SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                 ---------------

                                    FORM 10-Q

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

                   For the quarterly period ended May 31, 1999
                           Commission File No. 1-14126


                                 UNIDIGITAL INC.
        -----------------------------------------------------------------
        (Exact Name of Small Business Issuer as Specified 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)

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

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

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

     State the number of shares  outstanding of each of the Issuer's  classes of
common stock, as of June 30, 1999:

Class                                               Number of Shares
-----                                               ----------------
Common Stock,  $.01 par value                           5,493,002

     Transitional Small Business Disclosure Format (check one):

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


<PAGE>


                        UNIDIGITAL INC. AND SUBSIDIARIES
                                TABLE OF CONTENTS
                                -----------------
                                                                            Page
                                                                            ----

PART I    FINANCIAL INFORMATION

     Item 1.   Financial Statements..........................................1

          CONSOLIDATED BALANCE SHEETS
          as at May 31, 1999 (unaudited)
          and August 31, 1998 (audited)......................................2

          CONSOLIDATED INCOME STATEMENTS
          For the Three Months and Nine
          Months Ended May 31, 1999 and
          May 31, 1998 (unaudited)...........................................3

          CONSOLIDATED STATEMENTS OF CASH FLOWS
          For the Nine Months Ended
          May 31, 1999 and May 31, 1998
          (unaudited)........................................................4

          NOTES TO CONSOLIDATED FINANCIAL
          STATEMENTS (unaudited).............................................5

     Item 2.   Management's Discussion and Analysis of
               Financial Condition and Results of Operations.................12

          General............................................................12

          Results of Operations..............................................12

          Liquidity, Capital Resources and Other Matters.....................16

          Year 2000 Compliance...............................................18

     Item 3.   Quantitative and Qualitative Disclosure
               About Market Risk.............................................19

PART II   OTHER INFORMATION

     Item 1.   Legal Proceedings.............................................20

     Item 2.   Changes in Securities and Use of Proceeds.....................20

     Item 5.   Other Information.............................................21

     Item 6.   Exhibits and Reports on Form 8-K..............................22

SIGNATURES...................................................................24

                                      -i-
<PAGE>














                          PART I FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS











                                      -1-
<PAGE>

                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------
                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------

<TABLE>
<CAPTION>

                                                                                MAY 31,               AUGUST 31,
                                                                                  1999                   1998
                                                                               --------                 ------
                                                                              (UNAUDITED)
                                        ASSETS
<S>                                                                       <C>                        <C>
Current assets:
   Cash and cash equivalents......................................        $      321,000             $     287,000
   Accounts receivable (less allowance for doubtful
     accounts of $877,000 and $581,000 at
     May 31, 1999 and August 31, 1998, respectively)..............            25,530,000                16,917,000
   Deferred financing costs, net..................................             2,910,000                 1,013,000
   Prepaid expenses...............................................             5,423,000                 2,727,000
   Other current assets...........................................             3,035,000                 3,360,000
                                                                          --------------             -------------
       Total current assets.......................................            37,219,000                24,304,000
Property and equipment, net.......................................            20,188,000                14,591,000
Intangible assets, net............................................            61,361,000                28,107,000
Other assets......................................................               803,000                   313,000
                                                                          --------------             -------------
       Total assets...............................................        $  119,571,000             $  67,315,000
                                                                          ==============             =============
                                        LIABILITIES
Current liabilities:
   Accounts payable and accrued expenses..........................        $    8,606,000             $   8,571,000
   Current portion of capital lease obligations...................             3,329,000                 1,935,000
   Current portion of long-term debt..............................               550,000                 3,610,000
   Income taxes payable...........................................             1,650,000                   887,000
   Deferred income taxes..........................................                    --                   249,000
   Loans and notes payable to stockholders........................               592,000                   155,000
                                                                          --------------             -------------
       Total current liabilities..................................            14,727,000                15,407,000
Capital lease obligations, net of current portion.................             5,684,000                 2,830,000
Long-term debt, net of current portion............................            72,432,000                33,978,000
Deferred income taxes.............................................               833,000                   500,000
Loans and notes payable to stockholders, net of current portion...               207,000                   207,000
                                                                          --------------             -------------
       Total liabilities..........................................            93,883,000                52,922,000
                               STOCKHOLDERS' EQUITY
Preferred stock -- authorized 10,000,000 shares at
   May 31, 1999 and 5,000,000 shares at August 31, 1998,
   respectively, $.01 par value each; none issued
   or outstanding...............................                                      --                        --
Common stock -- authorized 25,000,000 shares at
   May 31, 1999 and 10,000,000 shares at August 31, 1998,
   respectively, $.01 par value each; 5,493,002 and 3,902,634
   shares issued and outstanding at May 31, 1999 and
   August 31, 1998, respectively..................................                55,000                    39,000
Additional paid-in capital........................................            20,209,000                 9,865,000
Retained earnings.................................................             5,724,000                 4,374,000
Cumulative foreign translation adjustment.........................              (300,000)                  115,000
                                                                          --------------             -------------
       Total stockholders' equity.................................            25,688,000                14,393,000
                                                                          --------------             -------------
       Total liabilities and stockholders' equity.................        $  119,571,000             $  67,315,000
                                                                          ==============             =============
</TABLE>

                                      -2-
<PAGE>

                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------
                         CONSOLIDATED INCOME STATEMENTS
                         ------------------------------
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                    THREE MONTHS ENDED,                     NINE MONTHS ENDED,
                                             -------------------------------     ------------------------------------
                                                MAY 31,            MAY 31,             MAY 31,            MAY 31,
                                                 1999               1998                1999               1998
                                                 ----               ----                ----               ----
<S>                                        <C>                <C>                 <C>                  <C>
REVENUES
   Net sales.........................      $ 21,787,000       $ 13,995,000        $ 56,165,000         $32,845,000
                                           ------------       ------------        ------------         -----------
EXPENSES
   Cost of sales.....................        10,663,000          7,693,000          27,980,000          17,598,000
   Selling, general and administrative
     expenses........................         7,468,000          4,204,000          19,906,000          10,943,000
   Expenses incurred due to
     restructuring...................               --             247,000             287,000             247,000
                                           ------------       ------------        ------------         -----------
   Total operating expenses..........        18,131,000         12,144,000          48,173,000          28,788,000
                                           ------------       ------------        ------------         -----------
   Income from operations............         3,656,000          1,851,000           7,992,000           4,057,000
   Interest expense..................         1,786,000            840,000           4,587,000           1,388,000
   Interest expense - deferred
     financing costs.................           140,000            220,000             331,000             696,000
   Interest and other expenses
     (income)........................           110,000             41,000             (77,000)            127,000
                                           ------------       ------------        -------------        -----------
   Income before income taxes........         1,620,000            750,000           3,151,000           1,846,000
   Provision for income taxes........           566,000            307,000           1,259,000             704,000
                                           ------------       ------------        ------------         -----------
Net income before extraordinary
     item............................         1,054,000            443,000           1,892,000           1,142,000
Extraordinary  item-loss on early
     retirement of debt (net of income
     tax benefit of $460,000 at May 31,
     1999 and $137,000 at May 31, 1998,
     respectively)...................           542,000            143,000             542,000             143,000
                                           ------------       ------------        ------------         -----------
Net income...........................      $    512,000       $    300,000        $  1,350,000         $   999,000
                                           ============       ============        ============         ===========

Basic earnings (loss) per common share:
   Earnings before extraordinary
     item............................      $       0.20       $       0.12        $       0.37         $      0.34
   Extraordinary item................             (0.10)             (0.04)              (0.11)              (0.04)
                                           ------------       ------------        ------------         -----------
   Net income........................      $       0.10       $       0.08        $       0.26         $      0.30
                                           ============       ============        ============         ===========

Diluted earnings (loss) per common
   share:
   Earnings before extraordinary
     item............................      $       0.19       $       0.11        $       0.36         $      0.31
   Extraordinary item................             (0.10)             (0.04)              (0.10)              (0.04)
                                           ------------       ------------        ------------         -----------
   Net income........................      $       0.09       $       0.07        $       0.26         $      0.27
                                           ============       ============        ============         ===========

Shares used to compute net income
   per share:
   Basic.............................         5,367,975          3,724,459           5,140,197           3,403,721
                                           ============       ============        ============         ===========
   Diluted...........................         5,461,352          4,036,427           5,242,682           3,640,752
                                           ============       ============        ============         ===========
</TABLE>

                                      -3-
<PAGE>

                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                                    NINE MONTHS ENDED,
                                                                                MAY 31,             MAY 31,
                                                                                 1999                1998
                                                                                 ----                ----
<S>                                                                         <C>                  <C>
OPERATING ACTIVITIES
Net income.........................................................         $  1,350,000         $   999,000
Adjustments to reconcile  net income to
  net cash provided by (used in) operating
  activities:
       Depreciation and amortization...............................            5,447,000           2,684,000
       Provision for deferred income taxes.........................               89,000              91,000
       Provision for bad debts.....................................              315,000              32,000
       Gain on sale of assets......................................             (191,000)                 --
       Extraordinary item..........................................            1,002,000                  --
Changes in assets and liabilities:
       Accounts receivable.........................................           (5,258,000)         (3,272,000)
       Prepaid expenses and other current assets...................             (480,000)         (3,494,000)
       Other assets................................................             (324,000)            (91,000)
       Accounts payable and accrued expenses.......................           (4,711,000)            776,000
       Income taxes payable........................................              376,000             317,000
                                                                            ------------         -----------
Net cash used in operating activities..............................           (2,385,000)         (1,958,000)
                                                                            ------------         -----------
INVESTING ACTIVITIES
Proceeds of sale of fixed assets...................................              945,000                  --
Additions to property and equipment................................           (1,032,000)           (837,000)
Business acquisitions..............................................          (27,259,000)        (21,245,000)
                                                                            ------------         -----------
Net cash used in investing activities..............................          (27,346,000)        (22,082,000)
                                                                            ------------         -----------
FINANCING ACTIVITIES
Net proceeds from bank borrowings..................................           90,350,000          22,386,000
Payments of capital lease obligations..............................           (2,091,000)         (1,422,000)
Payments of long-term debt.........................................          (58,413,000)                 --
Stockholder loans..................................................             (173,000)                 --
Common stock issued................................................               92,000              20,000
                                                                            ------------         -----------
Net cash provided by financing activities..........................           29,765,000          20,984,000
                                                                            ------------         -----------
Effect of foreign exchange rates on cash...........................                   --              15,000
                                                                            ------------         -----------
Net increase (decrease) in cash and cash equivalents...............               34,000          (3,041,000)
Cash and cash equivalents at beginning of period...................              287,000           3,203,000
                                                                            ------------         -----------
Cash and cash equivalents at end of period.........................         $    321,000         $   162,000
                                                                            ============         ===========
SUPPLEMENTAL DISCLOSURES
Interest paid......................................................         $  4,423,000         $   407,000
                                                                            ============         ===========
Income taxes paid..................................................         $    438,000         $   159,000
                                                                            ============         ===========
Noncash transactions:
Equipment acquired under capital lease obligations.................         $  4,344,000         $ 1,310,000
                                                                            ============         ===========
Value of warrants issued - business acquisitions...................         $    931,000         $        --
                                                                            ============         ===========
Value of warrants - additional financing...........................         $    308,000         $        --
                                                                            ============         ===========
Business acquisitions (net of liabilities of $8,682,000)...........         $  2,939,000         $        --
                                                                            ============         ===========
Stock issued for business acquisitions.............................         $  9,029,000         $        --
                                                                            ============         ===========
</TABLE>

                                      -4-
<PAGE>

                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)

NOTE A - BASIS OF PRESENTATION:

     The information presented for May 31, 1999, and for the three-month and the
nine-month  periods ended May 31, 1999 and May 31, 1998,  is unaudited,  but, in
the opinion of the management of Unidigital Inc., its wholly-owned  subsidiaries
and  its  and  their   subsidiaries,   affiliated   companies  and  predecessors
(collectively, the "Company"), the accompanying unaudited consolidated financial
statements  contain  all  adjustments   (consisting  only  of  normal  recurring
accruals) which the Company considers necessary for the fair presentation of the
Company's financial position as of May 31, 1999, the results of their operations
for the  three-month  and the nine-month  periods ended May 31, 1999 and May 31,
1998 and their cash flows for the nine-month  periods ended May 31, 1999 and May
31, 1998.

     The consolidated financial statements included herein have been prepared by
the Company in accordance  with  generally  accepted  accounting  principles for
interim  financial  information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X.  Accordingly,  certain  information and footnote  disclosures
normally included in financial  statements prepared in accordance with generally
accepted   accounting   principles   have  been  condensed  or  omitted.   These
consolidated  financial  statements  should  be read  in  conjunction  with  the
Company's audited financial statements for the year ended August 31, 1998, which
were included as part of the Company's Annual Report on Form 10-KSB.

     The consolidated  financial  statements  include the accounts of Unidigital
Inc.  and its direct and indirect  subsidiaries.  All  significant  intercompany
balances have been eliminated.

     Interim  results  are not  necessarily  indicative  of results  that may be
expected for the full fiscal year.


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     ORGANIZATION AND BUSINESS:

     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 the United Kingdom.  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.
The Premedia Services division provides digital premedia,  including  retouching
and short-run digital printing services.

                                      -5-
<PAGE>

                       UNIDIGITAL INC. AND SUBSIDIARIES
                       --------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)

     FOREIGN CURRENCY TRANSLATION:

     The portion of the Company's financial statements relating to the Company's
United  Kingdom  operations  are  translated  into United  States  Dollars using
period-end  exchange rates  ((pound)1.00 = $1.67 at August 31, 1998 and $1.60 at
May 31, 1999,  respectively,  for balance sheet  accounts) and average  exchange
rates  ((pound)1.00  = $1.61 and $1.68 for the three month periods ended May 31,
1999 and May 31,  1998,  respectively,  and $1.64  and $1.68 for the nine  month
periods ended May 31, 1999 and May 31, 1998, respectively,  for income statement
accounts).  The translation  difference is reflected as a separate  component of
stockholders' equity.

     EARNINGS PER SHARE:

     The  following  table  sets  forth the  computation  of basic and  dilutive
earnings per share:

<TABLE>
<CAPTION>

                                                            THREE MONTHS ENDED,                   NINE MONTHS ENDED,
                                                     ----------------------------------    ----------------------------------
                                                                 MAY 31,                                MAY 31,
                                                          1999             1998                 1999              1998
                                                          ----             ----                 ----              ----
<S>                                                   <C>              <C>                   <C>              <C>
Numerator for basic and diluted earnings per
     share-net income available for common
     stockholders...............................      $   512,000      $   300,000           $  1,350,000     $   999,000
                                                      ===========      ===========           ============     ===========
Denominator:
   Denominator for basic earnings per share-
     Weighted average shares....................        5,367,975        3,724,459              5,140,197       3,403,721
   Effect of dilutive securities:
     Stock options..............................           21,880          109,555                 17,483          64,896
     Warrants...................................           71,497          202,413                 85,002         172,135
                                                      -----------      -----------           ------------     -----------
   Denominator for diluted earnings per
     share-adjusted weighted-average shares and
     assumed conversions........................        5,461,352        4,036,427              5,242,682       3,640,752
                                                      ===========      ===========           ============     ===========
</TABLE>


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

<TABLE>
<CAPTION>

                                                      THREE MONTHS ENDED,                      NINE MONTHS ENDED,
                                              --------------------------------------------------------------------------------
                                                            MAY 31,                                 MAY 31,
                                                    1999              1998                 1999                  1998
                                              --------------------------------------------------------------------------------
<S>                                               <C>                <C>                 <C>                    <C>
Stock options..................................   564,999            11,000              564,999                11,000
Warrants.......................................   342,000            25,000              342,000               117,000
</TABLE>

                                      -6-
<PAGE>

                      UNIDIGITAL INC. AND SUBSIDIARIES
                      --------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)

NOTE C - AMENDMENT TO CERTIFICATE OF INCORPORATION:

     On May 14,  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.

NOTE D - STOCK OPTION PLANS:

     Pursuant to the 1997 Equity Incentive Plan, as amended, the Company granted
options to purchase an  aggregate  of 241,650  shares of its Common Stock during
the three  months  ended May 31,  1999.  All options  were granted at their fair
market value.

NOTE E - LONG-TERM DEBT:

     Long-term debt consists of the following:

<TABLE>
<CAPTION>

                                                                   FACILITY
                                                                    AMOUNT                  AMOUNT OUTSTANDING
                                                                                  ----------------------------------------
                                                                   MAY 31,              MAY 31,            AUGUST 31,
                                                                     1999                1999                 1998
                                                              ------------------------------------------------------------
<S>                                <C>     <C>                <C>                   <C>                  <C>
Revolving line of credit;  interest at the Prime Rate or
  at the Eurodollar Rate, as defined, plus an Applicable
  Margin, as defined, ranging from 1.0% to 3.25%...........   $   65,000,000        $  60,850,000        $          --
Credit facility in the United Kingdom interest at the
   bank's overdraft rate plus 2.75%; facility amount is
   (pound)150,000 ($240,000)...............................          240,000              165,000                   --
Credit facilities in the United Kingdom; interest at
   either the  bank's  overdraft  rate plus 2% or 2.5%,
   including a temporary facility of approximately
   (pound)450,000 ($720,000) renewable April 30, 1999;
   facility amount is approximately (pound)2,650,000
   ($4,248,000)............................................               --                   --            2,135,000
Term loan, matures in March 2003; payable in sixteen
   quarterly  installments  ranging from  $960,000 to
   $1,920,000 in March 2003, plus interest at the Base
   Rate or at 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 Eurodollar Rate,
  as defined, plus an Applicable Margin, as defined,
  ranging from 0.75% to 3.0%...............................               --                   --            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                   --

                                      -7-
<PAGE>

                      UNIDIGITAL INC. AND SUBSIDIARIES
                      --------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)

                                                                   FACILITY
                                                                    AMOUNT                  AMOUNT OUTSTANDING
                                                                                  ----------------------------------------
                                                                   MAY 31,              MAY 31,            AUGUST 31,
                                                                     1999                1999                 1998
                                                              ------------------------------------------------------------

Installment note due seller of Elements (SF); payable
   in eight quarterly installments of $11,600,
   including interest at 6.0%..............................               --                   --             11,000
Installment note due seller of Unison (MA); matures in
   January 1999, payable in two annual installments of
   $75,000 including interest at 8%........................               --                   --             75,000
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..................................               --              499,000            618,000
Treasury 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
Note payable, payable in monthly installments of
   approximately $1,000 including interest at 10.35%.......               --               10,000             17,000
Investment fee due May 2001, senior subordinated note......
                                                                          --            1,000,000                 --
Installment note due seller of Kwik International;
   matures in April 2001, payable in thirty-six monthly
   installments of approximately $21,000 including
   interest at 5.7%........................................               --              458,000            646,000
                                                              -----------------------------------------------------------
                                                                                       72,982,000         37,588,000
Less current portion                                                                      550,000          3,610,000
                                                              -----------------------------------------------------------
                                                                                       72,432,000        $33,978,000
                                                              ===========================================================
</TABLE>

     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.  The revolving line of credit facility may be
increased to $80,000,000 in the event the Company  raises subordinated debt with
net proceeds of at least  $20,000,000.  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 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 May 31, 1999, the Company had an outstanding  balance of
$60,850,000 under the revolving credit facility.

                                      -8-
<PAGE>

                     UNIDIGITAL INC. AND SUBSIDIARIES
                     --------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)

     The  following  table  shows  the  required  future  repayments  under  the
Company's revolving credit facility:

                          AMOUNT (IF PRIOR TO       AMOUNT (IF AFTER
                          REVOLVING CREDIT          REVOLVING CREDIT
                          FACILITY INCREASE)        FACILITY INCREASE)
                          -----------------------------------------------

   Fiscal years ending:
          1999            $                 --      $                --
          2000                              --                       --
          2001                       1,250,000                1,250,000
          2002                       5,000,000                6,250,000
          2003                       7,500,000               11,250,000
          Thereafter                47,100,000               42,100,000
                          ---------------------------------------------
                                    60,850,000               60,850,000
                          =============================================


     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 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  (the  "Subordinated  Loan").  The
Subordinated  Loan  matures 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.  Until November 30, 1999, at the
option of the lender,  interest is payable in additional notes,  Common Stock of
the Company or warrants to purchase  Common  Stock of the  Company.  Thereafter,
interest is payable in either  additional  notes or cash,  depending  on certain
coverage ratios and, in the case of cash interest payments,  the approval of the
senior  lender.  The  Company  will incur an  additional  premium of 5.0% on any
prepayments  of the  Subordinated  Loan made prior to November  30,  1999.  Such
additional  premium  will be reduced by 100 basis points on December 1, 1999 and
shall be reduced by such amount on each December 1st  thereafter  until December
1, 2003. 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. In the event the Company has
not paid the loan in full by November 30, 1999  (subject to extension in certain
instances),  the Company will issue ten-year  warrants to the lender to purchase
an additional  200,000 shares of the Company's Common Stock at an exercise price
not to exceed $5.00 per share. In the event the  Subordinated  Loan has not been
paid in full by May 31,  2001,  the  exercise  price of such  warrants  shall be
reduced by $1.00 per share and, on each  anniversary

                                      -9-
<PAGE>

                     UNIDIGITAL INC. AND SUBSIDIARIES
                     --------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)

of such date,  such exercise  price shall be reduced by an additional  $1.00 per
share.  In  addition,  subject  to  certain  limitations,  the  Company  granted
registration rights, including "demand" registration rights, to such lender.

     The warrants issued in connection with the  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.

NOTE F - ACQUISITIONS AND PRO FORMA FINANCIAL INFORMATION:

     On April 7, 1999, the Company,  through its wholly-owned  subsidiary Unison
(NY), Inc., a Delaware corporation ("Unison (NY)"),  consummated the acquisition
(the "X+C  Acquisition")  of  substantially  all of the  assets  of Peter  X(+C)
Limited, a New York corporation ("X+C"),  located in New York City. The purchase
price  included an initial  cash  payment of $70,000 and the  issuance of 40,000
shares of restricted Common Stock of the Company to the sole shareholder of X+C.
In addition,  the purchase  price  includes 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.

     On April 22,  1999,  the Company,  through  Unison  (NY),  consummated  the
acquisition (the "Progress  Acquisition") of substantially  all of the assets of
Progress  Graphics,  Inc.,  a New Jersey  corporation  ("Progress"),  located in
Jersey  City,  New Jersey.  The purchase  price  included the issuance of 86,059
shares  ($500,000)  of  restricted  Common  Stock  of the  Company  to the  sole
shareholder  of Progress.  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.

     On April 30, 1999,  the Company,  through  Elements (UK) Limited,  a United
Kingdom  corporation   ("Elements  (UK)"),   consummated  the  acquisition  (the
"Interface  Acquisition")  of all the issued and  outstanding  shares of capital
stock  of  Interface   Graphics  Limited,   a  company  registered  in  Scotland
("Interface"),  located in Edinburgh,  Scotland.  The initial aggregate purchase
price  was   (pound)425,000   which  included  the  issuance  of  49,695  shares
(approximately  (pound)132,000  or $218,000) of  restricted  Common Stock of the
Company to the  shareholders  of  Interface.  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 any
of the first two years following the closing.

     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.


                                      -10-
<PAGE>

                     UNIDIGITAL INC. AND SUBSIDIARIES
                     --------------------------------
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)

     The following  supplemental  pro forma  information  is presented as if the
Company had completed the Kwik Acquisition, the Mega Art Acquisition, the Zazula
Acquisition,  the SuperGraphics Acquisition (each as hereinafter defined in Item
2.  Management's  Discussion and Analysis of Financial  Condition and Results of
Operations),  the X+C  Acquisition,  the Progress  Acquisition and the Interface
Acquisition, as of September 1, 1998 and 1997, respectively:

                                                NINE MONTHS ENDED MAY 31,
                                         ---------------------------------------
                                              1999                  1998
                                         ---------------------------------------
Net sales.............................     62,655,000            54,238,000
Income from operations................      7,160,000             5,318,000
Net income............................        106,000             1,581,000
Net income per share - basic..........          $0.02                 $0.29
Net income per share - diluted........          $0.02                 $0.27

NOTE G - LEGAL PROCEEDINGS:

     On March 31,  1999,  the Chapter 7 Trustee  (the  "Trustee")  for  Cardinal
Communications  Group, Inc.  ("Cardinal") filed an adversary  proceeding against
the Company in Cardinal's Chapter 7 bankruptcy  proceeding pending in the United
States  Bankruptcy Court for the Southern  District of New York (the "Bankruptcy
Court"). In June 1999, the Company and the Trustee amicably resolved the dispute
on the following items:  the Company shall pay to the bankruptcy  estate the sum
of  $150,000  in full  and  final  satisfaction  of any and  all  claims  of the
bankruptcy  estate against the Company.  The Trustee shall dismiss the adversary
proceeding with prejudice and waive any and all claims against the Company under
the bankruptcy code and that certain Asset Purchase Agreement dated as of August
2, 1996 between the Company and Cardinal (the  "Cardinal  Purchase  Agreement"),
including,  without limitation, any and all claims to the proceeds from the sale
of the real estate  acquired by the Company  pursuant to the  Cardinal  Purchase
Agreement (the "Real Estate").  The settlement is subject to the approval of the
Bankruptcy Court.


                                      -11-
<PAGE>

ITEM 2.   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"
(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 the United Kingdom.  In the Third Quarter of
Fiscal 1999 (as  defined  below),  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.  The Premedia  Services  division  provides digital
premedia, including retouching and short-run digital printing services.

     The statements contained in this Quarterly Report on Form 10-Q 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, 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 media services
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;  (vi) the  Company's
ability  to  obtain  additional  financing  at  favorable  rates;  and (vii) the
Company's ability to develop,  market, provide, and achieve market acceptance of
new service offerings to new and existing clients.

RESULTS OF OPERATIONS

     The consolidated  financial  information includes both the Company's United
States  operations  and its United  Kingdom operations.  On March 25,  1998, the
Company acquired  substantially  all of the assets of Kwik  International,  Ltd.
(the  "Kwik  Acquisition").  As a result of such  acquisition  the  Company  has
expanded its color separation and large format printing services in the New York
and surrounding area. On September 2, 1998, the Company consummated the

                                      -12-
<PAGE>

Mega Art Acquisition (the "Mega Art Acquisition")  resulting in the expansion of
its wide format,  digital premedia and printing  services.  On October 30, 1998,
the  Company  consummated  the Zazula  Acquisition  (the  "Zazula  Acquisition")
resulting in the expansion of its retouching and premedia services, primarily to
advertising   agencies.   On  November  30,  1998,  the  Company  completed  the
SuperGraphics  Acquisition (the  "SuperGraphics  Acquisition")  resulting in the
expansion of its large format services. During the Third Quarter of Fiscal 1999,
the Company  consummated the X+C Acquisition,  the Progress  Acquisition and the
Interface  Acquisition.  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. 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.

     THREE MONTHS ENDED MAY 31, 1999 AND MAY 31, 1998

     NET  SALES.  Net sales  for the three  months  ended May 31,  1999  ("Third
Quarter of Fiscal 1999")  increased by 56%, or $7,792,000,  to $21,787,000  from
$13,995,000  for the three months  ended May 31, 1998 ("Third  Quarter of Fiscal
1998").  Net sales for the Company's United States operations  increased by 81%,
or  $7,775,000,  from  $9,612,000  in  the  Third  Quarter  of  Fiscal  1998  to
$17,387,000 in the Third Quarter of Fiscal 1999. This increase was  attributable
primarily to an increase in net sales  resulting from the Mega Art  Acquisition,
the Zazula Acquisition and the SuperGraphics Acquisition, a full three months of
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 net
sales  resulting from the X+C  Acquisition.  Net sales for the Company's  United
Kingdom  operations  increased  slightly by $17,000 from $4,383,000 in the Third
Quarter of Fiscal 1998 to $4,400,000  in the Third Quarter of Fiscal 1999.  This
increase was attributable  primarily to an increase in net sales relating to the
large  format and digital  print  businesses  offset in part by a  market-driven
downturn in the financial printing industry in the United Kingdom.

     COST OF SALES. Cost of sales for the Third Quarter of Fiscal 1999 increased
by 39%, or $2,970,000,  to $10,663,000  from $7,693,000 for the Third Quarter of
Fiscal  1998.  As a  percentage  of net  sales,  cost of  sales  decreased  as a
percentage of net sales from 55% for the Third Quarter of Fiscal 1998 to 49% for
the Third Quarter of Fiscal 1999. Cost of sales for the Company's  United States
operations  decreased  slightly  as a  percentage  of net sales from 51% for the
Third Quarter of Fiscal 1998 to 50% for the Third  Quarter of Fiscal 1999.  Such
decrease was attributable primarily to the change in product mix to include more
large format services. Cost of sales for the Company's United Kingdom operations
decreased as a percentage  of net sales from 63% for the Third Quarter of Fiscal
1998 to 43% for the Third Quarter of Fiscal 1999. Such decrease was attributable
primarily to the change in product mix to include less financial and traditional
printing  services  as well as the  renegotiation  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  by  78%,  or  $3,264,000,   from
$4,204,000  for the Third  Quarter of Fiscal  1998 to  $7,468,000  for the Third
Quarter  of  Fiscal  1999.  Such  increase  was  attributable

                                      -13-
<PAGE>

primarily to the increased  level of operations  and costs  associated  with the
Company's   acquisitions   and  the   hiring  of   additional   management   and
administrative  personnel. As a percentage of net sales, SG&A increased from 30%
for the Third  Quarter  of Fiscal  1998 to 34% for the Third  Quarter  of Fiscal
1999.  SG&A  increased  as a  percentage  of net sales as a result of  increased
salary expenses.

     RESTRUCTURING  EXPENSES.  In  connection  with  the Kwik  Acquisition,  the
Company consolidated its New York operations. As a result of such consolidation,
the Company incurred  restructuring expenses of $247,000 in the Third Quarter of
Fiscal 1998.

     INCOME FROM  OPERATIONS.  Income from  operations  for the Third Quarter of
Fiscal 1999 increased by 98%, or $1,805,000,  to $3,656,000  from $1,851,000 for
the Third Quarter of Fiscal 1998. Of this amount,  $2,381,000 was contributed by
the Company's  United States  operations and $1,275,000 by the Company's  United
Kingdom operations.  This increase resulted from higher net sales offset in part
by higher operating costs associated with such net sales.

     NET INTEREST EXPENSE.  Net interest expense for the Third Quarter of Fiscal
1999 increased by 85%, or $935,000,  to $2,036,000 from $1,101,000 for the Third
Quarter of Fiscal 1998. 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 for the Third Quarter of Fiscal 1999  increased
by 84%, or $259,000,  to $566,000  from $307,000 for the Third Quarter of Fiscal
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 in the Third Quarter of Fiscal 1998. In connection with
the refinancing of senior debt, the Company  recorded an  extraordinary  loss of
$542,000,  net of income tax benefit of  $460,000  related to the  write-off  of
deferred financing costs in the Third Quarter of Fiscal 1999.

     NET INCOME.  As a result of the factors described above, net income for the
Third  Quarter of Fiscal  1999  increased  by 71%, or  $212,000,  to $512,000 as
compared to a net income of $300,000 for the Third Quarter of Fiscal 1998.

     NINE MONTHS ENDED MAY 31, 1999 AND MAY 31, 1998
     -----------------------------------------------

     NET SALES.  Net sales for the nine months  ended May 31, 1999  increased by
71%, or $23,220,000,  to $56,165,000  from $32,845,000 for the nine months ended
May 31, 1998. Net sales for the Company's United States operations  increased by
128%, or $25,239,000,  from $19,712,000 in the nine months ended May 31, 1998 to
$44,951,000  in  the  nine  months  ended  May  31,  1999.   This  increase  was
attributable  primarily to an increase in net sales  resulting from the Mega Art
Acquisition,  the Zazula Acquisition and the SuperGraphics  Acquisition,  a full
nine months of 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 net sales resulting from the X+C Acquisition. Net sales for the
Company's  United  Kingdom  operations  decreased  by 15%, or

                                      -14-
<PAGE>

$1,919,000,  from  $13,133,000  in  the  nine  months  ended  May  31,  1998  to
$11,214,000  in  the  nine  months  ended  May  31,  1999.   This  decrease  was
attributable  primarily to a  market-driven  downturn in the financial  printing
industry in the United Kingdom.

     COST OF  SALES.  Cost of  sales  for the nine  months  ended  May 31,  1999
increased by 59%, or $10,382,000,  to $27,980,000  from $17,598,000 for the nine
months ended May 31, 1998. As a percentage of net sales, cost of sales decreased
from 54% for the nine months ended May 31, 1998 to 50% for the nine months ended
May 31, 1999. Cost of sales for the Company's United States operations  remained
constant as a  percentage  of net sales at 49% for the nine months ended May 31,
1998 and May 31, 1999. Cost of sales for the Company's United Kingdom operations
decreased  as a  percentage  of net sales from 61% for the nine months ended May
31,  1998 to 52% for the nine  months  ended May 31,  1999.  Such  decrease  was
attributable  primarily to the change in product mix to include  less  financial
and traditional printing services as well as the renegotiation of certain of the
Company's vendor contracts resulting in reduced supply costs to the Company.

     SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  SG&A increased by 82%, or
$8,963,000,  from  $10,943,000  for  the  nine  months  ended  May  31,  1998 to
$19,906,000  for  the  nine  months  ended  May  31,  1999.  Such  increase  was
attributable primarily to the increased level of operations and costs associated
with the  Company's  acquisitions  and the hiring of additional  management  and
administrative  personnel. As a percentage of net sales, SG&A increased from 33%
for the nine months  ended May 31, 1998 to 35% for the nine months ended May 31,
1999.  SG&A  increased  as a  percentage  of net sales as a result of  increased
salary expenses.

     RESTRUCTURING  EXPENSES.  In  connection  with  the Kwik  Acquisition,  the
Company consolidated its New York operations. As a result of such consolidation,
the Company incurred restructuring expenses of $247,000 in the nine months ended
May 31, 1998 and $287,000 in the nine months ended May 31, 1999.

     INCOME FROM OPERATIONS.  Income from  operations for the nine months ended
May 31, 1999 increased by 97%, or $3,935,000,  to $7,992,000 from $4,057,000 for
the nine months ended May 31, 1998. Of this amount,  $6,408,000 was  contributed
by the Company's United States operations and $1,584,000 by the Company's United
Kingdom operations.  This increase resulted from higher net sales offset in part
by higher operating costs associated with such net sales.

     NET INTEREST  EXPENSE.  Net interest  expense for the nine months ended May
31, 1999 increased by 119%, or $2,630,000, to $4,841,000 from $2,211,000 for the
nine months ended May 31, 1998. 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 for the nine months ended May 31, 1999 increased
by 79%, or $555,000,  to $1,259,000  from $704,000 for the nine months ended May
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

                                      -15-
<PAGE>

benefit of $137,000 related to the write-off of deferred  financing costs in the
nine months ended May 31, 1998. In  connection  with the  refinancing  of senior
debt, the Company recorded an extraordinary loss of $542,000,  net of income tax
benefit of $460,000 related to the write-off of deferred  financing costs in the
nine months ended May 31, 1999.

     NET INCOME.  As a result of the factors described above, net income for the
nine months ended May 31, 1999  increased by 35%, or $351,000,  to $1,350,000 as
compared to a net income of $999,000 for the nine months ended May 31, 1998.

LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS

     CASH FLOW.  Net cash used in operations  was  $2,385,000 for the first nine
months of fiscal 1999 and  $1,958,000  for the first nine months of fiscal 1998.
Net cash used in  investing  activities  for the  acquisition  of  property  and
equipment was  $1,032,000  for the first nine months of fiscal 1999 and $837,000
for the first nine  months of fiscal  1998.  For the first nine months of fiscal
1999 and fiscal 1998,  the Company  acquired  equipment  under capital leases of
$4,344,000 and $1,310,000,  respectively, and made payments under capital leases
of $2,091,000 and $1,422,000,  respectively.  Net bank borrowings provided funds
of  $31,937,000  and  $22,386,000  for the first nine  months of fiscal 1999 and
fiscal 1998, 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.  The revolving
line of credit facility may be increased to $80,000,000 in the event the Company
raises  subordinated  debt  with  net  proceeds  of at  least  $20,000,000.  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 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 May
31,  1999,  the  Company had an  outstanding  balance of  $60,850,000  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 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  entered into the  Subordinated  Loan.  The
Subordinated  Loan  matures 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.  Until November 30, 1999, at the
option of the lender,  interest is payable in additional notes,  Common Stock of
the Company or warrants to purchase  Common  Stock of the  Company.  Thereafter,
interest is payable in either  additional  notes or cash,  depending  on certain
coverage ratios and, in the case of cash interest payments,  the approval of the
senior  lender.  The  Company  will incur an

                                      -16-
<PAGE>

additional  premium of 5.0% on any  prepayments  of the  Subordinated  Loan made
prior to November 30, 1999. Such additional premium will be reduced by 100 basis
points on December 1, 1999 and shall be reduced by such amount on each  December
1st thereafter until December 1, 2003. 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.
In the event the  Company  has not paid the loan in full by  November  30,  1999
(subject to extension  in certain  instances),  the Company will issue  ten-year
warrants to the lender to purchase an additional 200,000 shares of the Company's
Common Stock at an exercise  price not to exceed  $5.00 per share.  In the event
the  Subordinated  Loan has not been paid in full by May 31, 2001,  the exercise
price of such  warrants  shall  be  reduced  by $1.00  per  share  and,  on each
anniversary of such date,  such exercise price shall be reduced by an additional
$1.00 per  share.  In  addition,  subject to certain  limitations,  the  Company
granted  registration  rights,  including "demand"  registration rights, to such
lender.

     The warrants issued in connection with the  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.

     The  Company  expects  that  anticipated  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 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  increased by $13,595,000
from $8,897,000 at August 31, 1998 to $22,492,000 at May 31, 1999.

     ACQUISITIONS.  On April 7, 1999,  the  Company,  through  its  wholly-owned
subsidiary  Unison (NY),  consummated  the X+C  Acquisition.  The purchase price
included an initial cash payment of $70,000 and the issuance of 40,000 shares of
restricted  Common  Stock of the  Company  to the sole  shareholder  of X+C.  In
addition,  the  purchase  price  includes 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.

     On April 22,  1999,  the Company,  through  Unison  (NY),  consummated  the
Progress Acquisition.  The purchase price included the issuance of 86,059 shares
($500,000) of restricted  Common Stock of the Company to the sole shareholder of
Progress.  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.

     On April 30, 1999,  the Company,  through  Elements (UK),  consummated  the
Interface  Acquisition.  The initial aggregate purchase price was (pound)425,000
which included the issuance of 49,695 shares  (approximately  (pound)132,000  or
$218,000)  of  restricted  Common  Stock of the Company to the  shareholders  of
Interface.  In addition,  the purchase price includes  deferred cash

                                      -17-
<PAGE>

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 any of the first
two years following the closing.

     INFLATION,   FOREIGN  CURRENCY  FLUCTUATIONS  AND  INTEREST  RATE  CHANGES.
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 would  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.

     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

                                      -18-
<PAGE>

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.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Not applicable.







                                      -19-
<PAGE>

                                     PART II

                                OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.

     On March 31, 1999, the Trustee for Cardinal  filed an adversary  proceeding
against the Company in Cardinal's Chapter 7 bankruptcy proceeding pending in the
Bankruptcy  Court. In June 1999, the Company and the Trustee  amicably  resolved
the dispute on the  following  items:  the Company  shall pay to the  bankruptcy
estate the sum of $150,000 in full and final  satisfaction of any and all claims
of the  bankruptcy  estate  against the Company.  The Trustee  shall dismiss the
adversary  proceeding  with  prejudice and waive any and all claims  against the
Company  under  the  bankruptcy  code  and  the  Cardinal  Purchase   Agreement,
including,  without limitation, any and all claims to the proceeds from the sale
of the Real Estate.  The settlement is subject to the approval of the Bankruptcy
Court.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS.

     On April 7, 1999,  the Company  issued 40,000  shares of restricted  Common
Stock of the Company to Peter Ksiezopolski as partial  consideration for the X+C
Acquisition.

     On April 22, 1999,  the Company  issued 86,059 shares of restricted  Common
Stock of the Company to Mario DeVita as partial  consideration  for the Progress
Acquisition.

     On April 30, 1999,  the Company  issued 49,695 shares of restricted  Common
Stock of the Company to the  shareholders of Interface as partial  consideration
for the Interface Acquisition.

     Subsequent to the end of the quarter,  on May 14, 1999,  the Company issued
20,000 shares of  restricted  Common Stock of the Company to Timothy  Twomey,  a
former employee of the Company.

     Subsequent to the end of the quarter,  on July 2, 1999,  the Company issued
10,000 shares of  restricted  Common Stock of the Company to Pablo  DeJesus,  an
employee of the Company.

     No underwriter  was employed by the Company in connection with the issuance
and sale of the  securities  described  above.  The  Company  believes  that the
issuance  and sale of the  foregoing  securities  were exempt from  registration
under Section 4(2) of the Securities  Act of 1933, as amended,  as a transaction
not  involving  a public  offering.  No public  offering  was  involved  and the
securities  were acquired for  investment  and not with a view to  distribution.
Appropriate  legends have been affixed to the stock  certificates  issued to the
recipients of such shares.  All  recipients  had adequate  access to information
about the Company.

                                      -20-
<PAGE>

ITEM 5.   OTHER INFORMATION

     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.  The revolving line of credit facility may be
increased to $80,000,000 in the event the Company raises  subordinated debt with
net proceeds of at least  $20,000,000.  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 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 May 31, 1999, the Company had an outstanding  balance of
$60,850,000 under the revolving credit facility.

     On April 7, 1999, the Company,  through its wholly-owned  subsidiary Unison
(NY),  consummated the X+C  Acquisition.  The purchase price included an initial
cash payment of $70,000 and the issuance of 40,000 shares of  restricted  Common
Stock of the Company to the sole  shareholder of X+C. In addition,  the purchase
price includes 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.

     On April 22,  1999,  the Company,  through  Unison  (NY),  consummated  the
Progress Acquisition.  The purchase price included the issuance of 86,059 shares
($500,000) of restricted  Common Stock of the Company to the sole shareholder of
Progress.  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.

     On April 30, 1999,  the Company,  through  Elements (UK),  consummated  the
Interface  Acquisition.  The initial aggregate purchase price was (pound)425,000
which included the issuance of 49,695 shares  (approximately  (pound)132,000  or
$218,000)  of  restricted  Common  Stock of the Company to the  shareholders  of
Interface.  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 any of the first two years
following the closing.

                                      -21-
<PAGE>

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.

(a)  EXHIBITS.

         Exhibit No.                    Description of Exhibit
         -----------                    ----------------------

            10.1                        Asset  Purchase  Agreement dated  as  of
                                        March 26, 1999  by and  among Unidigital
                                        Inc.,  Unison  (NY),  Inc., Peter  X(+C)
                                        Limited and Peter Ksiezopolski (included
                                        as an exhibit to the Company's Quarterly
                                        Report  on  Form 10-Q  for  the  quarter
                                        ended February 28, 1998 and incorporated
                                        by reference herein).

            10.2                        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.

            10.3                        Asset  Purchase  Agreement dated  as  of
                                        April 8, 1999  by and  among  Unidigital
                                        Inc.,   Unison  (NY),   Inc.,   Progress
                                        Graphics Inc. and Mario DeVita.

            10.4                        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.

            10.5                        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.

            10.6                        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.

            10.7                        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.

            10.8                        General  Security  Agreement  (Borrower)
                                        dated May 12, 1999 by Unidigital Inc. in
                                        favor of Fleet Bank, N.A.

                                      -22-
<PAGE>

            10.9                        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.

            10.10                       Pledge  and Security Agreement dated May
                                        12, 1999 by  Unidigital Inc. in favor of
                                        Fleet Bank, N.A.

            10.11                       Pledge     and    Security     Agreement
                                        (Subsidiary)   dated   May  12,  1999 by
                                        SuperGraphics  Holding Company,  Inc. in
                                        favor of Fleet Bank, N.A.

            10.12                       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.

            10.13                       Foreign Guaranty dated May 12, 1999 made
                                        by  Elements (UK)  Limited  in favor  of
                                        Fleet Bank, N.A.

            10.14                       Trademark   Collateral   Assignment  and
                                        Security  Agreement  dated as of May 12,
                                        1999 by and between Unidigital  Inc. and
                                        Fleet Bank, N.A.

            10.15                       Subsidiary      Trademark     Collateral
                                        Assignment and  Security Agreement dated
                                        as of May 12, 1999 by and between Unison
                                        (NY), Inc. and Fleet Bank, N.A.

            10.16                       Subsidiary      Trademark     Collateral
                                        Assignment and Security Agreement  dated
                                        as  of  May  12,  1999  by  and  between
                                        SuperGraphics   Corporation   and  Fleet
                                        Bank, N.A.

             27.1                       Financial Data Schedule.

(b) REPORTS ON FORM 8-K.

     None.


                                      -23-
<PAGE>

                                   SIGNATURES


     In accordance with the requirements of the Securities Exchange Act of 1934,
the Issuer  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                                              UNIDIGITAL INC.



DATE:  July 20, 1999                          By:  /s/William E. Dye
                                                 ----------------------------
                                                 William E. Dye,
                                                 Chief Executive Officer
                                                 (Principal Executive, Financial
                                                 and Accounting Officer)




                                      -24-
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