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 February 29, 2000
                           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 March 31, 2000:

Class                                            Number of Shares
-----                                            ----------------
Common Stock, $.01 par value                        6,127,067

     Transitional Small Business Disclosure Format:

                   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 February 29, 2000 (unaudited)
        and August 31, 1999 (audited)...............................  2

        CONSOLIDATED INCOME STATEMENTS
        For the Three Months and Six Months Ended
        February 29, 2000 and February 28, 1999
        (unaudited).................................................  3

        CONSOLIDATED STATEMENTS OF CASH FLOWS
        For the Six Months Ended
        February 29, 2000 and February 28, 1999
        (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..............  17

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

PART II    OTHER INFORMATION

   Item 1. Legal Proceedings........................................  19

   Item 2. Changes in Securities and Use of Proceeds................  19

   Item 4. Submission of Matters to a Vote of Security Holders......  20

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

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

SIGNATURES..........................................................  22


                                       -i-
<PAGE>




                          PART I FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS




                                      -1-
<PAGE>


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

                                                                              FEBRUARY 29,            AUGUST 31,
                                                                                  2000                   1999
                                                                                --------               --------
                                                                              (UNAUDITED)

                            ASSETS

<S>                                                                           <C>                     <C>
Current assets:
  Cash and cash equivalents......................................             $     760,000           $    734,000
  Accounts receivable (net allowance of $999,000
    and $744,000 at February 29, 2000 and
    August 31, 1999, respectively)...............................                26,413,000             16,788,000
  Building available for sale....................................                        --              1,488,000
  Prepaid expenses...............................................                 3,824,000              2,600,000
  Deferred tax asset.............................................                 1,730,000              2,000,000
  Other current assets...........................................                 2,548,000              2,356,000
                                                                               ------------            ----------
      Total current assets.......................................                35,275,000             25,966,000

Property and equipment, net......................................                16,171,000             15,920,000
Deferred tax asset...............................................                 5,730,000              5,606,000
Deferred financing costs, net....................................                 4,829,000              1,550,000
Intangible assets, net...........................................                66,694,000             67,672,000
Other assets.....................................................                 2,070,000              1,922,000
                                                                               ------------            -----------
      Total assets...............................................            $  130,769,000           $118,636,000
                                                                               ============            ===========
                            LIABILITIES

Current liabilities:
  Accounts payable and accrued expenses..........................            $   12,830,000           $ 16,198,000
  Current portion of capital lease obligations...................                 2,619,000              3,157,000
  Current portion of long-term debt..............................                 1,351,000              1,384,000
  Income taxes payable...........................................                   837,000              1,065,000
  Loans and notes payable to stockholders........................                   100,000                619,000
  Other current liabilities......................................                        --                 34,000
                                                                               ------------            -----------
      Total current liabilities..................................                17,737,000             22,457,000
Capital lease obligations, net of current portion................                 2,247,000              2,898,000
Long-term debt, net of current portion...........................                89,473,000             76,263,000
Other non-current liabilities....................................                   645,000                707,000
                                                                               ------------            -----------
      Total liabilities..........................................               110,102,000            102,325,000
                                                                               ------------            -----------

                            STOCKHOLDERS' EQUITY

Preferred stock -- authorized 10,000,000 shares,
  $.01 par value each; none issued or outstanding................                        --                     --
Common stock -- authorized 25,000,000 shares,
  $.01 par value each; 6,087,067 and 5,926,618 shares
  issued and outstanding at February 29, 2000 and
  August 31, 1999, respectively..................................                    61,000                 59,000
Issuable common stock............................................                   909,000              1,450,000
Additional paid-in capital.......................................                26,046,000             21,729,000
Accumulated deficit..............................................                (5,719,000)            (6,585,000)
Accumulated other comprehensive loss.............................                  (630,000)              (342,000)
                                                                               ------------            -----------
      Total stockholders' equity.................................                20,667,000             16,311,000
                                                                               ------------            -----------
      Total liabilities and stockholders' equity.................            $  130,769,000           $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,                     SIX MONTHS ENDED,
                                                    --------------------------------      ---------------------------------
                                                      FEBRUARY 29,     FEBRUARY 28,         FEBRUARY 29,      FEBRUARY 28,
                                                          2000             1999                 2000              1999
                                                          ----             ----                 ----              ----

<S>                                                 <C>               <C>                  <C>               <C>
REVENUES
Net sales.....................................      $  23,009,000     $ 15,407,000         $  47,012,000     $ 27,875,000
                                                     ------------      -----------          ------------      -----------
EXPENSES

  Cost of sales.................................       11,980,000        6,586,000            25,197,000       13,071,000
  Selling, general and
    administrative  expenses....................        7,442,000        6,104,000            14,627,000       10,452,000
  Expenses incurred due to restructuring........               --               --                    --          196,000
                                                     ------------      -----------          ------------      -----------
  Total operating expenses......................       19,422,000       12,690,000            39,824,000       23,719,000
                                                     ------------      -----------          ------------      -----------
  Income from continuing  operations............        3,587,000        2,717,000             7,188,000        4,156,000
  Interest expense..............................       (2,460,000)      (1,478,000)           (4,818,000)      (2,468,000)
  Interest expense - deferred financing costs...         (211,000)        (135,000)             (313,000)        (191,000)
  Other (expense) income........................         (166,000)         (47,000)             (424,000)         213,000
                                                     ------------      -----------          ------------      -----------
  Income from continuing operations before
    income taxes................................          750,000        1,057,000             1,633,000        1,710,000

  Provision for income taxes....................          468,000          492,000               767,000          774,000
                                                     ------------      -----------          ------------      -----------
Net income from continuing operations...........          282,000          565,000               866,000          936,000
Loss from operations of discontinued segment
 (net of tax benefit of $90,000 and $92,000,
 respectively...................................               --         (111,000)                   --         (112,000)
                                                     ------------      -----------          ------------      -----------
Net income......................................    $     282,000    $     454,000         $     866,000     $    824,000
                                                     ============     ============          ============      ===========

Basic earnings per common share:

  Earnings from continuing operations...........    $        0.05    $        0.11         $        0.14     $       0.18
  Loss from discontinued operations.............               --            (0.02)                   --            (0.02)
                                                     ------------     ------------          ------------      -----------
Net income......................................    $        0.05    $        0.09         $        0.14     $       0.16
                                                     ============     ============          ============      ===========
Diluted earnings per common share:
  Earnings from continuing operations...........    $        0.04    $        0.10         $        0.14     $       0.18
  Loss from discontinued operations.............               --            (0.02)                   --            (0.02)
                                                     ------------     ------------          ------------      -----------
Net income......................................    $        0.04    $        0.08         $        0.14     $       0.16
                                                     ============     ============          ============      ===========
Shares used to compute net income per share:
  Basic.........................................        6,073,880        5,247,248             6,014,871        5,024,420
                                                     ============     ============          ============      ===========
  Diluted.......................................        6,281,628        5,381,070             6,215,484        5,124,166
                                                     ============     ============          ============      ===========
</TABLE>

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

                                      -3-
<PAGE>
                        UNIDIGITAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                                   SIX MONTHS ENDED,
                                                                            ---------------------------------
                                                                             FEBRUARY 29,       FEBRUARY 28,
                                                                                 2000               1999
                                                                                 ----               ----
<S>                                                                          <C>                <C>
OPERATING ACTIVITIES
Net income..........................................................         $    866,000       $    824,000
Adjustments to reconcile net income to
   net cash provided by (used in) operating activities:
     Depreciation and amortization..................................            4,533,000          3,509,000
     Provision for deferred income taxes............................                8,000             57,000
     Provision for bad debts........................................              136,000            233,000
     Gain (loss) on sale of property and equipment..................              184,000           (313,000)
Changes in assets and liabilities net of effects of businesses
  acquired:
     Accounts receivable............................................           (9,810,000)        (3,585,000)
     Prepaid expenses and other current assets......................           (1,842,000)        (2,199,000)
     Other assets...................................................             (312,000)          (282,000)
     Accounts payable and accrued expenses..........................           (5,339,000)        (2,383,000)
     Income taxes payable...........................................             (222,000)           485,000
                                                                              -----------        -----------
Net cash used in operating activities...............................          (11,798,000)        (3,654,000)
                                                                              -----------        -----------
INVESTING ACTIVITIES
Additions to property and equipment.................................           (1,830,000)          (711,000)
Proceeds from sale of property and equipment........................            1,818,000            941,000
Business acquisitions...............................................             (651,000)       (24,789,000)
                                                                              -----------        -----------
Net cash used in investing activities...............................             (663,000)       (24,559,000)
                                                                              -----------        -----------
FINANCING ACTIVITIES
Net proceeds from bank borrowings...................................           27,685,000         29,751,000
Payments of capital lease obligations...............................           (1,364,000)        (1,157,000)
Payments of long-term debt..........................................          (13,656,000)          (208,000)
Stockholder repayments..............................................             (420,000)           (50,000)
Warrants exercised..................................................              242,000                 --
Proceeds from the sale of common stock, net of issuance costs.......                   --             92,000
                                                                              -----------        -----------
Net cash provided by financing activities...........................           12,487,000         28,428,000
                                                                              -----------        -----------

Effect of foreign exchange rates on cash............................                   --            (49,000)
                                                                              -----------        -----------

Net increase in cash and cash equivalents...........................               26,000            166,000
Cash and cash equivalents at beginning of period....................              734,000            287,000
                                                                              -----------        -----------
Cash and cash equivalents at end of period..........................         $    760,000       $    453,000
                                                                              ===========        ===========
SUPPLEMENTAL DISCLOSURES
Interest paid.......................................................         $  3,178,000       $  3,385,000
                                                                              ===========        ===========
Income taxes paid...................................................         $    687,000       $    192,000
                                                                              ===========        ===========
Noncash transactions:
Equipment acquired under capital lease obligations..................         $    213,000       $  2,597,000
                                                                              ===========        ===========
Stock issued for business acquisitions..............................         $         --       $  7,886,000
                                                                              ===========        ===========
Warrants issued for business acquisitions...........................         $         --       $    931,000
                                                                              ===========        ===========
Warrants issued for additional financing (revised)..................         $  2,500,000       $    308,000
                                                                              ===========        ===========
Business acquisitions (net of liabilities of $5,010,000)............         $         --       $  2,466,000
                                                                              ===========        ===========
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 February 29, 2000, and for the  three-month
and the  six-month  periods  ended  February  29, 2000 and  February 28, 1999 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 February 29, 2000 and the
results  of its  operations  and its  cash  flows  for the  three-month  and the
six-month periods ended February 29, 2000 and February 28, 1999.

     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, 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 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:
<TABLE>
<CAPTION>

                                                            THREE MONTHS ENDED,                    SIX MONTHS ENDED,
                                                     ----------------------------------    ----------------------------------
                                                       FEBRUARY 29,     FEBRUARY 28,         FEBRUARY 29,      FEBRUARY 28,
                                                           2000             1999                 2000              1999
                                                           ----             ----                 ----              ----

<S>                                                   <C>              <C>                  <C>               <C>
Numerator for basic and diluted earnings per
 share-net income available for common
 stockholders...................................      $    282,000     $    454,000         $    866,000      $   824,000
                                                       ===========      ===========          ===========       ==========
Denominator:
  Denominator for basic earnings per share-
   weighted average shares......................         6,073,880        5,247,248            6,014,871        5,024,420
  Effect of dilutive securities:
   Stock options................................               172           17,180                2,536           11,534
   Warrants.....................................           207,576          116,642              198,077           88,212
                                                       -----------      -----------          -----------       ----------
  Denominator for diluted earnings per share-
   adjusted weighted-average shares and
   assumed conversions..........................         6,281,628        5,381,070            6,215,484        5,124,166
                                                       ===========      ===========          ===========       ==========
</TABLE>

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

                                                      THREE MONTHS ENDED,                      SIX MONTHS ENDED,
                                              ---------------------------------------------------------------------------
                                                FEBRUARY 29,      FEBRUARY 28,         FEBRUARY 29,          FEBRUARY 28,
                                                    2000              1999                 2000                  1999
                                              ---------------------------------------------------------------------------
<S>                                              <C>                 <C>                 <C>                   <C>
Stock Options................................    1,073,860           559,798           1,071,316               559,798
Warrants.....................................    1,854,813           342,000           1,864,312               342,000
</TABLE>



                                      -6-
<PAGE>


                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------

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

     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  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.

     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.



                                      -7-
<PAGE>

                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------

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

NOTE C - LONG-TERM DEBT:

     Long-term debt consists of the following:
<TABLE>
<CAPTION>

                                                                           FACILITY
                                                                             AMOUNT                AMOUNT OUTSTANDING

                                                                          FEBRUARY 29,        FEBRUARY 29,      AUGUST 31,
                                                                              2000                2000             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         $68,240,000       $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.                                                         237,000             162,000           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.                                                    631,000             531,000           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.                                                    316,000             316,000           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%.            20,186,000          20,186,000                --
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.                                        --             386,000           454,000
Notes  payable for  certain equipment,  maturing on December 2004,
  each  payable  in  monthly  installments  of  $9,000,  including
  interest at 8.66% and 9.56%, respectively.                                       --             833,000                --
Senior subordinated note investment fee, due May 2001.                             --                  --         1,500,000
Other                                                                         308,000             170,000           220,000
                                                                         --------------------------------------------------
                                                                                               90,824,000        77,647,000
Less: current portion of long-term debt                                                         1,351,000         1,384,000
                                                                         --------------------------------------------------
Long-term debt                                                                                $89,473,000       $76,263,000
                                                                         ==================================================
</TABLE>

     BANK CREDIT FACILITIES. On September 30, 1999, the Company's revolving
line of credit facility was increased to  $80,000,000.  As of February 29, 2000,
the Company had an outstanding balance of $68,240,000 under the revolving credit
facility,  bearing  interest at rates  ranging from 9.34% to 11% per annum.  The
Company is in compliance with all debt covenants.

     In  September   1999,   upon   prepayment  of  the  Company's   $10,000,000
subordinated  loan,  the lender  opted to have the interest of such loan paid in
warrants to  purchase  Common  Stock of

                                      -8-
<PAGE>

                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------

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

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.

     In September 1999, the Company  borrowed a principal  amount of $20,000,000
pursuant to another subordinated  unsecured loan (the "Subordinated  Loan"). The
Subordinated  Loan  matures in August 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 in August 2005. In addition,  on any prepayments
of the Subordinated Loan made prior to 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.

     In October 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 (6.33% at February 29, 2000),  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          $37,000

     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.

                                      -9-
<PAGE>

                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------

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

     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 D - SEGMENT INFORMATION:

     The Company has two reportable  segments:  the media solutions division and
premedia  services  division.  The segment  information  for the three-month and
six-month  periods ended  February 28, 1999 have been restated to conform to the
2000 segment reporting format.

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

     The following summarizes the operations by geographic segment for the three
months and six months ended February 29, 2000 and February 28, 1999:

<TABLE>
<CAPTION>

                                         THREE MONTHS ENDED                                    SIX MONTHS ENDED
                                         ------------------                                    ----------------
                             FEBRUARY 29, 2000        FEBRUARY 28, 1999          FEBRUARY 29, 2000          FEBRUARY 28, 1999
                         ----------------------------------------------------------------------------------------------------------
                            UNITED                   UNITED                    UNITED                      UNITED
                            STATES       EUROPE      STATES       EUROPE       STATES        EUROPE        STATES       EUROPE
                         ----------------------------------------------------------------------------------------------------------

<S>                      <C>          <C>          <C>          <C>         <C>            <C>           <C>           <C>
Net sales                $14,832,000  $ 8,177,000  $12,100,000  $ 3,307,000 $ 30,260,000   $16,752,000   $21,083,000   $6,792,000
Income from operations     2,262,000    1,325,000    2,496,000      221,000    4,853,000     2,335,000     3,806,000      350,000
Identifiable assets      111,525,000   19,244,000   95,195,000    9,811,000  111,525,000    19,244,000    95,195,000    9,811,000
</TABLE>

     The  following  summarizes  operations  by  industry  segment for the three
months and six months ended February 29, 2000 and February 28, 1999:
<TABLE>
<CAPTION>

                                         THREE MONTHS ENDED                                   SIX MONTHS ENDED
                                         ------------------                                   ----------------
                             FEBRUARY 29, 2000         FEBRUARY 28, 1999         FEBRUARY 29, 2000          FEBRUARY 28, 1999
                         ---------------------------------------------------------------------------------------------------------
                             MEDIA       PREMEDIA     MEDIA      PREMEDIA       MEDIA       PREMEDIA       MEDIA      PREMEDIA
                           SOLUTIONS     SERVICES   SOLUTIONS    SERVICES     SOLUTIONS     SERVICES     SOLUTIONS    SERVICES
                         ---------------------------------------------------------------------------------------------------------

<S>                      <C>           <C>         <C>          <C>          <C>          <C>           <C>           <C>
Net sales                $12,245,000   $10,764,000 $ 5,151,000  $10,256,000  $25,546,000  $21,466,000   $ 8,895,000   $18,980,000
Income from operations     2,059,000     1,528,000   1,704,000    1,013,000    4,297,000    2,891,000     2,054,000     2,102,000
Identifiable assets       83,801,000    46,968,000  76,157,000   28,849,000   83,801,000   46,968,000    76,157,000    28,849,000
</TABLE>

                                      -10-
<PAGE>

                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------

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

NOTE E - COMPREHENSIVE INCOME:

     Comprehensive income consisted of the following:
<TABLE>
<CAPTION>

                                                     THREE MONTHS ENDED,                     SIX MONTHS ENDED,
                                           ----------------------------------------------------------------------------
                                              FEBRUARY 29,         FEBRUARY 28,        FEBRUARY 29,     FEBRUARY 28,
                                                  2000                 1999                2000             1999
                                           ----------------------------------------------------------------------------
<S>                                         <C>                   <C>                 <C>               <C>
Net income                                  $    282,000          $ 454,000           $  866,000        $  824,000
Net change in foreign currency
  translation adjustment                        (224,000)          (217,000)            (288,000)         (300,000)
                                                --------           --------             --------          --------
Comprehensive income                        $     58,000          $ 237,000           $  578,000        $  524,000
</TABLE>

     As of  February  29, 2000 and  February  28,  1999,  the  cumulative  other
comprehensive  loss  consisted of the  Company's  foreign  currency  translation
adjustment.

NOTE F - MODIFICATION OF X+C ACQUISITION AGREEMENT AND AGREED EARN-OUT PAYMENT:

     In April 1999, the Company consummated the acquisition of substantially all
of the assets of Peter X(+C) Limited  ("X+C").  The purchase  price  included an
initial cash payment of $70,000 and the issuance of 40,000 shares  ($200,000) of
restricted Common Stock of the Company. In addition, the purchase price included
a deferred  cash  payment of  $100,000  payable on April 1, 2000 and an earn-out
payment of up to $1,000,000 in cash or some  combination  of cash and restricted
Common  Stock  of the  Company  in the  event  X+C  achieved  certain  financial
performance objectives. In January 2000, the Company and X+C agreed to amend the
purchase  agreement to pay the earn-out  payment in advance on a bi-weekly basis
to the sole shareholder of X+C.

NOTE G -  SUBSEQUENT EVENTS:

     LEGAL PROCEEDINGS:

     On January 14, 2000, the Company filed a complaint  against Ehud Aloni, the
former President of Mega Art 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  sought 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 was
also  seeking  $175  million  in  damages.  On January  24,  2000,  the  Company
voluntarily dismissed the case against Mr. Aloni.

     On January 20, 2000,  Ehud Aloni  commenced a lawsuit (the "Aloni  Action")
against the Company and Mega Art in the Supreme  Court of the State of New York,
County of New York (the "Court") claiming,  among other things, that the Company
had breached Mr. Aloni's employment  agreement for failing to timely pay certain
earn-out payments due to Mr. Aloni pursuant to the Mega Art Acquisition.

                                      -11-
<PAGE>

                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------

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

     On February 9, 2000,  the  Company  and Mega Art  commenced a lawsuit  (the
"Company's  Action") against Mr. Aloni,  among others, in the Court. The Company
sought to enforce the restrictive  covenants set forth in Mr. Aloni's employment
agreement with the Company.

     On March 9, 2000,  the Company and Mr. Aloni and certain of the  defendants
in the Company's  Action entered into a settlement  agreement  (the  "Settlement
Agreement")  whereby  each of the  parties  thereto  agreed to release the other
parties  from all  claims  arising  out of the  Company's  Action  and the Aloni
Action.  In connection with the Settlement  Agreement,  Mr. Aloni entered into a
new  employment  agreement  with the  Company  and the  Company  agreed to pay a
portion of the  earn-out  payment to Mr.  Aloni  ($550,000).  In  addition,  the
Company agreed to consummate the Inlarge Acquisition.

     ACQUISITIONS:

     In March 2000, the Company acquired a portion of the assets of Inlarge LLC,
a New York limited  liability  company  located in Jersey City,  New Jersey (the
"Inlarge  Acquisition").  The initial  purchase price was $125,000 plus possible
additional consideration pending a final determination of the net asset value of
the assets acquired.

     In March 2000,  the  Company  purchased  all of the issued and  outstanding
shares of Colour Network Limited (the "Colour Network Acquisition"),  located in
Glasgow,  Scotland.  The  purchase  price  was the  issuance  of  40,000  shares
(approximately $140,000) of restricted Common Stock of the Company.

     In April 2000,  the  Company  purchased  all of the issued and  outstanding
shares of Makom Media Ltd. and its  wholly-owned  subsidiaries  Makom Media GmbH
and Makom Media Service  France S.a.r.l (the "Makom  Acquisition").  The initial
aggregate purchase price was $1,300,000,  which included the issuance of 180,087
shares (approximately $800,000) of restricted Common Stock of the Company.


                                      -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 European operations.

                                     -13-
<PAGE>

     THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
     ----------------------------------------------------------

     NET SALES.  Net sales for the three months ended February 29, 2000 ("Second
Quarter of Fiscal 2000")  increased by 49%, or $7,602,000,  to $23,009,000  from
$15,407,000  for the three months ended  February 28, 1999  ("Second  Quarter of
Fiscal 1999"). Net sales for the Company's United States operations increased by
23%, or  $2,732,000,  from  $12,100,000  in the Second Quarter of Fiscal 1999 to
$14,832,000  in the Second  Quarter of Fiscal 2000.  Net sales for the Company's
European  operations  increased by 147%, or $4,870,000,  from  $3,307,000 in the
Second  Quarter of Fiscal  1999 to  $8,177,000  in the Second  Quarter of Fiscal
2000. Net sales for the Company's Media Solutions division increased by 138%, or
$7,094,000,  from $5,151,000 in the Second Quarter of Fiscal 1999 to $12,245,000
in the Second Quarter of Fiscal 2000. This increase was  attributable  primarily
to an increase in net sales in the Company's  Mega Art  operations and resulting
from the Company's European  acquisitions.  Net sales for the Company's Premedia
Services division  increased by 5%, or $508,000,  from $10,256,000 in the Second
Quarter of Fiscal 1999 to $10,764,000 in the Second Quarter of Fiscal 2000. This
increase was  attributable  primarily to an increase in net sales resulting from
the Company's acquisitions in the United Kingdom.

     COST OF  SALES.  Cost of  sales  for the  Second  Quarter  of  Fiscal  2000
increased by 82%, or $5,394,000,  to $11,980,000  from $6,586,000 for the Second
Quarter of Fiscal 1999.  As a percentage of net sales,  cost of sales  increased
from 43% for the Second  Quarter of Fiscal 1999 to 52% for the Second Quarter of
Fiscal 2000. Cost of sales for the Company's United States operations  increased
as a percentage  of net sales from 39% for the Second  Quarter of Fiscal 1999 to
52% for the  Second  Quarter  of Fiscal  2000.  Cost of sales for the  Company's
European  operations  decreased  as a  percentage  of net sales from 55% for the
Second Quarter of Fiscal 1999 to 53% for the Second Quarter of Fiscal 2000. Cost
of sales for the Company's Media Solutions division decreased as a percentage of
net sales for such division from 68% in the Second Quarter of Fiscal 1999 to 55%
in the Second  Quarter of Fiscal 2000.  Cost of sales for the Second  Quarter of
1999 were  high due to the  Company's  preparation  for  expansion  of its large
format  business.  Cost of sales for the Company's  Premedia  Services  division
increased as a percentage  of net sales for such division from 30% in the Second
Quarter  of  Fiscal  1999 to 49% in the  Second  Quarter  of Fiscal  2000.  Such
increase was attributable primarily to the change in product mix to include more
digital print services.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative   expenses  ("SG&A")  increased  by  22%,  or  $1,338,000,   from
$6,104,000  for the Second  Quarter of Fiscal 1999 to $7,442,000  for the Second
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
40% for the  Second  Quarter  of Fiscal  1999 to 32% for the  Second  Quarter of
Fiscal  2000.  SG&A  decreased  as a  percentage  of net  sales as a  result  of
increased sales volume.

     INCOME FROM CONTINUING  OPERATIONS.  Income from continuing  operations for
the Second Quarter of Fiscal 2000  increased by 32%, or $870,000,  to $3,587,000
from  $2,717,000  for the  Second  Quarter  of  Fiscal  1999.  Of  this  amount,
$2,262,000  was  contributed  by the  Company's  United  States  operations  and
$1,325,000 by the Company's European  operations.  In addition, of

                                      -14-
<PAGE>

this  amount,  $2,059,000  was  contributed  by the  Company's  Media  Solutions
division and $1,528,000 from the Company's Premedia Services division.

     NET INTEREST EXPENSE. Net interest expense for the Second Quarter of Fiscal
2000  increased by 71%, or  $1,177,000,  to $2,837,000  from  $1,660,000 for the
Second Quarter of Fiscal 1999.  This increase  resulted from increased  interest
payments  incurred in connection with the Subordinated Loan and borrowings under
the Company's credit facilities.

     INCOME TAXES.  Income taxes for the Second Quarter of Fiscal 2000 decreased
by 5%, or $24,000,  to $468,000 from  $492,000 for the Second  Quarter of Fiscal
1999.

     DISCONTINUED  OPERATIONS.  In August  1999,  the Company  sold its New York
operations  for  on-demand  print and prepress  services.  In addition,  the San
Francisco and London on-demand print and prepress business ceased operations and
closed or reallocated their facilities to other segments, respectively, prior to
August 31, 1999.  There were no remaining  assets or liabilities  related to the
discontinuance  of the  on-demand  print and prepress  business as of August 31,
1999.  As a result,  the Company  incurred a loss of  $111,000  on  discontinued
operations for the Second Quarter of Fiscal 1999.

     NET INCOME.  As a result of the factors described above, net income for the
Second  Quarter of Fiscal 2000  decreased  by 38%, or  $172,000,  to $282,000 as
compared to net income of $454,000 for the Second Quarter of Fiscal 1999.

     SIX MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
     --------------------------------------------------------

     NET SALES.  Net sales for the six months ended  February 29, 2000 increased
by 69%, or $19,137,000, to $47,012,000 from $27,875,000 for the six months ended
February  28,  1999.  Net  sales  for the  Company's  United  States  operations
increased  by 44%,  or  $9,177,000,  from  $21,083,000  in the six months  ended
February 28, 1999 to  $30,260,000 in the six months ended February 29, 2000. Net
sales for the Company's  European  operations  increased by 147%, or $9,960,000,
from  $6,792,000 in the six months ended February 28, 1999 to $16,752,000 in the
six months ended February 29, 2000. Net sales for the Company's  Media Solutions
division  increased by 187%, or  $16,651,000,  from $8,895,000 in the six months
ended  February 28, 1999 to  $25,546,000  in the six months  ended  February 29,
2000.  This increase was  attributable  primarily to an increase in net sales in
the Company's  Mega Art  operations  and resulting  from the Company's  European
acquisitions.  Net sales for the Company's  Premedia Services division increased
by 13%, or  $2,486,000,  from  $18,980,000  in the six months ended February 28,
1999 to $21,466,000 in the six months ended February 29, 2000. This increase was
attributable  primarily to an increase in net sales resulting from the Company's
acquisitions in the United Kingdom.

     COST OF SALES.  Cost of sales for the six months  ended  February  29, 2000
increased by 93%, or $12,126,000,  to $25,197,000  from  $13,071,000 for the six
months  ended  February 28, 1999.  As a percentage  of net sales,  cost of sales
increased from 47% for the six months ended February 28, 1999 to 54% for the six
months ended  February 29, 2000.  Cost of sales for the Company's  United States
operations  increased as a  percentage  of net sales from 43% for the six

                                      -15-
<PAGE>

months  ended  February  28, 1999 to 52% for the six months  ended  February 29,
2000.  Cost of  sales  for the  Company's  European  operations  decreased  as a
percentage  of net sales from 58% for the six months ended  February 28, 1999 to
57% for the six months ended February 29, 2000.  Cost of sales for the Company's
Media  Solutions  division  decreased  as a  percentage  of net  sales  for such
division from 61% for the six months ended  February 28, 1999 to 54% for the six
months ended February 29, 2000.  Cost of sales for the six months ended February
28, 1999 were high due to the Company's  preparation  for expansion of its large
format  business.  Cost of sales for the Company's  Premedia  Services  division
increased as a percentage  of net sales for such  division  from 40% for the six
months  ended  February  28, 1999 to 53% for the six months  ended  February 29,
2000. Such increase was  attributable  primarily to the change in product mix to
include more digital print services.

     SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  SG&A increased by 40%, or
$4,175,000,  from  $10,452,000  for the six months  ended  February  28, 1999 to
$14,627,000  for the six months  ended  February  29,  2000.  Such  increase was
attributable primarily to the increased level of operations.  As a percentage of
net sales, SG&A decreased from 37% for the six months ended February 28, 1999 to
31% for the six months ended  February 29, 2000.  SG&A decreased as a percentage
of net sales as a result of increased sales volume.

     RESTRUCTURING EXPENSES.  During the six months ended February 28, 1999, the
Company  continued  to  consolidate  its  United  Kingdom   financial   printing
operations.   As  a  result  of  such   consolidation,   the  Company   incurred
restructuring expenses of $196,000.

     INCOME FROM CONTINUING  OPERATIONS.  Income from continuing  operations for
the six months ended  February  29, 2000  increased  by 73%, or  $3,032,000,  to
$7,188,000  from  $4,156,000 for the six months ended February 28, 1999. Of this
amount, $4,853,000 was contributed by the Company's United States operations and
$2,335,000 by the Company's European  operations.  In addition,  of this amount,
$4,297,000  was  contributed  by the  Company's  Media  Solutions  division  and
$2,891,000 by the Company's Pemedia Services division.

     NET  INTEREST  EXPENSE.  Net  interest  expense  for the six  months  ended
February  29,  2000  increased  by  127%,  or  $3,109,000,  to  $5,555,000  from
$2,446,000  for the six months ended February 28, 1999.  This increase  resulted
from increased  interest  payments  incurred in connection with the Subordinated
Loan and borrowings under the Company's credit facilities.

     INCOME  TAXES.  Income  taxes for the six months  ended  February  29, 2000
decreased by 1%, or $7,000,  to $767,000  from $774,000 for the six months ended
February 28, 1999.

     NET INCOME.  As a result of the factors described above, net income for the
six months ended February 29, 2000  increased by 5%, or $42,000,  to $866,000 as
compared to net income of $824,000 for the six months ended February 28, 1999.


                                      -16-
<PAGE>

LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS

     CASH FLOW. Net cash used in operating  activities was  $11,798,000  for the
first six  months  of fiscal  2000 and  $3,654,000  for the first six  months of
fiscal  1999.  Net cash used in  investing  activities  for the  acquisition  of
property and  equipment was  $1,830,000  for the first six months of fiscal 2000
and $711,000  for the first six months of fiscal 1999.  For the first six months
of fiscal 2000 and fiscal 1999,  the Company  acquired  equipment  under capital
leases of $213,000 and $2,597,000, respectively, and made payments under capital
leases of $1,364,000 and $1,157,000,  respectively. Net bank borrowings provided
funds of $14,029,000 for the first six months of fiscal 2000 and $29,543,000 for
the first six months of fiscal 1999.

     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.  The  Company is in
compliance with all debt covenants.

     WORKING  CAPITAL.  The Company's  working capital  increased by $14,029,000
from $3,509,000 at August 31, 1999 to $17,538,000 at February 29, 2000.

     SUBSEQUENT  EVENTS.  In March  2000,  the Company  consummated  the Inlarge
Acquisition.  The initial  purchase price was $125,000 plus possible  additional
consideration pending a final determination of the net asset value of the assets
acquired.

     In March 2000, the Company consummated the Colour Network Acquisition.  The
purchase  price was the issuance of 40,000  shares  (approximately  $140,000) of
restricted Common Stock of the Company.

     In April 2000, the Company  consummated the Makom Acquisition.  The initial
aggregate purchase price was $1,300,000,  which included the issuance of 180,087
shares (approximately $800,000) of restricted Common Stock of the Company.

     YEAR 2000 COMPLIANCE

     In prior years, the Company  discussed the nature and progress of its plans
to become Year 2000 ready.  In late 1999, the Company  completed its remediation
and  testing  of  systems.  As a result  of those  planning  and  implementation
efforts, the Company experienced no significant  disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully  responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues,  either with its
products,  its internal systems,  or the products and services of third parties.
The Company will continue to monitor its mission critical computer  applications
and those of its suppliers and vendors  throughout  the Year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.


                                      -17-
<PAGE>

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.

     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 (6.33% at February 29,  2000),  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           37,000

     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.



                                      -18-
<PAGE>

                            PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

     On January 14, 2000, the Company filed a complaint  against Ehud Aloni, the
former President of Mega Art 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  sought 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 was
also  seeking  $175  million  in  damages.  On January  24,  2000,  the  Company
voluntarily dismissed the case against Mr. Aloni.

     On January 20, 2000,  Ehud Aloni  commenced  the Aloni  Action  against the
Company and Mega Art in the Court claiming, among other things, that the Company
had breached Mr. Aloni's employment  agreement for failing to timely pay certain
earn-out payments due to Mr. Aloni pursuant to the Mega Art Acquisition.

     On February  9, 2000,  the Company  and Mega Art  commenced  the  Company's
Action  against Mr. Aloni,  among others,  in the Court.  The Company  sought to
enforce the restrictive  covenants set forth in Mr. Aloni's employment agreement
with the Company.

     On March 9, 2000,  the Company and Mr. Aloni and certain of the  defendants
in the Company's  Action entered into the Settlement  Agreement  whereby each of
the parties  thereto agreed to release the other parties from all claims arising
out of the  Company's  Action  and the  Aloni  Action.  In  connection  with the
Settlement Agreement, Mr. Aloni entered into a new employment agreement with the
Company and the Company  agreed to pay a portion of the earn-out  payment to Mr.
Aloni  ($550,000).  In addition,  the Company  agreed to consummate  the Inlarge
Acquisition.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

     Subsequent to the end of the quarter,  on March 8, 2000, the Company agreed
to issue  5,000  shares of  restricted  Common  Stock of the  Company to Anthony
Senatore in connection with Mr. Senatore's employment with the Company.

     Subsequent to the end of the quarter,  on March 9, 2000, the Company agreed
to issue  27,714 and 3,695 shares of  restricted  Common Stock of the Company to
Amit  Primor and  Jeffrey  Rothman,  respectively,  pursuant  to the  Settlement
Agreement.

     Subsequent to the end of the quarter, on March 22, 2000, the Company agreed
to issue  32,000 and 8,000 shares of  restricted  Common Stock of the Company to
Robert  Gray and James  Gray,  respectively,  as partial  consideration  for the
Colour Network Acquisition.

     Subsequent to the end of the quarter,  on April 4, 2000, the Company agreed
to issue 10,000 shares of  restricted  Common Stock of the Company to Nadav Chen
in connection with Mr. Chen's employment with the Company.

                                      -19-
<PAGE>

     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  employees, 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 all
recipients of such shares.  All  recipients  had adequate  access to information
about the Company.

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

     The Annual Meeting of  Stockholders of the Company was held on February 24,
2000.

     There were  3,966,048  shares present at the meeting in person or by proxy.
The results of the vote taken at such  meeting  with respect to each nominee for
director were as follows:

         NOMINEE                         FOR                         WITHHELD
         -------                         ---                         --------
William E. Dye                        3,194,379                       771,669
Peter Saad                            3,195,779                       770,269
Anthony Manser                        3,195,779                       770,269
Harvey Silverman                      3,331,172                       634,876
David Wachsman                        3,331,172                       634,876

     Also at the meeting, a vote was taken on the proposal to grant authority to
the Company's  Board of Directors to amend the Certificate of  Incorporation  of
the Company to change the Company's name from Unidigital Inc., to MegaMedia Inc.
Of the 3,966,048 shares present at the meeting in person or by proxy,  3,945,662
shares were voted in favor of such  proposal,  19,486  shares were voted against
such proposal and 900 shares abstained from voting.

     Also at the  meeting,  a vote was taken on the  proposal  to amend the 1997
Equity  Incentive  Plan, as amended,  to increase the number of shares of Common
Stock reserved for the issuance upon exercise of options granted under such plan
from 1,000,000 to 1,300,000.  Of the 3,966,048  shares present at the meeting in
person or by  proxy,  2,844,528  shares  were  voted in favor of such  proposal,
515,330  shares were voted  against such proposal and 606,190  shares  abstained
from voting.

     Finally,  a vote was taken at the  meeting  on the  proposal  to ratify the
appointment of Ernst & Young LLP as the independent  auditors of the Company for
the fiscal year ending August 31, 2000. Of the 3,966,048  shares  present at the
meeting  in person or by proxy,  3,343,472  shares  were  voted in favor of such
proposal,  16,086  shares were voted  against such  proposal and 606,490  shares
abstained from voting.

                                      -20-
<PAGE>

ITEM 5. OTHER INFORMATION.

     In March 2000, the Company consummated the Inlarge Acquisition. The Inlarge
Acquisition  enhances  the  Company's  capacity to produce  grand-scale  outdoor
advertising  display.  The initial  purchase  price was $125,000  plus  possible
further  consideration  pending a final  determination of the net asset value of
the assets acquired.

     In March 2000, the Company consummated the Colour Network Acquisition.  The
Colour  Network  Acquisition  continues the expansion of the Company's  Premedia
Services in the United  Kingdom.  The purchase  price was the issuance of 40,000
shares (approximately $140,000) of restricted Common Stock of the Company.

     In April 2000, the Company  consummated  the Makom  Acquisition.  The Makom
Acquisition  enhances  the  Company's  ability  to  develop  and  promote  Media
Solutions  concepts of large-format  indoor and outdoor  advertising in Germany,
France and other European  countries.  The initial aggregate  purchase price was
$1,300,000,  which  included  the  issuance  of  180,087  shares  (approximately
$800,000) of restricted Common Stock of the Company.

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

(a) EXHIBITS.

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

        4.1                            Promissory  Note dated March 9, 2000 made
                                       by Unidigital Inc. in favor of Ehud Aloni
                                       in the principal amount of $550,000.

        10.1                           Settlement Agreement dated as of March 9,
                                       2000 among Ehud Aloni, Sigal Primor, Amit
                                       Primor,  Nadav  Chen, Jeffrey E. Rothman,
                                       Inlarge   LLC   (a/k/a   Enlarge    LLC),
                                       Unidigital Inc. and Mega Art Corp.

        27.1                           Financial Data Schedule.

(b) REPORTS ON FORM 8-K.

        None.




                                      -21-
<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:   April 19, 2000                          By:  /s/William E. Dye
                                                   ----------------------------
                                                   William E. Dye,
                                                   Chief Executive Officer
                                                   (Principal Executive Officer)

                                      -22-