<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998


                                       OR

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

                         COMMISSION FILE NUMBER: 22308

                             EQUITY MARKETING, INC.
             (Exact name of registrant as specified in its charter.)

               DELAWARE                                13-3534145
     (State or other jurisdiction of                (I.R.S. Employer
     incorporation or organization)                Identification No.)

       131 SOUTH RODEO DRIVE
          BEVERLY HILLS, CA                               90212
 (Address of principal executive offices)              (Zip Code)

                                 (310) 887-4300
              (Registrant's telephone number, including area code)

          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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X]              No [ ]

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

Common Stock, $.001 Par Value, 6,056,403 shares as of August 12, 1998.



                                       1
<PAGE>   2

                             EQUITY MARKETING, INC.

                     INDEX TO QUARTERLY REPORT ON FORM 10-Q
                FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
                         SIX MONTHS ENDED JUNE 30, 1998

<TABLE>
<CAPTION>
                                                                              PAGE
                                                                              ----

<S>                                                                           <C>
PART I.    FINANCIAL INFORMATION

           Item 1. Financial Statements                                          3

           Item 2. Management's Discussion and Analysis of Financial
                               Condition and Results of Operations              11

PART II 

           Item 4. Submission of Matters to a Vote of Security Holders          16

           Item 5. Other Information                                            16

           Item 6. Exhibits and Reports on Form 8-K                             16
</TABLE>



                                       2
<PAGE>   3


PART I. FINANCIAL INFORMATION

           ITEM 1. FINANCIAL STATEMENTS


                             EQUITY MARKETING, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                DECEMBER 31,      JUNE 30,
                                                                   1997            1998
                                                               -------------     ---------
                                                                                (UNAUDITED)
<S>                                                            <C>                <C>    
CURRENT ASSETS:
  Cash and cash equivalents                                      $ 8,935          $ 1,147
  Accounts receivable (net of allowances for doubtful
    Accounts of $600 and $1,227 as of December 31, 1997
    and June 30, 1998, respectively)                              27,773           28,435
  Inventory                                                        8,658            9,797
  Prepaid expenses and other current assets                        3,749            7,335
                                                                 -------          -------
           Total current assets                                   49,115           46,714
FIXED ASSETS, net                                                  2,550            2,760
INTANGIBLE ASSETS, net                                             5,079           14,354
OTHER ASSETS                                                         409              592
                                                                 -------          -------
           Total assets                                          $57,153          $64,420
                                                                 =======          =======
</TABLE>



              The accompanying notes are an integral part of these
                     condensed consolidated balance sheets.



                                       3
<PAGE>   4

                             EQUITY MARKETING, INC.

                      CONDENSED CONSOLIDATED BALANCE SHEETS

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,        JUNE 30,
                                                                                   1997               1998
                                                                                   ----               ----
                                                                                                   (UNAUDITED)
<S>                                                                             <C>                  <C>     
CURRENT LIABILITIES:
  Accounts payable                                                                $ 14,560           $ 15,698
  Accrued expenses and other current liabilities                                     5,491              8,707
                                                                                  --------           --------
           Total current liabilities                                                20,051             24,405
LONG-TERM LIABILITIES                                                                  962                927
                                                                                  --------           --------
           Total liabilities                                                        21,013             25,332
                                                                                  --------           --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
  Preferred stock, $.001 par value per share; 1,000,000
    shares authorized, none issued or outstanding                                       --                 --
  Common stock, par value $.001 per share, 20,000,000 shares authorized,
    6,010,103 and 6,055,103 shares outstanding
    as of December 31, 1997 and June 30, 1998, respectively                             --                 --
  Additional paid-in capital                                                        13,371             14,138
  Retained earnings                                                                 25,056             27,237
                                                                                  --------           --------
                                                                                    38,427             41,375
Less--
  Treasury stock, 1,892,841 shares, at cost, as of
    December 31, 1997 and June 30, 1998                                             (1,279)            (1,279)
  Stock subscription receivable                                                        (43)               (43)
  Unearned compensation                                                               (965)              (965)
                                                                                  --------           --------
           Total stockholders' equity                                               36,140             39,088
                                                                                  --------           --------
           Total liabilities and stockholders' equity                             $ 57,153           $ 64,420
                                                                                  ========           ========
</TABLE>



              The accompanying notes are an integral part of these
                     condensed consolidated balance sheets.



                                       4
<PAGE>   5

                             EQUITY MARKETING, INC.

                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED                     SIX MONTHS ENDED
                                                                        JUNE 30,                               JUNE 30,
                                                             ------------------------------          ------------------------------
                                                                1997               1998                1997                1998
                                                             ----------          ----------          ----------          ----------
<S>                                                          <C>                 <C>                     <C>                 <C>   
REVENUES                                                     $   46,638          $   30,593              68,256              54,389
COST OF SALES                                                    34,630              21,274              50,015              39,000
                                                             ----------          ----------          ----------          ----------
           Gross profit                                          12,008               9,319              18,241              15,389
                                                             ----------          ----------          ----------          ----------
OPERATING EXPENSES:
  Salaries, wages and benefits                                    3,159               3,080               5,317               5,725
  Selling, general and administrative                             3,360               3,783               5,682               6,346
                                                             ----------          ----------          ----------          ----------
           Total operating expenses                               6,519               6,863              10,999              12,071
                                                             ----------          ----------          ----------          ----------
           Income from operations                                 5,489               2,456               7,242               3,318
INTEREST INCOME, net                                                 53                  88                 156                 227
                                                             ----------          ----------          ----------          ----------
           Income before provision for income taxes               5,542               2,544               7,398               3,545
PROVISION FOR INCOME TAXES                                        2,134                 979               2,848               1,364
                                                             ----------          ----------          ----------          ----------
           Net income                                        $    3,408          $    1,565          $    4,550          $    2,181
                                                             ==========          ==========          ==========          ==========

BASIC NET INCOME PER SHARE                                   $     0.57          $     0.26          $     0.77          $     0.36
                                                             ==========          ==========          ==========          ==========
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING                     5,927,055           6,035,066           5,888,427           6,022,585
                                                             ==========          ==========          ==========          ==========

DILUTED NET INCOME PER SHARE                                 $     0.55          $     0.25          $     0.74          $     0.35
                                                             ==========          ==========          ==========          ==========
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING                   6,203,964           6,315,415           6,152,951           6,315,159
                                                             ==========          ==========          ==========          ==========
</TABLE>




              The accompanying notes are an integral part of these
                       condensed consolidated statements.



                                       5
<PAGE>   6

                             EQUITY MARKETING, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                         SIX MONTHS ENDED
                                                                                              JUNE 30,
                                                                                     ---------------------------
                                                                                       1997              1998
                                                                                     --------           --------
<S>                                                                                  <C>                <C>     
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                         $  4,550           $  2,181
  Adjustments to reconcile net income to net cash
    provided by operating activities:
         Depreciation and amortization                                                    548                830
         Provision for doubtful accounts                                                  149                165
         Tax benefit from exercise of stock options                                       337                186
         Other                                                                              6                 (4)
         Changes in operating assets and liabilities, excluding effects of
             acquisition: 
             Increase (decrease) in cash and cash equivalents:
                Accounts receivable                                                   (10,336)               (14)
                Inventory                                                              (1,468)              (710)
                Prepaid expenses and other current assets                                 507             (1,603)
                Other assets                                                              231               (115)
                Accounts payable                                                       10,167                834
                Accrued expenses and other current liabilities                            125               (801)
                Long-term liabilities                                                     (33)               (35)
                                                                                     --------           --------
           Net cash provided by operating activities                                    4,783                914
                                                                                     --------           --------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Purchases of fixed assets                                                        (478)              (784)
        Payment for purchase of Corinthian and Trademark                                   --             (8,435)
        Payment for purchase of Synergy
           minority interest                                                               --                (68)
                                                                                     --------           --------
           Net cash used in investing activities                                         (478)            (9,287)
                                                                                     --------           --------
CASH FLOWS FROM FINANCING ACTIVITIES:
        Proceeds from exercise of underwriters' warrants                                  308                 --
        Proceeds from exercise of stock options                                           352                585
        Borrowings under line of Credit                                                 3,330                 --
        Repayments on line of Credit                                                   (3,330)                --
                                                                                     --------           --------
           Net cash provided by financing activities                                      660                585
                                                                                     --------           --------
           Net increase (decrease) in cash and cash equivalents                         4,965             (7,788)
CASH AND CASH EQUIVALENTS, beginning of period                                          8,502              8,935
                                                                                     --------           --------
CASH AND CASH EQUIVALENTS, end of period                                             $ 13,467           $  1,147
                                                                                     ========           ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  CASH PAID FOR:
           Interest                                                                  $     15           $     31
                                                                                     ========           ========
           Income taxes                                                              $    418           $  1,167
                                                                                     ========           ========
</TABLE>



              The accompanying notes are an integral part of these
                       condensed consolidated statements.



                                       6
<PAGE>   7

                             EQUITY MARKETING, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 1998
                                   (UNAUDITED)
                             (DOLLARS IN THOUSANDS)

NOTE 1 - ORGANIZATION AND BUSINESS

Equity Marketing, Inc., a Delaware corporation (the "Company"), designs,
develops, produces, and markets a broad variety of consumer products,
collectibles and promotional products incorporating licensed characters from
films, television, sports, publishing, oil and gas and other sources.

Equity Marketing Hong Kong, Ltd., a Delaware corporation("EMHK"), is a 100%
owned subsidiary of the Company. EMHK manages production of the Company's
products by third parties in the Far East and currently is responsible for
performing and/or procuring product sourcing, product engineering, quality
control inspections, independent safety testing and export/import documentation.

Synergy Promotions S.A. de C.V. ("Synergy") was incorporated in Mexico in 1996
and is 100% owned by the Company. Synergy markets the Company's consumer
products in Mexico. Prior to June 1998, the Company owned 65% of Synergy. The
Company acquired the 35% minority interest during June 1998 for $68.

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

In the opinion of management and subject to year-end audit, the accompanying
unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included. The results of operations for the interim periods are not
necessarily indicative of the results for a full year. These consolidated
financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.

Certain reclassifications have been made to the accompanying 1997 financial
statements to conform them to the current period presentation.

NET INCOME PER SHARE

The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share" ("EPS"), effective for the year ended December 31,
1997. Under SFAS No. 128, primary EPS is replaced by "Basic" EPS, which excludes
dilution and is computed by dividing income available to common shareholders by
the weighted average number of common shares outstanding for the period.
"Diluted" EPS, which is computed similarly to the previously used fully diluted
EPS, reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
When dilutive, stock options are included as share equivalents in computing
diluted earnings per share using the treasury stock method. The impact of
including unexercised dilutive options and warrants was to increase weighted
average shares outstanding by 276,909 at quarter end June 30, 1997 and 280,349
at quarter end June 30, 1998. The impact of including unexercised dilutive
options and warrants was to increase weighted average shares outstanding by
264,526 and 292,574 for the six months ended June 30, 1997 and 1998,
respectively. Options to purchase 70,000 and 338,000 shares of common stock were
outstanding as of June 30, 1997 and 1998, respectively, which were excluded from
the computation of diluted income per share as they would have been
anti-dilutive. Prior year EPS has been conformed to current year presentation.



                                       7
<PAGE>   8

COMPREHENSIVE INCOME

Effective January 1, 1998, the Company adopted Statement of SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The implementation of SFAS No. 130 did
not have an impact on the Company's results of operations. There are no
adjustments to net income to arrive at comprehensive income.

INVENTORY

Inventory consists of production-in-process which represents direct costs
related to product development, raw materials and tooling which are deferred and
amortized over the life of the products and finished products held for sale to
customers, including finished products in transit to customers' distribution
centers. Inventory is stated at the lower of average cost or market. As of June
30, 1998 and December 31, 1997, inventory consisted of the following:

<TABLE>
<CAPTION>
                             DECEMBER 31,     JUNE 30,
                                1997           1998
                               ------       -----------
                                            (Unaudited)
<S>                          <C>             <C>     
Production-in-process          $4,935          $5,308
Finished goods                  3,723           4,489
                               ------          ------
                               $8,658          $9,797
                               ======          ======
</TABLE>

NOTE 3 - ACQUISITION

On April 24, 1998, the Company acquired 100% of the common stock of Corinthian
Marketing, Inc., a Delaware corporation ("Corinthian"), and certain trademarks
related to its business, including the "Headliners" trademark (the "Trademark")
from Corinthian Marketing PLC, for cash consideration of approximately $8,000
at the closing and potential contingent cash consideration of approximately $700
payable within one year after the closing upon satisfaction of certain
conditions. Corinthian is engaged principally in the design, manufacture,
marketing and distribution of the Headliners brand of collectible sports
figurines.

The acquisition has been accounted for under the purchase method of accounting.
The financial statements reflect the preliminary allocations of the purchase
price and the assumption of liabilities and include the operating results of
Corinthian from the date of acquisition. The purchase price has been
preliminarily allocated to the assets acquired and liabilities assumed based on
their estimated fair values as of the acquisition date. As of June 30, 1998, the
excess of the purchase price over the estimated fair values of the net assets
acquired was $6,512 which has been recorded as goodwill and is being amortized
on a straight-line basis over 20 years. The Trademark has been preliminarily
valued at $3,000 and is being amortized on a straight line basis over 20 years.

The Company is in the process of obtaining valuations of the individual assets.
The allocation of the excess purchase price may change based upon these
valuations.



                                       8
<PAGE>   9



The following unaudited pro-forma information presents a summary of the
consolidated results of operations of the Company and Corinthian as if the
acquisition had occurred at the beginning of 1997 and includes pro-forma
adjustments to give effect to the amortization of goodwill, decreased interest
income associated with funding the acquisition, and certain other adjustments,
together with the related income tax effects. The pro-forma financial
information is presented for informational purposes only and may not be
indicative of the results of operations as they would have been if the Company
and Corinthian had been a single entity during 1997 and during the six months
ended June 30, 1998, nor is it necessarily indicative of the results of
operations that may occur in the future.



<TABLE>
<CAPTION>
                                                 SIX MONTHS
                                               ENDED JUNE 30,
                                               --------------
                                          1997                1998
                                       ----------          ----------
<S>                                    <C>                 <C>       
Revenues                               $   74,999          $   55,827
Income from operations                      6,897               2,817
Net income                                  4,250               1,761
Diluted net income per share                  .69                 .28
Diluted Weighted average
           shares outstanding           6,152,951           6,315,159
</TABLE>

NOTE 4 - INFORMATION SYSTEMS

Based on a recent strategic and operational assessment, the Company decided to
replace its existing information systems. The new enterprise systems are
designed to enhance management information, financial reporting, inventory
management, order entry and cost evaluation and control. The conversion to the
new systems and related projects are scheduled to be completed in the first half
of 1999 and are expected to cost approximately $5,000, of which approximately
$300 has been spent as of June 30, 1998.

The "Year 2000 Issue" is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. The new enterprise systems
discussed above have the added benefit of addressing Year 2000 systems issues.

The Company is also communicating with suppliers, distributors, financial
institutions and others with which it does business to evaluate and coordinate
Year 2000 requirements. There can be no assurance that the systems of other
companies on which the Company's systems rely will also be timely converted or
that any such failure to convert by another company would not have an adverse
effect on the Company's systems. Failure to complete the system conversion in a
timely manner or any significant disruption of the Company's ability to
communicate electronically with its business partners could negatively impact
the Company's business, financial condition and results of operations. The
statements set forth herein are forward looking; and actual results may differ
materially (see Cautionary Statement below).



                                       9
<PAGE>   10


NOTE 5 - SUBSEQUENT EVENTS

On July 23, 1998, the Company acquired substantially all of the assets of
Contract Marketing, Inc., a Massachusetts corporation, and U.S. Import and
Promotions Co., a Florida Corporation, (the "Acquired Businesses") in exchange
for $15,000 in cash plus potential additional cash consideration based upon the
results of operations of the Acquired Businesses during each calendar year
through December 31, 2002. The Acquired Businesses focus primarily on promotions
for oil and gas and other retailers. The acquisition will be accounted for as a
purchase and was financed through bank borrowings from the Company's existing
credit facility with Sanwa Bank California and Imperial Bank.

On July 23, 1998, the credit agreement was amended to reflect the impact of the
acquisition of the Acquired Businesses on certain of the agreement's covenants
relating to the maintenance of financial ratios, to amend the maturity date to
December 31, 1999 and to amend the rate of interest on bank borrowings to a
fixed rate equivalent to the Eurodollar rate plus 2.25% or a variable rate
equivalent to the Bank's reference rate plus .25%.



                                       10
<PAGE>   11


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
     OF OPERATIONS

     THE FOLLOWING CAUTIONARY STATEMENT IS INCLUDED IN THIS QUARTERLY REPORT
     PURSUANT TO THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES
     LITIGATION REFORM ACT OF 1995:

     SEVERAL OF THE MATTERS DISCUSSED IN THIS DOCUMENT CONTAIN FORWARD-LOOKING
     STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. EQUITY MARKETING, INC.
     (THE "COMPANY") WISHES TO CAUTION READERS THAT FORWARD-LOOKING STATEMENTS
     ARE BASED ON ASSUMPTIONS WHICH MAY OR MAY NOT PROVE ACCURATE AND
     ACCORDINGLY ARE NECESSARILY SPECULATIVE. READERS SHOULD NOT PLACE UNDUE
     RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
     DATE MADE. ACTUAL RESULTS COULD VARY MATERIALLY FROM THOSE ANTICIPATED FOR
     A VARIETY OF REASONS, INCLUDING, WITHOUT LIMITATION, THE POTENTIAL
     CANCELLATION AND/OR DELAY OF PROMOTIONS DUE TO DELAYS IN RELEASE OF THE
     THEATRICAL MOTION PICTURES, THE FAILURE OF THE COMPANY TO OBTAIN PROMOTIONS
     PROJECTS BASED ON THESE MOTION PICTURES AT ANTICIPATED LEVELS, THE SUCCESS
     OR FAILURE OF A SPECIFIC MOTION PICTURE OR TELEVISION PROPERTY, THE LOSS OF
     EXISTING LICENSES OR THE INABILITY TO RENEW OR EXTEND LICENSES UNDER
     FAVORABLE TERMS, CONSUMER DEMAND FOR ITS PRODUCTS, THE COMPANY'S DEPENDENCE
     ON A SINGLE CUSTOMER, QUARTERLY FLUCTUATIONS IN FINANCIAL RESULTS,
     DIFFICULTIES IN CONSUMMATING AND INTEGRATING ACQUISITIONS, AND INCREASES IN
     INTERNATIONAL TARIFF RATES, WHICH WOULD INCREASE THE COMPANY'S COST OF
     SALES. FORWARD LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF
     FORWARD-LOOKING TERMINOLOGY, SUCH AS "MAY," "WILL," "SHOULD," "EXPECT,"
     "ANTICIPATE," "ESTIMATE," "CONTINUE," "PLANS," "INTENDS," OR OTHER SIMILAR
     TERMINOLOGY.

The Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements, which may be made to reflect
events or circumstance after the date hereof or to reflect the occurrence of
unanticipated events. The risks highlighted herein should not be assumed to be
the only items that could affect future performance of the Company. In addition
to the information contained in this document, readers are advised to review the
Company's Form-10K for the year ended December 31, 1997, under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Cautionary Statements and Risk Factors."

Equity Marketing, Inc., a Delaware corporation (the "Company"), designs,
develops, produces, and markets a broad variety of consumer products,
collectibles and promotional products incorporating licensed characters from
films, television, sports, publishing, oil and gas and other sources.

Equity Marketing Hong Kong, Ltd., a Delaware corporation ("EMHK"), is a 100%
owned subsidiary of the Company. EMHK manages production of the Company's
products by third parties in the Far East and currently is responsible for
performing and/or procuring product sourcing, product engineering, quality
control inspections, independent safety testing and export/import documentation.

Synergy Promotions S.A. de C.V. ("Synergy") was incorporated in Mexico in 1996
and is 100% owned by the Company. Synergy markets the Company's consumer
products in Mexico. Prior to June 1998, the Company owned 65% of Synergy. The
Company acquired the 35% minority interest during June 1998 for $68.



                                       11
<PAGE>   12

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the Company's
operating results as a percentage of total revenues:

<TABLE>
<CAPTION>
                                                                THREE MONTHS                      SIX MONTHS
                                                               ENDED JUNE 30,                   ENDED JUNE 30,
                                                          -----------------------           -----------------------
                                                            1997             1998             1997             1998
                                                          ------           ------           ------           ------
<S>                                                       <C>              <C>              <C>              <C>   
Revenues                                                   100.0%           100.0%           100.0%           100.0%
Cost of sales                                               74.2             69.5             73.3             71.7
                                                          ------           ------           ------           ------
        Gross profit                                        25.8             30.5             26.7             28.3
                                                          ------           ------           ------           ------
Operating Expenses:
  Salaries, wages and benefits                               6.8             10.1              7.8             10.5
  Selling, general and administrative                        7.2             12.4              8.3             11.7
                                                          ------           ------           ------           ------
        Total operating expenses                            14.0             22.5             16.1             22.2
                                                          ------           ------           ------           ------
        Income from operations                              11.8              8.0             10.6              6.1
Interest income, net                                         0.1              0.3              0.2              0.4
                                                          ------           ------           ------           ------
        Income before provision for income taxes            11.9              8.3             10.8              6.5
Provision for income taxes                                   4.6              3.2              4.2              2.5
                                                          ------           ------           ------           ------
        Net income                                           7.3%             5.1%             6.6%             4.0%
                                                          ======           ======           ======           ======
</TABLE>

THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS):

Revenues for the three months ended June 30, 1998 decreased $16,045 or 34% to
$30,593 from $46,638 in the comparable period in 1997. Promotions revenues
decreased $17,888 to $19,534 primarily as a result of lower sales on a Burger
King promotion related to the release of DreamWorks SKG's Small Soldiers movie
in 1998 in contrast to two promotions associated with the release of Universal
Studio's The Lost World: Jurassic Park and a video release of The Land Before
Time in 1997. In addition, the Small Soldiers promotion started late in the
quarter and ran into the third quarter of 1998. Consumer products revenues
increased $318 to $9,534 primarily due to sales related to Columbia/Tri-Star
Pictures' release of Godzilla and sales of Headliners products subsequent to the
Company's acquisition of Corinthian Marketing, Inc. ("Corinthian"), offset by
lower sales under the Company's Warner Bros. international Looney Tunes license
which terminates at the end of 1998.

Cost of sales decreased $13,356 to $21,274 (69.5% of revenues) for the three
months ended June 30, 1998 from $34,630 (74.2% of revenues) in the comparable
period in 1997 due primarily to lower sales in 1998. The gross margin percentage
for the period increased because of a more profitable mix of revenues in 1998.
Consumer product programs, which typically have higher margins compared to
promotional programs, accounted for 36% of revenues in 1998 compared to 20% in
1997.

Operating expenses increased $344 (5.3%) to $6,863 (22.5% of revenues) from
$6,519 (14.0% of revenues) in the comparable period in 1997 primarily due to
increased occupancy costs for facilities to support a higher number of employees
in 1998, higher depreciation and amortization expense due to higher fixed asset
levels and amortization of intangibles related to the acquisition of Corinthian
in April 1998 and higher marketing costs associated with the Company's consumer
products lines in 1998.

The effective tax rate for the three months ended June 30, 1998 is 38.5%, which
is consistent with the prior year.

Net income decreased $1,843 or 54.1% to $1,565 (5.1% of revenues) from $3,408
(7.3% of revenues) in 1997 primarily due to lower revenues combined with
increased operating expenses partially offset by a higher gross margin
percentage in 1998.



                                       12
<PAGE>   13

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS):

Revenues for the six months ended June 30, 1998 decreased $13,867 or 20.3% to
$54,389 from $68,256 in the comparable period in 1997. Promotions revenues
decreased $12,823 to $39,664 primarily as a result of lower sales on a Burger
King promotion related to the release of DreamWorks SKG's Small Soldiers movie
in 1998 in contrast to two promotions associated with the release of Universal
Studio's The Lost World: Jurassic Park and a video release of The Land Before
Time in 1997. In addition, the Small Soldiers promotion started late in the
second quarter and ran into the third quarter of 1998. Consumer products
revenues decreased $2,569 to $13,200 primarily due to lower sales under the
Company's Warner Bros. international Looney Tunes license which terminates at
the end of 1998 partially offset by sales related to Columbia/Tri-Star Pictures'
release of Godzilla and sales of Headliners products subsequent to the Company's
acquisition of Corinthian.

Cost of sales decreased $11,015 to $39,000 (71.7% of revenues) for the six
months ended June 30, 1998 from $50,015 (73.3% of revenues) in the comparable
period in 1997 due primarily to lower sales in 1998. The gross margin percentage
for the period increased because of a more profitable mix of revenues in 1998.
Consumer product programs, which typically have higher margins compared to
promotional programs, accounted for 27% of revenues in 1998 compared to 23% in
1997.

Operating expenses increased $1,072 (9.7%) to $12,071 (22.2% of revenues) from
$10,999 (16.1% of revenues) in the comparable period in 1997 primarily due to
the addition of 23 employees anticipated over the June 30, 1997 level due to the
acquisition of Corinthian and more employees to support anticipated higher sales
volumes in the second half of 1998, increased occupancy costs for facilities to
support the higher number of employees in 1998, higher depreciation and
amortization expense due to higher fixed asset levels and amortization of
intangibles related to the acquisition of Corinthian in April 1998 and higher
marketing costs associated with the Company's consumer products lines in 1998.

The effective tax rate for the six months ended June 30, 1998 is 38.5%, which is
consistent with the prior year.

Net income decreased $2,369 or 52.1% to $2,181 (4.0% of revenues) from $4,550
(6.6% of revenues) in 1997 primarily due to lower revenues earned in addition to
increases in operating expenses partially offset by a higher gross margin
percentage in 1998.

FINANCIAL CONDITION AND LIQUIDITY

As of June 30, 1998, the Company's investment in cash and cash equivalents
decreased $7,788 from the balance at December 31, 1997. This decrease was
primarily due to cash paid in the acquisition of Corinthian in April 1998.

As of June 30, 1998, the Company's investment in accounts receivable increased
$1,289 from the balance at December 31, 1997. This increase is primarily due to
accounts receivable acquired in the acquisition of Corinthian and due to
promotions program shipments late in the quarter ended June 30, 1998. As of June
30, 1998, inventory increased approximately $1,139 from December 31, 1997,
primarily as a result of production-in-process related to Toys and Promotions
programs which are scheduled to ship in the third and fourth quarters of 1998.
The increase in inventory is also attributable to inventory acquired in the
acquisition of Corinthian.

As of June 30, 1998, accounts payable and accrued expenses and other current
liabilities increased $4,354 compared to December 31, 1997. This increase is
primarily attributable to liabilities acquired in the Corinthian acquisition and
to increases in accounts payable resulting from manufacturing costs associated
with product shipments made late in the quarter.



                                       13
<PAGE>   14
As of June 30, 1998, working capital was $22,309 compared to $29,064 at December
31, 1997. The decrease in working capital was primarily a result of cash used in
the acquisition of Corinthian, partially offset by profits earned for the six
months ended June 30, 1998. On July 23, 1998, the Company acquired substantially
all of the assets of Contract Marketing, Inc. and U.S. Imports and Promotions
Co. in exchange for $15,000 in cash plus additional contingent cash
consideration based upon the results of operations of the acquired businesses
during each calendar year through December 31, 2002. This acquisition was
financed through bank borrowings under the Company's existing credit facility.
In addition, the Company is currently in the process of implementing a new
computer system which is expected to cost approximately $5,000. As a result of
these items, together with potential growth in the Company's business and other
potential acquisitions, the Company will likely require additional financing. It
is anticipated that such financing would be obtained depending on availability
and market conditions, through bank financing, the issuance of additional equity
or debt securities, or a combination of these sources. The Company is currently
in negotiations with its banks to increase the credit facility to approximately
$40 million. There can be no assurance, however, that such negotiations will be
successful or that sufficient funding from other sources will be available at
terms considered favorable by the Company. Any failure by the Company to timely
obtain sufficient funding on favorable terms or otherwise could negatively
impact the Company's business, financial condition and results of operations.
The statements set forth herein are forward-looking, and actual results may
differ materially (see the Cautionary Statement above).

CREDIT FACILITIES

The Company maintains a credit agreement with two commercial banks which makes
available to the Company a line of credit of up to $25 million. The credit
facility is secured by substantially all of the Company's assets. As of June 30,
1998, there were no amounts outstanding under this credit facility. Letters of
credit amounts outstanding as of December 31, 1997 and June 30, 1998 were $4,156
and $2,763, respectively. As of August 12, 1998 there was a total of
approximately $13,000 outstanding under this credit facility. 

Subsequent to June 30, 1998 the credit agreement was amended to reflect the
impact of the acquisitions of Contract Marketing, Inc. and U.S. Imports and
Promotions Co. on certain of the agreement's covenants relating to the
maintenance of financial ratios, to amend the maturity date to December 31, 1999
and to amend the rate of interest on bank borrowings to a fixed rate equivalent
to the Eurodollar rate plus 2.25% or a variable rate equivalent to the Bank's
reference rate plus .25%.

RELIANCE ON FOREIGN MANUFACTURERS

The Company's products are manufactured at facilities located in the Far East.
Foreign manufacturing is subject to a number of risks, including, without
limitations, transportation delays and interruptions, political and economic
disruptions, foreign currency instability, the imposition of tariffs, quotas and
other import or export controls, and changes in governmental policies.

FOREIGN CURRENCY RISK

As part of the Company's business, the Company enters into contracts for the
purchase and sale of its products with entities in foreign countries. While the
vast majority of the Company's contracts are denominated in U.S. dollars,
significant fluctuations in the local currencies of the entities with whom the
Company transacts business may adversely affect these entities abilities to
fulfill their obligations under their contracts.

INFORMATION SYSTEMS

Based on a recent strategic and operational assessment, the Company decided to
replace its existing information systems. The new enterprise systems are
designed to enhance management information, financial reporting, inventory
management, order entry and cost evaluation and control. The conversion to the
new systems and related projects are scheduled to be completed in the first half
of 1999 and are expected to cost approximately $5,000, of which approximately
$300 has been spent as of June 30, 1998.



                                       14
<PAGE>   15

The "Year 2000 Issue" is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. The new enterprise systems
discussed above have the added benefit of addressing Year 2000 systems issues.

The Company is also communicating with suppliers, distributors, financial
institutions and others with which it does business to evaluate and coordinate
Year 2000 requirements. There can be no assurance that the systems of other
companies on which the Company's systems rely will also be timely converted or
that any such failure to convert by another company would not have an adverse
effect on the Company's systems. Failure to complete the system conversion in a
timely manner or any significant disruption of the Company's ability to
communicate electronically with its business partners could negatively impact
the Company's business, financial condition and results of operations. The
statements set forth herein are forward looking, actual results may differ
materially (see Cautionary Statement above).



                                       15
<PAGE>   16

PART II.

     ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The Annual Meeting of Stockholders of the Company was held on May 28, 1998.
     Proxies for the Annual Meeting were solicited pursuant to Regulation 14A of
     the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
     there was no solicitation in opposition to that of management. All of
     management's nominees for directors as listed in the proxy statement were
     elected. At the Annual Meeting, the following matters were approved by the
     Stockholders:


<TABLE>
<CAPTION>
                                                              Votes For            Votes Against or          Abstentions and
                                                                                       Withheld              Broker Non-Votes
                                                          -------------------     -------------------     -----------------------
<S>                                                       <C>                     <C>                     <C>
1.     Election of Directors
       Lawrence Elins                                     4,991,020                          128,700                --
       Sanford R. Climan                                  4,990,820                          128,900                --
       Donald A. Kurz                                     4,991,020                          128,700                --
       Bruce Raben                                        4,990,820                          128,900                --
       Stephen P. Robeck                                  4,991,020                          128,700                --
2.     Ratification of Arthur Andersen LLP as the         5,117,040                              595                       2,085
       Company's Independent Auditor
3.     Amendment of the Equity Marketing, Inc.            3,656,674                          290,248                   1,172,798
       Stock Option Plan
4.     Amendment of the Non-Employee Director Stock       3,771,936                          152,870                   1,194,914
       Option Plan
</TABLE>

     ITEM 5. OTHER INFORMATION

     If a stockholder proposal is introduced at the 1999 Annual Meeting of
     Stockholders without any discussion of the proposal in the proxy statement,
     and if the proponent does not notify the Company on or before March 14,
     1999, as required by Rule 14a-4(c)(1) promulgated under the Exchange Act,
     of the intent to raise such proposal at the Annual Meeting, then proxies
     received by the Company for the 1999 Annual Meeting will be voted by the
     persons named as proxies in their discretion in regard to such proposal.
     Notice is to be given to the Company in writing at its principal office,
     131 South Rodeo Drive, Beverly Hills, California, 90212-2428, directed to
     the attention of Leland P. Smith, Secretary.

     ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits:

          10.1 Amendment dated June 30, 1998 to Credit Agreement between the
          Company and Sanwa Bank California and Imperial Bank.

          10.2 Amendment dated July 23, 1998 to Credit Agreement between the
          Company and Sanwa Bank California and Imperial Bank.

          27.0 Financial Data Schedule.


     (b) Reports on Form 8-K:

          Report on Form 8-K filed with the Securities and Exchange Commission
          on May 8, 1998. (Item 2)



                                       16
<PAGE>   17

                                   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.


                                            EQUITY MARKETING, INC.
                                            ------------------------------------
                                            (Registrant)


Date:  As of August 14, 1998                /s/ DONALD A. KURZ
                                            ------------------------------------
                                            Donald A. Kurz
                                            President, Co-Chief Executive 
                                            Officer


                                            /s/ MICHAEL J. WELCH
                                            ------------------------------------
                                            Michael J. Welch
                                            Executive Vice President and Chief
                                            Financial Officer (Principal 
                                            Financial and Accounting Officer)



                                       17
<PAGE>   18

                                 EXHIBIT INDEX


EXHIBIT


10.1 Amendment dated June 30, 1998 to Credit Agreement between the Company and
     Sanwa Bank California and Imperial Bank.

10.2 Amendment dated July 23, 1998 to Credit Agreement between the Company and
     Sanwa Bank California and Imperial Bank

27.0 Financial Data Schedule



                                       18