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

        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
For the fiscal year ended         December 31, 1999
                         -------------------------------------------------------
                                       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
--------------------------------------------------------------------------------
(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
12,915,586 (as of 3/20/00).  The aggregate market value of the voting stock held
by non-affiliated stockholders of the Registrant is $61,600,213 (as of 3/20/00).

                       DOCUMENTS INCORPORATED BY REFERENCE


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                                     PART I

Item 1. Business.


General Development of Business

     "Integrated marketing will become more important than ever. Brand, physical
store, web site,  advertising,  merchandise and in-store  graphics - down to the
smallest  details - all need to deliver the same message.  The consumer sees the
retail brand as a whole, not in parts."  --Visual  Merchandising & Store Design,
March 2000.

     HMG Worldwide Corporation ("the Company"),  which was incorporated in 1984,
is a marketing solutions agency which seeks to consistently  provide its clients
with  insights,  solutions,  and  opportunities  that  create  results  wherever
purchase  decisions  are made.  The  Company's  heritage  has been  primarily in
identifying  in-store,  retail-based  marketing  objectives  of its  clients and
integrating research, creative design, engineering,  production,  package design
and related  services to provide  point-of-purchase  merchandising  fixtures 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 touch screen  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  multi-disciplinary  solutions  approach to achieving results
for its clients wherever purchase  decisions are made has been recently expanded
to include web-consulting,  web-branding and web-design services. The Company is
cultivating a seamless  marketing  solutions strategy to offer consistent online
and in-store  marketing  services in an attempt to capitalize on the convergence
of retail and e-tail marketing strategies developing in the "new economy".

     The Company's  heritage has been to provide in-store  marketing systems and
services that influence a consumer's purchase decision at the point-of-purchase,
historically  at a retail  store  location.  The  Company's  expertise  has been
creating brand identity and brand  awareness,  combined with the creative design
of  merchandising  and display  systems,  that  influence a consumer's  purchase
decisions.  The Company plans to  capitalize on its expertise and  experience in
product  branding,  design  services and consumer buying habits by expanding its
services to Web-based  marketing.  By adding  Web-based  services to its service
offerings,  the company has the capability to converge in-store retail marketing
with online e-tail marketing.

     In an effort to effectively focus its online  initiatives,  the Company has
recently formed the HMG "e" division, consisting of its first acquisition of 80%
of Ego Media ("Ego Media"). The Company will initially implement its strategy by
introducing the Web-consulting  services of Ego Media to select companies in its
current client base. The goal of the Company's  converged strategy is to develop
a client's brand online in a manner that is consistent with the brand's identity
in-store and elsewhere,  in a universally  integrated message to consumers.  The
Company believes that its advantage in offering  Web-consulting  services to its
client base exists in its  knowledge  of its clients'  brands and its  extensive
research and experience in consumers' buying habits.

     The Company's clients include national and multi-national consumer products
companies  and  mass  merchandisers,  chain  drugstores  and  supermarkets.  The
Company's  operations  are  conducted   principally  through  five  wholly-owned
subsidiaries  being,  respectively,   HMG  Worldwide  In-Store  Marketing,  Inc.
("HMG"),  HMG Intermark  Worldwide  Manufacturing,  Inc. ("HMG Intermark"),  HMG
Schutz International, Inc. ("HMG Schutz"), Display Depot, Inc. ("Display Depot")
and HMG Griffith,  Inc.  ("HMG  Griffith").  In addition,  the Company  recently
acquired 80% of Ego Media in a transaction  consummated  effective September 28,
1999. The Company maintains facilities in New York,  Pennsylvania,  Illinois and
Toronto, Canada.



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Recent Developments

     The  Company's   revenues  for  the  year  ended  December  31,  1999  grew
organically  16.9% to $80.0  million as compared  to $68.5  million for the year
ended December 31, 1998. Additionally, for the year ended December 31, 1999, the
Company  incurred  non-recurring  costs which have been charged to operations of
approximately $1.8 million in transition and integration  expenses,  principally
in the form of personnel  redundancies  associated with (i) consolidation of the
Company's  production  and  distribution  operations  in  Reading,  Pennsylvania
("Reading"),  $871,000,  (ii)  consolidation of product  development  operations
between  New York  and  Reading  operating  centers,  $650,000,  and  (iii)  the
streamlining of the account management and client service operations in New York
and Chicago,  $236,000.  Furthermore,  Ego Media,  acquired  September 28, 1999,
incurred  a loss of  approximately  $214,000  from  operations  and the  Company
charged to operations  approximately  $170,000 for the  amortization of deferred
financing  costs  associated  with  the  new  financing  and  credit  facilities
consummated  during  1999.  Accordingly,  for the year ended  December 31, 1999,
subsequent  to  the   recognition  of  the  above   expenses   which   aggregate
approximately  $2.1  million,  the  Company  incurred  a loss  of  approximately
$31,000,  or $0.00 basic  earning  per share,  as compared to net income of $1.9
million, or $0.21 basic earnings per share, for the year ended December 31, 1998
 .

     For the  year  ended  December  31,  1999,  the  Company  accomplished  the
following:

     (i) Embarked on an e-commerce  development  strategy for its clients during
1999. Through the strategic  acquisition of 80% of Ego Media effective September
28,1999,  the Company is seeking to  leverage  its  heritage of in-store  retail
solutions  to  on-line  e-tail  solutions   whereby  web  brand  services,   web
consulting,  web design and new media  services  are  provided to the  Company's
clients  seeking   integrated   solutions  to  their  marketing  and  e-commerce
initiatives. Pursuant to the terms of the purchase agreement, the Company issued
an aggregate of 350,000 shares of the Company's Common Stock valued at $4.00 per
share.

     (ii) Consummated a series of financing  agreements to finance the Company's
current and future growth and financing needs. The Company obtained a five-year,
$35.0  million  Revolving  Credit  Term  Loan and  Security  Agreement  ("Credit
Agreement")  from a financial  institution  which  provides a secured  revolving
credit  facility  which  advances up to the sum of (a) 85% of eligible  accounts
receivable,  (b) 60% of eligible  inventory  and (c) the  Company's  cash,  cash
equivalents  and  marketable  securities.  The Credit  Agreement also provides a
five-year term loan of $3.1 million.  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.  In addition to the Credit Agreement, on February 24,
1999 the Company issued $5.0 million, 7% Convertible Notes Due February 24, 2002
to  two  institutional   investors.  The  principal  amount  of  the  Notes  are
convertible  into shares of the Company's  Common Stock at a conversion price of
the lesser of $4.00 per share or a price based upon the prevailing  market price
of the Common Stock,  subject to a maximum issuance of 2,160,000 shares upon the
conversion of the Notes,  taken together.  The Company also issued on August 26,
1999  $2.0  million,  10%  Convertible  Debentures  Due  August  26,  2002 to an
institutional investor. The principal amount of the Debenture is convertible, at
the option of the holder at any time, into shares of the Company's  Common Stock
based upon the conversion price of $4.00 per share

     (iii) Initiated and completed an investment of $3.0 million for a series of
proprietary  products and  associated  injection  molds and  production  related
tooling.  The Company has produced a proprietary series of products which can be
marketed  across a variety of different  clients and retail store  environments.
Among the  proprietary  products  developed,  the Company has a new product line
which  provides  for the products to be  automatically  arranged on retail shelf
space  through the use of a variety of pushing  mechanisms  that provide  "front
faced"  product  along the  front of the  retail  shelf in a neat and  organized
fashion.  Through the use of these systems,  the retail  environment  appears to
always be full,  provides for efficient use of store space and reduces  stocking
labor. At December 31, 1999, included in the Company's backlog was approximately
$5.4 million in orders  relating to the  Company's  proprietary  product line of
products.

     (iv) The Company  opened  100,000  square feet of a 199,500 square foot new
warehouse  and  distribution  facility  effective  October  1,  1999.  The  full
warehouse and distribution  facility is comprised of 42 service bays for loading
and

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unloading goods and has ceiling heights of 30 foot clear. The remaining  portion
of this  facility is scheduled to become  operational  in September  2000 as the
space is currently  sublet to a third party. The Company plans for this facility
include  (a)  streamlining  its  productions  activities  to  provide  for  more
economical  production  runs, (b) reduction in production  line  change-over and
distribution costs through maintaining a finished goods warehouse, (c) expansion
of  customized   pick  and  pack   operations   whereby  more   specific   store
configurations  are shipped directly from the Company and (d) improved logistics
service, warehousing and support to clients.

     (v) Entered into a sales and marketing  agreement  with Pacific  Softworks,
Inc.  ("Softworks"),  a developer of embedded  Internet  technology and Internet
appliances.  The sales and marketing agreement will allow the Company to jointly
develop with  Softworks  in-store  marketing  solutions  with  Internet  enabled
elements.  Although this relationship is in its early  development,  the Company
seeks to offer its  clients  in the  future  the  ability  to  develop  in-store
displays  that can be assessed  over the  Internet to  determine  stock  status,
replenishment needs, sales and stock movement trends and maintenance information
on any moving components of the display.

     Management  believes that each of the above  accomplishments  positions HMG
well as a leading, innovative agency providing  multi-disciplinary  solutions to
achieving  results  for its clients  wherever  purchase  decisions  are made and
having the  appropriate  resources to support  each of its clients  initiatives.
Furthermore,  HMG will continue to seek to acquire  strategic  businesses  which
will expand the  Company's  retail and e-tail  products  and  services,  provide
improved distribution and reduce operating and manufacturing costs.

     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 and e-tail, (ii) competitive
market influences, (iii) client budgetary restrictions,  (iv) delays in shipment
or 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 - Retail and E-tail Convergence

     The   Company   believes   point-of-purchase   merchandising   systems  and
strategically focused Internet marketing and e-commerce solutions 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 and satellite connections have
increased  the number of  channels  available  to viewers.  Furthermore,  remote
control  units,  videocassette  recorders and direct TV 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.  Today,  the point of sale has been  expanded from
traditional  retail stores,  "brick and mortar",  to include  virtual retail and
e-tail.  The  speed of  technology  is  driving  a  marketplace  where  purchase
decisions  are being  made 24 hours a day,  seven  days a week.  With  consumers
making so many decisions at the point of sale, retailers, e-tailers and consumer
products  companies  are paying  greater  attention  to how  products  and brand
categories are organized and presented in-store and on the Internet.  There is a
convergence  of retail and e-tail  marketing  strategies  developing in the "new
economy". Traditional brand building and traffic driving

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marketing  solutions  have strong  application to  Internet-based  marketing and
e-commerce driving the linkage between "brick and mortar" retail with "click and
mortar" e-tail through a universally integrated message to consumers.

     The  Company  believes  consumer  product  companies,   retailers  and  the
developing impact of e-tailers are driving the growth of both in-store marketing
and  e-commerce.  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  and  retailers  have  sought to  maximize  the  appeal  and
efficiency  of their  allocated  space in retail  stores  as well as to  develop
marketing  programs which augment their retail  presentation with a relationship
direct to the consumer via the Internet.  In-store merchandising systems and web
brand  development  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 as well as offer products and
services  not  normally  available  or in stock  at the  local  store.  In-store
merchandising systems and e-commerce strategies become an important component of
merchandising  products and brand  categories  to create  competitive  points of
differentiation.

     The in-store  marketing  industry is an estimated $12.7 billion industry in
of itself  which,  when coupled with the emerging  Internet  e-commerce  and web
branding  industries,  provides for a significant  industry  yielding  numerous,
broad-based opportunities for the Company to market its products and services


Operations

General

     The Company  identifies the strategic,  in-store and/or Internet  marketing
objectives  of  its  clients  and  provides  either  specific  functions  or the
Company's fully integrated range of services, which includes research, marketing
development,  brand positioning,  creative design, engineering, web programming,
production,  package design and related services,  to provide  point-of-purchase
merchandising  display systems and/or Internet  solutions  intended to meet such
objectives.  The Company's systems, whether traditional merchandising systems or
Internet-based  applications,  are  generally  strategic  in nature,  "solutions
oriented"   and  custom   designed  to  fit  each  client's   requirements   and
specifications.  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 retail or e-tail  fixture,  display or
Internet presence they desire and rely upon the Company's  creative design teams
to conceive and create the merchandising solutions.

Merchandising Systems

     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
Auto-CAD  and Solid  Works  equipment  which,  among other  things,  enables the
Company to design proprietary 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

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no  assurances  that the  development  and  test-marketing  of a prototype for a
client will ultimately lead to any volume orders.

Internet Web-Consulting, Web-Design, Web Branding and New Media Services

     Through the HMG "e" division and principally through Ego Media, the Company
provides web consulting,  web-design, web branding and "new media" services. Ego
Media  consults,  designs,  creates,  programs and supports a client's  Internet
presence. Ego Media provides a disciplined approach to web-based marketing and
e-commerce which encompasses a five phase approach to solution  implementation -
(i) detailed  objective  definition,  (ii) concept  development,  (iii)  program
development, (iv) project implementation and (v) support.

Production and Assembly of Merchandising Systems

     The Company has the  internal  capability  to  manufacture  injection  mold
plastic   components,   fabricate  wire  and  metal  components,   assemble  its
merchandising systems, and warehouse and distribute its products, as compared to
many  of its  competitors  which  have  no  injection  molding,  wire  or  metal
fabrication,  or assembly facilities, and warehouse or distribution capacity and
must outsource these functions to third parties.  Once the Company enters into a
contract with a client to  manufacture  merchandising  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  customer
service number to call for assistance in connection with on-site assembly.

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,  HMG
Griffith,  in Toronto,  Canada.  For the years ended December 31, 1999, 1998 and
the  six  months  ended   December  31,  1997,   net  revenues  in  Canada  were
approximately  $4.5 million,  $3.5 million and $494,000,  respectively,  and the
Company realized income from operations of approximately $17,000, $218,000 and a
loss from operations of approximately $31,000, respectively.


Products

     The  Company's   merchandising  systems  and  e-commerce  applications  are
designed to increase retail sales by attracting and influencing consumers at the
point of sale. 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 as well as offer products and services
for sale not currently available or in stock at the local store.


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Custom Displays

     The Company designs,  assembles and markets  in-store custom  merchandising
fixtures 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  systems  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 Thom McAn shoe  centers  located in
Kmart Corporation  ("Kmart") stores and Wal*Mart Stores ("Wal*Mart")  electronic
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 the year ended December 31, 1999,  the Company  initiated and completed
an  investment  of $3.0  million for a series of new  proprietary  products  and
associated  injection  mold and  production  related  tooling.  The  Company has
produced a proprietary series of products which can be marketed across a variety
of  different  clients  and retail  store  environments.  Among the  proprietary
products  developed,  the Company has a new product line which  provides for the
products to be automatically arranged on retail shelf space through the use of a
variety of pushing mechanisms that provide "front faced" product along the front
of the retail shelf in a neat and  organized  fashion.  Through the use of these
systems,  the  retail  environment  appears  to  always  be full,  provides  for
efficient use of store space and reduces  stocking  labor. At December 31, 1999,
included in the  Company's  backlog  was  approximately  $5.4  million in orders
relating to the Company's propriety product line of products.

Interactive Systems

     The  Company's   interactive   display  systems   include   shelf-edge  and
freestanding flip-charts, mechanical demonstration units and battery-powered and
touch  screen  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 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.

Internet Services

     Through Ego Media,  the Company  provides web consulting,  web-design,  web
branding  and "new  media"  services.  Ego  Media  consults,  designs,  creates,
programs and supports a client's  Internet  presence and e-commerce  strategies.
Each project  developed by Ego Media utilizes  customized  software and programs
developed  for  the  specific  client  application.  Ego  Media's  products  are
incorporated  in its clients  Internet and  e-commerce  sites on the Internet as
well as  multi-media  and CD-ROM  presentations.  Ego  Media's  renowned  use of
Macromedia's Flash Software allows the Company to provide unique and stimulating
Internet applications on the web driving sales for its clients.

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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"),  Kmart,  Microsoft,  The Pillsbury
Company, Target Stores, Inc., Walgreen 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, 1999,  no one client  accounted for 10% or
more  of net  revenues.  For the  year  ended  December  31,  1998,  P&G and CVS
accounted  for  approximately  12% and 11%,  respectively,  of the Company's net
revenue.  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.  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 not have a material adverse effect on the Company.


Backlog

     At December 31, 1999, the Company's aggregate backlog was $48.9 million, as
compared  to $48.8  million  and $32.0  million at  December  31, 1998 and 1997,
respectively.  Of such  aggregate  backlog at December 31,  1999,  no one client
exceed 10% of such backlog.  The Company anticipates that substantially all such
backlog at December 31, 1999,  will be filled during the next twelve months.  In
addition to the $48.9 million backlog at December 31, 1999, 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, 1999 was $20.4  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 39 sales and account management 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.


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

                                        8

<PAGE>



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  various  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  merchandising  fixture  and  display  segment  of the  in-store
marketing  industry in which the Company  primarily  competes  and the  Internet
marketing  application  development  industry  are very  fragmented  and  highly
competitive. Certain of the Company's competitors, including several diversified
companies,  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.  As
consumer  products  companies,  retailers  and  e-tailers  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, or
provide integrated  marketing services.  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 March 20,  2000,  the  Company  employed  447  persons,  including  4
executive  officers,  227  in  production  and  assembly,  49 in  design,  50 in
purchasing and engineering,  36 in marketing and sales, 69 in administration and
12 in web  branding  and web  development.  Approximately  102 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, 2003.  Approximately 60 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 11 in Notes to Consolidated  Financial Statements
included in Item 8 hereof.








                                        9

<PAGE>



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  $465,000. The Company sublets 8,750 square feet of such
space for  approximately  $86,000 annually under a sublease  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  35,000 square feet of space at 8710 Ferris Avenue
in Morton  Grove,  IL on a month to month basis while the Company  evaluates its
option to purchase such facility for $2.3 million.  The purchase  option expires
no earlier than March 2001. The Company leases  approximately 25,000 square feet
of office and  warehouse  space at 9 City View  Drive in  Toronto,  Canada,  for
approximately $63,000 annually expiring in August 2003.

     The Company operates three production and assembly  facilities and one full
service  distribution  center  located  in  Reading,  Pennsylvania.  Two  of 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 third  production  and  assembly  facility  is
comprised  of 60,000  square  feet of space at  current  annual  base  rental of
approximately  $165,000  annually  which expires in June 2003.  The full service
distribution  center is  comprised of 199,520  square feet of space,  42 service
bays for  loading  and  unloading  goods,  at a current  annual  base  rental of
approximately $668,000 annually which expires in April 2005.  Additionally,  the
Company  has an option to renew  this  lease  for an  additional  five year term
subject to a rental increase based upon future market conditions.

     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 $66,000. 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.



                                       10

<PAGE>



                                     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
             1999
      First quarter ..................................    $4-1/32       $2-1/16
      Second quarter .................................     4-5/8         3-3/4
      Third quarter ..................................     5-1/8         3-1/4
      Fourth quarter .................................     7             3-15/16


             1998
      First quarter ..................................    $1-3/8        $1
      Second quarter .................................     2-1/16        1-1/8
      Third quarter ..................................     1-7/8         1-15/16
      Fourth quarter .................................     2-7/16           3/4

     At March 20, 2000, there were 347 holders of record and approximately 2,050
beneficial  stockholders  of the  Company's  Common  Stock and the  closing  bid
quotation of the Common Stock on Nasdaq was $7-3/4 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 5 in Notes to the Consolidated  Financial Statements included in Item 8
hereof.


















                                       11

<PAGE>



Item 6. Selected Historical Financial Data.

     The selected  historical  financial data presented below as of December 31,
1999 and 1998 and for each of the years in the three year period ended  December
31, 1999, 1998 and 1997 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.  All of such
selected  financial  data of the Company has been derived from the  Consolidated
Financial Statements of the Company,  which have been audited by Friedman Alpren
& Green LLP, Independent  Certified Public Accountants.  The selected historical
financial data,  which include Balance Sheet data at December 31, 1997, 1996 and
1995 and Statement of Operations  data for the years ended December 31, 1996 and
1995 has been derived  from  Consolidated  Financial  Statements  not  presented
herein.

<TABLE>

                                                                 Year Ended December 31,
                                                  ------------------------------------------------------
                                                   1999        1998        1997        1996         1995
                                                   ----        ----        ----        ----         ----
                                                         (in thousands, except per share data)

Statement of Operations Data

<S>                                              <C>         <C>         <C>         <C>          <C>
Net revenues ...............................     $80,045     $68,457     $46,311     $45,552      $47,641
                                                 =======     =======     =======     =======      =======

Income (loss) from operations ..............       1,551       3,299       1,079      (5,040)     (10,009)

Net income (loss) ..........................    ($    31)    $ 1,904     $   529    ($ 5,535)    ($10,118)
                                                 =======     =======     =======     =======      =======

Basic earnings per share data
  Net income (loss) per common shares ......     $  --       $  0.21     $  0.06    ($  0.73)    ($  1.34)
                                                 =======     =======     =======    ========      =======

  Weighted average number of
   common shares outstanding ...............      11,388       9,094       8,638       7,614        7,568
                                                 =======     =======     =======     =======      =======

Diluted earnings per share data
  Net income (loss) per common and
   common equivalent shares ................     $  --       $  0.19     $  0.05    ($  0.73)    ($  1.34)
                                                 =======     =======     =======     =======      =======

  Weighted average number of common
   and common equivalent shares ............      11,388      10,712      11,206       7,614        7,568
                                                 =======     =======     =======     =======      =======
</TABLE>
<TABLE>


                                                                      December  31,
                                                  -------------------------------------------------------
                                                   1999        1998        1997        1996         1995
                                                   ----        ----        ----        ----         ----
 Balance Sheet Data:                                                 (in thousands)

<S>                                              <C>         <C>         <C>         <C>          <C>
  Cash and cash equivalents ................     $ 5,973     $ 5,730     $ 6,439     $ 6,950      $ 8,139
  Working capital ..........................       5,430         804        (426)     (3,236)       2,624
  Total assets .............................      70,038      51,729      33,645      28,755       32,648
  Long-term debt ...........................      11,080       4,251       2,878         266          -
  Stockholders' equity .....................      13,556       9,068       6,470       5,191       10,076


</TABLE>





                                       12

<PAGE>



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


General
     "Integrated marketing will become more important than ever. Brand, physical
store, web site,  advertising,  merchandise and in-store  graphics - down to the
smallest details - all need to deliver the same message.  The consumers sees the
retail brand as a whole, not in parts."  --Visual  Merchandising & Store Design,
March 2000.

     HMG Worldwide Corporation ("the Company"),  which was incorporated in 1984,
is a marketing solutions agency which seeks to consistently  provide its clients
with  insights,  solutions,  and  opportunities  that  create  results  wherever
purchase  decisions  are made.  The  Company's  heritage  has been  primarily in
identifying  in-store,  retail-based  marketing  objectives  of its  clients and
integrating research, creative design, engineering,  production,  package design
and related  services to provide  point-of-purchase  merchandising  fixtures 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 touch screen  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  multi-disciplinary  solutions  approach to achieving results
for its clients wherever purchase  decisions are made has been recently expanded
to include web-consulting,  web-branding and web-design services. The Company is
cultivating a seamless  marketing  solutions strategy to offer consistent online
and in-store  marketing  services in an attempt to capitalize on the convergence
of retail and e-tail marketing strategies developing in the "new economy".

     The Company's  heritage has been to provide in-store  marketing systems and
services that influence a consumer's purchase decision at the point-of-purchase,
historically  at a retail  store  location.  The  Company's  expertise  has been
creating brand identity and brand  awareness,  combined with the creative design
of  merchandising  and display  systems,  that  influence a consumer's  purchase
decisions.  The Company plans to  capitalize on its expertise and  experience in
product  branding,  design  services and consumer buying habits by expanding its
services to Web-based  marketing.  By adding  Web-based  services to its service
offerings,  the company has the capability to converge in-store retail marketing
with online e-tail marketing.

     In an effort to effectively focus its online  initiatives,  the Company has
recently formed the HMG "e" division, consisting of its first acquisition of 80%
of Ego Media.  The Company will initially  implement its strategy by introducing
the  Web-consulting  services  of Ego Media to select  companies  in its current
client  base.  The goal of the  Company's  converged  strategy  is to  develop a
client's brand online in a manner that is consistent  with the brand's  identity
in-store and elsewhere,  in a universally  integrated message to consumers.  The
Company believes that its advantage in offering  Web-consulting  services to its
client base exists in its  knowledge  of its clients'  brands and its  extensive
research and experience in consumers' buying habits.


Recent Developments

     The Company  revenues for the year ended December 31, 1999 grew organically
16.9% to $80.0 million as compared to $68.5 million for the year ended  December
31,  1998.  Additionally,  for the year ended  December  31,  1999,  the Company
incurred   non-recurring   costs  which  have  been  charged  to  operations  of
approximately $1.8 million in transition and integration  expenses,  principally
in the form of personnel redundancies,  associated with (i) consolidation of the
Company's  production  and  distribution  operations  in  Reading,  Pennsylvania
("Reading"),  $871,000,  (ii)  consolidation of product  development  operations
between  New York  and  Reading  operating  centers,  $650,000,  and  (iii)  the
streamlining of the account management and client service operations in New York
and Chicago,  $236,000.  Furthermore,  Ego Media,  acquired  September 28, 1999,
incurred  a loss of  approximately  $214,000  from  operations  and the  Company
charged to operations  approximately  $170,000 for the  amortization of deferred
financing costs associated with the new financing and credit

                                       13

<PAGE>



facilities consummated during 1999. Accordingly, for the year ended December 31,
1999,  subsequent  to the  recognition  of the above  expenses  which  aggregate
approximately  $2.1  million,  the  Company  incurred  a loss  of  approximately
$31,000,  or $0.00 basic  earning  per share,  as compared to net income of $1.9
million, or $0.21 basic earnings per share, for the year ended December 31, 1998
 .

     For the  year  ended  December  31,  1999,  the  Company  accomplished  the
following:

     (i) Embarked on an e-commerce  development  strategy for its clients during
1999. Through the strategic  acquisition of 80% of Ego Media effective September
28,1999,  the Company is seeking to  leverage  its  heritage of in-store  retail
solutions  to  on-line  e-tail  solutions   whereby  web  brand  services,   web
consulting,  web design and new media  services  are  provided to the  Company's
clients  seeking   integrated   solutions  to  their  marketing  and  e-commerce
initiatives. Pursuant to the terms of the purchase agreement, the Company issued
an aggregate of 350,000 shares of the Company's Common Stock valued at $4.00 per
share.

     (ii) Consummated a series of financing  agreements to finance the Company's
current and future growth and financing needs. The Company obtained a five-year,
$35.0  million  Revolving  Credit  Term  Loan and  Security  Agreement  ("Credit
Agreement")  from a financial  institution  which  provides a secured  revolving
credit  facility  which  advances up to the sum of (a) 85% of eligible  accounts
receivable,  (b) 60% of eligible  inventory  and (c) the  Company's  cash,  cash
equivalents  and  marketable  securities.  The Credit  Agreement also provides a
five-year term loan of $3.1 million.  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.  In addition to the Credit Agreement, on February 24,
1999 the Company issued $5.0 million, 7% Convertible Notes Due February 24, 2002
to  two  institutional   investors.  The  principal  amount  of  the  Notes  are
convertible  into shares of the Company's  Common Stock at a conversion price of
the lesser of $4.00 per share or a price based upon the prevailing  market price
of the Common Stock,  subject to a maximum issuance of 2,160,000 shares upon the
conversion of the Notes,  taken together.  The Company also issued on August 26,
1999  $2.0  million,  10%  Convertible  Debentures  Due  August  26,  2002 to an
institutional investor. The principal amount of the Debenture is convertible, at
the option of the holder at any time, into shares of the Company's  Common Stock
based upon the conversion price of $4.00 per share.

     (iii) Initiated and completed an investment of $3.0 million for a series of
proprietary  products and  associated  injection  molds and  production  related
tooling.  The Company has produced a proprietary series of products which can be
marketed  across a variety of different  clients and retail store  environments.
Among the  proprietary  products  developed,  the Company has a new product line
which  provides  for the products to be  automatically  arranged on retail shelf
space  through the use of a variety of pushing  mechanisms  that provide  "front
faced"  product  along the  front of the  retail  shelf in a neat and  organized
fashion.  Through the use of these systems,  the retail  environment  appears to
always be full,  provides for efficient use of store space and reduces  stocking
labor. At December 31, 1999, included in the Company's backlog was approximately
$5.4  million in orders  relating to the  Company's  propriety  product  line of
products.

     (iv) The Company  opened  100,000  square feet of a 199,500 square foot new
warehouse  and  distribution  facility  effective  October  1,  1999.  The  full
warehouse and distribution  facility is comprised of 42 service bays for loading
and  unloading  goods and has ceiling  heights of 30 foot clear.  The  remaining
portion of this facility is scheduled to become operational in September 2000 as
the space is  currently  sublet to a third  party.  The  Company  plans for this
facility include (a) streamlining its productions activities to provide for more
economical  production  runs (b) reduction in production  line  change-over  and
distribution costs through  maintaining a finished goods warehouse (c) expansion
of  customized   pick  and  pack   operations   whereby  more   specific   store
configurations  are shipped directly from the Company and (d) improved logistics
service, warehousing and support to clients.

     (v) Entered into a sales and marketing  agreement  with Pacific  Softworks,
Inc.  ("Softworks"),  a developer of embedded  Internet  technology and Internet
appliances.  The sales and marketing agreement will allow the Company to jointly
develop with  Softworks  in-store  marketing  solutions  with  Internet  enabled
elements.  Although this relationship is in its early  development,  the Company
seeks to offer its  clients  in the  future  the  ability  to  develop  in-store
displays that can be assessed

                                       14

<PAGE>



over the Internet to determine  stock  status,  replenishment  needs,  sales and
stock movement  trends and maintenance  information on any moving  components of
the display.

     Management  believes that each of the above  accomplishments  positions HMG
well as a leading, innovative agency providing  multi-disciplinary  solutions to
achieving  results  for its clients  wherever  purchase  decisions  are made and
having the  appropriate  resources to support  each of its clients  initiatives.
Furthermore,  HMG will  continue  to seek to acquire  strategic  businesses  and
alliances  which will  expand the  Company's  retail  and  e-tail  products  and
services,  provide improved  distribution and reduce operating and manufacturing
costs.


Results of Operations

Year Ended December 31, 1999 as Compared to
  Years Ended December 31, 1998 and 1997

     Net revenues increased by approximately  $11.6 million to $80.0 million for
the year ended  December 31, 1999 from $68.5 million for the year ended December
31, 1998.  This 16.9% increase in net revenues from 1998 to 1999 was principally
due to the effects of (i) the net revenues from HMG Schutz,  acquired  effective
August 1, 1998 of approximately  $3.8 million,  (ii) an increase of net revenues
from HMG Griffith of  approximately  $1.0 million,  and (iii) an increase of net
revenues of approximately  $6.8 million from a more diversified  client base and
through the national  roll out of several new retailer  sponsored  merchandising
programs.  Net revenues increased  approximately  $22.1 million to $68.5 million
for the year  ended  December  31,  1998 from $46.3  million  for the year ended
December 31,  1997.  This 47.8%  increase in net revenues  from 1997 to 1998 was
principally the net effect of (i) net revenues from HMG Schutz of  approximately
$8.9  million,  (ii) an increase of net revenues  from the Company's new Toronto
office of approximately  $3.0 million,  (iii) an increase of net revenues from a
more diversified client base of approximately $10.6 million.

     Gross profit increased  approximately $3.7 million to $22.9 million for the
year ended  December 31, 1999 from $19.2 million for the year ended December 31,
1998 due to the  increase  in the  Company's  net  revenues.  For the year ended
December 31, 1998,  gross profit increased  approximately  $6.2 million to $19.2
million  from $13.0  million  for the year ended  December  31,  1997 due to the
increase in the Company's net revenues.  Gross margins remained stable at 28.6%,
28.1%  and  28.2%  for the  years  ended  December  31,  1999,  1998  and  1997,
respectfully, principally due to the Company's emphasis in more direct, internal
production of its merchandising systems.

     Selling,  general and  administrative  expenses ("SG&A") for the year ended
December 31, 1999,  increased $5.4 million to $21.3 million as compared to $15.9
million for the year ended  December 31, 1998. The increase in SG&A from 1998 to
1999 was  principally  a result of (i) the  addition  of HMG Schutz SG&A for the
full 12 month period,  $4.1  million,  (ii) the portion of  non-recurring  costs
which have been charged to SG&A of $886,000,  of the approximately  $1.8 million
in transition  and  integration  expenses,  principally in the form of personnel
redundancies,  associated with (a) consolidation of the Company's production and
distribution  operations in Reading,  Pennsylvania  ("Reading"),  $871,000,  (b)
consolidation  of product  development  operations  between New York and Reading
operating centers,  $650,000, and (c) the streamlining of the account management
and client  service  operations  in New York and Chicago,  $236,000,  (iii) SG&A
associated with Ego Media,  acquired September 28, 1999, $272,000,  and (iv) the
amortization of deferred  financing costs  associated with the new financing and
credit facilities consummated during 1999, $170,000. For the year ended December
31, 1998,  SG&A  increased  approximately  $3.9 million to $15.9 million for the
year ended  December  31, 1998 as  compared to $12.0  million for the year ended
December 31,  1997.  The  increase in SG&A from 1997 to 1998 was  principally  a
result of (i) the addition of HMG Schutz SG&A, $2.7 million,  (ii) the expansion
of HMG Griffith, $607,000, and (iii) an increase in other general expenses.

     For the year ended December 31, 1999, the Company generated interest income
of $215,000 as compared to $274,000 and $323,000,  for the  comparable  1998 and
1997 periods,  respectively.  The decrease in interest  income of  approximately
$59,000  from 1998 to 1999 and the  decrease  of  $49,000  from 1997 to 1998 was
attributable principally to a reduction in cash and cash equivalents invested in
interest bearing marketable securities and commercial paper.

                                       15

<PAGE>



     Interest  expense was $1.8 million for the year ended  December 31, 1999 as
compared to $1.7 million and $1.1 million the comparable  1998 and 1997 periods,
respectively.  Although  interest expense remained stable from 1998 to 1999, the
Company  realized a  favorable  reduction  in the rate of  interest  incurred of
approximately  1.2% which was offset by an  increase in net  borrowings  in 1999
versus 1998. For the year ended December 31, 1998,  interest  expense  increased
approximately  $553,000 versus the comparable 1997 period principally due to the
increased average borrowing 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 loss
of approximately  $31,000,  or $0.00 basic earnings per share for the year ended
December 31, 1999 as compared to net income of  approximately  $1.9 million,  or
$0.21 basic  earnings per share,  for the year ended  December 31, 1998. For the
year ended  December 31, 1997, the Company  realized net income of $529,000,  or
$0.06 basic earnings per share.


Stockholders' Equity

     Stockholders' equity increased  approximately $4.5 million to $13.6 million
at December 31, 1999 from $9.1 million at December 31, 1998. The net increase in
stockholders' equity was principally due to (i) the issuance of 1,728,000 shares
of Common Stock and the retirement of the then outstanding convertible debenture
of $1.9 million, net of expenses,  (ii) the issuance of 350,000 shares of Common
Stock valued at $1.4 million, in connection with the acquisition of 80% interest
in Ego Media,  (iii) proceeds  derived from a Private  Placement of Common Stock
whereby the Company issued 100,000 shares of Common Stock for an aggregate value
of $400,000,  (iv) the issuance of warrants valued at $368,000, (v) net proceeds
of approximately  $255,000 derived from the issuance of 447,768 shares of Common
Stock  pursuant to the  exercise  of stock  options  and  warrants,  and (v) the
issuance of 74,252  shares of Common  Stock by the Company to the HMG  Worldwide
Corporation Capital Accumulation Plan valued at $151,000.


Income Taxes

     At  December  31,  1999,  the Company had  available  $34.6  million of net
operating  loss carry  forwards which expire during the years 2001 through 2013.
Due to the nominal net loss there was no income tax provision for the year ended
December  31,  1999.  The  Company's  income  tax  provision  for the year ended
December 31, 1998 was $31,000 as compared to $42,000 for the year ended December
31,  1997 and  resulted  principally  from state and local  alternative  minimum
taxes.


Backlog

     At December 31, 1999,  the Company's  aggregate  backlog was  approximately
$48.9  million,  as compared to $48.8  million and $32.6 million at December 31,
1998 and 1997, respectively.  Of such aggregate backlog at December 31, 1999, no
one  client  exceeded  10%  of  such  backlog.   The  Company  anticipates  that
substantially  all such backlog at December 31, 1999,  will be filled during the
next twelve  months.  In addition to the $48.9  million  backlog at December 31,
1998, 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,  1999 was $20.4  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.


                                       16

<PAGE>



Inflation

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


Liquidity and Capital Resources

     Cash and cash  equivalents at December 31, 1999,  1998 and 1997  aggregated
approximately $6.0 million, $5.7 million and $6.4 million, respectively. For the
years ended  December 31, 1999,  1998 and 1997,  the  Company's  cash flows from
operating, investing and financing activities are summarized below:

<TABLE>

                                                                      Year Ended December 31,
                                                                   1999        1998        1997
                                                                   ----        ----        ----
                                                                              (in millions)
<S>                                                              <C>         <C>         <C>
Net cash used in operating activities ......................     ($ 9.6)     ($ 3.2)     ($ 3.3)
                                                                 ------      ------      ------

Investing activities:
  Acquisition, net of cash acquired ........................                    0.1         0.4
  Proceeds from sale of an investment ......................
  Capital expenditures .....................................       (4.6)       (1.5)       (1.8)
                                                                   ----        ----        ----

    Net cash used in investing activities ..................       (4.6)       (1.4)       (1.4)
                                                                   ----        ----        ----

Financing activities:
  Net proceeds from sale of common stock ...................        0.4         0.2         0.5
  Net proceeds from exercise of stock options and warrants .        0.3
  Proceeds derived from a term loan ........................        3.1                     0.6
  Proceeds derived from the sale of
    convertible notes and debentures .......................        7.0                     2.2
  Deferred financing costs .................................        2.1
  Net increase in indebtedness .............................        5.7         3.7         0.9
                                                                    ---         ---         ---

    Net cash provided by financing activities ..............       14.4         3.9         4.2
                                                                   ----         ---         ---


  Net increase (decrease) in cash and cash equivalents .....     $  0.2     ($ 0.7)     ($ 0.5)
                                                                 ======     ======      ======
</TABLE>


     The  Company's  increase  in cash and  cash  equivalents  of  approximately
$243,000  for the year ended  December 31, 1999 was  principally  due to (i) net
cash used in operating  activities of $9.6 million,  used principally to finance
increases  in the  Company's  accounts  receivable  and  inventory  levels  with
continued  market  penetration  into  retail-based  accounts  which  require the
Company to maintain higher inventory levels,  (ii) capital  expenditures of $4.6
million including $3.0 million invested in a series of proprietary  products and
associated  injection mold and production related tooling,  offset by, (iii) net
borrowings  under the Company's  credit facility and  convertible  debentures of
$15.8 million,  (iv) deferred  financing costs incurred,  $2.1 million,  (v) net
proceeds  derived  from the  sale of  stock  pursuant  to a  private  placement,
$400,000  and (vi) net proceeds  derived from the exercise of stock  options and
warrants of $255,000.

     The  Company's  decrease  in cash and  cash  equivalents  of  approximately
$709,000  for the year ended  December 31, 1998 was  principally  due to (i) net
cash used in operating  activities of $3.2 million,  used principally to finance
increases in the  Company's  accounts  receivable  and  inventory  levels,  (ii)
capital  expenditures of $1.5 million,  offset by, (iii) net borrowing under the
Company's credit facility of $3.7 million and (iv) net proceeds derived from the
HMG Private Placement of $169,000.

     The  Company's  decrease  in cash and  cash  equivalents  of  approximately
$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 borrowing 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.

                                       17

<PAGE>



     The Company  maintains a $35.0 million  Credit  Agreement  with a financial
institution in the form of a revolving credit and term loan facility. Borrowings
under the Credit  Agreement bear interest at the  institution's  prime rate plus
0.25% per annum or, at the option of the Company,  the Eurodollar rate plus 2.5%
per annum.  The Company is required to pay a quarterly  commitment  fee of 0.25%
per  annum  of  the  average  daily  unused  amount  of  the  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) declaration of dividends,  (ii) the
incurrence of additional  indebtedness and (iii) the sale of certain assets.  As
of December 31, 1999, the Company was in compliance with all financial covenants
of the Credit  Agreement.  The Credit  Agreement,  consummated  in August  1999,
replaced a  previously  existing  $17.0  million  credit  facility.  The average
balance  outstanding  under the Company's credit  agreements for the years ended
December 31, 1999, 1998 and 1997 was approximately $17.5 million,  $17.2 million
and $10.8 million,  respectively, at the weighted average interest rate of 8.5%,
9.7% and 9.6%, respectively.

     Pursuant to the terms of the Credit  Agreement,  the lender  advanced  $3.1
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  quarterly  basis over five years and bears  interest at the
institution's  prime  rate plus 0.25% per  annum.  The term loan  portion of the
Credit  Agreement  replaced  a  previously   existing  term  loan  with  another
institution.  At December 31, 1999, 1998 and 1997 the balance  outstanding under
the term loans were $3.1 million, $772,000 and $866,000, respectively.

     In  addition  to the Credit  Agreement,  on  February  24, 1999 the Company
issued  $5.0  million,  7%  Convertible  Notes  Due  February  24,  2002  to two
institutional  investors. The principal amount of the Notes are convertible into
shares of the  Company's  Common  Stock at a  conversion  price of the lesser of
$4.00 per share or a price based upon the prevailing  market price of the Common
Stock,  subject to a maximum issuance of 2,160,000 shares upon the conversion of
the Notes,  taken  together.  The  Company  also  issued on August 26, 1999 $2.0
million,  10%  Convertible  Debentures  Due August 26, 2002 to an  institutional
investor. The principal amount of the Debenture is convertible, at the option of
the holder at any time, into shares of the Company's Common Stock based upon the
conversion  price of $4.00 per  share.  The  Convertible  Notes and  Convertible
Debentures  were issued through a private  placement;  however,  the Company has
undertaken to register, for resale by the holders of the Notes, the shares which
may be acquired  upon the  conversion of the Notes under the  Securities  Act of
1933.

     The  Company's  working  capital at  December  31,  1999 was $5.4  million,
inclusive  of  borrowing  of $21.6  million  pursuant  to the  five-year  Credit
Agreement.  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  and  recently  through  its  capital   expenditure  program
initiated and completed  during 1999 developed a proprietary  series of products
that can be marketed  across a variety of  different  clients  and retail  store
environments.  In addition,  as the Company expands its Internet and e-commerce,
HMG "e"  division,  the  timing of cash  flows for this  division  will  require
support  through the Company's  existing  credit  facilities and other potential
resources.

     In March  2000,  the  Company  retained  an  investment  banker,  Friedman,
Billings  and Ramsey,  to advise the Company in the  financing  of its  Internet
expansion  as  well  as  the  increased  working  capital  requirements  of  its
traditional  core  in-store  marketing  business.  The Company may seek to raise
additional  capital in order to provide a more rapid growth and expansion of its
HMG "e" division as the Company believes that there is significant opportunities
to grow this business unit, both organically and through strategic  acquisition.
In  conjunction  with its  strategic  planning,  on March 22, 2000,  the Company
issued  $1.5  million  in  7%  Convertible  Notes  Due  March  22,  2003  to  an
institutional  investor.  The principal  amount of the Notes is convertible into
shares of the  Company's  Common  Stock at a  conversion  price of the lesser of
$9.60 per share or a price based upon the prevailing  market price of the Common
Stock in the event that certain  maintenance  criterion is not met, subject to a
maximum issuance of 365,000 shares upon the conversion of the Notes,  taken as a
whole. The Notes were issued through a private placement;  however,  the Company
has  undertaken  to register for resale by the holders of the Notes,  the shares
which may be acquired upon the  conversion of the Notes under the Securities Act
of 1933.

     The  Company's   management   believes  that  its  current  cash  and  cash
equivalents,  its  backlog,  anticipated  future  cash  flows  from  operations,
availability  under its Credit Agreement and issuance of Convertible  Notes will
be sufficient to support its debt service requirements and its other capital and
operating needs for the next fiscal year. Management will continue to expand its

                                       18

<PAGE>



     HMG "e" division  prudently and  judicially  until the results of Friedman,
Billings and Ramsey's  engagement  have  materialized.  Management  believes the
Company's  investment in an strategic  e-commerce  division , an expanded client
base and future cash flows from  operations  developed 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.


Year 2000

     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 Year  2000  compliance.  The
Company's  Year 2000 strategy  includes the  evaluation of all critical  Company
software applications, client/server applications, PC's and workstations, vendor
supplied  software,  equipment  and  clients and  suppliers.  An  inventory  and
assessment  of all areas have been  completed  and the  Company  has  inspected,
remediated  and  performed  testing  of  each  of  its  systems  for  Year  2000
compliance.

     As of December  31, 1999,  the Company  believes  that it has  successfully
remediated its client/server  business  applications for the millennium  change.
During  the third  quarter of 1999,  the  Company  installed  HMG Schutz and HMG
Griffith  on  line  with  its  client/serve  business  applications,   PC's  and
workstations  such that all Company  operations  are now tied  together  under a
common shared technology platform. The Company's suppliers also engaged in their
Year 2000  testing and as a result,  the  Company's  supplier  base  experienced
limited  technological issues and were able to meet the delivery requirements of
the Company during the first quarter of 2000. The Company's Year 2000 project is
complete as of December  31, 1999 for which the Company  incurred  approximately
$425,000 in hardware upgrades and software enhancements.

     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.


Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     The Company is exposed to the impact of  interest  rate,  market  risks and
currency  fluctuations.  In the normal course of business,  the Company  employs
internal  processes to manage its exposure to interest  rates,  market risks and
currency  fluctuations.  The  Company's  objective in managing its interest rate
risk is to limit the impact of interest  rate changes on earnings and cash flows
and to lower its overall  borrowing  costs.  To achieve  these  objectives,  the
company refinances debt when advantageous.  The Company is exposed to the impact
of currency fluctuations because of its international operations. At the present
time, the Company does not swap or hedge its foreign currency  obligations,  but
will review its policy on hedging on a  continuous  basis.  The Company does not
hold or issue derivative or other financial instruments for trading purposes.

                                       19

<PAGE>



Item 8.  Financial Statements and Supplementary Data.




                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



HMG WORLDWIDE CORPORATION AND SUBSIDIARIES                                 PAGE


     Independent Auditors' Report                                            21

     Consolidated Balance Sheets at December 31, 1999 and 1998               22

     Consolidated Statements of Operations for the Years Ended
       December 31, 1999, 1998 and 1997                                      23

     Consolidated Statements of Cash Flows for the Years Ended
       December 31, 1999, 1998 and 1997                                      24

     Consolidated Statements of Changes in Stockholders' Equity
       for the Years Ended December 31, 1999, 1998 and 1997                  26

     Notes to Consolidated Financial Statements                              27


                                       20

<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, 1999 and 1998, 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, 1999.  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, 1999 and 1998, and the
results of their  operations and their cash flows for each of the three years in
the period ended  December 31,  1999,  in  conformity  with  generally  accepted
accounting principles.




                                                     FRIEDMAN ALPREN & GREEN LLP



New York, New York
March 24, 2000


                                       21

<PAGE>



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


<TABLE>
                                                                               December 31,
                                                                             1999      1998
                                                                             ----      ----

                                     ASSETS

Current assets:
<S>                               <C>                                      <C>         <C>
  Cash and cash equivalents (Note 1) ..................................    $ 5,973     $ 5,730
  Accounts receivable - less allowance
    for doubtful accounts of $781 and $453 (Note 14) ..................     15,607      15,505
  Inventory (Notes 1 and 3) ...........................................     26,395      15,335
  Prepaid expenses ....................................................        997         816
  Other current assets ................................................        464         263
                                                                           -------     -------
     Total current assets .............................................     49,436      37,649

Property and equipment - net (Notes 1 and 4) ..........................      9,877       6,319
Excess of cost over fair value
  of assets acquired, less accumulated
  amortization of $2,572 and $2,053 (Notes 1 and 2) ...................      8,584       7,528
Deferred financing costs - net (Note 5) ...............................      1,966        --
Other assets ..........................................................        175         233
                                                                           -------     -------
                                                                           $70,038     $51,729
                                                                           =======     =======

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current maturities of long-term obligations (Note 5) ................    $21,565     $14,801
  Accounts payable ....................................................     19,078      15,933
  Accrued employee compensation and benefits ..........................        950       1,353
  Deferred revenue (Note 1) ...........................................      1,051       2,970
  Accrued expenses ....................................................      1,045       1,575
  Other current liabilities ...........................................        317         213
                                                                           -------    --------
    Total current liabilities .........................................     44,006      36,845

Pension obligation (Notes 1 and 6) ....................................        999       1,147
Convertible notes and debentures (Notes 5 and 15) .....................      7,000       2,160
Promissory note (Note 2) ..............................................      1,600       1,600
Term loans (Note 5) ...................................................      2,480         491
Other long-term liabilities (Note 6) ..................................        397         418
                                                                           -------     -------
                                                                            56,482      42,661
Stockholders' equity:
  Common stock, par value $0.01; 50,000,000 shares
    authorized; 12,029,225 and 9,329,205 shares
    issued and outstanding (Note 8) ...................................        120          93
  Additional paid-in capital (Note 8) .................................     39,827      35,335
  Accumulated deficit .................................................    (26,391)    (26,360)
                                                                           -------     -------
                                                                            13,556       9,068
                                                                           -------     -------
                                                                           $70,038     $51,729
                                                                           =======     =======
</TABLE>





          See accompanying notes to consolidated financial statements.

                                       22

<PAGE>



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

<TABLE>

                                                                 Year Ended December 31,
                                                           ---------------------------------
                                                               1999        1998        1997
                                                               ----        ----        ----

<S>                 <C>   <C>                             <C>           <C>          <C>
Net revenues (Notes 1 and 10) ...........................   $ 80,045    $ 68,467    $ 46,311

Cost of revenues ........................................     57,145      49,220      33,273
                                                             --------    --------    --------


  Gross profit ...........................................     22,900      19,237      13,038

Selling, general and administrative
  expenses ...............................................     21,349      15,938      11,959
                                                             --------    --------    --------


  Income from operations .................................      1,551       3,299       1,079

Interest income ..........................................        215         274         323

Interest expense (Note 5) ................................     (1,797)     (1,651)     (1,098)

Other income .............................................      -              13         267
                                                             --------    --------    --------


  Income (loss) before provision for income
    taxes ................................................        (31)      1,935         571

Provision for income taxes (Notes 1 and 7) ...............      -             (31)        (42)
                                                             --------    --------    --------


  Net income (loss) ......................................  ($     31)   $  1,904    $    529
                                                             ========    ========    ========


Basic earnings per share (Note 8)
  Net income (loss) per common share .....................   $  -        $   0.21    $   0.06
                                                             ========    ========    ========

  Weighted average number of common
  shares outstanding ..................................... 11,388,303   9,093,715   8,637,528
                                                           ==========   =========   =========


Diluted earnings per share (Note 8)
  Net income (loss) per common and
  common equivalent shares ...............................   $  -        $   0.19    $   0.05
                                                             ========    ========    ========

  Weighted average number of common
  and common equivalent shares ........................... 11,388,303  10,711,659  11,206,460
                                                           ==========  ==========  ==========
</TABLE>













          See accompanying notes to consolidated financial statements.

                                       23

<PAGE>



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


                                                                   Year Ended December 31,
                                                             --------------------------------
                                                               1999        1998        1997
                                                               ----        ----        ----
Cash flows from operating activities:
<S>                                                          <C>         <C>         <C>
  Cash received from customers ...........................   $ 78,013    $ 64,536    $ 43,091
  Interest received ......................................        233         282         321
  Cash paid to suppliers .................................    (71,742)    (51,312)    (36,481)
  Cash paid to employees .................................    (14,670)    (15,024)     (9,112)
  Income taxes paid ......................................        (28)          (         (30)
  Interest paid ..........................................     (1,385)     (1,651)     (1,098)
                                                             --------    --------    --------
    Net cash used in operating
       activities ........................................     (9,579)     (3,172)     (3,309)
                                                             --------    --------    --------

Cash flows from investing activities:
  Acquisition, net of cash acquired ......................                    138
  Proceeds from the sale of an investment ................                                356
  Capital expenditures ...................................     (4,599)     (1,517)     (1,807)
                                                             --------    --------    --------
    Net cash used in
       investing activities ..............................     (4,599)     (1,379)     (1,451)
                                                             --------    --------    --------

Cash flows from financing activities:
  Net proceeds from the sale of common
    stock as part of  a private placement ................        400         169         540
  Net proceeds from exercise of stock options
    and warrants .........................................        255
  Proceeds derived  from a term loan .....................      3,100                     600
  Proceeds derived from the sale of
    convertible notes and debentures .....................      7,000                   2,200
  Proceeds derived from a credit agreement, net ..........      5,889       3,860       1,315
  Deferred financing costs ...............................     (2,148)
  Principal payments of outstanding debt obligations .....        (75)       (187)       (406)
                                                             --------    --------    --------
    Net cash provided by financing
       activities ........................................     14,421       3,842       4,249
                                                             --------    --------    --------

Net increase (decrease) in cash and cash equivalents .....        243        (709)       (511)

Cash and cash equivalents at beginning of year ...........      5,730       6,439       6,950
                                                             --------    --------    --------

Cash and cash equivalents at end of year .................   $  5,973    $  5,730    $  6,439
                                                             ========    ========    ========
</TABLE>
















          See accompanying notes to consolidated financial statements.

                                       24

<PAGE>



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

<TABLE>
                                                                  Year Ended December 31,
                                                             --------------------------------
                                                               1999        1998        1997
                                                               ----        ----        ----
Reconciliation of net income (loss) to net cash
 used in operating activities:

<S>                                                         <C>          <C>         <C>
  Net income (loss) ......................................  ($    31)    $  1,904    $    529

Adjustments  to  reconcile  net  income  (loss)  to net
 cash  used in  operating activities:
  Depreciation and amortization ..........................      1,560       1,118         882
  Other income ...........................................                                267

Decrease (increase) in assets, net of effects
 of acquisition:
    Accounts receivable ..................................       (120)     (5,448)     (1,991)
    Inventory ............................................    (11,060)     (7,210)     (2,457)
    Prepaid expenses .....................................       (127)       (347)       (319)
    Other assets .........................................        100         (47)        (77)

Increase (decrease) in liabilities, net of effects
 of acquisition:
    Accounts payable .....................................      3,145       6,381       2,926
    Deferred revenue .....................................     (1,919)      1,537      (1,231)
    Accrued expenses .....................................       (979)     (1,032)     (1,329)
    Pension obligation ...................................       (148)        (28)       (509)
                                                             --------    --------    --------

   Net cash used in operating activities .................  ($  9,579)  ($  3,172)  ($  3,309)
                                                             ========    ========    =======


Non-cash investing and financing activities:
  Fair value of assets acquired in
    connection with an acquisition .......................   $    115    $  4,059
  Fair value of liabilities assumed
    in connection with an acquisition ....................   $     85    $  5,481
  Common stock issued in connection
    with acquisitions ....................................   $  1,400    $    110
  Promissory note, net of imputed
    interest, issued in connection with
    an acquisition .......................................               $  1,600
  Common stock issued in connection
    with an employee benefit plan ........................   $    152    $    154    $    160
 Common stock issued in connection with
    the conversion of debentures .........................   $  2,160    $    40
  Warrants issued as part of a consulting agreement ......   $    368    $    221    $     50
</TABLE>










          See accompanying notes to consolidated financial statements.

                                       25

<PAGE>



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


<TABLE>
                                                                 Additional                     Total
                                             Common Stock         Paid-in      Accumulated   Stockholders'
                                             ------------
                                            Shares      Amount    Capital        Deficit        Equity
                                            ------      ------    -------        -------        ------

<S>                 <C> <C>                <C>          <C>       <C>           <C>            <C>
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

Shares sold as part of a
  private placement ..................       150,000         2        167                          169
Issuance of shares as part of
  an acquisition .....................       100,000         1        109                          110
Issuance of shares pursuant
  to conversion of debentures ........        32,000                   40                           40
Issuance of warrants as part of a
  consulting agreement ...............                                221                          221
Issuance of shares as a contribution
  to HMG Worldwide Corporation
  Capital Accumulation Plan ..........       123,055         1        153                          154
Net income ...........................                              1,904                        1,904
                                         -----------    ------    -------        -------        ------

Balance at December 31, 1998 .........     9,329,205        93     35,335        (26,360)        9,068

Shares sold as part of a
  private placement ..................       100,000         1        399                          400
Issuance of shares as part of
  an acquisition .....................       350,000         3      1,397                        1,400
Issuance of shares pursuant
  to conversion of debentures ........     1,728,000        17      1,928                        1,945
Issuance of warrants as part
  of consulting agreements ...........                                368                          368
Issuance of shares as part of exercise
  of stock options and warrants ......       447,768         5        250                          255
Issuance of shares as a contribution
  to HMG Worldwide Corporation
  Capital Accumulation Plan ..........        74,252         1        150                          151
Net loss .............................                                (31)                         (31)
                                         -----------    ------    -------        -------       -------

Balance at December 31, 1999 .........    12,029,225    $  120    $39,827       ($26,391)      $13,556
                                         ===========    ======    =======        =======       =======

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       26

<PAGE>



                   HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
                   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  five  operating   wholly-owned
subsidiaries and a recently acquired,  80%-owned subsidiary being, respectively,
HMG  Worldwide  In-Store  Marketing,   Inc.  ("HMG"),  HMG  Intermark  Worldwide
Manufacturing,  Inc. ("HMG Intermark"),  Display Depot, Inc. ("DDI"), HMG Schutz
International,  Inc. ("HMG Schutz"), HMG Griffith, Inc. ("HMG Griffith") and Ego
Media,  Inc.  ("Ego  Media").  The Company  conducts its operations in New York,
Illinois, Pennsylvania and Toronto, Canada.

     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. Costs incurred in the design,  development and
engineering of merchandising  fixtures and display programs,  including salaries
and preproduction expenses, are capitalized as part of work-in-process inventory
(see Note 3).

     Property  and  Equipment:  Property  and  equipment  are  stated  at  cost.
Equipment under capital leases is 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.

     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 for acquisitions  consummated
prior to 1998 and over fifteen years for any  acquisitions  consummated  in 1998
and  thereafter.   Related  amortization  expense  was  approximately  $519,000,
$438,000,  and $408,000,  for the years ended December  31,1999,  1998 and 1997,
respectively  (see Note 2).  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.



                                       27

<PAGE>



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



Note 1 - Organization and Significant Accounting Policies  (continued)

     Deferred  Financing Costs: The Company incurred  approximately $2.1 million
in finance  acquisition  costs  associated with various bank lines of credit and
convertible  debentures.  The Company  capitalizes such costs and amortizes them
over the life of the  applicable  credit  facility.  At December 31,  1999,  the
Company  charged to  operations  approximately  $170,000 in  deferred  financing
amortization costs.

     Fair Value of Financial Instruments: The fair value of the revolving credit
facility,  promissory notes, 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.  Income and expense
items are  translated  at the  average  exchange  rates  during  the  respective
periods.  All  translation  adjustments  realized by the Company during 1999 and
1998, which in total were not material, were charged to operations.

     Revenue  Recognition:  Revenue is recognized when a merchandise  fixture or
display system is shipped and when marketing consulting services are performed.

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

     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 7).  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  (loss) 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
computation of diluted earnings per share,  unless they are  anti-dilutive  (see
Note 8), in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share".

     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",  SFAS No. 106, "Employers' Accounting for
Post-retirement  Benefits  Other Than  Pensions"  and SFAS No. 132,  "Employers'
Disclosures About Pensions and Other Post-retirement Benefits" (see Note 6).











                                       28

<PAGE>



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



Note 1 - Organization and Significant Accounting Policies (continued)

     Accounting for Stock-Based Compensation: The Company accounts 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 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 Opinion No. 25 in
accounting  for its  plan  and,  accordingly,  no  compensation  cost  has  been
recognized for its stock options in the financial statements (see Note 8).


Note 2 - Acquisitions

Ego Media

     Effective  September 28, 1999, the Company  consummated  the acquisition of
80% of Ego  Media,  Inc.,  a New  York-based,  leading  edge,  technology-based,
Internet web-brand development and communications company. Pursuant to the terms
of th acquisition  agreement,  the Company issued an aggregate of 350,000 shares
of the Company's Common Stock, valued at $4.00 per share. Ego Media has recently
emerged from the development stage, focusing upon developing web-brand marketing
strategies for clients seeking to engage in "e-commerce".  Pursuant to the terms
of the transaction,  the Company has recorded  approximately $1.4 million as the
excess  cost over fair market  value of assets  acquired.  For the three  months
ended December 31, 1999,  Ego Media's  revenues were $58,000 and incurred a loss
of $214,000 which has been charged to operations.

HMG Schutz Operations

     Effective  August 1, 1998, the Company  consummated  the acquisition of the
business of HMG Schutz, a Chicago-based point-of-purchase company pursuant to an
Asset Purchase Agreement  ("Purchase  Agreement").  Pursuant to the terms of the
Purchase  Agreement,  the Company  issued a $1.6  million  Promissory  Note,  as
adjusted,  net of imputed interest of $278,000, and issued 100,000 shares of the
Company's  Common Stock,  valued at $1.10 per share,  in  consideration  for the
acquired assets.  The payments  required under the Promissory Note commence upon
the second  anniversary of the Purchase  Agreement  after which the Company will
make 20 equal quarterly  principal  installments,  plus accrued  interest at the
prime rate per annum. In addition, the Company has agreed to make certain future
contingent  payments  based upon revenues  generated by HMG Schutz over the next
three years. To date, the Company has recorded aggregate  contingent payments of
$306,000  pursuant to the terms of the  Purchase  Agreement.  The  Company  also
acquired  an option to  purchase,  at a future  date yet to be  determined,  the
office and  warehouse  facilities  and related  land  currently  occupied by HMG
Schutz for approximately $2.3 million.








                                       29

<PAGE>



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



Note 2 - Acquisitions (continued)

     The Company  recorded the assets and  liabilities  of HMG Schutz based upon
their estimated fair market values as of the acquisition date. Additionally, the
Company  recorded  $1.4 million as the excess of cost over the fair market value
of assets acquired.  At December 31, 1999, the adjusted acquisition costs of HMG
Schutz was as follows:

                                                               Amount
                                                           (in thousands)
     Consideration:
       Promissory note                                          $1,600
       Issuance of 100,000 shares of Common Stock                  110
       Contingent payments earned in 1998 and 1999                 306
       Transaction costs and related expenses                      778
                                                                ------
                                                                 2,794
     Fair market value of assets acquired                        1,245
     Excess of cost over fair market value of assets acquired   $1,549
                                                                ======


Note 3 - Inventory

     Inventory  consisted of the  following  components at December 31, 1999 and
1998:

                                         December 31,
                                     -------------------
                                      1999         1998
                                      ----         ----
                                       (in thousands)

     Finished goods                  $ 7,945     $ 3,549
     Work-in-process                   8,018       3,789
     Raw materials                    10,432       7,997
                                     -------     -------
                                     $26,395     $15,335
                                     =======     =======


















                                       30

<PAGE>



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



Note 4 - Property and Equipment

     The  following is a summary of property  and  equipment,  estimated  useful
lives and  accumulated  depreciation  and  amortization at December 31, 1999 and
1998:

                                       December 31,
     Description                    1999         1998      Estimated Useful Life
     -----------                    ----         ----      ---------------------
                                                              (in thousands)
     Land                          $   528     $   528
     Buildings and improvements      3,028       2,876      40 years
     Equipment                       2,528       2,047      3-7 years
     Furniture and fixtures            683         911      5 years
     Leasehold improvements          1,035         518      Lesser of lease term
                                                            or eight years
     Tooling                         5,177       1,983      3-10 years
                                   -------     -------
                                    12,979       8,863
     Less:  accumulated
       depreciation and
       amortization                  3,102       2,544
                                   -------     -------

                                   $ 9,877     $ 6,319
                                   =======     ======

     Depreciation  and  amortization  expense for property and equipment for the
years ended  December 31, 1999,  1998 and 1997 was  approximately  $1.0 million,
$680,000 and $474,000, respectively.
























                                       31

<PAGE>



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



Note 5 - Long-term Obligations

     Long-term obligations at December 31, 1999 and 1998 are as follows:

                                             December 31,
                                       1999               1998
                                       ----               ----
                                          (in thousands)
     Revolving credit facility       $20,945            $14,614
     Term loan                         3,100                678
     Promissory note                   1,600              1,600
     Convertible debentures            7,000              2,160
                                     -------            -------
                                      32,645             19,052
     Less: current maturities         21,565             14,801
                                     -------            -------
                                     $11,080            $ 4,251
                                     =======            =======

Revolving Credit Facility and Term Loan

     On August 26,  1999,  the Company  consummated  a $35.0  million  five-year
Revolving  Credit  Term  Loan  and  Security  Agreement,  as  amended,  ("Credit
Agreement") with a financial  institution.  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) 60% of  eligible  inventory  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 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.

     Borrowings  under the Credit  Agreement bear interest at the  institution's
prime rate plus 0.25% per annum or, at the option of the Company, the Eurodollar
rate plus 2.5% per annum. The Company is required to pay a quarterly  commitment
fee at the rate of 0.25% 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  advanced  $3.1
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  quarterly  basis over five years and bears  interest at the
institution's prime rate plus 0.25% per annum.

     Prior to August 26, 1999,  the Company  maintained a $17.0  million  credit
facility with a financial  institution  which  provided for a secured  revolving
line of credit and term loan which advanced 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 and cash  equivalents  and  marketable
securities.  Borrowings under the prior credit facility were charged interest at
either the institution's prime rate plus 3/4% 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,  1999,  1998 and 1997 was  approximately  $17.5
million, $17.2 million, and $10.9 million, respectively, at the weighted average
interest rate of 8.5%, 9.7% and 9.6%, respectively.

                                       32

<PAGE>



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



Note 5 - Long-term Obligations (continued)

Convertible Notes and 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 required interest at the rate of
10% per annum and were  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. In February 1999, the
Company's  convertible debenture holders elected to convert the then outstanding
$2.1 million of debentures  into Common Stock at $1.25 per share pursuant to the
terms of the debentures. As a consequence of the conversion,  the Company issued
1,728,000 shares of Common Stock and retired the convertible debentures.

     On February 24, 1999, the Company issued $5.0 million, 7% Convertible Notes
Due  February  24,  2002  (the  "Notes")  to two  institutional  investors.  The
principal  amount of the  Notes are  convertible  into  shares of the  Company's
Common Stock at a  conversion  price of the lesser of $4.00 per share or a price
based on the prevailing  market price of the Common Stock,  subject to a maximum
issuance of 2,160,000 shares upon conversion of the Notes,  taken together.  The
Notes were issued through a private placement;  however,  the Company registered
for resale the underlying  shares which may be issued upon the conversion of the
Notes under the Securities Act of 1933.

     On August 26, 1999,  the Company  issued a $2.0  million,  10%  Convertible
Debenture  Due August 26, 2002  ("Debenture")  and a warrant  for an  additional
41,667 shares of Common Stock at an exercise  price of $4.00 per share  expiring
August 27, 2002 to an  institutional  investor.  The Debenture bears interest at
the rate of 10% per annum and is 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 $4.00 per share.  The Debenture was
issued through a private placement;  however,  the Company registered for resale
the  underlying  shares which may be issued upon the conversion of the Debenture
under the Securities Act of 1933.

Future Minimum Payments
     At December 31, 1999, future minimum payments under the Company's long term
obligations, are as follows:

                           Year                           Amount
                           ----                           ------
                                                      (in thousands)
                           2000                         $   700
                           2001                             940
                           2002                           7,940
                           2003                             940
                           2004                             940
                           Thereafter                       320
                                                        -------
                                                        $11,780
                                                        =======










                                       33

<PAGE>



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



Note 6 - 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 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 7.5%.  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.


























                                       34

<PAGE>



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



Note 6 - Employee Benefit Plans  (continued)

     The  following is a summary of the  components of defined  benefit  pension
costs for the years ended December 31, 1999,  1998 and 1997 and the  accumulated
pension obligation of HMG Intermark at December 31, 1999 and 1998:


                                              For the Years Ended December 31,
                                              --------------------------------
                                                 1999        1998        1997
                                                 ----        ----        ----
                                                      (in thousands)
Net periodic cost
Service cost - benefits earned during
  the period with interest .................    $  39       $   4       $  41
Interest cost on accumulated
  benefit obligation .......................      337         345         342
Expected return on assets ..................     (359)       (302)       (257)
                                                -----       -----       -----
  Net periodic pension cost ................    $  17       $  85       $ 126
                                                =====       =====       =====


                                                    December 31,
                                                    ------------
                                                 1999        1998
                                                 ----        ----
                                                  (in thousands)
Accumulated pension obligation:
Benefit obligation at beginning of year ........$ 5,217    $ 5,129
Service costs ..................................      3         42
Interest costs .................................    337        345
Actuarial loss (gain) ..........................   (270)        86
Benefits paid ..................................   (401)      (385)
                                                -------    -------
  Vested benefits obligation at
   end of year .................................  4,922      5,217
                                                -------    -------
Fair value of plan assets at
  beginning of year ............................  4,340      3,829
Actual return on plan assets ...................    577        594
Employer contribution ..........................    232        302
Benefits paid ..................................   (401)      (385)
                                                -------    -------
  Fair market value of plan assets at
   end of year .................................  4,748      4,340
                                                -------    -------
Funded status ..................................   (174)      (877)
  Unrecognized net actual gain .................   (843)      (355)
                                                -------    -------
  Accrued pension benefit obligation ........... (1,017)    (1,232)
  Less: current portion ........................     18         85
                                                -------    -------
  Pension obligation - long-term ..............($   999)  ($ 1,147)
                                                =======    =======

     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, 1999 and 1998,
the  Company  has  included  as  a  component  of  other  long-term  liabilities
approximately $316,000 and $326,000,



                                       35

<PAGE>



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



Note 6 - Employee Benefit Plans  (continued)

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 7.5% and (iii) a gross medical cost increase of an average of
7% for the next five years and 5% increase thereafter.

     The following is a summary of the  components of the Health Care Plan costs
for the years  ended  December  31,  1999,  1998 and 1997 and the  accumulated
health care obligation of HMG Intermark at December 31, 1999 and 1998:

                                               For the Years Ended December 31,
                                               --------------------------------
                                                 1999        1998        1997
                                                 ----        ----        ----
                                                       (in thousands)
  Net periodic cost:
 Service cost - benefits earned during
     the period with interest ..................$   3       $   3       $   6
Interest cost on accumulated benefit obligation    17          21          32
Recognized net actuarial (gain) loss ...........   (7)         (2)          7
                                                -----       -----       -----
    Net periodic health care cost ..............$  13       $  22       $  45
                                                =====       =====       =====


                                                     December 31,
                                                     ------------
                                                  1999      1998
                                                  ----      ----
                                                   (in thousands)
Accumulated health care obligation:
Benefit obligation at beginning of year ........$   282    $   327
Service costs ..................................      3          3
Interest costs .................................     17         21
Actuarial loss (gain) ..........................     12       (32)
Benefits paid ..................................    (48)      (37)
                                                -------    ------
  Benefit obligation at end of year ............    267       282
Employer contribution ..........................     48        37
Benefits paid ..................................    (48)      (37)
                                                -------    ------
Funded status ..................................   (267)     (282)
   Unrecognized net actuarial gain .............    (62)      (82)
                                                -------    ------
   Accrued health care obligation ..............   (329)     (364)
   Less: current portion .......................     13        38
                                                -------    ------
   Health care obligation - long-term .........($   316)  ($  326)
                                                =======    ======

     At December  31,  1999,  the effect of a 1% increase in the assumed  health
care cost trend rates for each future year on the  aggregate  of the service and
interest  components of net periodic  post-retirement  health care benefits cost
and the accumulated  post-retirement benefit obligation is an increase of $1,000
and $15,000, respectively.







                                       36

<PAGE>



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



Note 6 - Employee Benefit Plans  (continued)

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 and Trust provides an employer matching  provision whereby the
Company contributes fifty cents for every dollar of employee  contribution up to
6% of  base  compensation.  Company  contributions  of  approximately  $245,000,
$145,000 and $149,000  were made and charged to  operations  for the years ended
December 31, 1999, 1998 and 1997, respectively.

     The HMG Worldwide Corporation Capital Accumulation Plan also provides for a
fixed contribution  provision whereby the Company annually  contributes up to 3%
of base  compensation for any plan participant  employed on December 31. Company
contributions  of  approximately  $253,000,  $161,000 and $154,000 were made and
charged to  operations  for the years ended  December 31,  1999,  1998 and 1997,
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.


Note 7 - Income Taxes

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

                                                   Year Ended December 31,
                                                   -----------------------
                                                 1999      1998      1997
                                                 ----      ----      ----
                                                       (in thousands)
        Current:
   State and local ...................           $ -       $ 31      $ 42
                                                 ----      ----      ----
                                                   -         31        42
                                                 ----      ----      ----

Deferred:
   Federal ...........................             -        -         -
   State and local ...................             -        -         -
                                                 ----      ----      ----
                                                   -        -         -
                                                 ----      ----      ----
                                                 $ -       $ 31      $ 42
                                                 ====      ====      ====













                                       37

<PAGE>



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



Note 7 - Income Taxes (continued)

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

                                                               December 31,
                                                               ------------
                                                          1999            1998
                                                          ----           -----
                                                             (in thousands)
     Deferred taxes:
  Net operating loss carryforwards .............       $ 15,450        $ 15,404
  Accruals not currently deductible ............             90              89
  Inventory capitalization .....................            100              54
  Depreciation .................................            750             757
  Other ........................................            190             193
                                                       --------        --------
    Subtotal ...................................         16,580          16,497
Less: Valuation allowance ......................        (16,580)        (16,497)
                                                       --------        --------
  Net deferred taxes ...........................       $   --          $   --
                                                       ========        --------

     At December 31, 1999,  the Company had net operating loss carryforwards of
approximately $34.6 million which expire during the years 2001 through 2013.

     A reconciliation of the tax provisions and amounts computed by applying the
federal  income tax rate of 35% to the income  (loss)  before income taxes is as
follows:

                                                    Year Ended December 31,
                                                    -----------------------
                                                 1999      1998         1997
                                                 ----      ----        -----
                                                      (in thousands)
Computed tax, net of
  valuation allowance ......................     $ -       $ -       $ -
State and local income taxes ...............       -         31         42
                                                 ----      ----      -----
                                                 $ -       $ 31      $  42
                                                 ====      ====      =====


Note 8 - Stockholders' Equity

Common Stock
     In December 1996, the Company  initiated a private  placement ("HMG Private
Placement")  whereby  the Company  offered  for sale  Common  Stock at $1.00 per
share.  Pursuant to the terms of the HMG Private  Placement,  for the year ended
December 31, 1997 the Company sold an aggregate of 635,000  shares of its Common
Stock at $1.00 per share from which it derived  net  proceeds  of  approximately
$540,000. For the year ended December 31, 1998, the Company sold an aggregate of
150,000 shares of its Common Stock pursuant to a private placement from which it
derived net proceeds of  approximately  $169,000 and the Company  issued 100,000
shares  of its  Common  Stock,  valued at  $110,000,  pursuant  to the  Purchase
Agreement of HMG Schutz.  Additionally,  for the years ended  December 31, 1999,
1998 and 1997,  the Company  contributed  74,252,  123,055 and 159,561 shares of
Common  Stock,  respectively,  valued  at $2.04,  $1.25  and  $1.00  per  share,
respectively,  to the HMG Worldwide  Corporation Capital Accumulation Plan. From
December 1998 through  February 1999, an aggregate of $2.2 million of debentures
were  converted  into  1,760,000  shares of Common  Stock at the election of the
debenture holders.


                                       38

<PAGE>



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



Note 8 - Stockholders' Equity (continued)

     For the year ended  December 31, 1999, the Company issued 100,000 shares of
Common Stock pursuant to the terms of a private  placement from which it derived
net proceeds of  approximately  $400,000.  In addition,  the Company derived net
proceeds of  approximately  $255,000  through the exercise of stock  options and
warrants for which the Company issued 447,768  shares.  Effective  September 28,
1999, the Company  consummated the acquisition of 80% of Ego Media,  Inc., a New
York-based,  leading edge, technology-based,  Internet web-brand development and
communications company.  Pursuant to the terms of the acquisition agreement, the
Company  issued an aggregate of 350,000  shares of the  Company's  Common Stock,
valued at $4.00 per share.

Stock Options and Warrants
     The Company  maintains six stock option plans ("Stock  Option Plans") which
have been adopted by the Board and  subsequently  approved by its  stockholders.
The total number of shares  reserved and available  under the Stock Option Plans
are 3,092,409 shares.  For the years ended December 31, 1999, 1998 and 1997, the
Company issued  incentive-based  stock options and stock warrants outside of the
Stock Option Plans of 2,108,083,  175,000 and 460,000,  respectively.  The stock
options  were granted to certain  employees  and  directors  of the Company.  In
addition  during 1997, 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.  The  Company  also  issued in 1997 an  aggregate  of  226,000
warrants  exercisable at $1.25 per warrant to Ivan Berkowitz,  a director to the
Company,  and an associate in connection with the Company's Private Placement of
the Debentures and other financial  consulting  services  performed on behalf of
the Company.  During 1998, as part of the acquisition and refinancing activities
sponsored by the Company, the Company recorded a $221,000 increase to additional
paid-in capital,  using the Black-Scholes option pricing model, for the issuance
of 650,000 warrants to acquire the Company's Common Stock at an average exercise
price of $1.10 per share. Of such warrants,  31,250 warrants were issued to Ivan
Berkowitz.

     In September  1999,  the Company  entered into a consulting  agreement with
Strategic Capital Consultants,  Inc.  ("Strategic  Capital") whereby the Company
engaged Strategic Capital to provide strategic consulting services regarding the
overall  business  operations  of the Company  including  but not limited to (i)
acquisitions,  (ii) marketing  initiatives,  (iii)  financial  operations,  (iv)
public  relations  and (v) the  development  of a strategic  short and long-term
business plan. The term of the Consulting  Agreement is one year.  Additionally,
as compensation  for Strategic  Capital's  services,  the Company issued 900,000
warrants  exercisable  at $4.00 per  share.  The  Company  recorded  a  $368,000
increase to additional  paid-in capital,  using the Black-Scholes option pricing
model for the issuance of 900,000 warrants to Strategic Capital, 41,667 warrants
issued  in  connection  with  the  issuance  of  the  $2.0  million  convertible
debentures and 25,000  warrants issued to Arno GmbH, a  European-based  in-store
marketing  company for which the Company has developed  certain joint  marketing
initiatives.












                                       39

<PAGE>



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



Note 8 - Stockholders' Equity (continued)

     The following is a summary of stock option and warrant transactions for the
years ended December 31, 1999, 1998 and 1997:

<TABLE>
                                                                           Weighted
                                                                           Average
                                                              Number of    Exercise
                                                                Shares      Price
                                                                ------      -----

<S>                                         <C>               <C>           <C>
Options and warrants outstanding at January 1, 1997 ......    2,427,328     $1.99
  Options and warrants granted ...........................      876,950      1.13
  Options and warrants exercised .........................         --         --
  Options and warrants canceled ..........................     (225,450)     7.01
                                                              ---------

Options and warrants outstanding at December 31, 1997 ....    3,078,828      1.35
  Options and warrants granted ...........................    1,490,500      1.39
  Options and warrants exercised .........................         --         --
  Options and warrants canceled ..........................      (10,900)     1.04
                                                              ---------

Options and warrants outstanding at December 31, 1998 ....    4,558,428      1.38
  Options and warrants granted ...........................    3,096,749      3.76
  Options and warrants exercised .........................     (447,768)     1.29
  Options and warrants cancelled .........................      (19,102)     1.20
                                                              ---------

Options and warrants outstanding at December 31, 1999 ....    7,188,307     $2.39
                                                              =========     =====

</TABLE>

     The  following is a summary of stock  options and warrants  outstanding  at
December 31, 1999:

                           Exercisable and        Weighted         Weighted
        Range of             Outstanding           Average         Average
        Exercise            At December 31,      Contractual       Exercise
         Price                  1999           Period in Years       Price
         -----                  ----           ---------------       -----

      $0.94 - $1.50          2,280,430              6.0             $1.11
      $1.51 - $1.99          1,752,128              4.4              1.64
      $2.00 - $2.99            542,000              8.9              2.71
      $3.00 - $3.99          1,545,000              9.7              3.88
      $4.00 - $4.99          1,068,749              4.6              4.00
                             ---------              ---             -----

      $0.94 - $4.99          7,188,307              6.4             $2.39
                             =========              ===             =====

     The Company  applies APB  Opinion  No. 25 and  related  interpretations  in
accounting for its employee stock options. Under APB Opinion 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.


                                       40

<PAGE>



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



Note 8 - Stockholders' Equity (continued)

     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 1999,  1998 and 1997 was
$0.11, $0.16 and $0.25 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
5.5%;  volatility  factor of expected market price of the Company's Common Stock
of 40% and a weighted  average  expected life of the option of 6.4 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, 1999 was
approximately  $136,000  and pro forma net loss and basic  loss per share  would
have been approximately $167,000 and $0.01 per share, respectively. For the year
ended  December  31,  1998,  pro forma  compensation  expense was  approximately
$26,000 and pro forma net income,  basic earnings per share and diluted earnings
per share  would  have been $1.9  million,  $0.21 per share and $0.19 per share,
respectively.  For the year ended  December  31,  1997,  pro forma  compensation
expense was  approximately  $110,000 and pro forma net income and basic earnings
per share and diluted earnings per share would have been approximately $418,000,
$0.05 per share and $0.02 per share, respectively.
































                                       41

<PAGE>



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



Note 8 - Stockholders' Equity (continued)

     The following is the  reconciliation  of the numerators and denominators of
the basic  and  diluted  earnings  per share  computations  for the years  ended
December 31, 1999 and 1998:

                                          For the Year Ended December 31, 1999
                                          ------------------------------------
                                          Loss            Shares       Per Share
                                       (Numerator)     (Denominator)    Amount
                                       -----------     -------------    ------
                                         (in thousands, except per share data)

Net loss ............................    ($  31)

Basic loss per share
  Loss attributable to
    common stockholders .............    ($  31)          11,388         $  -
                                          ======          ======         =====


                                         For the Year Ended December 31, 1998
                                         ------------------------------------
                                         Income           Shares       Per Share
                                       (Numerator)     (Denominator)    Amount
                                       -----------     -------------    ------
                                         (in thousands, except per share data)

Net income ..........................     $1,904

Basic earnings per share
  Income available to
    common stockholders .............     $1,904           9,094         $0.21
                                                                         =====

Effect of dilutive securities
 Convertible debentures .............        165           1,320
  Stock options and warrants ........        -               298
                                          ------          ------         -----

Diluted earning per share
  Income available to common
    stockholders ....................     $2,069          10,712         $0.19
                                          ======          ======         =====


                                         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 and warrants ........        -             2,568
                                          ------          ------         -----

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













                                       42

<PAGE>



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



Note 9 - 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, 1999 future  minimum  payments  under  noncancellable  operating
leases are as follows:

                           Year                         Amount
                                                    (in thousands)

                           2000                         $1,878
                           2001                          1,957
                           2002                          1,721
                           2003                          1,186
                           2004                            696
                           Thereafter                      234
                                                        ------
                                                        $7,672

     Rent  expense  for the years ended  December  31,  1999,  1998 and 1997 was
approximately $2.0 million, $1.3 million and $800,000, respectively.


Note 10 - Significant Clients

     For the year ended  December 31, 1999,  no one client  accounted for 10% or
more of net  revenues.  Net  revenues  from  individual  clients of the  Company
accounting for 10% or more of net revenues for the years ended December 31, 1998
and 1997 were as follows:

                                              1998     1997
                                              ----     ----
     Procter & Gamble Co.                     12%      12%
     CVS/Pharmacy, Inc.                       11%
     Bristol Meyers Squibb, Co.                        12%
     Wal*Mart Stores, Inc.                             11%


Note 11 - Foreign Operations

     The Company opened an office in Toronto, Canada effective July 1, 1997. For
the years ended  December 31, 1999,  1998 and the six months ended  December 31,
1997, the Canadian operations  generated revenues of approximately $4.5 million,
$3.5 million and  $494,000,  respectively,  realized  income from  operations of
$17,000, $218,000 and incurred a loss from operations of $31,000,  respectively,
and had  identifiable  assets  of  $2.1  million,  $1.7  million  and  $447,000,
respectively.







                                       43

<PAGE>



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



     Note 12 - Acquisition of HMG Intermark and Long-Term  Supply  Contract with
Foster Grant

     The Company has a  long-term  supply  contract  ('Supply  Contract"),  that
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 13 - Related Party Transactions

     For the years ended December 31, 1999, 1998 and 1997, the Company  incurred
a total of  approximately  $477,000,  $170,000 and $433,000,  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 from time to time 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.

     HMG maintains 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, 1999, 1998 and 1997,  approximately $87,000,  $112,000 and $26,000,
respectively, related to this agreement 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 number of large  retail  and
consumer  products  companies.  The three  customers  with the largest  balances
account for approximately 38% of accounts receivable at December 31, 1999.













                                       44

<PAGE>



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



Note 15 - Subsequent Events

     In February 2000,  one  institutional  holder of the Company's  convertible
notes elected to convert $1.0 million of the outstanding $5.0 million notes into
Common  Stock at $4.00  per  share  pursuant  to the  terms of the  notes.  As a
consequence  of the  conversion,  the Company  issued  266,675  shares of Common
Stock,   inclusive  of  accrued  interest,  and  retired  $1.0  million  of  the
convertible notes.

     On March 22, 2000, the Company issued $1.5 million 7% Convertible Notes Due
March 22, 2003 to an institutional  investor.  The principal amount of the Notes
is convertible  into shares of the Company's  Common Stock at a conversion price
of the lesser of $9.60 per share or a price based on the prevailing market price
of the Common Stock in the event that certain maintenance  criterion is not met,
subject to a maximum  issuance of 375,000  shares upon  conversion of the Notes,
taken together. The Notes were issued through a private placement;  however, the
Company has  undertaken to register for resale by the holders of the Notes,  the
shares  which  may be  acquired  upon the  conversion  of the  Notes  under  the
Securities Act of 1933.


                                       45

<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,
1999.


                                    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               62           Chairman of the Board            1984
                                        and Director

Andrew Wahl                39           Chief Executive                  1984
                                        Officer and Director

L. Randy Riley             48           President, Chief Operating       1993
                                        Officer and Director

Robert V. Cuddihy, Jr.     40           Executive Vice President,        1987
                                        Principal Accounting and
                                        Chief Financial Officer
                                        and Chief Information
                                        Officer and Director

Herbert F. Kozlov          47           Secretary and Director           1988

Ivan Berkowitz             54           Director                         1998

Bernard Stolar             53           Director                         1999

Lawrence J. Twill, Sr.     62           Director                         1987


     MICHAEL WAHL has been a Director of the Company  since its inception in May
1984.  Since October  1993,  Mr. Wahl has served as the Chairman of the Board of
the Company.  Mr. Wahl was the Company's Chief Executive  Officer,  from October
1993 through February 2000. Mr. Wahl served as the President of HMG from 1976 to
April 1986.

     ANDREW WAHL has been a Director of the Company  since its  inception in May
1984.  Mr.  Wahl became the Chief  Executive  Officer of the Company in February
2000 and relinquished his role as President.  Mr. Wahl previously served in this
capacity from May 1984 to October 1993 prior to the acquisition of HMG, at which
time Mr. Wahl relinquished his role as Chief Executive Officer. Mr. Wahl was the
President  from October 1993 to February 2000. In December 1990, Mr. Wahl became
the Secretary of the Company. From July 1987 to October 1993, Mr. Wahl served as
the  Company's  Chairman  of the Board.  Additionally,  Mr.  Wahl  served as the
Company's President from May 1984 until December 1990.

                                       46

<PAGE>



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.

     L. RANDY  RILEY has been a Director of the  Company  since March 1994.  Mr.
Riley  became  the  President  and Chief  Operating  Officer  of the  Company in
February  2000.  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.

     ROBERT V. CUDDIHY, JR. has been the Company's Chief Financial Officer since
July 1987 and a Director since February 1988 and the Chief  Information  Officer
since  February  2000.  From March 1989 through  February 2000, Mr. Cuddihy also
served as the Chief Operating Officer of the Company. From December 1990 through
October 1993,  Mr.  Cuddihy  served as the Company's  President.  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.

     HERBERT F. KOZLOV has been a Director of the Company since  February  1988.
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.

     BERNARD  STOLAR has been a Director of the Company since December 1999. Mr.
Stolar is President of Mattel Interactive and is responsible for all of Mattel's
software,  online and computer-enhanced toys, including all product and business
development,  marketing,  sales and  operations.  Mr.  Stolar  joined  Mattel in
January 2000 after serving as President and Chief  Operating  Officer of Sega of
America and Sega Entertainment.  Before joining Sega, Mr. Stolar was a member of
the management team at Sony Computer  Entertainment of America that launched the
Sony PlayStation.

     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) Beneficial Ownship Reporting Compliance

     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 a
review of Forms 3 and 4 and amendments  thereto furninshed to the Company during
the fiscal year ended December 31, 1999, and Forms 5 and amendments thereto with
respect to such year and written  representations from certain reporting persons
that no Forms 5 were required for those persons,  the Company believes that none
of its officers, directors and greater than 10% beneficial owners failed to file
such Forms on a timely basis during teh most recent  fiscal year or prior fiscal
years.



                                       47

<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, 1999,  1998
and 1997 by its chief executive officer and each of its executive officers whose
compensation exceeded $100,000 during its fiscal year ended December 31, 1999.
<TABLE>

                                                    Summary Compensation 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>
Michael Wahl                 1999     $250,000   $ 50,000                              415,000
  Chairman of the            1998     $250,000   $   -                                  60,000
  Board                      1997     $250,000   $   -                                  35,000

Andrew Wahl                  1999     $250,000   $150,000                              715,000
  Chief Executive            1998     $250,000   $   -                                  60,000
  Officer                    1997     $250,000   $   -                                  35,000

L. Randy Riley                        $250,000   $123,012 (2)                          140,000
  President and Chief        1998     $250,000   $149,022 (2)                           60,000
  Operating Officer          1997     $250,000   $   -                                  35,000

Robert V. Cuddihy, Jr.       1999     $250,000   $ 50,000                              140,000
  Chief Financial Officer    1998     $250,000   $   -                                  60,000
  Chief Information Officer  1997     $250,000   $   -                                  35,000
</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.
(2)  Mr. Riley  received in 1998 and 1999  incentive  compensation  of $149,022
     and $123,012,  respectively, based upon his marketing and sales initiatives
     as  established by the Board of Directors.


     Set forth below is  information  with  respect to options to  purchase  the
Company's  Common  Stock  granted in the year ended  December 31, 1999 and prior
years under the Company's Stock Option Plans and other compensation plans.


                                       48

<PAGE>


<TABLE>

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

                                              Number of Securities
                  Number of                   Underlying Unexercised       Value of Unexercised
                  Shares                      Options at                   In-the-Money Options
                  Acquired                    December 31, 1999            at December 31, 1999
                                              -----------------------      --------------------
                  on           Value                          Unexer-                   Unexer-
Name              Exercise     Realized       Exercisable     cisable      Exercisable  cisable
----              --------     --------       -----------     -------      -----------  -------

<S>                                            <C>                         <C>
Michael Wahl                                   1,109,828                   $3,894,556

Andrew Wahl                                    1,331,750                   $5,717,117

L. Randy Riley                                   458,850                   $2,300,115

Robert V.
 Cuddihy, Jr.                                    458,850                   $2,321,873

</TABLE>

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   aspect  of  the  Company's   operations  for  which  each  is
responsible.


                                       49

<PAGE>



     During 1999, 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 Company's  continued  expansion in 1999 as its strategy to
expand its existing  client base  through  organic  growth and to  strategically
acquire complementary businesses.

     The Company's  multi-disciplinary  solutions  approach to achieving results
for its clients wherever purchase  decisions are made has been recently expanded
to include web-consulting,  web-branding and web-design services. The Company is
cultivating a seamless  marketing  solutions strategy to offer consistent online
and in-store  marketing  services in an attempt to capitalize on the convergence
of retail and e-tail marketing strategies developing in the "new economy".

     The Company's  heritage has been to provide in-store  marketing systems and
services that influence a consumer's purchase decision at the point-of-purchase,
historically  at a retail  store  location.  The  Company's  expertise  has been
creating brand identity and brand  awareness,  combined with the creative design
of  merchandising  and display  systems,  that  influence a consumer's  purchase
decisions.  The Company plans to  capitalize on its expertise and  experience in
product  branding,  design  services and consumer buying habits by expanding its
services to Web-based  marketing.  By adding  Web-based  services to its service
offerings,  the company has the capability to converge in-store retail marketing
with online e-tail marketing.

     In an effort to effectively focus its online  initiatives,  the Company has
recently formed the HMG "e" division, consisting of its first acquisition of 80%
of Ego Media.  The Company will initially  implement its strategy by introducing
the  Web-consulting  services  of Ego Media to select  companies  in its current
client  base.  The goal of the  Company's  converged  strategy  is to  develop a
client's brand online in a manner that is consistent  with the brand's  identity
in-store and elsewhere,  in a universally  integrated message to consumers.  The
Company believes that its advantage in offering  Web-consulting  services to its
client base exists in its  knowledge  of its clients'  brands and its  extensive
research and experience in consumers' buying habits.

     The Company  revenues for the year ended December 31, 1999 grew organically
16.9% to $80.0 million as compared to $68.5 million for the year ended  December
31,  1998.  Additionally,  for the year ended  December  31,  1999,  the Company
incurred   non-recurring   costs  which  have  been  charged  to  operations  of
approximately $1.8 million in transition and integration  expenses,  principally
in the form of personnel redundancies,  associated with (i) consolidation of the
Company's  production  and  distribution  operations  in  Reading,  Pennsylvania
("Reading"),  $871,000,  (ii)  consolidation of product  development  operations
between  New York  and  Reading  operating  centers,  $650,000,  and  (iii)  the
streamlining of the account management and client service operations in New York
and Chicago,  $236,000.  Furthermore,  Ego Media,  acquired  September 28, 1999,
incurred  a loss of  approximately  $214,000  from  operations  and the  Company
charged to operations  approximately  $170,000 for the  amortization of deferred
financing  costs  associated  with  the  new  financing  and  credit  facilities
consummated  during  1999.  Accordingly,  for the year ended  December 31, 1999,
subsequent  to  the   recognition  of  the  above   expenses   which   aggregate
approximately  $2.1  million,  the  Company  incurred  a loss  of  approximately
$31,000, or $0.00 basic earning per share.

     For the  year  ended  December  31,  1999,  the  Company  accomplished  the
following:

     (i) Embarked on an e-commerce  development  strategy for its clients during
1999. Through the strategic  acquisition of 80% of Ego Media effective September
28,1999,  the Company is seeking to  leverage  its  heritage of in-store  retail
solutions  to  on-line  e-tail  solutions   whereby  web  brand  services,   web
consulting,  web design and new media  services  are  provided to the  Company's
clients  seeking   integrated   solutions  to  their  marketing  and  e-commerce
initiatives.

     (ii) Consummated a series of financing  agreements to finance the Company's
current and future growth and financing needs. The Company obtained a five-year,
$35.0  million  Revolving  Credit  Term  Loan and  Security  Agreement  ("Credit
Agreement") from a financial  institution.  In addition to the Credit Agreement,
on February 24, 1999 the Company issued $5.0 million,  7% Convertible  Notes Due
February 24, 2002 to two  institutional  investors.  The principal amount of the
Notes are convertible  into shares of the Company's Common Stock at a conversion
price of the  lesser  of $4.00 per share or a price  based  upon the  prevailing
market  price of the Common  Stock,  subject to a maximum  issuance of 2,160,000
shares upon the conversion of the Notes, taken together. The Company also issued
on August 26, 1999 $2.0 million, 10% Convertible

                                       50

<PAGE>



Debentures  Due August 26,  2002 to an  institutional  investor.  The  principal
amount of the Debenture is convertible, at the option of the holder at any time,
into shares of the  Company's  Common Stock based upon the  conversion  price of
$4.00 per share.

     (iii) Initiated and completed an investment of $3.0 million for a series of
proprietary  products and  associated  injection  molds and  production  related
tooling.  The Company has produced a proprietary series of products which can be
marketed  across a variety of different  clients and retail store  environments.
Among the  proprietary  products  developed,  the Company has a new product line
which  provides  for the products to be  automatically  arranged on retail shelf
space  through the use of a variety of pushing  mechanisms  that provide  "front
faced"  product  along the  front of the  retail  shelf in a neat and  organized
fashion.  Through the use of these systems,  the retail  environment  appears to
always be full,  provides for efficient use of store space and reduces  stocking
labor. At December 31, 1999, included in the Company's backlog was approximately
$5.4  million in orders  relating to the  Company's  propriety  product  line of
products.

     (iv) The Company  opened  100,000  square feet of a 199,500 square foot new
warehouse  and  distribution  facility  effective  October  1,  1999.  The  full
warehouse and distribution  facility is comprised of 42 service bays for loading
and  unloading  goods and has ceiling  heights of 30 foot clear.  The  remaining
portion of this facility is scheduled to become operational in September 2000 as
the space is  currently  sublet to a third  party.  The  Company  plans for this
facility include (a) streamlining its productions activities to provide for more
economical  production  runs (b) reduction in production  line  change-over  and
distribution costs through  maintaining a finished goods warehouse (c) expansion
of  customized   pick  and  pack   operations   whereby  more   specific   store
configurations  are shipped directly from the Company and (d) improved logistics
service, warehousing and support to clients.

     (v) Entered into a sales and marketing  agreement  with Pacific  Softworks,
Inc.  ("Softworks"),  a developer of embedded  Internet  technology and Internet
appliances.  The sales and marketing agreement will allow the Company to jointly
develop with  Softworks  in-store  marketing  solutions  with  Internet  enabled
elements.  Although this relationship is in its early  development,  the Company
seeks to offer its  clients  in the  future  the  ability  to  develop  in-store
displays  that can be assessed  over the  Internet to  determine  stock  status,
replenishment needs, sales and stock movement trends and maintenance information
on any moving components of the display.

     Management  believes that each of the above  accomplishments  positions HMG
well as a leading, innovative agency providing  multi-disciplinary  solutions to
achieving  results  for its clients  wherever  purchase  decisions  are made and
having the  appropriate  resources to support  each of its clients  initiatives.
Furthermore,  HMG will continue to seek to acquire  strategic  businesses  which
will expand the  Company's  retail and e-tail  products  and  services,  provide
improved distribution and reduce operating and manufacturing costs.




March 1, 2000
                       Michael Wahl - Chairman            Herbert F. Kozlov
                       Andrew Wahl                        Robert V. Cuddihy, Jr
                       Ivan Berkowitz                     L. Randy Riley
                       Bernie Stolar                      Lawrence J. Twill, Sr.










                                       51

<PAGE>



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.


                    1/1/95   12/31/95   12/31/96   12/31/97   12/31/98  12/31/99
                    ------   --------   --------   --------   --------  --------
HMG Worldwide        $100   $   89        $ 33       $ 37       $ 61      $207

Nasdaq US            $100   $  141        $174       $213       $300      $542

Nasdaq Non-Financial $100   $  139        $169       $198       $290      $559



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 - Chairman of the
Board,  Andrew Wahl - Chief  Executive  Officer,  L. Randy Riley - President and
Chief  Operating  Officer,  Robert V. Cuddihy,  Jr. - Executive Vice  President,
Chief  Financial  Officer,  Chief  Information  Officer  and Herbert F. Kozlov -
Secretary.

     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, 1999 were approximately $347,000.

     Ivan Berkowitz,  a director of the Company,  provided financial  consulting
services to the Company.  Fees paid to Mr. Berkowitz by the Company for the year
ended December 31, 1999 were approximately $130,000.

     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.


                                       52

<PAGE>



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

     The following  table sets forth  information  as of March 20, 2000 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                      1,796,158   (2)                  12.8%
475 Tenth Avenue
New York, NY 10018

Andrew Wahl                       1,677,986   (3)                  11.8%
475 Tenth Avenue
New York, NY 10018

Gilmour 1994 Jersey Trust           972,222   (4)                   7.5%
7 Bond Street
St. Helier
Jersey, Channel Island

Strategic Capital Consultants, Inc  900,000   (5)                   6.5%
5757 Wilshire Blvd. PH1
Los Angles, CA 90036

State of Wisconsin Investment Boar  740,000                         5.7%
P.O. Box 7842
Madison, WI  53707

Robert V. Cuddihy, Jr.              603,091   (6)                   4.5%
475 Tenth Avenue
New York, NY  10018

L. Randy Riley                      573,366   (6)                   4.2%
475 Tenth Avenue
New York, NY  10018

Herbert F. Kozlov                   515,476   (7)                   3.8%
529 Fifth Avenue
New York, NY  10017

Ivan Berkowitz                      436,333   (8, 9)                3.3%
1790 Broadway
Suite 1500
New York, NY 10009

Lawrence J. Twill, Sr.              281,150   (10)                  2.1%
111 East 30th Street (16A)
New York, NY  10016

Great Court Analysis LLC            140,000   (8, 9)                1.1%
5150 Overland Avenue
Culver City, CA 90230

Bernard Stolar                        75,000  (11)                  0.6%
475 Tenth Avenue
New York, NY 10018

All executive officers              6,098,560 (12)                 36.6%
and directors as a group
(8 persons)




                                       53

<PAGE>



(1)   Includes shares  issuable  pursuant to currently  exercisable  options and
      options which will be exercisable within 60 days of March 20, 2000. Except
      as  otherwise  indicated,  the persons  named  herein have sole voting and
      disposition power with respect to the shares beneficially owned.
(2)   Includes 1,109,828 shares issuable upon exercise of options and warrants.
(3)   Includes 1,331,750 shares issuable upon exercise of options and warrants.
(4)   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.
(5)   Includes 900,000 shares issuable upon exercise of warrant.
(6)   Includes 458,850 shares issuable upon exercise of options.
(7)   Includes 471,433 shares issuable upon exercise of options.
(8)   Ivan Berkowitz, a director of the Company, is the President of Great Court
      Analysis LLC which beneficially owned 140,000 shares.
(9)   Includes  411,333  shares  issuable upon exercise of options and warrants.
      Ivan Berkowitz, a director of the Company, is the President of Great Court
      Analysis LLC which beneficially owned 140,000 shares.
(10)  Includes  270,400 shares  issuable upon exercise of options.
(11) Includes 75,000 shares issuable upon exercise of options.
(12)  Includes  4,587,444  shares issuable upon exercise of options and warrants
      owned by such executive officers and directors.

Item 13.      Certain Relationships and Related Transactions.

     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,
2001. Unpaid amounts bear interest at a fluctuating rate equal to the six months
U.S.  Treasury bill rate. In 1995,  1997 and 1998, Mr. Wahl made  prepayments of
$25,000,  $20,000 and $25,000,  respectively.  At December 31, 1999,  the unpaid
principal  balance of such  advance was $30,000 and no interest  was paid during
1999.

     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, 1999 were approximately $347,000.

     Ivan Berkowitz,  a director of the Company,  provided financial  consulting
services to the Company.  Fees paid to Mr. Berkowitz by the Company for the year
ended December 31, 1999 were approximately $130,000.

     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.


                                       54

<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 Schedule.
              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) 1997 Stock Option  Plan(4)*
        (e) 1998 Stock Option  Plan(5)*
        (f) 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(6)
        (g) 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(6)
        (h) Employment Agreement, dated April 30, 1993, between Registrant,
            Marlboro Marketing, Inc., a New York corporation, and Michael Wahl
            (3)*
        (i) Stock Purchase Agreement,  dated as of September 30, 1995, between
            Benson Eyecare Corporation and Intermark Corp (7)
        (j) 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 (7)
        (k) Loan and Security Agreement between Congress Financial Corporation
            and Registrant dated November 22, 1996 (9)
        (l) Issuance of $2.2 million, 10% convertible debentures (8)
        (m) Asset  Purchase  Agreement,  dated  August  1,  1998  between  HWO
            Ventures,  Inc. And  Registrant  (10)
        (n) Issuance of $5.0 million, 7% convertible debentures (11)
        (o) Revolving Credit, Term Loan And Security Agreement, dated August 27,
            1999, by and among HMG Worldwide Corporation, HMG Worldwide In-Store
            Marketing, Inc., HMG/Intermark Worldwide Manufacturing, Inc. Display
            Depot, Inc., HMG Griffith, Inc. and HMG Schutz International, Inc.
            and PNC Bank, National Association.
     21  Subsidiaries of the Registrant (6)
     23  Consents of Friedman Alpren & Green LLP
     27  Financial Data Schedule

(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 Proxy Statement, dated
     July 8, 1997, and incorporated herein by reference.
(5)  Denotes document filed as an exhibit to Registrant's Proxy Statement, dated
     October 7, 1998, and incorporated herein by reference.
(6)  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.
(7)  Denotes document filed as an exhibit to Registrant's  Annual Report on Form
     10-K dated December 31, 1995, and incorporated herein by reference.

                                       55

<PAGE>



(8)  Denotes document filed as on exhibit to Registrant's Form 8-K dated October
     31, 1997 and incorporated herein by reference.
(9)  Denotes document filed as an exhibit to Registrants Form 8-K dated August
     12, 1998 and incorporated herein by reference.
(10) Denotes  document filed as on exhibit to  Registrant's Form 8-K dated March
     22, 1999 and incorporated herein by reference.

*    Management contract or compensatory plan or arrangement

                                       56

<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, 2000                          By:/s/Robert V. Cuddihy, Jr.
                                                 -----------------------------
                                                   Robert V. Cuddihy, Jr.
                                                   Executive Vice President,
                                                   Principal Accounting and
                                                   Chief Financial Officer, and
                                                   Chief Information 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, 2000
Michael Wahl                       Board

/s/Andrew Wahl
-----------------------------      Chief Executive Officer        March 27, 2000
Andrew Wahl                        and Director

/s/L. Randy Riley
-----------------------------      President, Chief               March 27, 2000
L. Randy Riley                     Operating Officer
                                   and Director

/s/Robert V. Cuddihy, Jr.
-----------------------------      Executive Vice                 March 27, 2000
 Robert V. Cuddihy, Jr.            President, Principal
                                   Accounting, Chief
                                   Financial Officer,
                                   Chief Information
                                   Officer and Director


-----------------------------      Director                       March 27, 2000
Ivan Berkowitz

/s/Herbert F. Kozlov
-----------------------------      Director                       March 27, 2000
Herbert F. Kozlov


-----------------------------      Director                       March 27, 2000
Bernard Stolar


-----------------------------      Director                       March 27, 2000
Lawrence J. Twill, Sr.




                                       57

<PAGE>



                     INDEX TO FINANCIAL STATEMENT SCHEDULES


The following financial statement schedule is filed as part of this Report:


                                                                          PAGE

    Independent Auditors' Report on Financial Statement Schedules           A-2

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

Schedule other than the one listed are omitted as not required or applicable.









































                                       58

<PAGE>




          INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT 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 24,  2000.  Our audits  were made for the purpose of forming an opinion on
those statements taken as a whole. The schedule listed in the index is presented
for purposes of complying with the Securities  and Exchange  Commission's  rules
and is not  part of the  basic  financial  statements.  This  schedule  has been
subjected  to the  auditing  procedures  applied  in  our  audits  of the  basic
financial statements and, in our opinion, fairly states in all material respects
the information 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 24, 2000






















                                      A - 2


<PAGE>

<TABLE>


                                      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, 1999:

<S>                                   <C>          <C>            <C>            <C>            <C>
  Allowance for doubtful accounts     $ 453        $ 338          $ -            ($ 10)         $ 781
                                      =====        =====          =====           ====          =====

Year ended December 31, 1998:

  Allowance for doubtful accounts     $ 273        $ 100          $ 100 (b)      ($ 20)         $ 453
                                      -----        =====          =====           ====          =====

Year ended December 31, 1997:

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

</TABLE>

(a)  Write-off of accounts receivable.
(b)  Amount  acquired  as part of the HMG  Schutz  acquisition  pursuant  to the
     Purchase Agreement effective August 1, 1998.
















                                       A-3