U.S. SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                 ---------------

                                    FORM 10-Q

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

                For the quarterly period ended November 30, 1999
                         Commission file number 1-14126


                                 UNIDIGITAL INC.
           -----------------------------------------------------------
             (Exact Name of Registrant 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
                           ---------------------------
                         (Registrant's Telephone Number,
                              Including Area Code)

     Check  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:
                         -----                   -----

     State the number of shares outstanding of each of the Registrant's  classes
of common stock,  as of December 31, 1999:

Class                                         Number of Shares
-----                                         ----------------
Common Stock, $.01 par value                      6,087,067


<PAGE>


                        UNIDIGITAL INC. AND SUBSIDIARIES

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

                                                                            Page
                                                                            ----

PART I         FINANCIAL INFORMATION

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

          CONSOLIDATED BALANCE SHEETS
          as at November 30, 1999 (unaudited) and
          August 31, 1999 (audited)...........................................2

          CONSOLIDATED INCOME STATEMENTS
          For the Three Months Ended November 30, 1999 and
          November 30, 1998 (unaudited).......................................3

          CONSOLIDATED STATEMENT OF CASH FLOWS
          For the Three Months Ended November 30, 1999 and
          November 30, 1998 (unaudited).......................................4

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

     Item 2.   Management's Discussion and Analysis of Financial
               Condition and Results of Operations............................13

          General.............................................................13

          Results of Operations...............................................13

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

     Item 3.   Quantitative and Qualitative Disclosures About
               Market Risk....................................................18

PART II        OTHER INFORMATION

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

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

     Item 6.   Exhibits and Reports on Form 8-K...............................21

SIGNATURES....................................................................23


                                      -i-
<PAGE>













                          PART I   FINANCIAL INFORMATION

                               ITEM 1.  FINANCIAL STATEMENTS



<PAGE>


                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------
                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------
<TABLE>
<CAPTION>

                                                                              NOVEMBER 30,            AUGUST 31,
                                                                                  1999                   1999
                                                                               ----------             ----------
                                                                              (UNAUDITED)
                                        ASSETS
<S>                                                                          <C>                      <C>
Current assets:
   Cash and cash equivalents......................................           $      1,082,000         $     734,000
   Accounts receivable (net of allowance
     of $811,000 and $744,000 at
     November 30, 1999 and August 31, 1999, respectively).........                 23,922,000            16,788,000
   Building available for sale....................................                         --             1,488,000
   Prepaid expenses...............................................                  3,495,000             2,600,000
   Other current assets...........................................                  3,075,000             2,356,000
   Deferred tax asset.............................................                  1,730,000             2,000,000
                                                                             ----------------         -------------
       Total current assets.......................................                 33,304,000            25,966,000

Property and equipment, net.......................................                 15,039,000            15,920,000
Deferred tax asset................................................                  5,730,000             5,606,000
Deferred financing costs, net.....................................                  5,040,000             1,550,000
Intangible assets, net............................................                 66,856,000            67,672,000
Other assets......................................................                  1,994,000             1,922,000
                                                                             ----------------         -------------
       Total assets...............................................           $    127,963,000         $ 118,636,000
                                                                             ================         =============

                                        LIABILITIES

Current liabilities:
   Accounts payable and accrued expenses..........................           $     14,289,000         $  16,198,000
   Current portion of capital lease obligations...................                  2,877,000             3,157,000
   Current portion of long-term debt..............................                  1,222,000             1,384,000
   Income taxes payable...........................................                    593,000             1,065,000
   Loans and notes payable to stockholders........................                    100,000               619,000
   Other current liabilities......................................                         --                34,000
                                                                             ----------------         -------------
       Total current liabilities..................................                 19,081,000            22,457,000

Capital lease obligations, net of current portion.................                  2,863,000             2,898,000
Long-term debt, net of current portion............................                 84,716,000            76,263,000
Other non-current liabilities.....................................                    696,000               707,000
                                                                             ----------------         -------------
       Total liabilities..........................................                107,356,000           102,325,000
                                                                             ----------------         -------------

                               STOCKHOLDERS' EQUITY

Preferred stock -- authorized 10,000,000 shares at November 30,
   1999 and 5,000,000 shares at November 30, 1998, $.01 par value
   each; none issued or outstanding...............................                         --                    --
Common stock -- authorized 25,000,000 shares at November 30,
   1999 and 10,000,000 shares at November 30, 1998, $.01 par value
   each; 5,987,067 shares and 5,926,618 shares issued and outstanding
   at November 30, 1999 and August 31, 1999, respectively.........                     60,000                59,000
Issuable common stock.............................................                  1,450,000             1,450,000
Additional paid-in capital........................................                 25,505,000            21,729,000
Accumulated deficit...............................................                 (6,002,000)           (6,585,000)
Accumulated other comprehensive loss..............................                   (406,000)             (342,000)
                                                                             ----------------         -------------
       Total stockholders' equity.................................                 20,607,000            16,311,000
                                                                             ----------------         -------------
       Total liabilities and stockholders' equity.................           $    127,963,000         $ 118,636,000
                                                                             ================         =============
</TABLE>

     The Notes to Consolidated Financial Statements are made a part hereof.


                                      -2-
<PAGE>


                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------
                         CONSOLIDATED INCOME STATEMENTS
                         ------------------------------
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                       THREE MONTHS ENDED,
                                                                         ------------------------------------------
                                                                              NOVEMBER 30,           NOVEMBER 30,
                                                                                1999                      1998
                                                                         -----------------         ----------------

<S>                                                                       <C>                      <C>
REVENUES
Net sales..........................................................       $     24,002,000         $   12,362,000

EXPENSES
Cost of sales......................................................             13,275,000              6,418,000
Selling, general and administrative expenses ......................              7,209,000              4,324,000
Expenses incurred due to restructuring.............................                     --                198,000
                                                                         -----------------         --------------
Total operating expenses...........................................             20,484,000             10,940,000
                                                                         -----------------         --------------

Income from continuing operations..................................              3,518,000              1,422,000
Interest expense...................................................             (2,358,000)              (991,000)
Interest expense-deferred financing costs..........................               (102,000)               (56,000)
Interest and other (expense) income................................               (178,000)               303,000
                                                                         -----------------         --------------
Income from continuing operations before income taxes..............                880,000                678,000

Provision for income taxes.........................................                297,000                298,000
                                                                         -----------------         --------------
Net income from continuing operations..............................                583,000                380,000
Loss from operations of discontinued segment (net of tax
   benefit of $18,000).............................................                     --                  9,000
                                                                         -----------------         --------------
Net income.........................................................       $        583,000         $      371,000
                                                                         =================         ==============
Basic earnings per common share:
   Earnings from continuing operations.............................       $           0.10         $         0.08
   Loss from discontinued operations...............................                     --                     --
                                                                         -----------------         --------------
Net income.........................................................       $           0.10         $         0.08
                                                                         =================         ==============
Diluted earnings per common share:
   Earnings from continuing operations.............................       $           0.09         $         0.08
   Loss from discontinued operations...............................                     --                     --
                                                                         -----------------         --------------
Net income.........................................................       $           0.09         $         0.08
                                                                         =================         ==============
Shares used to compute net income per share:
   Basic...........................................................              5,956,525              4,798,731
                                                                         =================         ==============
   Diluted.........................................................              6,192,279              4,885,905
                                                                         =================         ==============
</TABLE>

     The Notes to Consolidated Financial Statements are made a part hereof.

                                      -3-
<PAGE>


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

                                                                                      THREE MONTHS ENDED,
                                                                               -------------------------------
                                                                                NOVEMBER 30,      NOVEMBER 30,
                                                                                    1999              1998
                                                                               -------------------------------
<S>                                                                             <C>               <C>
OPERATING ACTIVITIES
Net income..............................................................        $    583,000      $   371,000
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
      Depreciation and amortization.....................................           2,201,000        1,481,000
      Gain (loss) on sale of property and equipment.....................             184,000         (315,000)
      Provision for deferred income taxes...............................             146,000           17,000
      Provision for bad debts...........................................              66,000           74,000
Changes in assets and liabilities net of effects of businesses acquired:
   Accounts receivable..................................................          (7,272,000)      (1,634,000)
   Prepaid expenses and other current assets............................          (2,274,000)         130,000
   Other assets.........................................................             (80,000)        (204,000)
   Accounts payable and accrued expenses................................          (2,664,000)      (2,154,000)
   Income taxes payable.................................................            (479,000)         230,000
                                                                               -------------      -----------
Net cash used in operating activities...................................          (9,589,000)      (2,004,000)
                                                                               -------------      -----------
INVESTING ACTIVITIES
Additions to property and equipment.....................................            (832,000)        (396,000)
Proceeds from sale of property and equipment............................           1,820,000          800,000
Business acquisitions...................................................             (44,000)     (24,521,000)
                                                                               -------------      -----------
Net cash provided by (used in) investing activities.....................             944,000      (24,117,000)
                                                                               -------------      -----------
FINANCING ACTIVITIES
Payments of capital lease obligations...................................            (491,000)        (617,000)
Proceeds from long-term debt............................................          22,602,000       27,471,000
Payments of long-term debt..............................................         (12,796,000)        (132,000)
Stockholder repayments..................................................            (518,000)         (50,000)
Warrants exercised......................................................             242,000               --
Proceeds from sale of common stock, net of issuance costs...............                  --           92,000
                                                                               -------------      -----------
Net cash provided by financing activities...............................           9,039,000       26,764,000
                                                                               -------------      -----------
Effect of foreign exchange rates on cash................................             (46,000)         (44,000)
                                                                               -------------      -----------
Net increase in cash and cash equivalents...............................             348,000          599,000
Cash and cash equivalents at beginning of period........................             734,000          287,000
                                                                               -------------      -----------
Cash and cash equivalents at end of period..............................        $  1,082,000      $   886,000
                                                                               =============      ===========
SUPPLEMENTAL DISCLOSURES
Interest paid...........................................................        $    193,000      $ 1,317,000
                                                                               =============      ===========
Income taxes paid.......................................................        $    618,000      $    20,000
                                                                               =============      ===========
Non-cash transactions:
Equipment acquired under capital lease obligations......................        $    183,000      $ 2,032,000
                                                                               =============      ===========
Stock issued for business acquisitions..................................        $         --      $ 7,886,000
                                                                               =============      ===========
Warrants issued for business acquisition................................        $         --      $   931,000
                                                                               =============      ===========
Warrants issued for additional financing................................        $  2,500,000      $   380,000
                                                                               =============      ===========
Warrants issued in lieu of cash interest payments.......................        $  1,035,000      $        --
                                                                               =============      ===========
</TABLE>

     The Notes to Consolidated Financial Statements are made a part hereof.

                                      -4-
<PAGE>


                        UNIDIGITAL INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)


NOTE A - BASIS OF PRESENTATION:

     The  information  presented for November 30, 1999, and for the  three-month
periods ended November 30, 1999 and November 30, 1998, is unaudited, but, in the
opinion of the management of Unidigital Inc., its wholly-owned  subsidiaries 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 November 30, 1999 and the results of its  operations and its cash
flows for the three-month periods ended November 30, 1999 and November 30, 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  consolidated  financial  statements for the year ended August
31, 1999,  which were  included as part of the  Company's  Annual Report on Form
10-K.

     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 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.


                                      -5-
<PAGE>



                        UNIDIGITAL INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)

     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).


     EARNINGS PER SHARE:

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

                                                            THREE MONTHS ENDED,
                                                          ----------------------
                                                                NOVEMBER 30,
                                                             1999         1998
                                                          ----------------------
Numerator for basic and diluted earnings per share-net
  income available for common stockholders............    $  583,000  $  371,000
                                                          ==========  ==========
Denominator:
   Denominator for basic earnings per share-
     weighted average shares..........................     5,956,525   4,798,731
   Effect of dilutive securities:
     Stock options....................................        15,248       9,515
     Warrants.........................................       220,506      77,659
                                                          ----------  ----------
   Denominator for diluted earnings per share-adjusted
     weighted-average shares and assumed conversions..     6,192,279   4,885,905
                                                          ==========  ==========





                                      -6-
<PAGE>


                        UNIDIGITAL INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)

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

                                                      THREE MONTHS ENDED,
                                              ----------------------------------
                                                         NOVEMBER 30,
                                                    1999              1998
                                              ----------------------------------
Stock Options................................     583,764            563,066
Warrants.....................................   1,032,134            342,000

     DERIVATIVE FINANCIAL INSTRUMENTS:

     The Company has an interest  rate collar  agreement  to modify the interest
characteristics of certain of its outstanding  long-term debt. The interest rate
collar  agreement is designated  with all or a portion of the principal  balance
and a term that does not coincide with the specific debt obligation.

NOTE C - STOCK OPTION PLANS AND WARRANTS:

     ISSUANCE OF OPTIONS AND WARRANTS:

     During the first  quarter of fiscal 2000,  the Company  granted  options to
purchase  64,000 shares of its Common Stock to certain of its  employees,  at an
exercise price of $4.00 per share. In connection with the Subordinated Loan (see
Note D), on September 14, 1999,  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. In addition,  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 another lender in lieu of cash interest payments of $1,035,000.

     Subsequent  to the end of the  quarter,  on January 3,  2000,  the  Company
granted  options to purchase  2,500  shares of its Common Stock to each of David
Wachsman and Harvey Silverman, at an exercise price of $4.0625 per share.

     IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

     In June 1998, the Financial  Accounting Standards Board issued Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities"  ("Statement 133").  Statement 133 must first be applied
in the first  quarter of fiscal years that begin after June 15, 2000.  Statement
133 will require the Company to recognize all  derivatives  on the  consolidated
balance sheets at fair value.  Derivatives  that are not hedges must be adjusted
to fair value through  income.  If the  derivative is a hedge,  depending on the
nature of the hedge,  changes in the fair value of  derivatives  will  either be
offset  against the change in fair value of the hedged  assets,  liabilities  or
firm commitments through earnings or recognized in other


                                      -7-
<PAGE>


                        UNIDIGITAL INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)

comprehensive  income  until the hedged  item is  recognized  in  earnings.  The
ineffective  portion of a derivatives  change in fair value will  immediately be
recognized in earnings.  Management has  determined  that Statement 133 will not
have a significant effect on the earnings and financial position of the Company.

NOTE D - LONG-TERM DEBT:

     Long-term debt consists of the following:

<TABLE>
<CAPTION>

                                                                            FACILITY
                                                                             AMOUNT               AMOUNT OUTSTANDING
                                                                           NOVEMBER 30,      NOVEMBER 30,      AUGUST 31,
                                                                              1999              1999            1999
                                                                          -------------------------------------------------
<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%.                                    $80,000,000      $64,265,000      $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          181,000          241,000
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          640,000          621,000
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          320,000          236,000
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
Subordinated loan matures in August 2006; base interest of 14%.             20,000,000       20,000,000               --
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.                                                    --          420,000          454,000
Senior subordinated note investment fee, due May 2001.                              --               --        1,500,000
Other                                                                          312,000          112,000          220,000
                                                                          -------------------------------------------------
                                                                                             85,938,000       77,647,000
Less: current portion of long-term debt                                                       1,222,000        1,384,000
                                                                          -------------------------------------------------
Long-term debt                                                                              $84,716,000      $76,263,000
                                                                          =================================================
</TABLE>

                                      -8-
<PAGE>


                        UNIDIGITAL INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)

     BANK CREDIT  FACILITIES.  In May 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.  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 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  November  30,  1999,  the
Company had an  outstanding  balance of $64,265,000  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  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.
These  warrants  were  deemed to have a value of  approximately  $308,000,  were
recorded  as  deferred   financing   costs,   and  were  being  amortized  on  a
straight-line  basis over  approximately five years. Such amount was recorded as
an extraordinary  item as of August 31, 1999 in conjunction with the termination
of the Company's existing credit facility. 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.  Such  amount  approximated  the fair
market value of the related accrued  interest.  Subject to certain  limitations,
the Company has granted  registration  rights,  including "demand"  registration
rights, to such lender.

     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 outstanding  $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

                                       -9-
<PAGE>


                        UNIDIGITAL INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)

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 warrants issued to the lender,
which were  deemed to have a value of  approximately  $2,500,000,  subject to an
independent  appraisal,  have been recorded as deferred financing costs, and are
being amortized on a straight-line basis over approximately seven years.

     On October 29,  1999,  the  Company  entered  into an interest  rate collar
agreement on  $35,000,000  of variable rate bank debt.  Under this interest rate
collar agreement, the Company is required to pay interest at the higher of 6.12%
or the  Company's  current  rate (6.04% at November 30,  1999),  to a maximum of
7.80% per annum, as defined.  The interest rate collar  agreement  terminates on
October  29,  2001.  The  Company's  estimated  credit  exposure  related to the
interest rate collar agreement is summarized as follows:

                                         Notional           Credit
                                          Amount           Exposure
                                          ------           --------

     Interest rate collar agreement     $35,000,000         $30,000

     The  notional  amount  of the  derivative  does not  represent  the  amount
exchanged  by the  parties,  and is not a measure of the exposure of the Company
through its use of  derivatives.  The amounts  exchanged  are  calculated on the
basis of the  notional  amounts  and the other terms of the  derivatives,  which
relate to interest rates.

     The Company is exposed to credit losses in the event of  nonperformance  by
counterparties   to   financial   instruments,   but  it  does  not  expect  any
counterparties  to fail to meet their  obligations  given their  current  credit
ratings.

NOTE E - 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 the three month
ended  November  30,  1998 has been  restated  to  conform  to the 1999  segment
reporting format.


                                      -10-
<PAGE>


                        UNIDIGITAL INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)


     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.

     The following summarizes the operations by geographic segment for the three
months ended November 30, 1999 and 1998:

                                                 NOVEMBER 30,
                              --------------------------------------------------
                                          1999                    1998
                              --------------------------------------------------
                                  UNITED                  UNITED
                                  STATES      EUROPE      STATES     EUROPE
                              --------------------------------------------------

     Net sales                $ 15,427,000  $ 8,575,000  $ 8,877,000 $ 3,485,000
     Income from operations      2,549,000      969,000    1,293,000     129,000
     Identifiable assets       107,801,000   20,162,000   92,719,000  10,322,000


     The  following  summarizes  operations  by  industry  segment for the three
months ended November 30, 1999 and 1998:

                                                November 30,
                              ------------------------------------------------
                                         1999                       1998
                              ------------------------------------------------
                                MEDIA       PREMEDIA     MEDIA        PREMEDIA
                               SOLUTIONS    SERVICES    SOLUTIONS     SERVICES
                              ------------------------------------------------

     Net sales                $13,300,000  $10,702,000  $ 3,744,000  $ 8,618,000
     Income from operations     2,196,000    1,322,000      350,000    1,072,000
     Identifiable assets       88,819,000   39,144,000   87,839,000   15,202,000


                                      -11-
<PAGE>


                        UNIDIGITAL INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (unaudited)

NOTE F - COMPREHENSIVE INCOME:

     Comprehensive income consisted of the following:

                                                       THREE MONTHS ENDED
                                               ---------------------------------
                                                 NOVEMBER 30,     NOVEMBER 30,
                                                    1999              1998
                                               ---------------------------------
     Net income                                   $583,000         $371,000
     Net change in foreign currency
       translation adjustment                      (64,000)         (83,000)
                                               -----------         --------
     Comprehensive income                         $519,000         $288,000

     As of  November  30, 1999 and  November  30,  1998,  the  cumulative  other
comprehensive  loss  consisted of the  Company's  foreign  currency  translation
adjustment.


                                      -12-
<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 Europe.  During  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.

     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;  and (vi) 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 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


                                      -13-
<PAGE>


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.

     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 sold  substantially  all the assets of its wholly-owned
subsidiary,  Unidigital  Elements  (NY),  Inc.  ("Elements  (NY)")  to  a  group
comprised  of that  unit's  management  (the  "Elements  Sale").  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.

     The Company incurred a loss on its disposal of its discontinued  segment of
$9,000 net of a tax benefit of $18,000, for the three months ended  November 30,
1998.  Accordingly,  the Company has restated its consolidated  income statement
for the three months ended November 30, 1998.

     THREE MONTHS ENDED NOVEMBER 30, 1999 AND NOVEMBER 30, 1998
     ----------------------------------------------------------

     NET SALES.  Net sales for the three months ended  November 30, 1999 ("First
Quarter of Fiscal 2000")  increased by 94%, or $11,640,000,  to $24,002,000 from
$12,362,000  for the three  months ended  November  30, 1998 ("First  Quarter of
Fiscal 1999"). Net sales for the Company's United States operations increased by
74%, or $6,550,000, from $8,876,000 in the First Quarter

                                      -14-
<PAGE>

of Fiscal 1999 to $15,426,000 in the First Quarter of Fiscal 2000. Net sales for
the  Company's  European  operations  increased  by 146%,  or  $5,090,000,  from
$3,486,000  in the First  Quarter  of  Fiscal  1999 to  $8,576,000  in the First
Quarter of Fiscal 2000.  Net sales for the Company's  Media  Solutions  division
increased by 218%, or $9,036,000, from $4,151,000 in the First Quarter of Fiscal
1999 to  $13,187,000  in the First  Quarter of Fiscal  2000.  This  increase was
attributable  primarily to an increase in net sales arising out of the Company's
MegaArt operations,  the SuperGraphics  Acquisition,  the M. Nur Acquisition and
the Big  Bills  Acquisition.  Net  sales  for the  Company's  Premedia  Services
division  increased by 32%, or $2,604,000,  from $8,211,000 in the First Quarter
of Fiscal 1999 to $10,815,000 in the First Quarter of Fiscal 2000. This increase
was  attributable  primarily to an increase in net sales  resulting  from a full
three  months of net sales  resulting  from the  Pre-Press  Acquisition  and the
Interface Acquisition.

     COST OF SALES. Cost of sales for the First Quarter of Fiscal 2000 increased
by 107%, or $6,857,000,  to $13,275,000 from $6,418,000 for the First Quarter of
Fiscal 1999. As a percentage of net sales,  cost of sales increased from 52% for
the First  Quarter of Fiscal 1999 to 55% for the First  Quarter of Fiscal  2000.
Cost  of  sales  for the  Company's  United  States  operations  increased  as a
percentage of net sales from 49% for the First Quarter of Fiscal 1999 to 52% for
the First  Quarter  of Fiscal  2000.  Cost of sales for the  Company's  European
operations increased as a percentage of net sales from 59% for the First Quarter
of Fiscal 1999 to 61% for the First  Quarter of Fiscal  2000.  Cost of sales for
the Company's  Media Solutions  division  increased as a percentage of net sales
for such  division  from 50% in the First  Quarter of Fiscal  1999 to 57% in the
First Quarter of Fiscal 2000.  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  increased slightly as a percentage of net sales for such division from
53% in the First  Quarter of Fiscal  1999 to 54% in the First  Quarter of Fiscal
2000.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative   expenses  ("SG&A")  increased  by  67%,  or  $2,885,000,   from
$4,324,000  for the First  Quarter of Fiscal  1999 to  $7,209,000  for the First
Quarter  of  Fiscal  2000.  Such  increase  was  attributable  primarily  to the
increased level of operations. As a percentage of net sales, SG&A decreased from
35% for the First  Quarter of Fiscal 1999 to 30% for the First Quarter of Fiscal
2000. SG&A decreased as a percentage of net sales as a result of increased sales
volume.

     RESTRUCTURING  EXPENSES.  In the First Quarter of Fiscal 1999,  the Company
consolidated its United Kingdom financial  printing  operations.  As a result of
such consolidation, the Company incurred restructuring expenses of $198,000.

     INCOME FROM CONTINUING  OPERATIONS.  Income from continuing  operations for
the First Quarter of Fiscal 2000 increased by 147%, or $2,096,000, to $3,518,000
from $1,422,000 for the First Quarter of Fiscal 1999. Of this amount, $2,549,000
was  contributed by the Company's  United States  operations and $969,000 by the
Company's  European  operations.  In addition,  of this amount,  $2,249,000  was
contributed by the Company's  Media  Solutions  division and $1,269,000 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.

                                      -15-
<PAGE>

     NET INTEREST EXPENSE.  Net interest expense for the First Quarter of Fiscal
2000 increased by 255%, or $1,894,000, to $2,638,000 from $744,000 for the First
Quarter of Fiscal 1999. This increase resulted from increased  interest payments
incurred in connection with the Subordinated Loan and increased borrowings under
the Company's credit facilities.

     INCOME  TAXES.  Income  taxes for the First  Quarter of Fiscal 2000 and the
First  Quarter of Fiscal 1999  remained  relatively  constant  at  $297,000  and
$298,000, respectively.

     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  $9,000  on  discontinued
operations for the First Quarter of Fiscal 1999.

     NET INCOME.  As a result of the factors described above, net income for the
First  Quarter of Fiscal  2000  increased  by 57%, or  $212,000,  to $583,000 as
compared to net income of $371,000 for the First Quarter of Fiscal 1998.

LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS

     CASH FLOW.  Net cash used in operating  activities  was  $9,589,000 for the
First  Quarter of Fiscal  2000 and  $2,004,000  for the First  Quarter of Fiscal
1999. Net cash used in investing  activities for the acquisition of property and
equipment was $832,000 for the First Quarter of Fiscal 2000 and $396,000 for the
First Quarter of Fiscal 1999. For the First Quarter of Fiscal 2000 and the First
Quarter of Fiscal 1999, the Company  acquired  equipment under capital leases of
$183,000 and $2,032,000, respectively, and made payments under capital leases of
$491,000 and  $617,000,  respectively.  Net bank  borrowings  provided  funds of
$9,806,000  for the First Quarter of Fiscal 2000 and  $27,339,000  for the First
Quarter of Fiscal 1999.

     BANK CREDIT  FACILITIES.  In May 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.  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 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  November  30,  1999,  the
Company had an  outstanding  balance of $64,265,000  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

                                      -16-
<PAGE>

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.

     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  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 $10,714,000
from $3,509,000 at August 31, 1999 to $14,223,000 at November 30, 1999.


                                      -17-
<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.

     To date,  the Year 2000 Problem has not  adversely  affected the  Company's
business.

ITEM 3.   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  Europe  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 other
European  currencies and the United States Dollar,  such change would  adversely
affect the results of the  Company's  European  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.


                                      -18-
<PAGE>


     On October 29,  1999,  the  Company  entered  into an interest  rate collar
agreement on  $35,000,000  of variable rate bank debt.  Under this interest rate
collar agreement, the Company is required to pay interest at the higher of 6.12%
or the  Company's  current  rate (6.04% at November 30,  1999),  to a maximum of
7.80% per annum, as defined.  The interest rate collar  agreement  terminates on
October  29,  2001.  The  Company's  estimated  credit  exposure  related to the
interest rate collar agreement is summarized as follows:

                                              Notional           Credit
                                               Amount           Exposure
                                               ------           --------

     Interest rate collar agreement         $35,000,000          $30,000

     The  notional  amount  of the  derivative  does not  represent  the  amount
exchanged  by the  parties,  and is not a measure of the exposure of the Company
through its use of  derivatives.  The amounts  exchanged  are  calculated on the
basis of the  notional  amounts  and the other terms of the  derivatives,  which
relate to interest rates.

     The Company is exposed to credit losses in the event of  nonperformance  by
counterparties   to   financial   instruments,   but  it  does  not  expect  any
counterparties  to fail to meet their  obligations  given their  current  credit
ratings.

                                      -19-
<PAGE>


                           PART II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS.

     Subsequent  to the end of the  quarter,  on January 14,  2000,  the Company
filed a complaint  against Ehud Aloni, the former President of MegaArt and a 10%
stockholder of the Company,  in the United States District Court of the Southern
District  of New  York.  By  the  action,  the  Company  seeks  to  enforce  the
restrictive  covenants set forth in Mr.  Aloni's  employment  agreement with the
Company.  On  January  14,  2000,  the court  granted  the  Company a  temporary
restraining order against Mr. Aloni. The Company is also seeking $175 million in
damages.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS.

     On  September  14,  1999,  the  Company  issued   seven-year   warrants  to
Massachusetts  Mutual Life  Insurance  Company and certain of its  affiliates to
purchase  690,134  shares of the Company's  Common Stock at an exercise price of
$5.425 per share.

     On September  14,  1999,  the Company  issued  warrants to CIBC WMC Inc. to
purchase  208,150  shares of the Company's  Common Stock at an exercise price of
$0.01 per share. The warrants are exercisable until November 30, 2008.

     Subsequent  to the end of the  quarter,  on December  1, 1999,  the Company
issued 100,000 shares of restricted Common Stock of the Company to Ehud Aloni in
partial consideration of the MegaArt Acquisition.

     No underwriter was employed by the Company in connection with the issuances
and sales of the  securities  described  above.  The Company  believes  that the
issuances  and  sales  of all of  the  foregoing  securities  were  exempt  from
registration  under either (i) Section 4(2) of the  Securities  Act of 1933,  as
amended (the "Act"), as transactions not involving a public offering, or (ii) in
the case of the  shares  issued  to the  employee,  Rule 701  under the Act as a
transaction made pursuant to a written  compensatory benefit plan or pursuant to
a written contract relating to compensation. 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 Mr.
Aloni.  In  addition,   appropriate   legends  will  be  affixed  to  the  stock
certificates issued upon the respective exercise of the foregoing warrants.  All
recipients had adequate access to information about the Company.

                                      -20-
<PAGE>


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

     (a)  Exhibits.

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

        4.1                         Form  of  Warrant  issued  to  Massachusetts
                                    Mutual  Life  Insurance Company and  certain
                                    of its affiliates. Incorporated by reference
                                    to  Exhibit  4.11 to  the  Company's  Annual
                                    Report  on Form  10-K for  the period  ended
                                    August 31, 1999.

        4.2                         Registration    Rights    Agreement    dated
                                    September 14, 1999 by among Unidigital  Inc.
                                    and  Massachusetts  Mutual  Life   Insurance
                                    Company  and   certain  of  its  affiliates.
                                    Incorporated by reference to Exhibit 4.12 to
                                    the Company's Annual Report on Form 10-K for
                                    the period ended August 31, 1999.

        4.3                         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.
                                    Incorporated by reference to Exhibit 4.13 to
                                    the Company's Annual Report on Form 10-K for
                                    the period ended August 31, 1999.

        4.4                         Revolving  Promissory  Note dated  September
                                    29, 1999 made by Unidigital Inc. in favor of
                                    Fleet  Bank,  N.A.  in  principal  amount of
                                    $5,000,000.  Incorporated  by  reference  to
                                    Exhibit 4.17 to the Company's Annual  Report
                                    on Form 10-K for the period ended August 31,
                                    1999.

        4.5                         Revolving  Promissory  Note  dated September
                                    29, 1999 made by Unidigital Inc. in favor of
                                    People's  Bank  of  California  in principal
                                    amount   of   $5,000,000.  Incorporated   by
                                    reference to Exhibit 4.18  to the  Company's
                                    Annual  Report on  Form 10-K  for the period
                                    ended August 31, 1999.

                                      -21-
<PAGE>


        4.6                         Revolving  Promissory Note  dated  September
                                    29, 1999 made by Unidigital Inc. in favor of
                                    Sovereign  Bank   in  principal   amount  of
                                    $5,000,000.  Incorporated  by  reference  to
                                    Exhibit   4.19   to   the  Company's  Annual
                                    Report  on  Form 10-K  for the period  ended
                                    August 31, 1999.

        10.1                        Amendment  No. 2 to Credit  Agreement  dated
                                    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.
                                    Incorporated  by reference to  Exhibit 10.26
                                    to the Company's  Annual Report on Form 10-K
                                    for the period ended August 31, 1999.

        10.2                        Securities    Purchase    Agreement    among
                                    Unidigital  Inc. and  its subsidiaries   and
                                    Massachusetts Mutual Life Insurance  Company
                                    and certain of its affiliates.  Incorporated
                                    by   reference to   Exhibit  10.37   to  the
                                    Company's Annual Report on Form 10-K for the
                                    period ended August 31, 1999.

        27.1                        Financial Data Schedule for the period ended
                                    November 30, 1999.

        27.2                        Restated  Financial Data  Schedule  for  the
                                    period ended November 30, 1998.

        (b)    Reports on Form 8-K.

               None.


                                      -22-
<PAGE>


                                   SIGNATURES


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

                                      UNIDIGITAL INC.



DATE:     January 19, 2000            By: /s/ William E. Dye
                                         -----------------------------------
                                         William E. Dye, Chief Executive Officer
                                         (Principal Executive, Financial and
                                         Accounting Officer)



                                      -23-