          $10,493
Work in Progress .............................            7,011            3,544
Finished Goods ...............................           28,939           21,648
                                                        -------          -------
    Total Inventories ........................          $50,966          $35,685
                                                        =======          =======
</TABLE>


E.     Indebtedness
--     ------------

On a  consolidated  basis,  at September  30,  1998,  the  Registrant  maintains
short-term and long-term lines of credit facilities  totaling $118.1 million, of
which $40.7 million was available. The Registrant (Parent Company) maintains two
short-term  lines of credit  facilities  totaling $22.0 million,  of which $11.3
million was  available at  September  30, 1998.  The  facilities  will expire on
December  29, 1998  ($10.0  million)  and  December  31,  1998 ($12.0  million),
respectively.  Spinnaker  Industries,  Inc.  maintains  lines of  credit  at its
subsidiaries which total $65.0 million,  of which $12.2 million was available at
September  30,  1998.  The Morgan  Group  maintains  lines and letters of credit
totaling  $23.0  million,  of which $14.5 million was available at September 30,
1998.  These  facilities,  as well as  facilities at other  subsidiaries  of the
Registrant,  generally  limit the credit  available under the lines of credit to
certain variables,  such as inventories and receivables,  and are secured by the
operating assets of the subsidiary, and include various financial covenants. Due
to certain of these  restrictive  covenants and working capital  requirements of
the  subsidiaries,  cash  distributions  from the subsidiaries  are limited.  At
September 30, 1998,  $38.1 million of these total  facilities  expire within one
year.

In general, the long-term debt credit facilities are secured by property,  plant
and equipment,  inventory,  receivables and common stock of certain subsidiaries
and contain certain covenants restricting distributions to the Registrant.



<PAGE>
<TABLE>
<CAPTION>

Long term debt consists of:                                                         9-30-98      12-31-97
---------------------------                                                         -------      --------

Spinnaker Industries Inc. 10.75% Senior Secured
<S>                                                                                <C>          <C>      
Note Due 2006 ..................................................................   $ 115,000    $ 115,000

Rural Electrification Administration and Rural 
Telephone Bank notes payable in equal quarterly 
installments through 2027 at fixed interest rates
ranging from 2% to 7.5% ........................................................      45,729       47,109

Bank credit facilities utilized by certain telephone  
and telephone holding companies through 2009, $33.2 
million at a fixed  interest rate averaging 9.0% and 
$18.5 million at variable interest rates averaging 8.6% ........................      51,683       54,633

Unsecured notes issued in connection with acquisitions 
at fixed interest rates averaging 9.2% with maturities
through 2006 ...................................................................      35,557       28,049

Other ..........................................................................      10,420        7,287
                                                                                   ---------    ---------
                                                                                     258,389      252,078
Current maturities .............................................................     (11,579)      (9,302)
                                                                                   ---------    ---------
    Total ......................................................................   $ 246,810    $ 242,776
                                                                                   =========    =========
</TABLE>


F.     Earnings Per Share
--     ------------------

In December  1997,  the  Registrant  adopted  Statement of Financial  Accounting
Standards  ("SFAS") No. 128, Earnings Per Share which changed the methodology of
calculating  earnings per share.  Basic  earnings  per common share  amounts are
based on the average  number of common  shares  outstanding  during each period,
excluding the dilutive effects of options, warrants, and convertible securities.
Diluted earnings per share reflect the effect,  where dilutive,  of the exercise
of all stock  options  having an  exercise  price  less than the  greater of the
average or closing  market price at the end of the period of the Common Stock of
the Registrant  using the treasury stock method.  All earnings per share amounts
have been  presented in  accordance  with,  and where  appropriate,  restated to
conform to the SFAS No. 128 requirements.

G.     Comprehensive Income
--     --------------------

Effective  January 1, 1998,  the  Registrant  adopted  SFAS No.  130,  Reporting
Comprehensive  Income.  SFAS No. 130  establishes  standards  for  reporting and
display of  comprehensive  income and its components;  however,  the adoption of
SFAS No. 130 had no impact on the  Company's  net income.  SFAS No. 130 requires
unrealized  gains or losses on the Registrant's  available-for-sale  securities,
which prior to adoption were reported  separately in  shareholders  equity to be
included in other comprehensive income.

The components of  comprehensive  income,  net of tax, for the nine months ended
September 30, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>

                                       1998      1997
                                       ----      ----
<S>                                  <C>       <C>     
Net Income (Loss)..................  $ 3,037   $(3,536)
Unrealized gain on securities......       98      --
                                      -------   -------
Comprehensive income (Loss).........  $ 3,135   $(3,536)
                                      =======   =======
</TABLE>



<PAGE>

The components of accumulated other comprehensive income, net of related tax, at
September 30, 1998 and December 31, 1997 are as follows:

<TABLE>
<CAPTION>

                                          1998      1997
                                          ----      ----
<S>                                        <C>       <C>
Unrealized gains on securities .......     $98       $--
                                           ---       ---
Accumulated comprehensive income .....     $98       $--
                                           ===       ===
</TABLE>

H.   Gain on Sale of Subsidiary Stock
--   --------------------------------

On July 31, 1998,  Spinnaker  Industries,  Inc. completed the acquisition of the
electrical  tape division of tesa tape,  inc. Part of the purchase price was the
issuance of 200,000 shares,  subject to certain adjustments of Spinnaker's Class
A Common Stock. As a result of this issuance,  the Registrant recorded a gain on
sale of  subsidiary  stock of $2.1 million in the third quarter of 1998, or $1.2
million ($0.87 per share) after tax.


Item 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          ----------------------------------------------------------------
          RESULTS OF OPERATIONS.
          ----------------------

Sales and Revenues
------------------

Revenues for the third quarter of 1998 increased by $15.9 million,  or 13%, from
the  comparable  period in the prior year. The  percentage  contribution  to the
overall increase by each operating segment is as follows:  multimedia - 9% ($1.5
million),  The Morgan Group,  Inc. - 5% ($0.8 million),  and manufacturing - 86%
($13.6 million).  Multimedia's revenues increased due to growth in access lines,
additional  revenue streams,  such as Internet services and improved recovery of
costs under regulatory the model. The Morgan Group, Inc.  recorded  increases in
the  Specialized   Transport  Business  offset  by  lower  Manufactured  Housing
revenues.  Within the manufacturing group,  Spinnaker Industries,  Inc. revenues
increased $19.1 million.  In March 1998,  Spinnaker  acquired the  adhesive-back
division of S.D. Warren Company. The operation  contributed  approximately $15.2
million  to  Spinnaker's  revenue  increase.  On  July  31,  1998,  Registrant's
subsidiary,  Spinnaker acquired tesa tape, inc.'s pressure sensitive  electrical
tape product line. This business contributed $1.2 million to Spinnaker's revenue
increase. Spinnaker's other operations recorded 5% revenue increase. Revenues at
Lynch Systems,  Inc.  decreased by $4.6 million  between the two quarters due to
lack of orders for extra large glass press  machines.  M-tron  Industries,  Inc.
revenues were below prior year by $0.8 million  reflecting an overall decline in
industry shipments.

For the nine months ended September 30, 1998,  revenues increased from the prior
year  period  by $33.9  million,  or 10%.  The  percentage  contribution  to the
increase by each business segment is as follow: multimedia - 17% ($5.6 million),
The Morgan  Group,  Inc. - 10% ($3.5  million)  and  manufacturing  - 73% ($24.8
million). Aside from the factors noted above, the acquisition of Upper Peninsula
Telephone  Company in March 1997,  incrementally  increased  the  revenues  $2.3
million in multimedia on a year-to-date  basis.  Spinnaker's  acquisition of the
adhesive-backed  business  of  S.D.  Warren  contributed  $32.4  million  to the
manufacturing revenue increases.

<PAGE>

Operating Profit
----------------

Operating  profit  for the third  quarter  of 1998  increased  by $1.3  million.
Operating profit in the multimedia  segment  increased by $0.9 million.  Primary
factors  contributing  to the growth were:  increase in access lines,  increased
revenues associated with non-traditional  telephone services,  improved recovery
of costs under the  regulatory  model,  and lower  costs at certain  operations.
Morgan's  operating profit decreased by $0.6 million between the two quarters as
a result of increased claims costs.  Operating profit in the manufacturing group
increased by $0.1 million as an increase at Spinnaker  was offset by declines at
Lynch Systems and M-tron.  Spinnaker's results, whose operating profit increased
by $1.1  million,  increased  due to the  inclusion of S.D.  Warren  acquisition
offset by increased  depreciation and  amortization  relating to the S.D. Warren
acquisition.  Lynch  Systems' and M-tron's  operating  profit  decreased by $0.9
million and $0.2 million, respectively.

Net  corporate  expenses  during  the third  quarter of 1998  decreased  by $0.8
million from the prior year, primarily  attributable to the reversal of non-cash
charge relating to stock appreciation  rights ("SARs").  In the third quarter of
1998 the Registrant  reversed a previously recorded SAR accrual of $0.6 million.
A $0.3 million charge was recorded in the third quarter of 1997.

Effective September 30, 1998, the Registrant amended the SAR (stock appreciation
rights) Program so that the SARs become exercisable only in the event the market
price for the Registrant's shares double from the SAR exercise price within five
years from original  issuance.  The exercise prices of the 42,700 SARs currently
outstanding  range from $63.03 to $84.63.  On September  30,  1998,  the closing
price of the  Registrant's  Common  shares  in  trading  on the  American  Stock
Exchange was $76.50.  This  amendment will eliminate the recording of the profit
and loss  effect from  changes in the market  price in the  Registrant's  common
stock until it is probable that the SARs will become exercisable.

Operating profit for the first nine months ended September 30, 1998 increased by
$1.5 million from the nine months ended September 30, 1997.  Operating profit of
multimedia segment increased by $3.4 million reflecting the growth in continuing
operations plus the acquisition of Upper  Peninsula  Telephone  Company in March
1997.  Operating  profit at The Morgan Group,  Inc. fell by $1.4 million between
the two periods due to high claims  costs plus  increased  data  processing  and
administrative  costs in the Specialized  Transport Group. In the  manufacturing
segment  operating  profit fell $1.5 million.  Lynch Systems'  operating  profit
(loss)  decreased  overall  operating  profit by $1.7  million  between  the two
nine-month  periods.  Spinnaker's  operating  profit  increased by $0.4 million,
offsetting M-tron's $0.4 million decline.  Within corporate operations,  the SAR
accrual for the nine months ended  September 30, 1998,  decreased  expenses by a
$0.2 million as compared to a SAR expense of $0.7 million in the comparable 1997
period.

Other Income (Expense), Net
---------------------------

Investment  income in the third  quarter of 1998  increased by $0.2 million from
the third  quarter of 1997.  Realized and  unrealized  gains from the  Company's
investment in marketable  securities and accrued  interest from the Registrant's
investment in East/West Communications, Inc. Redeemable Preferred Stock were the
primary  causes  of  the  increase.   These  factors  also  caused  year-to-date
investment income to be greater than the previous year by $1.1 million.

<PAGE>

Interest expense in the third quarter of 1998 increased by $1.2 million from the
third quarter of 1997.  The increase was  primarily  due to the  increased  debt
level  resulting from the  acquisitions by Spinnaker of S.D.  Warren's  pressure
sensitive  adhesive-backed label stock business and tesa tape, inc.'s electrical
tape  division.  On a year-to-date  basis,  interest  expense  increased by $3.4
million,   $2.4   million  was   associated   with   Spinnaker's   acquisitions.
Additionally,  in March 1997 the Registrant  acquired Upper Peninsula  Telephone
Company;  incrementally  this acquisition added $0.3 million of interest expense
to the current year-to-date versus the prior year-to-date. Also during 1998, the
Registrant is capitalizing  less interest with regard to a subsidiary's  loan to
Fortunet  Communications,  L.P. ("Fortunet"),  a PCS license holder in which the
subsidiary owns a 49.9% limited  partnership,  due to the write-off of a portion
of the costs associated with the loan in the third quarter of 1997.

On July 31, 1998,  Spinnaker  Industries,  Inc. completed the acquisition of the
electrical  tape division of tesa tape,  inc. Part of the purchase price was the
issuance of 200,000 shares,  subject to certain adjustments of Spinnaker's Class
A Common Stock. As a result of this issuance,  the Registrant recorded a gain on
sale of  subsidiary  stock of $2.1 million in the third quarter of 1998, or $1.2
million ($0.87 per share) after tax.

During the third quarter of 1997, the Registrant wrote off 30% of the investment
in, loans to, and deferred costs associated with Fortunet,  a partnership formed
to  acquire,  construct  and  operate  licenses  for the  provision  of personal
communications  services in the PCS C-Block auction.  Such write-off amounted to
$7.0 million, or $4.6 million after tax benefit.

In May 1996, the FCC concluded the C-Block auction for 30 megahertz of broadband
spectrum  across  the  United  States  to be used  for  personal  communications
services  ("PCS").  PCS is the second  generation of low-cost  digital  wireless
service  utilized for voice,  video and data  devices.  In the C-Block  auction,
certain qualified small business were afforded bidding credits as well as access
to long-term government financing for the cost of the licenses acquired.

As a result  of this  auction,  Fortunet  acquired  31  licenses  in 17  states,
covering a population ("POPs") of 7.0 million.  The total cost of these licenses
was $216 million,  or $30.76 per 30 megahertz POP, after the 25% bidding credit.
Events during and subsequent to the auction,  as well as other externally driven
technological  and market  forces have made  financing  the  build-out  of these
licenses  through  the  capital  markets  much more  difficult  than  previously
anticipated.

As a result of a petition by  Fortunet,  as well as many of the license  holders
from  this  auction,   the  FCC  afforded  license  holders  a  choice  of  four
restructuring options, one of which was the resumption of current debt payments;
which had been suspended  earlier this year. The  ramifications  of choosing the
other three  courses of action  could result in Fortunet  ultimately  forfeiting
either 30%, 50%, or 100% of its  down-payment in these licenses.  As a result of
the FCC proposal, the management of the Registrant provided for a 30% reserve of
its investment at the that time, as this  represented  management's  estimate of
the impairment of this investment given the then current available alternatives.


<PAGE>

On July,  8, 1998,  Fortunet  returned  28 of the 31 licenses it was awarded and
returned  half  of  the  spectrum  of the  remaining  three  licenses.  Fortunet
currently is the licensee for 15 megahertz of spectrum in three Florida markets:
Tallahassee,  Panama City,  and Ocala covering  approximately  785,000 POPs at a
cost of $20.09 per 15 MHZ POP (equal to $40.18 per 30MHz POP).  It used the down
payment from the licenses returned,  after deducting the 30% forfeited, to repay
all  remaining  Government  debt. No further  write-off  have been recorded as a
result of this restructure.

Tax Provision
-------------

The income tax provision includes federal, as well as state and local taxes. The
tax provision  for the three and nine months ended  September 30, 1998 and 1997,
represents effective tax rates of (42%) and (40%), respectively. The differences
from the  federal  statutory  rate are  principally  due to the  effect of state
income taxes and amortization of non-deductible goodwill.

Minority Interest
-----------------

Profit (loss) associated with minority  interests,  increased net income by $0.2
million in the third quarter of 1998 in comparison to the decrease in net income
of $0.2 million in the third quarter of 1997.  The variance was $1.3 million for
the nine month periods ending September 30, 1998 and 1997.

These were due to reduced  profits at the  Spinnaker  Industries,  Inc., a 61.2%
owned subsidiary,  and The Morgan Group,  Inc., a 53% owned subsidiary offset by
higher profitability at telephone operations.

Net Income (Loss)
-----------------

Net income for the three months ended  September 30, 1998 was $2.1  million,  or
$1.52 per share,  as compared to a loss of $4.3  million,  or $3.02 per share in
the previous year's quarter.  Net income for the nine months ended September 30,
1998 was $3.0  million,  or  $2.14  per  share,  as  compared  to a loss of $3.5
million, or $2.50 per share.

Backlog/New Orders
------------------

Total backlog of manufactured  products at September 30, 1998 was $16.1 million,
backlog  was $30.9  million at  December  31,  1997.  Included in the backlog at
December 31, 1997 was a $16 million  glass press order at Lynch  Systems from an
international  customer.  The customer  subsequently  canceled  this order.  The
purchase order  associated  with this order  contained a cancellation  provision
pursuant to which the customer paid Lynch Systems $2.4 million which can be used
by the customer as a discount for future orders.  Aside from the cancellation at
Lynch  Systems  referred  to above,  backlog  increased  by $1.2  million  as an
increase in backlog at Spinnaker of $4.1 million  offset lower backlogs at Lynch
Systems of $2.1 million and M-tron of $0.8 million.

<PAGE>

Liquidity/Capital Resources
---------------------------

As of September 30, 1998,  the Company had current  assets of $165.3 million and
current  liabilities  of $145.6  million.  Working  capital was therefore  $19.7
million as  compared to $56.0  million at December  31,  1997.  The  decrease is
primarily due to the acquisition of S.D.  Warren's pressure  sensitive  adhesive
backed label stock  business,  a majority of which was financed by the draw down
on a working capital revolver, which is classified as a current liability.  Nine
months  capital  expenditures  were $16.7  million in 1998 and $13.7  million in
1997.

At September 30, 1998,  total debt was $314.0  million,  which was $32.9 million
more  than  the  $281.1  million  at  the  end  of  1997,  primarily  due to the
acquisitions of S.D. Warren and tesa tape inc.'s electrical tape division.  Debt
at September 30, 1998 included $234.2 million of fixed interest rate debt, at an
average cash interest  rate of 9.0% and $79.7 million of variable  interest rate
debt at an average  interest rate of 9.4%.  Additionally,  at September 30, 1998
the  Company  had $40.7  million  in  unused  lines of credit of which (i) $14.5
million was  attributable  to Morgan and (ii) $12.2 million was  attributable to
Spinnaker.  Certain  restrictive  covenants  within the debt  facilities at both
Spinnaker  and Morgan  limit their  ability to provide the parent  company  with
significant  funding.  As of September 30, 1998, the Parent Company had borrowed
$10.7 million under short-term lines of credit  facilities.  The lines currently
total  $22.0  million.  These  funds  were  primarily  used  to  fund  loans  by
subsidiaries  to  partnerships  in the PCS  Auctions  and fund a portion  of the
purchase price of Upper Peninsula  Telephone Company.  These short-term lines of
credit expire by the end of December  1998.  Management  anticipates  that these
lines will be renewed for one year but there is no assurance that they will be.

Lynch Corporation maintains an active acquisition program and generally finances
each  acquisition  with a significant  component of debt. This  acquisition debt
contains  restrictions  on the  amount of  readily  available  funds that can be
transferred to Lynch Corporation from its subsidiaries.

In  December  1996,  the  Company's  Board  of  Directors  announced  that it is
examining  the  possibility  of  splitting,  through a  "spin-off,"  either  its
communications  operations or its  manufacturing  operations.  A spin-off  could
improve  management focus,  facilitate and enhance  financings and set the stage
for future growth,  including  acquisitions.  A spin-off could also help surface
the underlying  values of the company as the different  business segments appeal
to differing  "value" and "growth" cultures in the investment  community.  There
are a number of matters to be examined in connection  with a possible  spin-off,
including tax consequences,  and there is no assurance that such a spin-off will
be effected.

The Company has a  significant  need for  resources to fund the operation of the
parent  company,  meet its current  funding  commitments and fund future growth.
Lynch is currently considering various alternative long and short-term financing
arrangements,  including the possible sale of certain assets.  While  management
expects to obtain adequate financing resources to enable the company to meet its
obligations,  there is no  assurance  that such can be  readily  obtained  or at
reasonable costs.


<PAGE>

The Company has  initiated a  comprehensive  review of its  computer  systems to
identify  the  systems  that could be  affected  by the "Year 2000" issue and is
developing and conducting an implementation  plan to resolve the issue. The Year
2000 problem is the result of computer  programs  being written using two digits
(rather than four) to define the applicable year. Any of the Company's  programs
or programs utilized by vendors to the Company that have time-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a major system  failure or  miscalculation.  The Company's  year
2000  review is being  performed  primarily  by internal  staff,  and in certain
operations is supplemented  by outside  consultants.  The principal  Information
Technology  ("IT")  systems  that  may be  impacted  by the  Year  2000  for the
Company's  telecommunications  operations are central office switching,  billing
and  accounting.  The  principal IT systems for the Morgan Group are order entry
dispatch  and   accounting.   The   principal  IT  systems  for  the   Company's
manufacturing  companies are sales order entry,  shop floor  control,  inventory
control and  accounting.  The Year 2000 may also impact various non-IT  systems,
including among other things  security  systems,  HVAC,  elevator  systems,  and
communications  systems. In addition, each of Company businesses may be impacted
by the Year 2000 readiness of third party vendor/suppliers.

Due to the integral nature of switching  equipment and billing software to their
operations, the telecommunications businesses are most effected by the Year 2000
issue. The majority of the telephone  companies'  switching and billing software
is expected to be Year 2000  compliant  by the end of 1998,  with the  remaining
compliant by the end of first half of 1999.  The  telecommunications  businesses
rely on switching  equipment and software provided by third party vendors. It is
the  Company's  understanding  that the vendors  have  completed  testing of the
software and that no  additional  action by the Company  will be required  after
installation.  The telecommunications  businesses periodically upgrade switching
software  in order to remain  current  with  respect  to service  features.  The
upgrades that provide Year 2000 readiness  also provide other  enhanced  service
features and have been capitalized.  Other remediation costs, including internal
costs have been  charged to expense  as  incurred.  The total cost of  switching
software  upgrades is  estimated  to be  approximately  $0.8  million,  of which
approximately  $0.3  million  has been  spent to  date.  The  telecommunications
businesses  have not  developed  a  contingency  plan and are in the  process of
developing such a plan.

The Morgan  Group,  Inc. is in the process of  remediating  the Year 2000 issue,
primarily  through the  replacement  of a  significant  portion of its operating
software.  Implementation  is expected to be completed by July 1999,  with final
testing  completed by September 1999. The total cost of Year 2000 remediation is
estimated to be approximately $0.4 million,  of which less than $0.1 million has
been spent to date. Costs  specifically  associated with modifying  internal use
software are charged to expense as incurred.  At this time, The Morgan Group has
not developed a comprehensive contingency plan.

The assessment phase for the Company's manufacturing businesses is substantially
complete.  Ongoing  remediation  efforts  include  the  replacement  of  certain
software  as well as  programming  changes  to  certain  existing  software.  An
estimate  of the total  cost of  remediatin  has not been  determined.  However,
managment   believes  that  the  cost  will  not  materiall  affect  results  of
operations.  A  comprehensive  contingency  plan has not been  completed at this
time.

<PAGE>

The estimated  costs and projected  dates of completion  for the Company's  Year
2000  program  are based on  management's  estimates  and were  developed  using
numerous  assumptions of future  events,  some of which are beyond the Company's
control.  The Company  presently  believes that with  modifications  to existing
software  and  converting  to new  software,  the Year 2000  issue will not pose
significant  operational  problems for the Company as a whole.  However, if such
modifications  and conversions are not completed timely or are ineffective,  the
Year 2000 issue may  materially  and adversely  impact the  Company's  financial
condition, results of operations and cash flows.

The  Registrant  has recently  initiated  two programs  which may effect  future
operating results and financial condition.

          (1)  Cost Cutting - 
          ---  -------------- 

          The Registrant is taking a three step approach to cutting costs. First
          is a review to eliminate certain centralized overhead costs. Second, a
          review of Registrant's  overall  financial  costs is being  undertaken
          with  an  objective  of  achieving   savings  from   refinancing   and
          restructuring  certain  debt  instruments.   Third,  the  Registrant's
          operating  entities will take advantage of cost savings  opportunities
          without sacrificing quality of service.

          (2) Harvesting - 
          --- ------------

          The  second  program  is  a   concentrated   effort  to  monetize  the
          Registrant's  assets,  including  selling a portion  or all of certain
          investments  in  Registrant's  operating  entities.  These may include
          Registrant's  minority  interests  in  network  affiliated  television
          stations,  direct broadcast  television service, and certain telephone
          operations where competitive local exchange carrier  opportunities are
          not readily apparent. Registrant's approximately 61% owned subsidiary,
          Spinnaker,  has  retained  Schroder  & Co.,  Inc.  to  seek  strategic
          alternatives,  including a possible sale,  merger or other combination
          of Spinnaker.  Additionally,  the Registrant is searching for a way to
          accelerate  the growth with  M-tron as well as provide the  Registrant
          with a more financially visible investment. There is no assurance that
          all or any  part  of this  program  can be  effected  or  effected  on
          acceptable terms.

Included in this Management  Discussion and Analysis of Financial  Condition and
Results of Operations and Item 5 below are certain forward looking financial and
other  information,  including  without  limitation  matters  relating to PCS, a
possible spin-off, a refinancing/strategic  initiative program, the anticipation
that short-term lines of credit would be renewed,  "Year 2000" matters,  and the
Registrant's  cost cutting and harvesting  initiatives.  It should be recognized
that such information are  projections,  estimates or forecasts based on various
assumptions,  including without  limitation,  meeting its assumptions  regarding
expected operating  performance and other matters specifically set forth herein,
the ability to successfully  implement cost cutting and harvesting  initiatives,
the expected performance of the economy and financial markets as they impact the
Registrant's  businesses,  financing  needs and ability to harvest and  monetize
certain assets,  competition,  tax consequences relating to a possible spin-off,
and ability of Registrant and, in certain cases,  third parties to achieve their
Year 2000 compliance. As a result, such information is subject to uncertainties,
risks and inaccuracies.

<PAGE>

Two  subsidiaries  of the  Registrant,  The Morgan  Group,  Inc.  and  Spinnaker
Industries,  Inc.,  file reports  with the  Securities  and Exchange  Commission
pursuant to the Securities Exchange Act of 1934, as amended.


PART II OTHER INFORMATION
-------------------------

Item 5.   Other Information
-------   -----------------

         Reference is made to Registrant's  Harvesting initiative,  discussed in
         Part I, Item 2, Management's Discussion and Analysis of Finance
         Condition and Results of Operations, above.

Item 6.   Exhibits and Reports on Form 8-K
-------   --------------------------------

(a)  Exhibits

     *10(p) -  Amended Phantom Stock Plan
      27    -  Financial Data Schedule

(b) No reports on Form 8-K were filed during the third quarter of 1998

-----------------
* Management contract or compensatory arrangement.




                                   SIGNATURES
                                   ----------

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                LYNCH CORPORATION
                                  (Registrant)

                                                  By: s/Robert E. Dolan      
                                                  ---------------------------
                                                        Robert E. Dolan
                                                        Chief Financial Officer
November 16, 1998