SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             ----------------------

                                    FORM 10-K

                   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                    For the fiscal year ended August 31, 1999
                           Commission File No. 1-14126

                                 UNIDIGITAL INC.
               --------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

         Delaware                                     13-3856672
----------------------------------        --------------------------------------
 (State or Other Jurisdiction of           (I.R.S. Employer Identification No.)
 Incorporation or Organization)


229 West 28th Street, New York, New York                                  10001
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)                             (Zip Code)


                                 (212) 244-7820
                      ------------------------------------
                           (Issuer's Telephone Number,
                              Including Area Code)


         Securities registered under Section 12(b) of the Exchange Act:

                                             Name of Each Exchange
   Title of Each class                        on Which Registered
   -------------------                        -------------------

Common Stock, $.01 par value                  American Stock Exchange

----------------------------            ----------------------------------------

----------------------------            ----------------------------------------

         Securities registered under Section 12(g) of the Exchange Act:


                          ----------------------------
                                (Title of Class)


<PAGE>


     Indicate by check mark  whether the  Registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.


               Yes:     X                           No:
                   -----------                         ----------



     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]


     State the aggregate market value of the voting stock held by non-affiliates
of the  Registrant:  $10,975,743  at  November  30, 1999 based on the last sales
price on that date.


     Indicate  the  number of  shares  outstanding  of each of the  Registrant's
classes of common stock, as of November 30, 1999:


Class                                                           Number of Shares
-----                                                           ----------------

Common Stock, $.01 par value                                        5,987,067


     The  following  documents  are  incorporated  by reference  into the Annual
Report on Form 10-K: Portions of the Registrant's definitive Proxy Statement for
its 2000 Annual Meeting of Stockholders  are incorporated by reference into Part
III of this Report.



<PAGE>


                                TABLE OF CONTENTS
                                -----------------

          Item                                                             Page
          ----                                                             ----

PART I    1.   Business..................................................    1

          2.   Properties................................................   12

          3.   Legal Proceedings.........................................   12

          4.   Submission of Matters to a Vote of Security Holders.......   13

PART II   5.   Market for the Company's Common Equity and Related
               Stockholder Matters.......................................   14

          6.   Selected Financial Data...................................   15

          7.   Management's Discussion and Analysis of Financial
               Condition and Results of Operation........................   16

          7A.  Quantitative and Qualitative Disclosures About Market
               Risk......................................................   25

          8.   Financial Statements and Supplementary Data...............   25

          9.   Changes in and Disagreements with Accountants on
               Accounting and Financial Disclosure.......................   25

PART III  10.  Directors and Executive Officers of the Company...........   26

          11.  Executive Compensation....................................   26

          12.  Security Ownership of Certain Beneficial Owners
               and Management............................................   26

          13.  Certain Relationships and Related Transactions............   26

PART IV   14.  Exhibits, Financial Statement Schedules, and Reports
               on Form 8-K...............................................   27

SIGNATURES...............................................................   28

EXHIBIT INDEX............................................................   30

FINANCIAL STATEMENTS.....................................................  F-1


                                      -i-
<PAGE>

                                     PART I

ITEM 1.   BUSINESS.

GENERAL

     Unidigital Inc., together with its subsidiaries (collectively, "Unidigital"
or the  "Company") is a media  services  company that  provides  large and grand
format digital image solutions  combined with a full suite of digital "premedia"
(previously   referred  to  as  prepress)  services  to  advertising   agencies,
retailers,   publishers,  graphic  design  firms,  consumer  product  companies,
government agencies, individual graphic artists and marketing and communications
firms in both the United States and Europe. In the third quarter of fiscal 1999,
the  Company  began  delivering  its  services  through two  principal  business
divisions.  The Media  Solutions  division  creates and produces large and grand
format images for  out-of-home  advertising  and develops new media concepts and
program  solutions.  The Premedia  Services  division provides digital premedia,
including retouching and short-run digital printing services.

     The Media Solutions division uses new digital technologies and processes to
fulfill a customer's  advertising and outdoor display requirements.  The Company
has  participated in the development of new methods and concepts for high impact
advertising such as wallscapes,  vehicular graphics, construction barricades and
"station  domination."  The  Media  Solutions  division  is  comprised  of  five
operating  units:  (i) MegaArt,  which produces grand scale displays as large as
30,000 square feet; (ii)  SuperGraphics,  which produces printed vinyl wraps for
buses and other  vehicles;  (iii) Unison,  which  provides a wide range of large
scale  photographic  displays;  (iv) M. Nur, which produces grand scale displays
for the European market; and (v) Big Bills, which provides a wide range of large
scale displays for the European market.

     The Premedia Services division creates and manipulates digital images for a
wide range of marketing and advertising clients. The digital images are prepared
for use in specific media applications such as printed materials,  the Internet,
video  clips and CD-ROM  files.  Premedia  services  do not  include  the actual
printing of images for mass  distribution.  Prior to the use of computers in the
design of printed  materials,  prepress (now  referred to as premedia)  services
were  labor-intensive  mechanical  processes.  Technological  advances  make  it
possible to replace largely manual and photography-based production methods with
computer-based,  electronic means for producing four color masters faster and at
lower cost.

     The Premedia  Services  division  consists of five operating  units:  KWIK,
KWIK/Zazula  and KWIK/X(+C)  provide  high-end  digital  premedia and retouching
services to advertising  agencies and commercial clients in the metropolitan New
York area; KWIK/Progress,  which provides similar premedia services to the music
industry;  and Elements,  which provides  premedia  services,  short-run digital
printing and financial printing services in the United Kingdom.


<PAGE>

BUSINESS AND GROWTH STRATEGY

     Management's  strategy is to continue to develop  Unidigital into a premier
digital media services company serving media, advertising and commercial clients
with a complete suite of large and grand format solutions and premedia services.
Key elements to this growth strategy include:

     o    INCREASE  FOCUS ON  MEDIA SOLUTIONS:   The  Company  believes  it  has
          established  a reputation  as an industry  leader and innovator in the
          grand format industry  segment with  developments  such as the world's
          first  wallscapes,  the  first  computer  generated  bus wraps and the
          "station  domination" concept. Due to the significant growth potential
          of the Media Solutions business segment, the Company is increasing its
          focus on developing new digital  technologies,  processes and media to
          create exciting new concepts for high impact advertising.

     o    INCREASE SALES THROUGH INTERNAL LEVERAGING:  The Company believes that
          its positive  relationship  with its existing customer base creates an
          opportunity for additional sales and marketing opportunities. Further,
          the  Company   believes  that  the  expansion  of  its   international
          operations allows the Company to service new and existing customers in
          new locations. The broad range of products and services offered by the
          Company enables the Company to provide full-service integrated graphic
          and media solutions to its customers.

     o    TRANSITION TO PREMEDIA SERVICES: The  Company intends  to continue  to
          shift the  prepress  paradigm to a "premedia"  model that  encompasses
          image  creation  for  electronic  distribution  through the  Internet,
          CD-ROM files and other delivery methods.

     o    CONTINUE INTERNATIONAL EXPANSION:  During the fourth quarter of fiscal
          1999,  the Company  consummated  three  acquisitions  in the  European
          market.   The   Company   anticipates   that   additional    expansion
          opportunities  will  continue  to  become  available  as the  European
          marketplace continues to evolve.

     o    CONTINUE  SELECTIVE  ACQUISITIONS:  The Company continues  to focus on
          growth  through  selective  acquisitions.  As part  of  this  on-going
          strategy,  the Company continues to review opportunities to expand its
          business and markets  primarily in the large and grand format markets,
          and, to a lesser  extent,  the digital  premedia and digital  printing
          markets.  Through its acquisitions,  the Company expects to accomplish
          several   objectives,    including   adding   new   technologies   and
          capabilities,  acquiring  market  leadership  positions  and long-term
          customer   relationships,   enhancing   profitability   and  expanding
          geographically, both domestically and internationally.

     Since  September 1994, the Company has  consummated 17  acquisitions.  Each
acquisition  has added  significantly  to the  capabilities  of the  Company and
importantly,

                                        2
<PAGE>

has added customers with long standing relationships. Unidigital has capitalized
on the  opportunity  to build a family of leading  media  solutions and premedia
services  companies  and has  incorporated  them  under its two  divisions.  The
following table summarizes the Company's  acquisition history,  highlighting the
strategic  acquisitions,  which have  accelerated  the  creation  of the current
operating platform:

<TABLE>
<CAPTION>
ACQUISITION                                 DATE        LOCATION            DESCRIPTION
----------------------------------------------------------------------------------------------------------------
<S>                                         <C>         <C>                 <C>
Lyledale Limited                            Sep-94      London              Financial printing
Regent Limited                              Mar-95      London              Financial printing
TX Unlimited, Inc.                          Mar-96      San Francisco       Digital printing
Cardinal Communications Group,              Aug-96      New York            Digital prepress, digital
  Inc./C-Max Graphics, Inc.                                                 printing and large
                                                                            format
Boris Image Group, Inc.                     Apr-97      Boston              Commercial
                                                                            photographic and digital
                                                                            imaging
Libra City Corporate Printing Limited       May-97      London              Financial printing
Kwik International Color, Ltd.              Mar-98      New York            High-end digital
                                                                            prepress and wide
                                                                            format
Five Star Finishers, Ltd.                   Jul-98      London              Premedia services
MegaArt Corp.                               Sep-98      New York            Large/wide format
                                                                            printing
Hy Zazula Associates, Inc.                  Oct-98      New York            High-end digital
                                                                            prepress and retouching
SuperGraphics Corporation                   Nov-98      San Francisco       Large/wide format
                                                                            printing
Peter X(+C) Limited                         Apr-99      New York            Premedia services
Progress Graphics, Inc.                     Apr-99      New York            Premedia services
Interface Graphics Limited                  Apr-99      Edinburgh, UK       Premedia services
Pre-Press Services Limited                  Aug-99      Leeds, UK           Premedia services
M. Nur Marketing & Kommunikation            Aug-99      Kassel, Germany     Large/wide format
  GmbH                                                                      printing
Big Bills Limited                           Aug-99      London              Large/wide format
                                                                            printing
</TABLE>

     In furtherance of its strategy to focus on its Media Solutions division, in
August 1999, the Company sold (the "Elements Sale") substantially all the assets
of its wholly-owned subsidiary, Unidigital Elements (NY), Inc. ("Elements (NY)")
to a group comprised of that unit's management. Elements (NY) provided short-run
digital  printing  products  and  services  primarily  to  graphic  artists  and
marketing professionals. The services previously provided by the Company through
Elements (NY) no longer constitute the core of the Premedia Services  division's
services.

                                        3
<PAGE>

SERVICE DESCRIPTION AND DELIVERY

     The Company has implemented a divisional branding strategy to better market
the Company's  diverse  product and service  offerings.  This branding  strategy
allows  for the  marketing  of the Media  Solutions  and the  Premedia  Services
divisions  to the  respective  business  segments  that  each  of the  divisions
primarily  serves,  thus building  brand identity and loyalty for each division.
Each  division has at its disposal,  and is  encouraged to sell,  any product or
service  offered  within the  Company.  The broad range of products and services
offered  by the  Company  enables  the Media  Solutions  and  Premedia  Services
divisions to provide  integrated graphic and media solutions for their customers
while still keeping each  division's  core  capabilities  at the forefront.  The
following table delineates the capabilities of each division:

<TABLE>
<CAPTION>
  DIVISION/
OPERATING UNIT             LOCATIONS         SERVICES OFFERED                   TYPES OF CLIENTS
--------------             ---------         ----------------                   ----------------
MEDIA SOLUTIONS:
<S>                        <C>               <C>                                <C>
MegaArt                    New York          Grand format graphics              Media companies,
                                                                                corporations and
                                                                                advertising agencies
SuperGraphics              San Francisco     Vehicle wraps and other graphics   Media companies,
                                                                                corporations and
                                                                                advertising agencies
Unison                     Boston            Large and grand format printing    Corporations, retailers and
                                                                                sports arenas and stadiums
M. Nur                     Kassel, Germany   Grand format graphics              Media companies,
                                                                                corporations and
                                                                                advertising agencies
Big Bills                  London            Large and grand format printing    Media companies and
                                                                                corporations

PREMEDIA SERVICES:
KWIK                       New York          High-end digital premedia and      Advertising agencies and
                                             retouching                         corporations
Elements                   London            Digital premedia and financial     Advertising
                           Edinburgh, UK     printing                           agencies and
                           Leeds, UK                                            UK financial
                                                                                institutions and
                                                                                corporations
</TABLE>



                                       4
<PAGE>

MEDIA SOLUTIONS

     The  Media  Solutions   division   provides  a  wide  range  of  media  and
photographic  solutions  focused on rapidly growing  segments of the out-of-home
advertising  market.  The Company solves some of the most challenging  large and
grand  format   graphic   display   demands  by  combining  the  latest  digital
technologies  with  management  expertise and creativity.  This division,  using
digital files and photographic  films,  produces large and grand format graphics
that are printed to various substrates for specific  applications  utilizing the
latest in inkjet, electrostatic, dye sublimation and laser technologies.

     Large format graphics are produced for great advertising  impact.  They are
used for retail point of purchase displays, posters, signage, back-lit displays,
environmental graphics, vehicular graphics and grand wallscapes that hang on the
sides of  buildings.  Very large  graphics  are  sometimes  referred to as grand
format  and can cover  over  30,000  square  feet in size by  sewing or  welding
together  pieces of the image  that are  output in  sections.  The  Company  has
invested  significantly in the necessary  hardware devices and software programs
to solve the most demanding large and grand format graphic display requirements.

     The Company  believes that the MegaArt  Acquisition  (as defined below) has
provided  Unidigital  with an opportunity to capture the leadership  position in
the custom  wallscape  segment of the industry.  In addition,  MegaArt  provides
cross-selling   opportunities   and  access  of  new  clients  through  existing
relationships. MegaArt operates out of a production facility in Manhattan.

     SuperGraphics,   which  created  and   commercialized  the  first  computer
generated vinyl bus wraps,  presently  operates as a stand-alone unit within the
Media  Solutions  division.   The  operations  of  SuperGraphics  are  based  in
Sunnyvale, California.

     Unison  provides  premium  quality,  customized  photographic  and  digital
graphic  solutions to  corporations,  retailers  and sports arenas and stadiums.
Unison  produces  full-color  graphics on an extensive  array of innovative  and
traditional  substrates.  Unison is a leader in the large format  industry  with
years of experience in complicated digital imaging.

     In August 1999, the Company  consummated the M. Nur Acquisition and the Big
Bills  Acquisition  (each, as defined below).  These  acquisitions  launched the
expansion of the Company's  Media  Solutions  division into Europe.  M. Nur is a
leading  European  producer  of  wide  format  digital  print  graphics  and has
pioneered many of the innovative and unique  applications  that have transformed
the large format outdoor  advertising  industry in Europe.  Big Bills,  based in
London,  is a large and grand format graphics provider serving large British and
international clients with innovative indoor and outdoor media solutions.


                                       5
<PAGE>

PREMEDIA SERVICES

     The Premedia Services  divisions consists of five operating units, three of
which,  KWIK,  KWIK/Zazula and KWIK/X(+C)  provide high-end digital premedia and
retouching  services  to  advertising  agencies  and  commercial  clients in the
metropolitan  New York area and  KWIK/Progress,  which provides similar premedia
services  to the music  industry.  The other unit is  Elements,  which  provides
premedia services, short-run digital printing and financial printing services in
the United Kingdom.

     Elements,  acquired in 1994, provided the initial platform for the Premedia
Services  division while the KWIK  Acquisition  (as defined below)  extended the
Company's  services into the high-end  premedia and retouching  services.  Since
October  1998,  Unidigital  has  consummated  the  Zazula  Acquisition,  the X+C
Acquisition,  the  Progress  Acquisition,  the  Interface  Acquisition  and  the
Pre-Press  Acquisition (each, as defined below). The businesses  acquired in the
Zazula Acquisition,  the X+C Acquisition and the Progress  Acquisition have been
folded into the KWIK  operating  unit while the Interface  Acquisition  has been
integrated  under  Elements.   These  acquisitions  have  further  enhanced  the
Company's creative and technical capabilities,  broadened its client base within
the  high-end  digital  premedia  market and  expanded  the  Company's  premedia
services into the music industry and into new United Kingdom markets.

     The premedia work performed by the operating  units within this division is
comprised  of two stages:  (i)  creative and  retouching  stage;  and (ii) media
preparation stage.  During the initial creative and retouching stage, images are
created and digitally  optimized to accurately convey the impressions desired by
the client for the intended use of the image.  In the media  preparation  stage,
the image is then  prepared for the specific  media  application  using  certain
technical specifications such as resizing, color optimization, etc. The image is
finally  transmitted  through  digital  file or film to the  client or  relevant
production or transmission facility. Premedia services do not include the actual
printing of images for mass distribution.  Some of the services provided by this
division are defined as follows:

     o    DIGITAL  IMAGE  SCANNING:   The Company   scans  and  color   corrects
          transparencies,  photo prints or illustrations  and produces a digital
          image that can then be used in the creative and retouching stage.

     o    RETOUCHING:   The  Company   provides  its   high-end  customers  with
          electronic re-creation and retouching of visual images. In this stage,
          the Company's artists implement the creative vision of their clients.

     o    PROOFING:  For each digital image file produced, the Company  offers a
          variety  of color  proofing  methods.  These  methods  include  direct
          digital  methods in which the digital  file is output to a color proof
          prior to final media output as well as  conventional  analog proofs in
          which  lithographic  films are exposed onto color proofing  materials.
          These proofs visualize the actual retouching changes for the clients.

     o    PAGE ASSEMBLY:  The  Company places digital  image files into customer
          page layouts to form finished printable advertising  materials.  These
          same digital files can also be re-formatted for output to a variety of
          digital

                                       6
<PAGE>

          media.  The  Company  utilizes  a broad  range of  desktop  publishing
          platforms to ensure compatibility with its clients' software systems.

     o    ELECTRONIC  OUTPUT: The Company outputs completed digital images files
          to a variety of media,  including  regular and  oversize  lithographic
          films, color transparencies, CD-ROM files and on-line images.

     Additionally,  this  division  provides  digital  printing  services in the
United Kingdom.  Digital printing, also known as "short-run" printing,  involves
translating  computer-generated  graphic design and content into a printed image
on a digital  printing press.  The advantage of the four-color  digital printing
process is realized in time and cost savings to clients by replacing traditional
color  separations,  metal  printing  plates and graphic  processes with digital
technology.  This  division  also provides  financial  printing  services in the
United Kingdom  including the  production,  formatting and printing of corporate
finance and research documents for corporate clients.

SALES, MARKETING AND OPERATIONS

MEDIA SOLUTIONS

     The Media  Solutions  division  performs  primarily  large and grand format
project  work.  Each project is very unique and  customized  with respect to the
work involved.  Currently,  each operating unit within the division services its
clients through a team of knowledgeable salespersons led by a director of sales.
This division  uses various  methods to market its  services,  including  direct
mail,  product samples,  trade shows,  promotions and Internet sites.  Extensive
collateral  material on products and services offered,  testimonials of previous
projects  and "how to" sheets for file  preparation  are readily  available  for
distribution  to  customers.  Once a customer  completes a purchase  order form,
execution within each unit generally involves the following steps:

     o    ASSIGNMENT:  A  production  meeting is  held at least once  per day in
          each unit within the division.  A new project is typically assigned to
          a production  coordinator  who  schedules and tracks the order through
          completion.

     o    PRODUCTION:  Work  throughout  the   division  typically   results  in
          finished,   printed  materials  of  one  form  or  another.  Customers
          frequently  review proofs.  In many cases, a grand format work will be
          produced on a smaller scale,  on the actual mesh, to display the print
          characteristics of the final work. Upon customer  approval,  the final
          print is  produced  and the  project is  shipped  to the  installation
          company and is subsequently installed in coordination with Unidigital.


                                       7
<PAGE>

PREMEDIA SERVICES

     Within  the  Premedia  Services  division,  KWIK's  business  is  typically
project-oriented with high invoice value while Elements' business is high volume
and  transactional  in nature  with low invoice  value.  The  Premedia  Services
division actively markets its services to its existing and potential client base
by direct marketing methods including direct mail, product samples, trade shows,
promotions and Internet  sites.  Extensive  collateral  material on products and
services and "how to" sheets for file preparation are also  distributed  through
direct mail.  Once a project is awarded,  an order form is completed  which then
leads to the following production steps:

     o    ASSIGNMENT:  A production meeting is held at the beginning of each day
          (the start of the 8 a.m. shift).  Production  managers review each job
          and the  skills  required  and  match  the job  with  the  appropriate
          craftsman/operator.  All revisionary  work is assigned to the original
          craftsman/operator.

     o    PRODUCTION: The  Premedia Services division handles  a large volume of
          jobs  per  day  encompassing  both  new  projects  and  revisions  and
          typically  works  three  shifts to  accommodate  the high  volume  and
          turn-around  requirements.  Each production manager is responsible for
          the assigned project from start through to completion and communicates
          directly with  customers  regarding any particular  specifications  or
          instructions.  Each completed job may be in any medium including disk,
          film, electronic transmission or final printed form.

CUSTOMERS

     The  Media  Solutions  division's  customers  consist  of media  companies,
corporate clients,  retailers,  advertising agencies and businesses in a variety
of  industries  requiring  large  display  graphics.  Customers  may  be  local,
regional,  national or  international.  Each of the units  within this  division
receives  individual orders from customers on a  project-by-project  basis. Many
client  relationships  within this division  extend back over many years and are
the result of timely  delivery  of creative  high  quality  services.  Continued
engagements  for  successive  jobs are  dependent  primarily  upon a  customer's
satisfaction  with the quality of previous  services  provided by this division.
Revenues from The Gap accounted for 11% of the Company's  revenues for the Media
Solutions division for fiscal 1999.

     The Premedia Services  divisions  customers include  advertising  agencies,
graphic design firms,  corporations in the health care and beauty industries and
financial  institutions  and  corporations in the United Kingdom.  Customers are
attracted  to the  Premedia  Services  division's  creative  digital  retouching
capabilities,  an industry  reputation for quality digital premedia services and
personalized  customer service that

                                       8
<PAGE>

caters  to  each  customer's  individual  needs.  Pricing  is  determined  on  a
project-by-project basis.

COMPETITION

     The  Media  Solutions  division  competes  in  a  large  and  grand  format
marketplace that is rapidly  growing.  This industry segment is characterized by
many smaller  companies  often  servicing  narrow market  channels such as small
design firms, local retailers and general display markets.  The Company enjoys a
competitive advantage in the marketplace through its ability to invest in output
devices,  software  and  intercompany  high  speed  networks  resulting  in cost
efficiencies  to its  customers.  This  division's  expertise,  output  devices,
software  and network  enable the Company to produce and manage  large  projects
that are difficult for smaller  companies to administer.  Customers seek out the
Company's  services and products offered by its Media Solutions division because
of its vast array of technologically  advanced equipment,  technical  expertise,
service  orientation and capability to solve unique  challenges  associated with
large and grand format graphics.

     The Premedia Services division and its competitors that provide  retouching
services are consultative in their sales  methodologies,  supply a high level of
technical  expertise  and  provide  many  value-added  services  such as premium
retouching, color correction and creative input. Competitors vie for many of the
same high profile  clients and projects.  When  determining  a suitable  digital
premedia  provider to suit their needs,  customers  that the  Premedia  Services
division may service generally tend to weigh the following criteria: reputation,
capacity, creative expertise, turn-around time and budget considerations.

     The Premedia Services division also confronts competition from conventional
printers which have added, or plan to add, digital presses. The Company believes
this division has several competitive  advantages over conventional printers and
digital  premedia  service  providers.  First,  the Premedia  Services  division
currently handles a large number of relatively small jobs and has the capability
to process such small jobs on a volume basis with the proper  service  approach.
Second,  the Premedia Services division has existing customers which it believes
are likely to become users of digital  presses.  Lastly,  unlike  certain of its
competitors,  the Premedia  Services division  presently  possesses the computer
hardware, software and expertise to support digital printing.

     Some of the  Company's  competitors  are  larger,  have  greater  financial
resources and offer more comprehensive  services than those currently offered by
the Company. The Company,  however,  believes that its smaller size allows it to
more  effectively  react to customer  needs to provide  better  service to these
markets than its competitors.

SUPPLIERS

     Each of the Company's  divisions  utilize their own key suppliers for their
various  materials  and services  needs.  The Company  believes a  decentralized
purchasing  system is more  appropriate  for the  Company's  business due to the
different  operating models as well as geographical and industry segments served
by the two divisions.  Additionally,  the different regional or geographic focus
of the divisions allows each operating unit to develop strong relationships with
its respective  suppliers.  However,  the Company  occasionally  negotiates

                                       9
<PAGE>

with  certain  major  suppliers  on  a  centralized  basis  or  in  cases  where
centralized purchasing is more economically feasible.

     The Company views several  equipment and materials  supply relations within
the Media  Solutions  division  as  strategic  in nature and has  developed  and
perfected its processes in conjunction with these suppliers.

SYSTEMS AND TECHNOLOGY

     The  Company  aggressively  implements  technological  advances in order to
improve and expand its premedia and large and grand  format  printing  services.
This commitment is  demonstrated by the Company's  development and use of unique
technology, equipment and software applications to produce unlimited size prints
for out-of-home advertising.

     Additionally,  each of the  Company's  facilities  is  connected  by a data
network  system  that  allows  a  client  with  computer-generated  files in one
location to have immediate access to output at other locations within the United
States and Europe.

GOVERNMENT REGULATION

     The industry,  while not heavily regulated,  is subject to federal,  state,
and local laws, regulations and ordinances governing the removal and handling of
hazardous  waste.  The Company  believes  it is in  compliance  in all  material
respects  with  such  laws,  regulations  and  ordinances  and  maintains  these
standards  through  internal  control  and  disposal  methods at each  location.
Hazardous  substances  resulting  from digital  premedia,  digital  printing and
photographic  processes  are  disposed of by third party  vendors in each of the
local markets in which the Company conducts its operations. To date, the cost of
compliance with such laws,  regulations and ordinances has not been material. In
the event the Company  expands its  operations,  it may be subject to additional
environmental laws, regulations or ordinances,  including requirements to obtain
certain  environmental  permits.  The Company cannot  predict the  environmental
legislation or regulations  that may be enacted in the future or how existing or
future laws or regulations  will be administered  or  interpreted.  Developments
such as additional  requirements  imposed by more stringent laws or regulations,
as well as  vigorous  enforcement  policies of  regulatory  agencies or stricter
interpretation  of existing  laws may  require  additional  expenditures  by the
Company, some or all of which may be material.


                                       10
<PAGE>

EMPLOYEES

     As of November 30, 1999,  the Company  employed 507 persons,  approximately
486 of whom are  full-time  employees.  Of the total,  295 are  employed  in the
United  States,  193 are  employed in the United  Kingdom and 19 are employed in
Germany.  The Company is subject to a collective  bargaining  agreement  with 38
employees  at  KWIK.  The  Company  considers  its  employee   relations  to  be
satisfactory.  The following table provides an employee breakdown by the various
divisions:

                               EMPLOYEE BREAKDOWN

         DIVISION/OPERATING UNIT                  # OF EMPLOYEES
         -------------------------------------------------------
         MEDIA SOLUTIONS

         MegaArt                                        76

         SuperGraphics                                  31

         Unison                                         90

         M. Nur                                         19

         Big Bills                                      19
                                                  --------------
           SUB-TOTAL                                   235


         PREMEDIA SERVICES

         KWIK                                           89

         Elements                                      174
                                                  --------------
           SUB-TOTAL                                   263

         Corporate                                       9
                                                  --------------
           TOTAL                                       507



                                       11
<PAGE>

ITEM 2.   PROPERTIES.

     At August 31,  1999,  the Company  leased the office space set forth in the
following table:

<TABLE>
<CAPTION>

                                                        SQUARE               TERMINATION
               LOCATION                                 FOOTAGE                  DATE                DIVISION
----------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                   <C>                  <C>
229 West 28th Street - New York                          46,000                2/28/09              Premedia
                                                                                                    Services

Pier 40/West Side Highway -                              35,000                8/31/02              Media
New York                                                                                            Solutions

155 L-2 Moffet Park Drive - Sunnyvale                    13,600                7/31/04              Media
                                                                                                    Solutions

451 D Street - Boston                                    32,000               12/31/03              Media
                                                                                                    Solutions

48 Margaret Street - London UK                           10,300               12/31/04              Premedia
                                                                                                    Services

Truscott House 32-42 East Road - London UK                8,900                3/31/08              Premedia
                                                                                                    Services

71A Leonard Street                                        1,350               12/31/00              Media
London UK                                                                                           Solutions

6 Leodis Court                                            7,825               11/09/03              Premedia
David Street                                                                                        Services
Leeds UK

4 Castle Road                                             4,640                1/10/03              Premedia
Edinburgh UK                                                                                        Services

Herwigsmuhlenweg 3C -                                     1,500                9/01/06              Media
Kassel, Germany                                                                                     Solutions
</TABLE>


     Additionally,  at August 31, 1999, the Company owned  approximately  24,000
square feet of office space in New York City.  In September  and November  1999,
the Company sold such property for an aggregate  purchase  price of  $2,435,000.
The Company  believes that its current  facilities are suitable and adequate for
its current  operations and short-term  foreseeable  needs,  and that it will be
able to renew these leases or obtain  alternative space for such facilities upon
the expiration of the current leases.  Additional facilities will be required to
support growth as the Company expands into new geographic areas.

ITEM 3.   LEGAL PROCEEDINGS.

     A  dispute  has  arisen  out of the  Company's  acquisition  of Libra  City
Corporate  Printing  Limited  ("Libra") in the United  Kingdom.  The Company has
withheld a portion of the  earn-out  payment  (approximately  (pound)400,000  or
$640,000) because of a potential breach of a non-competition clause. The parties
attempted to resolve the dispute outside of litigation.  However, certain of the
shareholders of Libra have filed suit against the


                                       12
<PAGE>

Company  seeking the  balance of the  earn-out  payment.  The Company has made a
counterclaim against the parties filing suit.

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

     Not applicable.




                                       13
<PAGE>

                                     PART II

ITEM 5.   MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER
          MATTERS.

     Prior  to  February  1,  1996,  there  was no  established  market  for the
Company's  Common Stock.  From February 1, 1996 to February 7, 1999,  the Common
Stock was quoted on the Nasdaq  National  Market under the symbol "UNDG." In the
fourth quarter of fiscal 1998, the Company received notice from The Nasdaq Stock
Market,  Inc.  ("Nasdaq"),  that the Company did not meet the net tangible asset
requirement  under  Maintenance  Standard 1 or the market  value of public float
requirement  under  Maintenance  Standard 2 for continued  listing on the Nasdaq
National  Market.  Thereafter the Company  immediately  made  application to the
American  Stock  Exchange  ("AMEX") for listing of the Common Stock on AMEX.  On
February 4, 1999, the Company's  application for listing of the Company's Common
Stock on AMEX was approved.  The Company's Common Stock began trading on AMEX on
February 8, 1999.

     The  following  table  sets  forth  the high and low sales  prices  for the
Company's  Common  Stock for the  quarters  indicated  from  August 31,  1997 as
reported by the Nasdaq  National Market until February 7, 1999 and thereafter as
reported by AMEX. The quotes represent  inter-dealer  prices without adjustments
or  mark-ups,   mark-downs  or   commissions   and  may  not  represent   actual
transactions.

                                                           COMMON STOCK
QUARTER ENDED                                        HIGH                LOW
-------------                                        ----                ---

November 30, 1997.........................          $10 1/8              $7

February 28, 1998.........................          $8 1/2               $4 1/2

May 31, 1998..............................          $10 3/8              $5 1/2

August 31, 1998...........................          $9                   $5 3/4


November 30, 1998.........................          $6 1/8               $3 7/8

February 28, 1999.........................          $5 9/16              $4

May 31, 1999..............................          $6 7/8               $4

August 31, 1999...........................          $6 1/8               $4 1/8

     As of November 30, 1999 the approximate  number of holders of record of the
Common  Stock was 81 and the  approximate  number of  beneficial  holders of the
Common Stock was 400.

     The Company has not paid or declared  cash  dividends  on its Common  Stock
since its inception. The Company currently intends to retain any future earnings
to finance the growth of the business and, therefore, does not anticipate paying
any cash dividends in the foreseeable future. Furthermore,  the Company's credit
facility  contains a covenant which prohibits the Company from paying  dividends
or making other distributions.


                                       14
<PAGE>

ITEM 6.   SELECTED FINANCIAL DATA.

     The following table sets forth selected  consolidated  historical financial
data of the Company as of the dates and for the periods indicated.  The selected
financial  data set forth below for the Company as of August 31, 1997,  1998 and
1999 and for each of the three years ended  August 31, 1999 are derived from the
audited financial statements included elsewhere herein. The Company has restated
its  consolidated  statements of operations for the years ended August 31, 1997,
1998 and 1999 to  reflect  the  results  of the  on-demand  print  and  prepress
business as a  discontinued  operation.  The selected  financial  data set forth
below for the  Company  as of August 31,  1995 and 1996 and for the years  ended
August 31, 1995 and 1996 are derived from the financial  statements not included
elsewhere  herein.  The  selected  financial   information  should  be  read  in
conjunction  with the  Consolidated  Financial  Statements and the Notes thereto
appearing elsewhere herein. See "Item 7. Management's Discussion and Analysis of
Financial  Condition and Results of  Operations,"  which are included  elsewhere
herein.

<TABLE>
<CAPTION>
                                                                  FISCAL YEAR ENDED AUGUST 31,
                                              1995            1996          1997           1998          1999
                                              ----            ----          ----           ----          ----
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                        <C>             <C>            <C>            <C>          <C>
STATEMENT OF OPERATIONS DATA:
REVENUE:
  Net Sales                                $  8,542        $ 11,660       $12,569        $29,506      $ 62,774
EXPENSES:
  Cost of sales                               3,901           5,622         6,773         14,892        30,003
  Selling, general and administrative
    expenses                                  2,946          4,049          3,581          9,773        21,022
  Expenses incurred due to restructuring         --              --            --            413           611
                                           --------        --------       -------        -------      --------
  Total operating expenses                    6,847           9,671        10,354         25,078        51,636
                                           --------        --------       -------        -------      --------
    Income from operations                    1,695           1,989         2,215          4,428        11,138

Interest expense                               (195)           (327)         (573)        (1,353)       (5,893)
Interest expense-deferred financing costs        --              --          (138)        (1,143)         (491)
Interest and other (expenses) income             --             232           149             14            56
                                           --------        --------       -------        -------      --------
Income from continuing operations before
  income taxes and extraordinary item         1,500           1,894         1,653          1,946         4,810
                                           --------        --------       -------        -------      --------
Provision for income taxes                      356           1,064           486            854         2,349
                                           --------        --------       -------        -------      --------
Net income from continuing operations
  before extraordinary item                   1,144             830         1,167          1,092         2,461

Discontinued operations:
  Income (loss) from operations of
  discontinued segment (net of tax
  benefit of $107 (1997), $124 (1998)
  and $1,038 (1999))                             --              --           174            187        (1,275)
  Loss on disposal of segment (net of
  tax benefit of $8,403)                         --              --            --             --       (10,317)
                                           --------        --------       -------        -------      --------
Net income (loss) before extraordinary
  item                                        1,144             830         1,341          1,279        (9,131)
Extraordinary item-loss on early
  retirement of debt (net of income tax
  benefit of $137 (1998) and $1,114
  (1999))                                        --              --            --           (143)       (1,828)
                                           --------        --------       -------        -------      --------
Net income (loss)                          $  1,144        $    830       $ 1,341        $ 1,136      $(10,959)
                                           ========        ========       =======        =======      ========
Basic earnings (loss) per common share(1):
  Earnings from continuing operations
    before extraordinary item              $   0.54        $   0.31       $  0.36        $  0.31      $   0.47
  Income (loss) from discontinued operations     --              --          0.05           0.05         (2.22)
  Extraordinary item                             --              --            --          (0.04)        (0.35)
                                           --------        --------       -------        -------      --------
  Net income (loss)                        $   0.54        $   0.31       $  0.41        $  0.32      $  (2.10)
                                           ========        ========       =======        =======      ========


<PAGE>

Diluted earnings (loss) per common
  share(1):
  Earnings from continuing operations
    before extraordinary item              $   0.54        $   0.31       $  0.36        $  0.29      $   0.47
  Income (loss) from discontinued
    operations                                   --              --          0.05           0.05         (2.22)
  Extraordinary item                             --              --            --          (0.04)        (0.35)
                                           --------        --------       -------        -------      --------
  Net income (loss)                        $   0.54        $   0.31       $  0.41        $  0.30      $  (2.10)
                                           ========        ========       =======        =======      ========
Shares used to compute net income per
  share:
  Basic                                       2,000           2,644         3,212          3,531         5,225
                                           ========        ========      =======         =======      ========
  Diluted                                     2,000           2,663         3,283          3,779         5,225
                                           ========        ========      =======         =======      ========


                                       15
<PAGE>

BALANCE SHEET DATA (AT PERIOD END):
Working capital (deficit)                  $     22        $  2,319       $(2,189)       $ 7,884      $  3,509
Total assets                                  6,550          17,623        33,033         67,315       118,636
Stockholders' equity                          2,605           7,365         9,473         14,393        16,311
</TABLE>

(1) The 1995 and 1996 net  income  per  share are pro  forma  amounts  that give
effect to the  historical  combined  results of operations  adjusted for (i) the
reduced  level of salaries  paid to the  principal  stockholder/officer  and the
former  partner  ($319,000  (1995) and  $73,000  (1996)) and (ii) the income tax
effect of Elements  (NY)  changing  from  Subchapter  S status,  as if these had
occurred effective September 1, 1995 ($741,000 (1995) and $795,000 (1996)).


ITEM 7.   MANAGEMENT'S   DISCUSSION   AND   ANALYSIS   OF  FINANCIAL   CONDITION
          AND RESULTS OF OPERATIONS.

GENERAL

     The  Company is a media  services  company  that  provides  large and grand
format digital image  solutions  combined with a full suite of digital  premedia
services to advertising agencies, retailers,  publishers,  graphic design firms,
consumer product  companies,  government  agencies and marketing  communications
firms in both the United  States and United  Kingdom.  The Company  delivers its
services through two principal  divisions.  The Media Solutions division creates
and  produces  large and grand format  images for  out-of-home  advertising  and
develops new media concepts.  The Premedia  Services  division  provides digital
premedia, including retouching and short-run digital printing services.

     The  statements  contained in this Annual  Report on Form 10-K that are not
historical facts are forward-looking  statements (as such term is defined in the
Private  Securities  Litigation  Reform  Act of 1995)  that  involve  risks  and
uncertainties. Such forward-looking statements may be identified by, among other
things,  the use of forward-looking  terminology such as "believes,"  "expects,"
"may,"  "will,"  "should"  or  "anticipates"  or the  negative  thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve  risks  and  uncertainties.  From  time  to  time,  the  Company  or its
representatives have made or may make forward-looking  statements,  orally or in
writing. Such forward-looking statements may be included in various filings made
by the Company with the Securities and Exchange Commission (the "SEC"), or press
releases  or oral  statements  made by or with  the  approval  of an  authorized
executive  officer of the Company.  These  forward-looking  statements,  such as
statements regarding  anticipated future revenues,  capital  expenditures,  Year
2000 compliance and other statements  regarding  matters that are not historical
facts,  involve  predictions.  The  Company's  actual  results,  performance  or
achievements  could differ  materially from the results expressed in, or implied
by, these  forward-looking  statements.  Potential risks and uncertainties  that
could affect the Company's future operating results include, but are not limited
to:  (i)  economic  conditions,  including  economic  conditions  related to the
digital print  industry;  (ii) the  availability of equipment from the Company's
vendors at current  prices and  levels;  (iii) the  intense  competition  in the
markets for the Company's  products and services;  (iv) the Company's ability to
integrate acquired companies and businesses in a cost-effective  manner; (v) the
Company's ability to effectively  implement its branding strategy;  and (vi) the
Company's ability to develop,  market, provide, and achieve market acceptance of
new service offerings to new and existing clients.

                                       16
<PAGE>

RESULTS OF OPERATIONS

     The consolidated  financial  information includes both the Company's United
States operations and its United Kingdom operations.

     On April 4, 1997, the Company acquired  substantially  all of the assets of
Boris Image Group, Inc., a Boston, Massachusetts based company which principally
engaged in the business of  photographic,  large format and digital imaging (the
"Boris  Acquisition").  On May 22, 1997, the Company acquired all of the capital
stock of Libra, a London-based  financial printer (the "Libra Acquisition") and,
as a result,  currently  provides  financial  printing  services  to the  London
financial community through its Premedia Services division.

     On March 25, 1998, the Company acquired  substantially all of the assets of
Kwik  International  Color, Ltd. (the "Kwik  Acquisition").  As a result of such
acquisition the Company  expanded its color separation and large format printing
services in the New York City and  surrounding  area. In July 1998,  the Company
acquired  substantially  all the assets of Five Star Finishers,  Ltd. for a cash
payment of (pound)325,000  (approximately  $543,000).  On September 2, 1998, the
Company consummated the acquisition of all of the issued and outstanding capital
stock of  MegaArt  Corp.  located in New York City (the  "MegaArt  Acquisition")
resulting in the  expansion of its wide  format,  digital  premedia and printing
services.  On October 30, 1998, the Company,  consummated  the acquisition of Hy
Zazula  Associates,  Inc.  located in New York City (the  "Zazula  Acquisition")
resulting in the expansion of its retouching and premedia services, primarily to
advertising  agencies.  On  November  30,  1998,  the  Company  consummated  the
acquisition  (the  "SuperGraphics   Acquisition")  of  all  of  the  issued  and
outstanding  capital  stock  of  SuperGraphics  Holding  Company,  Inc.  and its
wholly-owned subsidiary,  SuperGraphics  Corporation,  located in San Francisco,
resulting in the expansion of its large format printing services.

     In April 1999, the Company consummated the acquisition of (i) substantially
all of the assets of Peter X(+C) Limited (the "X+C Acquisition"), located in New
York City, (ii) substantially all of the assets of Progress Graphics,  Inc. (the
"Progress  Acquisition"),  located in Jersey City, New Jersey, and (iii) all the
issued and  outstanding  shares of capital stock of Interface  Graphics  Limited
(the "Interface  Acquisition"),  a company located in Edinburgh,  Scotland. Such
acquisitions  have  further  enhanced  the  Company's   creative  and  technical
capabilities,  broadened  its client base within the high-end  digital  premedia
market and expanded the Company's  premedia services into the music industry and
into the United Kingdom market.

     In August 1999, the Company  consummated  the  acquisitions  of (i) all the
issued  and  outstanding  capital  stock  of  Pre-Press  Services  Limited  (the
"Pre-Press  Acquisition"),  M. Nur Marketing &  Kommunikation  GmbH (the "M. Nur
Acquisition") and Big Bills Limited (the "Big Bills Acquisition"). The Pre-Press
Acquisition  continued the expansion of the Company's  premedia  services in the
United Kingdom.  The M. Nur Acquisition and Big Bills  Acquisition  launched the
expansion of the Company's Media Solutions division into Europe.

                                       17
<PAGE>

     All of the  foregoing  acquisitions  have  been  accounted  for  under  the
purchase  method of accounting and,  therefore,  results of operations from such
acquisitions  are included in the Company's  consolidated  financial  statements
from the date of the respective acquisition.

     In furtherance of its strategy to focus on its Media Solutions division, in
August 1999,  the Company  consummated  the Elements Sale. Due to such sale, the
Company  incurred a loss on the disposal of a business  segment of  $10,317,000,
net of a tax benefit of $8,403,000,  and restated its consolidated statements of
operations for the years ended August 31, 1998 and 1997.

     For a discussion of the operating  performance  of the Company by segments,
see  Note 16 of the  Notes to the  Consolidated  Financial  Statements  included
elsewhere in this Form 10-K.

     COMPARISON OF FISCAL YEARS ENDED AUGUST 31, 1999 AND AUGUST 31, 1998

     NET SALES.  Net sales increased by 113%, or $33,268,000,  from  $29,506,000
for the fiscal  year ended  August 31, 1998 to  $62,774,000  for the fiscal year
ended August 31, 1999.  Net sales for the  Company's  United  States  operations
increased by 229%, or  $34,272,000,  from  $14,979,000  in the fiscal year ended
August 31, 1998 to  $49,251,000  in the fiscal year ended August 31,  1999.  Net
sales  for  the  Company's  United  Kingdom  operations   decreased  by  7%,  or
$1,004,000,  from  $14,527,000  in the  fiscal  year ended  August  31,  1998 to
$13,523,000  in the  fiscal  year  ended  August  31,  1999.  Net  sales for the
Company's  Media  Solutions  division  increased by 211%, or  $19,606,000,  from
$9,275,000 in the fiscal year ended August 31, 1998 to $28,881,000 in the fiscal
year ended  August 31, 1999.  This  increase  was  attributable  primarily to an
increase  in  net  sales   resulting  from  the  MegaArt   Acquisition  and  the
SuperGraphics  Acquisition.  Net  sales  for  the  Company's  Premedia  Services
division  increased by 68%, or $13,662,000,  from $20,231,000 in the fiscal year
ended August 31, 1998 to  $33,893,000  in the fiscal year ended August 31, 1999.
This  increase was  attributable  primarily to a full twelve months of net sales
resulting from the Kwik Acquisition and, to a lesser extent,  an increase in net
sales resulting from the Zazula Acquisition and the X+C Acquisition.

     COST OF  SALES.  Cost of sales  increased  by 101%,  or  $15,111,000,  from
$14,892,000  for the fiscal year ended  August 31, 1998 to  $30,003,000  for the
fiscal year ended August 31, 1999.  Cost of sales  decreased as a percentage  of
net sales from 50% for the year ended  August 31, 1998 to 48% for the year ended
August  31,  1999.  Cost of sales for the  Company's  United  States  operations
increased as a percentage of net sales from 37% for the fiscal year ended August
31, 1998 to 45% for the fiscal year ended  August 31,  1999.  Costs of sales for
the Company's United Kingdom  operations  decreased as a percentage of net sales
from 63% for the fiscal  year ended  August 31,  1998 to 58% for the fiscal year
ended August 31, 1999. Cost of sales for the Company's Media Solutions  division
increased as a percentage  of net sales for such division from 48% in the fiscal
year  ended  August  31,  1998  to  51%  August  31,  1999.  Such  increase  was
attributable  primarily  to the change in product  mix in the  Company's  United
States  operations to include more large format services.  Cost of sales for the
Company's  Premedia Services division decreased as a percentage of net sales for
such  division  from 50% in the fiscal year ended  August 31, 1998 to 45% in the
fiscal year ended August 31, 1999.

                                       18
<PAGE>

Such  decrease  was  attributable  primarily to the change in product mix in the
Company's  United  Kingdom  operations  to  include  less  financial  print  and
traditional  services as well as the  re-negotiation of certain of the Company's
vendor contracts resulting in reduced supply costs to the Company.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative expenses ("SG&A") increased 115%, or $11,249,000, from $9,773,000
for the fiscal  year ended  August 31, 1998 to  $21,022,000  for the fiscal year
ended August 31, 1999. Such increase was attributable primarily to the increased
level of operations and costs  associated  with the Company's  acquisitions  and
hiring of additional management and administrative personnel. As a percentage of
net sales,  SG&A remained  constant at 33% for the fiscal years ended August 31,
1998 and 1999.

     RESTRUCTURING  EXPENSES.  In  connection  with  the  consolidation  of  the
Company's United Kingdom operations, the Company incurred restructuring expenses
of $611,000 in the fiscal year ended August 31,  1999.  In  connection  with the
consolidation  of its New York operations,  the Company  incurred  restructuring
expenses of $413,000 in the fiscal year ended August 31, 1998.

     INCOME  FROM  CONTINUING  OPERATIONS.  Income  from  continuing  operations
increased by 152%,  or  $6,710,000,  from  $4,428,000  for the fiscal year ended
August 31, 1998 to  $11,138,000  for the fiscal year ended August 31,  1999.  Of
this  amount,   $9,812,000  was  contributed  by  the  Company's  United  States
operations  and  $1,326,000  by the  Company's  United  Kingdom  operations.  In
addition,  of this amount,  $5,140,000 was  contributed  by the Company's  Media
Solutions division and $5,998,000 from the Company's Premedia Services division.
This  increase  resulted  from  higher  net  sales  offset,  in part,  by higher
production costs associated with such net sales.

     NET  INTEREST   EXPENSE.   Net  interest  expense  increased  by  155%,  or
$3,846,000,  from  $2,482,000  for the  fiscal  year ended  August  31,  1998 to
$6,328,000  for the fiscal year ended August 31, 1999.  This  increase  resulted
from  increased  borrowings  under the Company's  credit  facilities and capital
leases assumed by the Company as part of the Company's acquisitions.

     INCOME TAXES. Income taxes increased by 175%, or $1,495,000,  from $854,000
for the fiscal  year ended  August 31,  1998 to  $2,349,000  for the fiscal year
ended August 31, 1999.

     DISCONTINUED  OPERATIONS.  In August  1999,  the Company  sold its New York
operations  for  on-demand  print and prepress  services.  In addition,  the San
Francisco and London on-demand print and prepress business ceased operations and
closed or reallocated their facilities to other segments, respectively, prior to
August 31, 1999.  There were no remaining  assets or liabilities  related to the
discontinuance  of the  on-demand  print and prepress  business as of August 31,
1999. As a result,  the Company  incurred a loss of $11,592,000 on  discontinued
operations for the fiscal year ended August 31, 1999.

     EXTRAORDINARY  ITEM.  During fiscal 1999, in connection with the prepayment
of  a  subordinated   loan,  the  Company  recorded  an  extraordinary  loss  of
$1,828,000,  net of

                                       19
<PAGE>

income tax benefit of  $1,114,000  related to the  write-off of the  unamortized
balance of deferred  financing  costs  associated with such  subordinated  loan.
During  fiscal 1998, in  connection  with the  prepayment of $4,000,000 of loans
from private investors,  the Company recorded an extraordinary loss of $143,000,
net of income tax  benefit of  $137,000  related to the  write-off  of  deferred
financing costs.

     NET  INCOME.  As a  result  of the  factors  described  above,  net  income
decreased  from  $1,136,000  for the fiscal year ended  August 31, 1998 to a net
loss of $10,959,000 for the fiscal year ended August 31, 1999.

COMPARISON OF FISCAL YEARS ENDED AUGUST 31, 1998 AND AUGUST 31, 1997

     NET SALES.  Net sales increased by 135%, or $16,937,000,  from  $12,569,000
for the fiscal  year ended  August 31, 1997 to  $29,506,000  for the fiscal year
ended August 31, 1998.  Net sales for the  Company's  United  States  operations
increased by 481%,  or  $12,403,000,  from  $2,576,000  in the fiscal year ended
August 31, 1997 to  $14,979,000  in the fiscal year ended August 31, 1998.  This
increase was  attributable  primarily to an increase in net sales resulting from
the Kwik  Acquisition  and, to a lesser extent,  an increase in net sales in the
Company's  other  United  States  subsidiaries  and the  inclusion  of net sales
resulting  from  the  Boris  Acquisition  for a full  year.  Net  sales  for the
Company's  United  Kingdom  operations  increased  by 45%, or  $4,534,000,  from
$9,993,000 in the fiscal year ended August 31, 1997 to $14,527,000 in the fiscal
year ended  August  31,  1998.  This  increase  was  attributable  primarily  to
inclusion of net sales resulting from the Libra  Acquisition for a full year and
internal growth in the Company's United Kingdom operations.

     COST OF  SALES.  Cost of sales  increased  by  120%,  or  $8,119,000,  from
$6,773,000  for the fiscal  year ended  August 31, 1997 to  $14,892,000  for the
fiscal year ended August 31, 1998. As a percentage  of net sales,  cost of sales
decreased  from 54% for the  fiscal  year ended  August 31,  1997 to 50% for the
fiscal year ended August 31, 1998. Cost of sales for the Company's United States
operations  decreased  slightly  as a  percentage  of net sales from 38% for the
fiscal year ended  August 31,  1997 to 37% for the fiscal year ended  August 31,
1998. Such decrease was  attributable  primarily to the change in product mix in
the  Company's  United  States  operations  to  include  more  digital  prepress
services. Cost of sales for the Company's United Kingdom operations increased as
a percentage  of net sales from 58% for the fiscal year ended August 31, 1997 to
63% for the fiscal year ended August 31, 1998.  Such  increase was  attributable
primarily  to  the  change  in  product  mix  in the  Company's  United  Kingdom
operations to include more digital print and financial print  services.  Digital
print and  financial  print  services  have  higher  costs of sales  compared to
digital prepress services.

     SELLING,  GENERAL AND ADMINISTRATIVE  EXPENSES.  SG&A increased by 173%, or
$6,192,000,  from  $3,581,000  for the  fiscal  year ended  August  31,  1997 to
$9,773,000  for the  fiscal  year ended  August  31,  1998.  Such  increase  was
attributable  primarily to the increased level of operations  resulting from the
Kwik  Acquisition,  the Boris  Acquisition and the Libra  Acquisition  and, to a
lesser extent, the hiring of additional management and administrative  personnel
and costs  associated  with the Company  acquisitions.  As a  percentage  of net
sales,  SG&A increased from 28% for the fiscal year ended August 31, 1997 to 33%
for the fiscal year ended August 31, 1998.

                                       20
<PAGE>

     RESTRUCTURING  EXPENSES.  In connection with the  consolidation  of its New
York operations,  the Company incurred restructuring expenses of $413,000 in the
fiscal year ended August 31, 1998.

     INCOME  FROM  CONTINUING  OPERATIONS.  Income  from  continuing  operations
increased by 100%,  or  $2,213,000,  from  $2,215,000  for the fiscal year ended
August 31, 1997 to $4,428,000 for the fiscal year ended August 31, 1998. Of this
amount, $3,112,000 was contributed by the Company's United States operations and
$1,316,000 by the Company's United Kingdom  operations.  This increase  resulted
from higher net sales offset,  in part, by higher  production  costs  associated
with the  changing  product  mix of the  Company's  operations  to include  more
digital print and financial print services.

     NET INTEREST  EXPENSE.  Net interest  expense  increased by $1,920,000 from
$562,000 for the fiscal year ended August 31, 1997 to $2,482,000  for the fiscal
year ended August 31, 1998.  This increase  resulted from  increased  borrowings
under the Company's credit facilities primarily relating to its acquisitions.

     INCOME TAXES. Income taxes increased by 76%, or $368,000, from $486,000 for
the fiscal  year ended  August 31,  1997 to  $854,000  for the fiscal year ended
August 31, 1998.

     EXTRAORDINARY  ITEM.  In  connection  with the  prepayment of $4,000,000 of
loans from private  investors,  the Company  recorded an  extraordinary  loss of
$143,000,  net of income tax benefit of  $137,000  related to the  write-off  of
deferred financing costs.

     NET  INCOME.  As a  result  of the  factors  described  above,  net  income
decreased by 15%, or $205,000,  from $1,341,000 for the fiscal year ended August
31, 1997 to $1,136,000 for the fiscal year ended August 31, 1998.

LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS

     CASH FLOW.  Net cash used in operations was $838,000 and $1,498,000 for the
fiscal years ended August 31, 1999 and 1998, respectively.  Net cash provided by
operations was $489,000 for the fiscal year ended August 31, 1997. Net cash used
in investing  activities  was  $29,943,000,  $23,363,000  and $6,897,000 for the
fiscal  years ended August 31, 1999,  1998 and 1997,  respectively.  The Company
used  $2,002,000,  $1,571,000 and $1,368,000 for the acquisition of property and
equipment during such respective periods.  For the fiscal years ended August 31,
1999,  1998 and 1997,  the Company  acquired  equipment  under capital leases of
$4,848,000,  $1,797,000 and  $1,711,000,  respectively,  and made payments under
capital leases of $3,271,000, $2,691,000 and $1,761,000,  respectively. Net bank
borrowings  provided funds of  $38,916,000,  $24,620,000  and $7,443,000 for the
fiscal years ended August 31, 1999, 1998 and 1997, respectively.

     BANK  CREDIT  FACILITIES.  On May 12,  1999,  the  Company  terminated  its
existing  financing  facilities  and entered  into a new  borrowing  arrangement
consisting of a $65,000,000  revolving line of credit  facility with Fleet Bank,
N.A.  Subsequent  to the end of the fiscal  year,  on September  30,  1999,  the
revolving line of credit facility was increased to  $80,000,000.  The borrowings
are guaranteed by the Company's  subsidiaries and the Company pledged all of its
equity  interests  in its  United  States  subsidiaries  and  65% of its  equity
interests  in its United  Kingdom  subsidiaries  as  collateral  for such credit
facility.  Interest under such credit facility is, at the Company's  option,  at
the Prime Rate

                                       21
<PAGE>

or at the Eurodollar Rate, as defined,  plus an Applicable  Margin,  as defined,
ranging  from 1.0% to 3.25%  depending  on the  Company's  consolidated  debt to
earnings  ratio and the type of loan. As of August 31, 1999,  the Company had an
outstanding balance of $64,375,000 under the revolving credit facility.

     The credit facility contains covenants that require the Company to maintain
certain earnings and debt to earnings ratio  requirements  based on the combined
operations of the Company and its subsidiaries.  The Company was in violation of
certain  covenants  and has  obtained a waiver for such  violations.  The credit
facility is secured by a first priority lien on all of the assets of the Company
and  its  subsidiaries  and  restricts  the  Company's  ability  to pay  certain
dividends without the bank's prior written consent.

     In November  1998, the Company  borrowed a principal  amount of $10,000,000
pursuant to a subordinated  unsecured loan. In connection with such subordinated
loan, the Company  issued  ten-year  warrants to the lender to purchase  440,000
shares of the Company's Common Stock at an exercise price of $4.50 per share. In
September  1999,  upon  prepayment  of such loan,  the lender  opted to have the
interest of such loan paid in warrants to purchase  Common Stock of the Company.
As a result,  the Company  issued  warrants to  purchase  208,150  shares of the
Company's  Common Stock at an exercise  price of $0.01 per share to such lender.
Subject to certain  limitations,  the Company has granted  registration  rights,
including "demand" registration rights, to such lender.

     The warrants issued in connection with such  subordinated  loan, which were
deemed to have a value of approximately $308,000, have been recorded as deferred
financing  costs,  and  are  being  amortized  on  a  straight-line  basis  over
approximately five years.

     Subsequent  to the end of the fiscal  year,  on  September  14,  1999,  the
Company  borrowed  a  principal  amount  of  $20,000,000   pursuant  to  another
subordinated unsecured loan (the "Subordinated Loan"). A portion of the proceeds
of  such  subordinated  loan  was  used  to  prepay  the  Company's  $10,000,000
subordinated  loan. The  Subordinated  Loan matures on August 31, 2006 and bears
interest at 14% per annum.  The Company is  permitted to defer the payment of up
to 2/14ths of the amount of interest  due on any  regularly  scheduled  interest
payment date.  Any such deferred  interest shall be deemed to be included in the
principal  amount of the  Subordinated  Loan. The Company is obligated to prepay
without  premium the  greater of (i)  $10,000,000  or (ii)  one-half of the then
outstanding  principal  amount of the  Subordinated  Loan on August 31, 2005. In
addition,  on any prepayments of the  Subordinated  Loan made prior September 1,
2002,  the  Company  will incur an  additional  premium  equal to the Make Whole
Amount,  as  defined.  For  prepayments  made  after  September  1,  2002,  such
additional  premium shall be 3.0%. Such  additional  premium shall be reduced by
100 basis points on each  September 1  thereafter  until  September 1, 2005.  In
connection with the Subordinated Loan, the Company issued seven-year warrants to
the  lender to  purchase  690,134  shares of the  Company's  Common  Stock at an
exercise price of $5.425 per share. Subject to certain limitations,  the Company
granted  registration  rights,  including "demand"  registration rights, to such
lender.

     The Company expects that cash flow from operations and available borrowings
will be sufficient to fund its capital lease obligations, debt service payments,
potential earn-outs, capital expenditures and operations for at least 12 months.
The Company may require additional  financing to consummate future acquisitions.
There  can be no

                                       22
<PAGE>

assurance that the Company will be able to secure such  additional  financing on
terms favorable to the Company.

     WORKING CAPITAL. The Company's working capital at August 31, 1999 decreased
by  $4,375,000  from  $7,884,000  at August 31, 1998 to $3,509,000 at August 31,
1999.

     ACQUISITIONS  AND  DISPOSITIONS.  In August 1999,  the Company  consummated
three  acquisitions in Europe.  On August 27, 1999, the Company  consummated the
acquisition  of all the  issued  and  outstanding  shares  of  capital  stock of
Pre-Press Services Limited (the "Pre-Press Acquisition").  The initial aggregate
purchase price was approximately (pound)750,000 (approximately $1,200,000) which
included  the  issuance  of  80,000  shares  (approximately   (pound)240,000  or
$384,000) of restricted Common Stock of the Company.  In addition,  the purchase
price  includes  deferred  cash  payments  of  (pound)169,000,   (pound)124,000,
(pound)186,000  (approximately  $270,000,  $198,000 and $298,000,  respectively)
payable August 31, 2000, 2001 and 2002, respectively.

     On August 31, 1999,  the Company  consummated  the  acquisition  of all the
issued  and  outstanding  shares  of  capital  stock  of M.  Nur  Marketing  and
Kommunikation  GmbH (the "M. Nur  Acquisition").  The initial aggregate purchase
price was $1,200,000 which included the issuance of 40,850 shares (approximately
$200,000) of restricted Common Stock of the Company.

     On August 31, 1999,  the Company  consummated  the  acquisition  of all the
issued and  outstanding  shares of capital  stock of Big Bills Limited (the "Big
Bills  Acquisition").  The initial aggregate  purchase price was  (pound)250,000
(approximately   $455,000)   which   included  the  issuance  of  55,790  shares
(approximately  (pound)150,000  or $273,000) of  restricted  Common Stock of the
Company.  In addition,  the purchase  price  includes  deferred cash payments of
(pound)50,000  (approximately  $80,000)  payable on each of August 31,  2000 and
August 31, 2001.

     In addition,  in August 1999,  the Company  consummated  the Elements Sale.
Elements (NY) was principally  engaged in the digital  printing  business.  Such
sale is consistent with the Company's  commitment to focus on its  higher-margin
businesses.  The purchase  price for such assets was (i) $500,000 in cash,  (ii)
$1,500,000  payable  pursuant to a 5%  promissory  note that matures on June 30,
2004, and (iii) $250,000 payable in digital print and premedia services.

                                       23
<PAGE>

YEAR 2000 COMPLIANCE

     The  Company  believes  that it has  sufficiently  assessed  its  state  of
readiness with respect to its Year 2000 compliance. The Company has developed or
is  developing  a program to address  on a timely  basis the risk that  computer
applications developed,  marketed, sold and delivered or used by the Company may
be unable to recognize and properly perform  date-sensitive  functions involving
dates  prior to and after  December  31,  1999 (the  "Year 2000  Problem").  The
Company  does not  believe  that Year 2000  compliance  will  result in material
investments by the Company,  nor does the Company  anticipate that the Year 2000
Problem will have any adverse  effects on the business  operations  or financial
performance  of the  Company.  The  Company  does  not  believe  that it has any
material  exposure to the Year 2000 Problem with respect to its own  information
systems. There can be no assurance, however, that the Year 2000 Problem will not
adversely  affect  the  Company's  business,  operating  results  and  financial
condition.

     The Company  believes  that each of its  products  is Year 2000  compliant,
however,  it has no control over  whether  software  modification  made by third
parties or the combination of its products with the software  developed by third
parties and combined  with the Company's  products will be Year 2000  compliant.
Additionally,  there  can be no  assurance  that  such  potential  instances  of
non-compliance  will not  adversely  affect the  Company's  business,  operating
results and  financial  condition.  The Company has  established  no reserve for
auditing its software  products or for correcting  Year 2000  compliance  issues
with such products.

     Although the Company  believes its  products are Year 2000  compliant,  the
purchasing  patterns of customers  and  potential  customers  may be affected by
issues  associated with the Year 2000 Problem.  As companies expend  significant
resources to correct their current data storage  solutions,  these  expenditures
may  result in  reduced  funds to  purchase  products  as those  offered  by the
Company. There can be no assurance that the Year 2000 Problem will not adversely
affect the  Company's  business,  operating  results  and  financial  condition.
Conversely,  the Year 2000  Problem  may cause  other  companies  to  accelerate
purchases,  thereby  causing an increase in  short-term  demand and a consequent
decrease in long-term demand for the Company's products.

     The Company  currently  uses a  commercially  available  general ledger and
internal  accounting  system.  The  modular  nature of the  system  results in a
user-friendly  system with complete  functionality and flexibility to provide in
depth  analytics  regarding  accounting,  job  cost  control,  project  variance
control,  items  and  materials  tracking,   payroll  and  labor  cost  control,
purchasing  and  inventory   control.   The  Company  has  received   compliance
certification  from its vendors  that its  systems in the United  States and the
United Kingdom are Year 2000 compliant.


                                       24
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Although the Company cannot accurately determine the precise effect thereof
on its  operations,  it does not believe  inflation,  currency  fluctuations  or
interest rate changes have historically had a material effect on revenues, sales
or  results of  operations.  Inflation,  currency  fluctuations  and  changes in
interest rates have,  however,  at various times, had significant effects on the
economies of the United States and the United Kingdom and could adversely impact
the Company's revenues,  sales and results of operations in the future. If there
is a material adverse change in the relationship  between the Pound Sterling and
the United States Dollar,  such change could adversely affect the results of the
Company's  United  Kingdom  operations as reflected in the  Company's  financial
statements.  The  Company  has not  hedged  its  exposure  with  respect to this
currency  risk,  and does not expect to do so in the  future,  since it does not
believe that it is practicable for it to do so at a reasonable cost.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The financial  statements  required to be filed pursuant to this Item 8 are
included in this Annual Report on Form 10-K. A list of the financial  statements
filed herewith is found at "Item 14. Exhibits,  Financial  Statement  Schedules,
and Reports on Form 8-K."

ITEM 9.   CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING AND
          FINANCIAL DISCLOSURE.

     Not applicable.



                                       25
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.

     The information relating to the Company's directors,  nominees for election
as directors and executive  officers under the headings  "Election of Directors"
and "Executive  Officers" in the Company's  definitive  proxy  statement for the
2000 Annual Meeting of Stockholders is incorporated  herein by reference to such
proxy statement.

ITEM 11.  EXECUTIVE COMPENSATION.

     The discussion under the heading "Executive  Compensation" in the Company's
definitive  proxy  statement  for the 2000  Annual  Meeting of  Stockholders  is
incorporated herein by reference to such proxy statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The discussion under the heading "Security  Ownership of Certain Beneficial
Owners and Management" in the Company's  definitive proxy statement for the 2000
Annual Meeting of Stockholders is incorporated herein by reference to such proxy
statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The  discussion  under  the  heading  "Certain  Relationships  and  Related
Transactions"  in the Company's  definitive  proxy statement for the 2000 Annual
Meeting  of  Stockholders  is  incorporated  herein by  reference  to such proxy
statement.



                                       26
<PAGE>

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)  (1)  Financial Statements.

          Reference is made to the Index to Financial Statements on Page F-1.

     (a)  (2)  Financial Statement Schedules.

          Valuation And Qualifying Accounts.

     (a)  (3)  Exhibits.

               Reference is made to the Exhibit Index on Page 30.

     (b)  Reports on Form 8-K.

          No reports on Form 8-K were filed during the  Company's  fourth fiscal
     quarter.




                                       27
<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its  behalf  by the  undersigned,  thereunto  duly  authorized  this 14th day of
December, 1999.

                                              UNIDIGITAL INC.


                                              By: /s/ William E. Dye
                                                 -------------------------------
                                                 William E. Dye, Chief Executive
                                                 Officer


                                       28
<PAGE>


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.

SIGNATURE                     TITLE                            DATE
---------                     -----                            ----


/s/ William E. Dye
-----------------------
William E. Dye                Chief Executive                  December 14, 1999
                              Officer and Chairman of the
                              Board of Directors (principal
                              executive, financial and
                              accounting officer)



/s/ Peter Saad
------------------------
Peter Saad                    President and Director           December 14, 1999



/s/ Anthony Manser
------------------------
Anthony Manser                Vice President and Director      December 14, 1999



/s/ Harvey Silverman
------------------------
Harvey Silverman              Director                         December 14, 1999



/s/ David Wachsman
------------------------
David Wachsman                Director                         December 14, 1999




                                       29
<PAGE>


                                  EXHIBIT INDEX


Exhibit
No.                                           Description of Exhibit
---------                                     ----------------------
     3.1       Certificate  of  Incorporation.  Incorporated   by  reference  to
               Exhibit 3.1 to the Company's  Registration Statement which became
               effective February 1, 1996 (File number 33-99656).

     3.2       By-Laws.  Incorporated  by   reference  to  Exhibit 3.2  to   the
               Company's  Registration Statement which became effective February
               1, 1996 (File number 33-99656).

     3.3       Certificate  of   Amendment  of   Certificate  of  Incorporation.
               Incorporated  by  reference  to  Exhibit  3.3  to  the  Company's
               Registration  Statement which became  effective  February 1, 1996
               (File   number   33-99656).

     4.1       Form  of  Representative's  Warrant Agreement including  form  of
               Representative's   Warrant,   between   the   Company   and   the
               Representative.  Incorporated  by reference to Exhibit 4.2 to the
               Company's  Registration Statement which became effective February
               1, 1996  (File  number  33-99656).

     4.2       Form of Warrant, together with Schedule  of Holders. Incorporated
               by reference to Exhibit 4.2 to the  Company's  Current  Report on
               Form  8-K  dated  June  6,  1997.

     4.3       Form of Warrant, together with Schedule of Holders.  Incorporated
               by reference to Exhibit 4.2 to the Company's  Quarterly Report on
               Form 10-QSB for the quarter ended May 31, 1997.

     4.4       Form of Registration Rights Agreement,  together with Schedule of
               Holders.   Incorporated  by  reference  to  Exhibit  4.3  to  the
               Company's Current Report on Form 8-K dated June 6, 1997.

     4.5       Form  of  Registration  Rights  Agreement, together with Schedule
               of  Holders.  Incorporated  by  reference  to Exhibit  4.3 to the
               Company's  Quarterly  Report on Form 10-QSB for the quarter ended
               May 31, 1997.

     4.6       Warrant dated November 26, 1997 issued by  the  Company  to  CIBC
               Oppenheimer.  Incorporated  by  reference  to Exhibit  4.1 to the
               Company's  Quarterly  Report on Form 10-QSB for the quarter ended
               February 28, 1998.

     4.7       Stockholders'  Agreement  dated  as of September 2, 1998  by  and
               between Unidigital Inc. and Ehud Aloni. Incorporated by reference
               to Exhibit 4.1 the Current Report on Form 8-K dated September 14,
               1998.

     4.8       Form   of   Warrant  Agreement  issued  to  the  stockholders  of
               SuperGraphics  Holding Company, Inc. Incorporated by reference to
               Exhibit 4.1 to the Company's  Current Report on Form 8-K dated on
               December 14, 1998.

                                       30
<PAGE>

Exhibit
No.                                           Description of Exhibit
---------                                     ----------------------
     4.9       Warrant  Agreement  issued  to  CIBC  Wood  Gundy  Capital  Corp.
               Incorporated by reference to Exhibit 4.2 to the Company's Current
               Report on Form 8-K dated on December 14,  1998.

     4.10      Registration   and   Equity   Rights   Agreement  dated   as   of
               November  25, 1998 by and between  Unidigital  Inc. and CIBC Wood
               Gundy Capital Corp.  Incorporated  by reference to Exhibit 4.3 to
               the  Company's  Current  Report on Form 8-K dated on December 14,
               1998.

     4.11+     Form of Warrant  issued  to Massachusetts  Mutual Life  Insurance
               Company and certain of its affiliates.

     4.12+     Registration Rights Agreement dated September 14, 1999  by  among
               Unidigital Inc. and  Massachusetts  Mutual Life Insurance Company
               and certain of its affiliates.

     4.13+     Form of $20,000,000 14% Senior Subordinated  Notes due August 31,
               2006 issued by Unidigital  Inc. and its  subsidiaries in favor of
               Massachusetts  Mutual Life  Insurance  Company and certain of its
               affiliates.

     4.14      Revolving  Credit  Promissory  Note  dated May 12, 1999  made  by
               Unidigital  Inc.  in favor of Fleet Bank,  N.A. in the  principal
               amount of  $40,000,000,  together with Swing Line Promissory Note
               dated May 12,  1999  made by  Unidigital  Inc.  in favor of Fleet
               Bank, N.A. in the principal amount of $3,000,000. Incorporated by
               reference to Exhibit 10.5 to the  Company's  Quarterly  Report on
               Form 10-Q for the quarter  ended May 31,  1999.

     4.15      Revolving  Credit  Promissory  Note  dated May 12, 1999  made  by
               Unidigital Inc. in favor of Bank Austria Creditanstalt  Corporate
               Finance,   Inc.   in  the   principal   amount  of   $15,000,000.
               Incorporated  by  reference  to  Exhibit  10.6  to the  Company's
               Quarterly Report on Form 10-Q for the quarter ended May 31, 1999.

     4.16      Revolving  Credit  Promissory  Note  dated  May 12, 1999  made by
               Unidigital  Inc.  in favor of Merrill  Lynch  Business  Financial
               Services   Inc.   in  the   principal   amount  of   $10,000,000.
               Incorporated  by  reference  to  Exhibit  10.7  to the  Company's
               Quarterly Report on Form 10-Q for the quarter ended May 31, 1999.

     4.17+     Revolving Credit Promissory Note dated September 29, 1999 made by
               Unidigital  Inc.  in favor of Fleet Bank,  N.A. in the  principal
               amount of $5,000,000.

     4.18+     Revolving Credit Promissory Note dated September 29, 1999 made by
               Unidigital  Inc. in favor of People's  Bank of  California in the
               principal amount of $5,000,000.

     4.19+     Revolving Credit Promissory Note dated September  29,  1999  made
               by  Unidigital  Inc. in favor of Sovereign  Bank in the principal
               amount of $5,000,000.

     9.1       Voting Trust  Agreement  dated  as  of  November 3, 1995  between
               William  E.  Dye  and  Jeffrey  W.  Leiderman.   Incorporated  by
               reference to Exhibit 9.1 to the Company's  Registration Statement
               which became effective  February 1, 1996 (File number  33-99656).

                                       31
<PAGE>

Exhibit
No.                                           Description of Exhibit
---------                                     ----------------------
     10.1*     Employment  Agreement  dated  as  of  November  2,  1995  between
               William E. Dye and the  Company.  Incorporated  by  reference  to
               Exhibit 10.1 to the Company's Registration Statement which became
               effective February 1, 1996 (File number 33-99656).

     l0.2*     Employment  Agreement dated March l, 1997  between Anthony Manser
               and Elements (UK).

     10.3*     Employment  Agreement  dated as of March 1,  1997 by and  between
               Unidigital  Inc.  and Peter Saad.  Incorporated  by  reference to
               Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for
               the quarter ended May 31, 1997.

     10.5*     Employment Agreement dated as of September 2, 1998 by and between
               Mega Art Corp.  and Ehud  Aloni.  Incorporated  by  reference  to
               Exhibit 10.3 to the  Company's  Current  Report on Form 8-K dated
               September 14, 1998.

     10.6      Lease Agreement dated as of  December  25,  1994  between  Collin
               Estates  Limited and  Lyledale  Limited  for 48 Margaret  Street.
               Incorporated  by  reference  to  Exhibit  10.10 to the  Company's
               Registration  Statement which became  effective  February 1, 1996
               (File number  33-99656).

     10.7      Loft  Lease  dated  March 1, 1997  between  S.N.Y., Inc. and Kwik
               International Color, Ltd. for the property located at 229 W. 28th
               Street,  New York,  New York, on the fourth floor,  known as Room
               401-405.  Incorporated  by  reference  to  Exhibit  10.4  to  the
               Company's Current Report on Form 8-K dated April 8, 1998.

     10.8      Loft  Lease  dated  March 1, 1997  between S.N.Y., Inc.  and Kwik
               International Color, Ltd. for the property located at 229 W. 28th
               Street,  New York, New York, on the seventh floor,  known as Room
               706-714 and 707-713. Incorporated by reference to Exhibit 10.5 to
               the Company's Current Report on Form 8-K dated  April 8, 1998.

     10.9      Loft  Lease dated  March 1, 1997  between  S.N.Y., Inc.  and Kwik
               International Color, Ltd. for the property located at 229 W. 28th
               Street, New York, New York, on the eighth floor.  Incorporated by
               reference to Exhibit 10.6 to the Company's Current Report on Form
               8-K dated April 8, 1998.

    10.10      Loft  Lease  dated  March 1, 1997  between S.N.Y., Inc.  and Kwik
               International Color, Ltd. for the property located at 229 W. 28th
               Street,  New York, New York, on the ninth floor.  Incorporated by
               reference to Exhibit 10.7 to the Company's Current Report on Form
               8-K dated April 8, 1998.

    10.11*     1995   Unidigital   Inc.   Long-Term   Stock   Investment   Plan.
               Incorporated  by  reference  to  Exhibit  10.11 to the  Company's
               Registration  Statement which became  effective  February 1, 1996
               (File number  33-99656).

    10.12*     1995 Directors Stock Option  Plan.  Incorporated by reference  to
               Exhibit  10.12  to the  Company's  Registration  Statement  which
               became  effective   February  1,  1996  (File  number  33-99656).

                                       32
<PAGE>

Exhibit
No.                                           Description of Exhibit
---------                                     ----------------------
    10.13*     1997 Equity Incentive Plan. Incorporated by reference to  Exhibit
               10.2 to the  Company's  Quarterly  Report on Form  10-QSB for the
               quarter  ended  February 28, 1997.

    10.14*     1997 Non-Employee Director Stock Option  Plan.  Incorporated   by
               reference to Exhibit 10.3 to the  Company's  Quarterly  Report on
               Form 10-QSB for the quarter ended February 28, 1997.

    10.15      Stock Purchase Agreement dated as of August 9, 1995 among Jeffrey
               W.   Leiderman,   William  E.  Dye  and   Stephen  J.   McErlain.
               Incorporated  by  reference  to  Exhibit  10.14 to the  Company's
               Registration  Statement which became  effective  February 1, 1996
               (File number 33-99656).

    10.16      Share  Purchase  Agreement  By Way of Deed  dated as of August 9,
               1995 among  Jeffrey  W.  Leiderman,  William  E. Dye,  Stephen J.
               McErlain and Anthony Manser. Incorporated by reference to Exhibit
               10.15  to  the  Company's  Registration  Statement  which  became
               effective February 1, 1996 (File number 33-99656).

    10.17      Share Purchase Agreement by Way of Deed dated May 22, 1997 by and
               among  Unidigital  Inc.,   Elements  (UK)  Limited,   Libra  City
               Corporate Printing Limited,  Francis Allen, Robin Bishop, Kenneth
               Dellow,  Edward Tylee,  Invesco English and International  Trust,
               and Baronsmead  Investment  Trust.  Incorporated  by reference to
               Exhibit 10.1 to the  Company's  Current  Report on Form 8-K dated
               June 6, 1997.

    10.18      Agreement of Purchase and Sale dated as of August 3, 1998  by and
               among Unidigital Inc., Mega Art Corp.,  Ehud Aloni,  Amit Primor,
               Jeffrey E. Rothman and Seligson, Rothman & Rothman.  Incorporated
               by reference  to Exhibit  10.1 to the Current  Report on Form 8-K
               dated September 14, 1998.

    10.19      Agreement  of and Plan of Merger  dated as of October 30, 1998 by
               and  among  Unidigital   Inc.,   Unison  (NY),  Inc.,  Hy  Zazula
               Associates,  Inc., Hyman Zazula,  Steven Zazula, David Zazula and
               Gary Feigenbaum. Incorporated by reference to Exhibit 10.1 to the
               Current Report on Form 8-K dated November 16, 1998.

    10.20      Agreement for Purchase and Sale of Stock dated as of November 16,
               1998 by and among Unidigital Inc., SuperGraphics Holding Company,
               Inc. ("Holding"),  SuperGraphics Corporation and the stockholders
               of Holding.  Incorporated  by  reference  to Exhibit  10.1 to the
               Company's Current Report on Form 8-K dated on December 14, 1998.

    10.21      Asset Purchase  Agreement  dated  as  of  March  26,  1999 by and
               among Unidigital Inc., Unison (NY), Inc., Peter X(+C) Limited and
               Peter Ksiezopolski.  Incorporated by reference to Exhibit 10.1 to
               the Company's Quarterly Report on Form 10-Q for the quarter ended
               February 28, 1999.

                                       33
<PAGE>

Exhibit
No.                                           Description of Exhibit
---------                                     ----------------------
    10.22      Share  Purchase Agreement By Way  of Deed dated December 21, 1998
               by and among the  Shareholders  of  Interface  Graphics  Limited,
               Elements   (UK)   Limited   and   Interface   Graphics   Limited.
               Incorporated  by  reference  to  Exhibit  10.2  to the  Company's
               Quarterly Report on Form 10-Q for the quarter ended May 31, 1999.

    10.23      Asset Purchase Agreement dated as of April 8, 1999  by and  among
               Unidigital Inc.,  Unison (NY), Inc.,  Progress  Graphics Inc. and
               Mario  DeVita.  Incorporated  by reference to Exhibit 10.3 to the
               Company's Quarterly Report on Form 10-Q for the quarter ended May
               31, 1999.

    10.24      Credit Agreement dated as of May 12, 1999 among Unidigital  Inc.,
               Fleet Bank, N.A., Bank Austria  Creditanstalt  Corporate Finance,
               Inc.   and  the   Banks,   Financial   Institutions   and   Other
               Institutional Lenders Named Therein. Incorporated by reference to
               Exhibit 10.4 to the Company's  Quarterly  Report on Form 10-Q for
               the quarter ended May 31, 1999.

    10.25+     Amendment  No. 1 to  Credit Agreement dated  as  of July 23, 1999
               among   Unidigital   Inc.,   Fleet  Bank,   N.A.,   Bank  Austria
               Creditanstalt  Corporate Finance,  Inc. and the Banks,  Financial
               Institutions and other Institutional Lenders named therein.

    10.26+     Amendment  No.  2  to  Credit Agreement dated as of September 29,
               1999 among  Unidigital  Inc.,  Fleet  Bank,  N.A.,  Bank  Austria
               Creditanstalt  Corporate Finance,  Inc. and the Banks,  Financial
               Institutions and other Institutional Lenders named therein.

    10.27      General  Security  Agreement  (Borrower)  dated  May 12,  1999 by
               Unidigital  Inc. in favor of Fleet  Bank,  N.A.  Incorporated  by
               reference to Exhibit 10.8 to the  Company's  Quarterly  Report on
               Form 10-Q for the quarter ended May 31, 1999.

    10.28      General  Security  Agreement (Guarantors) dated  May 12, 1999  by
               Unidigital  Elements (NY), Inc.,  Unison (NY), Inc., Unison (MA),
               Inc.,   Unidigital   Elements   (SF),   Inc.,   Mega  Art  Corp.,
               SuperGraphics Holding Company, Inc. and SuperGraphics Corporation
               in favor of Fleet Bank, N.A. Incorporated by reference to Exhibit
               10.9 to the  Company's  Quarterly  Report  on Form  10-Q  for the
               quarter ended May 31, 1999.

    10.29      Pledge  and Security  Agreement dated  May 12, 1999 by Unidigital
               Inc. in favor of Fleet Bank,  N.A.  Incorporated  by reference to
               Exhibit 10.10 to the Company's  Quarterly Report on Form 10-Q for
               the quarter ended May 31, 1999.

    10.30      Pledge and Security Agreement (Subsidiary) dated May 12, 1999  by
               SuperGraphics  Holding Company, Inc. in favor of Fleet Bank, N.A.
               Incorporated  by  reference  to  Exhibit  10.11 to the  Company's
               Quarterly Report on Form 10-Q for the quarter ended May 31, 1999.

    10.31      Guaranty dated May 12, 1999  made by Unidigital Inc.,  Unidigital
               Elements  (NY),  Inc.,  Unison (NY),  Inc.,  Unison  (MA),  Inc.,
               Unidigital  Elements (SF),  Inc.,  Mega Art Corp.,  SuperGraphics
               Holding Company,  Inc. and SuperGraphics  Corporation in favor of
               Fleet Bank,  N.A.  Incorporated  by reference to Exhibit 10.12 to
               the Company's Quarterly Report on Form 10-Q for the quarter ended
               May 31, 1999.

                                       34
<PAGE>

Exhibit
No.                                           Description of Exhibit
---------                                     ----------------------
    10.32      Foreign  Guaranty  dated  May  12, 1999  made  by  Elements  (UK)
               Limited in favor of Fleet Bank, N.A. Incorporated by reference to
               Exhibit 10.13 to the Company's  Quarterly Report on Form 10-Q for
               the quarter ended May 31, 1999.

    10.33      Trademark Collateral  Assignment and  Security Agreement dated as
               of May 12, 1999 by and between  Unidigital  Inc.  and Fleet Bank,
               N.A.  Incorporated by reference to Exhibit 10.14 to the Company's
               Quarterly Report on Form 10-Q for the quarter ended May 31, 1999.

    10.34      Subsidiary Trademark Collateral Assignment and Security Agreement
               dated as of May 12, 1999 by and between  Unison  (NY),  Inc.  and
               Fleet Bank,  N.A.  Incorporated  by reference to Exhibit 10.15 to
               the Company's Quarterly Report on Form 10-Q for the quarter ended
               May 31, 1999.

    10.35      Subsidiary Trademark Collateral Assignment and Security Agreement
               dated as of May 12, 1999 by and between SuperGraphics Corporation
               and Fleet Bank,  N.A.  Incorporated by reference to Exhibit 10.16
               to the  Company's  Quarterly  Report on Form 10-Q for the quarter
               ended May 31, 1999.

    10.36+     Asset  Purchase  Agreement  dated as  June 15, 1999 among I.A.T.,
               LLC,  Unidigital  Elements  (NY),  Inc.,  Unison  (NY),  Inc. and
               Unidigital Inc.

    10.37+     Securities  Purchase  Agreement  among  Unidigital  Inc. and  its
               subsidiaries and Massachusetts  Mutual Life Insurance Company and
               certain of its affiliates.

       21+     Subsidiaries of the Company.

       23+     Consent of Ernst & Young LLP.

       27+     Financial Data Schedule.
----------------------------------------

*    A management  contract or compensatory  plan or arrangement  required to be
     filed as an exhibit and filed herewith, pursuant to Item 4(a) of Form 10-K.

+    Filed herewith.



                                       35
<PAGE>


                                 Unidigital Inc.

                              Financial Statements

                                 August 31, 1999


                                    CONTENTS

Report of Independent Auditors...........................................  F-2

Consolidated Balance Sheets as of
August 31, 1999 and 1998.................................................  F-3

Consolidated Statements of Operations for the
years ended August 31, 1999, 1998 and 1997...............................  F-4

Consolidated Statement of Cash Flows for the
years ended August 31, 1999, 1998 and 1997...............................  F-5

Consolidated Statement of Stockholders' Equity
for the years ended August 31, 1999, 1998 and 1997.......................  F-6

Notes to Consolidated Financial Statements...............................  F-7



                                      F-1
<PAGE>



                         Report of Independent Auditors



The Board of Directors and Stockholders
Unidigital Inc.

We have audited the consolidated  balance sheets of Unidigital Inc. as of August
31, 1999 and 1998 and the consolidated statements of operations,  cash flows and
stockholders'  equity for each of the three years in the period ended August 31,
1999. Our audits also included the financial  statement  schedule  listed in the
Index  at  Item  14(a).   These  financial   statements  and  schedule  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and schedule 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 our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Unidigital  Inc.  at August 31,  1999 and 1998 and the  consolidated  results of
their  operations and their cash flows for each of the three years in the period
ended  August  31,  1999  in  conformity  with  generally  accepted   accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly, in all material respects, the information set forth therein.


/s/ Ernst & Young LLP



December 3, 1999
New York, New York



                                      F-2
<PAGE>


                                                  Unidigital Inc.

                                            Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                                             AUGUST 31
                                                                                --------------------------------------
                                                                                       1999             1998
                                                                                --------------------------------------
<S>                                                                              <C>              <C>
ASSETS
Cash and cash equivalents                                                        $     734,000    $     287,000
Accounts receivable, net of allowance
  of $744,000 in 1999 and $581,000 in 1998                                          16,788,000       16,917,000
Building available for sale                                                          1,488,000                -
Prepaid expenses                                                                     2,600,000        2,727,000
Other current assets                                                                 2,356,000        3,360,000
Deferred tax asset                                                                   2,000,000                -
                                                                                --------------------------------------
Total current assets                                                                25,966,000       23,291,000

Property and equipment, net                                                         15,920,000       14,591,000
Deferred tax asset                                                                   5,606,000
Deferred financing costs, net                                                        1,550,000        1,013,000
Intangible assets, net                                                              67,672,000       28,107,000
Other assets                                                                         1,922,000          313,000
                                                                                ======================================
Total assets                                                                     $ 118,636,000    $  67,315,000
                                                                                ======================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses                                            $  16,198,000    $   8,571,000
Current portion of capital lease obligations                                         3,157,000        1,935,000
Current portion of long-term debt                                                    1,384,000        3,610,000
Income taxes payable                                                                 1,065,000          887,000
Deferred income taxes                                                                        -          249,000
Loans and notes payable to stockholders                                                619,000          155,000
Other current liabilities                                                               34,000                -
                                                                                --------------------------------------
Total current liabilities                                                           22,457,000       15,407,000

Capital lease obligations, net of current portion                                    2,898,000        2,830,000
Long-term debt, net of current portion                                              76,263,000       33,978,000
Deferred income taxes                                                                        -          500,000
Loans and notes payable to stockholders, net of current portion                              -          207,000
Other non-current liabilities                                                          707,000                -
                                                                                --------------------------------------
Total liabilities                                                                  102,325,000       52,922,000

Stockholders' equity:
  Preferred stock, par value $.01; 10,000,000 shares and 5,000,000 shares
    authorized in 1999 and 1998, respectively; none issued and outstanding                   -                -
  Common stock, par value $.01; 25,000,000 shares and 10,000,000 shares
    authorized in 1999 and 1998, respectively; 5,926,618 shares and
    3,902,634 shares issued and outstanding in 1999 and 1998, respectively              59,000           39,000
  Issuable common stock                                                              1,450,000
  Additional paid-in capital                                                        21,729,000        9,865,000
  Retained earnings (deficit)                                                       (6,585,000)       4,374,000
  Accumulated other comprehensive (loss) income                                       (342,000)         115,000
                                                                                --------------------------------------
Total stockholders' equity                                                          16,311,000       14,393,000
                                                                                --------------------------------------
Total liabilities and stockholders' equity                                       $ 118,636,000    $  67,315,000
                                                                                ======================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>



                                      F-3
<PAGE>

                                 Unidigital Inc.

                      Consolidated Statements of Operations
<TABLE>
<CAPTION>

                                                                                YEAR ENDED AUGUST 31
                                                             ---------------------------------------------------------
                                                                     1999               1998               1997
                                                             ---------------------------------------------------------
<S>                                                           <C>                 <C>                <C>
REVENUES
Net sales                                                     $   62,774,000      $  29,506,000      $  12,569,000
EXPENSES
Cost of sales                                                     30,003,000         14,892,000          6,773,000
Selling, general and administrative expenses                      21,022,000          9,773,000          3,581,000
Expenses incurred due to restructuring                               611,000            413,000                  -
                                                             --------------------------------------------------------
Total operating expenses                                          51,636,000         25,078,000         10,354,000
                                                             --------------------------------------------------------

Income from continuing operations                                 11,138,000          4,428,000          2,215,000

Interest expense                                                  (5,893,000)        (1,353,000)          (573,000)
Interest expense-deferred financing costs                           (491,000)        (1,143,000)          (138,000)
Interest and other income                                             56,000             14,000            149,000
                                                             --------------------------------------------------------
Income from continuing operations before income
  taxes and extraordinary item                                     4,810,000          1,946,000          1,653,000

Provision for income taxes                                         2,349,000            854,000            486,000
                                                             --------------------------------------------------------
Net income from continuing operations
  Before extraordinary item                                   $    2,461,000      $   1,092,000      $   1,167,000
Discontinued operations (Note 9):
  (Loss) income from operations of discontinued
    segment (net of tax benefit of $1,038,000 (1999),
    $124,000 (1998) and $107,000 (1997))                          (1,275,000)           187,000            174,000
  Loss on disposal of segment (net of tax benefit of
    $8,403,000)                                                  (10,317,000)                 -                  -
                                                             --------------------------------------------------------
Net (loss) income before extraordinary item                       (9,131,000)         1,279,000          1,341,000
Extraordinary item--loss on early retirement of debt
  (net of income tax benefit of $1,114,000 (1999)
  and $137,000 (1998))                                            (1,828,000)          (143,000)                 -
                                                             --------------------------------------------------------
Net (loss) income                                             $  (10,959,000)     $   1,136,000   $      1,341,000
  Basic earnings (loss) per common share:
    Earnings from continuing operations before
    extraordinary item                                        $         0.47      $        0.31   $           0.36
    (Loss) income from discontinued operations                         (2.22)              0.05               0.05
    Extraordinary item                                                 (0.35)             (0.04)                 -
                                                             --------------------------------------------------------
  Net (loss) income                                           $        (2.10)              0.32               0.41
                                                             ========================================================
  Diluted earnings (loss) per common share:
    Earnings from continuing operations
      Before extraordinary item                               $         0.47               0.29               0.36
    (Loss) income from discontinued operations                         (2.22)              0.05               0.05
    Extraordinary item                                                 (0.35)             (0.04)                 -
                                                             ========================================================
Net income                                                    $        (2.10)              0.30               0.41
                                                             ========================================================
Shares used to compute net (loss) income per share:
  Basic                                                            5,225,294          3,530,836          3,212,098
                                                             ========================================================
  Diluted                                                          5,225,294          3,779,438          3,283,279
                                                             ========================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>


                                      F-4
<PAGE>

                                 Unidigital Inc.

                      Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>

                                                                                       Year ended August 31
                                                                         --------------------------------------------------
                                                                                1999            1998             1997
                                                                         --------------------------------------------------
<S>                                                                       <C>              <C>              <C>
OPERATING ACTIVITIES
Net (loss) income                                                         $ (10,959,000)   $  1,136,000     $ 1,341,000
Adjustments to reconcile net (loss) income to net cash (used in)
  provided by operating activities:
    Depreciation and amortization                                             5,921,000       3,954,000       2,194,000
    (Gain) loss on sale of property and equipment                              (146,000)         11,000               -
    Provision for deferred income taxes                                      (8,355,000)        300,000          24,000
    Provision for bad debts                                                     321,000         115,000         102,000
    Loss on disposal of segment                                              15,676,000               -               -
    Stock compensation                                                          160,000          50,000          50,000
Changes in assets and liabilities net of effects of businesses acquired:
  Accounts receivable                                                        (4,889,000)     (5,680,000)     (3,242,000)
  Prepaid expenses and other current assets                                     824,000      (2,393,000)     (5,046,000)
  Other assets                                                               (1,128,000)     (1,354,000)       (171,000)
  Accounts payable and accrued expenses                                       1,375,000       2,053,000       5,008,000
  Income taxes payable                                                          362,000         310,000         229,000
                                                                         --------------------------------------------------
Net cash (used in) provided by operating activities                            (838,000)     (1,498,000)        489,000
                                                                         --------------------------------------------------

INVESTING ACTIVITIES
Additions to property and equipment                                          (2,002,000)     (1,571,000)     (1,368,000)
Proceeds from sale of property and equipment                                    976,000          10,000               -
Proceeds from disposal of segment                                               500,000               -               -
Business acquisitions                                                       (29,417,000)    (21,802,000)     (5,529,000)
                                                                         --------------------------------------------------
Net cash used in investing activities                                       (29,943,000)    (23,363,000)     (6,897,000)
                                                                         --------------------------------------------------

FINANCING ACTIVITIES
Payments of capital lease obligations                                        (3,271,000)     (2,691,000)     (1,761,000)
Payments for cancellation of options                                                  -               -        (213,000)
Proceeds from long-term debt                                                 94,875,000      37,186,000       7,521,000
Payments of long-term debt                                                  (55,959,000)    (12,566,000)        (78,000)
Stockholder repayments                                                         (418,000)              -               -
Payment of deferred financing costs                                          (4,071,000)              -               -
Proceeds from sale of common stock, net of issuance costs                        72,000          20,000         (36,000)
                                                                         --------------------------------------------------
Net cash provided by financing activities                                    31,228,000      21,949,000       5,433,000
                                                                         --------------------------------------------------
Effect of foreign exchange rates on cash                                              -          (4,000)         32,000
                                                                         --------------------------------------------------

Net increase(decrease) in cash and cash equivalents                             447,000      (2,916,000)       (943,000)
Cash and cash equivalents at beginning of year                                  287,000       3,203,000       4,146,000
                                                                         --------------------------------------------------
Cash and cash equivalents at end of year                                  $     734,000    $    287,000     $ 3,203,000
                                                                         ==================================================
SUPPLEMENTAL DISCLOSURES
Interest paid                                                             $   5,897,000    $  1,614,000     $ 1,261,000
                                                                         ==================================================
Income taxes paid                                                         $     436,000    $    232,000     $   726,000
                                                                         ==================================================
Non-cash transactions:
Equipment acquired under capital lease obligations                        $   4,848,000    $  1,797,000     $ 1,711,000
                                                                         ==================================================
Stock issued for business acquisitions                                    $   9,895,000    $     -          $    -
                                                                         ==================================================
Warrants issued for business acquisition                                  $     281,000    $     -          $    -
                                                                         ==================================================
Warrants issued for additional financing                                  $     308,000    $     -          $    -
                                                                         ==================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>

                                      F-5
<PAGE>



                                 UNIDIGITAL INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

                                                                                                         ACCUMULATED
                                                                              ADDITIONAL    RETAINED        OTHER         TOTAL
                                          COMMON STOCK           ISSUABLE      PAID-IN      EARNINGS    COMPREHENSIVE  STOCKHOLDERS'
                                      SHARES         AMOUNT    COMMON STOCK    CAPITAL      (DEFICIT)   (LOSS) INCOME     EQUITY
                                  --------------------------------------------------------------------------------------------------

<S>                                 <C>            <C>         <C>           <C>          <C>           <C>            <C>
Balance at August 31, 1996          3,189,216      $  32,000   $     -       $ 5,463,000  $ 1,897,000   $   (27,000)   $  7,365,000
Issuance of common stock in
  connection with the Boris Image
  Group, Inc. asset acquisition        45,480                                    249,000                                    249,000
Additional Initial Public Offering
  costs                                                                          (72,000)                                   (72,000)
Issuance of 440,000 warrants in
  Connection with financing                                                      602,000                                    602,000
Issuance of common stock as
  employee compensation                 8,547                                     50,000                                     50,000
Comprehensive income:
  Net income                                                                                1,341,000                     1,341,000
  Foreign currency translation
    adjustment                                                                                              (62,000)        (62,000)
                                                                                                                          ----------
Comprehensive income                                                                                                      1,279,000
                                  --------------------------------------------------------------------------------------------------
  Balance at August 31, 1997        3,243,243         32,000         -         6,292,000    3,238,000       (89,000)      9,473,000
Issuance of common stock in
  connection with the Kwik
  International Color Ltd. Asset
  acquisition                         649,841          7,000                   3,403,000                                  3,410,000
Issuance of common stock as
  employee compensation                 6,051                                     50,000                                     50,000
Issuance of 25,000 warrants in
  connection with investment
  banking services                                                               100,000                                    100,000
Issuance of common stock in
   connection  with exercise of
   stock options                        3,499                                     20,000                                     20,000
Comprehensive income:
  Net income                                                                                 1,136,000                    1,136,000
  Foreign currency translation
    adjustment                                                                                              204,000         204,000
                                                                                                                          ----------
Comprehensive income                                                                                                      1,340,000
                                  --------------------------------------------------------------------------------------------------
Balance at August 31, 1998          3,902,634         39,000         -         9,865,000     4,374,000      115,000      14,393,000
Issuance of common stock in
  connection with the Mega Art
  Corp. asset acquisition             804,148          8,000     1,450,000     5,217,000                                  8,675,000
Issuance of common stock in
  connection with the
  Hy  Zazula Associates asset
  acquisition                         433,076          4,000                   2,271,000                                  2,275,000
Issuance of common stock and
  225,000 warrants issued in
  connection with the SuperGraphics
  acquisition                         135,393          1,000                     891,000                                    892,000



                                      F-6
<PAGE>


                                                                                                         ACCUMULATED
                                                                              ADDITIONAL    RETAINED        OTHER         TOTAL
                                          COMMON STOCK           ISSUABLE      PAID-IN      EARNINGS    COMPREHENSIVE  STOCKHOLDERS'
                                      SHARES         AMOUNT    COMMON STOCK    CAPITAL      (DEFICIT)   (LOSS) INCOME     EQUITY
                                  --------------------------------------------------------------------------------------------------

Issuance of common stock in
  connection with the Peter
  X+C asset acquisition                40,000                                    200,000                                    200,000
Issuance of common stock in
  connection with the Progess
  Graphics, Inc. asset acquisition     86,059          1,000                     499,000                                    500,000
Issuance of  common   stock  in
  connection with the Interface
  Graphics Limited asset acquisition   49,695          1,000                     218,000                                    219,000
Issuance  of  common   stock  in
  connection with the exercise of
  stock options                       211,592          2,000                     993,000                                    995,000
Issuance  of  common   stock  in
  connection with the Prepress
  Services asset acquisition           80,000          1,000                     391,000                                    392,000
Issuance of common stock in
  settlement of a liability            35,584            -                       173,000                                    173,000
Issuance  of  common   stock  in
  connection with the M. Nur
  Marketing & Kommunication GmbH
  asset acquisition                    40,850          1,000                     200,000                                    201,000
Issuance  of  common   stock  in
  connection with the Big Bills
  Ltd. asset acquisition               55,790          1,000                     273,000                                    274,000
Issuance of 440,000  warrants
  in connection with financing                                                   308,000                                    308,000
Issuance  of  common   stock  as
  employee compensation                34,102                                    160,000                                    160,000
Issuance  of  common   stock  in
  connection with exercise of
  warrants                             17,895                                     70,000                                     70,000
Comprehensive income:
     Net loss                                                                            (10,959,000)                   (10,959,000)
     Foreign currency translation
       adjustment                                                                                      (457,000)           (457,000)
                                                                                                                       -------------
Comprehensive loss                                                                                                      (11,416,000)
                                  --------------------------------------------------------------------------------------------------
Balance at August 31, 1999          5,926,618        $59,000    $1,450,000   $21,729,000 $(6,585,000)  (342,000)       $ 16,311,000
                                  ==================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>


                                      F-7
<PAGE>


                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


1.   ORGANIZATION

Unidigital Inc.  ("Unidigital"  or the "Company") a Delaware  corporation,  is a
media  services  company  that  provides  large and grand format  digital  image
solutions combined with a full suite of digital "premedia"  (previously referred
to  as  high-end   prepress)  services  to  advertising   agencies,   retailers,
publishers,  graphic  design  firms,  consumer  product  companies,   government
agencies,  and marketing and communications firms in both the United States, the
United  Kingdom  and  Germany.  During  1999 the Company  began  delivering  its
services  through two  principal  business  divisions:  (i) the Media  Solutions
division  creates and  produces  large and grand format  images for  out-of-home
advertising  and  develops new media  concepts  and (ii) the  Premedia  Services
division provides digital premedia,  including  retouching and short-run digital
printing services. During 1999 the various operating subsidiaries of the Company
were  grouped  into  the  aforementioned  business  divisions  and  the  Company
discontinued its on-demand print and prepress business segment (See Note 9).

2.   BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated  financial  statements  include the accounts of the Company and
its  wholly-owned  subsidiaries.   All  significant  intercompany  accounts  and
transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS

Highly liquid investments with a maturity of three months or less when purchased
are considered to be cash equivalents.

RISKS AND UNCERTAINTIES

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  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.



                                      F-8
<PAGE>


                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


2.   BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     (CONTINUED)

Credit  is  extended  based  on  an  evaluation  of  the  customer's   financial
conditions,  and generally advance payment is not required.  Anticipated  credit
losses  are  provided  for  in  the   consolidated   financial   statements  and
consistently have been within management's expectations.

PROPERTY AND EQUIPMENT

Property  and  equipment  are  stated at cost,  less  accumulated  depreciation.
Depreciation is provided on the  straight-line  method over the estimated useful
lives  ranging  from:  three years for vehicles and computer  software,  five to
seven years for machinery and  equipment,  furniture  and office  equipment,  40
years  for  real  property   including   related   improvements   and  leasehold
improvements  over the  lesser of the  estimated  useful  life of the  leasehold
improvement or the term of the related lease.

INTANGIBLE ASSETS

Intangible  assets relate to the excess of purchase price over the fair value of
the net tangible assets acquired, ("goodwill"), which is being amortized over 15
to 25 years. Amortization of approximately $2,614,000, $797,000 and $269,000 was
recorded  for the years  ended  August 31,  1999,  1998 and 1997,  respectively.
Accumulated   amortization  at  August  31,  1999  and  1998  was  approximately
$3,747,000 and $1,133,000, respectively.

It is the Company's policy to account for goodwill at amortized cost. As part of
an ongoing  review of the  valuation  and  amortization  of  intangible  assets,
management  assesses the carrying  value of the Company's  intangible  assets if
facts  and  circumstances  suggest  that  it may be  impaired.  If  this  review
indicates  that the  intangibles  will not be  recoverable  as  determined  by a
non-discounted cash flow analysis of the Company over the remaining amortization
period, the carrying value of the Company's  intangibles would be reduced to its
estimated realizable value.

DEFERRED FINANCING COSTS

Deferred  financing  costs  relate to costs  incurred  in  connection  with debt
financing which are amortized over the term of the related debt.




                                      F-9
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


2.   BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     (CONTINUED)

STOCK OPTIONS

In accordance with Accounting  Principles Board Opinion No. 25,  "Accounting for
Stock  Issued  to  Employees,"  ("APB  25")  compensation  costs  for  stock  is
recognized based on the excess,  if any, of the quoted market price of the stock
at the grant  date of the  award or other  measurement  date over the  amount an
employee must pay to acquire that stock.  The Company has elected the disclosure
only  provisions  of  Statement  of  Financial  Accounting  Standards  No.  123,
"Accounting for Stock Based  Compensation,"  ("FAS 123") and continue accounting
for the stock based compensation under the provisions of APB 25.

FOREIGN CURRENCY TRANSLATION

Balance sheet accounts of the Company's United Kingdom and Germany  subsidiaries
are translated using year-end exchange rates.  Statements of operations accounts
are translated at monthly  average  exchange  rates.  The resulting  translation
adjustment  is recorded in a separate  component of  stockholders  equity called
"Accumulated other  comprehensive  income (loss)" and is included in determining
comprehensive income (loss).

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of financial  instruments  approximate  their estimated fair
value as a result of  variable  market  interest  rates  and/or  the short  term
maturity of these instruments.




                                      F-10
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


2.   BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     (CONTINUED)

INCOME TAXES

The Company  accounts for income taxes under the liability method as required by
Statement of Financial Accounting Standards Board Statement No. 109 ("FAS 109"),
"Accounting for Income Taxes." FAS 109 requires an asset and liability  approach
to financial  accounting  and reporting for income taxes.  Under this  approach,
differences  between financial statement and tax bases of assets and liabilities
are determined,  and deferred income tax assets and liabilities are recorded for
those  differences that have future tax consequences.  Valuation  allowances are
established,  if  necessary,  to reduce any  deferred  tax asset  recorded to an
amount that will more likely than not be realized in future periods.  Income tax
expense is composed of the current tax payable or refundable for the period plus
or minus the net change in deferred tax assets and liabilities.

EARNINGS PER SHARE

The Company  accounts  for earnings per share in  accordance  with  Statement of
Financial  Accounting Standards No. 128, "Earnings per Share" ("Statement 128").
Basic  earnings per share is calculated by dividing  income  available to common
stockholders  by the  weighted-average  number  of  common  shares  outstanding.
Diluted  earnings  per share  includes the  dilutive  effect of all  potentially
dilutive securities.

SEGMENT INFORMATION

The Company  accounts  for segment  information  in  accordance  with  Financial
Accounting  Standards Board issued Statement of Financial  Accounting  Standards
No. 131,  "Disclosures about Segments of an Enterprise and Related  Information"
("Statement  131").  Statement 131  superseded  FASB  Statement  14,  "Financial
Reporting  for Segments of a Business  Enterprise."  Statement  131  establishes
standards for the way that public business  enterprises report information about
operating  segments  in annual  financial  statements  and  requires  that these
enterprises  report selected  information  about  operating  segments in interim
financial  reports.   Statement  131  also  establishes  standards  for  related
disclosures about product and services, geographic areas, and major customers.




                                      F-11
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


2.   BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     (CONTINUED)

COMPREHENSIVE INCOME

As of September 1, 1998, the Company adopted  Statement of Financial  Accounting
Standards No. 130, "Reporting Comprehensive Income" ("Statement 130"). Statement
130 established new rules for the reporting and display of comprehensive  income
and its components;  however, the adoption of Statement 130 has had no effect on
the Company's  net income or  stockholder's  equity.  Statement 130 requires the
Company's foreign currency translation  adjustment which, prior to adoption, was
recorded   separately  in  stockholders'   equity,   to  be  included  in  other
comprehensive   income  or  loss.  Amounts  reported  in  prior  year  financial
statements have been  reclassified  to conform to the  requirements of Statement
130. As of August 31, 1999, the cumulative  other  comprehensive  loss consisted
solely of the Company's foreign currency translation adjustment.

3.   ACQUISITIONS

In 1996 the Company purchased certain assets of Cardinal  Communications  Group,
Inc. and C-Max Graphics,  Inc. The purchase price included a potential  earn-out
of a maximum of $600,000. During 1999 the Company settled this earn-out and paid
the owners $150,000.

In April  1997,  the  Company  purchased  certain  assets  and  assumed  certain
liabilities of Boris Image Group, Inc. The aggregate purchase price consisted of
the following: (i) cash payments of $1,725,000; (ii) an aggregate of $300,000 in
guaranteed  future payments to Boris Image Group and its management  team; (iii)
$250,000 in  restricted  common  stock of the Company  (45,480  shares);  (iv) a
potential  earn-out  payment of up to $500,000  payable 90 days after the end of
the Company's 1998 fiscal year; and (v) options to purchase 50,000 shares of the
Company's  common  stock at fair  market  value.  The  total  purchase  price of
$2,511,000,  which includes costs incurred in connection  with the  acquisition,
exceeded the tangible net assets acquired by approximately  $2,601,000,  and has
been  recorded as goodwill.  An earn-out of $414,000 was paid for the year ended
August 31, 1998.





                                      F-12
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


3.   ACQUISITIONS (CONTINUED)

In May 1997,  the Company  acquired  all of the issued and  outstanding  capital
stock of Libra City Corporate Printing Limited ("Libra"). The aggregate purchase
price consisted of cash payments of (pound)1,823,750  (approximately $2,972,000)
and an earn-out payment of up to (pound)500,000  (approximately  $815,000).  The
total   purchase   price  of   approximately   (pound)2,208,000   (approximately
$3,577,000),  which includes costs incurred in connection with the  acquisition,
exceeded  the  tangible net assets  acquired by  approximately  (pound)1,280,000
(approximately  $2,074,000),  and has been recorded as goodwill.  An earn-out of
$825,000 was paid for the year ended August 31, 1998,

In March  1998,  the  Company  purchased  certain  assets  and  assumed  certain
liabilities of Kwik  International  Color, Ltd ("Kwik").  The aggregate purchase
price consisted of the following:  (i) cash payments of  $20,590,000;  (ii) note
payable in the principal amount of $750,000;  and (iii) $3,410,000 in restricted
common  stock of the  Company  (649,841  shares).  The total  purchase  price of
$25,458,000,  which includes costs incurred in connection with the  acquisition,
exceeded the net assets acquired by  approximately  $22,107,000,  which has been
recorded as goodwill.  Of the purchase  price,  $1,000,000 of restricted  Common
stock of the  Company  (190,589  shares) is being held in escrow for a period of
two years to satisfy any indemnification claims.

In July 1998, the Company purchased certain assets of Five Star Finishers,  Ltd.
The  total  purchase  price  consisted  of  a  cash  payment  of  (pound)325,000
(approximately  $543,000).  The purchase  price  approximated  the fair value of
tangible assets acquired.

In  September  1998,  the Company  purchased  all of the issued and  outstanding
capital stock of Mega Art Corp.  ("Mega Art").  The purchase  price  included an
initial  cash  payment of  $6,050,000  and the  issuance  of  804,148  shares of
restricted Common stock of the Company ($5,225,000).  In addition,  the purchase
price included a deferred cash payment of $1,300,000  (including a $100,000 late
fee)  which was paid in fiscal  1999;  a cash  earn-out  payment  of  $1,300,000
(including a $100,000 late fee) which was paid in fiscal 1999; and $1,450,000 in
restricted Common stock of the Company (the "Earn-Out Payment") which was earned
and is included in  stockholders'  equity on the  accompanying  balance sheet at
August 31, 1999.





                                      F-13
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


3.   ACQUISITIONS (CONTINUED)

In October 1998, the Company purchased all of the issued and outstanding  common
stock of Hy Zazula Associates,  Inc. ("Zazula").  The purchase price included an
aggregate  cash  payment of  $2,275,000  and the  issuance of 433,076  shares of
restricted  Common stock of the Company  ($2,275,000).  Of the  purchase  price,
$150,000 in cash and 28,552  shares of  restricted  Common  stock of the Company
($150,000)  is being  held in escrow  for a period of two years to  satisfy  any
indemnification claims.

In November 1998, the Company purchased all of the issued and outstanding common
stock  of  SuperGraphics.   The  purchase  price  included  a  cash  payment  of
approximately  $15,989,000,  the issuance of 135,393 shares of restricted Common
stock of the Company  (approximately  $611,000)  and the  issuance of  five-year
warrants to purchase 225,000 shares of the Company's Common stock at an exercise
price of $5.64 per  share.  The  purchase  price also  includes a deferred  cash
payment equal to the difference  between (i) EBITDA,  as defined,  multiplied by
six and (ii)  $16,500,000.  Such  deferred  cash payment of $100,000 was paid in
June 1999.  In addition,  subject to certain  limitations,  the Company  granted
"piggyback" registration rights to the sellers of SuperGraphics. Of the purchase
price,  approximately  $233,000 in cash and 135,393 shares of restricted  Common
stock of the Company is being held in escrow for a period of one year to satisfy
any  indemnification  claims.  The  warrants  were  deemed  to have a  value  of
approximately $281,000 based on an independent appraisal.

In April 1999,  the Company  acquired  substantially  all of the assets of Peter
X(+C) Limited  ("X+C).  The purchase  price  included an initial cash payment of
$70,000 and the issuance of 40,000 shares  ($200,000) of restricted Common stock
of the Company. In addition, the purchase price included a deferred cash payment
of  $100,000  payable  on  April  1,  2000,  and an  earn-out  payment  of up to
$1,000,000 in cash or in some combination of cash and restricted Common stock of
the Company in the event X+C achieves certain financial performance objectives.

In April 1999, the Company, acquired substantially all of the assets of Progress
Graphics, Inc. ("Progress").  The purchase price included the issuance of 86,059
shares  ($500,000) of restricted Common stock of the Company.  In addition,  the
purchase price includes  earn-out  payments in cash,  restricted Common stock of
the Company or some  combination  thereof in the event Progress attains revenues
in excess of $3,000,000 in any of the first three years following the closing.




                                      F-14
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


3.   ACQUISITIONS (CONTINUED)

In April 1999,  the Company  acquired all the issued and  outstanding  shares of
capital stock of Interface Graphics Limited ("Interface"). The initial aggregate
purchase price was  (pound)425,000  (approximately  $700,000) which included the
issuance  of  49,695  shares  (approximately   (pound)132,000  or  $219,000)  of
restricted Common stock of the Company. In addition, the purchase price includes
deferred cash payments of (pound)20,000  payable on each of January 31, 2000 and
January 31, 2001, and earn-out  payments of up to (pound)55,000  per year in the
event Interface achieves certain financial  performance  objectives in either of
the first two years following the closing.

In August 1999, the Company  acquired all the issued and  outstanding  shares of
capital stock of Pre-Press Services Limited ("Pre-Press"). The initial aggregate
purchase price was approximately (pound)750,000 (approximately $1,200,000) which
included  the  issuance  of  80,000  shares  (approximately   (pound)240,000  or
$392,000) of restricted Common stock of the Company.  In addition,  the purchase
price  includes  deferred  cash  payments  of  (pound)169,000,   (pound)124,000,
(pound)186,000  payable  during the years ended August 31, 2000,  2001 and 2002,
respectively.

In August 1999, the Company  acquired all the issued and  outstanding  shares of
capital stock of M. Nur Marketing and Kommunikation GmbH ("M. Nur"). The initial
aggregate  purchase price was  $1,200,000  which included the issuance of 40,850
shares (approximately or $201,000) of restricted Common stock of the Company.

In August 1999, the Company  acquired all the issued and  outstanding  shares of
capital stock of Big Bills Limited ("Big Bills"). The initial aggregate purchase
price was (pound)250,000 (approximately $455,000) which included the issuance of
55,790  shares  (approximately  (pound)150,000  or  approximately  $274,000)  of
restricted Common stock of the Company. In addition, the purchase price includes
deferred cash payments of  (pound)50,000  payable on each of August 31, 2000 and
August 31, 2001.

The aforementioned  acquisitions were accounted for using the purchase method of
accounting and the results of operations have been included in the  accompanying
financial  statements from their respective  dates of acquisitions.  During 1999
the preliminary allocation of purchase price may change upon final determination
of the fair value of the net assets acquired.



                                      F-15
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


3.   ACQUISITIONS (CONTINUED)

The following unaudited pro forma information is presented as if the Company had
completed the  aforementioned  acquisitions,  and the related  borrowings at the
beginning of the respective periods.

<TABLE>
<CAPTION>
                                                           1999               1998
                                                  -----------------------------------------

<S>                                                  <C>                <C>
Net sales                                            $  79,738,000      $  55,324,000
Net income from continuing operations before
  extraordinary item                                     1,090,000          1,389,000
Net (loss) income                                       (9,488,000)         1,433,000
Net (loss) income per share from continuing
  operations before  extraordinary item:
 Basic                                               $       0.19       $       0.39
 Diluted                                             $       0.19       $       0.37
Net (loss) income per share:
 Basic                                               $      (1.67)      $       0.41
 Diluted                                             $      (1.67)      $       0.38
</TABLE>

4.   RESTRUCTURING CHARGES

During the first and second  quarter of fiscal 1999,  management  authorized and
committed the Company to: (i)  consolidate  their premedia  operation in the UK,
which was later  discontinued  in the fourth quarter of fiscal 1999 (see Note 9)
and (ii) continue to reduce the staff providing financial printing services.  In
connection with the consolidation  and continued  reduction of staff the Company
incurred   approximately  $376,000  of  termination  benefits  relating  to  the
termination  of 28 employees  providing  similar  services  and  incurred  other
related costs of approximately $235,000.  All such costs were paid during fiscal
1999.

During the third and fourth  quarter of fiscal 1998,  management  authorized and
committed the Company to: (i) consolidate  their premedia services in connection
with the  acquisition  of Kwik and (ii)  reduce  the staff  providing  financial
printing services in the UK, respectively.  In connection with the consolidation
and reduction of a service line the Company incurred  approximately  $305,000 of
termination  benefits  relating to the  termination  of 35  employees  providing
similar  services and incurred  other related costs of  approximately  $466,000,
including $90,000 related to write-downs of leasehold improvements.  Included in
accounts payable at August 31, 1998 was  approximately  $78,000 of facility exit
costs. Of this amount,  approximately  $358,000 was reclassified to discontinued
operations.



                                      F-16
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


5.   PROPERTY AND EQUIPMENT

Property and equipment consist of the following:
<TABLE>
<CAPTION>

                                                                                 August 31
                                                                    -------------------------------------
                                                                           1999                1998
                                                                    -------------------------------------

          <S>                                                         <C>               <C>
          Buildings                                                    $     -           $  2,252,000
          Machinery and equipment                                       19,747,000         15,133,000
          Furniture and office equipment                                 1,506,000          1,187,000
          Computer software                                              1,651,000          1,438,000
          Leasehold improvements                                         2,713,000          1,565,000
          Vehicles                                                         259,000            163,000
                                                                    -------------------------------------
          Total                                                         25,876,000         21,738,000
          Less accumulated depreciation and amortization                (9,956,000)        (7,147,000)
                                                                    -------------------------------------
                                                                       $15,920,000       $ 14,591,000
                                                                    =====================================
</TABLE>


6.   LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>

                                                                    Facility
                                                                     Amount               Amount Outstanding
                                                                                   -------------------------------
                                                                    August 31,                August 31,
                                                                      1999                1999          1998
                                                              ----------------------------------------------------
<S>                                                           <C>                    <C>               <C>
Revolving  line of  credit,  interest  at the prime rate or at
   the  eurodollar  rate,  as  defined,   plus  an  applicable
   margin, all as defined, ranging from 1.0% to 3.25%.        $     65,000,000       $ 64,375,000      $         -
Credit  facility in the United Kingdom  interest at the bank's
   overdraft  rate plus  2.75%.  Facility  is  secured  by the
   assets of Interface Graphics.                                       241,000            241,000                -
Credit  facilities in the United  Kingdom,  interest at either
   the bank's overdraft rate plus 2% or 2.5%.                                -                  -        2,135,000
Credit  facilities  in the  United  Kingdom;  interest  at the
   bank's  overdraft  rate plus 1.85%.  Facility is secured by
   the accounts receivable of Pre-Press.                               642,000            621,000                -
</TABLE>


                                      F-17
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


6.   LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>

                                                              Facility Amount              Amount Outstanding
                                                                                   -------------------------------
                                                                August 31,                     August 31,
                                                                   1999                  1999             1998
                                                            ------------------------------------------------------
<S>                                                               <C>                  <C>              <C>
Credit  facilities  in the United  Kingdom;  interest at the
   bank's  overdraft  rate plus  2.00%.  Facility is secured
   by the accounts receivable of Big Bills.                       321,000              236,000                   -
Term  loan,   matures   March   2003;   payable  in  sixteen
   quarterly  installments of ranging from $960,000 to
   $1,920,000 in March 2003, plus interest at the Base
   Rate or the Eurodollar Rate, as defined, plus an
   Applicable Margin, as defined, ranging from 0.75% to 3.0%.           -                    -          25,000,000
Revolving  line of credit;  matures in March 2003,  interest
   at the Base Rate or at the dollar rate as defined.                   -                    -           8,435,000
Subordinated  loan matures in March 2004;  base  interest of
   12 1/2%;  plus 0.25% the first day after the first
   anniversary  of the Note; plus 0.25% following the last
   day of each 90 day period until payment in full.            10,000,000           10,000,000                   -
Notes  payable  for  certain  equipment,  maturing  on
   dates between October 1998 and September 2003,
   payable in monthly  installments of $22,000 until
   October 1998 and $14,000 thereafter, including
   interest at 8.54% and 8.4%, respectively.                            -              454,000             618,000
Loan  facility  in United  Kingdom;  matures  in July  2001,
   payable in monthly installment of $19,000 plus interest
   of LIBOR, as defined, plus the Banks Margin of 2.4%.                 -                    -             651,000
Senior subordinated note investment fee, due May 2001.                  -            1,500,000                   -
Installment  note due to seller  of Kwik;  matures  in
  April 2001, payable in thirty-six monthly installments
  of approximately  $21,000 including interest at 5.7%.                 -                    -             646,000
Other.                                                            312,000              220,000             103,000
                                                            ------------------------------------------------------
                                                                                    77,647,000          37,588,000
Less: current portion of long-term debt                                              1,384,000           3,610,000
                                                            ======================================================
Long-term debt                                               $                   $  76,263,000        $ 33,978,000
                                                            ======================================================
</TABLE>



                                      F-18
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


6. LONG-TERM DEBT (CONTINUED)

On May 12, 1999,  the Company  terminated  its existing  $25,000,000  term loan,
$10,000,000  revolving line of credit facility and $5,000,000  credit  facility,
and  entered  into  a new  borrowing  arrangement  consisting  of a  $65,000,000
revolving line of credit facility.  The revolving line of credit facility may be
increased to $80,000,000 in the event the Company raises  subordinated  debt net
proceeds of a least  $20,000,000 (see note 19). The borrowings are guaranteed by
the Company's  subsidiaries  and the Company pledged all of its equity interests
in is United States  subsidiaries  and 65% of its equity interests in its United
Kingdom subsidiaries as collateral for such credit facility. Interest under such
credit facility is payable, at the Company's option, at the prime rate or at the
eurodollar rate, as defined, plus an Applicable Margin, as defined, ranging from
1.0% to 3.25% depending on the Company's consolidated debt to earnings ratio and
the type of loan.

The credit  facility  contains  covenants  that  require the Company to maintain
certain earnings and debt to earnings ratio  requirements  based on the combined
operations of the Company and its subsidiaries.  The Company was in violation of
certain  covenants  and has  obtained a waiver for such  violations.  The credit
facility is secured by a first priority lien on all of the assets of the Company
and  its  subsidiaries  and  restricts  the  Company's  ability  to pay  certain
dividends without the bank's prior written consent.

In November 1998, the Company  borrowed  $10,000,000  pursuant to a subordinated
unsecured loan (the  "Subordinated  Loan").  The  Subordinated  Loan  originally
matured on March 31,  2004 and bears  interest  at a rate per annum equal to the
sum of (i)  12.50%  plus (ii) an  additional  percentage  amount  equal to 0.25%
commencing on November 30, 1999 and  increasing by 0.25%  following the last day
of each 90-day period thereafter.  In connection with the Subordinated Loan, the
Company issued ten-year warrants to the lender to purchase 440,000 shares of the
Company's  Common stock at an exercise price not to exceed $5.00 per share.  The
warrants  were  deemed to have a value of  approximately  $308,000,  based on an
independent appraisal. In addition, subject to certain limitations,  the Company
granted registration rights to such lender. In September 1999 the Company repaid
this debt with the proceeds of the $20 million  senior  subordinated  notes (see
note 19).



                                      F-19
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999

6.   LONG-TERM DEBT (CONTINUED)

Maturities of long-term debt are as follows:

                                                        AUGUST 31,
                                                           1999
                                                     -----------------
     Year ending August 31
      2000                                            $  1,384,000
      2001                                               1,437,000
      2002                                               6,437,000
      2003                                              11,264,000
      2004                                              57,125,000
                                                     -----------------
                                                      $ 77,647,000
                                                     =================

7.   OBLIGATIONS UNDER CAPITAL LEASES

The Company leases certain  property and equipment which have been classified as
capital leases.  At August 31, 1999, the cost and accumulated  depreciation  and
amortization  of such  assets  was  approximately  $14,406,000  and  $5,476,000,
respectively.  At August  31,  1998 the cost and  accumulated  depreciation  and
amortization  of  such  assets  was  approximately  $9,746,000  and  $3,023,000,
respectively. Future minimum payments under these leases are as follows:

                                                       AUGUST 31,
                                                          1999
                                                     ----------------

     Year ending August 31,
      2000                                           $   3,256,000
      2001                                               1,969,000
      2002                                               1,096,000
      2003                                                 703,000
      2004                                                 127,000
                                                     ----------------
 Total                                                   7,151,000
 Less amount representing interest                      (1,096,000)
                                                     ----------------
 Present value of minimum lease payments                 6,055,000
 Less current maturities                                 3,157,000
                                                     ----------------
                                                     $   2,898,000
                                                     ================



                                      F-20
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


8.   LOANS AND NOTES PAYABLE TO STOCKHOLDERS

Loans payable to stockholders  consist of four loans  aggregating  approximately
$619,000  on August  31,  1999,  are  payable  on demand  and bear  interest  at
approximately 8% per annum. Subsequent to August 31, 1999 $519,000 was repaid.

9.   DISCONTINUED OPERATIONS

On July 15,1999,  the Company adopted a plan to discontinue it's on demand print
and prepress business segment that had primarily served the independent  graphic
artists in the New York,  San  Francisco  and London  markets.  The  Company has
restated the  consolidated  statements of operations  for the years ended August
31,  1999,  1998 and 1997 to  reflect  the  results  of the on demand  print and
prepress business as a discontinued operation.

The revenues of the on demand print and prepress  business were  approximately $
10,436,000,  $19,124,000  and  $17,575,000  for the years ended August 31, 1999,
1998 and 1997.

On August 18,  1999,  the Company sold their New York  operations  for on demand
print and prepress for $2,250,000 in exchange for $500,000 in cash, a $1,500,000
note receivable and $250,000 in services. The San Francisco and London on demand
print and prepress  business  ceased  operations  and the closed or  reallocated
their  facilities  to other  segments,  respectively,  prior to August 31, 1999.
There were no remaining assets or liabilities  related to the  discontinuance of
the on demand print and prepress business as of August 31, 1999.

10.  OTHER ASSETS

Included in other assets is a $1,500,000 note receivable  related to the sale of
the New York on demand  and  prepress  business.  The note  receivable  requires
quarterly  payments of principal and interest of $62,500 through June 2004 and a
balloon payment of $500,000 in June 2004.



                                      F-21
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


11.  STOCK OPTIONS

Unidigital's Board of Directors has adopted,  and the stockholders of Unidigital
have approved the following  stock option plans:  (i) the 1995  Unidigital  Inc.
Long-Term Stock Investment Plan (the "1995 Stock Plan"); (ii) the 1995 Directors
Stock Option Plan (the "1995 Directors  Plan");  (iii) the 1997 Equity Incentive
Plan (the "1997 Plan");  and (iv) the 1997  Non-Employee  Director  Stock Option
Plan (the "1997 Non-Employee Director Plan"),  collectively,  the ("Stock Option
Plans").  The total aggregate number of shares of Common stock for which options
may be granted under the Stock Option Plans is 1,375,000.

Under the Stock Option Plans as of August 31, 1999 the Company  granted  options
to purchase  Common  stock as follows:  (i)  106,667  shares at exercise  prices
ranging  from $4.50 to $7.75 per  share,  vesting  six months  after the date of
grant and are  exercisable  under the 1995 Stock Plan;  (ii) no shares have been
granted under the 1995 Directors  Plan;  (iii) 756,857 shares at exercise prices
ranging from $4.00 to $9.63 per share,  vesting,  in part,  on the date of grant
exercisable  under the 1997 Plan and; (iv) 60,000  shares at an exercise  prices
ranging  from  $4.31 to $5.53 per  share,  vesting  on the date of grant and are
exercisable  under the 1997  Non-Employee  Director Plan. All stock options were
issued at fair market value at the date of grant and have a ten-year  term.  The
options terminate upon termination of employment.

In connection  with the  acquisition of Elements (UK), a former  shareholder was
issued options,  outside the Stock Option Plans,  which expire in February 2002,
to purchase 50,000 shares of common stock at $6.00 per share.


                                      F-22
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


11.  STOCK OPTIONS (CONTINUED)

A summary of the Company's stock option  activity,  and related  information for
the years ended August 31, 1999, 1998 and 1997 is as follows:

                                                             Weighted Average
                                          Options             Exercise Price
                                       -----------------------------------------

Outstanding--August 31, 1996              210,167                 $6.57
Granted                                   174,103                 $4.88
Forfeited                                 (28,500)                $6.75
                                        ----------------------------------------
Outstanding--August 31, 1997              355,770                 $5.73
Granted                                   384,999                 $6.89
Exercised                                  (3,499)                $5.82
Forfeited                                 (74,204)                $6.62
                                        ----------------------------------------
Outstanding--August 31, 1998              663,066                 $6.31
Granted                                   606,667                 $4.51
Exercised                                (211,592)                $4.70
Forfeited                                 (84,617)                $6.74
                                        ========================================
Outstanding--August 31, 1999              973,524                 $5.49
                                        ========================================

Exercisable--August 31, 1997              299,103                 $5.54
                                        ========================================
Exercisable--August 31, 1998              409,733                 $5.93
                                        ========================================
Exercisable--August 31, 1999              602,586                 $5.72
                                        ========================================

Pro forma information  regarding net income (loss) and earnings (loss) per share
is required by FAS 123, and has been  determined as if the Company had accounted
for its employee  stock options under the fair value method of FAS 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
options pricing model with the following weighted-average assumptions for August
31, 1999, 1998 and 1997:

ASSUMPTION                       1999                1998                1997
                             ---------------------------------------------------

Risk-free rate                 4.5 - 5.9%          5.5 - 6.9%         5.9 - 6.9%
Dividend yield                     -                   -                   -
Volatility factor of the
 expected market price of
 the Company's common stock     .6 - .8             .4 - 1.1            .4 - .6
Average life                     5 years             5 years            5 years


                                      F-23
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


11.  STOCK OPTIONS (CONTINUED)

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the Company's employee stock have characteristics  significantly  different from
those of traded options, and because changes in the subjective input assumptions
can materially  affect the fair value  estimate,  in management's  opinion,  the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.

The Company's pro forma information is as follows:

<TABLE>
<CAPTION>

                                                                    AUGUST 31,
                                               -----------------------------------------------------
                                                     1999              1998             1997
                                               -----------------------------------------------------
<S>                                             <C>                  <C>             <C>
   Pro forma net (loss) income                  $(11,565,000)        $954,000        $1,142,000
   Pro forma net (loss) income per share:
     Basic                                            $(2.21)           $0.27             $0.36
     Diluted                                          $(2.21)           $0.25             $0.35
</TABLE>


The weighted average fair value of options granted during the years ended August
31, 1999, 1998 and 1997 were $2.85, $4.46 and $2.50, respectively.  The weighted
average remaining contractual life of the options outstanding at August 31, 1999
is 8.6 years.




                                      F-24
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


12.  INCOME TAXES

The following comprises income tax expense related to continuing operations:
<TABLE>
<CAPTION>

                                                                 YEAR ENDED AUGUST 31,
                                                      1999                1998                1997
                                               -----------------------------------------------------------

<S>                                               <C>                 <C>                <C>
U.S. income taxes:
   Current                                        $1,302,000          $  252,000         $   9,000
   Deferred                                          851,000             249,000            44,000
                                               -----------------------------------------------------------
                                                   2,153,000             501,000            53,000
                                               -----------------------------------------------------------
United Kingdom income taxes:
   Current                                            65,000             302,000           538,000
   Deferred                                          131,000              51,000             2,000
                                               -----------------------------------------------------------
                                                     196,000             353,000           540,000
                                               -----------------------------------------------------------
Total                                             $2,349,000          $  854,000         $ 593,000
                                               ===========================================================
</TABLE>

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying amount of assets and  liabilities  for financial  reporting
purposes and amounts used for income tax purposes.

Significant  components  of the  Company's  deferred tax assets and  liabilities
consist of the following:

<TABLE>
<CAPTION>

                                                                                Year ended August 31,
                                                                        1999             1998             1997
                                                                  -------------------------------------------------
<S>                                                               <C>                <C>               <C>
Deferred tax liabilities:
   Use of cash basis for United States income tax
    purposes                                                      $      -           $  88,000         $ 175,000
   Difference in depreciation and amortization methods                1,925,000        905,000           591,000
                                                                  -------------------------------------------------
Total deferred tax liability                                          1,925,000        993,000           766,000
Less deferred tax asset:
   Allowance for doubtful accounts                                     (249,000)      (143,000)         (122,000)
   Net operating loss                                                (9,246,000)
   Primarily difference in reporting of royalty                           -           (101,000)         (199,000)
   Other                                                                (36,000)          -                  -
                                                                  -------------------------------------------------
Net deferred tax liability                                        $  (7,606,000)     $ 749,000         $ 445,000
                                                                  =================================================
</TABLE>



                                      F-25
<PAGE>


                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999

12.  INCOME TAXES (CONTINUED)
At  August  31,  1999  the  Company  has net  operating  loss  carryforwards  of
approximately $20,152,000 which expires in 2019.

The  following  reconciles  income tax  expense,  computed in the United  States
Federal statutory rate to income tax expense.
<TABLE>
<CAPTION>

                                                                                YEAR ENDED AUGUST 31,
                                                                      1999              1998              1997
                                                                ------------------------------------------------------

<S>                                                             <C>                  <C>               <C>
Income taxes at United States Federal statutory rate            $  1,635,000         $ 623,000         $ 644,000
State and local income taxes                                         671,000            95,000            56,000
Nondeductible expenses and differences between
 United States and United Kingdom tax rates                           43,000           123,000          (107,000)
                                                                ------------------------------------------------------
Total                                                           $  2,349,000         $ 841,000         $ 593,000
                                                                ======================================================
</TABLE>

13.  STOCKHOLDERS' EQUITY

AMENDMENT TO CERTIFICATE OF INCORPORATION

In May, 1999, the Company filed an amendment to its Certificate of Incorporation
increasing the Company's  authorized  shares of Common stock from  10,000,000 to
25,000,000 and the Company's authorized shares of Preferred Stock from 5,000,000
to 10,000,000

SHARES RESERVED

As of August 31, 1999, the Company has reserved for issuance of 2,607,000 shares
of common stock as follows:  (i) 1,375,000  shares of common stock issuable upon
exercise  of options  granted or  allowed to be granted  under its Stock  Option
Plans;  (ii) 50,000 shares of common stock upon  exercise of options  granted in
connection  with an  acquisition  in the UK; (iii) 92,000 shares of common stock
issuable  upon  exercise  of  warrants  issued to the  managing  underwriter  in
connection with the initial public offering, exercisable at a price of $7.20 per
share in February  2001;  (iv)  400,000  shares of common  stock  issuable  upon
exercise of warrants issued in connection with loans to the Company;  (v) 25,000
shares of common stock upon exercise of warrants  (vi) 225,000  shares of common
stock  issuable  upon  exercise  of  warrants   issued  to  the  stockholder  of
SuperGraphics  and (vii)  440,000  shares of common  stock upon  exercise of the
warrants issue in connection with the November 1998 financing.


                                      F-26
<PAGE>


                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999

14.  EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share pursuant to FASB Statement No. 128, "Earnings per Share":
<TABLE>
<CAPTION>

                                                                 YEAR ENDED AUGUST 31,
                                                 ------------------------------------------------------
                                                       1999              1998               1997
                                                 ------------------------------------------------------

<S>                                              <C>                  <C>               <C>
Numerator for basic and diluted
  earnings per share-net (loss) income
  available for common stockholders              $(10,959,000)        $1,136,000        $1,341,000
                                                 ======================================================
Denominator:
  Denominator for basic earnings per
    share weighted average shares                   5,225,294          3,530,836         3,212,098
  Effect of dilutive securities:
    Stock options                                          --             74,971            34,760
     Warrants                                              --            173,631            36,421
                                                 ------------------------------------------------------
  Denominator for diluted earnings
    per share-adjusted weighted
    average shares and assumed
    conversions                                     5,225,294          3,779,438         3,283,279
                                                 ======================================================
</TABLE>


The  following  securities  have  been  excluded  from the  dilutive  per  share
computation, as they are antidilutive:

                                             YEAR ENDED AUGUST 31,
                            ----------------------------------------------------
                                  1999              1998               1997
                            ----------------------------------------------------

     Stock options              974,000           41,000            125,000
     Warrants                 1,182,000          117,000             92,000


                                      F-27
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


15.  COMMITMENTS

The Company leases their premises under operating lease  agreements which expire
at various  dates  through  February  2009.  The  Company  also  leases  certain
production  equipment  under  operating  leases  which  expire at various  dates
through August 2001.

Aggregate  minimum rental  payments for premises and equipment  under  operating
leases are approximately as follows:

                                   TOTAL            PREMISES         EQUIPMENT
                               -------------------------------------------------

Year ending August 31,
   2000                      $   3,037,000   $     2,189,000      $    848,000
   2001                          2,858,000         2,162,000           696,000
   2002                          2,653,000         2,170,000           483,000
   2003                          1,843,000         1,399,000           444,000
   2004                          1,366,000         1,057,000           309,000
   Thereafter                    3,483,000         3,435,000            48,000
                             ---------------------------------------------------
Total                        $  15,240,000   $    12,412,000      $  2,828,000
                             ===================================================

Aggregate  rental  expense for the years ended  August 31,  1999,  1998 and 1997
approximated $2,198,000, $1,077,000 and $515,000, respectively.

16.  SEGMENT INFORMATION

The Company's  reportable  segments are divisions that offer different  products
and services.  The reportable  segments are each managed separately because they
produce and distribute  distinct products with different  production  processes.
The  Company has two  reportable  segments:  the media  solutions  division  and
premedia services division.  The segment  information for 1998 and 1997 has been
restated to conform to the 1999 segment reporting format.

The Company  evaluates  performance  and allocates  resources based on profit or
loss from  operations  before  income  taxes.  The  accounting  policies  of the
reportable  segments  are  the  same  as  those  described  in  the  summary  of
significant  accounting policies.  Intersegment sales and transfers are recorded
at the Company's cost;  there is no intercompany  profit or loss on intersegment
sales or transfers.



                                      F-28
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


16.  SEGMENT INFORMATION (CONTINUED)

The following  summarizes  the  operations  by geographic  segment for the years
ended August 31, 1998, 1998 and 1997:
<TABLE>
<CAPTION>

                                                                AUGUST 31,
                         --------------------------------------------------------------------------------------------
                                      1999                          1998                          1997
                         --------------------------------------------------------------------------------------------
                             UNITED         UNITED          UNITED         UNITED        UNITED          UNITED
                             STATES         KINGDOM         STATES        KINGDOM        STATES         KINGDOM
                         --------------------------------------------------------------------------------------------

<S>                      <C>            <C>             <C>            <C>           <C>             <C>
Net sales                $ 49,251,000   $ 13,523,000    $ 14,979,000   $ 14,527,000  $  2,576,000    $  9,993,000
Income from operations      9,812,000      1,326,000       3,650,000        778,000       538,000       1,677,000
Identifiable assets        99,432,000     19,204,000      56,528,000     10,787,000    24,309,000       8,724,000
Depreciation and
  amortization              4,493,000      1,428,000       1,457,000      1,212,000     1,376,000         818,000
Capital expenditures        1,410,000        592,000       1,095,000        476,000       904,000         464,000
</TABLE>

The  following  summarizes  operations  by industry  segment for the years ended
August 31, 1999, 1998 and 1997:

                                                AUGUST 31, 1999
                               -------------------------------------------------
                                    Media           Premedia
                                  Solutions         Services          Total
                               -------------------------------------------------

    Net sales                  $  28,881,000      $ 33,893,000     $ 62,774,000
    Income from
      operations                   5,140,000         5,998,000       11,138,000
    Identifiable assets           69,650,000        48,986,000      118,636,000
    Depreciation and
      amortization                 2,333,000         3,588,000        5,921,000
      Capital expenditures     $   1,038,000      $    964,000     $  2,002,000



                                      F-29
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999


16. Segment Information (continued)

                                            AUGUST 31, 1998
                          ------------------------------------------------------
                             MEDIA             PREMEDIA
                           SOLUTIONS           SERVICES            TOTAL
                          ------------------------------------------------------

    Net sales              $  9,275,000      $ 20,231,000      $ 29,506,000
    Income from
      operations                951,000         3,477,000         4,428,000
    Identifiable assets      18,763,000        48,552,000        67,315,000
    Depreciation and
      amortization              940,000         3,014,000         3,954,000
    Capital expenditures        237,000         1,334,000         1,571,000

                                             AUGUST 31, 1997
                          ------------------------------------------------------
                             MEDIA             PREMEDIA
                           SOLUTIONS           SERVICES           TOTAL
                          ------------------------------------------------------

    Net sales              $  3,227,000      $  9,342,000       $ 12,569,000
    Income from
      operations                655,000         1,560,000          2,215,000
    Identifiable assets       6,651,000        26,382,000         33,033,000
    Depreciation and
      amortization              319,000         1,875,000          2,194,000
    Capital expenditures        147,000         1,221,000          1,368,000

17.  EMPLOYEE BENEFIT PLAN

The  Company  adopted  a  401(k)  Plan  effective  January  1,  1996,  in  which
substantially  all of the Company's U.S.  employees are eligible to participate.
Although the Plan provides for discretionary employer contributions,  there were
none for the years ended August 31, 1999, 1998 and 1997.


                                      F-30
<PAGE>

                                 Unidigital Inc.

                   Notes to Consolidated Financial Statements

                                 August 31, 1999

18.  EXTRAORDINARY ITEM

In connection with the termination of its existing credit facility (see Note 6),
the Company recorded an extraordinary  loss of $1,828,000,  net of an income tax
benefit of $1,114,000,  related to the write-off of the  unamortized  balance of
deferred financing costs associated with its existing credit facility.

19.  LITIGATION

The  Company is  subject to legal  proceedings  and  claims  which  arise in the
ordinary  course of business  and have not been  adjudicated.  In the opinion of
management,  settlement of these actions,  when ultimately  concluded,  will not
have a  material  adverse  effect on the  results of  operations,  cash flows or
financial condition of the Company.

20.  SUBSEQUENT EVENTS

In September 1999, the Company issued $20 million of senior  subordinated  notes
of which $10 million  matures in 2005 and 2006.  The notes bear  interest at 14%
per annum,  comprised  of a 12% payable  semiannually  and a 2%  payment-in-kind
coupon.  The Company used $11.5 million of the proceeds from such notes to repay
the existing  subordinated loan  ($10,000,000)  plus the related  investment fee
($1,500,000).

In September and November  1999,  the Company sold its remaining two floors in a
building for $2,435,000.



                                      F-31
<PAGE>


                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                 UNIDIGITAL INC.

<TABLE>
<CAPTION>
                                                            Additions -    Additions -          Deductions
                                            Balance at      Charged to      Charged to          -Write-off       Balance at
                                             Beginning       Costs and        Other             of Accounts        end of
               Description                   of Period       Expenses        Accounts           Receivable         Period
               -----------                   ---------       --------        --------           ----------

<S>                                           <C>             <C>            <C>         <C>      <C>             <C>
YEAR ENDED AUGUST 31, 1999
  Reserves and allowances deducted
  from asset accounts:
  Allowance for uncollectible accounts        581,000         321,000        370,000     1        528,000         744,000

YEAR ENDED AUGUST 31, 1998
  Reserves and allowances deducted
  from asset accounts:

  Allowance for uncollectible accounts        266,000         115,000        250,000     2         50,000         581,000

YEAR ENDED AUGUST 31, 1997
  Reserves and allowances deducted
  from asset accounts:

  Allowance for uncollectible accounts        201,000         102,000           -                  37,000         266,000
</TABLE>


1)   Part  of  Net  Assets  acquired  from  SuperGraphics,  Interface  Graphics,
     PrePress Services, and Big Bills

2)   Part of Net Assets acquired from Kwik