<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
(Mark One)                         FORM 10-K


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   x     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934
For the fiscal year 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     0-13121
                                            --------------
                          HMG WORLDWIDE CORPORATION
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)
      DELAWARE                                            13-3402432
-------------------------------------------               ---------------------
     (State or other jurisdiction of                      (I.R.S. Employer
     incorporation or organization)                       Identification No.)

475 Tenth Avenue, New York, New York                                     10018
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    (Address of principal executive offices)                         (Zip Code)
Registrant's telephone number, including area code (212) 736-2300
                                                  ------------------------------

Securities registered pursuant to Section 12(b) of the Act:
        Title of each class          Name of each exchange on which registered
        -------------------          -----------------------------------------
               None
---------------------------          -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
                            Common Stock, $.01 par  value
------------------------------------------------------------------------------
                                 (Title of class)

     Indicated  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 by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)

            APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                 PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the  Registrant  has filed all documents and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes....... No.........

     The  number of  shares  outstanding  of the  Registrant's  common  stock is
8,924,150 (as of 3/19/98) The aggregate market value of the voting stock held by
non-affiliated stockholders of the Registrant is $5,818,288 (as of 3/19/98)

                  DOCUMENTS INCORPORATED BY REFERENCE


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                                    PART I

Item 1. Business.

General Development of Business

   HMG Worldwide Corporation ("the Company"), which was incorporated in 1984, is
one of the leading  companies in the in-store  marketing  industry.  The Company
identifies  the  in-store  marketing  objectives  of its clients and  integrates
research, creative design, engineering,  production,  package design and related
services to provide point-of-purchase  merchandising fixture and display systems
intended  to meet such  objectives.  The  Company's  merchandising  systems  are
designed to increase retail sales by attracting and influencing consumers at the
point of sale. Such systems frequently  incorporate  interactive  displays (from
basic flip-charts to touchscreen  computer systems) to guide purchase decisions.
The Company's  merchandising  systems are also designed to improve  retail space
utilization and product organization, facilitate retail inventory management and
reduce retail labor costs.

   The Company's clients include national and  multi-national  consumer products
companies.  The Company is  increasingly  providing  its  products  and services
directly to mass merchandisers, chain drugstores and supermarkets.

     The   Company's   operations   are  conducted   principally   through  four
wholly-owned subsidiaries being, respectively, HMG Worldwide In-Store Marketing,
Inc. ("HMG"),  HMG Intermark  Worldwide  Manufacturing,  Inc. ("HMG Intermark"),
Display Depot, Inc. and HMG Griffith  Worldwide  In-Store  Marketing,  Inc. with
facilities in New York, Pennsylvania, Illinois and Toronto, Canada.

Recent Developments

   The Company implemented a series of strategic initiatives in 1997 whereby the
Company  (i)  completed  its   consolidation  of  its  principal   manufacturing
operations in Reading,  Pennsylvania,  (ii) acquired strategic new manufacturing
equipment  to further  improve  operational  efficiencies,  (iii)  opened a full
service office in Toronto,  Canada,  (iv)  continued to eliminate  redundant and
other  overhead costs and (v) continued its efforts to expand the client revenue
and service  base.  The  cumulative  effect of the  Company's  1997  initiatives
brought the Company back to  profitability  for the year ended December 31, 1997
whereby the Company generated  revenues of $46.3 million and realized net income
of approximately $529,000, or $0.06 basic earnings per share.

   For the year ended December 31, 1997, the Company accomplished the following:

     (i)  consolidated  its  principal  manufacturing  operations  in Reading in
January 1997;

   (ii)  acquired  certain  wire and metal  fabrication  equipment  and opened a
21,000 square foot wire and metal fabrication facility in Brooklyn,  New York in
April 1997;

     (iii) opened a full service  office in Toronto  through the  acquisition of
certain assets of Griffith  Communications,  Inc. effective July 1997; (iv) full
conversion to and implementation of a new management information system tailored
to the Company's
operations;

   (v) exercised  its option to purchase a previously  leased 72,500 square foot
secondary  manufacturing  and warehousing  facility in Reading for approximately
$1.2 million in November 1997;




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   (vi)  consummated  a new term  loan  facility  with a  financial  institution
whereby the Company  obtained a $600,000  secured  term loan for the purchase of
the 72,500 square foot Reading  facility in November 1997. This term loan, which
expires in November 1999, bears interest at the lending institution's prime rate
plus 1% per annum and is secured by the acquired real estate;

   (vii) consummation of a private placement ("HMG Private  Placement")  whereby
the Company  offered for sale up to 2.0 million  shares of Common Stock at $1.00
per share.  Pursuant to the terms of the HMG Private  Placement,  as of December
31, 1997, the Company sold an aggregate of 1,012,500  shares of its Common Stock
from which it derived net proceeds of approximately  $917,000.  All stock issued
pursuant to the terms of the HMG Private Placement is restricted stock which has
not  been  registered  under  the  Securities  Act  of  1933,  as  amended  (the
"Securities  Act"), and may not be resold by the respective  purchasers  thereof
absent  registration  under  the  Securities  Act  or  the  availability  of  an
applicable exemption from such registration; and

   (viii)  effective  September  30, 1997,  the Company  issued $2.2 million 10%
Convertible  Debentures due September 30, 2000 ("Debentures")  through a private
placement ("Private Placement"). The Debentures bear interest at the rate of 10%
per annum and are  convertible,  at the option of the  holder at any time,  into
shares of the Company's  Common Stock  ("Conversion  Shares"),  $0.01 par value,
based upon the conversion  price of $1.25 per share.  The Company may prepay the
Debentures on 30 days prior notice, at such time as the average closing price of
the Common Stock  exceeds $1.75 per share for a 30 day period prior to notice of
such prepayment  provided that the Conversion  Shares have been registered under
the Securities Act at the time of such prepayment. The Debentures and Conversion
Shares  which may be  acquired  upon the  conversion  have been  issued  without
registration by reason of the private offering  exemption under Section 4 (2) of
the  Securities  Act  and  Rule  506 of  Regulation  D  promulgated  thereunder.
Accordingly,  the Debentures and the Conversion  Shares may not be resold by the
respective  purchasers  thereof absent  registration under the Securities Act or
the availability of an applicable exemption from such registration.

   The above  statements and certain other  statements  contained in this annual
report on Form 10-K are  based on  current  expectations.  Such  statements  are
forward  looking  statements  that involve a number of risks and  uncertainties.
Factors  that could  cause  actual  results  to differ  materially  include  the
following (i) general economic  conditions at retail,  (ii)  competitive  market
influences,  (iii)  client  budgetary  restrictions,  (iv) delays in shipment of
scheduled programs to clients, (v) delay in or inability to expand the Company's
client  base  and/or  (vi) the loss of or  reduction  in  spending  of  existing
clients.

Executive Offices

   The Company's  executive  offices are located at 475 Tenth Avenue,  New York,
New York 10018 and its  telephone  number is (212)  736-2300.  Unless  otherwise
indicated, all references to the Company include all of its subsidiaries.


Industry Overview

   The in-store  marketing  industry is an estimated $12 billion  industry.  The
Company  believes   point-of-purchase   merchandising  systems  provide  a  more
effective, measurable and low-cost means of attracting and influencing consumers
than television, print or other traditional mass advertising media.

   While  television  advertising  costs have  risen,  the number of viewers per
commercial  has decreased  because cable  television has increased the number of
channels   available  to  viewers.   Furthermore,   remote   control  units  and
videocassette  recorders have enabled viewers to avoid commercials.  The growing
number of special-interest  magazines,  which segment reader  demographics,  has
similarly  limited the effectiveness of print advertising while the cost of such
advertising  has also  increased.  The Company  believes  that a majority of all
consumer  brand  purchase  decisions  are made on  impulse at the point of sale.
Point-of-purchase  merchandising systems thus attract and influence consumers at
the time when the majority of brand purchase decisions are made.


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   The  Company  believes  retailers  are also  driving  the growth of  in-store
marketing. Computerized bar-coding and scanner systems have enabled retailers to
identify high-margin, high-turnover products and more effectively allocate floor
or shelf space to such products. Concurrently,  consumer products companies have
been  faced  with  an  increasing  number  of  competitive  products,  including
private-label  offerings  of  retailers.  As a result,  many  consumer  products
companies have sought to maximize the appeal and  efficiency of their  allocated
space in retail stores.  In-store merchandising systems are designed to increase
retail sales by attracting and influencing  consumers at the point of sale. Such
systems  also are  designed  to improve  retail  space  utilization  and product
organization,  facilitate  retail  inventory  management and reduce retail labor
costs.


Operations

General
   The Company identifies the in-store  marketing  objectives of its clients and
integrates research,  creative design, engineering,  production,  package design
and related services to provide point-of-purchase  merchandising display systems
intended  to meet such  objectives.  The  Company's  merchandising  systems  are
generally custom designed to fit each client's  requirements and specifications.
Typically,  at the  request  of a  client,  the  Company  creates  a  customized
prototype,  which often includes  packaging for the client's product in addition
to the in-store merchandising display. Although clients occasionally provide the
Company's creative design department with specific  merchandising ideas, in most
instances  clients merely  indicate the general nature of the fixture or display
they desire and rely upon the Company's  creative design  department to conceive
and create the merchandising system.

   The Company's design and engineering departments work closely from conception
through final assembly and field  installation with each client's  marketing and
sales  representatives  and the retailers to  facilitate  the  development  of a
merchandising  system.  The  Company's  design  department,  in concert with the
client,  develops alternative  marketing ideas, which the Company's  engineering
department,  upon approval by the client,  develops into a prototype system. The
Company's  design  and  engineering  departments  employ  CAD/CAM  and  Auto-CAD
equipment  which,  among  other  things,  enables  the  Company to design  stock
components  which can be easily  incorporated  into various  projects as well as
change project designs more easily and quickly in response to a client's needs.

   If a client, after reviewing the Company's prototype,  decides to test-market
the  fixture or display,  the  Company  provides  in-store  research  and market
feasibility services to test such prototype. A client is often able to ascertain
from  the  results  of  the  Company's  market  studies  whether  the  Company's
merchandising  systems are likely to lead to improved sales. If indicated by the
results of its  research,  the Company will  fine-tune  or modify its  prototype
system for the client.  The period from  development to a volume  purchase order
typically spans 6 to 18 months.  There can be no assurances that the development
and  test-marketing  of a  prototype  for a client will  ultimately  lead to any
volume orders.

Production and Assembly
   The Company has the internal capability to injection mold plastic components,
fabricate wire and metal components and to assemble its  merchandising  systems,
as compared to many of its competitors which have no injection molding,  wire or
metal fabrication,  or assembly  facilities and must outsource to third parties.
Once the Company enters into a contract with a client to manufacture fixture and
display units for installation,  it makes a determination,  generally based upon
cost considerations, whether to undertake the production and assembly in its own
facilities or to outsource it to others.  The Company's  production and assembly
facilities  are  principally  employed for larger orders and  facilitate  better
client service, inventory management and production controls.

   All  merchandising   systems,   whether  assembled  by  the  Company  or  its
independent  subcontractors,  are delivered to the Company's clients or directly
to retail locations.  Typically, there is some simple on-site assembly required,
which is usually  performed by the client's  own  personnel,  or through a third
party  contractor,  although  the  Company  will  assist in on-site  assembly if
requested.  The Company often provides  clients with an "800" telephone  service
number to call for assistance in connection with on-site assembly.

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Suppliers
   The Company uses and has available a variety of outside sources to supply the
raw materials and fabricated components used in its merchandising  systems. Such
material and components are readily available from a number of sources. Although
the Company  designs the  software  for its  interactive  computer  systems,  it
procures  hardware  components  from a variety of third parties,  which are also
readily available from a number of sources.  The Company has not experienced any
significant disruptions from shortages or delivery delays, and believes that its
present sources of supply are adequate.

International
   Effective  July 1, 1997, the Company opened a full service office in Toronto,
Canada.  For the six months ended December 31, 1997, net revenues in Canada were
approximately  $494,000  and the  Company  incurred a net loss of  approximately
$31,000.


Products

   The Company's  merchandising systems are designed to increase retail sales by
attracting  and  influencing  consumers  at the  point  of  sale.  Such  systems
frequently   incorporate   interactive   displays  (from  basic  flip-charts  to
touchscreen  computer  systems)  to  guide  purchase  decisions.  The  Company's
merchandising  systems are also designed to improve retail space utilization and
product  organization,  facilitate retail inventory management and reduce retail
labor costs.

Custom Displays
   The Company  designs,  assembles  and  markets  in-store  custom  fixture and
display systems for consumer products companies as well as national and regional
retailers.   Its  systems  include  in-store  fixtures,   shelf-management   and
category-management   systems,   freestanding   displays  and  sales   promotion
materials.  Examples of the  Company's  systems  include the  L'eggs(R)  hosiery
merchandising  systems,  the Pillsbury(R) dough display system and the shelf and
pegboard system for Procter & Gamble's Cover Girl(R) and Max Factor(R) cosmetics
lines. The Company has also developed  several  "store-within-a-store"  systems,
whereby retail space is specifically  devoted to a particular  brand or category
and is distinctly  identifiable by appearance  within the context of the overall
retail environment.  An example of a "store-within-a-store"  system designed and
produced  by the  Company  is the  Bali(R)  Boutique  located  in a  variety  of
department stores and Wal*Mart Stores ("Wal*Mart") cosmetic centers.

Stock Displays
   Although many of the Company's clients require custom merchandising  systems,
certain components therein can frequently be used in other systems. As a result,
the Company has  accumulated  tools and molds for  component  parts and displays
which are  included in a catalogue  and  marketed to existing  and new  clients.
Since the investment in time and money for the development and production of the
tooling for the  components  and displays has already been made, the Company can
provide many of its clients with a timely, low-cost solution to certain of their
in-store  merchandising  needs.  For  example,  the  Company's  System  35  is a
freestanding  display that can be ordered in 30 different size  variations  with
multiple  shelf  configurations.  The  System  35  addresses  consumer  products
companies'  and retailers'  needs for permanent  island  displays that,  through
color,  size, number of shelves and header  treatments,  can be customized for a
multitude  of  consumer  products.   The  Company  also  markets  a  variety  of
standardized  on-shelf  modifications  such as extrusions  and  dividers.  These
modifications  offer the ability to  differentiate  display space by identifying
brand or category space and provide an area for communication of information.

Interactive Systems
   The Company's interactive display systems include shelf-edge and freestanding
flip-charts,  mechanical demonstration units and battery-powered and touchscreen
computer systems.  Computer-based systems are useful both as a point-of-purchase
merchandising  tool and an  effective  means  of  collecting  and  disseminating
information.  The interactive computer-based systems ask consumers to respond to
a series of questions.  After  analyzing the  consumer's  responses,  the system
makes  recommendations of appropriate  products which are immediately  available
for purchase

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on the surrounding display. Computer-based systems also enable consumer products
companies  to  retrieve  market  research   information  based  upon  consumers'
responses,  give consumers  comprehensive  and accurate product  information and
assist  consumers when sales personnel are  unavailable.  The Company's sales of
computer-based systems are directed toward large consumer products companies and
mass merchandisers,  which potentially can use such systems in quantities of 250
or more units.

Clients

   The Company's clients include national and  multi-national  consumer products
companies  such as Sara  Lee  Corporation  ("Sara  Lee")  and  Procter  & Gamble
("P&G"),  both of which  have been  clients  for more than 20 years,  as well as
Clairol Corporation  ("Clairol"),  CVS/Pharmacy ("CVS"),  Foster Grant Group LLP
("FGG"),  Hallmark Cards, Inc.  ("Hallmark"),  Motorola,  The Pillsbury Company,
Target Stores, Inc. and Wal*Mart.

   With the greater  availability  of  information  regarding  in-store  product
turnover,  the Company is  increasingly  providing  its  products  and  services
directly to mass merchandisers, chain drugstores and supermarkets. Wal*Mart, for
example,  has engaged the Company to design and assemble  "store-within-a-store"
systems to provide its stores with visually discreet merchandising displays that
maximize  space  efficiencies.  In  addition,  the  Company  works with  certain
consumer products companies and retailers which have recently entered into joint
arrangements  to develop and purchase their own  "store-within-a-store"  display
systems with the  intention of leasing  portions  thereof to yet other  consumer
products companies.

   For the year ended December 31, 1997, Bristol Meyers Squibb, P&G and Wal*Mart
accounted for approximately 12%, 12% and 11%, respectively, of the Company's net
revenues.  For the year  ended  December 31, 1996,  P&G,  Sara Lee and  Wal*Mart
accounted for approximately  17%, 12%, and 11%,  respectively,  of the Company's
net revenues.  For the year ended December 31, 1995,  Sara Lee, P&G and Wal*Mart
accounted for approximately 24%, 11% and 13%, respectively, of the Company's net
revenues.  Although the Company's  relationship with many of its larger accounts
spans several years,  none of these accounts is contractually  bound to purchase
the Company's products or services. The loss of any one such client would have a
material adverse effect on the Company.

Backlog

   At December 31, 1997, the Company's  aggregate backlog was $32.0 million,  as
compared  to $15.6  million  and $23.8  million at  December  31, 1996 and 1995,
respectively.  Of such aggregate backlog at December 31, 1997, approximately 52%
was attributable to three clients.  The Company  anticipates that  substantially
all such  backlog at December 31,  1997,  will be filled  during the next twelve
months.  In addition to the $32.0  million  backlog at December  31,  1997,  the
Company's  Supply Contract with Foster Grant requires  Foster Grant,  subject to
certain limitations,  to purchase at least 70% of all its in-store merchandising
display purchases from the Company with average annual purchases to aggregate no
less than $2.5 million.  The aggregate value of the Foster Grant Supply Contract
at December 31, 1997 was $26.8 million of which the Company  estimates that $2.5
million will be shipped within the next twelve months. Due to quarter to quarter
fluctuations in the Company's backlog levels due to the timing,  nature and size
of its  merchandising  system programs for its clients,  such backlog levels are
not necessarily an indicator of future net revenue levels.

Marketing and Sales

   Sales of the Company's merchandising displays and point-of-purchase  services
are  generated by Michael Wahl,  its Chief  Executive  Officer,  and by 34 other
sales  employees.  The Company  typically sells its in-store fixture and display
systems pursuant to separate  purchase orders following  customer  approval of a
prototype.  However,  the  Company is also paid for its  services  in  creating,
developing  and  testing  in-store   merchandising  systems  and  in  assembling
prototypes  prior to receipt of production run approvals.  To a limited  extent,
sales are also generated through independent sales representatives.


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Warranties

   The Company generally does not warrant its  merchandising  systems to be free
from defects in materials or workmanship but generally replaces any system found
to be defective.  Such replacement  costs  historically  have been minimal.  The
Company generally warrants its interactive  point-of-purchase systems to be free
from  defects in  materials  or  workmanship  for periods  ranging  from 3 to 12
months. The particular warranty granted on each sale is generally  determined on
a client-by-client, product-by-product basis.


Patents

   The Company  has been  issued  numerous  United  States and  foreign  patents
relating  to certain  components  of its  merchandising  systems and has several
additional  patent  applications  pending.  The Company  does not regard  patent
protection  as being of  material  importance  to its  ability  to  successfully
compete in the in-store  merchandising  display  industry.  The Company does not
hold any patents or material  copyrights with respect to its computer  software.
The Company relies upon confidentiality  agreements,  as well as restrictions on
dissemination  of  information  to  employees,  to  safeguard  its  confidential
information.


Competition

   The custom fixture and display segment of the in-store  marketing industry in
which the Company primarily competes is very fragmented and highly  competitive.
Certain of the Company's  competitors,  including several diversified  companies
that not only design and assemble  merchandising systems for their own products,
but also provide such systems and services to  unaffiliated  concerns,  may have
greater  financial and other resources than the Company.  In addition,  although
the  Company  believes  that  it has  certain  creative  design,  technological,
managerial and other advantages over its competitors,  there can be no assurance
that the Company will maintain such advantages.

   Most   competitors   generally   operate  on  a  local  or  regional   level.
Additionally,  competitors often specialize in only one particular aspect of the
custom  fixture  and  display  segment.  As a result,  the Company is one of the
largest  participants  in this  segment.  As  consumer  products  companies  and
retailers  increasingly  require  vendors to offer  comprehensive  services  and
sophisticated   technologies,   many  smaller  operators,  which  are  primarily
privately  held,  may not have the  capital  resources,  management  skills  and
technical expertise necessary to compete. Consequently, the Company believes the
demand for its products and services  will  increase and industry  consolidation
will occur.  The Company further believes it is well positioned to capitalize on
such consolidation.


Employees

   As of December  31,  1997,  the Company  employed  253  persons,  including 4
executive  officers,  125  in  production  and  assembly,  20 in  design,  28 in
purchasing and engineering,  34 in marketing and sales and 42 in administration.
Approximately  76  of  the  Company's  employees  are  covered  by a  collective
bargaining  agreement  between  the  Company  and  Local  241  of  the  National
Federation of Independent Unions, which expires December 31, 1999. Approximately
22 of the Company's employees are covered by a collective  bargaining  agreement
between  the Company and Local 810 of the Alloys and  Hardware  Fabricators  and
Warehousemen,  which  expires  April 30,  2000.  The Company  believes  that its
current labor relations are good.


Financial Information about Foreign Operations and Export Sales

   Reference is made to Note 10 in Notes to  Consolidated  Financial  Statements
included in Item 8 hereof.


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Item 2. Facilities.

   The Company's  executive  offices are located at 475 Tenth Avenue,  New York,
New York 10018, where it leases approximately 48,000 square feet pursuant to two
leases that expire in October 2002.  The aggregate  annual base rentals for such
floors is approximately  $482,000. The Company sublets 8,750 square feet of such
space for approximately $92,000 annually,  expiring in October 2002. The Company
also leases  approximately  4,500  square feet of office  space at 230 East Ohio
Street in Chicago,  Illinois at an annual base rental of  approximately  $70,000
pursuant to a lease which expires in June 2000. The Company leases approximately
10,500  square feet of office and  warehouse  space on a month to month basis in
Toronto,  Canada,  while the Company  continues to evaluate  its local  Canadian
space requirements.


   The Company  operates  two  production  and  assembly  facilities  located in
Reading,  Pennsylvania. The Company's Reading, Pennsylvania facilities are owned
by the  Company  and are  comprised  of (i) a 140,000  square  foot  multi-story
production  facility on three acres of  property  and (ii) a 72,500  square foot
single story production facility on five acres of property.

   The Company operates a production facility located in Brooklyn, New York. The
Company leases approximately 21,000 square feet, which expires in April 2002, at
an annual base rent of $63,000. Additionally, the Company has an option to renew
this lease for an additional  five year term subject to a rental  increase based
upon the change in the Consumer Price Index from the base year of 1997.


Item 3. Legal Proceedings.

   The Company is subject to certain  legal  proceedings  and claims  which have
arisen in the ordinary  course of its business.  These  actions when  ultimately
concluded will not, in the opinion of management, have a material adverse effect
upon the financial position, results of operations or liquidity of the Company.


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

   There were no matters  submitted  to a vote of  stockholders  of the  Company
during the fourth quarter of the fiscal year ended December 31, 1997.

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                                    Part II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

Market Information

   The Company's Common Stock is quoted on The Nasdaq SmallCap Market ("Nasdaq")
tier of the Nasdaq Stock Market under the symbol  "HMGC".  The  following  table
sets forth the range of the high and low quotations for the common stock for the
periods indicated.  Such market quotations reflect inter-dealer prices,  without
mark-up,  markdown  or  commission  and may  not  necessarily  represent  actual
transactions.

                                                      High     Low
          1997
      First quarter .. . . . . . . . .             $  1-7/16   $ 1
      Second quarter . . . . . . . . .                1-1/2        7/8
      Third quarter  . . . . . . . . .                2            7/8
      Fourth quarter . . . . . . . . .                1-1/2       31/32


           1996
      First quarter. .. . . . . . . . .            $  3        $ 1-1/2
      Second quarter. . . . . . . . . .               2-1/4      1-1/4
      Third quarter. . . . . . . . . .                1-3/4        7/8
      Fourth quarter. . . . . . . . . .               1-7/8      1

   At March 19, 1998, there were 1,059 holders of record and approximately 3,177
beneficial  stockholders  of the  Company's  common  stock and the  closing  bid
quotation of the common stock on Nasdaq was $1-3/16 per share.

Dividend Policy

   The Company has not paid  dividends on the Common Stock since its  inception.
The Company  intends to reinvest any earnings in its business to finance  future
growth.  Accordingly,  the Board of Directors does not anticipate  declaring any
cash dividends in the foreseeable  future.  In addition,  under the terms of its
revolving credit facility, the Company is prohibited from paying cash dividends.
See Note 4 in Notes to the Consolidated  Financial Statements included in Item 8
hereof.


                                      10

<PAGE>



Item 6. Selected Historical Financial Data.

   The selected  historical  financial  data  presented  below as of and for the
years ended  December 31, 1997,  1996 and 1995 have been derived from and should
be read  in  conjunction  with  the  Company's  audited  Consolidated  Financial
Statements  and related  notes  thereto and with  "Management's  Discussion  and
Analysis of Financial  Condition and Historical Results of Operations"  included
elsewhere  herein.  The  selected  financial  data of the Company at and for the
years  ended  December  31,  1997,  1996  and 1995  has  been  derived  from the
Consolidated  Financial  Statements  of the Company,  which have been audited by
Friedman Alpren & Green LLP, Independent Certified Public Accountants.

                                         Year Ended December 31,
                         ----------------------------------------------------
                         1997     1996 (b)    1995 (b)    1994 (b) 1993(a, b)
                         ----     --------    --------    -------- ----------
                                   (in thousands, except per share data)
 Statement of
   Operations Data

  Net revenues         $46,311    $45,552     $47,641     $55,578   $20,375

  Income (loss)
    from operations      1,079     (5,040)    (10,009)       (795)     (290)

  Net income (loss)    $   529   ($ 5,535)   ($10,118)    ($  963)  ($  528)
                       =======   ========     =======      =======  ========

  Basic earnings per
    share data
   Net income (loss)
     per common and
     common equivalent
     shares            $  0.06   ($  0.73)    ($ 1.34)     ($0.17)  ($ 0.13)
                       =======   =========    =========    ========  =======
    Weighted average
      number of common
      and common
      equivalent shares
      outstanding        8,638      7,614       7,568       5,643     4,052
                       =======    =======     =======      ======    ======

  Diluted earnings
   per share data

    Net income (loss)
     per common and
     common equivalent
     shares and assumed
     conversions       $  0.05
                       =======
  Weighted average
    number of common
    and common
    equivalent shares
    and assumed
    conversions         11,206
                        ======

                                                December  31,
                         ----------------------------------------------------
                         1997        1996        1995        1994     1993(a)
                         ----        ----        ----        ----     -------
 Balance Sheet Data:                                  (in thousands)

  Cash and cash
    equivalents       $  6,439    $ 6,950    $  8,139    $  6,469   $ 5,205
  Working capital         (426)    (3,236)      2,624      14,119     2,579
  Total assets          33,645     28,755      32,648      36,718    33,022
  Long-term debt         2,878        266         -         3,182     6,330
  Stockholders' equity   6,470      5,191      10,076      20,223     3,191


(a) Amounts reflect the  consummation of the acquisition of three business units
from Saatchi & Saatchi PLC and certain of its subsidiaries on October 1, 1993.
(b) Not included because effect is anti-dilutive.

                                       11

<PAGE>



Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations.

General

   The Company implemented a series of strategic initiatives in 1997 whereby the
Company  (i)  completed  its   consolidation  of  its  principal   manufacturing
operations in Reading,  Pennsylvania,  (ii) acquired strategic new manufacturing
equipment  to further  improve  operational  efficiencies,  (iii)  opened a full
service office in Toronto,  Canada,  (iv)  continued to eliminate  redundant and
other  overhead costs and (v) continued its efforts to expand the client revenue
and service  base.  The  cumulative  effect of the  Company's  1997  initiatives
brought the Company back to  profitability  for the year ended December 31, 1997
whereby the Company generated  revenues of $46.3 million and realized net income
of approximately $529,000, or $0.06 basic earnings per share.

     For the  year  ended  December  31,  1997,  the  Company  accomplished  the
following; (i) consolidated its principal manufacturing operations in Reading in
January 1997,  (ii) acquired  certain wire and metal  fabrication  equipment and
opened a 21,000 square foot wire and metal fabrication facility in Brooklyn, New
York in April  1997,(iii)  opened a full service  office in Toronto  through the
acquisition of certain assets of Griffith  Communications,  Inc.  effective July
1997, (iv) full conversion to and implementation of a new management information
system  tailored  to the  Company's  operations,  (v)  exercised  its  option to
purchase a previously  leased 72,500  square foot  secondary  manufacturing  and
warehousing facility in Reading for approximately $1.2 million in November 1997,
(vi) consummated a new term loan facility with a financial  institution  whereby
the Company obtained a $600,000 secured term loan for the purchase of the 72,500
square foot Reading  facility in November 1997 (this term loan, which expires in
November 1999,  bears interest at the lending  institution's  prime rate plus 1%
per annum and is secured by the acquired real estate),  (vii)  consummation of a
private  placement  ("HMG  Private  Placement")  whereby  the  Company  sold  an
aggregate  of  1,012,500  shares of its Common  Stock from which it derived  net
proceeds of approximately  $917,000 and (viii) effective September 30, 1997, the
Company  issued $2.2 million 10%  Convertible  Debentures due September 30, 2000
("Debentures") through a private placement ("Private Placement"). The Debentures
bear interest at the rate of 10% per annum and are convertible, at the option of
the holder at any time, into shares of the Company's  Common Stock  ("Conversion
Shares"),  $0.01 par value,  based upon the conversion price of $1.25 per share.
The Company may prepay the  Debentures on 30 days prior notice,  at such time as
the average  closing  price of the Common Stock exceeds $1.75 per share for a 30
day  period  prior to notice of such  prepayment  provided  that the  Conversion
Shares  have  been  registered  under  the  Securities  Act at the  time of such
prepayment.

Results of Operations

Year Ended December 31, 1997 as Compared to
  Years Ended December 31, 1996 and 1995

   Net revenues  increased by  approximately  $759,000 to $46.3  million for the
year ended  December 31, 1997 from $45.6 million for the year ended December 31,
1996. This 2% increase in net revenues from 1996 to 1997 was principally the net
effect of (i) an increase of net revenues from the Company's new Toronto  office
of  approximately  $494,000,  (ii)  an  increase  of  net  revenues  from a more
diversified client base of $2.6 million and (iii) a decrease in the combined net
revenues of the  Company's top three clients of 1997 versus 1996 of $2.3 million
due to the timing of marketing  expenditures by major clients in addition to the
timing of national  rollouts of merchandising  systems developed by the Company.
Net revenues  decreased  $2.1 million for the year ended  December 31, 1996 from
$47.8 million for the year ended December 31, 1995. The decrease in net revenues
from 1995 to 1996 was  principally  due to the net effect of (i) a reduction  in
marketing expenditures of one significant client of $6.1 million, offset by (ii)
an increase  in revenues of $3.3  million  derived  from the  operations  of HMG
Intermark.




                                       12

<PAGE>



   Gross  profit  increased  $5.1  million to $13.0  million  for the year ended
December 31, 1997 from $7.9 million for the year ended  December 31, 1996 due to
the increase in the Company's net revenues and an increase in gross margin.  For
the year ended  December  31,  1997,  the gross  margin was 28.1% as compared to
17.5% for the  comparable  1996 period.  The 10.6%  increase in gross margin was
principally  due to a favorable  production  revenue mix  resulting  in an 11.7%
increase,  reflecting the Company's efforts of more direct,  internal production
of its  merchandising  systems,  lower  labor costs and the  elimination  of the
Company's high cost New Jersey plant and the  underabsorption  of fixed overhead
expenses as a  percentage  of net  revenues of 1.2%.  The  favorable  production
revenue mix was  principally the result of an increase in the number of programs
manufactured and assembled at the Company's Pennsylvania and Brooklyn facilities
and the increased  operational  efficiencies on the specific  programs  shipped.
Gross profit  decreased $1.3 million to $7.9 million for the year ended December
31, 1996 from $9.2 million for the comparable 1995 period due to the decrease in
the Company's  net revenues and a decrease in gross  margin.  For the year ended
December  31,  1996,  the gross  margin was 17.5% as  compared  to 19.2% for the
comparable 1995 period. The 1.7% decrease in gross margin was principally due to
a  favorable  production  revenue  mix  resulting  in a 0.3%  increase,  and the
underabsorption  of fixed  overhead  expenses as a percentage of net revenues of
2.0%, which includes the net effect of (i) an increase in fixed overhead expense
relating  to HMG  Intermark's  operation  of 4.6% and (ii) a  decrease  in fixed
overhead expenses at the Company's New Jersey facility of 2.6%.

   Selling,  general and administrative expenses ("SG&A") decreased $1.0 million
to $12.0  million  for the year ended  December  31,  1997 as  compared to $13.0
million for the year ended  December 31, 1996. The decrease in SG&A from 1996 to
1997 was principally a result of (i) the continuing  effect of the consolidation
of  manufacturing  facilities,  (ii) a reduction in personnel  cost of $532,000,
(iii) expenses of $175,000  related to the discontinued  European  operation and
(iv) a decrease  spending in other  general  expenses.  SG&A  decreased to $13.0
million for the year ended  December  31, 1996 as compared to $16.0  million for
the  comparable  1995 period.  The decrease in SG&A expenses of $3.0 million was
principally  a result of the  Company's  efforts  to  reduce  its  expenses  and
restructure  its  operations,   including  the  consolidation  of  manufacturing
facilities which resulted in (i) a reduction in personnel costs of approximately
$2.4 million,  (ii) reduction in European  expense of operations of $243,000 and
(iii) decreased spending in other general expenses.

   In  December  1995,  restructuring  costs of $3.2  million  were  charged  to
operations which principally  related to the  implementation of a cost reduction
program to be primarily implemented through consolidation and selective closures
of the Company's offices and manufacturing  facilities.  The restructuring costs
were comprised  principally of a $1.1 million non-cash write-off of property and
equipment and $2.1 million of projected  expenditures  related to cost reduction
programs.

   For the year ended December 31, 1997, the Company  generated  interest income
of $323,000 as compared to $351,000 and $578,000,  for the  comparable  1996 and
1995 periods,  respectively.  The decrease in interest  income of  approximately
$28,000  from 1996 to 1997 and the  decrease of  $227,000  from 1995 to 1996 was
attributable principally to a reduction in cash and cash equivalents invested in
interest bearing marketable securities and commercial paper.

   Interest  expense was $1.1  million for the year ended  December  31, 1997 as
compared to $834,000  and  $793,000 for the  comparable  1996 and 1995  periods,
respectively.  The increase in interest expense of  approximately  $264,000 from
1996 to 1997 and $41,000 from 1995 to 1996 was  principally due to the increased
average borrowings in the respective years.

   Other income of $267,000 for the year ended  December 31, 1997 was the result
of Common  Stock  received by the  Company  from a client in lieu of payment for
services  rendered to such client. In March 1997, the Company sold the shares of
Common Stock and generated a net gain of $267,000.

   As a consequence of the foregoing factors, the Company realized a net gain of
approximately  $529,000,  or $0.06 basic earnings per share,  for the year ended
December 31, 1997 as compared to a net loss of $5.5 million, or $0.73 per share,
for the year ended  December 31, 1996. For the year ended December 31, 1995, the
Company incurred a net loss of $10.1 million, or $1.34 per share.




                                       13

<PAGE>



Stockholders' Equity

   Stockholders'  equity  increased $1.3 million to $6.5 million at December 31,
1997 from $5.2 million at December 31, 1996.  The net increase in  stockholders'
equity was principally due to (i) net income of $529,000,  (ii) proceeds derived
from the HMG Private  Placement  of common  stock  whereby  the  Company  issued
635,000 shares of Common Stock for an aggregate  value of $540,000 and (iii) the
issuance of 159,561  shares of Common Stock by the Company to the HMG  Worldwide
Corporation Capital Accumulation Plan valued at $160,000.

   In conjunction  with the strategic  positioning  of the Company,  in December
1996,  the  Company  initiated  the HMG  Private  Placement  whereby the Company
offered  for sale up to 2 million  shares of  Common  Stock at $1.00 per  share.
Pursuant to the terms of the HMG Private Placement,  as of December 31, 1997 the
Company sold an  aggregate of 1,012,500  shares of its Common Stock at $1.00 per
share from which it derived net proceeds of  approximately  $917,000.  All stock
issued  pursuant to the terms of the HMG Private  Placement is restricted  stock
which has not been registered  under the Securities Act and may not be resold by
the respective  purchasers thereof absent  registration under the Securities Act
or the availability of an applicable exemption from such registration statement.


Income Taxes

     At  December  31,  1997,  the Company had  available  $27.6  million of net
operating loss carryforwards  which expire during the years 2001 through 2012. A
benefit  of  approximately  $139,000  from  these  loss  carryforwards  has been
reflected in the consolidated  financial  statements for the year ended December
31, 1997.

   The Company's  income tax provision for the year ended  December 31, 1997 was
$42,000 as compared to $12,000 and $14,000 for the years ended December 31, 1996
and December 31, 1995,  respectively,  and resulted  principally  from state and
local alternative minimum taxes.


Backlog

   At December 31, 1997, the Company's  aggregate backlog was $32.0 million,  as
compared  to $15.6  million  and $23.8  million at  December  31, 1996 and 1995,
respectively.  Of such aggregate backlog at December 31, 1997, approximately 52%
was attributable to three clients The Company anticipates that substantially all
such backlog at December 31, 1997, will be filled during the next twelve months.
In addition to the $32.0  million  backlog at December 31, 1997,  the  Company's
Supply  Contract with Foster Grant  requires  Foster  Grant,  subject to certain
limitations,  to purchase at least 70% of all its in-store merchandising display
purchases  from the Company with average  annual  purchases to aggregate no less
than $2.5 million.  The aggregate  value of the Foster Grant Supply  Contract at
December  31, 1997 was $26.8  million of which the Company  estimates  that $2.5
million will be shipped within the next twelve months. Due to quarter to quarter
fluctuations in the Company's backlog levels due to the timing,  nature and size
of its  merchandising  system programs for its clients,  such backlog levels are
not necessarily an indicator of future net revenue levels.


Inflation

   The effect of inflation on the Company's  operations has not been significant
to date.








                                       14

<PAGE>



Liquidity and Capital Resources

   Cash and cash  equivalents  at December  31, 1997,  1996 and 1995  aggregated
approximately $6.4 million, $6.9 million and $8.1 million, respectively. For the
years ended  December  31,  1997,  1996 and 1995 the  Company's  cash flows from
operating, investing and financing activities are summarized below:

                                                   Year Ended December 31,
                                                  -------------------------
                                                  1997     1996        1995
                                                  ----     ----        ----
                                                         (in millions)
Net cash used in operating activities            ($3.3)   ($2.0)      ($7.7)
                                                  ----     ----        ----

Investing activities:
  Redemption of marketable securities                                   6.8
  Acquisition, net of cash acquired                                    (0.2)
  Proceeds from sale of an investment              0.4
  Capital expenditures                            (1.8)    (1.6)       (0.4)
                                                 -----     ----       -----
   Net cash provided by (used in)
     investing activities                         (1.4)    (1.6)        6.2
                                                 -----     ----       -----

Financing activities:
  Net proceeds from sale of common stock           0.5      0.4
  Proceeds from exercise of stock options                   0.3
  Proceeds from issuance of  notes, net                                 0.7
  Proceeds derived from the sale of convertible
    debentures                                     2.2
  Net increase in indebtedness                     1.5      1.7         2.5
                                                  ----     ----       -----
    Net cash provided by financing activities      4.2      2.4         3.2
                                                  ----     ----       -----

  Net increase (decrease) in cash and cash
   equivalents                                   ($0.5)   ($1.2)       $1.7
                                                  ====     ====        ====

   The Company's  decrease in cash and cash equivalents of $511,000 for the year
ended  December 31, 1997 was  principally  due to (i) net cash used in operating
activities  of $3.3  million,  used  principally  to  finance  increases  in the
Company's accounts receivable and inventory levels, (ii) capital expenditures of
$1.8  million,  offset  by,  (iii) net  borrowings  under the  Company's  credit
facility  of $1.5  million,  (iv)  proceeds  from the sale of an  investment  of
$356,000,  (v) net proceeds  derived from the HMG Private  Placement of $540,000
and (vi) proceeds from the sale of Debentures of $2.2 million.

   The Company's  decrease in cash and cash  equivalents of $1.2 million for the
year  ended  December  31,  1996 was  principally  due to (i) net  cash  used in
operating  activities  of $2.0  million and (ii)  capital  expenditures  of $1.6
million,  offset by, (iii) net borrowings under the Company's credit facility of
$1.7  million,  (iv) net proceeds  from the sale of Common  Stock  pursuant to a
private  placement of $377,000  and (v) net proceeds  from the exercise of stock
options of $273,000.  The Company's  negative cash flow from  operations for the
year ended  December 31, 1996  principally  resulted  from (i) the net loss from
operations  of  $5.5  million  and  (ii)  the  aggregate  reduction  in  general
liabilities of $780,000,  offset by (iii) decreases in current and other assets,
other than cash and cash  equivalents of $3.5 million and (iv) non-cash  charges
of $856,000 for depreciation and amortization.

   The Company's  increase in cash and cash  equivalents of $1.7 million for the
year ended  December  31,  1995 was  principally  due to (i) the  redemption  of
marketable  securities  of $6.8  million  and  (ii)  net  borrowings  under  the
Company's bank credit facility of $2.5 million, offset by (iii) net cash used in
operating  activities  of $7.7 million.  The Company's  negative cash flows from
operations  for the year ended December 31, 1995  principally  resulted from (i)
the net loss from operations of $10.1 million,  offset by (ii) non-cash  charges
of $1.3 million for depreciation and amortization and $1.1 million for the write
off of property and equipment.





                                       15

<PAGE>



   The  Company  secured  a $13.0  million  Credit  Agreement  with a  financial
institution in the form of a revolving credit and term loan facility. The Credit
Agreement  provides for a secured revolving credit facility which advances up to
the sum of (i) 85% of eligible  accounts  receivable,  (ii) the lesser of 60% of
eligible finished goods inventory or $750,000 and (iii) the Company's cash, cash
equivalents and marketable securities. The Credit Agreement is secured by a lien
on and a security interest in the Company's cash, cash  equivalents,  marketable
securities,  accounts receivable,  inventory,  equipment and certain real estate
and all other tangible and intangible assets and a pledge of the common stock of
each of the Company's wholly-owned subsidiaries.

   Borrowings  under the Credit  Agreement  bear  interest at the  institution's
prime  rate plus 1% per  annum.  The  Company  is  required  to pay a  quarterly
commitment  fee at the rate of one half of 1% per  annum  of the  average  daily
unused amount of funds available.  Additionally,  the Credit Agreement  contains
certain customary  affirmative and negative  covenants which require the Company
to maintain certain financial ratios, and, among other things,  restrict (i) the
declaration  or  payment  of  dividends,   (ii)  the  incurrence  of  additional
indebtedness  and  (iii)  the  sale  of  certain  assets.  The  average  balance
outstanding  under the Company's credit  agreements for the years ended December
31, 1997, 1996 and 1995 was approximately  $10.8 million,  $8.8 million and $5.1
million , respectively,  at the weighted average interest rate of 9.6%, 8.6% and
9.8%, respectively.

   Pursuant to the terms of the Credit  Agreement,  the lender can advance up to
$1.6 million in the form of a term loan  collateralized by the Company's current
and  future  real  estate  and  equipment.  The term loan  portion of the Credit
Agreement is amortized on a sixty month basis with a final  payment due upon the
termination  of the Credit  Agreement  and bears  interest at the  institution's
prime  rate plus 1% per  annum.  At  December  31,  1997,  and 1996 the  balance
outstanding on the term loan component of the Credit  Agreement was $866,000 and
$334,000 respectively.

     Effective   September  30,  1997,  the  Company  issued  $2.2  million  10%
Convertible  Debentures due September 30, 2000 ("Debentures")  through a private
placement ("Private Placement"). The Debentures bear interest at the rate of 10%
per annum and are  convertible,  at the option of the  holder at any time,  into
shares of the Company's  Common Stock  ("Conversion  Shares"),  $0.01 par value,
based upon the conversion  price of $1.25 per share.  The Company may prepay the
Debentures,  on 30 days prior notice,  at such time as the average closing price
of the Common Stock  exceeds $1.75 per share for a 30 day period prior to notice
of such  prepayment  provided that the  Conversion  Shares have been  registered
under the Securities Act at the time of such prepayment.  The Debentures and the
Conversion  Shares which may be acquired  upon the  conversion  have been issued
without registration by reason of the private offering exemption under Section 4
(2) of the Securities  Act and Rule 506 of Regulation D promulgated  thereunder.
Accordingly,  the Debentures and the Conversion  Shares may not be resold by the
respective  purchasers  thereof absent  registration under the Securities Act or
the availability of an applicable exemption from such registration.

   The Company's working capital at December 31, 1997 was a deficit of $426,000,
inclusive  of  borrowings  of $10.9  million  pursuant  to the three year Credit
Agreement.  The working capital deficit was due principally to (i) negative cash
flows from  operations  during  1997  through the  building  of higher  accounts
receivable and inventory levels and (ii) increased borrowing under the Company's
credit  facilities  whereby such proceeds  were used in part to finance  capital
expenditures  of  $1.8  million,  inclusive  of  $1.2  million  purchase  of its
secondary 72,500 square foot production facility in Reading.  From time to time,
the Company  experiences  temporary liquidity problems due to the timing of cash
flows  while the  Company  is in  production  and  building  inventory.  However
management  believes that  significant cost savings will be realized through the
implementation  of its 1996 and 1997  strategic  plans whereby the Company moved
and  consolidated  its  manufacturing   facilities  in  Reading,   Pennsylvania,
restructured the Company's New York and Chicago offices,  upgraded the Company's
injection molding division,  expanded its internal wire fabrication capabilities
and  closed its  European  office.  Furthermore,  management  believes  that its
current cash and cash equivalents,  its backlog,  anticipated  future cash flows
from  operations,  availability  under its  Credit  Agreement  and the  proceeds
derived  from the HMG  Private  Placement  and  issuance of  Debentures  will be
sufficient  to support its debt service  requirements  and its other capital and
operating needs for the next fiscal year.  Management  believes that each of the
above cost reduction  components,  an expanded client base and future cash flows
from operations developed and/or implemented by the Company provide an important
basis for future profitability and liquidity, however, there can be no assurance
that such belief will prove to be correct, that additional financing will not be
required,  or  that  any  such  financing  will  be  available  on  commercially
reasonable terms or otherwise.

                                       16

<PAGE>



   The Company is aware of the issues  associated with the  programming  code in
existing computer systems as the millennium ("Year 2000")  approaches.  The Year
2000 problem is pervasive and complex as virtually every computer operation will
be affected  in some way by the  rollover of the two digit year value to 00. The
issue is  whether  computer  systems  will  properly  recognize  date  sensitive
information  when  the  year  changes  to  2000.  Systems  that do not  properly
recognize such  information  could generate  erroneous data or cause a system to
fail.

   The Company is utilizing  both  internal and external  resources to identify,
correct or reprogram  and test the systems for the Year 2000  compliance.  It is
anticipated that the project will be completed by early of 1999. Management does
not believe the Year 2000 compliance expense and related potential effect on the
Company's earnings will be material. However, there can be no assurance that the
systems of other  companies  on which the  Company's  systems  rely also will be
timely  converted or that any such failure to convert by another  company  would
not have an adverse effect on the Company's systems.

   The above  statements and certain other  statements  contained in this annual
report on Form 10-K are  based on  current  expectations.  Such  statements  are
forward  looking  statements  that involve a number of risks and  uncertainties.
Factors  that could  cause  actual  results  to differ  materially  include  the
following (i) general economic  conditions at retail,  (ii)  competitive  market
influences,  (iii)  client  budgetary  restrictions  (iv)  delays in shipment of
scheduled  programs to clients (v) delay in or inability to expand the Company's
client  base  and/or  (vi) the loss of, or  reduction  in  spending  of existing
clients.

                                       17

<PAGE>



Item 8.  Financial Statements and Supplementary Data.




         INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



HMG WORLDWIDE CORPORATION AND SUBSIDIARIES                          PAGE


   Independent Auditors' Report                                      18

   Consolidated Balance Sheets at December 31, 1997 and 1996         19

   Consolidated Statements of Operations for the Years Ended
     December 31, 1997, 1996 and 1995                                20

   Consolidated Statements of Cash Flows for the Years Ended
     December 31, 1997, 1996 and 1995                                21

   Consolidated Statements of Changes in Stockholders' Equity
     for the Years Ended December 31, 1997, 1996 and 1995            23

   Notes to Consolidated Financial Statements                        24



























                                       18

<PAGE>









                          INDEPENDENT AUDITORS' REPORT


TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
HMG WORLDWIDE CORPORATION



   We have audited the accompanying consolidated balance sheets of HMG WORLDWIDE
CORPORATION  AND  SUBSIDIARIES as of December 31, 1997 and 1996, and the related
consolidated  statements of operations,  cash flows and changes in stockholders'
equity for each of the three years in the period ended December 31, 1997.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

   We  conducted  our audits in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated  financial statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

   In our  opinion,  the  consolidated  financial  statements  referred to above
present  fairly,  in  all  material  respects,  the  financial  position  of HMG
WORLDWIDE CORPORATION AND SUBSIDIARIES as of December 31, 1997 and 1996, and the
results of their  operations and their cash flows for each of the three years in
the period  ended  December  31,  1997 in  conformity  with  generally  accepted
accounting principles.




                           FRIEDMAN ALPREN & GREEN LLP



New York, New York
March 20, 1998




















                                       19

<PAGE>



                   HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)



                                                            December 31,
                                                          ----------------
                                                          1997        1996
                                                          ----        ----
                              ASSETS

Current assets:
  Cash and cash equivalents (Note 1)                   $ 6,439     $ 6,950
  Accounts receivable - less allowance
    for doubtful accounts of $273 and $577 (Note 14)     8,445       6,454
  Inventory (Notes 1 and 2)                              6,671       4,214
  Prepaid expenses                                         414          95
  Other current assets                                     317         240
                                                       -------     -------
     Total current assets                               22,286      17,953

Property and equipment - net (Notes 1 and 3)             4,682       3,349
Excess of cost over fair value
  of assets acquired, less accumulated
  amortization of $1,615 and $1,207 (Note 1)             6,544       6,952
Other assets                                               133         501
                                                       -------     -------
                                                       $33,645     $28,755
                                                       =======     =======

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current maturities of long-term
    obligations (Note 4)                               $10,942    $ 9,439
  Note payable                                                        338
  Accounts payable                                       8,729      5,803
  Accrued employee compensation and benefits             1,418      1,033
  Deferred revenue (Note 1)                                604      1,835
  Accrued expenses                                         673      1,566
  Restructuring costs (Note 12)                                       623
  Other current liabilities                                346        552
                                                       -------    -------
    Total current liabilities                           22,712     21,189

Pension obligation (Notes 1 and 5)                       1,175      1,684
Convertible debentures (Note 4)                          2,200
Term loans (Note 4)                                        678        266
Other long-term liabilities (Note 5)                       410        425
                                                       -------    -------
                                                        27,175     23,564
                                                       -------    -------
Stockholders' equity:
  Common stock, par value $0.01; 50,000,000 shares
    authorized; 8,924,150 and 8,129,589 shares
    issued and outstanding (Note 7)                         89         81
  Additional paid-in capital (Note 7)                   34,645     33,903
  Accumulated deficit                                  (28,264)   (28,793)
                                                       -------    -------
                                                         6,470      5,191
                                                       -------    -------
                                                       $33,645    $28,755
                                                       =======    =======


          See accompanying notes to consolidated financial statements.



                                       20

<PAGE>



                   HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        (in thousands, except share data)

                                                  Year Ended December 31,
                                               -----------------------------
                                               1997         1996        1995
                                               ----         ----        ----


Net revenues (Notes 1 and 9)                 $46,311      $45,552     $47,641

Cost of revenues                              33,273       37,589      38,479
                                             -------      -------     -------

  Gross profit                                13,038        7,963       9,162

Selling, general and administrative
  expenses                                    11,959       13,003      15,996

Restructuring  costs (Note 12)                                          3,175
                                             -------      -------     -------

  Income (loss)  from operations               1,079       (5,040)    (10,009)

Interest income                                  323          351         578

Interest expense (Note 4)                     (1,098)        (834)       (793)

Other income                                     267                       30

Gain from foreign currency
 translation (Note 1)                                                      90
                                             -------      -------     -------

  Income (loss) before provision for income
    taxes                                        571       (5,523)    (10,104)

Provision for income taxes (Note 6)              (42)         (12)        (14)
                                             -------      -------     -------

  Net income (loss)                          $   529     ($ 5,535)   ($10,118)
                                             =======      =======     =======

Basic earnings per share
  Net income (loss) per common and
  common equivalent shares                   $  0.06     ($  0.73)   ($  1.34)
                                             =======      =======     =======

  Weighted average number of common
  and common equivalent shares
  outstanding                              8,637,528    7,614,356   7,567,517
                                           =========    =========   =========

Diluted earnings per share
  Net income (loss) per common and
  common equivalent shares
  and assumed conversions                    $  0.05
                                             =======

  Weighted average number of common
  and common equivalent shares
  and assumed conversions                 11,206,460
                                          ==========




          See accompanying notes to consolidated financial statements.

                                       21

<PAGE>



                   HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


                                                  Year Ended December 31,
                                             -------------------------------
                                             1997          1996         1995
                                             ----          ----         ----
Cash flows from operating activities:
  Cash received from customer             $43,091       $48,930      $46,275
  Interest received                           321           351          578
  Cash paid to suppliers                  (36,481)      (39,739)     (42,326)
  Cash paid to employees                   (9,112)      (10,671)     (11,400)
  Income taxes paid                           (30)          (12)         (14)
  Interest paid                            (1,098)         (816)        (793)
                                          -------       -------      -------
    Net cash used in operating
       activities                          (3,309)       (1,957)      (7,680)
                                          -------       -------      -------

Cash flows from investing activities:
  Acquisitions, net of cash acquired                                    (176)
  Proceeds from redemption
    of marketable securities                                           6,828
  Proceeds from the sale of an investment    356
  Capital expenditures                    (1,807)        (1,654)        (419)
                                         -------        -------      -------
     Net cash provided by (used in)
         investing activities             (1,451)        (1,654)       6,233
                                         -------        -------      -------

Cash flows from financing activities:
  Net proceeds from the sale of common
   stock as part of  a private placement     540            377
  Net proceeds from exercise of stock
   options                                                  273           10
  Proceeds derived  from a term loan         600            340
  Proceeds derived from the sale of
   convertible debentures                  2,200
  Proceeds derived from a credit
   agreement, net                          1,315          1,814        6,483
  Proceeds from issuance of notes, net                                   714
  Principal payments of outstanding debt
    obligations                             (406)          (382)      (4,161)
                                         -------        -------      -------
     Net cash provided by  financing
       activities                          4,249          2,422        3,046
                                         -------        -------      -------

Effect of exchange rate changes                                           71
                                         -------        -------      -------
Net increase (decrease) in cash
  and cash equivalents                      (511)        (1,189)       1,670

Cash and cash equivalents
  at beginning of year                     6,950          8,139        6,469
                                         -------        -------      -------

Cash and cash equivalents
  at end of year                        $  6,439        $ 6,950      $ 8,139
                                        ========        =======      =======








          See accompanying notes to consolidated financial statements.




                                       22

<PAGE>



                   HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
                                 (in thousands)






                                                     Year Ended December 31,
                                                  ----------------------------
                                                  1997        1996       1995
                                                  ----        ----       ----

Reconciliation of net income (loss) to net
 cash used in operating activities:
  Net income (loss)                             $  529     ($5,535)   ($10,118)

Adjustments to reconcile net loss to net
 cash used in operating activities:
  Depreciation and amortization                    882         856       1,283
  Restructuring costs - non-cash                                         1,146
  Other income                                     267
  Gain on foreign currency translation                                     (90)

Decrease (increase) in assets, net of effects
 of acquisition:
  Accounts receivable                           (1,991)      2,227        (760)
  Inventory                                     (2,457)      1,040         202
  Prepaid expenses                                (319)        345         286
  Other assets                                     (77)       (110)        285

Increase (decrease) in liabilities, net of
 effects of acquisition:
  Accounts payable                               2,926       1,472         (46)
  Deferred revenue                              (1,231)      1,139        (678)
  Accrued expenses                              (1,329)     (1,760)        810
  Restructuring costs                                       (1,350)
  Pension obligation                              (509)       (281)
                                                ------      ------     -------
    Net cash used in operating activities      ($3,309)    ($1,957)   ($ 7,680)
                                                ======      ======     =======


Non-cash investing and financing activities:
  Fair value of assets acquired in
    connection with an acquisition                                     $ 2,218
  Fair value of liabilities assumed
    in connection with an acquisition                                  $ 3,226
  Common stock issued in connection
    with an employee benefit plan              $  160
  Warrants issued as part of a
    consulting agreement                       $   50





          See accompanying notes to consolidated financial statements.





                                       23

<PAGE>



                          HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                               (in thousands, except share data)



                                                         Foreign       Total
                                    Additional           Currency      Stock-
                    Common Stock    Paid-in  Accumlated  Translation   holders'
                  Shares   Amount   Capital   Deficit    Adjustments   Equity
                  ------   ------   -------   -------    -----------   ------
Balance at
 December 31,
 1994           7,557,351   $76    $33,248  ($13,140)       $ 39       $20,223

Issuance of
 shares as part
 of exercise of
 stock options     10,166               10                                  10
Foreign currency
 translation
 adjustment                                                  (39)          (39)
Net loss                                     (10,118)                  (10,118)
                ---------   ---    -------  --------       -----        ------
Balance at
 December 31,
 1995           7,567,517    76     33,258   (23,258)         -         10,076

Issuance of
 shares as part
 of exercise of
 stock options    184,572     2        271                                 273
Shares sold as
 part of a private
 placement        377,500     3        374                                 377
Net loss                                      (5,535)                   (5,535)
               ----------   ---    -------  --------       -----       -------
Balance at
 December 31,
 1996           8,129,589    81     33,903   (28,793)        -           5,191

Shares sold as
 part of a private
 placement        635,000     6        534                                 540
Issuance of
 warrants as part
 of a consulting
 agreement                              50                                  50
Issuance of
 shares as a
 contribution
 to HMG Worldwide
 Corporation
 Capital
 Accumulation
 Plan             159,561     2        158                                 160
Net income                                       529                       529
                ---------   ---    -------  --------      -----        -------
Balance at
 December 31,
 1997           8,924,150   $89    $34,645  ($28,264)     $ -         $  6,470
                =========   ===    =======   =======      =====       ========












                 See accompanying notes to consolidated financial statements.





                                              24

<PAGE>



                                    HMG WORLDWIDE CORPORATION
                           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




Note 1 - Organization and Significant Accounting Policies

     Organization:  The  Company  was  incorporated  in New  York  in  1984,  as
MarkitStar,  Inc.  and changed its  corporate  domicile to Delaware in 1986.  On
October 4,  1993,  MarkitStar,  Inc.  effected  a name  change to HMG  Worldwide
Corporation (the "Company").

     The Company, using its marketing resources and expertise, is engaged in the
design, development,  production and assembly of in-store, or point-of-purchase,
marketing  and  merchandising   fixture  and  display  systems.   The  Company's
operations  are  conducted  principally  through  four  operating   wholly-owned
subsidiaries being respectively HMG Worldwide In-Store Marketing,  Inc. ("HMG"),
HMG Intermark Worldwide  Manufacturing,  Inc. ("HMG Intermark").  Display Depot,
Inc.  ("DDI")  and  HMG  Griffith  Worldwide  In-Store  Marketing,   Inc.  ("HMG
Griffith").   The  Company  conducts  its  operations  in  New  York,  Illinois,
Pennsylvania and Toronto, Canada.

   Pursuant  to a purchase  agreement  dated  September  30,  1995,  the Company
consummated a series of transactions with Benson Eyecare Corporation  ("Benson")
whereby  Benson's  Foster Grant Group L.P.  ("Foster  Grant") entered into a ten
year supply contract,  as amended,  ("Supply Contract") with the Company and the
Company acquired Benson's  merchandising  display  operations,  now known as HMG
Intermark (see Note 11).

   Principles  of  Consolidation:   The  accompanying   Consolidated   Financial
Statements  include  the  accounts  of the  Company  and its  subsidiaries.  All
significant  intercompany  balances and  transactions  have been  eliminated  in
consolidation.

   Use of Estimates:  Management  uses  estimates and  assumptions  in preparing
financial  statements.  Those  estimates  and  assumptions  affect the  reported
amounts of assets and  liabilities,  the  disclosure  of  contingent  assets and
liabilities, and the reported revenues and expenses.

   Cash  and  Cash   Equivalents:   The  Company  considers  all  highly  liquid
investments  purchased  with an original  maturity of three months or less to be
cash equivalents.

   Inventory:   Inventory,   consisting  principally  of  merchandising  display
components,  is stated at the lower of cost or market on a  standard  cost basis
which approximates average cost (see Note 2).

   Property and Equipment:  Property and equipment are stated at cost. Equipment
under capital leases are recorded at the present value of minimum lease payments
at the inception of the lease. Depreciation is computed based upon the estimated
useful lives of the assets using the straight-line method.  Equipment held under
capital  leases and leasehold  improvements  are amortized on the  straight-line
method over the shorter of the lease term or estimated useful life of the asset.










                                      25

<PAGE>



                           HMG WORLDWIDE CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Note 1 - Organization and Significant Accounting Policies  (continued)

   Excess of Cost Over Fair  Value of Assets  Acquired:  The excess of cost over
fair value of assets  acquired  arising  from  acquisitions  is amortized on the
straight-line method over a period of twenty years. Related amortization expense
was approximately  $408,000,  $408,000 and $363,000 for the years ended December
31, 1997, 1996 and 1995, respectively.  The periods of amortization are reviewed
on a quarterly  basis to  determine  whether  events and  circumstances  warrant
revised  estimates  of useful  lives.  This  evaluation  considers,  among other
factors,  expected cash flows and profits of the  businesses to which the excess
of cost over fair value of assets acquired relates. The excess of cost over fair
value of assets  acquired will be written off if it becomes  evident that it has
been permanently impaired.

   Fair Value of Financial  Instruments:  The fair value of the revolving credit
facility,  note  payable,  term loans and  convertible  debentures  approximates
carrying value due to the short maturities.

     Foreign Currency  Translation:  The functional currency of HMG Griffith
is the Canadian Dollar. Assets and liabilities are translated into
U.S.  dollars  using  the  current  exchange  rate at the  Balance  Sheet  date.
Translation  adjustments  resulting  from  fluctuation  in  exchange  rates  are
recorded as a separate  component of  Stockholders'  Equity.  Income and expense
items are  translated  at the  average  exchange  rates  during  the  respective
periods. All translation  adjustments realized by the Company during 1997, which
in total were not material, were charged to operations.

   Revenue  recognition:  Revenue  is  recognized  when a  display  or system is
shipped and when services are performed.

     Reclassifications:  Certain reclassifications have been made to conform the
presentation of prior years to the current year presentation.

     Research and  Development:  Research and  development  costs are charged to
operations as incurred.

   Income  Taxes:  Income  taxes are  provided  on the  liability  method on all
revenues and expenses  included in the  Consolidated  Statements of  Operations,
regardless  of the  period in which  such  items are  recognized  for income tax
purposes,  except for items representing a permanent  difference between pre-tax
accounting  income or loss and  taxable  income or loss (see Note 6).  Under the
liability  method of accounting  for income taxes,  deferred  taxes are based on
rates that are expected to be in effect when temporary differences are scheduled
to reverse.

   Earnings  per Share:  Earnings  per share are based on the  weighted  average
number of common shares outstanding  during each period.  Common shares issuable
upon  exercise of stock  options and  warrants  are included in the earnings per
share  computation  unless they are immaterial in amount or  anti-dilutive  (see
Note 7), in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 128.

     Employee Benefit Plans:  The Company and its subsidiaries  sponsor a series
of defined  benefit and defined  contribution  plans for its union and non-union
employees.  For the defined  benefit plans,  the Company has adopted SFAS No. 87
"Employers' Accounting for Pensions" and SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (see Note 5).






                                      26

<PAGE>



                           HMG WORLDWIDE CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Note 1 - Organization and Significant Accounting Policies  (continued)

   Accounting  for  Stock-Based  Compensation:  Prior to January  1,  1996,  the
Company  accounted  for its stock option  plans in  accordance  with  Accounting
Principles  Board  ("APB")  Opinion  No.  25,  Accounting  for  Stock  Issued to
Employees, and related  interpretations.  As such, compensation expense would be
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise  price. On January 1, 1996, the Company adopted SFAS
No. 123,  Accounting for  Stock-Based  Compensation,  which permits  entities to
recognize as expense over the vesting  period the fair value of all  stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma  earnings per share  disclosures  for employee stock grants
made in 1995 and future years as if the fair-value-based  method defined in SFAS
No. 123 had been  applied.  The  Company  has  elected to  continue to apply the
provisions  of APB No.  25 in  accounting  for its  plan  and,  accordingly,  no
compensation  cost has been  recognized  for its stock  options in the financial
statements.

     Recently  Issued  Accounting  Standards:  In February  1997,  SFAS No. 128,
"Earnings per Share" established standards for computing and presenting earnings
per share  ("EPS").  The Statement  simplifies  the standards for computing EPS,
replaces the  presentation  of primary EPS with a presentation  of basic EPS and
requires  dual  presentation  of  basic  and  diluted  EPS  on the  face  of the
Consolidated  Statement of Operations.  SFAS No. 128 was effective for financial
statements  issued for the periods  ending  after December 15, 1997 and required
restatement of all prior period EPS data presented. The adoption of SFAS No. 128
did not have a material impact on previously reported EPS data.

   In June 1997, the Financial  Accounting  Standards Board issued SFAS No. 130,
"Reporting  Comprehensive  Income",  which requires a statement of comprehensive
income to be included in the  financial  statement  for fiscal  years  beginning
after December 15, 1997. The Company is presently  designing such statement and,
accordingly,  will include the  required  information  beginning  with the first
quarter of 1998.

   In addition,  in June 1997, the Financial  Accounting  Standards Board issued
SFAS  No.  131,  "Disclosures  About  Segments  of  an  Enterprise  and  Related
Information".  SFAS No. 131 requires  disclosure  of certain  information  about
operating segments and about products and services,  geographic areas in which a
company  operates,  and their major  customers.  The Company is presently in the
process of evaluating the effect that this new standard will have on disclosures
in the  Company's  financial  statements  and the required  information  will be
reflected in the December 31, 1998 financial statements.


Note 2 - Inventory

  Inventory consisted of the following components at December 31, 1997 and 1996:
                                                        December 31,
                                                    -------------------
                                                    1997           1996
                                                    ----           ----
                                                      (in thousands)

              Finished goods                       $1,210         $1,312
              Work-in-progress                      1,015            653
              Raw materials                         4,446          2,249
                                                   ------         ------
                                                   $6,671         $4,214
                                                   ======         ======


                                      27

<PAGE>



                           HMG WORLDWIDE CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Note 3 - Property and Equipment

   The following is a summary of property and equipment,  estimated useful lives
and accumulated depreciation and amortization at December 31, 1997 and 1996:
                                    December 31,
                               --------------------
   Description                 1997            1996      Estimated Useful Life
   -----------                 ----            ----      ---------------------
                                 (in thousands)
   Land                     $   528          $  103
   Buildings                  2,829           1,755      40 years
   Equipment                  1,511           1,143      3-7 years
   Furniture and fixtures       243             192      5 years
   Leasehold improvements       483             586      Lesser of lease term
                                                         or eight years
   Tooling                      952             960      3-7 years
                            -------          ------
                              6,546           4,739
   Less: accumulated
     depreciation and
     amortization             1,864           1,390
                            -------          ------

                            $ 4,682          $3,349
                             ======          ======

   Depreciation  and  amortization  expense for property and  equipment  for the
years  ended  December  31,  1997,  1996 and 1995  was  approximately  $474,000,
$448,000 and $920,000, respectively.

Note 4 - Long-term Obligations

   Long-term obligations at December 31, 1997 and 1996 are as follows:
                                               December 31,
                                             ----------------
                                             1997        1996
                                             ----        ----
                                              (in thousands)
     Revolving credit facility             $10,754     $9,371
     Term loan                                 866        334
     Convertible debentures                  2,200
                                           -------     ------
                                            13,820      9,705
     Less: current maturities               10,942      9,439
                                           -------     ------
                                           $ 2,878     $  266
                                           =======     ======

Revolving Credit Facility

   On November 22, 1996, the Company consummated a $13.0 million three year Loan
and  Security  Agreement,  as  amended,  ("Credit  Agreement")  with a financial
institution  in the form of a revolving  credit  facility  and a term loan.  The
Credit Agreement provides for a secured revolving credit facility which advances
up to of the sum of (i) 85% of eligible accounts receivable,  (ii) the lesser of
60% of eligible  finished  goods  inventory or $750,000 and (iii) the  Company's
cash,  cash  equivalents  and  marketable  securities.  The  Company  used funds
available under the Credit Agreement to retire its previous credit facility with
a bank. The Credit Agreement is secured by a lien on and a security  interest in
the  Company's  cash,  cash   equivalents,   marketable   securities,   accounts
receivable, inventory and equipment and all other tangible and intangible assets
and a  pledge  of  the  common  stock  of  each  of the  Company's  wholly-owned
subsidiaries.

                                      28

<PAGE>



                           HMG WORLDWIDE CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Note 4 - Long-term Obligations (continued)

   Borrowings  under the Credit  Agreement  bear  interest at the  institution's
prime  rate plus 1% per  annum.  The  Company  is  required  to pay a  quarterly
commitment  fee at the rate of one half of 1% per  annum  of the  average  daily
unused amount of funds available.  Additionally,  the Credit Agreement  contains
certain customary  affirmative and negative  covenants which require the Company
to maintain certain financial ratios, and, among other things,  restrict (i) the
declaration  or  payment  of  dividends,   (ii)  the  incurrence  of  additional
indebtedness and (iii) the sale of certain assets.

   Pursuant to the terms of the Credit  Agreement,  the lender can advance up to
$1.6 million in the form of a term loan  collateralized by the Company's current
and  future  real  estate  and  equipment.  The term loan  portion of the Credit
Agreement is amortized on a sixty month basis with a final  payment due upon the
termination  of the Credit  Agreement  and bears  interest at the  institution's
prime rate plus 1% per annum. The balance outstanding on the term loan component
of the Credit Agreement at December 31, 1997 and 1996 was $866,000 and $334,000,
respectively.

   Prior to November 22, 1996, the Company  maintained a credit  facility with a
bank which provided for a secured  revolving line of credit which advanced up to
the lesser of 80% of eligible  accounts  receivable  and the Company's  cash and
cash equivalents and marketable securities,  or $10.0 million.  Borrowings under
the prior credit facility were charged  interest at either the bank's prime rate
plus 1% per annum or the  Eurodollar  rate plus 2% per  annum and  required  the
Company to pay a quarterly  commitment fee at a rate of one half of 1% per annum
of the average unused amount of funds available.

   The average balance outstanding under the Company's credit agreements for the
years ended December 31, 1997,  1996 and 1995 was  approximately  $10.9 million,
$8.8 million and $5.1 million,  respectively,  at the weighted  average interest
rate of 9.6%, 8.6% and 9.8% , respectively.

Convertible Debentures

   Effective September 30, 1997, the Company issued $2.2 million 10% Convertible
Debentures  due September 30, 2000  ("Debentures")  through a private  placement
("Private Placement"). The Debentures bear interest at the rate of 10% per annum
and are convertible, at the option of the holder at any time, into shares of the
Company's Common Stock  ("Conversion  Shares"),  $0.01 par value, based upon the
conversion price of $1.25 per share.  The Company may prepay the Debentures,  on
30 days prior  notice,  at such time as the average  closing price of the Common
Stock  exceeds  $1.75  per  share  for a 30 day  period  prior to notice of such
prepayment  provided that the Conversion  Shares have been registered  under the
Securities  Act at the time of such  prepayment.  The  Debentures and Conversion
Shares  which may be  acquired  upon the  conversion  have been  issued  without
registration by reason of the private offering  exemption under Section 4 (2) of
the  Securities  Act  and  Rule  506 of  Regulation  D  promulgated  thereunder.
Accordingly,  the Debentures and the Conversion  Shares may not be resold absent
registration  under the  Securities  Act or the  availability  of an  applicable
exemption from such registration.










                                      29

<PAGE>



                           HMG WORLDWIDE CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Note 5 - Employee Benefit Plans

   The  Company  and its  subsidiaries  sponsor a series of defined  benefit and
defined  contribution  employee  benefit plans covering both union and non-union
personnel. A summary of each of these sponsored plans is as follows:

HMG Intermark Pension and Health Care Plans

   HMG Intermark  sponsors a defined  benefit plan  ("Pension  Plan") and a post
retirement  plan for certain health care benefits  ("Health Care Plan") covering
all union employees  pursuant to agreements  between HMG Intermark and Local 241
of the National Federation of Independent Unions.

   Pursuant to the terms of the Pension Plan, HMG Intermark's  union  employees,
with  dates of hire  prior  to April 1,  1996,  generally  become  eligible  for
retirement benefits after reaching age 55 with 10 years of continuous service or
after reaching age 65. Retirees are entitled to receive pension benefits,  based
upon date of retirement,  of between $4.00 and $13.50 per month for each year of
credited  service.  HMG Intermark funds the actuarially  determined costs of the
Pension Plan,  including the  amortization of prior service costs over 30 years.
HMG  Intermark's  actuarial  assumptions  are based upon an  expected  return on
assets of 8% and a discount rate of 7%. HMG Intermark union employees with dates
of hire  subsequent to March 31, 1996 are not eligible for  retirement  benefits
pursuant to the terms of this Pension Plan.  Alternatively,  such post March 31,
1996 hirees and all other HMG Intermark union  employees are covered,  effective
January 1, 1997,  by the HMG  Intermark  Capital  Accumulation  Plan,  a defined
contribution plan qualifying under the IRC Section 401(k).  The plan permits all
employees who are 21 years of age and who have one year of service to contribute
up to 10% of their salary to the plan.  Additional  discretionary  contributions
can be made at the option of HMG Intermark.

   The following is a summary of the components of defined benefit pension costs
for the periods  ending  December  31, 1997,  1996 and 1995 and the  accumulated
pension obligation of HMG Intermark at December 31, 1997 and 1996:

                                                         For the  Period
                                                         October 1, 1995
                                   For the Years Ended   (date of acquisition)
                                       December 31,      through December 31,
                                      1997      1996          1995
                                      ----      ----          ----
  Net periodic cost
  Service cost - benefits
   earned during the
   period with interest             $  41     $  45          $   9
  Interest cost on accumulated
    benefit obligation                342       341             89
  Actual return on assets            (613)     (270)          (102)
  Net amortization and deferral       356        55             52
                                    -----     -----          -----
    Net periodic pension cost        $126      $171          $  48
                                    =====     =====          =====









                                      30

<PAGE>



                           HMG WORLDWIDE CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Note 5 - Employee Benefit Plans  (continued)

                                                              December 31,
                                                             --------------
                                                             1997      1996
                                                             ----      ----
Accumulated pension obligation:
  Vested benefits obligation                              ($5,129)  ($5,083)
  Fair market value of plan assets                          3,829     3,228
                                                           ------    ------
  Funded status of projected benefit obligation            (1,300)   (1,855)
  Unrecognized net loss                                       148       170
  Adjustment to recognized minimum liability                 (148)     (170)
                                                           ------    ------
       Accrued pension benefit obligation                  (1,300)   (1,855)
       Less: current portion                                  125       171
                                                           ------    ------
       Pension obligation - long-term                     ($1,175)  ($1,684)
                                                           ======    ======

   Pursuant to the terms of the Health Care Plan, HMG Intermark union employees,
with dates of hire  prior to March 31,  1996,  become  eligible  for  retirement
health care benefits  after the years of credited  service plus their age at the
time of retirement is equal to or greater than 85 (Rule of 85). If any employee,
at the time of their retirement,  meets the Rule of 85 prior to reaching age 65,
HMG Intermark  shall  continue to provide  health care benefits under the Health
Care Plan until the retiree  reaches age 65. HMG Intermark does not pre-fund the
cost of the Health  Care Plan.  At December  31, 1997 and 1996,  the Company has
included as a component of other long-term  liabilities  approximately  $329,000
and  $334,000,   respectively,   relating  to  the  unfunded  Health  Care  Plan
obligation. The accrued post retirement obligation under the Health Care Plan is
actuarially  determined based upon the following  significant  assumptions,  (i)
retirement  age of 63, (ii) a discount rate of 7% and (iii) a gross medical cost
increase of an average of 9% for the next five years and 6% increase thereafter.

   The  following is a summary of the  components  of the Health Care Plan costs
for the periods  ended  December  31,  1997,  1996 and 1995 and the  accumulated
health care obligation of HMG Intermark at December 31, 1997 and 1996:

                                                          For the  Period
                                                          October 1, 1995
                                    For the Years Ended  (date of acquisition)
                                       December 31,       through December 31,
                                    -----------------     --------------------
                                    1997         1996          1995
                                    ----         ----          ----
  Service cost - benefits
   earned during the period         $ 45         $ 44          $ 13
                                    ====         ====          ====
  Net premiums paid
   during the period                $ 50         $ 49          $ 12
                                    ====         ====          ====

  Net periodic cost:
   Service cost - benefits
    earned during the
    period with interest            $  6         $  5          $  2
   Interest cost on
    accumulated benefit
    obligation                        32           33             9
  Actual loss on benefit
   payments                            7            6             2
                                    ----         ----          ----
     Net periodic health
      care cost                     $ 45         $ 44          $ 13
                                    ====         ====          ====






                                      31

<PAGE>



                          HMG WORLDWIDE CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Note 5 - Employee Benefit Plans  (continued)

                                                          December 31,
                                                         --------------
                                                         1997      1996
                                                         ----      ----
Accumulated health care obligation:
  Accumulated benefit obligation and
    projected benefit obligation                        ($327)    ($489)
                                                         ----      ----
  Funded status of projected benefit obligation          (327)     (489)
 Unrecognized net (gain) loss                             (52)      104
                                                         ----      ----
     Health care obligation                              (379)     (385)

       Less: current portion                               50        51
                                                         ----      ----
       Health care obligation - long-term               ($329)    ($334)
                                                         ====      ====


Capital Accumulation Plan

   The HMG  Worldwide  Corporation  Capital  Accumulation  Plan  and  Trust is a
defined  contribution  plan  qualifying  under IRC Section  401(k)  covering all
employees  not  participating  in a collective  bargaining  agreement.  The plan
permits all  employees  who are 21 years of age and who have one year of service
to contribute up to 10% of their salary to the plan subject to Internal  Revenue
Code limitations. In addition the HMG Worldwide Corporation Capital Accumulation
Plan provides an employer  matching  provision whereby the Company matches fifty
cents for every dollar of employee  contribution up to 6% of base  compensation.
Company  contributions of approximately  $149,000,  $155,000,  and $114,000 were
made and charged to operations for the years ended  December 31, 1997,  1996 and
1995 respectively.

   The HMG Worldwide  Corporation Capital  Accumulation Plan also provides for a
fixed contribution provision whereby the Company annually contributes 3% of base
compensation  for  any  plan  participant   employed  on  December  31.  Company
contributions  of  approximately  $154,000,  $160,000 and $155,000 were made and
charged to operations  for the years ended  December 31, 1997,  1996,  and 1995,
respectively.   The  plan  also  allows  the   Company  to  make   discretionary
contributions  at the  end of the  plan  year.  The  Company  did not  make  any
discretionary contributions for these years.

Multi-Employer Benefit Plans

   HMG  participated  in two  multi-employer  benefit  plans  covering all union
employees  pursuant to agreements between HMG and Local 2682, United Brotherhood
of Carpenters  and Joiners.  These plans were defined  benefit  plans;  however,
specific benefit levels were not negotiated with, or known by the employer.  The
pension plan required HMG to contribute 6% of each employee's  wages,  excluding
overtime,  on a monthly  basis.  Pension  plan  contributions  of  approximately
$82,000 and  $99,000,  were made and charged to  operations  for the years ended
December 31, 1996 and 1995, respectively.  The welfare plan required HMG to make
a specified  contribution  for each employee per month and for each hour for all
regular and overtime hours worked.  Welfare plan  contributions of approximately
$142,000 and $187,000  were made and charged to income  during the periods noted
above.  Pursuant  to the  closing  of HMG's New  Jersey  manufacturing  facility
effective  December 31, 1996,  the Company is no longer  participating  in these
plans.





                                      32

<PAGE>



                          HMG WORLDWIDE CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Note 6 - Income Taxes

   The components of the provisions for income taxes are as follows:

                                        Year Ended December 31,
                                       ------------------------
                                       1997      1996      1995
                                       ----      ----      ----
                                          (in thousands)
    Current:
       Federal - current provision     $139     $  -      $  -
       Federal - current benefit       (139)
       State and local                   42        12       14
                                       ----     -----     ----
                                         42        12       14
                                       ----     -----     ----

        Deferred:
           Federal                       -         -        -
           State and local               -         -        -
                                       ----     -----     ----
                                         -         -        -
                                       ----     -----     ----
                                       $ 42      $ 12     $ 14
                                       ====     =====     ====

   Deferred  income taxes  reflect the net tax effects of temporary  differences
between the carrying  value of assets and  liabilities  for financial  reporting
purposes and the amounts used for income tax purposes as well as operating  loss
carryforwards.

   The  following is a summary of the  significant  components  of the Company's
deferred taxes:

                                                     December 31,
                                                  -----------------
                                                  1997         1996
                                                  ----         ----
                                                   (in thousands)
   Deferred taxes:
     Net operating loss carryforwards          $10,662      $10,316
     Accruals not currently deductible             138          441
     Inventory capitalization                        9           83
     Depreciation                                  434          744
     Other                                         149          136
                                               -------      -------
       Subtotal                                 11,392       11,720
   Less: Valuation allowance                   (11,392)     (11,720)
                                               -------      -------
       Net deferred taxes                      $  -         $  -
                                               =======      =======

   At December 31, 1997,  the Company had net operating  loss  carryforwards  of
approximately $27.6 million which expire during the years 2001 through 2012.









                                      33

<PAGE>



                          HMG WORLDWIDE CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Note 6 -  Income Taxes  (continued)

   A  reconciliation  of the tax provisions and amounts computed by applying the
federal income tax rate of 35% to the loss before income taxes is as follows:
                                                  Year Ended December 31,
                                                 -------------------------
                                                 1997       1996      1995
                                                 ----       ----      ----
                                                      (in thousands)
  Computed tax benefit, net of
    valuation allowance                        $  -        $  -       $  -
  State and local income taxes                   42          12         14
                                               ----        ----       ----
                                               $ 42        $ 12       $ 14
                                               ====        ====       ====

Note 7 - Common Stock

   In December 1996,  the Company  initiated a private  placement  ("HMG Private
Placement")  whereby  the  Company  offered  for sale up to 2 million  shares of
Common  Stock at $1.00  per  share.  Pursuant  to the  terms of the HMG  Private
Placement,  as of December  31, 1997 the Company  sold an aggregate of 1,012,500
shares of its Common Stock at $1.00 per share from which it derived net proceeds
of approximately $917,000. The Company also contributed 159,561 shares of Common
Stock  valued  at $1.00  per  share  to the HMG  Worldwide  Corporation  Capital
Accumulation Plan during 1997. All stock issued pursuant to the terms of the HMG
Private  Placement and the Capital  Accumulation Plan contribution is restricted
stock which has not been registered under the Securities Act of 1933, as amended
("the  Securities  Act"),  and may not be  resold by the  respective  purchasers
thereof absent  registration  under the Securities Act or the availability of an
applicable exemption from such registration statement.

   Contemporaneous with the HMG Private Placement,  in December 1996 the Company
derived net  proceeds of  approximately  $272,000  through the exercise of stock
options for which the Company issued 184,572 shares.

   The Company maintains four stock option plans which have been adopted by  the
Board and subsequently  approved by its stockholders.  Three of the stock option
plans are  comprised  of two option  categories;  incentive  stock  options  for
full-time  employees and  consultants,  including  officers and  directors,  and
nonstatutory  stock options for full-time  employees and non-employee  directors
The one additional plan provided for incentive stock options for full-time
employees,  officers and directors and non-statutory stock options for employees
and consultants and non-employee directors.  The total number of shares reserved
and  available  under the four plans are  2,543,012  shares.  During  1997,  the
Company issued an additional 210,000  incentive-based  stock options and 250,000
stock  warrants  outside of the four stock option plans.  The stock options were
granted to certain  employees and directors of the Company.  The Company  issued
50,000 warrants exercisable at $1.00 per warrant in connection with the purchase
of certain assets for the Company's Canadian office.  Additionally,  the Company
issued  113,000  warrants  exercisable  at  $1.25  per  warrant  to each of Ivan
Berkowitz and Louis Perlman in connection with the Company's  Private  Placement
of the Debentures and other financial consulting services performed on behalf of
the Company.









                                      34

<PAGE>



                          HMG WORLDWIDE CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Note 7 - Common Stock (continued)

   The following is a summary of stock option and warrant  transactions  for the
years ended December 31, 1997, 1996 and 1995:

                                             1997        1996        1995
                                             ----        ----        ----
Options outstanding at January 1         2,427,328   2,031,450   2,157,225
Incentive options granted at $ .875        480,950
Incentive options granted at $1.250                    599,450
Incentive options granted at $1.375        120,000
Warrants granted at $1.00                   50,000
Warrants granted at $1.25                  226,000
Warrants granted at $2.00                               50,000
Options exercised                                     (184,572)    (10,166)
Options canceled                          (225,450)    (69,000)   (115,609)
                                         ---------   ---------   ---------
                                         3,078,828   2,427,328   2,031,450
                                         =========   =========   =========


   At December 31,  1997,  the Company has 469,450,  173,300,  75,900,  825,450,
120,000, 40,200, 1,324,528 and 50,000 options outstanding exercisable at $0.875,
$0.9375,  $1.00,  $1.25,$1.375,  $1.56 and $1.625 per share,  respectively.  The
weighted average exercise price and period of exercise of all outstanding  stock
options and  warrants at December  31, 1997 and 1996 was $1.35 per share and 6.6
years, respectively, and $1.99 per share and 7.7 years, respectively.

     The Company  applies APB  Opinion  No. 25 and  related  interpretations  in
accounting  for its  employee  stock  options.  Under APB No.  25,  because  the
exercise  price of the Company's  employee  stock options  equals or exceeds the
market  price of the  underlying  stock on the date of  grant,  no  compensation
expense is recognized.

   Pro forma information regarding net income and earnings per share is required
by SFAS No. 123 and has been  determined as if the Company had accounted for its
employee stock options under the fair value method of SFAS No. 123. The weighted
average fair value of options  granted  during 1997 and 1996 was $0.25 and $0.31
per share,  respectively.  The fair value for these options was estimated at the
date of grant using a Black  Scholes  option  pricing  model with the  following
weighted average assumptions; risk free interest rate of 5.6%; volatility factor
of expected  market  price of the  Company's  common stock of 36% and a weighted
average  expected life of the option of 6.6 years.  Under the provisions of SFAS
No. 123, the Company's pro forma compensation  expense arising from the grant of
stock options for the year ended  December 31, 1997 was  approximately  $111,000
and  pro  forma  net  income  and  basic   income  per  share  would  have  been
approximately  $418,000  and $0.05 per share,  respectively.  For the year ended
December 31, 1996 pro forma compensation expense was approximately  $160,000 and
pro forma net loss and net loss per share  would  have been  approximately  $5.7
million and $0.75 per share, respectively.










                                      35

<PAGE>



                           HMG WORLDWIDE CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Note 7 - Common Stock (continued)

   The following is the reconciliation of the numerators and denominators of the
basic and diluted  earnings per share  computations  for the year ended December
31, 1997:


                                For the Year Ended December 31, 1997
                              ---------------------------------------
                              Income         Shares         Per Share
                             (Numerator)   (Denominator)      Amount
                              ---------     -----------      --------
                                (in thousands, except per share data)

Net income                        $529

Basic earnings per share
  Income available to
    common stockholders           $529        8,638           $0.06
                                                              =====

Effect of dilutive securities
  Stock options & warrants          -         2,568
                                  ----        -----

Diluted earning per share
  Income available to common
    stockholders & assumed
    conversions                   $529       11,206           $0.05
                                  ====       ======           =====


Note 8 - Lease Commitments

   The Company  leases  manufacturing,  warehousing  and office  facilities  and
production and office equipment, under leases expiring at various dates. Certain
facility leases contain renewal  provisions and generally require the Company to
pay increases over base period amounts for taxes and other  operating  expenses.
At December 31, 1997,  future minimum  payments under  noncancellable  operating
leases are as follows:

                  Year                     Amount
                  ----                     ------
                                       (in thousands)
                  1998                   $  705
                  1999                      634
                  2000                      572
                  2001                      488
                  2002                      369
                  Thereafter                 31
                                         ------
                                         $2,799
                                         ======
     Rent  expense  for the years ended  December  31,  1997,  1996 and 1995 was
approximately $800,000, $1.6 million and $2.1 million, respectively.




                                      36

<PAGE>



                           HMG WORLDWIDE CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Note 9 - Significant Clients

   Net revenues from  individual  clients of the Company  accounting  for 10% or
more of net revenues for the years ended December 31, 1997, 1996 and 1995 are as
follows:

                                       1997  1996  1995
                                       ----  ----  ----
   Bristol Meyers Squibb, Co.           12%
   Procter & Gamble Co.                 12%   17%   11%
   Wal*Mart Stores, Inc.                11%   11%   13%
   Sara Lee Corporation                       12%   24%


Note 10 - Foreign Operations

   The Company opened an office in Toronto,  Canada  effective July 1, 1997. For
the six months  ended  December  31,  1997,  the Company  generated  revenues of
approximately  $494,000,  incurred  a net loss of $31,000  and had  identifiable
assets of $447,000.


     Note 11 - Acquisition of HMG Intermark and Long-Term  Supply  Contract with
Foster Grant

   Pursuant  to a purchase  agreement  dated  September  30,  1995,  the Company
consummated a series of transactions  with Benson whereby  Benson's Foster Grant
subsidiary entered into the in-store  merchandising display Supply Contract with
the Company and the Company acquired Benson's  merchandising display operations,
now known as HMG Intermark.

   The Supply Contract requires Foster Grant, subject to certain conditions,  to
purchase at least 70% of its in-store  merchandising  display purchases from the
Company through December 2005 with average annual purchases to aggregate no less
than $2.5 million.  The Supply Contract  contains  provisions  which include (i)
Foster Grant's right to competitively  bid its  merchandising  display purchases
with  comparable  suppliers of the  Company,  (ii) the Company must meet certain
price  criteria  with its  services  and (iii) the Company has the right of last
refusal on all merchandising  display programs on which it has placed a bid with
Foster Grant.


Note 12 - Restructuring Costs

   In  December  1995,  restructuring  costs of $3.2  million  were  charged  to
operations which principally  related to the  implementation of a cost reduction
program to be primarily implemented through consolidation and selective closures
of the  Company's  offices and  manufacturing  facilities.  These  closures  and
consolidations  are a direct result of (i) competitive  conditions in the market
place and the  corresponding  impact on the Company,  (ii) budgetary  restraints
and/or  reductions  implemented  by some of the Company's  clients and (iii) the
acquisition of and subsequent  renovation of HMG Intermark's 140,000 square foot
manufacturing facility in Reading, Pennsylvania. The restructuring consists of a
series of planned  actions  including  (i) a reduction  in  personnel,  (ii) the
closure  and  consolidation  of  plant  facilities  into the  Company's  Reading
facility,  (iii) the closure or  reduction  in offices in New York,  Chicago and
Detroit and (iv) the  disposal of assets that are no longer  required due to the
elimination of selected programs or site consolidations.




                                      37

<PAGE>



                           HMG WORLDWIDE CORPORATION
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)


Note 12 - Restructuring Costs - (continued)

   The restructuring costs are comprised  principally of a $1.1 million non-cash
write-off of property and equipment  and $2.1 million of projected  expenditures
related to the cost  reduction  program.  The  provision  for the  reduction  of
employees was approximately  $600,000 which includes  approximately 50 employees
from all  areas  including  manufacturing,  development,  sales,  marketing  and
administration. Approximately $1.5 million was provided for the costs related to
the closing and consolidation of production  facilities and offices. The Company
completed  most of the  consolidation  by  December  31,  1996 with the  balance
completed in 1997.


Note 13 - Related Party Transactions

   For the years ended December 31, 1997, 1996, and 1995, the Company incurred a
total of  approximately  $433,000,  $200,000  and  $142,000,  respectively,  for
various  legal and  consulting  services  provided  by firms  whose  members  or
officers are stockholders or directors of the Company.


Note 14 - Commitments and Contingent Liabilities

   The Company is subject to certain  legal  proceedings  and claims  which have
arisen in the ordinary  course of its business.  These  actions when  ultimately
concluded will not, in the opinion of management, have a material adverse effect
upon the financial position, results of operations or liquidity of the Company.

   In  April  1984,  HMG  entered  into  an  agreement  with  one of  its  sales
representatives,  Howard Displays, Inc. ("HDI"), whereby HMG is required to make
contingent  consideration  payments to the former principal  shareholder of HDI.
Such  payments are based upon the net revenues  derived from sales to active HDI
clients.  These  payments  continue  until  one  year  after  the  death of this
individual.  For the years ended December 31, 1997, 1996 and 1995, approximately
$26,000, $234,000 and $525,000, respectively, were charged to operations.

   The Company is potentially  subject to significant  concentrations  of credit
risk on its cash and  short-term  investments  (cash  equivalents)  and accounts
receivable.  Short-term investments are in commercial paper of corporations with
high credit ratings and securities of U.S.  Government  agencies and are held by
one financial institution with a high credit standing.  Receivables, which under
normal trade terms are not secured, are from a large number of consumer products
companies. The two customers with the largest balances account for approximately
31% of accounts receivable at December 31, 1997.














                                      38

<PAGE>


Item 9. Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

   There have been no changes in accountants due to  disagreements on accounting
and financial disclosure during the 24 months prior to December 31, 1997.

                                   PART III

Item 10. Directors and Executive Officers of the Registrant.

   The executive officers and directors of the Company are as follows:

                                                                    Associated
                                                                     with the
                                                                      Company
Name                    Age          Offices Held                      Since
----                    ---          ------------                   ----------

Michael Wahl            60       Chairman of the Board and             1984
                                 Chief Executive Officer

Andrew Wahl             37       President and Director                1984

Robert V. Cuddihy, Jr.  38       Chief Operating Officer,              1987
                                 Chief Financial Officer
                                 and Director

L. Randy Riley          46       Executive Vice President and          1993
                                 Director

Herbert F. Kozlov       45       Secretary and Director                1988

Ivan Berkowitz          52       Director                              1998

Louis Perlman           51       Director                              1998

Lawrence J. Twill, Sr.  60       Director                              1987


     MICHAEL WAHL has been a director of the Company  since its inception in May
1984.  Mr. Wahl  became the  Company's  Chairman  and Chief  Executive  Officer,
effective  October 1, 1993.  Since 1984,  Mr. Wahl has served as the Chairman of
the Board of the Company.  Since May 1986, Mr. Wahl has also served as the Chief
Executive Officer of the Company. Mr. Wahl served as the Company's HMG President
from 1976 to April 1986.

     ANDREW WAHL has been a director of the Company  since its  inception in May
1984. Mr. Wahl became the President  effective October 1, 1993, and relinquished
his roles as  Chairman  and Chief  Executive  Officer.  From May 1984 to October
1993,  Mr. Wahl served as the Company's  Chief  Executive  Officer.  In December
1990,  Mr. Wahl became the  Secretary of the Company.  From July 1987 to October
1993,  Mr.  Wahl  has  also  served  as the  Company's  Chairman  of the  Board.
Additionally,  Mr. Wahl served as the  Company's  President  from May 1984 until
December  1990.  From  September  1980 until May 1984,  Mr.  Wahl served as Vice
President for HMG, where his primary  responsibilities  were in the areas of new
business development and pension and profit-sharing management.
                                      39

<PAGE>




          ROBERT V. CUDDIHY,  JR. has been the Company's Chief Financial Officer
     and Secretary  since July 1987 and a director since February 1988. In March
     1989,  Mr.  Cuddihy also assumed the  responsibilities  of Chief  Operating
     Officer of the Company.  In December 1990, Mr. Cuddihy became the Company's
     President  and  discontinued  his function as its  Secretary.  Mr.  Cuddihy
     relinquished  his role as President,  effective  October 1, 1993. From July
     1981 until July 1987,  Mr.  Cuddihy was with KPMG Peat  Marwick,  Certified
     Public Accountants, where he last served as a senior audit manager.

          L. RANDY RILEY has been a director  of the  Company  since March 1994.
     Mr.  Riley is, and for at least the past five years has been,  employed  by
     HMG in an  executive  capacity,  most  recently as President of HMG. He was
     previously  employed  by  Ernest  & Julio  Gallo  and by  Colgate-Palmolive
     Company in senior marketing positions.

          HERBERT F. KOZLOV has been a director of the  Company  since  February
     1988.  From August 1989 until  December 1995, Mr. Kozlov has also served as
     the  Chief  Executive  Officer  of  Electronic  Voting  Systems,   Inc.,  a
     subsidiary of the Company.  Effective  October 1, 1993,  Mr. Kozlov assumed
     the  responsibilities  of Corporate  Secretary.  Mr.  Kozlov is a member of
     Parker Duryee Rosoff & Haft, counsel to the Company.  Mr. Kozlov has been a
     practicing attorney for more than ten years.

          IVAN  BERKOWITZ has been a director of the Company since January 1998.
     Mr.  Berkowitz has been the President of Great Court  Holdings  Corporation
     since 1989. Mr.  Berkowitz is also the Managing  General Partner of Steib &
     Company since 1993.  From 1995 to 1997, Mr.  Berkowitz  served as the Chief
     Executive Officer of PolyVision Corporation.

          LOUIS  PERLMAN has been a director of the Company  since January 1998.
     Mr.  Perlman has been the  President of Lazam  Properties  Limited for more
     than the past five years. Additionally,  Mr. Perlman has served as Director
     since 1996 and as the  Chairman  of the Board of Multi  Color  Corp.  since
     February 1998.

          LAWRENCE J. TWILL,  SR. has been a director of the Company  since July
     1987. Mr. Twill has been Chairman of Ashwood  Capital,  a private  merchant
     bank,  since March  1991.  From  February  1990 to  February  1991,  he was
     Managing  Director of Peers & Co.,  which at the time was a  subsidiary  of
     Kemper  Securities,  Inc.  From June 1988 to  February  1990,  he served as
     Executive Vice President,  Investment Banking and a member of the Executive
     Committee  of  Bateman  Eichler,  Hill  Richards,  a  subsidiary  of Kemper
     Securities,  Inc.  From  February  1986 to June  1988,  Mr.  Twill  was the
     Chairman and Chief Executive  Officer of Woolcott & Company,  an investment
     banking  firm,  and from April 1984 to March 1985 he was the  President and
     Chief Executive Officer of New York Air, Inc.

          Michael Wahl is the father of Andrew  Wahl.  There are no other family
     relationships among the Company's officers and directors.

          All   directors   hold  office  until  the  next  annual   meeting  of
     stockholders  and the  election  and  qualification  of  their  successors.
     Executive  officers are elected  annually by the Board of Directors to hold
     office  until the first  meeting  of the Board  following  the next  annual
     meeting  of  stockholders   and  until  their  successors  are  chosen  and
     qualified.

          Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended,
     requires the  Company's  officers and  directors,  and persons who own more
     than 10% of the Company's  Common  Stock,  to file reports of ownership and
     changes in ownership with the Securities and Exchange  Commission  ("SEC").
     Officers,  directors and greater than 10%  stockholders are required by the
     SEC  regulations  to furnish the Company  with copies of all Section  16(a)
     forms they file.

          Based solely on its review of the copies of such forms received by it,
     or written  representations  from certain reporting persons that no Forms 5
     were required for those persons, the Company believes that through December
     31, 1997, all filing requirements applicable to its officers, directors and
     greater than 10% beneficial owners were complied with.


                                      40

<PAGE>



Item 11. Executive Compensation.

Summary Compensation

   Set forth below is the aggregate  compensation  for services  rendered in all
capacities to the Company during its fiscal years ended December 31, 1997,  1996
and 1995 by its chief executive officer and each of its executive officers whose
compensation exceeded $100,000 during its fiscal year ended December 31, 1997.

                                  Summary Compensation Table
<TABLE>

                                                                         Long-Term Compensation
                                                                   -------------------------------
                                  Annual Compensation                    Awards            Payouts
                                  -------------------              -----------------      --------
                                                      Other                    Number of                All
Name and                                              Annual       Restricted  Securities  Long-Term    Other
Principal                                             Compen-      Stock       Underlying  Incentive    Compen-
Position                  Year    Salary    Bonus     sation(1)    Awards      Options     Payouts      sation
--------                  ----    ------    -----     --------     ------      -------     -------      -------
<S>                       <C>       <C>      <C>          <C>        <C>           <C>        <C>         <C>

Michael Wahl              1997    $250,000  $  -                                35,000
  Chief Executive         1996    $250,000  $  -                               140,000
  Officer                 1995    $250,000  $100,000

Andrew Wahl               1997    $250,000  $  -                                35,000
  President               1996    $250,000  $  -                               140,000
                          1995    $190,000  $ 76,500

Robert V. Cuddihy, Jr     1997    $250,000  $  -                                35,000
  Chief Operating Officer 1996    $200,000  $  -                                70,000
  Chief Financial Officer 1995    $150,000  $100,000

L. Randy Riley            1997    $250,000  $  -                                35,000
  Executive Vice          1996    $250,000  $ 70,000                           129,450
  President               1995    $210,000  $  -
</TABLE>

(1)Personal benefits provided to Messrs.  Michael Wahl, Andrew Wahl, Cuddihy and
   Riley did not exceed the disclosure  thresholds  established  under SEC rules
   and therefore are not included in this table.


   Set forth  below is  information  with  respect to options  to  purchase  the
Company's  Common  Stock  granted in the year ended  December 31, 1997 and prior
years under the Company's 1986, 1991 1993 and 1994 Stock Option Plans.


                                      41

<PAGE>



               Aggregated Option Exercises in Last Fiscal Year
                       and Fiscal Year End Option Values

                               Number of Securities
                               Underlying Unexercised    Value of Unexercised
            Number of          Options at                In-the-Money Options
            Shares             December 31, 1997         at December 31, 1997
            Acquired           -----------------------   ---------------------
            on       Value                     Unexer-                 Unexer-
Name        Exercise Realized  Exercisable     cisable   Exercisable   cisable
----        -------- --------  -----------     -------   -----------   -------

Michael Wahl                    634,828                      $ 5,625

Andrew Wahl                     556,750                      $27,419

Robert V.
 Cuddihy, Jr.                   258,850                      $22,550

L. Randy Riley                  258,850                      $ 7,275


Employment Agreements

   The Company maintains an employment  agreement ("Wahl Employment  Agreement")
with Michael Wahl,  Chairman of the Board and Chief Executive Officer, at a base
salary of no less than  $250,000 per year.  He is also  entitled to receive such
bonuses  as may be  awarded  to him from  time to time by the  Board in its sole
discretion. The Wahl Employment Agreement expires December 31, 2002.

   Upon  termination  of the Wahl  Employment  Agreement  by the Company for any
reason  other than for cause,  the Company will be obligated to continue to make
salary  payments to Mr. Wahl, or to his estate in the event of his death,  for a
period of up to two years after such termination.  The Wahl Employment Agreement
also  precludes  Mr.  Wahl from  competing  with the Company for a period of two
years following termination of employment.

   With the  exception  of  Michael  Wahl,  none of the  executive  officers  is
employed by the Company pursuant to an employment agreement.

Compensation of Directors

   The Company's policy is to reimburse  directors for travel and  out-of-pocket
expenses incurred, if any, to attend its directors' meetings.  See "Compensation
Committee Interlocks and Insider Participation".


Board Compensation Committee Report on Executive Compensation

   Although  the  Company  has a  Compensation  Committee,  the Board as a whole
rather than the  Compensation  Committee has set  compensation for its executive
officers for each of the past three years. Four of such directors  received cash
compensation as executive officers of the Company.

   Compensation levels afforded to Michael Wahl, Andrew Wahl, Robert V. Cuddihy,
Jr., L. Randy Riley and to the Company's other  executive  officers are based in
substantial  part  upon a  comparative  evaluation  by the  Company's  Board  of
Directors of each such person's  functional  responsibility  and  performance in
that  particular  segment  of  the  Company's   operations  for  which  each  is
responsible and, where discernable, the profitability of that segment.








                                      42

<PAGE>



   During 1997, the Board  approved the grant of stock  options,  to a number of
employees,  including  executive  officers.  The grant of options were  approved
after considering the significant  transactions initiated and consummated by the
executive  officers  on  behalf  of the  Company  during  the past  year and the
Company's return to profitability.  The Board noted that the Company's executive
officers  accomplishments  included (i) consolidated its principal manufacturing
operations  in Reading in January  1997,  (ii)  acquired  certain wire and metal
fabrication equipment and opened a 21,000 square foot wire and metal fabrication
facility in Brooklyn, New York in April 1997, (iii) opened a full service office
in Toronto through the acquisition of certain assets of Griffith Communications,
Inc.  effective July 1997, (iv) full conversion to and  implementation  of a new
management  information  system  tailored  to  the  Company's  operations,   (v)
exercised  its  option to  purchase  a  previously  leased  72,500  square  foot
secondary  manufacturing and warehousing facility in Reading for $1.2 millio(vi)
consummated a new term loan facility  with a financial  institution  whereby the
Company  obtained a $600,000  secured  term loan for the  purchase of the 72,500
square foot Reading  facility in November 1997. This term loan, which expires in
November 1999,  bears interest at the lending  institution's  prime rate plus 1%
per annum and is secured by the acquired real estate,  (vii)  consummation  of a
private  placement  ("HMG  Private  Placement")  whereby  the  Company  sold  an
aggregate  of  1,012,500  shares of its Common  Stock from which it derived  net
proceeds of approximately  $917,000 and (viii) effective September 30, 1997, the
Company  issued $2.2 million 10%  Convertible  Debentures due September 30, 2000
("Debentures") through a private placement ("Private Placement"). The Debentures
bear interest at the rate of 10% per annum and are convertible, at the option of
the holder at any time, into shares of the Company's  Common Stock  ("Conversion
Shares"),  $0.01 par value,  based upon the conversion price of $1.25 per share.
The Company may prepay the  Debentures on 30 days prior notice,  at such time as
the average  closing  price of the Common Stock exceeds $1.75 per share for a 30
day  period  prior to notice of such  prepayment  provided  that the  Conversion
Shares  have  been  registered  under  the  Securities  Act at the  time of such
prepayment.


   March 1, 1998
                        Michael Wahl - Chairman       Herbert F. Kozlov
                        Andrew Wahl                   Robert V. Cuddihy, Jr
                        Ivan Berkowitz                Louis Perlman
                        L. Randy Riley                Lawrence J. Twill, Sr.

Performance Graph

   The following  graph  compares the yearly change in the Company's  cumulative
total  stockholder  return on its Common Stock (based on the market price of the
Company's  Common Stock) with the cumulative  total return of U.S.  companies on
The Nasdaq Stock Market and non-financial companies on The Nasdaq Stock Market.


                      1/1/93  12/31/93  12/31/94  12/31/95  12/31/96  12/31/97
                      --------------------------------------------------------
HMG Worldwide         $100    $411      $142      $126      $ 47      $ 53

Nasdaq US             $100    $115      $112      $159      $195      $240

Nasdaq Non-Financial  $100    $115      $111      $155      $188      $221










                                      43

<PAGE>



Compensation Committee Interlocks and Insider Participation

   Each member of the Board of Directors  participated in the  determination  of
the level of  compensation  of the Company's  executive  officers.  Five of such
directors  are officers of the  Company,  i.e.,  Michael Wahl - Chief  Executive
Officer,  Andrew Wahl -  President,  Robert V.  Cuddihy,  Jr. - Chief  Operating
Officer  and Chief Financial  Officer, L. Randy Riley, Executive Vice President
and Herbert F. Kozlov - Secretary.

   In  September  1997,  Ivan  Berkowitz  and Louis  Perlman,  directors  of the
Company, entered into a two year financial consulting agreement with the Company
through  Lazam  Properties  Ltd  ("Lazam").  Under the  terms of the  consulting
agreement,  Mr.  Berkowitz  and Mr.  Perlman  shall  provide to the Company with
financial consulting services relating to corporate finance matters.  During the
term of the  agreement,  Lazam shall receive  $260,000 in  consideration  of the
performance of services.  Additionally,  Lazam, or its designees,  shall receive
warrants to purchase an  aggregate  of 200,000  shares of the  Company's  Common
Stock at an exercise price of $1.25 per share. The consulting  agreement expires
September 30, 1999.  Fees paid to Lazam by the Company in full  satisfaction  of
the consulting agreement for the year ended December 31, 1997 were approximately
$289,000. The Company issued warrants to purchase an aggregate of 113,000 shares
of the Company's Common Stock at an exercise price of $1.25 per share to each of
Mr. Berkowitz and Perlman.

   Herbert F. Kozlov,  a director of the Company,  is a member of Parker  Duryee
Rosoff & Haft, counsel to the Company. Fees paid to such firm by the Company for
the year ended December 31, 1997 were approximately $147,000.

   Lawrence J. Twill,  Sr., a director  of the  Company,  is Chairman of Ashwood
Capital.  Such firm,  from time to time,  also serves as an  investment  banking
advisor to the Company.


                                      44

<PAGE>




Item 12. Security Ownership of Certain Beneficial Owners and Management.

   The  following  table sets forth  information  as of March 19,  1998 based on
information  obtained  from  the  persons  named  below,  with  respect  to  the
beneficial  ownership  of  shares  of the  Company's  Common  Stock  by (i) each
director of the Company,  (ii) certain executive officers of the Company,  (iii)
each  person  known  by the  Company  to be the  owner  of  more  than 5% of its
outstanding shares of Common Stock and (iv) all executive officers and directors
as a group:

Name and Address of                      Number of         Approximate
Beneficial Holder                        Shares(1)         Percentage of Class
-------------------                      ---------         -------------------
Michael Wahl                             1,297,875 (2)             13.6%
475 Tenth Avenue
New York, NY 10018

Andrew Wahl                                890,203 (3)              9.3%
475 Tenth Avenue
New York, NY 10018

Robert V. Cuddihy, Jr.                     385,308 (4)              4.2%
475 Tenth Avenue
New York, NY  10018

Herbert F. Kozlov                          245,476 (5)              2.7%
529 Fifth Avenue
New York, NY  10017

L. Randy Riley                             357,583 (6)              3.9%
475 Tenth Avenue
New York, NY  10018

Lawrence J. Twill, Sr.                     126,150 (7)              1.4%
111 East 30th Street (16A)
New York, NY  10016

Gilmour 1994 Jersey Trust                  972,222 (8, 9)          10.9%
7 Bond Street
St. Helier
Jersey, Channel Island

State of Wisconsin Investment Board        740,000                  8.3%
P.O. Box 7842
Madison, WI  53707

Great Court Analysis                       640,000 (10, 13)         7.2%
5150 Overland Avenue
Culver City, CA 90230

Wynnefield Partners Small Cap Value L.P.   617,000 (11)             6.8%
One Penn Plaza
Suite 4720
New York, NY 10119

Louis Perlman                              141,000 (12)             1.7%
650 Madison Avenue
New York, NY 10022

Ivan Berkowitz                             113,000 (10, 13)         1.0%
1790 Broadway
Suite 1500
New York, NY 10009


All executive officers                   4,196,595 (14)            37.2%
and directors as a group
(8 persons)





                                      45

<PAGE>



(1)Includes  shares  issuable  pursuant  to  currently  exercisable  options and
   options which will be exercisable within 60 days of March 19, 1998. Except as
   otherwise   indicated,   the  persons  named  herein  have  sole  voting  and
   disposition power with respect to the shares beneficially owned.
(2)Includes 634,828 shares issuable upon exercise of options.
(3)Includes 551,750 shares issuable upon exercise of options and 40,000
     shares issuable upon conversion of Debentures.
(4)Includes 258,850 shares issuable upon exercise of options.
(5)Includes 227,600 shares issuable upon exercise of options.
(6)Includes 258,850 shares issuable upon exercise of options.
(7)Includes 80,400 shares issuable upon exercise of options.
(8)The trustee of the Gilmour 1994 Jersey Trust (the  "Trust") is Hill Samuel
    (Channel Islands) Trust Company Limited. The directors of the trustee have
    indirect shared voting and dispositive powers with respect to such shares.
(9)Does not  include  35,000  shares  beneficially  owned  by David  Harrison
    Gilmour,   a  primary   beneficiary  of  the  Trust,  and  100,002  shares
    beneficially owned by Mr. Gilmour's spouse.
(10)Ivan Berkowitz,  a director of the Company, is the President of Great Court
      Analysis LLC which beneficially owned 640,000 shares
(11)Includes 160,000 shares issuable upon conversion of Debentures.
(12)Includes  113,000  shares  issuable  upon  exercise of warrants  and 28,000
     shares issuable upon conversion of Debentures.
(13)Includes 113,000 shares issuable upon exercise of warrants. Ivan Berkowitz,
     a director of the Company, is the President of Great Court Analysis LLC
     which beneficially owned 640,000 shares
(14)Includes  2,341,278  shares  issuable upon exercise of options and warrants
     and 68,000 shares  issuable upon the  conversion of the  Debentures  owned
     by such executive officers and directors.

Item 13. Certain Relationships and Related Transactions.

   In 1994, the Company advanced $250,000 to Robert V. Cuddihy,  Jr., an officer
and Director. Such amount is due to be repaid in one installment due January 31,
1999. Unpaid amounts bear interest at a fluctuating rate equal to the six months
U.S. Treasury bill rate. In 1995, 1996 and 1997, Mr. Cuddihy made prepayments of
$66,422,  $4,906 and $41,406,  respectively,  plus accrued interest. At December
31, 1997, the unpaid balance of such advance was $137,266.

   In 1995,  the  Company  advanced  $100,000  to Andrew  Wahl,  an officer  and
Director.  Such  amount is due to be repaid in one  installment  due  January 1,
1999. Unpaid amounts bear interest at a fluctuating rate equal to the six months
U.S.  Treasury  bill rate.  In 1995 and 1997,  Mr.  Wahl made a  prepayments  of
$25,000 and $20,000,  respectively.  At December 31, 1997, the unpaid  principal
balance of such advance was $55,000 and no interest was paid during 1997.

   In  September  1997,  Ivan  Berkowitz  and Louis  Perlman,  directors  of the
Company, entered into a two year financial consulting agreement with the Company
through  Lazam  Properties  Ltd  ("Lazam").  Under the  terms of the  consulting
agreement,  Mr.  Berkowitz  and Mr.  Perlman  shall  provide to the Company with
financial consulting services relating to corporate finance matters.  During the
term of the  agreement,  Lazam shall receive  $260,000 in  consideration  of the
performance of services.  Additionally,  Lazam, or its designees,  shall receive
warrants to purchase an  aggregate  of 200,000  shares of the  Company's  Common
Stock at an exercise price of $1.25 per share. The consulting  agreement expires
September 30, 1999.  Fees paid to Lazam by the Company in full  satisfaction  of
the consulting agreement for the year ended December 31, 1997 were approximately
$289,000. The Company issued warrants to purchase an aggregate of 113,000 shares
of the Company's Common Stock at an exercise price of $1.25 per share to each of
Mr. Berkowitz and Perlman.

   Herbert F. Kozlov,  a director of the Company,  is a member of Parker  Duryee
Rosoff & Haft, counsel to the Company. Fees paid to such firm by the Company for
the year ended December 31, 1997 were approximately $147,000.

   Lawrence J. Twill,  Sr., a director of the  Company,  is President of Ashwood
Capital.  Such firm,  from time to time,  also serves as an  investment  banking
advisor to the Company.

                                      46

<PAGE>



                                   PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) (1)  Financial Statements.  See Index to Consolidated Financial Statements
         in Item 8 hereof.

    (2)  Financial Statement Schedules.
         Schedule II - Valuation and Qualifying Accounts and Reserves

    (3)  Exhibits

   Exhibit
   Number   Description of Exhibit
   ------   ----------------------
    3(a) Certificate of Incorporation, as amended (6)
     (b) By-laws(1)
   10(a) 1986 Stock Option Plan(1)*
     (b) 1991 Stock Option Plan(2)*
     (c) 1993 Stock Option Plan(3)*
     (d) Agreement  between  Louis Adler Realty  Company and  Registrant,  dated
         December 16, 1993, for the lease of the 12th Floor at 475 Tenth Avenue,
         New York, New York(4)
     (e) Agreement  between  Louis Adler Realty  Company and  Registrant,  dated
         December 16, 1993,  for the lease of the 8th Floor at 475 Tenth Avenue,
         New York, New York(4)
     (f) Employment Agreement, dated April 30, 1993, between Registrant,
         Marlboro Marketing, Inc., a New York corporation, and Michael Wahl(3)*
     (g) 1994 Stock Option Plan  (5)*
     (h) Stock  Purchase  Agreement,  dated as of September  30,  1995,  between
         Benson Eyecare Corporation and Intermark Corp (6)
     (i) Display Purchase Agreement, dated as of September 30, 1995, between
         HMG Worldwide In-Store Marketing, Inc., and Foster Grant Group L.P.
         and Benson Eyecare Corporation (6)
     (j) Loan and Security Agreement between Congress Financial Corporation
         and Registrant dated November 22, 1996
   21 Subsidiaries of the Registrant   (6)
   23 Consents of Friedman Alpren & Green LLP
   27    Financial Data Schedule

(b)  Registrant  filed one  report on Form 8-K  during  the last  quarter of the
period ended  December  31, 1997.  Such report was filed in October 15, 1997 and
contained a item 5, Other Events,  description of the Company recently completed
issuance of Debentures.

(1)   Denotes  document  filed as an exhibit to  Registrant's  Proxy  Statement,
      dated November 25, 1986, and incorporated herein by reference.
(2)   Denotes  document  filed as an exhibit to  Registrant's  Proxy  Statement,
      dated February 7, 1992, and incorporated herein by reference.
(3)   Denotes  document  filed as an exhibit to  Registrant's  Proxy  Statement,
      dated September 7, 1993, and incorporated herein by reference.
(4)   Denotes document filed as an exhibit to Registrant's Registration
      Statement on Form S-2 dated August 9, 1994 (File No. 33-44832) and
      incorporated herein by reference.
(5)   Denotes document filed as an exhibit to Registrant's Proxy Statement,
      dated October 21, 1994.
(6)   Denotes document filed as an exhibit to Registrant's Annual Report on
      Form 10-K dated December 31, 1995, and incorporated herein by reference.

 * Management contract or compensatory plan or arrangement

                                      47

<PAGE>



                                  SIGNATURES


   Pursuant to the  requirements  of the  Section 13 or 15(d) 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.


                                             HMG WORLDWIDE CORPORATION

Date: March 27, 1998                         By:/s/Robert V. Cuddihy, Jr.
                                                ------------------------------
                                                   Robert V. Cuddihy, Jr.
                                                   Chief Operating Officer and
                                                   Chief Financial Officer


   Pursuant to the  requirements  of the Securities  Exchange Act of 1934,  this
Report has been signed below by the following  persons in the  capacities and on
the dates indicated:


/s/Michael Wahl              Chairman of the               March 27, 1998
------------------------     Board and Chief
   Michael Wahl              Executive Officer


/s/Andrew Wahl               President and                 March 27, 1998
------------------------     Director
   Andrew Wahl

/s/Robert V. Cuddihy, Jr.    Chief Operating               March 27, 1998
-------------------------    Officer, Chief
   Robert V. Cuddihy, Jr.    Financial Officer
                             and Director


/s/L. Randy Riley            Executive Vice                March 27, 1998
------------------------     President and
   L. Randy Riley            Director


------------------------     Director                      March 27, 1998
Ivan Berkowitz


/s/Herbert F. Kozlov         Director                      March 27, 1998
------------------------
   Herbert F. Kozlov


------------------------     Director                      March 27, 1998
Louis Perlman


------------------------     Director                      March 27, 1998
 Lawrence J. Twill, Sr.



                                      48

<PAGE>



                    INDEX TO FINANCIAL STATEMENT SCHEDULES


The following financial statement schedules are filed as part of this Report:


                                                                        PAGE
                                                                        ----

      Independent Auditors' Report                                      A-2

      Schedule II - Valuation and Qualifying Accounts and Reserves      A-3

Schedules other than those listed are omitted as not required or applicable.









































                                      49

<PAGE>





            INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTAL SCHEDULES






TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
HMG WORLDWIDE CORPORATION


   We have audited,  in accordance with generally  accepted auditing  standards,
the financial  statements included in HMG WORLDWIDE  CORPORATION'S annual report
to  shareholders  in this FORM 10-K,  and have issued our report  thereon  dated
March 20,  1998.  Our audits  were made for the purpose of forming an opinion on
those  statements  taken as a whole. The schedules listed in the index above are
presented  for  purposes  of  complying   with  the   Securities   and  Exchange
Commission's  rules and are not part of the basic  financial  statements.  These
schedules have been subjected to the auditing  procedures  applied in our audits
of the basic  financial  statements  and, in our  opinion,  fairly  state in all
material  respects  the  financial  data  required  to be set forth  therein  in
relation to the basic financial statements taken as a whole.




                        FRIEDMAN ALPREN & GREEN LLP
                        CERTIFIED PUBLIC ACCOUNTANTS



New York, New York
March 20, 1998






















                                     A - 2


<PAGE>



                  HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
                                  SCHEDULE II
                VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                (in thousands)





                                 Additions/
                                 Deductions
                     Balance at  Charged to  Charged to               Balance
                     Beginning   Costs and   Other                    at End
                     of Period   Expenses    Accounts  Deductions(a)  of Period
                     ---------   ----------  --------- -------------  ---------
Year ended
 December 31, 1997:

  Allowance for
    doubtful accounts    $577     ($285)       $  -       ($ 19)         $273
                         ====      ====        =====       ====          ====

Year ended
 December 31, 1996:

  Allowance for
     doubtful accounts   $596      $ 64        $  -       ($ 83)         $577
                         ====      ====        =====       ====          ====

Year ended
 December 31, 1995:

  Allowance for
    doubtful accounts    $773     ($ 47)       $  -       ($130)         $596
                         ====      ====        =====       ====          ====


(a) Specified write-off of accounts receivable.

















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