SECURITIES AND 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 December 31, 1997; or

[ ]Transition report pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934 for the transition period from ____________ to ___________.

Commission File Number 000-19577

                        HARMONY HOLDINGS, INC.
      (Exact Name of Registrant as Specified in its Charter)


     Delaware                                            95-4333330
(State or Other 
Jurisdiction of                                        (I.R.S. Employer
 Incorporation                                          Identification No.)
or Organization)                                        


                  1990 Westwood Boulevard, Suite 310
                  Los Angeles, California 90025-4676
               (Address of Principal Executive Offices)
                             (Zip Code)

                          (310) 446-7700
           (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  issuer's
classes of common stock, as of the last practicable date.

          Class                                 Outstanding at February 13, 1998
 Common Stock, par value                                 6,487,429  shares
     $.01 per share








                                       1
<PAGE>








                                                    

                                                 TABLE OF CONTENTS

PART I--FINANCIAL INFORMATION


ITEM 1.

<TABLE>
<CAPTION>

Financial Statements                                                                     Page
---------------------------------------------------------------------------------------- --------------------
---------------------------------------------------------------------------------------- --------------------
<S>                                                                                      <C>

Consolidated Balance Sheets:
      December 31, 1997 (unaudited) and June 30, 1997                                    3

Consolidated Statements of Operations (unaudited):
      Six Months Ended December 31, 1997 and 1996                                        4

Consolidated Statements of Operations (unaudited):
      Three Months Ended December 31, 1997 and 1996                                      5

Consolidated Statements of Cash Flows (unaudited):
      Six Months Ended December 31, 1997 and 1996                                        6

Notes to Consolidated Financial Statements                                               7


ITEM 2.

Management's Discussion And Analysis Of Financial
Condition And Results Of Operations                                                      9




PART II-- OTHER INFORMATION


ITEM 6.

                                                                                         13
Exhibits and Reports on Form 8-K

Signatures                                                                               13
</TABLE>




                                       2
<PAGE>




                          

                                               


<PAGE>


                                      PART 1. FINANCIAL INFORMATION

     ITEM 1.  Financial Statements
<TABLE>
<CAPTION>

     Harmony Holdings, Inc.
     Consolidated Balance Sheets
       ----------------------------------------------------------------------------- ---------------------- -----------------
                                                                                       December 31, 1997     June 30, 1997
                                                                                          (unaudited)
       ----------------------------------------------------------------------------- ---------------------- -----------------
       Assets
       <S>                                                                                      <C>                <C>

       Current Assets:
          Cash                                                                                  $1,129,265     $   2,354,625
          Accounts receivable - net of allowance for doubtful accounts of $43,717                2,779,091         5,280,665
          and $97,646
          Unbilled accounts receivable                                                             868,956           865,560
          Other current assets                                                                   1,157,771           794,883
                                                                                                   218,467
          Note receivable from former officer                                                                        208,889
                                                                                     ---------------------- -----------------
                                                                                     ---------------------- -----------------
                                                                                                 6,153,550         9,504,622
           Total current assets
                                                                                                 2,046,254         1,953,064
       Property and equipment, at cost, net of accumulated depreciation and
       amortization
                                                                                                 2,651,775         2,757,665
       Goodwill, net of accumulated amortization of $1,560,533 and $1,454,643
                                                                                                   153,942           289,695
       Other assets
                                                                                     ---------------------- -----------------
                                                                                     ====================== =================
                                                                                              $ 11,005,521      $ 14,505,046
           Total assets
                                                                                     ====================== =================
                                                                                    

       Liabilities and Stockholders' Equity

       Current Liabilities:
          Accounts payable                                                                   $   1,264,404     $   1,694,219
          Accrued liabilities                                                                    2,346,728         4,230,668
          Deferred income                                                                        1,396,405           823,371
                                                                                     ---------------------- -----------------
                                                                                                 5,007,537         6,748,258
            Total current liabilities


       Stockholders' Equity:

       Preferred Stock, $.01 par value, authorized 10,000,000 shares; none issued

       Common Stock, $.01 par value, authorized 20,000,000 shares, issued and                       64,875            66,933
       outstanding 6,487,429 and 6,693,198
       Additional paid-in capital                                                               14,367,437        14,845,129
       Accumulated deficit                                                                     (8,434,328)       (7,155,274)
                                                                                     ---------------------- -----------------
                                                                                     ---------------------- -----------------
                                                                                                 5,997,984         7,756,788
       Stockholders' equity
                                                                                     ---------------------- -----------------
                                                                                     ====================== =================

       Total Liabilities and Stockholders' Equity                                             $ 11,005,521      $ 14,505,046
                                                                                     ====================== =================
                                                                                    
</TABLE>

       -----------------------------------------------------------------------
       See Accompanying Notes to Consolidated Financial Statements



                                       3
<PAGE>




<TABLE>
<CAPTION>

Harmony Holdings, Inc.
Consolidated Statement of Operations
(unaudited)

--------------------------------------------------- ------------------------------------------
                                                                Six Months Ended
                                                                  December 31,
--------------------------------------------------- ------------------------------------------
<S>                                                        <C>                   <C> 
                                                           1997                  1996
                                                    -------------------- ---------------------
                                                    -------------------- ---------------------

Contract revenues                                          $ 22,720,236          $ 29,537,842
Cost of production                                           18,254,490            23,593,378
                                                    -------------------- ---------------------
                                                    -------------------- ---------------------
    Gross profit                                              4,465,746             5,944,464
Selling expenses                                              1,199,451             1,545,250
Operating expenses                                            4,189,387             3,339,551
Depreciation and amortization                                   350,071               292,165
                                                    -------------------- ---------------------
                                                    -------------------- ---------------------
    (Loss) income from operations                           (1,273,163)               767,498
Interest income                                                  29,487                38,386
Interest expense                                               (12,236)              (27,660)
                                                    -------------------- ---------------------
Net (loss) income before income taxes                       (1,255,912)               778,224

Income taxes                                                     23,142               103,492
                                                    -------------------- ---------------------
                                                    -------------------- ---------------------
Net (loss) income                                         $ (1,279,054)               674,732
                                                    ==================== =====================
Basic earnings (loss) per share                                $ (0.20)                  0.10
Weighted average shares outstanding                           6,497,614             6,437,763
--------------------------------------------------- -------------------- ---------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements



                                       4
<PAGE>






<TABLE>
<CAPTION>

Harmony Holdings, Inc.
Consolidated Statement of Operations
(unaudited)

--------------------------------------------------- ------------------------------------------
                                                               Three Months Ended
                                                                  December 31,
--------------------------------------------------- ------------------------------------------
<S>                                                        <C>                   <C> 
                                                           1997                  1996
                                                    -------------------- ---------------------
                                                    -------------------- ---------------------

Contract revenues                                          $ 11,340,760          $ 15,721,323
Cost of production                                            9,130,992            12,447,460

                                                    -------------------- ---------------------
                                                    -------------------- ---------------------
    Gross profit                                              2,209,768             3,273,863
Selling expenses                                                567,237               886,554
Operating expenses                                            2,171,276             1,858,659
Depreciation and amortization                                   174,337               148,194
                                                    -------------------- ---------------------
                                                    -------------------- ---------------------
    (Loss) income from operations                             (703,082)               380,456
Interest income                                                   9,604                36,008
Interest expense                                                (8,541)               (6,584)
                                                    -------------------- ---------------------
Net (loss) income before income taxes                         (702,019)               409,880

Income taxes                                                   (20,106)               103,492
                                                    -------------------- ---------------------
                                                    -------------------- ---------------------
Net (loss) income                                           $ (681,913)               306,388
                                                    ==================== =====================
Basic earnings (loss) per share                                $ (0.11)                  0.05
Weighted average shares outstanding                           6,481,779             6,693,198
--------------------------------------------------- -------------------- ---------------------
</TABLE>
See Accompanying Notes to Consolidated Financial Statements



                                       5
<PAGE>



<TABLE>
<CAPTION>

Harmony Holdings, Inc.
Consolidated Statements of Cash Flows
(unaudited)

--------------------------------------------------------------------------------------------------------------------

                                                                                         Six Months Ended
Increase (decrease) in cash                                                                 December 31

--------------------------------------------------------------------------------------------------------------------

<S>                                                                                    <C>                <C> 
                                                                                       1997               1996
                                                                               --------------------------------------
                                                                               --------------------------------------

Cash flows from operating activities:

Net income (loss)                                                                     $  (1,279,054)       $ 674,732
Adjustments to reconcile net loss to cash used by operating activities:
Depreciation and amortization                                                                348,806         290,731
 Amortization of prepaid interest                                                                  0           3,823
 Issuance of non-cash compensation expense                                                    75,000               0

Changes in assets and liabilities:
   Accounts receivable                                                                     2,501,574     (2,441,567)
   Unbilled accounts receivable                                                              (3,396)       (832,466)
   Other current assets                                                                    (367,677)       (511,233)
   Note receivable former officer - interest                                                 (4,789)               0
   Other assets                                                                              135,753        (15,730)
   Accounts payable                                                                        (429,815)       (394,744)
   Accrued liabilities                                                                   (1,883,940)       1,250,030
   Deferred income                                                                           573,034         742,444
                                                                               --------------------------------------
                                                                               --------------------------------------
                                                                                           (334,504)     (1,233,980)
   Net cash used by operating activities
                                                                               --------------------------------------
                                                                               --------------------------------------

Cash flows from investing activities:
Capital expenditures                                                                       (336,106)       (233,588)
                                                                               --------------------------------------
                                                                               --------------------------------------
                                                                                           (336,106)       (233,588)
   Net cash used by investing activities
                                                                               --------------------------------------
                                                                               --------------------------------------

Cash flows from financing activities:

Proceeds from issuance of (repurchase of) stock                                            (554,750)       2,000,000
 Repayments subordinated notes payable                                                             0       (385,000)
 Net borrowings under bank line of credit                                                          0       (300,000)
                                                                               --------------------------------------
                                                                               --------------------------------------
                                                                                           (554,750)       1,315,000
   Net cash provided by (used by) financing activities
                                                                               --------------------------------------
                                                                               --------------------------------------
                                                                                         (1,225,360)       (152,568)
Net decrease in cash
                                                                                           2,354,625         446,740
Cash, beginning of period
Cash, end of period
                                                                               --------------------------------------
                                                                               ======================================
                                                                                         $ 1,129,265       $ 294,172
-------------------------------------------------------------------------------======================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements



                                       6
<PAGE>




                                              HARMONY HOLDINGS, INC.

                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                    (unaudited)
                                                 December 31, 1997


                                                    



(1)         Basis of Presentation

           These  statements  have  been  prepared  pursuant  to the  rules  and
regulations of the Securities and Exchange Commission and do not include all the
information  and note  disclosures  required by  generally  accepted  accounting
principles  for  complete  financial  statements  and may be subject to year-end
adjustments.  The financial  information included herein is unaudited;  however,
such  information  reflects  all  adjustments  (consisting  of normal  recurring
accruals)  which are, in the opinion of management,  necessary to present fairly
the results of operations for the periods  presented.  The results of operations
for the six months ended December 31, 1997 are not  necessarily  indicative of a
full year.

           The  information  contained  in this  Quarterly  Report  on Form 10-Q
should be read in conjunction with the audited  financial  statements as of June
30, 1997 filed as part of the Company's Annual Report on Form 10-K.

(2)       Organization, Business, and Principles of Consolidation

          Harmony Holdings, Inc. (the "Company") was incorporated under the laws
of the State of  Delaware  on August 5,  1991 as a wholly  owned  subsidiary  of
Ventura Entertainment Group Ltd.  ("Ventura").  In connection with its formation
and initial  capitalization,  Ventura  contributed  all of the capital  stock of
Harmony  Pictures,  Inc.  ("Harmony") and Melody Films,  Inc.  ("Melody") to the
Company.  Harmony and Melody  have been  operating  since  1979.  In March 1990,
Ventura  acquired  Harmony and Melody  from its  co-founders,  Stuart  Gross and
Robert Lieberman.  The Company conducts its operations  through its wholly owned
subsidiaries, Harmony Pictures, Inc., Melody Films, Inc., Lexington Films, Inc.,
The End Inc.,  The  Beginning  Inc.,  The Moment Inc.,  The End  (London)  Ltd.,
Curious Pictures  Corporation,  Hollywood Business  Solutions,  Inc. and Harmony
Entertainment,  Inc. Unless the context indicates otherwise,  the term "Company"
includes Harmony Holdings,  Inc. and all of these subsidiaries.  All significant
intercompany accounts and transactions have been eliminated in consolidation. As
of June 30, 1994, Ventura owned approximately 27 percent of the Company's common
stock. As of June 30, 1995, Ventura had sold its entire interest in the Company.
Curious  Pictures  Corporation  is 99% owned,  the 1%  minority  interest is not
presented separately as the amounts are not significant.

         The Company operates in one reportable  segment,  producing  television
commercials,  music videos and related media. The Company's services are usually
directed towards advertising  agencies located in the major markets of New York,
Los Angeles, Chicago, Detroit, Dallas, San Francisco and in regional markets.

(3)      Equity

         On July 25, 1997, the Company  re-purchased  230,769 shares (originally
issued in July 1996) of its common stock at $2.60 per share for a total purchase
price of $600,000.

(4) Earning (Loss) per share Basic earnings  (loss) per share excludes  dilution
and is computed by  dividing  income  available  to common  stockholders  by the
weighted-average  number of common  share  outstanding  for the period.  Diluted
earnings  (loss) per share  reflects the potential  dilution that could occur if
securities or other  contracts to issue common stock were exercised or converted
into common  stock or resulted in the  issuance of common stock that then shared
in the earnings of the entity. Diluted earning (loss) per share is not presented
when the effect is antidilutive.

                                       7
<PAGE>

(5)      Commitments and Contingencies

         A lawsuit  was filed on March 22,  1996,  (served  August 12,  1996) in
Superior  Court of the State of  California,  County of Los Angeles.  A wrongful
death claim has been made by the estate of Henry Gillermo Urgoiti,  his wife and
three children for an accident that occurred during the filming of a music video
in August 1995.  The complaint  contains six causes of action,  three causes for
negligence,  one cause for  negligent  product  liability,  one cause for strict
liability and one cause for breach of warranty. Harmony Holdings, Inc., has been
named in all six causes of action, Harmony Pictures Inc., The End Inc. and three
of The End Inc.'s  employees  have been named in one of the  negligence  claims.
Other defendants  include Southern  California  Edison,  Virgin Records America,
Inc., Bell Helicopters and Helinet Aviation  Services.  While it is too early in
the discovery  process to assess economic risk, the Company's  insurance  broker
has advised  management that there is adequate  insurance to cover the amount of
damages  asserted in the complaint  against the Company.  The  probability of an
unfavorable  outcome and range of  possible  loss is  unknown.  Accordingly,  no
amounts  have  been  accrued  as  contingent  liabilities  in  the  accompanying
financial statements.

         A  cross-complaint  related  to the  preceding  matter,  was  filed  on
December 23, 1996 in Superior  Court of the State of  California,  County of Los
Angeles. The complaint was filed by Virgin Records Limited against The End, Inc.
and Southern California Edison for contractual  indemnity,  equitable indemnity,
comparative  contribution and declaratory  relief.  While it is too early in the
discovery process to assess economic risk or insurance  coverage,  the Company's
insurance  broker has advised  management  that there is adequate  insurance  to
cover the amount of damages asserted against the Company.  The probability of an
unfavorable  outcome and range of  possible  loss is  unknown.  Accordingly,  no
amounts  have  been  accrued  as  contingent  liabilities  in  the  accompanying
financial statements.


         On  December  22,  1997,  a  lawsuit   entitled   Directors   Guild  of
America-Producer  Pension Plan, et al. v. Harmony  Pictures  Inc.,  Melody Films
Inc., and Velocity Films Inc.,  Case No.  97-8359-JMI  (Manx),  was filed in the
United States District Court,  Central  District of California,  The pension and
health plans have alleged that,  for the audit period  covered,  the  defendants
have not  permitted  a full  audit of their  records  and are  liable for unpaid
pension  and  health  contributions,  liquidated  damages,  interest,  audit and
attorneys' fees. The prayer of the complaint requests damages in accordance with
proof at trial and the  allegations  of the complaint  reference  audit costs of
$8,442 and interest of $34,037  however,  defendants have received a January 13,
1998,  interim  report  which  asserts  defendants  owe the Plans an  additional
$45,158 in  contributions,  $20,548 in interest and $17,422 in audit fees. Also,
the Plans have requested an audit of defendants records through the present.

         The  lawsuit is in the  initial  stages of  discovery  and the  parties
intend to file cross  motions  for  summary  judgment  relating  to  defendants'
affirmative  defense  of accord  and  satisfaction.  Accordingly,  at this time,
counsel  for the company is not able to estimate  the  likelihood  of an adverse
result or, if an adverse  outcome  occurs,  the amount of liability  that may be
incurred by the company.




                                       8
<PAGE>





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

         Statements in this report that are forward-looking are based on current
expectations,   and  actual  results  may  differ  materially.   Forward-looking
statements  involve  numerous  risks and  uncertainties  that could cause actual
results to differ materially,  including,  but not limited to, the possibilities
that the demand for the  Company's  services may decline as a result of possible
changes in general and industry specific economic  conditions and the effects of
competitive  pricing and such other risks and  uncertainties as are described in
this report on Form 10-Q and other documents previously filed or hereafter filed
by the Company from time to time with the Securities and Exchange Commission.

Results of Operations

Six Months ended  December 31, 1997 as compared  with Six Months ended  December
31, 1996

           For the  six  months  ended  December  31,  1997,  contract  revenues
decreased by 23%, or $6,817,606,  to $22,720,236  from  $29,537,842  for the six
months ended  December  31, 1996.  Included in revenues for the 1996 period were
revenues of $587,655 generated from unprofitable operations that were terminated
during the six months  ended  December  31,  1996.  Accordingly,  revenues  from
comparable  operations,  excluding  those from ceased  operations  decreased  by
$6,230,951.  The decrease in contract revenues was primarily attributable to the
loss of one  director  (who left The End,  Inc.,  on July 1, 1997) who billed in
excess of  $10,000,000 in contract  revenues  during his last year with The End,
Inc. The End,  Inc.  has  subsequently  replaced  this  director.  Additionally,
Harmony Pictures,  Inc.,  terminated the services of one sales representative in
September 1997 and did not replace him until December 1997.

           Cost of production  is directly  related to revenues and includes all
direct  costs   incurred  in  connection   with  the  production  of  television
commercials including film, crews, location fees and commercial directors' fees.
Cost of production for the six months ended December 31, 1997, decreased by 23%,
or $5,338,888, to $18,254,490 from $23,593,378 for the six months ended December
31, 1996. Expressed as a percentage of revenues,  cost of production for the six
months ended  December 31,  1997,  was 80% compared  with 80% for the six months
ended December 31, 1996 and resulted in gross profit percentages of 20% and 20%,
respectively.

           Selling  expenses  consist  of  sales  commissions,  advertising  and
promotional  expenses,  travel and other  expenses  incurred in the  securing of
television  commercial  contracts.  Selling  expenses  for the six months  ended
December 31, 1997,  decreased to $1,199,451  from  $1,545,250 for the six months
ended December 31, 1996, representing a decrease of $345,799 or 22%. Most of the
decrease in selling expenses was due to a reduction in sales commissions.  Sales
commissions  decreased  by $257,910  due to the  reduction  in overall  contract
revenues.

           Operating  expenses consist of overhead costs such as office rent and
expenses,  executive,  general and  administrative  payroll,  and related items.
Operating  expenses  for the six months ended  December  31, 1997,  increased to
$4,189,387  from  $3,339,551  for  the  six  months  ended  December  31,  1996,
representing  an  increase  of  $849,836  or 25% of the  increase  in  operating
expense, $298,275 was attributable to a new subsidiary in London, England and to
the opening of a new San Francisco office for Curious Pictures Corporation.  The
balance of the increase was due to the restructuring of the Company's  corporate
offices and decentralizing it's subsidiary accounting procedures. During the six
months  ended  December  31,  1997,  to some  extent  there have been  duplicate
corporate expenses due to the management  functions  performed in both Minnesota
and Los Angeles.  Certain of the Company's  new officers and  directors  operate
from  offices in  Minnesota,  which has  increased  travel  expenses  and caused
certain  duplication of expenses.  The Minnesota office has added  approximately
$160,000 in operating  expenses  during the six months ended  December 31, 1997.
Management  believes that most of the additional  costs will be eliminated  when
the corporate reorganization is completed.

                                       9
<PAGE>

           Depreciation  and amortization  expense  increased for the six months
ended  December 31,  1997,  to $350,071  from  $292,165 for the six months ended
December 31, 1996.  The change is due to the increase in  depreciable  assets of
$431,834.

           Interest income decreased for the six months ended December 31, 1997,
to $29,487 from $38,386 for the six months ended December 31, 1996, representing
a decrease of $8,899,  due to less cash held in short term investments  compared
to the prior year.  Interest expense decreased for the six months ended December
31, 1997,  to $12,236  from $27,660 for the six months ended  December 31, 1996,
representing  a decrease of $15,424,  due to a decrease in borrowings  under the
line of credit.

           Income tax expense was $23,142 for the six months ended  December 31,
1997. The tax expense is primarily  attributable to federal  alternative minimum
tax and state taxes  imposed by various  states in which the  companies  conduct
business.  A full valuation allowance has been established as the Company cannot
determine  that it is more likely than not that the  deferred tax assets will be
realized. During the six months ended December 31, 1997, the Company's effective
income tax rate  varied from the  statutory  federal tax rate as a result of the
utilization of operating losses for which no tax benefit had been recognized due
to the valuation allowance on the net deferred tax asset.


Three  Months  ended  December  31, 1997 as  compared  with Three  Months  ended
December 31, 1996

           For the three months ended December 31, 1997,  revenues  decreased by
28%, or $4,380,563,  to $11,340,760  from $15,721,323 for the three months ended
December 31, 1996. The decrease in contract revenues was primarily  attributable
to the loss of one director (who left The End, Inc., on July 1, 1997) who billed
in excess of $10,000,000 in contract revenues during his last year with The End,
Inc. The End,  Inc.  has  subsequently  replaced  this  director.  Additionally,
Harmony Pictures,  Inc.  terminated the services of one sales  representative in
September 1997 and did not replace him until December 1997.

           Cost of  production  for the three  months  ended  December 31, 1997,
decreased by 27%, or $3,316,468,  to $9,130,992  from  $12,447,460 for the three
months ended December 31, 1996.  Expressed as a percentage of revenues,  cost of
production  for the three months ended  December 31, 1997, was 81% compared with
79% for the three  months  ended  December 31, 1996 and resulted in gross profit
percentages of 19% and 21%,  respectively.  The decrease in gross profit for the
three  months  ended  December  31, 1997,  was  primarily  due to the  increased
competitive factors within the commercial production industry, offset in part by
management's continuing efforts to reduce costs and maximize purchasing power.

           Selling  expenses  for the three  months  ended  December  31,  1997,
decreased to $567,237  from  $886,554  for the three  months ended  December 31,
1996, representing an decrease of $319,317 or 36%. Selling commissions decreased
by $204,081,  while other selling expenses  decreased by $115,236.  The decrease
was  primarily  attributable  $31,638  decrease in  promotion  expense,  $32,129
decrease in sales salaries and a $43,675 decrease in director speculation reels.

           Operating  expenses  for the three  months  ended  December 31, 1997,
increased to $2,171,276  from $1,858,659 for the three months ended December 31,
1996,  representing  a increase of $312,617 or 17%.  The  increase in  operating
expense is primarily  attributable to $389,847  combined  increase in insurance,
outside service,  salaries and  entertainment  offset by a combined  decrease of
$126,200 in advertising,  leased  equipment and legal.  The increase of $312,617
includes  $74,692 for a new subsidiary in London,  England and $64,999 for a new
San Francisco office for Curious Pictures  Corporation.  In addition,  operating
expenses  increased due to fees paid to new officers and directors together with
certain  expenses  related  to  the on  going  reorganization  of the  Company's
corporate operations.

                                     

                                       10
<PAGE>


          Depreciation and amortization  expense increased for the three months 
ended  December 31, 1997,  to $174,337  from $148,194 for the three months ended
December 31, 1996, representing an increase of $26,143. The change is due to the
increase in depreciable assets of $431,834.
          
          Interest  income  decreased  for the three months ended  December 31,
1997,  to $9,604 from  $36,008 for the three  months  ended  December  31, 1996,
representing  a  decrease  of  $26,404,  due to less  cash  held in  short  term
investments compared to the prior year. Interest expense increased for the three
months ended December 31, 1997, to $8,541 from $6,584 for the three months ended
December 31,  1996,  representing  an increase of $1,957,  due to an increase in
borrowings under the line of credit.

           Income tax expense was ($20,106) for the three months ended  December
31,  1997.  The tax expense is  primarily  attributable  to federal  alternative
minimum tax and state  taxes  imposed by various  states in which the  companies
conduct business. A full valuation allowance has been established as the Company
cannot  determine  that it is more likely than not that the  deferred tax assets
will be realized. During the three months ended December 31, 1997, the Company's
effective income tax rate varied from the statutory federal tax rate as a result
of the  utilization  of  operating  losses  for  which no tax  benefit  had been
recognized due to the valuation allowance on the net deferred tax asset.

Liquidity and Capital Resources

         As of December 31, 1997, the Company had working  capital of $1,146,013
including cash of $1,129,265 compared to working capital of $2,756,364 including
cash of $2,354,625 at June 30, 1997.  Cash used by operating  activities for the
six months ended  December 31, 1997 was  $334,504.  This  included a decrease in
accounts receivable of $2,501,574 and a decrease in accounts payable and accrued
expenses of  $2,313,755,  both of which are directly  related to the decrease in
contract revenues for the period.

         Cash used in investing activities for the six months ended December 31,
1997, was $336,106 and represents  capital  expenditures  incurred in the normal
course of operations.

         Cash used by financing activities for the six months ended December 31,
1997 was  $554,750.  The cash used by financing  activities  was the result of a
$600,000  repurchase  of common  stock net of  $45,250  in  proceeds  from stock
options exercised.

         On May 10, 1995,  the Company  entered  into a  $3,000,000  asset based
revolving  line of credit with a bank,  with  interest  currently  at the bank=s
prime rate plus .5% per annum.  Borrowings under the credit facility are secured
by a lien on the assets of the  Company.  The bank=s  prime rate at December 31,
1997 was 8.50%.  The maximum  outstanding  balance  during the six months  ended
December 31, 1997 was $800,000 and the weighted average interest rate was 9.00%.
The credit agreement  expires October 30, 1998.  Borrowing is based upon certain
percentages of acceptable accounts  receivables.  The loan agreement has certain
financial  covenants  one of which is to maintain  profitability  on a quarterly
basis  another is to maintain  tangible  net worth of at least  $5,000,000.  The
Company was not in  compliance  with these  covenants at December 31, 1997.  The
bank has agreed to take no action due to the non-compliance.

                                       11
<PAGE>

           To the extent that future  revenues  and related  gross  profits from
operations  do not  provide  sufficient  funds to offset  operating  costs,  the
Company's present resources will decrease. The Company, as of December 31, 1997,
had entered  into  various  employment  agreements  with its officers and others
which obligate it to make minimum payments of approximately  $6,176,968 over the
next five years.  The payments due are  $3,720,151,  $2,115,317 and $341,500 for
the years ended December 31, 1998, 1999 and 2000. Of such amounts, $3,512,683 is
for  administrative  personnel  and  $2,664,284  is  for  commercial  television
directors and salespeople.  Certain director and salespeople  agreements provide
for  additional   compensation   based  on  revenues  and  other  items  of  the
subsidiaries.  Other  agreements  provide for additional  compensation  based on
certain  defined  operating   profits  of  the  subsidiaries.   This  additional
compensation  is payable  whether or not the Company  has a profit.  Some of the
television  directors who are associated  with the Company receive monthly draws
against the directors'  compensation for production of commercials.  The monthly
draws  equal the  minimum  guaranteed  compensation  payable to such  directors.
Although the draws are recoupable by the Company out of  compensation  otherwise
payable to such directors, such directors are not obligated to repay such draws,
if their fees for commercials produced do not exceed the monthly draws that have
been paid.  Consequently,  the Company is obligated to provide  compensation  to
these  directors  whether  or not they are  directing  commercials.  Most of the
Company=s  sales  personnel   receive  monthly  draws  offset  by  their  earned
commissions.  During the six months ended  December  31, 1997,  the Company paid
$1,075,356  in such  draws to  these  directors  and  salespeople;  they  earned
$1,424,061  in fees,  which sum exceeded the draws  advanced by a net  $348,705.
However,  on an individual  basis,  some of the directors and sales  personnel=s
fees earned were less than their draws and decreased  the  Company's  profits by
$91,667.

         The Company is currently in the process of reorganizing  the management
of the Harmony Holdings,  Inc. In connection with the reorganization,  effective
October 1, 1997,  the  Company  entered  into a  services  agreement  with Radio
Management   Corporation  ("RMC"),  an  affiliate  of  Children's   Broadcasting
Corporation   ("CBC")  that  provides  management  services  to  CBC  and  other
companies. Pursuant to the services agreement, RMC has agreed to provide payroll
services,  general  accounting  services,  general legal services and such other
services as the parties may agree for a monthly payment of $19,372. The services
agreement may be  terminated by either party upon 60 days written  notice to the
other party. In addition, in connection with the reorganization, the Company has
commenced  relocating the corporate offices of Harmony  Holdings,  Inc. from Los
Angeles,  California, to RMC's offices in Minneapolis,  Minnesota. In connection
with the  relocation,  the Company will also reduce its workforce in Los Angeles
and will attempt to sublease its corporate headquarters.

         Management believes that the foregoing restructuring will, in the short
term, negatively affect the Company's liquidity because of the costs involved in
effecting both the relocation and the reduction in the workforce, and because of
the rent obligation that the Company will continue to bear until the Los Angeles
offices are subleased.  However, the Company believes that over the longer term,
the reorganization  will, when fully  implemented,  result in more effective and
efficient operations.

                                       12
<PAGE>

         On January  7,  1998,  the  Company  made a  $650,000  loan to CBC (the
"Loan"). In connection with the Loan, CBC paid the Company a loan fee of $39,000
and  agreed to pay  interest  at a rate of 15% per  annum.  The Loan is  payable
within 30 days after demand is made by the Company and can be repaid at any time
by CBC. CBC has informed the Company  that, by no later then the end of February
1998, it expects to have entered into one or more binding agreements to sell one
or more of its radio  stations and that it intends to use the proceeds  from the
sale of the first radio  station to fully repay the Loan.  Based on the expected
closing  dates of the station  sales  currently  being  negotiated  by CBC,  CBC
expects  that the Loan will be fully  repaid  by no later  than the end of June,
1998.  The Company  currently  estimates  that its current  cash  balances,  its
anticipated  cash flow, and funds  available  under its credit  facility will be
sufficient  to  meet  the  Company's  working  capital  requirements  until  the
anticipated  Loan  repayment  date.  Although CBC currently  owns valuable radio
station properties that it is in the process of selling,  CBC does not currently
have  sufficient  cash  available  to repay the Loan in full  should the Company
demand repayment.  Accordingly, although the Loan by its terms is repayable upon
30 days'  notice,  because  of CBC's lack of  liquidity,  CBC would not have the
ability to repay the loan until the consummation of the sale of a radio station.
Therefore, should the Company develop a cash shortfall and require the repayment
of the Loan,  absent a sale of radio  station,  it is unlikely  that the Company
could  depend  on the  repayment  of  Loan  to  cure  the  Company's  cash  flow
difficulties.

           The Company has no material  commitments for capital expenditures and
has not made any  arrangements  for external sources of financing other than its
existing credit facility.  Management  believes that the Company's  present cash
balanced  and  anticipated  cash flows from  operations  and  current  borrowing
arrangements  will be  sufficient to meet its needs for at least the next twelve
months.

Inflation

           Inflation has not had a significant effect on the Company.

Year 2000 compliance

           The  Company  has made an  assessment  of it's  systems  and has been
advised  by it's  computer  consultant  that all of it's  systems  are year 2000
compliant.



                                       13
<PAGE>




          PART II-- OTHER INFORMATION


ITEM 6.    Exhibits and Reports on Form 8-K


Exhibit
Number            Description

10.1              Service  agreement  between Radio  Management  Corporation  
                  and Harmony  Holdings,  Inc. effective October 1, 1997.
                  
27                Financial Data Schedule

          (b) Reports on Form 8-K - None






                                       14
<PAGE>




                                                    SIGNATURES

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

                                              HARMONY HOLDINGS, INC.

Date: February 17, 1998

           By/s/Christopher T. Dahl
           Christopher T. Dahl
           Chairman of the Board, Chief Executive Officer


Date: February 17, 1998


           By/s/Brian Rackohn
           Brian Rackohn
           Chief Financial Officer
           (Principal Financial and Chief Accounting Officer)




                                       15
<PAGE>





Exhibit 10.1
                                                        18

                                SERVICE AGREEMENT
         THIS  AGREEMENT  made  effective  October 1, 1997, by and between RADIO
MANAGEMENT CORPORATION, a Minnesota corporation (hereinafter ARMC@), and HARMONY
HOLDINGS, INC., a Delaware corporation (hereinafter AHHI@).
         WHEREAS,   RMC  engages  in  the  business  of  providing  general  and
administrative  services to businesses and HHI is the owner of various media and
entertainment  production companies,  including without limitation,  television,
film and music videos; and
         WHEREAS,  HHI  intends  to retain RMC to provide  certain  general  and
administrative  services for its media and  entertainment  production  companies
according to the terms and provisions set forth herein.
NOW, THEREFORE,  based upon the mutual premises contained herein, and other good
and valuable consideration, the parties hereby hereto agree as follows:
         1.       SERVICES. During the term hereof,  RMC shall perform certain  
                  general and  administrative
                  services  for  HHI,  including  without  limitation,   payroll
                  services,  general accounting services, general legal services
                  and such other  services as the  parties my mutually  agree to
                  from time to time.

         2.       COMPENSATION.  In consideration  of the services  performed by
                  RMC hereunder,  HHI shall pay RMC the sum of Nineteen Thousand
                  Three Hundred Seventy Two and no/100 Dollars  ($19,372.00) per
                  month  payable  within  thirty  (30) days from the end of each
                  calendar month. The  compensation  paid to RMC hereunder shall
                  not  include  any fees or expenses  for  accounting,  legal or
                  other services performed for HHI by third parties.

         3.       QUARTERLY REVIEW.  The parties agree that they will review the
                  services  provided by RMC hereunder and the  compensation  set
                  forth herein at the end of each  calendar  quarter  during the
                  term hereof,  and at such time the  services and  compensation
                  may be adjusted upon the mutual agreement of the parties.



<PAGE>


         4.       EXPENSES. In addition to the compensation set forth in Section
                  2 above,  HHI shall pay all reasonable and necessary  expenses
                  incurred  by RMC in  connection  with the  services  performed
                  hereunder,  including without  limitation,  travel and lodging
                  expenses and any other expenses  directly  attributable to the
                  services  performed by RMC hereunder.  RMC shall bill HHI on a
                  monthly  basis  for such  expenses  and HHI shall pay the same
                  within  thirty (30) days from the date HHI  receives  any such
                  invoice.

         5.       INDEPENDENT CONTRACTOR.   The  parties  hereby   acknowledge 
that (i) RMC, while  performing  services  hereunder,  at all times acting as an
independent  contractor and not as an employee of HHI; (ii) the employees of RMC
shall at no time be considered  employees of HHI in connection with the services
performed hereunder;  and (iii) RMC shall be solely responsible for all federal,
state and local income taxes, employment taxes,  self-employment taxes, workers=
compensation  insurance premiums and any and all other similar taxes or payments
RMC is required to make as a result of the services RMC performs hereunder.  HHI
shall approve the  engagement  of any officer of RMC who shall  pursuant to such
engagement  also serve as an officer of HHI,  and HHI shall  affirm and agree to
the terms of such engagement.

         6.       LIMITATIONS  ON LIABILITY.  HHI hereby agrees that in no event
                  shall  RMC be  liable  to HHI for  any  indirect,  special  or
                  consequential damages or lost profits arising out of or in any
                  way related to this  Agreement or the  performance of services
                  hereunder  or any breach  thereof and that RMC=s  liability to
                  HHI  hereunder,  if any,  shall in no event  exceed  the total
                  compensation paid to RMC hereunder.

         7.       TERM.  This  Agreement  shall  commence on the date hereof and
                  shall  continue  thereafter  on a month to month  basis.  This
                  Agreement may be terminated by either party, at any time, upon
                  providing  written notice  delivered to the other party.  Such
                  termination shall be effective sixty (60) days from receipt of
                  such notice.

8. TERMINATION.  Notwithstanding Section 7 above, this Agreement shall terminate
upon the occurrence of any of the following events:

a. by RMC if HHI is more than  sixty  (60) days  delinquent  in its  payment  of
compensation or expenses pursuant to Sections 2 or 3 above;



<PAGE>




                                                            
                  b.       by  either  party if the  other  party is in  default
                           under any provision hereunder and such default is not
                           cured within thirty (30) days after notice thereof is
                           given to the defaulting party;

c. by either party if the other party  becomes  insolvent  or seeks  protection,
voluntarily or involuntarily, under any bankruptcy law; or

                  d.       upon mutual agreement of both parties.

                  A  termination  of this  Agreement  pursuant  to  Section 8 or
                  Section 7 above shall not relieve HHI of its obligation to pay
                  RMC  compensation  or expenses  for any  services  rendered or
                  expenses incurred prior to the date of termination.

9. GOVERNING  LAW. This Agreement  shall be construed and enforced in accordance
with the laws of the State of Minnesota.

         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement as
of the day and year first above written.
                                              RADIO MANAGEMENT CORPORATION
                                      BY:     B/S/ RADIOMANAGEMENTCORPORATION

                                              HARMONY HOLDINGS, INC.
                                     BY:      B/S/ Harmony Holdings, Inc.