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 June 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 July 31, 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:
               - June 30, 1998
               - December 31, 1997 (Audited)

          Condensed Consolidated Statements of Operations:
               -      Three and six months ended June 30, 1998 and 1997

          Condensed Consolidated Statements of Cash Flows:
               -      Six months ended June 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 4.           Submission of Matters to a Vote of Security Holders

          Item 5.           Other Information

          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>
                                                           June  30        December 31
                                                              1998            1997
                                                          (Unaudited)          (A)
                                                          ----------------------------
ASSETS

CURRENT ASSETS:
<S>                                                          <C>          <C>      
   Cash and Cash Equivalents .............................   $  21,549    $  33,557
   Marketable Securities and short-term Investments ......       1,135          985
   Receivables, Less Allowances of $1496 and $1448 .......      59,512       54,480
   Inventories ...........................................      48,334       35,685
   Deferred Income Tax Benefits ..........................      17,993       17,993
   Other Current Assets ..................................      11,278       10,059
                                                             ---------    ---------
    Total Current Assets .................................     159,801      152,759

PROPERTY, PLANT AND EQUIPMENT:
   Land ..................................................       2,742        1,742
   Buildings and Improvements ............................      27,490       25,272
   Machinery and Equipment ...............................     216,371      190,579
                                                             ---------    ---------
                                                               246,603      217,593
   Accumulated Depreciation ..............................     (69,240)     (60,064)
                                                             ---------    ---------
   Net Property, Plant and Equipment .....................     177,363      157,529

INVESTMENTS IN AND ADVANCES TO PCS ENTITIES ..............      26,594       25,448
EXCESS OF COSTS OVER FAIR VALUE OF NET ASSETS ACQUIRED ...      91,860       73,257
OTHER ASSETS .............................................      17,320       14,645
                                                             ---------    ---------
    Total Assets .........................................   $ 472,938    $ 423,638
                                                             =========    =========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Notes Payable to Banks ................................   $  62,052    $  29,021
   Trade Accounts Payable ................................      32,654       21,381
   Accrued Liabilities ...................................      33,872       37,104
   Current Maturities of Long - Term Debt ................      10,867        9,302
                                                             ---------    ---------
    Total Current Liabilities ............................     139,445       96,808

LONG-TERM DEBT ...........................................     244,272      242,776
DEFERRED INCOME TAXES ....................................      34,070       33,764
PENSION LIABILITIES AND OTHER POST-RETIREMENT BENEFITS ...       3,007            0
MINORITY INTERESTS .......................................      14,300       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 ..........................       8,710        8,644
   RETAINED EARNINGS .....................................      24,302       23,414
   ACCUMULATED OTHER COMPREHENSIVE INCOME ................         423            0
   TREASURY STOCK OF 52,943 AND 54,143 SHARES, AT COST ...        (730)        (746)
                                                             ---------    ---------
    Total Shareholders' Equity ...........................      37,844       36,451
                                                             ---------    ---------
    Total Liabilities and Shareholders' Equity ...........   $ 472,938    $ 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            Six Months
                                                      Ended June 30           Ended June 30
                                                      -------------           -------------
                                                    1998        1997        1998       1997
                                                    ----        ----        ----       ----
SALES AND REVENUES
<S>                                               <C>         <C>         <C>         <C>     
    Multimedia ................................   $ 13,392    $ 12,095    $ 26,324    $ 22,162
    Services ..................................     41,523      39,211      75,494      72,844
    Manufacturing .............................     78,101      70,120     146,415     135,199
                                                  --------    --------    --------    --------
                                                   133,016     121,426     248,233     230,205
                                                  --------    --------    --------    --------

Costs and Expenses:
    Multimedia ................................      9,231       8,985      18,452      16,792
    Services ..................................     37,411      35,884      69,361      66,853
    Manufacturing .............................     67,928      57,763     126,619     113,205
    Selling and Administrative ................     10,246      10,678      21,214      21,003
                                                  --------    --------    --------    --------
OPERATING PROFIT ..............................      8,200       8,116      12,587      12,352

Other income (Expense):
    Investment Income .........................      1,098         424       1,767         857
    Interest Expense ..........................     (7,186)     (5,808)    (13,534)    (11,277)
    Share of Operations of Affiliated Companies         52          57         125          71
    Gain (Loss) on Sale of Subsidiary Stock ...         13         260         (45)        260
                                                  --------    --------    --------    --------
                                                    (6,023)     (5,067)    (11,687)    (10,089)
                                                  --------    --------    --------    --------

INCOME FROM CONTINUING OPERATIONS BEFORE
 INCOME TAXES AND MINORITY INTERESTS ..........      2,177       3,049         900       2,263

Provision for Income Taxes ....................       (914)     (1,217)       (378)       (902)
                                                  
Minority Interests ............................         61        (582)        366        (623)
                                                  --------    --------    --------    --------
NET INCOME ....................................   $  1,324    $  1,250    $    888    $    738
                                                  ========    ========    ========    ========

   Weighted Average Shares Outstanding ........   1,418,000   1,417,000   1,418,000   1,413,000

BASIC EARNINGS PER SHARE:
  NET INCOME ..................................   $   0.93    $   0.88    $   0.63    $   0.52
                                                  ========    ========    ========    ========
DILUTED EARNINGS PER SHARE:
  NET INCOME ..................................   $   0.93    $   0.88    $   0.63    $   0.52
                                                  ========    ========    ========    ========
</TABLE>

<PAGE>


                       LYNCH CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (UNAUDITED)
                                 (In thousands)
<TABLE>
<CAPTION>

                                                                 Six  Months Ended
                                                                      June 30
                                                                      -------
                                                                 1998         1997
                                                                 ----         ----
OPERATING ACTIVITIES

<S>                                                           <C>         <C>     
Net Income ................................................   $    888    $    738
Adjustments to reconcile net income to net cash provided
by operating activities:
   Depreciation and amortization ..........................     12,377      10,375
   Net effect of purchases and sales of trading securities        (150)        474
   Share of operations of affiliated companies ............       (125)        (71)
   Minority interests .....................................       (366)        623
   Loss on sale of stock by subsidiaries ..................         45           0
   Changes in operating assets and liabilities:
     Receivables ..........................................       (433)      1,895
     Inventories ..........................................     (3,379)     (1,567)
     Accounts payable and accrued liabilities .............      9,471       8,510
     Other ................................................     (4,566)     (1,426)
                                                              --------    --------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................     13,762      19,551
                                                              --------    --------

INVESTING ACTIVITIES

Capital Expenditures ......................................     (9,965)     (8,467)
Investment in Coronet Communications Company ..............          0       2,995
Investment in Upper Peninsula Telephone Company ...........          0     (25,235)
Investment in Spinnaker Coating - Maine ...................    (44,770)          0
Investment in Personal Communications Services Partnerships          0       3,925
Other .....................................................        (22)       (102)
                                                              --------    --------
NET CASH USED IN INVESTING ACTIVITIES .....................    (54,757)    (26,884)
                                                              --------    --------

FINANCING ACTIVITIES

Issuance (Repayments) of debt, net ........................     29,092      (2,226)
Treasury stock transactions ...............................         90         657
Minority interest transactions ............................       (195)       (491)
                                                              --------    --------
NET CASH FROM (USED IN) FINANCING ACTIVITIES ..............     28,987      (2,060)
                                                              --------    --------
Net decrease  in cash and cash equivalents ................    (12,008)     (9,393)
Cash and cash equivalents at beginning of period ..........     33,557      33,946
                                                              --------    --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD ................   $ 21,549    $ 24,553
                                                              ========    ========
<FN>
            See Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>

<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A.     Subsidiaries of the Registrant
       ------------------------------
<TABLE>
<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. .................................           100.0%
      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%
      Comtel, 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%
    DFT Long Distance Corporation ...............................           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. .......................................             100.0%
 M-tron Industries, Inc. ......................................              91.0%
   M-tron Industries, Ltd. ....................................              91.0%
 Spinnaker Industries, Inc. ...................................              63.0%
    Entoleter, Inc. ...........................................              63.0%
    Spinnaker Coating, Inc. ...................................              63.0%
      Spinnaker Coating-Maine, Inc. ...........................              63.0%
    Central Products Company ..................................              63.0%
    
Lynch Multimedia Corporation ..................................             100.0%
  CLR Video, L.L.C ............................................              60.0%

The Morgan Group, Inc. ........................................             66.24%(V)/51.47%(O)
  Morgan Drive Away, Inc. .....................................             66.24%(V)/51.47%(O)
    Transport Services Unlimited, Inc. ........................             66.24%(V)/51.47%(O)
  Interstate Indemnity Company ................................             66.24%(V)/51.47%(O)
  Morgan Finance, Inc. ........................................             66.24%(V)/51.47%(O)
  TDI, Inc. ...................................................             66.24%(V)/51.47%(O)
    Home Transport Corporation ................................             66.24%(V)/51.47%(O)
    MDA Corporation ...........................................             66.24%(V)/51.47%(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%

 Notes: (V)=Percentage voting control; (O)=Percentage of equity ownership
</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
presentation  have been included.  Operating results for the three and six month
periods ended June 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 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 acquisition of S.D. Warren's  adhesive-backed label stock business
and the  acquisition  of Upper  Peninsula  Telephone  Company  were  made at the
beginning of 1997.



<PAGE>

<TABLE>
<CAPTION>
                                                                                             
                                  Three Months Ended       Six Months Ended
                                        June 30                June 30
                                    1998       1997         1998        1997
                                    ----       ----         ----        ----

(Thousands, except per share data)

<S>                               <C>        <C>        <C>        <C>     
Sales and Revenues ............   $133,016   $138,004   $260,347   $265,381

Operating Profit ..............      8,200      9,879     13,230     16,728

Income from Continuing
 Operations Before Income Taxes
 and Minority Interest ........      2,177      3,805        584      4,273

Net Income  ...................      1,324      1,801        667      2,090
                                                                       
Net Income Per Share ..........   $   0.93   $   1.27   $   0.71   $   1.48
</TABLE>


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

Inventories  are stated at the lower of cost or market value.  At June 30, 1998,
inventories  were  valued by three  methods:  last-in,  first-out  (LIFO) - 45%,
specific identification - 52%, and first-in,  first-out (FIFO) - 3%. At December
31, 1997, the respective percentages were 48%, 43%, and 9%.

<TABLE>
<CAPTION>

                                 June 30    Dec. 31
                                  1998       1997
                                  ----       ----

<S>                              <C>       <C>    
Raw Material and Supplies.....   $12,012   $10,493
Work in Progress .............     5,267     3,544
Finished Goods ...............    31,055    21,648
                                 -------   -------
    Total Inventories ........   $48,334   $35,685
                                 =======   =======
</TABLE>


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

On a consolidated basis, at June 30, 1998, the Registrant  maintains  short-term
and long-term lines of credit facilities totaling $117.0 million, of which $34.7
million was available.  The Registrant (Parent Company) maintains two short-term
lines of credit  facilities  totaling $22.0  million,  of which $7.0 million was
available at June 30, 1998. Both facilities will expire on December 29, 1998 and
December 31, 1998, respectively.  Spinnaker Industries,  Inc. maintains lines of
credit at its subsidiaries which total $60.0 million,  of which $8.5 million was
available at June 30, 1998. The Morgan Group  maintains lines of credit totaling
$23.0  million,  of which $12.1  million was  available at June 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 June 30,
1998, $56.9 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:                        6-30-98      12-31-97


<S>                                              <C>          <C>      
Spinnaker Industries Inc. 10.75% Senior
Secured 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% .................      46,190       47,109

Bank credit facilities utilized by certain
telephone and telephone  holding companies
through 2009, $33.8 million at a fixed interest
rate averaging 9.1% and $18.4 million at
variable interest rates averaging 8.8% ........      52,208       54,633

Unsecured notes issued in connection  with
acquisitions at fixed interest rates
averaging 9.2% with maturities through 2006

                                                     35,054       28,049
Other .........................................       6,687        7,287
                                                  ---------    ---------
                                                    255,139      252,078
Current maturities ............................     (10,867)      (9,302)
                                                  ---------    ---------
    Total .....................................   $ 244,272    $ 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 six months ended
June 30, 1998 and 1997 are as follows:

<PAGE>
<TABLE>
<CAPTION>

                                        1998     1997
                                        ----     ----

<S>                                    <C>      <C>   
Net Income .........................   $  888   $  738
Unrealized gain on securities.......      423     --
                                       ------   ------
Comprehensive income ...............   $1,311   $  738
                                       ======   ======
</TABLE>

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

<TABLE>
<CAPTION>
                                          1998   1997
                                          ----   ----

<S>                                       <C>    <C>
Unrealized gains on securities ........   $423   $--
                                          ----   ----
Accumulated comprehensive income.......   $423   $--
                                          ====   ====
</TABLE>



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


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

Revenues for the second quarter of 1998 increased by $11.6 million, or 10%, from
the  comparable  period in the prior year. The  percentage  contribution  to the
overall increase by the operating segment is as follows:  multimedia - 11% ($1.3
million),  The Morgan Group, Inc. - 20% ($2.3 million),  and manufacturing - 69%
($8.0 million).  Multimedia's  revenues  increased due to growth in access lines
and additional  revenue streams,  such as Internet  services.  The Morgan Group,
Inc.  recorded  increases in the Driver  Outsourcing and  Specialized  Transport
businesses.  Within the manufacturing group, Spinnaker Industries, Inc. revenues
increased $11.6 million. In March 1998, Spinnaker Industries,  Inc. acquired the
adhesive-back  division  of  S.D.  Warren  Company.  The  operation  contributed
approximately  $15 million to Spinnaker's  revenue  increase.  Spinnaker's other
operations  recorded  slight  revenue  decreases  due to  uneven  postage  stamp
business and pricing  pressure in the industrial tape product line.  Revenues at
Lynch Systems,  Inc.  decreased by $2.6 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 $1.0 million  reflecting an overall decline in
industry shipments.

For the six months ended June 30, 1998,  revenues  increased from the prior year
period by $18.0 million, or 7.8%. The percentage contribution to the increase by
each business segment is as follow:  multimedia - 23% ($4.2 million), The Morgan
Group, Inc. - 15% ($2.7 million) and manufacturing - 62% ($11.2 million).  Aside
from the factors  noted above,  the  acquisition  of Upper  Peninsula  Telephone
Company in March 1997,  accounted  for $2.3  million of the revenue  increase in
multimedia   on  a   year-to-date   basis.   Spinnaker's   acquisition   of  the
adhesive-backed  business  of  S.D.  Warren  contributed  $17.2  million  to the
manufacturing revenue increases.


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

Operating  profit for the  second  quarter of 1998  increased  by $0.1  million.
Operating profit in the multimedia  segment  increased by $1.1 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.
Despite higher revenues,  Morgan's operating profit was essentially flat between
the two quarters as a result of increased  expenditures  for data processing and
to  support  growth  in   Specialized   Transport.   Operating   profit  in  the
manufacturing group decreased by $1.6 million and includes declines at Spinnaker
(attributable to


<PAGE>
                                                                      
increased   depreciation   and   amortization   relating  to  the  S.D.   Warren
acquisition),  Lynch Systems and M-tron.  Spinnaker's results were also impacted
by lower  operating  profit due to the uneven  level of postage  stamp  business
versus  the  prior  year and  price  pressure  in the  industrial  tape  market.
Corporate  expenses  during the second quarter of 1998 decreased by $0.6 million
from the prior year,  primarily  attributable  to the reverse of non-cash charge
relating to stock  appreciation  rights ("SARs").  In the second quarter of 1998
the  Registrant  reversed a previously  recorded SAR accrual of $0.7 million.  A
$0.1 million charge was recorded in the second quarter of 1997.

Operating  profit for the first six months ended June 30, 1998 increased by $0.2
million from the six months ended June 30, 1997.  Operating profit of multimedia
segment increased by $2.5 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 $0.8 million between the two
periods due to the factors noted above. In the  manufacturing  segment operating
profit fell $1.6 million.  Within corporate operations,  the SAR accrued for the
six months ended June 30, 1998 of $0.4 million,  equaled the 1997 charge for the
1997 period.


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

Investment  income in the second  quarter of 1998 increased by $0.7 million from
the second  quarter of 1997.  Unrealized  gains from an  increase  in the market
price of the Registrant's investment in Tremont Advisors, Inc. Class B Stock and
accreted 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 $0.9 million.

Interest  expense  increased by $1.4 million.  The increase was primarily due to
the  increased  debt  level  resulting  from the  acquisition  of S.D.  Warren's
pressure sensitive  adhesive-backed label stock business on March 17, 1998. On a
year-to-date basis, interest expense increased by $2.2 million, $1.3 million was
associated  with  Spinnaker's  acquisition  of  S.D.  Warren's   adhesive-backed
business.  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.

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 is expect to record
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.


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

The income tax provision includes federal, as well as state and local taxes. The
tax  provision  for the  three  and six  months  ended  June 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.


<PAGE>
                                            
Minority Interest
-----------------

Profit (loss)  associated with minority  interests  increased net income by $0.6
million in the second  quarter of 1998 in  comparison  to the second  quarter of
1997 and $1.0 million for the  comparable  six month  period.  These were due to
reduced profits at the Spinnaker Industries,  Inc., a 63% owned subsidiary,  and
The Morgan Group, Inc., a 51% owned subsidiary.


Net Income
----------

Net income for the three months ended June 30, 1998 was $1.3  million,  or $0.93
per share,  as  compared  to $1.2  million,  or $0.88 per share in the  previous
year's  quarter.  Net  income for the six  months  ended June 30,  1998 was $0.9
million, or $0.63 per share, as compared to $0.7 million, or $0.52 per share.


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

Total  backlog of  manufactured  products  at June 30,  1998 was $15.6  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. The purchase
order associated with this order contains a cancellation  provision  pursuant to
which the  customer  would pay Lynch  Systems $2.4 million in event the customer
cancels the order. Lynch Systems is currently  negotiating with the customer for
a settlement of this  cancellation  provision.  Aside from the  cancellation  at
Lynch  Systems  referred  to above,  backlog  increased  by $0.7  million  as an
increase in backlog at  Spinnaker  offset  lower  backlogs at Lynch  Systems and
M-tron.


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

As of June 30,  1998,  the  Company  had  current  assets of $159.8  million and
current  liabilities  of $139.4  million.  Working  capital was therefore  $20.4
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.  Six
months capital expenditures were $10.0 million in 1998 and $8.5 million in 1997.

At June 30, 1998,  total debt was $317.1  million,  which was $36.0 million more
than the $281.1 million at the end of 1997,  primarily due to the acquisition of
S.D.  Warren.  Debt at June 30, 1998 included  $235.6  million of fixed interest
rate  debt,  at an  average  cash  interest  rate of 9.0% and $81.6  million  of
variable  interest rate debt at an average interest rate of 9.3%.  Additionally,
at June 30,  1998 the  Company  had $34.7  million in unused  lines of credit of
which  (i)  $12.1  million  of which was  attributable  to Morgan  and (ii) $4.8
million was attributable to Lynch Systems.  Spinnaker has $8.5 million available
under a line of credit. 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 June 30, 1998, the Parent Company had borrowed
$15.0 million under short-term lines of credit  facilities.  The lines currently
total  $22.0  million.  These  funds  were  primarily  used to fund  the bids by
partnerships in the PCS Auctions and fund a


<PAGE>

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.  One such alternative would be to sell a portion or all of certain
investments in operating  entities  either  directly or through an exchange debt
instrument.  Additional  debt  and/or  equity  financing  vehicles at the parent
company and/or subsidiaries are also being considered.  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.

A  subsidiary  of the  Company has a minority  position  in an entity,  Fortunet
Communications,   L.P.  ("Fortunet").   Fortunet  participated  in  the  auction
conducted by the Federal Communications Commission for 30 megahertz of broadband
spectrum  to  be  used  for  personal  communications  services,  the  so-called
"C-Block"  Auction.  In this auction,  Fortunet  acquired 31 licenses to provide
personal communications services to geographic areas of the United States with a
total population of 7.0 million.  The cost of these licenses was $216.2 million,
$194.6  million  of the cost of these  licenses  was  funded via a loan from the
United States Government.

As a result of  petitions  filed  with the FCC by certain  licensees,  including
Fortunet,  to restructure the United States  Government debt associated with the
licenses,  the FCC afforded the license holders a choice of four options, one of
which was the  resumption of current debt payments  which had been  suspended in
1997.  The  licensees  had  until  June  8,  1998  to  select  an  option.   The
ramifications  of choosing the other three courses of action could result in the
Company's  subsidiary  ultimately  forfeiting  either  30%,  50%, or 100% of its
current  investment  in these  licenses.  In the third  quarter  of 1997,  a 30%
reserve of its investment was created as this represents  management's  estimate
at that time of the impairment of this  investment  given the current  available
alternatives.  On June 8,  1998,  Fortunet  elected  to retain 15  megahertz  of
spectrum in three licenses,  Panama City, Tallahassee (state capital) and Ocala,
Florida.  As a result of this decision,  Fortunet  forfeited 28% of its original
down  payment of $21.6  million,  or $6.0  million,  along with all of the other
licenses and applied the  remaining  down payment to repayment of all  remaining
Government debt which was used to acquire the retained licenses.


<PAGE>
                                                                 
Accordingly,  Fortunet  now owns three  licenses in Florida  comprising  a total
population of 0.8 million with an acquisition  cost of $15.8 million,  or $20.09
per POP. There are no further accounting implications at this time.

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 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 presently
believes that,  with  modifications  to existing  software and converting to new
software,  the Year 2000 problem will not pose significant  operational problems
for the Company's  computer  systems as so modified and converted.  However,  if
such  modifications  and  conversions  are not completed  timely,  the Year 2000
problem may have a material impact on the operations of the Company. The Company
cannot yet estimate the cost of such modifications or conversions.

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 1999.

The Morgan Group, Inc. and the manufacturing businesses are in the process of
addressing the Year 2000 issue through modifications to existing software and/or
conversions to new software.

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  and  the
anticipation that short-term lines of credit would be renewed, the possible gain
resulting  from the issuance of Spinnaker  Common Stock in  connection  with the
tesa tape  acquisition,  and "Year 2000" matters.  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, as well
as the expected  performance of the economy and financial markets as they impact
the Registrant's businesses and financing needs, competition,  tax consequences,
what may happen with respect to PCS, 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.

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.

<PAGE>

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


Item 4.   Submission of Matters to a Vote of Security Holders
-------   ---------------------------------------------------

          At the Annual Meeting of Stockholders of the Registrant held on 
          May 7, 1998, the following persons were elected as Directors with the 
          following votes:
<TABLE>
<CAPTION>

               Name                     Votes For   Votes Withheld

  
<S>                                     <C>            <C>  
          E. Val Cerutti ............   1,296,975      3,028
          Paul J. Evanson ...........   1,296,975      3,028
          John C. Ferrara ...........   1,296,975      4,028
          Mario J. Gabelli ..........   1,296,970      3,033
          David C. Mitchell .........   1,295,975      4,028
          Salvatore Muoio ...........   1,295,975      4,028
          Ralph R. Papitto ..........   1,295,975      4,028

</TABLE>

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

Reference  is made to Item 1.I.C.  Personal  Communication  Services  ("PCS") in
Registrant's  Form 10-K for the year ended  December  31, 1997 and Footnote 5 to
Registrant's financial statements for 1997.

As a result of the financial problems of a number of C-Block PCS licensees,  the
Federal  Communications  Commission  ("FCC")  offered the holders of C-Block PCS
licenses four options with respect to their licenses.  On June 8, 1998, Fortunet
Communications,  L.P., in which a subsidiary  of Registrant  has a 49.9% limited
partnership  interest,  elected to  surrender  to the FCC all of its C-Block PCS
licenses except for 15 megahertz licenses in Tallahassee, Panama City and Ocala,
Florida (the "Retained Licenses"). In return, the FCC authorized 70% of the down
payment  on the  surrendered  licenses  ($14.0  million)  plus a portion  of its
installment  payments  ($0.2  million)  to be  used  to pay  off  all of the FCC
installment  debt on the Retained  Licenses.  The  remainder of the  installment
payments  ($3.8  million)  was  returned  to Fortunet in August 1998 and used to
repay a portion  of  Fortunet's  debt  obligation  to  Registrant's  subsidiary.
Registrant had, in the third quarter of 1997,  written off  approximately 30% of
its subsidiary's investment in Fortunet.

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.


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

          (a)      Exhibits
          
                    27   -       Financial Data Schedule

          (b)      Reports on Form 8-K


<PAGE>


On April 1, 1998,  Registrant  filed a report on Form 8-K/A(1)  (dated March 17,
1998) relating to the acquisition by a subsidiary of the pressure sensitive tape
business of S.D.  Warren and on May 29, 1998,  Registrant  filed a Form 8-K/A(1)
containing financial statements relating to such acquisition.



                                   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
August 14, 1998