<PAGE>

                                    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: March 31, 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       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 May 12, 1998
----------------------------                         ---------------------------
Common Stock, $.01 par value                                  8,924,150








                                       1

<PAGE>


                         Part I. Financial Information
                                     Item 1.

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

                                                                    December 31,
                                               March 31, 1998           1997
                                               --------------       ------------
                                                (unaudited)
                               ASSETS

Current assets:
  Cash and cash equivalents                          $ 6,695            $ 6,439
  Accounts receivable - less allowance
  for doubtful
  accounts of $229 and $273                           10,325              8,445
  Inventory                                           10,096              6,671
  Prepaid expenses                                       488                414
  Other current assets                                   241                317
                                                     -------            -------
    Total current assets                              27,845             22,286

Property and equipment - net                           4,612              4,682
Excess of cost over fair market value
 of assets acquired less accumulated
 amortization of $1,703 and $1,615                     6,456              6,544
Other assets                                             135                133
                                                     -------            -------
                                                     $39,048            $33,645
                                                     =======            =======

                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current maturities of long-term
   obligations                                       $14,338            $10,942
  Accounts payable                                    10,606              8,729
  Accrued employee compensation
   and benefits                                        1,363              1,418
  Deferred revenue                                       513                604
  Accrued expenses                                       676                673
  Other current liabilities                              397                346
                                                     -------            -------
     Total current liabilities                        27,893             22,712

Pension obligation                                     1,142              1,175
Convertible debentures                                 2,200              2,200
Term loans                                               631                678
Other long-term liabilities                              410                410
                                                     -------            -------
                                                      32,276             27,175
                                                     -------            -------
Stockholders' equity:
  Common stock, par value $.01; 
   50,000,000 shares authorized;
   8,924,150 and 8,924,150 issued
   and outstanding                                        89                 89
  Additional paid-in capital                          34,645             34,645
  Accumulated deficit                                (27,962)           (28,264)
                                                     -------            -------
                                                       6,772              6,470
                                                     -------            -------
                                                     $39,048            $33,645
                                                     =======            =======





             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 March 31,
                                                    ----------------------------
                                                       1998               1997
                                                       ----               ----


Net revenues                                         $12,866            $10,200

Cost of revenues                                       8,892              7,464
                                                     -------            -------

 Gross profit                                          3,974              2,736

Selling, general and
  administrative expenses                              3,368              2,826
                                                     -------            -------

 Income (loss) from operations                           606                (90)

Interest income                                           77                 73

Interest expense                                        (370)              (220)

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

 Income before provision
  for income taxes                                       313                 30

Provision for income taxes                               (11)                (5)
                                                     -------            -------

 Net income                                          $   302            $    25
                                                     =======            =======

Basic earnings per share
  Net income per common and
  common equivalent shares                           $  0.03            $   -
                                                     =======            =======

  Weighted average number of common and common
   equivalent shares outstanding                   8,924,150          8,383,755
                                                   =========          =========

Diluted earnings per share
  Net income per common and common
  equivalent shares and assumed conversions          $  0.03
                                                     =======

  Weighted average number of common and common
   equivalent shares and assumed conversions      11,162,471
                                                  ==========







             See accompanying notes to consolidated financial statements.





                                       3

<PAGE>




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



                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                       1998               1997
                                                       ----               ----


Cash flows from operating activities:
  Cash received from customers                       $10,899            $ 8,973
  Interest received                                       60                 73
  Cash paid to suppliers                             (11,231)            (8,341)
  Cash paid to employees                              (2,389)            (2,215)
  Income taxes paid                                       (3)                (4)
  Interest paid                                         (370)              (220)
                                                     -------            -------
    Net cash used in operating
       activities                                     (3,034)            (1,734)
                                                     -------            -------

Cash flows from investing activities:
  Proceeds from the sale of
    an investment                                                           356
  Capital expenditures                                   (59)              (103)
                                                     -------            -------
    Net cash provided by
      (used in) investing
      activities                                         (59)               253
                                                     -------            -------

Cash flows from financing activities:
  Net proceeds from the sale of common
    stock as part of a private placement                                    372
  Proceeds derived from a credit
    agreement, net                                     3,396                885
  Principal payments of
    outstanding debt obligations                         (47)               (97)
                                                     -------            -------
    Net cash provided by
       financing activities                            3,349              1,160
                                                     -------            -------

Effect of exchange rate changes                          -                   (3)
                                                     -------            -------

Net increase (decrease) in cash and
  cash equivalents                                       256               (324)

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

Cash and cash equivalents
  at March 31                                        $ 6,695            $ 6,626
                                                     =======            =======




             See accompanying notes to consolidated financial statements.




                                       4

<PAGE>




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



                                                    Three Months Ended March 31,
                                                    ----------------------------
                                                       1998               1997
                                                       ----               ----


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

Net income                                            $  302             $   25

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

  Depreciation and amortization                          218                225
  Other income                                                             (267)

Decrease (increase) in assets:
  Accounts receivable                                 (1,880)              (457)
  Inventory                                           (3,425)               316
  Prepaid expenses                                       (74)               (32)
  Other assets                                            74                 11

Increase (decrease) in liabilities:
  Accounts payable                                     1,877               (145)
  Deferred revenue                                       (91)              (767)
  Accrued expenses                                       (52)              (601)
  Pension obligation                                     (33)               (42)
  Other liabilities                                       50                -
                                                      ------             ------

Net cash used in operating
  activities                                         ($3,034)           ($1,734)
                                                     =======             =======















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

     The  Consolidated  Balance Sheet as of March 31, 1998, and the Consolidated
Statements  of  Operations  and Cash Flows for the three  months ended March 31,
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 March 31, 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 March 31, 1998 are
not necessarily indicative of the operating results for the full year.

Note 2 - Inventory

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

                                           March 31,             December 31,
                                             1998                   1997
                                             ----                   ----
                                                   (in thousands)
     Finished goods                        $ 1,745                $1,210
     Work in process                         2,316                 1,015
     Raw materials                           6,035                 4,446
                                           -------                ------
                                           $10,096                $6,671
                                           =======                ======

Note 3 - 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 three months ended March 31, 1998
and 1997 are as follows:

                                            Three Months Ended March 31,
                                            ----------------------------
                                             1998                  1997
                                             ----                  ----
                                                   (in thousands)
     State and local
       income taxes                          $11                   $ 5
                                             ===                   ===











                                       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"). 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.









































                                       7

<PAGE>




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


Three Months Ended March 31, 1998 as Compared to the
  Three Months Ended March 31, 1997

     Net revenues  increased  $2.7 million to $12.9 million for the three months
ended March 31, 1998 as  compared to $10.2  million for the three  months  ended
March 31, 1997. The $2.7 million increase in net revenues from  period to period
was due  principally  to (i) the addition of net revenues from the Company's new
Toronto office of  approximately  $949,000,  (ii) the shipment of a new national
rollout of a merchandising system developed by the Company of approximately $1.0
million and (iii) a net  increase in  marketing  expenditures  of the  Company's
clients during the period.

     Gross  profit for the three months ended March 31, 1998 was $4.0 million as
compared to $2.7 million for the three months ended March 31, 1997. The increase
in gross profit of $1.2 million was  principally a result of the increase in net
revenues and an increase in gross  margin.  For the three months ended March 31,
1998 and 1997, the Company's gross margin was 30.9% and 26.8%, respectively. The
gross  margin  increase of 4.1% was due  principally  to a favorable  production
revenue mix resulting in a 4.0% increase,  reflecting  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.

     Selling,  general and administrative expenses ("SG&A") for the three months
ended  March 31,  1998 was $3.4  million as  compared  to $2.8  million  for the
comparable  period in 1997.  The  increase  in SG&A of  $542,000  from period to
period was  principally due to the addition of HMG Griffith SG&A of $200,000 and
increased spending in other general expenses of $287,000.

     For the three months ended March 31, 1998, the Company  generated  interest
income of $77,000 as compared to $73,000  for the three  months  ended March 31,
1997. The increase was principally  attributable to an increase in cash and cash
equivalents  invested in interest-bearing  marketable  securities and commercial
paper from period and period.

     Interest  expense was $370,000 for the three months ended March 31, 1998 as
compared to $220,000 for the three months ended March 31, 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 $302,000,  or $0.03 basic earnings per share for the three months ended March
31, 1998 as compared to a net income of $25,000 for the three months ended March
31, 1997.

Stockholders' Equity

     Stockholders'  equity increased  $302,000 to $6.8 million at March 31, 1998
from $6.5 million at December 31, 1997. The increase in stockholders' equity was
due to net income of $302,000.

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 three months ended March 31,
1998 was  $11,000 as  compared  to $5,000 for the three  months  ended March 31,
1997.  The income tax  provision  for the three  months ended March 31, 1998 and
1997 was principally from state and local taxes.




                                       8

<PAGE>




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


Inflation

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

Backlog

     At March 31, 1998, the Company's  aggregate backlog was approximately $24.7
million as compared to $32.0  million and $15.2 million at December 31, 1997 and
March 31,  1997,  respectively.  Of such  aggregate  backlog at March 31,  1998,
approximately  57.6% was attributable to three clients.  The Company anticipates
that  substantially all such backlog at March 31, 1998 will be filled during the
next twelve months.  In addition to the $24.7 million backlog at March 31, 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 March 31, 1998 was $25.6 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  March  31,  1998  and  December  31,  1997
aggregated $6.7 million and $6.4 million,  respectively.  The Company's increase
in cash and cash  equivalents  of  approximately  $256,000  for the three months
ended March 31, 1998 was due principally to the net effects of (i) net cash used
in operations of $3.0 million,  (ii) capital  expenditures  of $59,000 and (iii)
reductions  of  debt  obligations  of  $47,000,  offset  by (iv)  proceeds  from
borrowings under the Company's  revolving line of credit with its bank lender of
$3.4 million.  The Company's  negative cash flows from  operations for the three
months  ended  March 31,  1998  resulted  principally  from (i) an  increase  in
accounts  receivable and inventory of $5.3 million offset by (ii) an increase in
general liabilities of $1.8 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.  Due to the  Company's  increase in working  capital
needs to meet its increased production requirements,  the Company has obtained a
temporary  increase in its secured line of credit to $15.0 million from its bank
lender as of March 31,  1998.  The Company and its bank lender will  continue to
periodically review the working capital financing requirements of the Company to
determine  if the secured  line of credit  should be  permanently  increased  to
finance the Company's working capital growth.

     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 March 31, 1998,  the
Company was in compliance with all financial  covenants of the Credit Agreement,
as amended.






                                       9

<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 March 31, 1998, the balance  outstanding on the
term loan component of the Credit Agreement was approximately $819,000.

     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  March  31,  1998  was  a  deficit  of
approximately $48,000,  inclusive of borrowings of $14.3 million pursuant to the
three year Credit Agreement.  The working capital deficit was due principally to
negative cash flows from operations during the first quarter of 1998 through the
building of higher accounts  receivable and inventory levels. 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.
















                                       10

<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: May 12, 1998                                 /S/ Robert V. Cuddihy, Jr.
      ------------                                 --------------------------
                                                   Robert V. Cuddihy, Jr.
                                                   Chief Operating Officer and
                                                   Chief Financial Officer

                                       11

<PAGE>