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, 1998
                                     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
                                                    --------------

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    X              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, 1998
----------------------------                    --------------------------------
Common Stock, $.01 par value                                9,147,205








                                       1

<PAGE>




                        Part I. Financial Information
                                    Item 1.

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

                                    September 30, 1998        December 31, 1997
                                    ------------------        -----------------
                                       (unaudited)
                      ASSETS

Current assets:
  Cash and cash equivalents               $ 7,115                 $  6,439
  Accounts receivable - less
   allowance for doubtful
   accounts of $344 and $273               14,310                    8,445
  Inventory                                15,640                    6,671
  Prepaid expenses                            438                      414
  Other current assets                        250                      317
                                          -------                 --------
    Total current assets                   37,753                   22,286

Property and equipment - net                5,592                    4,682
Excess of cost over fair market
  value of assets acquired,
  less accumulated amortization
  of $1,921 and $1,615                      6,238                    6,544
Other assets                                  228                      133
                                          -------                 --------
                                          $49,811                  $33,645
                                          =======                 ========

             LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current maturities of long-term 
   obligations                            $15,240                  $10,942
  Accounts payable                         16,063                    8,729
  Accrued employee compensation 
   and benefits                             1,858                    1,418
  Deferred revenue                            351                      604
  Accrued expenses                          1,508                      673
  Other current liabilities                   320                      346
                                          -------                 --------
     Total current liabilities             35,340                   22,712

Pension obligation                          1,034                    1,175
Convertible debentures                      2,200                    2,200
Promissory Note                             1,750
Term loans                                    537                      678
Other long-term liabilities                   398                      410
                                          -------                 --------
                                           41,259                   27,175
                                          -------                 --------
Stockholders' equity:
  Common stock, par value $.01; 
   50,000,000 shares authorized;
   9,147,205 and 8,924,150 issued
   and outstanding                             91                       89
  Additional paid-in capital               34,907                   34,645
  Accumulated deficit                     (26,446)                 (28,264)
                                          -------                 --------
                                            8,552                    6,470
                                          -------                 --------
                                          $49,811                  $33,645
                                          =======                 ========



           See accompanying notes to consolidated financial statements.




                                       2

<PAGE>

<TABLE>

<CAPTION>



                                      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,
                                        ------------------------       -----------------------
                                          1998            1997           1998           1997
                                          ----            ----           ----           ----
<S>                                     <C>             <C>            <C>            <C>    

Net revenues                            $22,463         $10,998        $51,878        $33,848

Cost of revenues                         17,010           8,221         37,884         25,129
                                        -------         -------        -------        -------

 Gross profit                             5,453           2,777         13,994          8,719

Selling, general and
  administrative expenses                 4,246           2,558         11,076          8,288
                                        -------         -------        -------        -------

 Income from operations                   1,207             219          2,918            431

Interest income                              62              84            210            231

Interest expense                           (417)           (281)        (1,199)          (769)

Other income                                 -               -             -              267
                                        -------         -------        -------        -------

 Income before provision
  for income taxes                          852              22          1,929            160

Provision for income taxes                  (36)             -            (111)           (10)
                                        -------         -------        -------        -------

 Net income                             $   816         $    22        $ 1,818        $   150
                                        =======         =======        =======        =======

Basic earnings per share
  Net income per common and
   common equivalent shares             $  0.09         $    -         $  0.20        $  0.01
                                        =======         =======        =======        =======

  Weighted average number of
   common and common equivalent
   shares outstanding                 9,113,509       8,707,483      9,001,434      8,540,807
                                      =========       =========      =========      =========

Diluted earnings per share
  Net income per common and
   common equivalent shares
   and assumed conversions              $  0.08                        $  0.17
                                        =======                        =======

  Weighted average number of 
   common and common equivalent
   shares and assumed conversions    11,434,097                     11,339,801
                                     ==========                     ==========
</TABLE>



                    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,
                                                 -------------------------------
                                                     1998               1997
                                                     ----               ----


Cash flows from operating activities:
  Cash received from customers                     $48,490            $31,507
  Interest received                                    218                231
  Cash paid to suppliers                           (41,923)           (27,573)
  Cash paid to employees                            (7,802)            (6,633)
  Income taxes paid                                     (3)               (19)
  Interest paid                                     (1,173)              (769)
                                                   -------            -------
    Net cash used in operating
     activities                                     (2,193)            (3,256)
                                                   -------            -------

Cash flows from investing activities:
  Proceeds from the sale of
   an investment                                                          356
  Capital expenditures                                (799)              (402)
                                                   -------            -------
   Net cash used in investing activities              (799)               (46)
                                                   -------            -------

Cash flows from financing activities:
 Net proceeds from the sale of common
  stock as part of a private placement                                    576
 Proceeds derived from a credit
  agreement, net                                     3,671              2,521
 Proceeds derived from the sale of
  convertible debentures                                                2,200
 Cash acquired pursuant to an acquisition              138
 Principal payments of
  outstanding debt obligations                        (141)              (303)
                                                   -------            -------
   Net cash provided by
    financing activities                             3,668              4,994
                                                   -------            -------

Net increase in cash and
 cash equivalents                                      676              1,692

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

Cash and cash equivalents
 at September 30                                   $ 7,115            $ 8,642
                                                   =======            =======






           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,
                                                 -------------------------------
                                                     1998               1997
                                                     ----               ----


Reconciliation of net income
 to net cash used in operating activities:

Net income                                         $ 1,818            $   150

Adjustments to reconcile net income to net
 cash used in operating activities:

 Depreciation and amortization                         797                690
 Other income                                                            (267)

Decrease (increase) in assets:
 Accounts receivable                                (4,153)            (1,941)
 Inventory                                          (7,365)              (155)
 Prepaid expenses                                       31               (244)
 Other assets                                          (28)                42

Increase (decrease) in liabilities:
 Accounts payable                                    6,517                544
 Deferred revenue                                   (1,082)              (400)
 Accrued expenses                                      835             (1,411)
 Pension obligation                                   (141)              (264)
 Other liabilities                                     578                 -
                                                   -------            -------

Net cash used in operating
 activities                                       ($ 2,193)          ($ 3,256)
                                                   =======            =======

Non-cash financing activities:
 Common Stock issued in connection
  with an employee benefit plan                    $   155            $   160
                                                   =======            =======
 Fair value of assets acquired in
  connection with an acquisition                   $ 4,111
                                                   =======
 Fair value of liabilities assumed in
  connection with an acquisition                   $ 2,361
                                                   =======
 Common Stock issued in connection with
  an acquisition                                   $   110
                                                   =======
 Note payable, net of imputed interest,
  issued in connection with an acquisition         $ 1,750
                                                   =======


           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  five   operating    wholly-owned   subsidiaries    being,
respectively,  HMG Worldwide  In-Store  Marketing,  Inc. ("HMG"),  HMG Intermark
Worldwide  Manufacturing,  Inc. ("HMG Intermark"),  Display Depot, Inc. ("DDI"),
HMG Griffith Worldwide In-Store Marketing,  Inc. ("HMG Griffith") and HMG Schutz
International  Inc.  ("HMG  Schutz")  with  facilities  in New  York,  Illinois,
Pennsylvania and Toronto, Canada.

     The  Consolidated   Balance  Sheet  as  of  September  30,  1998,  and  the
Consolidated  Statements of  Operations  and Cash Flows for the three months and
nine months ended September 30, 1998 and 1997, 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, 1998 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,  1997  annual  report  to
shareholders.  The results of operations for the period ended September 30, 1998
are not necessarily indicative of the operating results for the full year.

Note 2 - Acquisition of 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 $1.7 million  Promissory Note, net of
imputed interest of $346,000,  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, over five years. In addition, the
Company  has  agreed to make  certain  future  contingent  payments  based  upon
revenues  generated  by HMG Schutz over the next three  years.  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.

     The Pro Forma Statement of Operations of HMG Schutz and the Company (i) for
the nine months  ended  September  30, 1998  combine  the  unaudited  historical
Statement of  Operations of HMG Schutz and the Company for such period as if the
acquisition  were  consummated  on January 1, 1998,  and (ii) for the year ended
December 31, 1997 combine the  historical  Statement of Operations of HMG Schutz
and the  Company  for such  period as if the  acquisition  were  consummated  on
January 1, 1997.  These Pro Forma  results have been  prepared  for  comparative
purposes  only and do not purport to be  indicative  of what would have occurred
had the  acquisition  been in effect for the  periods  indicated  or the results
which may occur in the future.














                                       6

<PAGE>




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

Note 2 - Acquisition of HMG Schutz Operations - continued

                                        Pro Forma                  Pro Forma
                                    Nine Months Ended             Year Ended
                                   September 30, 1998         December 31, 1997
                                   ------------------         -----------------
                                      (in thousands, except per share data)

  Net revenues                           $60,626                    $67,903
  Cost of revenues                        43,832                     48,789
                                         -------                    -------
   Gross profit                           16,794                     19,114
  Selling, general and
   administrative expenses                15,088(b)                  20,696(a)
                                         -------                    -------
   Income (loss) from operations           1,706                     (1,582)
  Interest income                            210                        323
  Interest expense                        (1,291)                    (1,359)
  Other income                               -                          267
                                         -------                    -------
   Income (loss) before income taxes         625                     (2,351)
  Provision for income taxes                 (25)                       -
                                         -------                    -------
   Net income (loss)                     $   600                   ($ 2,351)
                                         =======                    =======

  Basic earnings per share
   Net income (loss) per share and
    common share equivalent shares       $  0.07                   ($  0.27)
                                         =======                    =======

   Weighted averaged number of shares
    of common and common equivalent
    shares outstanding                     9,101                      8,738
                                         =======                    =======

  Diluted earnings per share
   Net income per share and
    common share equivalent shares       $  0.07
                                         =======

   Weighted averaged number of shares
    of common and common equivalent
    shares and assumed conversions        11,440
                                         =======
  

  (a) Selling,   general  and  administrative  expenses  for the  year  ended
  December 31, 1997 includes $1.2 million in special  costs  associated  with
  (i) the  settlement  of an  investigation  with the  Department  of Justice
  ("JOD"),  $500,000,  (ii)  legal  expenses  arising  as a result of the JOD
  matter,   $177,000  and  (iii)  expenses   pursuant  to  an   environmental
  remediation  program  at  its  facility,   $497,000.  If  such  costs  were
  eliminated  from the above Pro Forma  Statement of Operations  for the year
  ended  December 31, 1997,  Pro Forma net loss would have been $1.2 million,
  or $0.13 basic earnings per share.

  (b) Selling,  general and administrative expenses for the nine months ended
  September 30, 1998 includes  $86,000 in special costs  associated  with (i)
  additional legal expenses  arising as a result of the JOD matter,  $60,000,
  and (ii) additional expenses pursuant to environmental  remediation program
  at its facility,  $26,000. If such costs were eliminated from the above Pro
  Forma Statement of Operations for the nine months ended September 30, 1998,
  Pro Forma net income would have been $686,000,  or $0.08 basis earnings per
  share.




                                       7

<PAGE>



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

Note 3 - Inventory

     Inventory  consisted of the following  components at September 30, 1998 and
December 31, 1997.

                                            September 30,      December 31,
                                                1998               1997
                                                ----               ----
                                                     (in thousands)
     Finished goods                           $ 2,834            $1,210
     Work-in-process                            3,321             1,015
     Raw materials                              9,485             4,446
                                              -------            ------
                                              $15,640            $6,671
                                              =======            ======

Note 4 - Income Taxes

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

     Components  of income tax expense for the nine months ended  September  30,
1998 and 1997 are as follows:

                                           Nine Months Ended September 30,
                                                1998             1997
                                                ----             ----
                                                   (in thousands)
     State and local
       income taxes                             $111              $10
                                                ====              ===

Note 5 - Convertible Debentures

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
















                                       8

<PAGE>




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

Recent Developments

     Effective  August 1, 1998, the Company  consummated  the acquisition of the
business  of  Schutz   International   Inc.  ("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 $1.7 million Promissory Note, net of imputed interest of $346,000,  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,  over five years. In addition,  the Company has agreed to
make certain future  contingent  payments  based upon revenues  generated by HMG
Schutz  over the next  three  years.  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.

Three Months Ended September 30, 1998 as Compared to the
  Three Months Ended September 30, 1997

     Net revenues  increased  $11.5  million,  or 104%, to $22.5 million for the
three months ended September 30, 1998 as compared to $11.0 million for the three
months ended September 30, 1997. The $11.5 million increase in net revenues from
period to period was due  principally  to (i) the addition of net revenues  from
HMG Schutz, acquired August 1, 1998, and HMG Griffith, acquired July 1, 1997, of
$4.4 million and $819,000,  respectively, (ii) the shipment of five new national
rollouts of merchandising systems developed by the Company of approximately $3.7
million and (iii) a net  increase in  marketing  expenditures  of the  Company's
clients during the period of $2.5 million.

     Gross profit for the three months ended September 30, 1998 was $5.4 million
as compared to $2.8 million for the three months ended  September 30, 1997.  The
increase  in gross  profit  of $2.6  million  was  principally  a result  of the
increase in net revenues,  net of a decline in gross margin for the quarter. For
the three months ended  September 30, 1998 and 1997, the Company's  gross margin
was 24.3% and  25.3%,  respectively.  The gross  margin  decrease  of 1% was due
principally  to the net  effect of (i) an  unfavorable  production  revenue  mix
resulting in a 3.7%  decrease,  reflecting  the Company's  production of certain
projects at lower margins due to the larger production volumes, offset by (ii) a
decrease  in factory  overhead  expenses  of 2.7%.  The  unfavorable  production
revenue mix was principally  the result of certain larger  programs  produced by
the Company  during the period at reduced  gross  margin  levels in light of the
operational overhead efficiencies realized by the Company during the period.

     Selling,  general and administrative expenses ("SG&A") for the three months
ended  September  30, 1998 was $4.2  million as compared to $2.6 million for the
comparable  period in 1997.  The  increase in SG&A of $1.7 from period to period
was  principally due to the addition of HMG Schutz and HMG Griffith SG&A of $1.0
million and  $335,000,  respectively,  and  increased  spending in other general
expenses of $308,000.

     For the three  months  ended  September  30,  1998,  the Company  generated
interest  income of $62,000 as compared to $84,000  for the three  months  ended
September 30, 1997. The decrease was  principally  attributable to a decrease in
cash and cash equivalents invested in interest-bearing marketable securities and
commercial paper from period to period.

     Interest expense was $417,000 for the three months ended September 30, 1998
as compared to $281,000  for the three  months ended  September  30,  1997.  The
increase  in interest  expense  was  principally  due to the  increased  average
borrowings from period to period.

     As a consequence of the foregoing factors, the Company generated net income
of  $816,000,  or $0.09  basic  earnings  per share for the three  months  ended
September  30 1998 as  compared  to a net  income  of  $22,000,  or $0.00  basic
earnings per share, for the three months ended September 30, 1997.





                                       9

<PAGE>




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

Nine Months Ended September 30, 1998 as Compared to the
 Nine Months Ended September 30, 1997

     Net revenues  increased  $18.0  million,  or 53%, to $51.9 million for nine
months ended September 30, 1998 as compared to $33.8 million for the nine months
ended September 30, 1997. The $18.0 million increase in net revenues from period
to period was due  principally  to (i) the  addition  of net  revenues  from HMG
Schutz, $4.4 million,  and HMG Griffith,  $2.7 million, and (ii) the shipment of
five new national rollouts of merchandising  systems developed by the Company of
approximately  $11.6  million.  Each of the five national  merchandising  system
rollouts were new merchandising initiatives with new clients to the Company.

     Gross profit for the nine months ended September 30, 1998 was $14.0 million
as compared to $8.7 million for the nine months ended  September  30, 1997.  The
increase  in gross  profit  of $5.3  million  was  principally  a result  of the
increase in net  revenues and an increase in gross  margin.  For the nine months
ended  September  30, 1998 and 1997,  the  Company's  gross margin was 27.0% and
25.7%, respectively.  The gross margin increase of 1.3% was due principally to a
favorable  production  revenue mix  resulting in the  Company's  efforts of more
direct,  internal production of its merchandising systems, lower labor costs and
increased   production  volume  and  purchasing   efficiencies.   The  favorable
production  revenue mix was  principally the result of an increase in the number
of  programs  manufactured  and  assembled  at the  Company's  Pennsylvania  and
Brooklyn facilities and the increased  operational  efficiencies on the specific
programs shipped.

     SG&A for the nine months  ended  September  30,  1998 was $11.1  million as
compared to $8.3 million for the comparable period in 1997. The increase in SG&A
of $2.8 million from period to period was principally due to (i) the addition of
HMG Schutz and HMG Griffith SG&A of $1.1 million and $837,000, respectively, and
(ii) increased spending in other general expenses of $905,000.

     For the nine  months  ended  September  30,  1998,  the  Company  generated
interest  income of $210,000 as compared to $231,000  for the nine months  ended
September 30, 1997. The decrease was principally  attributable to an decrease in
cash and cash equivalents invested in interest-bearing marketable securities and
commercial paper from period and period.

     Interest  expense was $1.2 million for the nine months ended  September 30,
1998 as compared to $769,000 for the nine months ended  September 30, 1997.  The
increase  in interest  expense  was  principally  due to the  increased  average
borrowings from period to period.

     As a consequence of the foregoing factors, the Company generated net income
of $1.8  million or $0.20 basic  earnings  per share,  for the nine months ended
September  30 1998 as  compared  to a net  income of  $150,000,  or $0.01  basic
earnings per share, for the nine months ended September 30, 1997.

Stockholders' Equity

     Stockholders'  equity  increased  $2.1 million to $8.6 million at September
30, 1998 from $6.5 million at December 31, 1997.  The increase in  stockholders'
equity  was due to (i) net  income of $1.8  million,  (ii) the  contribution  of
123,055 shares of Common Stock,  valued at $1.25 per share, to the HMG Worldwide
Corporation  Capital  Accumulation  Plan and (iii) the  issuance  of  100,000 of
Common  Stock,  valued at $1.10 per share,  pursuant to the HMG Schutz  Purchase
Agreement.









                                       10

<PAGE>



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

Income Taxes

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

     The Company's  income tax provision for the nine months ended September 30,
1998 was $111,000 as compared to $10,000 for the nine months ended September 30,
1997. The income tax provision for the nine months ended  September 30, 1998 and
1997 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, 1998, the Company's  aggregate  backlog was  approximately
$34.4  million as compared to $32.0  million and $24.9  million at December  31,
1997  and  September  30,  1997,  respectively.  Of such  aggregate  backlog  at
September  30, 1998,  approximately  23% was  attributable  to two clients.  The
Company  anticipates that  substantially  all such backlog at September 30, 1998
will be filled during the next twelve  months.  In addition to the $34.4 million
backlog at September  30, 1998,  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, 1998 was $24.3 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, 1998 and  December  31, 1997
aggregated $7.1 million and $6.4 million,  respectively.  The Company's increase
in cash and cash equivalents of approximately $676,000 for the nine months ended
September 30, 1998 was due  principally  to the net effects of (i) net cash used
in operations of $2.2 million,  (ii) capital  expenditures of $799,000 and (iii)
reductions  of debt  obligations  of  $141,000,  offset  by (iv)  proceeds  from
borrowings under the Company's  revolving line of credit with its bank lender of
$3.7 million.  The Company's  negative cash flows from  operations  for the nine
months ended  September  30, 1998 resulted  principally  from (i) an increase in
accounts receivable and inventory of $11.5 million offset by (ii) an increase in
general liabilities of $6.7 million.

     The Company has secured a $16.0 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.

     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, 1998, the
Company was in compliance with all financial  covenants of the Credit Agreement,
as amended.


                                       11

<PAGE>


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

     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, 1998, the balance  outstanding on
the term loan component of the Credit Agreement was approximately $725,000.

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

     The Company's working capital at September 30, 1998 was approximately  $2.4
million,  inclusive of borrowings  of $15.2  million  pursuant to the three year
Credit  Agreement.  For the nine months ended  September 30, 1998, the Company's
accounts receivable and inventory levels have increased $14.8 million during the
period,  principally due to (i) the acquisition of HMG Schutz, $3.8 million, and
(ii) revenue growth of the Company and the current  production  demands required
by the  Company's  clients and related  shipment  schedules.  Due to the working
capital position, the Company experiences temporary liquidity problems from time
to time due to the timing of cash flows while the Company is in  production  and
building inventory.  However, management believes that its current cash and cash
equivalents,  its backlog, anticipated future cash flows from operations and its
availability  under its Credit  Agreement will be sufficient to support its debt
service  requirements  and its other  capital and  operating  needs for the next
fiscal year.  Management  believes  that  continued  focus upon  strategic  cost
reductions and efficiencies,  an expanded client base and future cash flows from
operations  developed  and/or  implemented  by the Company  provide an important
basis for future profitability and liquidity, however, there can be no assurance
that such belief will prove to be correct, that additional financing will not be
required,  or  that  any  such  financing  will  be  available  on  commercially
reasonable terms or otherwise.

     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.















                                       12

<PAGE>




                           Part II Other Information

Item 6. Exhibits and Reports of Form 8-K

The following financial statement exhibits are files as part of this Report:

                           INDEX TO FINANCIAL STATEMENT EXHIBITS


                                                                  Page
                                                                  ----
Exhibit 11 - Computation of Per Share Earnings                     15


 


















                                      13

<PAGE>




                                  SIGNATURES




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



                                                   HMG Worldwide Corporation
                                                   -------------------------
                                                   (Registrant)





Date: November 12, 1998                            /S/ Robert V. Cuddihy, Jr.
      -----------------                            --------------------------
                                                   Robert V. Cuddihy, Jr.
                                                   Chief Operating Officer and
                                                   Chief Financial Officer
                                                  (Principal Accounting Officer)












                                       14





<PAGE>



                     HMG WORLDWIDE CORPORATION AND SUBSIDIARIES
                                    EXHIBIT 11
                        COMPUTATION OF PER SHARE EARNINGS
              FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
                      (in thousands, except per share data)
                                   (unaudited)


                                   For the Three Months Ended September 30, 1998
                                   ---------------------------------------------
                                     Income          Shares           Per Share
                                   (Numerator)    (Denominator)         Amount
                                   -----------    -------------         ------

Basic earnings per share:
 Income available to
  common stockholders                 $816           9,114              $0.09
                                                                        =====

Effect of dilutive securities:
 10% convertible debentures             55           1,760
 Stock options and warrants                            560
                                      ----           -----

Diluted earnings per share:
 Income available to common
  stockholders' and assumed
  conversions                         $871          11,434              $0.08
                                      ====          ======              =====




                                   For the Nine Months Ended September 30, 1998
                                   --------------------------------------------
                                     Income          Shares           Per Share
                                   (Numerator)    (Denominator)         Amount
                                   -----------    -------------         ------

Basic earnings per share:
 Income available to
  common stockholders               $1,818           9,001              $0.20
                                                                        =====

Effect of dilutive securities:
 10% convertible debentures            165           1,760
 Stock options and warrants                            579
                                    ------           -----

Diluted earnings per share:
 Income available to common
  stockholders' and assumed
  conversions                       $1,983          11,340              $0.17
                                    ======          ======              =====














                                       15

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