UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(X)   QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

      For the quarterly period ended: September 30, 1997
                                      ------------------
                                   or

( )   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the transition period from      to
                                     ----    ---- 
Commission file number: 0-13121
                        -------
 
                           HMG Worldwide Corporation
                         -----------------------------    
            (Exact name of registrant as specified in its charter)

           Delaware                                         13-3402432
           --------                                         ----------
 (State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                         Identification No.)

   475 Tenth Avenue, New York, NY                              10018
   ------------------------------                              -----    
  (Address of principal executive offices)                  (Zip Code)

  Registrant's telephone number, including area code  (212)736-2300
                                                       ------------
  Indicate  by check  mark  whether  the  registrant  (1) has filed all  reports
  required to be filed by Section 13 or 15(d) of the Securities  Exchange Act of
  1934  during the  preceding  12 months (or for such  shorter  period  that the
  registrant was required to file such reports) and (2) has been subject to such
  filing requirements for the past 90 days.

                           Yes    X         No
                                -----             -----
               APPLICABLE ONLY TO ISSUERS 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 Sections  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   
                               -----           -----   
                      APPLICABLE ONLY TO CORPORATE ISSUERS:

  Indicate the number of shares  outstanding of each of the issuer's  classes of
  common stock, as of the latest practicable date.

            Class                            Outstanding at November 12, 1997
          ---------                          --------------------------------
Common Stock, $.01 par value                              8,924,150





<PAGE>





                          Part I. Financial Information
                                     Item 1.

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

                                    September 30, 1997       December 31, 1996
                                    ------------------       -----------------
                                         (unaudited)
                     ASSETS

Current assets:
  Cash and cash equivalents                  $ 8,642                 $ 6,950
  Accounts receivable - less
    allowance for doubtful
    accounts of $241 and $577                  8,395                   6,454
  Inventory                                    4,369                   4,214
  Prepaid expenses                               339                      95
  Other current assets                           198                     240
                                             -------                 ------- 
    Total current assets                      21,943                  17,953
                                             -------                 -------
Property and equipment - net                   3,367                   3,349
Excess of cost over fair
  market value of assets acquired,
  less accumulated amortization
  of $1,513 and $1,207                         6,646                   6,952
Other assets                                     612                     501
                                             -------                 ------- 
                                             $32,568                 $28,755
                                             =======                 ======= 
                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current maturities of
    long-term obligations                    $11,960                 $ 9,439
  Note payable                                    35                     338
  Accounts payable                             6,347                   5,803
  Accrued employee compensation
    and benefits                               1,125                   1,033
  Deferred revenue                             1,435                   1,835
  Accrued expenses                               926                   1,566
  Other current liabilities                      418                   1,175
                                             -------                 ------- 
     Total current liabilities                22,246                  21,189
                                             -------                 ------- 
Pension obligation                             1,420                   1,684
Convertible debentures                         2,200
Other long-term liabilities                      625                     691
                                             -------                 ------- 
                                              26,491                  23,564
                                             -------                 ------- 
Stockholders' equity:
  Common stock, par value $.01;
    50,000,000 shares authorized;
    8,924,150 and 8,129,589 issued
    and outstanding                               89                      81
  Additional paid-in capital                  34,631                  33,903
  Accumulated deficit                        (28,643)                (28,793)
                                             -------                 -------   
                                               6,077                   5,191
                                             -------                 ------- 
                                             $32,568                 $28,755
                                             =======                 ======= 

         See accompanying notes to consolidated financial statements.





                                      2

<PAGE>



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


                                 Three Months Ended          Nine Months Ended
                                    September 30,              September 30,
                                    ------------               ------------  
                                  1997        1996           1997        1996
                                  ----        ----           ----        ----  
Net revenues                   $10,998     $13,927        $33,848     $38,473

Cost of revenues                 8,221      11,218         25,129      30,631
                               -------     -------        -------     -------  
  Gross profit                   2,777       2,709          8,719       7,842

Selling, general and
  administrative
  expenses                       2,558       3,075          8,288       9,470
                               -------     -------        -------     -------
  Income (loss)
    from operations                219        (366)           431      (1,628)

Interest income                     84          88            231         267

Interest expense                  (281)       (206)          (769)       (584)

Other income                                                  267
                               -------     -------        -------     -------
  Income (loss) before
    provision for
    income taxes                    22        (484)           160      (1,945)

Provision for
  income taxes                                  (1)           (10)        (12)
                               -------     -------        -------     -------
  Net income (loss)            $    22    ($   485)       $   150    ($ 1,957)
                               =======     =======        =======     =======
Net income (loss) per
  common and common
  equivalent share             $    -     ($  0.06)       $  0.01    ($  0.26)
                               =======     =======        =======     =======
Weighted average number
  of common and common
  equivalent shares
  outstanding                8,707,483   7,567,517      8,540,807   7,567,517
                             =========   =========      =========   =========   














         See accompanying notes to consolidated financial statements.



                                      3

<PAGE>








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



                                            Nine Months Ended September 30,
                                            ------------------------------
                                                   1997              1996
                                                   ----              ----

Cash flows from operating activities:
  Cash received from customers                  $31,507           $37,716
  Interest received                                 231               267
  Cash paid to suppliers                        (27,573)          (31,182)
  Cash paid to employees                         (6,633)           (7,126)
  Income taxes paid                                 (19)              (12)
  Interest paid                                    (769)             (590)
                                                -------           ------- 
    Net cash used in operating
     activities                                  (3,256)             (927)
                                                -------           -------  
Cash flows from investing activities:
  Proceeds from the sale of
    an investment                                   356
  Capital expenditures                             (402)           (1,084)
                                                -------           -------  
    Net cash used in investing
      activities                                    (46)           (1,084)
                                                -------           ------- 
Cash flows from financing activities:
  Net proceeds from the sale of common
    stock as part of a private placement            576
  Proceeds derived from the sale of
    convertible debentures                        2,200
  Proceeds derived from a credit
    agreement, net                                2,521               571
  Principal payments of
    outstanding debt obligations                   (303)             (253)
                                                -------           -------  
    Net cash provided by
      financing activities                        4,994               318
                                                -------           -------  
Effect of exchange rate changes                                        (2)
                                                -------           -------
Net increase (decrease) in cash and
  cash equivalents                                1,692            (1,695)

Cash and cash equivalents
  at beginning of year                            6,950             8,139
                                                -------           -------  
Cash and cash equivalents
  at September 30                               $ 8,642           $ 6,444
                                                =======           =======  




         See accompanying notes to consolidated financial statements.





                                      4

<PAGE>




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



                                                Nine Months Ended September 30,
                                                ------------------------------ 
                                                      1997           1996
                                                      ----           ----  

Reconciliation of net income (loss)
  to net cash used in
  operating activities:

Net income (loss)                                   $  150        ($1,957)

Adjustments to reconcile net
  income (loss) to net cash used in
  operating activities:

  Depreciation and amortization                        690            646
  Other income                                        (267)

Decrease (increase) in assets:
  Accounts receivable                               (1,941)        (1,290)
  Inventory                                           (155)         1,259
  Prepaid expenses                                    (244)           306
  Other assets                                          42           (270)

Increase (decrease) in liabilities:
  Accounts payable                                     544          2,311
  Deferred revenue                                    (400)           506
  Accrued expenses                                  (1,411)        (2,203)
  Pension obligation                                  (264)          (235)
                                                    ------         ------  
Net cash used in operating
  activities                                       ($3,256)       ($  927)
                                                    ======         ======      

Supplemental schedule of non-cash investing
  and financing activities:

  Common Stock issued in connection with an
    employee benefit plan                             $160
                                                      ====
















            See accompanying notes to consolidated financial statements.


                                      5

<PAGE>





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


Note 1 - Consolidated Financial Statements

     HMG  Worldwide   Corporation   ("the  Company")   conducts  its  operations
principally  through four wholly-owned  subsidiaries  being,  respectively,  HMG
Worldwide In- Store Marketing, Inc. ("HMG"), Intermark Corp. ("Intermark"),  HMG
Intermark  Worldwide  Manufacturing,  Inc. ("HMG  Intermark") and Display Depot,
Inc. ("DDI"), with facilities in New York, Pennsylvania and Illinois.

     The  Consolidated   Balance  Sheet  as  of  September  30,  1997,  and  the
Consolidated  Statements of Operations  and Cash Flows for the nine months ended
September 30, 1997 and 1996, have been prepared by the Company without audit. In
the opinion of management,  all adjustments (which include only normal recurring
adjustments)  necessary to present  fairly the  financial  position,  results of
operations  and cash flows at September  30, 1997 and for all periods  presented
have been made.

     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting  principles
have been condensed or omitted.  These consolidated  financial statements should
be read in  conjunction  with the  consolidated  financial  statements and notes
thereto   included  in  the  Company's   December  31,  1996  annual  report  to
shareholders.  The results of operations for the period ended September 30, 1997
are not necessarily indicative of the operating results for the full year.

Note 2 - Inventory

  Inventories  at  September  30, 1997 and  December  31, 1996  consisted of the
following:

                                      September 30,    December 31,
                                          1997             1996
                                          ----             ----
                                             (in thousands)
   Finished goods                       $2,797           $1,312
   Work in process                         443              653
   Raw materials                         1,129            2,249
                                        ------           ------
                                        $4,369           $4,214
                                        ======           ======

Note 3 - Income Taxes

     At December 31, 1996, the Company had net operating loss  carryforwards  of
approximately  $27.5 million which expire during the years 2001 through 2011. As
of September 30, 1997, a valuation  allowance of  approximately  $11.7  million,
which is equal to the entire  amount of the deferred tax asset  arising from the
net operating  loss  carryforwards  and other  temporary  differences,  has been
established until realizability is certain.

   Components of income tax expense for the nine months ended September 30, 1997
and 1996 are as follows:

                                      Nine Months Ended September 30,
                                      ------------------------------  
                                          1997             1996
                                          ----             ----
                                             (in thousands)
   State and local
     income taxes                          $10              $12
                                           ===              ===  




                                      6

<PAGE>






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



Note 4 - Convertible Debentures

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

Note 5 - Stockholders' Equity

     In December 1996, the Company  initiated a private  placement ("HMG Private
Placement")  whereby  the  Company  offered  for sale up to 2 million  shares of
common  stock at $1.00  per  share.  Pursuant  to the  terms of the HMG  Private
Placement, as of December 31, 1996 the Company sold 377,500 shares of its common
stock at $1.00 per share from which it derived  net  proceeds  of  approximately
$377,000.  For the nine months ended  September  30,  1997,  the company sold an
additional   635,000  shares  of  common  stock  and  derived  net  proceeds  of
approximately  $576,000.  All  stock  issued  pursuant  to the  terms of the HMG
Private  Placement is restricted  stock which has not been registered  under the
Securities Act of 1933, as amended ("the Securities Act"), and may not be resold
by the respective  purchasers  thereof absent  registration under the Securities
Act or the availability of an applicable exemption from such registration.

     In June 1997,  the Company  contributed  an aggregate of 159,561  shares of
common  stock  to  the  HMG  Worldwide  Corporation  Capital  Accumulation  Plan
maintained for the benefit of the Company's employees.  The fair market value of
the  common  stock was $1.00 per  share.  The shares  were  contributed  without
registration  in reliance  upon the  exemption  provided by Section  4(2) of the
Securities Act.

     On September  30,  1997,  the Company  entered  into a two year  Consulting
Agreement with Lazam  Properties  Ltd.  ("Consultant")  for which the Consultant
will provide financial  consulting and other services.  Pursuant to the terms of
the Consulting  Agreement,  the Consultant will receive (i) payments aggregating
$260,000 and (ii) warrants to purchase an aggregate of 200,000  shares of Common
Stock  exercisable at $1.25 per share.  The warrants are exercisable over a term
of five years.













                                      7

<PAGE>




                  HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Three Months Ended September 30, 1997 as Compared to the
  Three Months Ended September 30, 1996

     Net revenues  were $11.0  million for the three months ended  September 30,
1997 as compared to $13.9 million for the three months ended September 30, 1996.
The decrease in net revenues from period to period was due principally to a 1996
national rollout of a merchandising  system of  approximately  $1.9 million with
one significant client and other period to period fluctuations due to the timing
of marketing expenditures of other significant clients.

     Gross profit for the three months ended September 30, 1997 was $2.8 million
as compared to $2.7 million for the three months ended  September 30, 1996.  The
increase in gross profit of $68,000 was  principally  a result of an increase in
gross margin for the three months ended  September 30, 1997 to 25.2% as compared
to 19.4% for the three months ended  September  30, 1996,  offset in part by the
decrease  in net sales.  The gross  margin  increase  was due  principally  to a
favorable  production  revenue mix resulting in a 9.8%  increase,  offset by the
underabsorption  of fixed  overhead  expenses as a percentage of net revenues of
4.0%.  The favorable  production  revenue mix was  principally  the result of an
increase in the number of programs  manufactured  and assembled at the Company's
Pennsylvania  facilities  and  the  increased  operational  efficiencies  on the
specific programs shipped.

     Selling,  general and  administrative  expense for the three  months  ended
September  30,  1997  was $2.6  million  as  compared  to $3.1  million  for the
comparable  period in 1996.  The decrease of $517,000  from period to period was
principally  due to (i) a reduction  in  personnel  costs of  $136,000  and (ii)
decreased spending in other general expenses.

     For the three  months  ended  September  30,  1997,  the Company  generated
interest  income of $84,000 as compared to $88,000  for the three  months  ended
September 30, 1996. This decrease was principally attributable to a reduction in
cash and cash equivalents invested in interest-bearing marketable securities and
commercial paper from period to period.

     Interest expense was $281,000 for the three months ended September 30, 1997
as compared to $206,000  for the three  months ended  September  30,  1996.  The
increase  in interest  expense  was  principally  due to the  increased  average
borrowings from period to period.

     As a result of the foregoing  factors,  the Company generated net income of
$22,000, for the three months ended September 30, 1997 as compared to a net loss
of $485,000, or $0.06 per share, for the three months ended September 30, 1996.



















                                      8

<PAGE>




                  HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Nine Months Ended September 30, 1997 as Compared to the
  Nine Months Ended September 30, 1996

     Net revenues  were $33.8  million for the nine months ended  September  30,
1997 as compared to $38.5 million for the nine months ended  September 30, 1996.
The  decrease in net  revenues  from period to period was due  principally  to a
reduction in capital and marketing  expenditures of three significant clients of
$6.6  million,  offset  by the  increase  in  marketing  expenditures  of  other
significant  clients of $1.9 million.  The decrease in net revenues  realized by
the Company from three significant  clients was principally the result of period
to period  fluctuations in marketing programs and timing of national rollouts of
merchandising systems developed by the Company.

     Gross profit for the nine months ended  September 30, 1997 was $8.7 million
as compared to $7.8 million for the nine months ended  September  30, 1996.  The
increase in gross profit of $877,000 was  principally a result of an increase in
gross margin for the nine months ended  September  30, 1997 to 25.8% as compared
to 20.4% for the nine months ended  September  30,  1996,  offset in part by the
decrease  in net sales.  The gross  margin  increase  was due  principally  to a
favorable  production  revenue mix resulting in a 8.1%  increase,  offset by the
underabsorption  of fixed  overhead  expenses as a percentage of net revenues of
2.7%.  The favorable  production  revenue mix was  principally  the result of an
increase in the number of programs  manufactured  and assembled at the Company's
Pennsylvania  facilities  and  the  increased  operational  efficiencies  on the
specific programs shipped.

     Selling,  general and  administrative  expense  for the nine  months  ended
September  30,  1997  was $8.3  million  as  compared  to $9.5  million  for the
comparable  period in 1996.  The  decrease of $1.2 million from period to period
was  principally  due  to  (i) a  reduction  in  personnel  costs  of  $418,000,
(ii)expenses of $175,000  related to the  discontinued  European  operations and
(iii) decreased spending in other general expenses.

     For the nine  months  ended  September  30,  1997,  the  Company  generated
interest  income of $231,000 as compared to $267,000  for the nine months  ended
September 30, 1996. This decrease was principally attributable to a reduction in
cash and cash equivalents invested in interest-bearing marketable securities and
commercial paper from period to period.

     Interest  expense was $769,000 for the nine months ended September 30, 1997
as compared to  $584,000  for the nine months  ended  September  30,  1996.  The
increase  in interest  expense  was  principally  due to the  increased  average
borrowings from period to period.

     In 1994, the Company received shares of common stock of a client in lieu of
payment for services  rendered to such client.  In March 1997,  the Company sold
the shares of common  stock and derived net  proceeds  from the sale of $356,000
and generated a net gain of $267,000 which was recorded as other income.

     As a result of the foregoing  factors,  the Company generated net income of
$150,000,  or $0.01 per share,  for the nine months ended  September 30, 1997 as
compared to a net loss of $2.0 million,  or $0.26 per share, for the nine months
ended September 30, 1996.

Stockholders' Equity

     Stockholders'  equity  increased  $886,000 to $6.1 million at September 30,
1997 from $5.2  million at December  31,  1996.  The  increase in  stockholder's
equity was  principally  due to (i)net  proceeds  derived  from the HMG  Private
Placement of $576,000,  (ii) the contribution of 159,561 shares of common stock,
valued at $1.00 per share, to the HMG Worldwide Corporation Capital Accumulation
Plan and (iii) net income of $150,000.
                                      9

<PAGE>




                     WORLDWIDE CORPORATION AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Income Taxes

     At December 31, 1996, the Company had available approximately $27.5 million
in net operating loss  carryforwards  which expire during the years 2001 through
2011.

     The Company's  income tax provision for the nine months ended September 30,
1997 was $10,000 as compared to $12,000 for the nine months ended  September 30,
1996. The income tax provision for the nine months ended  September 30, 1997 and
1996 was comprised principally of state and local taxes.

Inflation

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

Backlog

     At September 30, 1997, the Company's  aggregate  backlog was  approximately
$24.9  million as compared to $15.6  million and $14.8  million at December  31,
1996  and  September  30,  1996,  respectively.  Of such  aggregate  backlog  at
September 30, 1997,  approximately  52% was  attributable  to four clients.  The
Company  anticipates that  substantially  all such backlog at September 30, 1997
will be filled during the next twelve  months.  In addition to the $24.9 million
backlog at September  30, 1997,  the Company's  supply  contract with the Foster
Grant Group L.P.  ("Foster  Grant")  requires  Foster Grant,  subject to certain
limitations,  to purchase at least 70% of its  in-store  merchandising  displays
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 September
30, 1997 was $27.3 million,  of which the Company  anticipates that $2.5 million
will be  shipped  within  the next  twelve  months.  Due to  quarter  to quarter
fluctuations in the Company's backlog levels, attributable 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.

Liquidity and Capital Resources

     Cash and cash  equivalents  at  September  30, 1997 and  December  31, 1996
aggregated $8.6 million and $6.9 million,  respectively.  The Company's increase
in cash and cash equivalents of $1.7 million for the nine months ended September
30,  1997  was  due  principally  to the net  effect  of (i)  net  cash  used in
operations  of $3.3  million,  (ii) capital  expenditures  of $402,000 and (iii)
reduction  of debt  obligations  of  $303,000,  offset by,  (iv)  proceeds  from
borrowings under the Company's  revolving line of credit with its bank lender of
$2.5 million, (v) proceeds from the sale of an investment of $356,000,  (vi) net
proceeds  derived from the HMG Private  Placement of $576,000 and (vii) proceeds
from the sale of Debentures of $2.2 million.  The Company's  negative cash flows
from   operations  for  the  nine  months  ended  September  30,  1997  resulted
principally from (i) an increase in assets of $2.3 million and (ii)a decrease in
general liabilities of $1.2 million.

     The Company has secured a $13.0 million  Credit  Agreement with a financial
institution in the form of a revolving credit and term loan facility. The Credit
Agreement  provides for a secured revolving credit facility which advances up to
the sum of (i) 85% of eligible  accounts  receivable,  (ii) the lesser of 60% of
eligible finished goods inventory or $750,000 and (iii) the Company's cash, cash
equivalents and marketable securities. The Credit Agreement is secured by a lien
on and a security interest in the Company's cash, cash  equivalents,  marketable
securities, accounts receivable, inventory, 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.


                                      10

<PAGE>



                  HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued


     Borrowings  under the Credit  Agreement bear interest at the  institution's
prime  rate plus 1% per  annum.  The  Company  is  required  to pay a  quarterly
commitment  fee at the rate of one half of 1% per  annum  of the  average  daily
unused amount of funds available.  Additionally,  the Credit Agreement  contains
certain customary  affirmative and negative  covenants which require the Company
to maintain certain financial ratios, and, among other things restrict,  (i) the
declaration   or  payment  of   dividends,(ii)   the  incurrence  of  additional
indebtedness and (iii) the sale of certain assets. As of September 30, 1997, the
Company was in compliance with all financial  covenants of the Credit Agreement,
as amended.

     Pursuant to the terms of the Credit Agreement, the lender can advance up to
$1.6 million in the form of a term loan  collateralized by the Company's current
and  future  real  estate  and  equipment.  The term loan  portion of the Credit
Agreement is amortized on a sixty month basis with a final  payment due upon the
termination  of the Credit  Agreement  and bears  interest at the  institution's
prime rate plus 1% per annum. At September 30, 1997, the balance  outstanding on
the term loan component of the Credit Agreement was approximately $283,000.

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

     The  Company's  working  capital  at  September  30,1997  was a deficit  of
$303,000,  inclusive of borrowings  of $12.0 million  pursuant to the three year
Credit  Agreement.  The  working  capital  deficit  was due  principally  to (i)
negative  cash flows  from  operations  during  1996 and the nine  months  ended
September  30, 1997 and (ii)  increased  borrowing  under the  Company's  credit
facilities   whereby  such  proceeds  were  used  in  part  to  finance  capital
expenditures  of $1.8  million,  inclusive of $1.1 million in one-time  facility
renovations  and  equipment  upgrades at the Company's  Pennsylvania  production
facilities  during 1996 and 1997.  From time to time,  the  Company  experiences
temporary  liquidity  problems due to the timing of cash flows while the Company
is in  production  and building  inventory.  However  management  believes  that
significant cost savings will be realized through the implementation of its 1996
strategic  plan whereby the Company  moved and  consolidated  its  manufacturing
facilities  in Reading,  Pennsylvania,  restructured  the Company's New York and
Chicago offices, upgraded the Company's injection molding division, expanded its
internal  wire   fabrication   capabilities  and  closed  its  European  office.
Furthermore, management believes that its current cash and cash equivalents, its
backlog,  anticipated future cash flows from operations,  availability under its
Credit  Agreement  and the proceeds  derived from the HMG Private  Placement and
issuance  of  Debentures   will  be  sufficient  to  support  its  debt  service
requirements and its other capital and operating needs for the next fiscal year.






                                      11

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                  HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
          OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued


     The  above  statements  and  certain  other  statements  contained  in this
quarterly report on Form 10-Q 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.

















































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Part II.  Other Information


Item 2.  Changes in Securities

     During the three  months  ended  September  30,  1997,  the Company sold an
aggregate of 260,000 shares of common stock to David Lloyd, Parker Duryee Rosoff
& Haft, Harry Steck and Andrew Wahl in the HMG Private  Placement.  The purchase
price per share was $1.00. The shares were sold without registration in reliance
upon the exemption provided by Section 4(2) of the Securities Act.
 
     Effective   September  30,  1997,  the  Company  issued  $2.2  million  10%
Convertible  Debentures Due September 30, 2000 ("Debentures")  through a private
placement  ("Private  Placement").  Each 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 $1.25 per share.  The Company may prepay the
Debentures,  on 30 Days prior notice,  at such time as the average closing price
of the Common Stock  exceeds $1.75 per share for a 30 day period prior to notice
of such  prepayment  provided that the  Conversion  Shares have been  registered
under the Securities  Act at the time of such  prepayment.  The Debentures  were
issued to Eran Benzour,  Jack Eisikowitz,  David Eisner,  Martin Elbaum,  Martin
Franklin, Bruce Johnson, MH Capital Partners L.P., Mid-Ohio Securities,  William
Nagel, Jack & Gitta Nagel,  Louis Perlman,  Norman Pessin,  Kenneth A. Rubinson,
Leonard Shaykin,  Daniel Straus,  Moshel Straus,  Tsippi Tajchner,  Andrew Wahl,
Wynnefield Partners Small Cap Value L.P. and Wynnefield Partners Small Cap Value
Offshore Fund Ltd. The Debentures  and  Conversion  Shares which may be acquired
upon the  conversion  have been  issued  without  registration  by reason of the
private offering exemption under Section 4(2) of the Securities Act and Rule 506
of Regulation D promulgated  thereunder.  Accordingly,  the  Debentures  and the
Conversion Shares may not be resold by the respective  purchasers thereof absent
registration  under the  Securities  Act or the  availability  of an  applicable
exemption from such registration.























































                                      13

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                              SIGNATURES




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



                                                  HMG Worldwide Corporation
                                                  (Registrant)





Date: November 12, 1997                           /S/ Robert V. Cuddihy, Jr.
                                                  Robert V. Cuddihy, Jr.
                                                  Chief Operating Officer and
                                                  Chief Financial Officer












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