SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                    FORM 10-Q

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

                   For the quarterly period ended May 31, 2000
                           Commission File No. 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)


       Pier 40, W. Houston Street @ Hudson River, New York, New York 10014
       -------------------------------------------------------------------
                    (Address of Principal Executive Offices)

                                 (212) 989-3338
                         (Registrant'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:
                         ----                              ----

     Indicate the number of shares  outstanding of each of the Issuer's  classes
of common stock, as of June 30, 2000:

Class                                                  Number of Shares
-----                                                  ----------------
Common Stock,  $.01 par value                               6,352,463

           Transitional Small Business Disclosure Format (check one):

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


<PAGE>


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

                                                                         Page
                                                                         ----

PART I   FINANCIAL INFORMATION

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

         CONSOLIDATED BALANCE SHEETS
         as of May 31, 2000 (unaudited)
         and August 31, 1999 (audited).....................................2

         CONSOLIDATED  INCOME  STATEMENTS
         For the Three  Months and Nine Months Ended
         May 31, 2000 and May 31, 1999
         (unaudited).......................................................3

         CONSOLIDATED  STATEMENTS OF CASH FLOWS
         For the Nine Months Ended
         May 31, 2000 and May 31, 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 3.   Default Upon Senior Securities................................20

   Item 5.   Other Information.............................................20

   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>

                                                                                 May 31,               August 31,
                                                                                  2000                   1999
                                                                                --------               ----------
                                                                              (unaudited)

                                        ASSETS


<S>                                                                           <C>                     <C>
Current assets:
  Cash and cash equivalents......................................            $      363,000           $     734,000
   Accounts receivable (net allowance of $1,413,000 and
     $744,000 at May 31, 2000 and August 31, 1999, respectively)                 33,779,000              16,788,000
   Building available for sale....................................                       --               1,488,000
   Prepaid expenses...............................................                5,812,000               2,600,000
   Deferred tax assets............................................                1,730,000               2,000,000
   Other current assets...........................................                3,016,000               2,356,000
                                                                              -------------           -------------
       Total current assets.......................................               44,700,000              25,966,000

Property and equipment, net.......................................               17,548,000              15,920,000
   Deferred tax asset.............................................                5,730,000               5,606,000
   Deferred financing costs, net..................................                4,617,000               1,550,000
Intangible assets, net............................................               68,240,000              67,672,000
Other assets......................................................                2,317,000               1,922,000
                                                                              -------------           -------------
       Total assets...............................................            $ 143,152,000           $ 118,636,000
                                                                              =============           =============
                                        LIABILITIES

Current liabilities:
   Accounts payable and accrued expenses..........................            $  14,855,000           $  16,198,000
   Current portion of capital lease obligations...................                2,905,000               3,157,000
   Current portion of long-term debt..............................               98,781,000               1,384,000
   Income taxes payable...........................................                1,468,000               1,065,000
   Loans and notes payable to stockholders........................                  400,000                 619,000
   Other current liabilities......................................                       --                  34,000
                                                                              -------------           -------------
       Total current liabilities..................................              118,409,000              22,457,000
Capital lease obligations, net of current portion.................                3,316,000               2,898,000
Long-term debt, net of current portion............................                1,069,000              76,263,000
Other non-current liabilities.....................................                  597,000                 707,000
                                                                              -------------           -------------
       Total liabilities..........................................              123,391,000             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;
   6,173,476 and 5,926,618 shares issued and outstanding at May 31,
   2000 and August 31, 1999, respectively.........................                   62,000                  59,000
Issuable common stock.............................................                  800,000               1,450,000
Additional paid-in capital........................................               26,304,000              21,729,000
Accumulated deficit...............................................               (6,056,000)             (6,585,000)
Accumulated other comprehensive loss..............................               (1,349,000)               (342,000)
                                                                              -------------           -------------
       Total stockholders' equity.................................               19,761,000              16,311,000
                                                                              -------------           -------------
       Total liabilities and stockholders' equity.................            $ 143,152,000           $ 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,                 Nine Months Ended,
                                                      ----------------------------     --------------------------------
                                                      May 31,            May 31,            May 31,             May 31,
                                                       2000               1999                2000                1999
                                                       ----               ----                ----                ----


<S>                                              <C>                <C>                <C>                 <C>
Revenues
  Net sales.........................            $   27,022,000      $  18,256,000      $  73,798,000       $  46,388,000
                                                 -------------      -------------      -------------       -------------
Expenses
   Cost of sales.....................               14,885,000          8,147,000         39,989,000          21,221,000
   Selling, general and administrative
     expenses........................                8,637,000          6,119,000         23,162,000          16,435,000
   Restructuring expenses............                       --                 --                 --             287,000
                                                 -------------      -------------      -------------       -------------
   Total operating expenses..........               23,522,000         14,266,000         63,151,000          37,943,000
                                                 -------------      -------------      -------------       -------------
   Income from continuing operations.                3,500,000          3,990,000         10,647,000           8,445,000
   Interest expense..................               (2,919,000)        (1,631,000)        (7,723,000)         (4,100,000)
   Interest expense - deferred
     financing costs.................                 (212,000)          (140,000)          (525,000)           (331,000)
   Interest and other (expenses)
     income..........................                 (123,000)           (88,000)          (527,000)            108,000
                                                 -------------      -------------      -------------       -------------
   Income from continuing operations
     before income taxes ............                  246,000          2,131,000          1,872,000           4,122,000
   Provision for income taxes........                  568,000            788,000          1,343,000           1,703,000
                                                 -------------      -------------      -------------       -------------
   Net (loss) income from continuing
     operations......................                 (322,000)         1,343,000            529,000           2,419,000
   Loss from operations of discontinued
     segment (net of tax benefit of $321,000
     and $444,000, respectively)                            --            289,000                 --             527,000
                                                 -------------      -------------      -------------       -------------
   Net (loss) income before extraordinary             (322,000)         1,054,000            529,000           1,892,000
     item............................
   Extraordinary  item-loss on early
     retirement  of debt (net of tax benefit of
     $460,000 at  May 31, 1999)......                       --            542,000                 --             542,000
                                                 -------------      -------------      -------------       -------------
   Net (loss) income.................            $    (322,000)     $     512,000      $     529,000       $   1,350,000
                                                 =============      =============      =============       =============

Basic (loss) earnings per common share:
   (Loss) earnings from continuing
     operations before extraordinary item        $       (0.05)     $        0.25      $        0.09      $         0.47
   Loss from discontinued operations.                       --              (0.05)                --               (0.10)
   Extraordinary item................                       --              (0.10)                --               (0.10)
                                                 -------------      -------------      -------------       -------------
Net (loss) income....................            $       (0.05)     $        0.10      $        0.09      $         0.26
                                                 =============      =============      =============       =============

Diluted (loss) earnings per common share:
   (Loss) earnings from continuing
     operations......................            $       (0.05)     $        0.24      $        0.08       $       0.46
   Loss from discontinued operations.                       --              (0.05)                --              (0.10)
   Extraordinary item................                       --              (0.10)                --              (0.10)
                                                 -------------      -------------      -------------       ------------
Net (loss) income....................            $       (0.05)     $        0.09      $        0.08       $       0.26
                                                 =============      =============      =============       ============

Shares used to compute net income per share:
   Basic.............................                6,136,166          5,367,975          6,055,598          5,140,197
                                                 =============      =============      =============       ============
   Diluted...........................                6,343,596          5,461,352          6,254,786          5,242,682
                                                 =============      =============      =============       ============
</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>

                                                                                    Nine Months Ended,
                                                                                    ------------------
                                                                                May 31,               May 31,
                                                                                 2000                   1999
                                                                                 ----                   ----

<S>                                                                          <C>                  <C>
Operating Activities
Net income.........................................................          $    529,000         $  1,350,000
Adjustments to reconcile net income to
     net cash provided by (used in) operating activities:
       Depreciation and amortization...............................             7,032,000            5,447,000
       Provision for deferred income taxes.........................                 7,000               89,000
       Provision for bad debts.....................................               529,000              315,000
       (Gain) loss on sale of assets...............................               296,000             (191,000)
       Extraordinary item..........................................                    --            1,002,000
       Stock compensation..........................................                15,000                   --
Changes in assets and liabilities:
       Accounts receivable.........................................           (18,372,000)          (5,258,000)
       Prepaid expenses and other current assets...................            (4,449,000)            (480,000)
       Other assets................................................            (1,013,000)            (324,000)
       Accounts payable and accrued expenses.......................            (4,374,000)          (4,711,000)
       Income taxes payable........................................               431,000              376,000
                                                                             ------------         ------------
Net cash used in operating activities..............................           (19,369,000)          (2,385,000)
                                                                             ------------         ------------
Investing activities
Proceeds of sale of fixed assets...................................             1,814,000              945,000
Additions to property and equipment................................            (2,999,000)          (1,032,000)
Business acquisitions..............................................            (1,367,000)         (27,259,000)
                                                                             ------------         ------------
Net cash used in investing activities..............................            (2,552,000)         (27,346,000)
                                                                             ------------         ------------
Financing activities
Net proceeds from bank borrowings..................................            36,423,000           90,350,000
Payments of capital lease obligations..............................            (2,166,000)         (2,091,000)
Payments of long-term debt.........................................           (12,905,000)         (58,413,000)
Stockholder loans..................................................              (120,000)            (173,000)
Warrants exercised.................................................               241,000                   --
Warrants issued in lieu of interest................................                84,000                   --
Common stock issued................................................                    --               92,000
                                                                             ------------         ------------
Net cash provided by financing activities..........................            21,557,000           29,765,000
                                                                             ------------         ------------
Effect of foreign exchange rates on cash...........................                (7,000)                  --
                                                                             ------------         ------------
Net (decrease) increase in cash and cash equivalents...............              (371,000)              34,000
Cash and cash equivalents at beginning of period...................               734,000              287,000
                                                                             ------------         ------------
Cash and cash equivalents at end of period.........................               363,000         $    321,000
                                                                             ============         ============
Supplemental disclosures
Interest paid......................................................          $  6,663,000         $  4,423,000
                                                                             ============         ============
Income taxes paid..................................................          $    708,000         $    438,000
                                                                             ============         ============
Noncash transactions:
Equipment acquired under capital lease obligations.................          $  1,993,000         $  4,344,000
                                                                             ============         ============
Warrants issued for business acquisitions..........................          $         --         $    931,000
                                                                             ============         ============
Warrants issued for additional financing (revised).................          $  2,500,000         $    308,000
                                                                             ============         ============
Business acquisitions (net of liabilities of $1,744,000 and
8,682,000, respectively)...........................................          $    406,000         $  2,939,000
                                                                             ============         ============
Stock issued for business acquisitions.............................          $    140,000         $  9,029,000
                                                                             ============         ============
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 May 31, 2000, and for the three-month and the
nine-month  periods ended May 31, 2000 and May 31, 1999,  is unaudited,  but, in
the opinion of the management of Unidigital Inc., its wholly-owned  subsidiaries
and  its  and  their   subsidiaries,   affiliated   companies  and  predecessors
(collectively, the "Company"), the accompanying unaudited consolidated financial
statements  contain  all  adjustments   (consisting  only  of  normal  recurring
accruals) which the Company considers necessary for the fair presentation of the
Company's  financial  position  as of  May  31,  2000  and  the  results  of its
operations and its cash flows for the  three-month  and the  nine-month  periods
ended May 31, 2000 and May 31, 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, as amended.

     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
and Europe.  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  German
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,                   Nine Months Ended,
                                                     ----------------------------------    ----------------------------------
                                                         May 31,          May 31,              May 31,          May 31,
                                                          2000             1999                 2000              1999
                                                          ----             ----                 ----              ----

<S>                                                  <C>              <C>                  <C>              <C>
Numerator for basic and diluted earnings per
     share-net income available for common
     stockholders...............................     $    (322,000)   $     512,000        $     529,000    $   1,350,000
                                                      ============     ============         ============     ============
Denominator:
   Denominator for basic earnings per share-
     weighted average shares....................         6,136,166        5,367,975            6,055,598        5,140,197
   Effect of dilutive securities:
     Stock options..............................                --           21,880                2,211           17,483
     Warrants...................................           207,430           71,497              196,977           85,002
                                                       -----------      -----------          -----------     ------------
   Denominator for diluted earnings per
     share-adjusted weighted-average shares and
     assumed conversions........................         6,343,596        5,461,352            6,254,786        5,242,682
                                                       ===========      ===========         ============     ============
</TABLE>


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

                                                      Three Months Ended,                      Nine Months Ended,
                                              --------------------------------------------------------------------------------
                                                  May 31,            May 31,             May 31,               May 31,
                                                   2000              1999                 2000                  1999
                                              ----------------- ------------------ --------------------- ---------------------
<S>                                               <C>                <C>                <C>                    <C>
Stock options........................             1,108,902          564,999            1,028,902              564,999
Warrants.............................             1,854,239          342,000            1,854,239              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.

NOTE C - STOCK OPTION PLANS:

     Pursuant to the 1997 Equity Incentive Plan, as amended, the Company granted
options to purchase an aggregate of 50,000 shares of the Company's common stock,
$.01 par value per  share,  during  the three  months  ended May 31,  2000.  All
options were granted at their fair market value.


                                      -7-
<PAGE>
                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------

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

NOTE D - LONG-TERM DEBT:

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

                                                                         Facility Amount

                                                                                                 Amount Outstanding
                                                                             May 31,            May 31,         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,
   as defined, ranging from 1.0% to 3.25%.                                 $  80,000,000     $ 76,850,000       $64,375,000
Term loan,  matures October 2008;  payable in 120 monthly
   installments of (pound)1,250,  which commenced  November 1998.
   Interest is charged at the bank's  overdraft rate plus 3.00%.
   The loan is secured by a bond and floating charge over the assets
   of Colour Network.                                                            225,000          177,000                --
Credit  facility  in the  United  Kingdom.  Interest  is charged at the
   bank's  overdraft  rate  plus  2.75%.  Facility  is  secured  by the
   assets of Interface Graphics.                                                 225,000          176,000           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 Services.                                             599,000          555,000           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.                                                      449,000          443,000           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 8.40%, respectively.                                         --          351,000           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.                                                     --          787,000                --
Senior subordinated note investment fee, due May 2001.                                --               --         1,500,000
Other                                                                            397,000          325,000           220,000
                                                                           ------------------------------------------------
                                                                                               99,850,000        77,647,000
Less: current portion                                                                          98,781,000         1,384,000
                                                                           ------------------------------------------------
Long-term debt                                                                              $   1,069,000      $ 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 May 31, 2000, the Company
had an outstanding  balance of $76,850,000  under the revolving credit facility,
bearing interest at rates ranging from 9.44% to 11.50% per annum.

     The  Company  has not met  certain  financial  covenants  under its  credit
facility and has requested a waiver of such  covenants  from the lender.  At May
31, 2000, the  outstanding  balance


                                      -8-
<PAGE>

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

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

under the revolving credit facility and the Subordinated Loan (as defined below)
has been classified as a short-term liability until such waiver is obtained.

     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 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 (7.05% at May 31, 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           $3,000

     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

                                      -9-
<PAGE>
                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------

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

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 has two reportable  segments:  the Media Solutions division and
Premedia  Services  division.  The segment  information  for the three-month and
nine-month  periods ended May 31, 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 nine months ended May 31, 2000 and May 31, 1999:
<TABLE>
<CAPTION>

                                         Three Months Ended                                   Nine Months Ended
                                         ------------------                                   -----------------
                               May 31, 2000              May 31, 1999              May 31, 2000               May 31, 1999
                         ----------------------------------------------------------------------------------------------------------
                            United                   United                    United                      United
                            States      Europe       States       Europe       States        Europe        States       Europe
                         ----------------------------------------------------------------------------------------------------------

<S>                      <C>           <C>           <C>          <C>         <C>           <C>          <C>           <C>
Net sales                $16,131,000   $10,891,000  $13,856,000   $4,400,000  $46,391,000  $27,407,000   $35,179,000   $11,209,000
Income from operations     1,693,000     1,807,000    2,715,000    1,275,000    6,533,000    4,114,000     6,861,000     1,584,000
Identifiable assets      122,688,000    20,714,000  106,157,000    8,302,000  122,688,000   20,714,000   106,157,000     8,302,000
</TABLE>

     The  following  summarizes  operations  by  industry  segment for the three
months and nine months ended May 31, 2000 and May 31, 1999:

<TABLE>
<CAPTION>

                                          Three Months Ended                                    Nine Months Ended
                                          ------------------                                    -----------------
                                May 31, 2000               May 31, 1999               May 31, 2000               May 31, 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                 $14,682,000  $12,340,000     $8,286,000   $9,970,000  $40,185,000   $33,613,000   $19,583,000  $26,805,000
Income from operations      2,807,000      693,000      1,572,000    2,418,000    7,102,000     3,545,000     3,679,000    4,766,000
Identifiable assets        97,681,000   45,721,000     83,004,000   31,455,000   97,681,000    45,721,000    83,004,000   31,455,000
</TABLE>


                                      -10-
<PAGE>

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

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

NOTE F - COMPREHENSIVE INCOME:

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

                                                     Three Months Ended,                    Nine Months Ended,
                                           ------------------------------------------------------------------------
                                                 May 31,              May 31,            May 31,           May 31,
                                                  2000                 1999                2000             1999
                                           ------------------------------------------------------------------------

<S>                                           <C>                 <C>               <C>               <C>
Net (loss) income                             $   (322,000)       $   512,000       $    529,000      $  1,350,000
Net change in foreign currency
   translation adjustment                         (719,000)          (115,000)        (1,007,000)         (415,000)
                                              -------------       -----------       ------------      ------------
Comprehensive (loss) income                   $ (1,041,000)       $   397,000       $   (478,000)     $    935,000
</TABLE>

     As of May 31, 2000 and May 31, 1999,  the  cumulative  other  comprehensive
loss consisted of the Company's foreign currency translation adjustment.

NOTE G - 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 $1,350,000,  which included the issuance of 178,987
shares (approximately $800,000) of restricted Common Stock of the Company.


                                      -11-
<PAGE>

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

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

NOTE G - ACQUISITIONS (CONTINUED):

     The following  supplemental  pro forma  information  is presented as if the
Company had completed the Inlarge  Acquisition,  the Colour Network Acquisition,
the  Makom  Acquisition  and the  acquisitions  of Mega  Art  Corp.,  Hy  Zazula
Associates,  Inc.,  SuperGraphics  Holding  Company,  Inc., Peter X(+C) Limited,
Progress  Graphics,  Inc. and Interface Graphics Limited as of September 1, 1999
and 1998, respectively.

                                         Nine Months Ended May 31,

                                            2000          1999
                                         -------------------------
Net sales                                $76,915,000   $55,094,000
Income from operations                    10,935,000     7,666,000
Net income                                   617,000       159,000
Net income per share - basic                   $0.10         $0.03
Net income per share - diluted                 $0.10         $0.03



                                      -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 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 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 MAY 31, 2000 AND MAY 31, 1999

     Net  sales.  Net sales  for the three  months  ended May 31,  2000  ("Third
Quarter of Fiscal 2000")  increased by 48%, or $8,766,000,  to $27,022,000  from
$18,256,000  for the three months  ended May 31, 1999 ("Third  Quarter of Fiscal
1999").  Net sales for the Company's United States operations  increased by 16%,
or  $2,275,000,  from  $13,856,000  in the  Third  Quarter  of  Fiscal  1999  to
$16,131,000  in the Third  Quarter of Fiscal 2000.  Net sales for the  Company's
European  operations  increased by 148%, or $6,491,000,  from  $4,400,000 in the
Third Quarter of Fiscal 1999 to $10,891,000 in the Third Quarter of Fiscal 2000.
Net sales for the  Company's  Media  Solutions  division  increased  by 77%,  or
$6,396,000,  from  $8,286,000 in the Third Quarter of Fiscal 1999 to $14,682,000
in the Third 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 24%, or $2,370,000,  from $9,970,000 in the Third
Quarter of Fiscal 1999 to $12,340,000 in the Third 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 Third Quarter of Fiscal 2000 increased
by 83%, or $6,738,000,  to $14,885,000  from $8,147,000 for the Third Quarter of
Fiscal 1999. As a percentage of net sales,  cost of sales increased from 45% for
the Third  Quarter of Fiscal 1999 to 55% for the Third  Quarter of Fiscal  2000.
Cost  of  sales  for the  Company's  United  States  operations  increased  as a
percentage of net sales from 45% for the Third Quarter of Fiscal 1999 to 54% for
the Third  Quarter  of Fiscal  2000.  Cost of sales for the  Company's  European
operations increased as a percentage of net sales from 43% for the Third Quarter
of Fiscal 1999 to 57% for the Third  Quarter of Fiscal  2000.  Cost of sales for
the Company's Media Solutions  division remained constant as a percentage of net
sales for such  division at 50% in each of the Third  Quarter of Fiscal 1999 and
the Third  Quarter  of Fiscal  2000.  Cost of sales for the  Company's  Premedia
Services division  increased as a percentage of net sales for such division from
41% in the Third  Quarter of Fiscal  1999 to 62% in the Third  Quarter of Fiscal
2000.  Such  increase was  attributable  to the change in product mix to include
more digital print  services and higher  expenses  incurred in the United States
operations.

     Selling,  general  and  administrative   expenses.   Selling,  general  and
administrative   expenses  ("SG&A")  increased  by  41%,  or  $2,518,000,   from
$8,637,000  for the Third  Quarter of Fiscal  1999 to  $8,387,000  for the Third
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
34% for the Third  Quarter of Fiscal 1999 to 32% for the Third 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 Third  Quarter of Fiscal 2000  decreased by 12%, or $490,000,  to $3,500,000
from $3,990,000 for the Third Quarter of Fiscal 1999. Of this amount, $1,693,000
was contributed by the Company's United States  operations and $1,807,000 by the
Company's  European  operations.  In addition,  of this amount,  $2,807,000  was
contributed  by the  Company's  Media  Solutions  division and $693,000 from the
Company's Premedia Services division.

                                      -14-
<PAGE>

     Net interest expense.  Net interest expense for the Third Quarter of Fiscal
2000  increased by 75%, or  $1,395,000,  to $3,254,000  from  $1,859,000 for the
Third 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 Third Quarter of Fiscal 2000  decreased
by 28%, or $220,000,  to $568,000  from $788,000 for the Third 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  $289,000  on  discontinued
operations for the Third Quarter of Fiscal 1999.

     Extraordinary  item. In connection with the refinancing of senior debt, the
Company recorded an extraordinary loss of $542,000, net of income tax benefit of
$460,000  related to the  write-off  of  deferred  financing  costs in the Third
Quarter of Fiscal 1999.

     Net income (loss).  As a result of the factors  described above, net income
for the Third Quarter of Fiscal 2000  decreased by 163%,  or $834,000,  to a net
loss of $322,000 as compared to net income of $512,000 for the Third  Quarter of
Fiscal 1999.

     Nine Months Ended May 31, 2000 and May 31, 1999
     -----------------------------------------------

     Net sales.  Net sales for the nine months  ended May 31, 2000  increased by
59%, or $27,410,000,  to $73,798,000  from $46,388,000 for the nine months ended
May 31, 1999. Net sales for the Company's United States operations  increased by
32%, or $11,212,000,  from $35,179,000 for the nine months ended May 31, 1999 to
$46,391,000  for the nine months ended May 31, 2000. Net sales for the Company's
European operations increased by 145%, or $16,198,000,  from $11,209,000 for the
nine months ended May 31, 1999 to $27,407,000  for the nine months ended May 31,
2000. Net sales for the Company's Media Solutions division increased by 105%, or
$20,602,000,  from  $19,583,000  for the  nine  months  ended  May  31,  1999 to
$40,185,000  for  the  nine  months  ended  May  31,  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 25%, or $6,808,000,  from
$26,805,000  for the nine months ended May 31, 1999 to $33,613,000  for the nine
months  ended May 31,  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 nine  months  ended  May 31,  2000
increased by 88%, or $18,768,000,  to $39,989,000  from $21,221,000 for the nine
months ended May 31, 1999. As a percentage of net sales, cost of sales increased
from 46% for the nine months ended May 31, 1999 to 54% for the nine months ended
May 31, 2000. Cost of sales for the Company's United States operations increased
as a percentage  of net sales from 44% for the nine months ended May 31, 1999 to
53% for the nine  months  ended May 31,  2000.  Cost of sales for the  Company's

                                      -15-
<PAGE>


European operations increased as a percentage of net sales from 52% for the nine
months ended May 31, 1999 to 57% for the nine months ended May 31, 2000. Cost of
sales for the Company's  Media Solutions  division  increased as a percentage of
net sales for such  division  from 49% for the nine months ended May 31, 2000 to
53% for the nine  months  ended  May 31,  2000.  The cost of sales  for the nine
months  ended  May 31,  2000  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
44% for the nine months  ended May 31, 1999 to 56% for the nine months ended May
31, 2000. Such increase was attributable to the change in product mix to include
more digital print  services and higher  expenses  incurred in the United States
operations.

     Selling,  general and  administrative  expenses.  SG&A increased by 41%, or
$6,727,000,  from  $16,435,000  for  the  nine  months  ended  May  31,  1999 to
$23,162,000  for  the  nine  months  ended  May  31,  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 nine months ended May 31, 1999 to 31%
for the nine months ended May 31, 2000.  SG&A  decreased as a percentage  of net
sales as a result of increased sales volume.

     Restructuring  expenses.  During the nine months  ended May 31,  1999,  the
Company  consolidated its United Kingdom  financial  printing  operations.  As a
result of such  consolidation,  the Company incurred  restructuring  expenses of
$287,000.

     Income from continuing  operations.  Income from continuing  operations for
the  nine  months  ended  May 31,  2000  increased  by 26%,  or  $2,202,000,  to
$10,647,000  from  $8,445,000  for the nine months ended May 31,  1999.  Of this
amount, $6,533,000 was contributed by the Company's United States operations and
$4,114,000 by the Company's European  operations.  In addition,  of this amount,
$7,102,000  was  contributed  by the  Company's  Media  Solutions  division  and
$3,545,000 by the Company's Premedia Services division.

     Net interest  expense.  Net interest  expense for the nine months ended May
31, 2000 increased by 103%, or $4,452,000, to $8,775,000 from $4,323,000 for the
nine months ended May 31, 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 nine months ended May 31, 2000 decreased
by 21%, or $360,000, to $1,343,000 from $1,703,000 for the nine months ended May
31, 1999.

     Discontinued  operations.  In August  1999,  the Company  sold its New York
operations  for  on-demand  print and prepress  services.  In addition,  the San
Francisco and London on-demand print and prepress business ceased operations and
closed or reallocated their facilities to other segments, respectively, prior to
August 31, 1999.  There were no remaining  assets or liabilities  related to the
discontinuance  of the  on-demand  print and prepress  business as of August 31,
1999.  As a result,  the Company  incurred a loss of  $527,000  on  discontinued
operations for the nine months ended May 31, 1999.

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

                                      -16-
<PAGE>

     Net income.  As a result of the factors described above, net income for the
nine months ended May 31, 2000  decreased  by 61%, or  $821,000,  to $529,000 as
compared to net income of $1,350,000 for the nine months ended May 31, 1999.

LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS

     Cash flow. Net cash used in operating  activities was  $19,369,000  for the
first nine  months of fiscal  2000 and  $2,385,000  for the first nine months of
fiscal  1999.  Net cash used in  investing  activities  for the  acquisition  of
property and equipment was  $2,999,000  for the first nine months of fiscal 2000
and  $1,032,000  for the first nine  months of fiscal  1999.  For the first nine
months of fiscal 2000 and fiscal  1999,  the Company  acquired  equipment  under
capital leases of $1,993,000  and  $4,344,000,  respectively,  and made payments
under  capital  leases of  $2,166,000  and  $2,091,000,  respectively.  Net bank
borrowings  provided  funds of  $23,518,000  for the first nine months of fiscal
2000 and $31,937,000 for the first nine months of fiscal 1999.

     The Company  anticipates that during the fourth quarter of fiscal 2000 that
it will  require  additional  financing  to satisfy  its current  capital  lease
obligations  and debt  service  payments.  There  can be no  assurance  that the
Company will be able to secure such  additional  financing on terms favorable to
the Company, if at all.

     Working  capital.  The Company's  working capital  decreased by $77,218,000
from  $3,509,000 at August 31, 1999 to a working  capital deficit of $73,709,000
at May 31, 2000.

     Acquisitions.   In  March  2000,  the  Company   consummated   the  Inlarge
Acquisition.  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
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 $1,350,000,  which included the issuance of 178,987
shares (approximately $800,000) of restricted Common Stock of the Company.

                                      -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 (7.05% at May 31, 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       $3,000

     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 April 17, 2000, Mark Darlow and Sheldon Darlow (the  "Plaintiffs"),  the
sole shareholders of Cardinal  Communications Group, Inc. ("Cardinal") and C-Max
Graphics, Inc. ("C-Max"), commenced a lawsuit against the Company in the Supreme
Court of the  State of New  York,  County of New  York,  claiming,  among  other
things,  that the Company  was  required  to pay the  Plaintiffs  50% of profits
earned from the sale of certain real  property  located at 545 West 45th Street,
New York, New York. The Plaintiffs seek damages of approximately  $600,000.  The
Company denies the Plaintiffs'  allegations and has filed a counterclaim against
the Plaintiffs alleging that the Plaintiffs  improperly  converted certain trade
receivables. The Company is seeking damages of $150,000.

     Subsequent  to the end of the quarter,  on June 21, 2000,  Photobition  New
York, Inc. ("Photobition") commenced a lawsuit against the Company, Unison (NY),
Inc., George Fanno, John DeAcutis and Anthony Loiero in the Supreme Court of the
State of New York, County of New York. With respect to the Company,  Photobition
claimed that the Company was employing  several former  employees of Photobition
despite  having  knowledge  of valid  non-competition  agreements  between  such
employees  and   Photobition   that  prevented  such  employees  from  accepting
employment with the Company.  Photobition  sought an injunction  prohibiting the
Company from  employing the named  individual  defendants.  On July 7, 2000, the
Company and Photobition amicably resolved the dispute. The settlement is subject
to the approval of the court.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.

     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.

     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 a settlement agreement with the Company.

     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.

     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.

     Subsequent to the end of the quarter,  on June 26, 2000, the Company agreed
to issue 178,987  shares of restricted  Common Stock of the Company to Digitalis
Corporation N.V. as partial consideration for the Makom 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


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<PAGE>

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 3. DEFAULT UPON SENIOR SECURITIES.

     The  Company  has not met  certain  financial  covenants  under its  credit
facility and has requested a waiver of such  covenants  from the lender.  At May
31, 2000, the  outstanding  balance under the revolving  credit facility and the
Subordinated  Loan has been  classified  as a  short-term  liability  until such
waiver is obtained.

ITEM 5. OTHER INFORMATION.

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

     In March 2000, the Company consummated the Colour Network Acquisition.  The
Colour  Network  Acquisition  continued the expansion of the Company's  Premedia
Services division 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 initial
aggregate purchase price was $1,350,000,  which included the issuance of 178,987
shares  (approximately  $800,000) of restricted Common Stock of the Company. The
Company believes that the Makom Acquisition  enhanced its ability to develop and
promote its Media Solutions division concepts of large-format indoor and outdoor
advertising in Germany, France and other European countries.

     During the Third  Quarter of Fiscal 2000,  the Company  moved its principal
executive  offices from 229 West 28th Street,  New York,  New York 10001 to Pier
40, W. Houston Street @ Hudson River,  New York,  New York 10014.  The Company's
new telephone number is (212) 989-3338.


                                      -20-
<PAGE>


ITEM 6. EXHIBITS 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.  (Incorporated by reference to
                                        Exhibit 4.1 to the  Company's  Quarterly
                                        Report  on Form  10-Q  for  the  quarter
                                        ended February 29, 2000).

         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.
                                        (Incorporated  by  reference  to Exhibit
                                        10.1 to the Company's  Quarterly  Report
                                        on  Form  10-Q  for  the  quarter  ended
                                        February 29, 2000).

         27.1                           Financial Data Schedule.

(b) Reports on Form 8-K.

         None.


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<PAGE>


                                   SIGNATURES

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

                                              UNIDIGITAL INC.



DATE: July 24, 2000                           By: /s/William E. Dye
                                                  -----------------------------
                                                  William E. Dye,
                                                  Chief Executive Officer
                                                  (Principal Executive Officer)



DATE: July 24, 2000                           By: /s/Mary Walling
                                                  -----------------------------
                                                  Mary Walling,
                                                  Chief Financial Officer
                                                  (Principal Financial and
                                                  Accounting Officer)




                                      -22-