<PAGE>
           TO OUR SHAREHOLDERS:

           We are pleased to conclude another year of growth and
           achievement. Your company continues to consolidate the
           promotional products industry while enhancing its other
           marketing services. By means of internal growth and
           acquisitions we intend to extend our integrated marketing
           formula around the world.

           Sales of $255 million in 1996 were the highest in the 25
           year history of the company and earnings increased 101% to
           $9.4 million. In each of our four years as a public
           company, HA-LO has achieved record sales and earnings. We
           have come a long way since 1993 when we reported sales of
           $36 million and earnings of $224,000. We continue to focus
           on developing operating efficiencies as we grow the
           business. Additionally, our shareholders received this
           year a 3 for 2 stock split in the second quarter and a 25%
           stock dividend in the fourth quarter.

           This past year brought us two key acquisitions. Creative
           Concepts in Advertising, the third largest company in the
           promotional products industry, allows HA-LO to extend its
           expertise from a national to an international client base.
           This acquisition, which closed in January 1997, represents
           HA-LO's fourth acquisition in the last three years of one
           of the 25 largest promotional products companies. We also
           expanded our service capabilities during 1996 by acquiring
           Market USA, a leading provider of outbound telemarketing
           services in the United States and Canada. Not only will
           this acquisition allow HA-LO to capitalize on the current
           trend toward outsourcing of telemarketing services, but it
           will also provide HA-LO a greater opportunity to provide
           integrated marketing solutions to its existing and
           prospective clients.

           One of our strategies to differentiate HA-LO is to develop
           exclusive product arrangements. We are excited by our new
           exclusive agreement with Champion Products Inc., a
           division of Sara Lee Corporation. Champion is the premier
           authentic athletic brand in sports apparel and approached
           HA-LO to capitalize on the growing demand for corporate
           logoed apparel. Having exclusive access to products like
           Champion provides our company with a significant
           competitive advantage.

           The promotional products industry continues to demonstrate
           double-digit revenue growth, outstripping other forms of
           advertising. This expanding recognition of the
           effectiveness of promotional products in today's marketing
           reality will help fuel your company's exciting vision for
           years to come.

           In 1997 we celebrate our 25th year anniversary. As I
           reflect on the growth of the company, I want to take this
           opportunity to acknowledge the dedication and
           professionalism of everyone in the HA-LO family. I would
           also like to thank our shareholders for the confidence you
           have expressed in us through your investment and look
           forward to sharing our progress and continued success with
           you.

           Sincerely,
           Lou Weisbach
           Chairman, President and
           Chief Executive Officer
           March 24, 1997
<PAGE>
           1996 HIGHLIGHTS

           -  Net income per share increased 61% to $.53 in 1996 from
              $.33 per share in 1995.

           -  Sales increased 21% in 1996 and reached an all-time
              high of $255 million.

           -  Reached agreement to acquire the third largest
              promotional products distributor in the industry. This
              acquisition was closed in January, 1997.

           -  Expanded the Company's service capabilities through the
              acquisition of a leading telemarketing company.

           SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                  (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                                           YEAR ENDED DECEMBER 31,
                                          ---------------------------------------------------------
                                             1996        1995        1994        1993       1992
                                          ----------  ----------  ----------  ----------  ---------
<S>                                       <C>         <C>         <C>         <C>         <C>
STATEMENT OF OPERATIONS DATA (a):
Net Sales...............................  $  254,888  $  211,266  $  145,821  $  104,954  $  99,755
Net Income..............................  $    9,369  $    5,380  $    5,344  $    2,705  $   4,870
Pro forma Net Income (b)................         N/A  $    4,673  $    3,924  $    1,867  $   3,007
Net Income Per Share, Fully Diluted
 (c)....................................  $     0.53  $     0.33  $     0.32  $     0.16  $    0.31
Weighted Average Shares Out-standing,
 Fully Diluted (c)......................      17,581      14,091      12,188      12,030      9,622
BALANCE SHEET DATA
 (END OF YEAR) (a),(d):
Working Capital.........................  $   42,485  $   30,582  $   19,456  $   10,887  $   7,838
Total Assets............................  $   87,634  $   79,340  $   56,007  $   39,251  $  26,955
Long-term Debt..........................  $    2,902  $      836  $   12,591  $    6,158  $     671
Shareholders' Equity....................  $   57,247  $   44,783  $   17,389  $   13,032  $  10,615
</TABLE>

           (a)In September, 1996 the Company acquired two affiliated
              telemarketing companies and in December, 1995 the
              Company acquired a distributor of promotional products.
              These acquisitions were accounted for as
              pooling-of-interests. Accordingly, the financial
              statements for all periods presented have been restated
              to include the results of these acquisitions.

           (b)The Company elected to be treated as an S Corporation
              for Federal income tax purposes through the initial
              public offering completed on November 4, 1992.
              Accordingly, the Company was not subject to Federal
              income taxes for such periods. Additionally, the
              acquisitions that were completed in September 1996 and
              December 1995 and accounted for as pooling-of-interests
              also had elected to be treated as S Corporations. Pro
              forma net income and net income per share amounts
              include an unaudited provision for Federal and state
              taxes at an effective rate of 38% in 1992, and 40%
              thereafter.

           (c)All years presented were retroactively adjusted to
              reflect shares issued in connection with the
              acquisitions discussed in note (a). Additionally, all
              share and per share data have been restated to reflect
              the three-for-two stock split and 25% stock dividend
              completed in 1996.

           (d)Excludes dividends of $3,612,000, $5,238,000,
              $1,276,000, $651,000, and $2,426,000 declared by the
              acquired companies in 1996, 1995, 1994, 1993, and 1992,
              respectively, prior to their acquisition by the
              Company.

                                       3
<PAGE>
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
           FINANCIAL CONDITION AND RESULTS OF OPERATIONS
           RESULTS OF OPERATIONS

           The following table sets forth for the years indicated the
           percent of net sales represented by each line item
           presented below from the Company's Statements of Income.
           All periods presented have been restated to include the
           results of acquisitions accounted for as
           pooling-of-interests.

<TABLE>
<CAPTION>
                                                                             PERCENT OF NET SALES
                                                                     -------------------------------------
                                                                            YEAR ENDED DECEMBER 31,
                                                                     -------------------------------------
                                                                        1996         1995         1994
                                                                     -----------  -----------  -----------
<S>                                                                  <C>          <C>          <C>
Net Sales..........................................................      100.0%       100.0%       100.0%
Cost of Sales......................................................       71.6%        71.9%        70.3%
                                                                         -----        -----        -----
Gross Profit.......................................................       28.4%        28.1%        29.7%
Selling Expenses...................................................       11.9%        12.2%        13.1%
General and Administrative Expenses................................       10.5%        11.7%        11.6%
                                                                         -----        -----        -----
  Operating Income.................................................        6.0%         4.2%         5.0%
Other Income (Expenses), Net.......................................        0.1%        (0.6)%       (0.5)%
                                                                         -----        -----        -----
Income Before Income Taxes.........................................        6.1%         3.6%         4.5%
Provision for Income Taxes.........................................        2.5%         1.1%         0.8%
                                                                         -----        -----        -----
Net Income.........................................................        3.6%         2.5%         3.7%
                                                                         -----        -----        -----
                                                                         -----        -----        -----
Pro forma Net Income...............................................                     2.2%         2.7%
                                                                                      -----        -----
                                                                                      -----        -----
</TABLE>

           YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED
           DECEMBER 31, 1995.

           Net sales increased 20.6% to $254.9 million in 1996
           compared to 1995 net sales of $211.3 million. Virtually
           all of the $43.6 million increase was attributable to
           internal growth.

           Gross profit for 1996 was $72.4 million (28.4% of net
           sales), representing an increase of $13 million from 1995
           gross profit of $59.4 million (28.1% of net sales). This
           increase is the result of the Company's sales growth.
           Gross profit as a percentage of net sales increased
           slightly in 1996 due to the Company's continued focus on
           profitable growth.

           Selling expenses as a percentage of net sales decreased to
           11.9% in 1996 ($30.3 million) compared to 12.2% in 1995
           ($25.8 million). The $4.5 million increase relates
           primarily to commission expense resulting from the
           Company's sales growth. The .3% decrease as a percentage
           of net sales is primarily the result of increased sales to
           a significant customer which are not subject to the
           payment of the Company's standard commissions.

           General and administrative expenses as a percentage of net
           sales decreased to 10.5% in 1996 from 11.7% in 1995. This
           decrease is reflective of the Company's continued focus on
           increasing net sales without adding proportionate overhead
           expenses. Total general and administrative expenses
           increased to $26.9 million in 1996 from $24.6 million in
           1995. This increase relates primarily to increased
           personnel and facilities costs necessary to support the
           sales growth achieved in 1996. Included in 1996 and 1995
           results are non recurring charges of $1.7 million and $1.8
           million related to the acquisitions of Market USA, Inc.
           and Marusa Marketing, Inc. (together MUSA) and
           Fletcher-Barnhardt & White, Inc. (FBW), respectively.

           Net interest income in 1996 was approximately $.4 million
           compared to net interest expense of $1.2 million in 1995.
           The difference is the result of proceeds from the
           Company's public offering in November, 1995 which were
           used primarily to reduce debt. Remaining proceeds were
           invested primarily in short term U.S. Government
           securities.

                                       4
<PAGE>
           YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED
           DECEMBER 31, 1994.

           Net sales increased 44.9% to $211.3 million in 1995
           compared to 1994 sales of $145.8 million. Of the $65.5
           million increase in sales, approximately $16 million
           related to acquisitions completed in 1995 and the
           remainder was due to internal growth.

           Gross profit for 1995 was $59.4 million (28.1% of net
           sales), representing an increase of $16.1 million from
           1994 gross profit of $43.3 million (29.7% of net sales).
           This increase is the result of the Company's sales growth.
           The decrease in gross profit as a percentage of net sales
           is the result of increased sales to a significant
           customer, which are lower margin than the Company's other
           sales.

           Selling expenses increased to $25.8 million (12.2% of net
           sales) in 1995 compared to $19.1 million (13.1% of net
           sales) in 1994. The $6.7 million increase relates
           primarily to commission expense resulting from the
           Company's sales growth. The .9% decrease as a percentage
           of net sales is primarily the result of increased sales to
           a significant customer which are not subject to payment of
           the Company's standard commissions.

           General and administrative expenses as a percentage of
           sales remained constant in 1995 (11.7%) compared to 1994
           (11.6%). Total general and administrative expenses
           increased to $24.6 million in 1995 from $16.9 million in
           1994. The most significant factors in the $7.7 million
           increase relates to the $1.8 million non recurring charge
           in 1995 related to the FBW acquisition and a full year of
           overhead expenses related to acquisitions completed in
           1994. Additionally, increased personnel and facilities
           costs were necessary to support the Company's sales
           growth.

           Net interest expense in 1995 was approximately $1.2
           million compared to $.8 million in 1994. The increase
           relates to higher debt levels required primarily to fund
           the Company's acquisition activity and working capital
           needs.

           LIQUIDITY AND CAPITAL RESOURCES

           In November, 1995, the Company completed a public offering
           of its common stock and received proceeds of approximately
           $24.5 million. The majority of the proceeds were used to
           pay off the Company's debt. To a lesser extent, a portion
           of the proceeds were used to complete acquisitions and
           fund capital expenditures.

           Throughout 1996, the Company had a revolving credit
           facility with a bank providing for borrowings of up to $16
           million. Interest on the facility was either the bank's
           prime rate or the London Interbank Offered Rate (LIBOR)
           plus 1.5%. In January, 1997, the Company entered into a
           new credit facility with three participating banks
           providing for borrowings of up to $65 million. The new
           agreement, which is a three year commitment, provides for
           a revolving line of credit of up to $45 million and an
           acquisition facility of up to $20 million. Interest on the
           new facility is either the bank's prime rate less .25% or
           LIBOR plus .375%-1%, based on a defined ratio.

           The Company's current ratio, an indication of liquidity,
           increased to 2.65 to 1 at December 31, 1996 compared to
           1.98 to 1 at December 31, 1995. Working capital for the
           same periods increased to $42.5 million from $30.6
           million. A majority of the $11.9 million increase in
           working capital is attributable to the overall sales
           growth of the Company in 1996 compared to 1995.

           Capital expenditures, excluding acquisitions, were
           approximately $5.0 million in 1996 compared to $2.6
           million in 1995. The increase between years relates
           primarily to expenditures for updating the Company's
           computer systems and investments to upgrade telemarketing
           call centers with state of the art technology.

           Overall, the Company believes that availability from its
           credit facility and cash flows from operations will be
           sufficient to satisfy its cash needs for the foreseeable
           future.

           INFLATION

           Management does not believe that inflation had a
           significant impact on the Company's results of operations
           for the years presented.

                                       5
<PAGE>
                    HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                    ----------------------------------------------
                                                         1996            1995            1994
                                                    --------------  --------------  --------------
<S>                                                 <C>             <C>             <C>
NET SALES.........................................  $  254,887,550  $  211,265,658  $  145,821,206
COST OF SALES.....................................     182,442,369     151,858,537     102,473,334
                                                    --------------  --------------  --------------
    Gross profit..................................      72,445,181      59,407,121      43,347,872

SELLING EXPENSES..................................      30,338,182      25,776,848      19,124,057
GENERAL AND ADMINISTRATIVE EXPENSES...............      26,869,824      24,627,623      16,884,118
                                                    --------------  --------------  --------------
    Income from operations........................      15,237,175       9,002,650       7,339,697
                                                    --------------  --------------  --------------

OTHER INCOME (EXPENSE):
  Interest expense................................        (224,236)     (1,309,402)       (871,099)
  Interest income.................................         604,839          95,365          71,378
                                                    --------------  --------------  --------------
    Total other income (expense), net.............         380,603      (1,214,037)       (799,721)
                                                    --------------  --------------  --------------
    Income before income taxes....................      15,617,778       7,788,613       6,539,976
PROVISION FOR INCOME TAXES........................       6,248,279       2,408,541       1,195,712
                                                    --------------  --------------  --------------
NET INCOME FOR THE YEAR...........................  $    9,369,499  $    5,380,072  $    5,344,264
                                                    --------------  --------------  --------------
                                                    --------------  --------------  --------------
PRO FORMA INCOME DATA (unaudited):
  Net income as reported..........................                  $    5,380,072  $    5,344,264
  Pro forma adjustment to income taxes............                         706,844       1,420,012
                                                                    --------------  --------------
PRO FORMA NET INCOME..............................                  $    4,673,228  $    3,924,252
                                                                    --------------  --------------
                                                                    --------------  --------------
NET INCOME PER SHARE
 (unaudited pro forma for 1995 and 1994)
    Primary.......................................  $         0.54  $         0.34  $         0.32
    Fully diluted.................................  $         0.53  $         0.33  $         0.32
                                                    --------------  --------------  --------------
                                                    --------------  --------------  --------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
    Primary.......................................      17,364,198      13,577,749      12,188,184
    Fully diluted.................................      17,580,741      14,090,516      12,188,184
                                                    --------------  --------------  --------------
                                                    --------------  --------------  --------------
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       6
<PAGE>
                    HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                       ----------------------------
                               ASSETS                                      1996           1995
---------------------------------------------------------------------  -------------  -------------
<S>                                                                    <C>            <C>
CURRENT ASSETS:
  Cash and equivalents...............................................  $   3,862,958  $   2,264,594
  Short-term investments.............................................      2,908,370      3,549,717
  Receivables-
    Trade............................................................     49,357,356     44,518,900
    Corporate fulfillment program....................................      2,380,537      3,665,877
    Advances due from salesmen.......................................        813,561      1,166,462
  Inventories........................................................      5,776,350      5,494,974
  Prepaid expenses and deposits......................................      3,116,050      1,225,793
                                                                       -------------  -------------
      Total current assets...........................................     68,215,182     61,886,317
                                                                       -------------  -------------
PROPERTY AND EQUIPMENT, net..........................................      9,682,494      7,674,505
                                                                       -------------  -------------
OTHER ASSETS:
  Intangible assets, net.............................................      6,743,690      7,887,243
  Samples............................................................      1,216,429      1,026,588
  Other..............................................................      1,776,207        865,592
                                                                       -------------  -------------
      Total other assets.............................................      9,736,326      9,779,423
                                                                       -------------  -------------
                                                                       $  87,634,002  $  79,340,245
                                                                       -------------  -------------
                                                                       -------------  -------------

<CAPTION>
                               LIABILITIES AND SHAREHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------
<S>                                                                    <C>            <C>
CURRENT LIABILITIES:
  Book overdraft.....................................................  $   1,218,122  $   2,161,161
  Accounts payable...................................................     13,277,100     16,269,312
  Accrued expenses-
    Commissions and wages............................................      6,684,616      6,334,419
    Other............................................................      3,492,029      5,473,669
  Due to related parties.............................................       --              123,910
  Deferred taxes-current.............................................      1,058,087        941,996
                                                                       -------------  -------------
      Total current liabilities......................................     25,729,954     31,304,467
                                                                       -------------  -------------
LONG-TERM DEBT.......................................................      2,901,785        836,336
                                                                       -------------  -------------
DEFERRED LIABILITIES.................................................      1,755,335      2,416,689
                                                                       -------------  -------------
COMMITMENTS AND CONTINGENCIES........................................

SHAREHOLDERS' EQUITY:
  Preferred stock, no par value; 10,000,000 shares authorized and
   none issued.......................................................       --             --
  Common stock, no par value; 25,000,000 shares authorized and
   16,756,109 and 16,181,863 issued and outstanding in 1996 and 1995,
   respectively......................................................     47,535,271     42,737,806
  Unearned compensation-restricted stock.............................       (794,375)    (1,000,000)
  Deferred marketing costs...........................................     (1,448,000)    (1,448,000)
  Cumulative translation adjustment..................................         33,904         22,249
  Retained earnings..................................................     11,920,128      4,470,698
                                                                       -------------  -------------
      Total shareholders' equity.....................................     57,246,928     44,782,753
                                                                       -------------  -------------
                                                                       $  87,634,002  $  79,340,245
                                                                       -------------  -------------
                                                                       -------------  -------------
</TABLE>

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

                                       7
<PAGE>
                    HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                                      COMMON STOCK
                                                               ---------------------------
                                                                  SHARES                                    RETAINED
                                                                  ISSUED        AMOUNT         OTHER        EARNINGS
                                                               ------------  -------------  ------------  -------------
<S>                                                            <C>           <C>            <C>           <C>
BALANCE, December 31, 1993...................................    12,091,895  $   8,485,764  $      5,198  $   4,542,240
  Transfer of S Corporation retained earnings................       --           7,476,546       --          (7,476,546)
  Dividends paid by acquired companies.......................       --            (392,000)      --            (884,416)
  Stock bonus in connection with acquisition of business.....        13,022         31,251       --            --
  Issuance of contingent shares for acquisition of
   business..................................................        93,750        262,500       --            --
  Translation adjustment.....................................       --            --              (5,452)      --
  Net income for the year....................................       --            --             --           5,344,264
                                                               ------------  -------------  ------------  -------------
BALANCE, December 31, 1994...................................    12,198,667     15,864,061          (254)     1,525,542
  Dividends paid by acquired companies.......................       --          (2,802,648)      --          (2,434,916)
  Issuance of shares in connection with acquisitions.........       227,484        852,068       --            --
  Issuance of stock warrants.................................       --           1,448,000    (1,448,000)      --
  Issuance of restricted stock...............................       300,000      1,200,000    (1,200,000)      --
  Amortization of unearned compensation......................       --            --             200,000       --
  Recognition of tax benefits from stock options and
   restricted stock..........................................       --             495,466       --            --
  Exercise of stock options..................................        80,852        214,529       --            --
  Issuance of shares for cash................................     3,374,860     25,466,330       --            --
  Translation adjustment.....................................       --            --              22,503       --
  Net income for the year....................................       --            --             --           5,380,072
                                                               ------------  -------------  ------------  -------------
BALANCE, December 31, 1995...................................    16,181,863     42,737,806    (2,425,751)     4,470,698
  Dividends paid by acquired companies.......................       --          (1,691,579)      --          (1,920,069)
  Stock bonus in connection with acquisition of business.....         5,435         62,500       --            --
  Issuance of shares in connection with acquisitions.........           429          9,866       --            --
  Issuance of restricted stock...............................         1,562         34,375       (34,375)      --
  Amortization of unearned compensation......................       --            --             240,000       --
  Recognition of tax benefits from stock options and
   restricted stock..........................................       --           5,243,790       --            --
  Exercise of stock options and warrants.....................       614,305      2,000,013       --            --
  Repurchase of common stock.................................       (47,485)      (861,500)      --            --
  Translation adjustment.....................................       --            --              11,655       --
  Net income for the year....................................       --            --             --           9,369,499
                                                               ------------  -------------  ------------  -------------
BALANCE, December 31, 1996...................................    16,756,109  $  47,535,271  $ (2,208,471) $  11,920,128
                                                               ------------  -------------  ------------  -------------
                                                               ------------  -------------  ------------  -------------

<CAPTION>

                                                                    TOTAL
                                                                SHAREHOLDERS'
                                                                   EQUITY
                                                               ---------------
<S>                                                            <C>
BALANCE, December 31, 1993...................................   $  13,033,202
  Transfer of S Corporation retained earnings................        --
  Dividends paid by acquired companies.......................      (1,276,416)
  Stock bonus in connection with acquisition of business.....          31,251
  Issuance of contingent shares for acquisition of
   business..................................................         262,500
  Translation adjustment.....................................          (5,452)
  Net income for the year....................................       5,344,264
                                                               ---------------
BALANCE, December 31, 1994...................................      17,389,349
  Dividends paid by acquired companies.......................      (5,237,564)
  Issuance of shares in connection with acquisitions.........         852,068
  Issuance of stock warrants.................................        --
  Issuance of restricted stock...............................        --
  Amortization of unearned compensation......................         200,000
  Recognition of tax benefits from stock options and
   restricted stock..........................................         495,466
  Exercise of stock options..................................         214,529
  Issuance of shares for cash................................      25,466,330
  Translation adjustment.....................................          22,503
  Net income for the year....................................       5,380,072
                                                               ---------------
BALANCE, December 31, 1995...................................      44,782,753
  Dividends paid by acquired companies.......................      (3,611,648)
  Stock bonus in connection with acquisition of business.....          62,500
  Issuance of shares in connection with acquisitions.........           9,866
  Issuance of restricted stock...............................        --
  Amortization of unearned compensation......................         240,000
  Recognition of tax benefits from stock options and
   restricted stock..........................................       5,243,790
  Exercise of stock options and warrants.....................       2,000,013
  Repurchase of common stock.................................        (861,500)
  Translation adjustment.....................................          11,655
  Net income for the year....................................       9,369,499
                                                               ---------------
BALANCE, December 31, 1996...................................   $  57,246,928
                                                               ---------------
                                                               ---------------
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       8
<PAGE>
                    HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                              ------------------------------------
                                                                 1996        1995         1994
                                                              ----------  -----------  -----------
<S>                                                           <C>         <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income for the year...................................  $9,369,499  $ 5,380,072  $ 5,344,264
  Adjustments to reconcile net income to net cash provided
   by (used for) operating activities-
    Depreciation and amortization...........................   3,885,328    3,005,295    1,869,168
    Deferred taxes..........................................    (541,953)    (858,652)    (286,000)
    Increase in cash surrender value........................     (14,837)     --          (106,531)
    Loss on lease buyout....................................      --            2,772      --
    Increase in deferred liabilities-other..................      30,040      192,054      268,805
    Stock issued in connection with bonus...................      --          --            31,251
  Changes in assets and liabilities, net of effects of
   acquired companies-
    Receivables.............................................  (2,908,203) (10,221,876) (10,858,233)
    Inventories.............................................    (252,944)  (1,033,105)  (2,055,271)
    Prepaid expenses and deposits...........................  (1,933,217)     365,130     (224,632)
    Accounts payable and accrued expenses...................   1,080,495    6,858,817    3,192,222
                                                              ----------  -----------  -----------
        Net cash provided by (used for) operating
         activities.........................................   8,714,208    3,690,507   (2,824,957)
                                                              ----------  -----------  -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment.......................  (4,950,703)  (2,598,519)  (1,988,113)
  Purchases of samples......................................    (518,924)    (543,236)    (280,957)
  (Increase) decrease in short-term investments.............     641,347   (3,549,717)     --
  (Increase) decrease in other assets.......................    (181,864)      10,402       40,910
  Decrease in deferred liabilities..........................    (628,802)    (570,777)    (497,541)
  Cash paid for acquisitions................................      (9,988)  (1,845,890)    (844,756)
                                                              ----------  -----------  -----------
        Net cash used for investing activities..............  (5,648,934)  (9,097,737)  (3,570,457)
                                                              ----------  -----------  -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on long-term debt and notes payable..............      --       (5,504,197)  (1,973,057)
  Net borrowings (payments) under line of credit............   2,023,693  (10,724,252)   7,825,540
  Advances to (repayments from) related party...............    (123,910)     157,839      (67,622)
  Policy loan proceeds......................................      --          --         1,030,747
  Decrease (increase) in book overdraft.....................    (943,039)   1,357,257      803,904
  Cash dividends paid by acquired entities..................  (3,573,822)  (5,237,564)  (1,412,147)
  Net proceeds from issuance of common stock................   2,000,013   25,680,859      --
  Repurchase of common stock................................    (861,500)     --           --
                                                              ----------  -----------  -----------
        Net cash provided by (used for) financing
         activities.........................................  (1,478,565)   5,729,942    6,207,365
                                                              ----------  -----------  -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
 EQUIVALENTS................................................      11,655       22,503       (5,452)
                                                              ----------  -----------  -----------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS.............   1,598,364      345,215     (193,501)

CASH AND EQUIVALENTS, beginning of year.....................   2,264,594    1,919,379    2,112,880
                                                              ----------  -----------  -----------
CASH AND EQUIVALENTS, end of year...........................  $3,862,958  $ 2,264,594  $ 1,919,379
                                                              ----------  -----------  -----------
                                                              ----------  -----------  -----------
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       9
<PAGE>
                    HA-LO INDUSTRIES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

           NOTE 1. DESCRIPTION OF THE BUSINESS

           HA-LO Industries, Inc. and Subsidiaries (the "Company") is
           engaged in the business of providing integrated marketing
           and promotions solutions to corporate clients primarily in
           the United States. The Company's core business is the
           distribution of promotional products. These products are
           provided by more than 2,500 vendors and marketed by the
           Company's national network of sales representatives. In
           addition, the Company provides telemarketing and customer
           management services for clients primarily in the financial
           services, insurance and telecommunications industries. The
           Company also provides sports marketing, event planning and
           advertising agency services to its clientele.

           NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

               A. PRINCIPLES OF CONSOLIDATION

               The accompanying consolidated financial statements
           include the accounts of HA-LO Industries, Inc. and its
           subsidiaries. All intercompany transactions and accounts
           have been eliminated. The financial statements are
           prepared on the accrual basis of accounting. The principal
           accounting policies of the Company follow.

               B. REVENUE RECOGNITION

               The majority of the Company's revenues are derived
           from the distribution of promotional products. Revenues
           from such services are recognized when merchandise is
           shipped to customers. The Company's telemarketing revenues
           are recognized as services are performed.

               C. PROPERTY AND EQUIPMENT

               Property and equipment are recorded at cost and are
           depreciated for financial reporting purposes over the
           estimated useful lives on a straight-line basis as
           follows:

<TABLE>
<CAPTION>
    Buildings.....................................................  15-39 years
<S>                                                                 <C>
    Furniture, fixtures and equipment.............................   5-10 years
    Computer and telephone equipment..............................    5-7 years
    Vehicles......................................................      5 years
                                                                        Life of
    Leasehold improvements........................................        lease
                                                                    -----------
                                                                    -----------
</TABLE>

           Property and equipment at December 31 are composed of the
           following:

<TABLE>
<CAPTION>
                                                                           1996           1995
                                                                       -------------  -------------
<S>                                                                    <C>            <C>
    Land.............................................................  $     136,000  $     136,000
    Buildings........................................................        349,000        654,000
    Furniture, fixtures and equipment................................      5,754,000      4,743,000
    Computer and telephone equipment.................................      9,625,000      6,706,000
    Vehicles.........................................................         50,000         95,000
    Leasehold improvements...........................................        594,000        472,000
                                                                       -------------  -------------
                                                                          16,508,000     12,806,000
    Less - Accumulated depreciation..................................      6,826,000      5,131,000
                                                                       -------------  -------------
Property and equipment, net..........................................  $   9,682,000  $   7,675,000
                                                                       -------------  -------------
                                                                       -------------  -------------
</TABLE>

               D. INTANGIBLES

               Intangible assets consist primarily of the cost of
           purchased businesses in excess of the fair value of net
           assets acquired and are amortized on a straight-line basis
           over periods ranging from seven to fifteen years. The
           Company regularly reviews the performance of acquired
           businesses to evaluate the realizability of the underlying
           goodwill. Amortization

                                       10
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
           expense in 1996, 1995 and 1994 was approximately
           $1,284,000 $1,129,000, and $543,000, respectively.
           Accumulated amortization of goodwill as of December 31,
           1996 and 1995 was $3,016,000 and $1,796,000, respectively.

               E. INVENTORIES

               Inventories are valued at the lower of first-in,
           first-out (FIFO) cost or market.

               F. SAMPLES

               Samples are an integral part of the Company's core
           business and are used to generate sales growth. The
           Company's policy is to capitalize purchased samples and
           amortize them on a straight-line basis over a six-year
           useful life. Amortization expense in 1996, 1995 and 1994
           was approximately $329,000, $304,000 and $189,000,
           respectively.

               G. SIGNIFICANT CUSTOMERS

               Approximately 15% and 14% of net sales in 1996 and
           1995, were from one customer. In 1994, another customer
           accounted for approximately 11% of net sales. As of
           December 31, 1996 approximately $9.5 million of the
           Company's accounts receivable was from a significant
           customer substantially all of which was collected during
           the first two months of 1997.

               H. STATEMENTS OF CASH FLOWS

               The Company considers investments purchased with an
           original maturity of three months or less to be cash
           equivalents. Supplemental cash flow information includes
           the following:

<TABLE>
<CAPTION>
                                                               1996          1995          1994
                                                           ------------  ------------  ------------
<S>                                                        <C>           <C>           <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--
Cash paid during the year for interest...................  $    224,000  $  1,300,000  $    879,000
Cash paid during the year for income taxes...............  $  1,616,000  $  1,846,000  $  1,223,000
                                                           ------------  ------------  ------------
                                                           ------------  ------------  ------------
SUPPLEMENTAL SCHEDULE OF NONCASH ACTIVITIES--
Recognition of common shares issued in connection with
 acquisitions............................................  $     10,000  $    852,000  $    263,000
Recognition of tax benefits from exercise of stock
 options and restricted stock............................  $  5,244,000  $    495,000       --
                                                           ------------  ------------  ------------
                                                           ------------  ------------  ------------
</TABLE>

               I. SHORT-TERM INVESTMENTS

               The Company classifies investments purchased with an
           original maturity of three to twelve months as short-term
           investments. Such investments, which are held-to-maturity,
           relate primarily to tax exempt securities and are carried
           at cost plus accrued interest.

               J. FOREIGN CURRENCY TRANSLATION

               One of the Company's wholly-owned telemarketing
           subsidiaries has operations in Canada. Revenues and
           expenses are translated at average rates in effect at the
           time of the underlying transaction, with gains or losses
           included in income. Assets and liabilities of this entity
           are translated at year-end exchange rates with gains and
           losses resulting from such translation included in
           shareholders' equity.

               K. USE OF ESTIMATES

               The preparation of financial statements in conformity
           with generally accepted accounting principles requires
           management to make estimates and assumptions that affect
           the reported amounts of assets and liabilities, the
           disclosure of contingent assets and liabilities at the
           date of the financial statements and the reported amounts
           of revenues and expenses during the reporting period.
           Actual results could differ from those estimates.

                                       11
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

               L. NEW ACCOUNTING PRONOUNCEMENTS

               In 1996, the Company adopted Statement of Financial
           Accounting Standards No. 121 "Accounting For The
           Impairment of Long-Lived Assets and For Long-Lived Assets
           To Be Disposed Of". Adoption of this statement did not
           have a material impact on the financial statements.

               M. RECLASSIFICATION

               Certain amounts in previously issued financial
           statements have been reclassified to conform to 1996
           classifications.

           NOTE 3. RECEIVABLES:

           The Company provides services to customers in diversified
           industries and grants unsecured trade credit to customers
           in the normal course of business. Receivables in the
           accompanying consolidated balance sheets are net of
           reserves for doubtful accounts of approximately $429,000
           as of December 31, 1996 and $904,000 as of December 31,
           1995. The Company also makes advances to its sales
           representatives, which are applied against commissions to
           be earned.

           NOTE 4. INCOME TAXES:

           The Company's provision for income taxes consists of the
           following amounts:

<TABLE>
<CAPTION>
                                                               1996          1995          1994
                                                           ------------  ------------  ------------
<S>                                                        <C>           <C>           <C>
Current provision........................................  $  6,790,000  $  3,268,000  $  1,482,000
Deferred benefit.........................................      (542,000)     (859,000)     (286,000)
                                                           ------------  ------------  ------------
  Total provision........................................  $  6,248,000  $  2,409,000  $  1,196,000
                                                           ------------  ------------  ------------
                                                           ------------  ------------  ------------
</TABLE>

           The Company's effective tax rate is reconciled to the
           Federal statutory rate as follows:

<TABLE>
<CAPTION>
                                                                                 1996       1995       1994
                                                                               ---------  ---------  ---------
<S>                                                                            <C>        <C>        <C>
Federal statutory rate.......................................................       34.0%      34.0%      34.0%
State income taxes (net of Federal benefit)..................................        5.0        5.0        4.3
Non-taxable S Corporation earnings (Note 9)..................................         --       (9.0)     (21.7)
Other........................................................................        1.0        1.0        1.7
                                                                                     ---        ---  ---------
  Effective tax rate.........................................................       40.0%      31.0%      18.3%
                                                                                     ---        ---  ---------
                                                                                     ---        ---  ---------
</TABLE>

                                       12
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

           Deferred income taxes result from temporary differences in
           the recognition of revenue and expense items for income
           tax and financial reporting purposes and are summarized as
           follows:

<TABLE>
<CAPTION>
                                                                              (ASSET)/LIABILITY
                                                                          -------------------------
                                                                              1996         1995
                                                                          ------------  -----------
<S>                                                                       <C>           <C>
Deferred taxes -current
  Guaranteed sales, net of related commissions..........................  $    260,000  $   411,000
  Credits due...........................................................       913,000      545,000
  Advanced commissions..................................................       136,000       78,000
  Non-deductible reserves...............................................      (291,000)    (242,000)
  Other.................................................................        40,000      150,000
                                                                          ------------  -----------
    Total deferred taxes -current.......................................     1,058,000      942,000
                                                                          ------------  -----------
Deferred taxes -long-term
  Samples...............................................................       487,000      400,000
  Acquisition costs.....................................................      (669,000)    (256,000)
  Depreciation and amortization.........................................      (336,000)    (215,000)
  Deferred costs........................................................      (327,000)    (107,000)
  Other.................................................................        (1,000)     (10,000)
                                                                          ------------  -----------
    Total deferred taxes -non-current...................................      (846,000)    (188,000)
                                                                          ------------  -----------
    Total deferred tax liability........................................  $    212,000  $   754,000
                                                                          ------------  -----------
                                                                          ------------  -----------
</TABLE>

           Non-current deferred taxes are included in other assets on
           the accompanying consolidated balance sheets.

           NOTE 5. PRO FORMA NET INCOME PER SHARE (UNAUDITED):

           The unaudited pro forma income data in the consolidated
           statements of income for 1995 and 1994 provide information
           as if the companies acquired (see Note 9) had been C
           Corporations for income tax purposes. Pro forma net income
           per share is based on the weighted average number of
           shares of common stock outstanding, including shares
           issued in connection with the above mentioned
           acquisitions.

           NOTE 6. DEBT:

           Throughout 1996, the Company had a $16 million credit
           facility with a bank bearing interest at either prime or
           the London Interbank Offered Rate ("LIBOR") plus 1.5%.

           Subsequent to year end, the Company refinanced the credit
           facility described above. The new agreement provides for
           an unsecured credit facility totaling $65 million,
           consisting of a $45 million revolving line of credit (the
           "Revolver") and a $20 million term acquisition loan (the
           "Term"). The Revolver matures on January 31, 1999 and Term
           borrowings mature on the sooner of five years from the
           date of borrowing or June 30, 2003. The facility bears
           interest at either prime less .25% or LIBOR plus between
           .375% and 1% based on a defined
           ratio. The agreement contains certain financial covenants
           which the Company must meet, including minimum tangible
           net worth, maximum leverage, and minimum cash flow
           coverages.

           The accompanying balance sheets give effect to the
           refinancing as if it occurred prior to year end.
           Outstanding debt as of December 31, 1996 and 1995 was
           $2,901,785 and $836,336. As of December 31, 1996, the
           prime rate was 8.25% and LIBOR was 5.5%.

           NOTE 7. RELATED-PARTY TRANSACTIONS:

           A member of the Board of Directors renders acquisition
           consulting services to the Company pursuant to an
           agreement. The director's compensation is strictly
           contingent upon

                                       13
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

           the successful completion of an acquisition. During 1996,
           the director earned cash compensation of approximately
           $307,000 and was granted 129,909 options exercisable at
           fair market value at the date of grant. During 1995, the
           director earned cash compensation of approximately
           $850,000 and was granted 46,419 options exercisable at
           fair market value at the date of grant. During 1994, the
           director earned cash compensation of approximately
           $154,000 and was granted 14,344 options.

           NOTE 8. COMMITMENTS AND CONTINGENCIES:

           The Company leases facilities from unrelated parties under
           operating leases expiring at various dates through April,
           2007. Rent expense charged for these facilities totaled
           approximately $2,207,000, $2,263,000 and $1,590,000 for
           1996, 1995 and 1994, respectively.

           The future aggregate annual minimum lease rentals at
           December 31, 1996, are as follows:

<TABLE>
<S>                                                                  <C>
    Year ending December 31-
  1997.............................................................  $2,459,000
  1998.............................................................   2,239,000
  1999.............................................................   2,225,000
  2000.............................................................   1,953,000
  2001.............................................................   1,761,000
  thereafter.......................................................   3,271,000
                                                                     ----------
                                                                     $13,908,000
                                                                     ----------
                                                                     ----------
</TABLE>

           At December 31, 1996, the Company has approximately
           $1,494,000 in outstanding letters of credit issued in the
           ordinary course of business.

           The Internal Revenue Service (the "IRS") has commenced and
           is currently engaged in a field audit examination of the
           Company's federal employment tax returns for the years
           ended December 31, 1993, 1994, and 1995 which includes a
           review of the facts, circumstances and legal authority
           supporting the Company's position that its independent
           sales representatives have properly been treated as
           independent contractors for federal employment tax
           purposes. To date, the IRS has proposed adjustments to
           increase the Company's federal withholding, federal
           unemployment and social security tax liabilities for 1993
           and 1994, and similar proposed adjustments are possible
           for subsequent periods. However, the Company believes its
           characterization of its sales representatives as
           independent contractors is proper and is evaluating its
           various alternatives, including appeal. This process could
           take several years to resolve. Nonetheless, management
           does not believe an unfavorable outcome would have a
           material effect on the financial position of the Company.

           NOTE 9. BUSINESS COMBINATIONS:

           During 1996, the Company acquired two companies. One of
           the companies was accounted for under the purchase method
           of accounting and was not material to the Company's
           consolidated financial statements.

           The second acquisition was completed on September 30, 1996
           and was accounted for as a pooling-of-interests. The
           Company issued 3,187,500 shares of its common stock in
           exchange for all the outstanding shares of Market USA,
           Inc. and its affiliate, Marusa Marketing, Inc. (together
           "MUSA"), two telemarketing companies. Accordingly, the
           consolidated financial statements for all periods
           presented have been restated to include the results of
           MUSA.

           During 1995, the Company acquired three companies. Two of
           the three acquisitions were accounted for under the
           purchase method of accounting and were not material to the
           Company's consolidated financial statements.

                                       14
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

           The third acquisition was completed on December 28, 1995
           and was accounted for as a pooling-of-interests. The
           Company issued 751,596 shares of its common stock in
           exchange for all operating assets of Fletcher-Barnhardt &
           White (FBW), a distributor of promotional products.
           Accordingly the consolidated financial statements for all
           periods presented have been restated to include the
           results of FBW.

           During 1994, the Company acquired two companies. These
           acquisitions were not material to the Company's
           consolidated financial statements.

           NOTE 10. CAPITAL STOCK AND EARNINGS PER SHARE:

           On May 2, 1996, the Company's Board of Directors declared
           a 3-for-2 stock split on the Company's common stock in the
           form of a 50 percent stock dividend effective on June 3,
           1996 to holders of record on May 17, 1996. In addition, on
           November 7, 1996, the Company's Board of Directors
           declared a 25 percent stock dividend payable on December
           11, 1996 to holders of record on November 21, 1996. All
           share and per share data, including stock option, warrant
           and stock plan information, have been retroactively
           adjusted to give effect to the stock split and the stock
           dividend.

           In November, 1995, the Company sold, through a public
           offering, 3,093,750 shares of its common stock. The
           Company realized net proceeds of approximately $24.5
           million from this offering.

           In connection with the MUSA and FBW acquisitions (Note 9)
           and the termination of both predecessor companies' S
           Corporation status, the Company was required to transfer
           undistributed retained earnings to common stock. Dividends
           of the predecessor companies paid subsequently are shown
           as a reduction to retained earnings to the extent of their
           net income, with the remainder reducing common stock.

           Earnings per share are computed on the basis of the
           weighted average number of common and common equivalent
           shares outstanding during each year. The following table
           reconciles the number of common shares shown as
           outstanding in the consolidated balance sheets and the
           number of common shares used in computing fully diluted
           earnings per share.

<TABLE>
<CAPTION>
                                                                             1996          1995
                                                                         ------------  ------------
<S>                                                                      <C>           <C>
Common shares outstanding per balance sheets...........................    16,756,109    16,181,863
Effect of shares issuable under stock options after applying the
 "treasury stock" method...............................................     1,326,163       926,541
Effect of using weighted average common shares outstanding during the
 year..................................................................      (421,954)   (2,866,078)
Other..................................................................       (79,577)     (151,810)
                                                                         ------------  ------------
Common shares used in computing fully diluted earnings per share.......    17,580,741    14,090,516
                                                                         ------------  ------------
                                                                         ------------  ------------
</TABLE>

           In January 1995, the Company issued 300,000 shares of
           restricted common stock to a sales representative in lieu
           of cash commission payments on sales to a significant
           customer. These shares were issued under the stock plan
           described in Note 13 and have been included as a component
           of shareholders' equity. The Company expects these shares
           to be earned ratably through 1999.

           NOTE 11. UNAUDITED SUPPLEMENTARY EARNINGS PER SHARE:

           The net proceeds from the public offering discussed in
           Note 10 were used to repay substantially all of the
           Company's outstanding bank debt. Assuming the debt
           retirement occurred on January 1, 1995, the unaudited
           supplementary pro forma primary earnings per share would
           have been $.45 for the year ended December 31, 1995. This
           per share

                                       15
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
           amount reflects the reduction of interest expense of
           approximately $1,302,000 ($781,000 after tax). Weighted
           average shares used in computing the per share amount were
           increased by 1,800,000 to approximate the number of shares
           sold in the offering to retire the debt.

           NOTE 12. STOCK WARRANTS:

           In January, 1995, the Company signed a multi-year
           exclusive agreement to provide premium promotional
           products to Montgomery Ward & Co., Inc. The initial term
           of the agreement was five years, but was extended through
           2004 in December, 1995. In connection with the initial
           term of the agreement, Merchant Partners Limited
           Partnership (Merchant Partners), an entity of which
           Montgomery Ward is a limited partner, was granted warrants
           to purchase 749,434 shares of the Company's common stock
           at fair market value on the date of grant. These warrants
           vest at the end of nine years but can be accelerated to
           five years if minimum purchase levels are achieved. The
           Company also issued 374,806 warrants to Merchant Partners
           in connection with the extension of the agreement. These
           warrants also have an exercise price at the fair market
           value on the date of grant and expire January 11, 2011.
           These warrants have been accounted for under the
           provisions of Financial Accounting Standards Board
           Statement No. 123, "Accounting for Stock Based
           Compensation", which requires warrants issued to
           non-employees be recorded at fair market value.
           Accordingly, the value of these warrants has been recorded
           as a deferred marketing cost and included as a component
           of shareholders' equity. This cost will be charged against
           income over the five year term of the extension, beginning
           in January, 2000.

           NOTE 13. STOCK OPTIONS:

           The Company has a stock plan (the Plan) which provides for
           reservation and issuance of options to purchase shares of
           the Company's common stock, restricted stock, stock
           appreciation rights and phantom stock awards. The number
           of options, shares or rights to be granted or issued and
           the terms thereof are at the discretion of the
           Compensation Committee of the Company's Board of
           Directors. Pursuant to the Plan, as amended, 3,889,881
           shares of the Company's common stock have been reserved.
           At December 31, 1996, there were 207,863 shares available
           for future grant under the Plan. The exercise price for
           incentive stock options and non-qualified stock options
           granted under the Plan may not be less than 100% and 85%,
           respectively, of the fair market value of the common stock
           at the date of grant. Options issued under the Plan
           generally vest 50% annually, commencing upon completion of
           one year of employment subsequent to the date of grant.
           All options granted under the plan expire ten years from
           the date of grant.

           The Company applies APB Opinion No. 25 and related
           Interpretations in accounting for its plans. Financial
           Accounting Standards Board (FASB) Statement No. 123
           "Accounting for Stock Based Compensation" ("SFAS 123") was
           issued by the FASB in 1995. As permitted, the Company will
           continue its current method of accounting for stock-based
           compensation while complying with the new disclosure
           requirements of SFAS 123. Accordingly, no compensation
           cost has been recognized for its fixed stock option plan.
           Had compensation cost for awards under the Plan and
           warrants issued discussed in Note 12 been determined

                                       16
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
           based on the fair value at their grant dates consistent
           with the method of FASB Statement 123, the Company's net
           income and earnings per share would have been reduced to
           the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                             1996          1995
                                                                         ------------  ------------
<S>                                                                      <C>           <C>
 Net income
    As reported........................................................  $  9,369,499  $  4,673,228
    Pro forma..........................................................  $  7,027,931  $  4,169,940

  Primary earnings per share
    As reported........................................................  $       0.54  $       0.34
    Pro forma..........................................................  $       0.40  $       0.31

  Fully diluted earnings per share
    As reported........................................................  $       0.53  $       0.33
    Pro forma..........................................................  $       0.40  $       0.30
</TABLE>

           Because the method of accounting prescribed in SFAS 123
           has not been applied to options granted prior to January
           1, 1995, the resulting pro forma compensation cost may not
           be representative of that to be expected in future years.

           The fair value of each option grant was estimated on the
           date of grant using the Black-Scholes option-pricing model
           with the following assumptions; risk free interest rates
           between 5.2% and 6.2% in 1996 and between 5.9% and 6.9% in
           1995; zero dividend yield for both years; expected lives
           of 5 years for both years; and volatility of 30 percent
           for both years.

           A summary of the status of the Company's fixed stock
           option plan and warrants issued as of December 31, 1996,
           1995, and 1994, and changes during the years ending on
           those dates is presented below:

<TABLE>
<CAPTION>
                                          1996
                               --------------------------              1995                          1994
                                             WEIGHTED      ----------------------------  ----------------------------
                                              AVERAGE                 WEIGHTED AVERAGE              WEIGHTED AVERAGE
                                SHARES    EXERCISE PRICE    SHARES     EXERCISE PRICE     SHARES     EXERCISE PRICE
                               ---------  ---------------  ---------  -----------------  ---------  -----------------
<S>                            <C>        <C>              <C>        <C>                <C>        <C>
BEGINNING OF YEAR............  2,497,405     $    5.47     1,058,717      $    3.02        692,490      $    2.81
GRANTED:
  Price equal to fair
   value.....................  1,152,464     $   16.53     1,523,372      $    7.01        386,129      $    3.37
  Price in excess of fair
   value.....................    500,938     $   33.57         2,813      $    5.53          1,875      $    3.87
EXERCISED....................   (614,302)    $    3.26       (78,982)     $    2.65         --             --
CANCELLED....................    (34,965)    $   10.52        (8,515)     $    2.72        (21,777)     $    2.63
                               ---------                   ---------                     ---------
END OF YEAR..................  3,501,540     $   13.47     2,497,405      $    5.47      1,058,717      $    3.02

EXERCISABLE AS OF 12/31......  1,174,396                   1,194,580                       594,585

Weighted average fair value
 of options and warrants
 granted:
Price equal to fair value....  $    6.12                   $    3.18
Price in excess of fair
 value.......................  $    7.88                   $    2.00
</TABLE>

                                       17
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

           The following table summarizes information about fixed
           stock options and warrants outstanding at December 31,
           1996:

<TABLE>
<CAPTION>
                                      OPTIONS OUTSTANDING                   OPTIONS EXERCISABLE
                         ----------------------------------------------  --------------------------
                                                            WEIGHTED                    WEIGHTED
                                       WEIGHTED AVERAGE      AVERAGE       NUMBER        AVERAGE
RANGE OF EXERCISE           NUMBER         REMAINING        EXERCISE     EXERCISABLE    EXERCISE
PRICES                     12/31/96    CONTRACTUAL LIFE       PRICE       12/31/96        PRICE
-----------------------  ------------  -----------------  -------------  -----------  -------------
<S>                      <C>           <C>                <C>            <C>          <C>
$2.20 - $3.53                466,414            7.28        $    3.18       459,568     $    3.17
$3.56 - $3.56                700,785            8.03        $    3.56       326,107     $    3.56
$5.23 - $13.33               778,141           10.77        $   10.97       244,751     $    9.27
$13.60 - $15.33              691,270            9.10        $   14.13         1,875     $   13.67
$18.00 - $30.60              364,930            9.66        $   22.13       142,095     $   22.83
$33.60 - $33.60              500,000            9.89        $   33.60        --         $  --
                         ------------          -----           ------    -----------       ------
$2.20 - $33.60             3,501,540            9.19        $   13.47     1,174,396     $    6.95
</TABLE>

           NOTE 14. BUSINESS SEGMENT INFORMATION:

           Segment information by industry for the years ended
           December 31, 1996, 1995, and 1994 follows:

<TABLE>
<CAPTION>
                                                                    1996        1995        1994
                                                                 ----------  ----------  ----------
                                                                             (IN 000'S)

<S>                                                              <C>         <C>         <C>
REVENUES:
Promotional Products...........................................  $  205,764  $  172,866  $  110,396
Telemarketing..................................................      49,123      38,399      35,425
                                                                 ----------  ----------  ----------
  Total Consolidated...........................................  $  254,887  $  211,265  $  145,821
                                                                 ----------  ----------  ----------
                                                                 ----------  ----------  ----------

OPERATING INCOME(1):
Promotional Products...........................................  $   10,275  $    6,239  $    3,201
Telemarketing..................................................       4,962       2,763       4,139
                                                                 ----------  ----------  ----------
  Total Consolidated...........................................  $   15,237  $    9,002  $    7,340
                                                                 ----------  ----------  ----------
                                                                 ----------  ----------  ----------

IDENTIFIABLE ASSETS(2):
Promotional Products...........................................  $   58,207  $   54,258  $   36,953
Telemarketing..................................................      11,019       9,276       9,034
                                                                 ----------  ----------  ----------
  Total Consolidated...........................................  $   69,226  $   63,534  $   45,987
                                                                 ----------  ----------  ----------
                                                                 ----------  ----------  ----------
</TABLE>

           (1)Promotional Products operating income includes
              corporate overhead expenses for all periods and
              non-recurring charges related to acquisitions in 1996
              and 1995.

           (2)Consists primarily of receivables and property and
              equipment. Cash and other assets are considered to be
              corporate assets and are therefore not included.

           NOTE 15. SUBSEQUENT EVENTS:

           In January, 1997, the Company completed the acquisition of
           a Detroit-based distributor of promotional products with
           operations in the United States, Europe and Canada. The
           purchase price was 2,835,632 shares of the Company's
           common stock. The acquisition will be accounted for as a
           pooling of interests.

           In February, 1997, the Company's shareholders approved an
           amendment to the Company's by-laws increasing the number
           of shares of common stock authorized from 25,000,000 to
           100,000,000.

                                       18
<PAGE>
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

           NOTE 16. UNAUDITED SELECTED QUARTERLY OPERATING RESULTS:

           The following table represents unaudited selected
           financial information for the eight quarters ended
           December 31, 1996. This information has been prepared by
           the Company on a basis consistent with the Company's
           audited financial statements and includes all adjustments
           (consisting of normal recurring accruals) which management
           considers necessary for a fair presentation of the results
           for such periods. The operating results for any quarter
           are not necessarily indicative of the results for any
           future period. All periods presented have been adjusted to
           reflect the effects of an acquisition accounted for under
           the pooling-of-interests method of accounting, a
           three-for-two stock split and a 25% stock dividend. A
           reconciliation of previously reported amounts follows:

<TABLE>
<CAPTION>
                                                                          QUARTER ENDED
                              ------------------------------------------------------------------------------------------------------
                                                     1996                                                1995
                              --------------------------------------------------  --------------------------------------------------
                                MAR. 31      JUNE 30     SEPT. 30      DEC. 31      MAR. 31      JUNE 30     SEPT. 30      DEC. 31
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
                                                           (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S>                           <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
Net sales
  Previously reported.......   $  38,459    $  47,513    $  53,120    $  66,671    $  28,207    $  38,107    $  48,005    $  58,547
  Effect of acquired
   company..................      11,453       13,280       11,990       12,400        8,081        9,665        9,992       10,662
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
    Total net sales.........      49,912       60,793       65,110       79,071       36,288       47,772       57,997       69,209
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Gross Profit
  Previously reported.......      10,692       14,578       15,740       20,150        9,397       11,283       13,219       15,985
  Effect of acquired
   company..................       2,661        3,029        2,793        2,802        1,935        2,213        2,602        2,772
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
    Total gross profit......      13,353       17,607       18,533       22,952       11,332       13,496       15,821       18,757
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Net income per share, fully
 diluted
  (Pro forma in 1995)
  Previously reported.......        0.01         0.08         0.07         0.21         0.01         0.04         0.07         0.09
  Effect of acquired
   company..................        0.05         0.04         0.03         0.06         0.02         0.04         0.03         0.03
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
    Total net income per
     share..................   $    0.06    $    0.12    $    0.10    $    0.27    $    0.03    $    0.08    $    0.10    $    0.12
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
                              -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
</TABLE>

           The Company's net sales have increased each quarter within
           a fiscal year and, in particular, its fourth quarter net
           sales have been higher than net sales in previous
           quarters. This is primarily a result of the Company's
           customer's buying patterns.

           NOTE 17. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
           RELATED STOCKHOLDER MATTERS:

           The Company's common stock, which is quoted on the Nasdaq
           National Market under the symbol "HALO", was held by
           approximately 240 shareholders of record as of March 24,
           1997. The following table sets forth the range of high and
           low bid quotations for each quarterly period in 1996 and
           1995 and reflects inter-dealer prices, without retail
           mark-up, mark-down or commission and may not necessarily
           represent actual transactions.

<TABLE>
<CAPTION>
                                                                                        HIGH          LOW
                                                                                       ------        ------
<S>                                                                                 <C>           <C>
    1996
  First Quarter...................................................................         153/8         103/4
  Second Quarter..................................................................         2313/16        143/8
  Third Quarter...................................................................         25            151/4
  Fourth Quarter..................................................................         323/16        213/4

    1995
  First Quarter...................................................................          55/8          31/4
  Second Quarter..................................................................          53/4          43/4
  Third Quarter...................................................................          93/4          53/8
  Fourth Quarter..................................................................         163/8          73/4
</TABLE>

                                       19
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

           To the Board of Directors and Shareholders
           of HA-LO Industries, Inc. and Subsidiaries:

           We have audited the accompanying consolidated balance
           sheets of HA-LO Industries, Inc. (an Illinois corporation)
           and Subsidiaries as of December 31, 1996 and 1995, and the
           related consolidated statements of income, shareholders'
           equity and cash flows for each of the three years ended
           December 31, 1996, 1995 and 1994. These financial
           statements are the responsibility of the Company's
           management. Our responsibility is to express an opinion on
           these financial statements based on our audits.

           We conducted our audits in accordance with generally
           accepted auditing standards. Those standards require that
           we plan and perform the audit to obtain reasonable
           assurance about whether the financial statements are free
           of material misstatement. An audit includes examining, on
           a test basis, evidence supporting the amounts and
           disclosures in the financial statements. An audit also
           includes assessing the accounting principles used and
           significant estimates made by management, as well as
           evaluating the overall financial statement presentation.
           We believe that our audits provide a reasonable basis for
           our opinion.

           In our opinion, the financial statements referred to above
           present fairly, in all material respects, the financial
           position of HA-LO Industries, Inc. and Subsidiaries as of
           December 31, 1996 and 1995, and the results of its
           operations and its cash flows for each of the three years
           ended December 31, 1996, 1995 and 1994, in conformity with
           generally accepted accounting principles.

           ARTHUR ANDERSEN LLP

           Chicago, Illinois,
           February 14, 1997

                                       20