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

                                   FORM 10-QSB

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

                For the quarterly period ended February 28, 1998
                           Commission File No. 0-27664


                                 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)


                 545 West 45th Street, New York, New York 10036
                    (Address of Principal Executive Offices)

                                 (212) 397-0800
                           (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, 1998:

Class                                                           Number of Shares
-----                                                           ----------------
Common Stock,  $.01 par value                                       3,899,302

         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 28, 1998 (unaudited)
                and August 31, 1997 (audited).................................2

                CONSOLIDATED  INCOME  STATEMENTS  For the Three  Months  and Six
                Months Ended February 28, 1998 and February 28, 1997
                (unaudited)...................................................3

                CONSOLIDATED  STATEMENTS  OF CASH FLOWS For the Six Months Ended
                February 28, 1998 and February 28, 1997
                (unaudited)...................................................4

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

         Item 2.      Management's Discussion and Analysis or
                      Plan of Operation.......................................11

                General.......................................................11

                Results of Operations.........................................11

                Liquidity, Capital Resources and Other Matters................14

PART II  OTHER INFORMATION

         Item 2.      Changes in Securities and Use of Proceeds...............17

         Item 4.      Submission of Matters to a Vote of Security Holders.....17

         Item 5.      Other Information.......................................19

         Item 6.      Exhibits and Reports on Form 8-K........................20

SIGNATURES....................................................................21


                                     - i -
<PAGE>

                          PART I FINANCIAL INFORMATION

                          Item 1. Financial Statements




                                     - 1 -
<PAGE>
<TABLE>
<CAPTION>

                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------
                           CONSOLIDATED BALANCE SHEETS
                           ---------------------------
                                                                                   February 28,            August 31,
                                                                                       1998                   1997
                                                                                     --------               ------
                                                                                   (unaudited)
                                        ASSETS
<S>                                                                                 <C>                     <C>    
Current assets:
   Cash and cash equivalents ..........................................             $ 1,945,436             $ 3,202,766
   Accounts receivable (less allowance for doubtful
     accounts of $264,337 and $266,000 at
     February 28, 1998 and August 31, 1997, respectively) .............              11,092,840               9,752,807
   Deferred financing costs, net ......................................                 287,793                 463,931
   Prepaid expenses ...................................................               2,729,212               1,529,664
   Other current assets ...............................................               1,805,843                 765,760
                                                                                    -----------             -----------
       Total current assets ...........................................              17,861,124              15,714,928

Property and equipment, net ...........................................              11,463,726              11,899,475
Intangible assets, net ................................................               5,307,950               5,330,923
Other assets ..........................................................                 214,249                  87,964
                                                                                    -----------             -----------
       Total assets ...................................................             $34,847,049             $33,033,290
                                                                                    ===========             ===========
                                        LIABILITIES
Current liabilities:
   Accounts payable and accrued expenses .....................................     $  5,437,277      $  5,181,684
   Current portion of capital lease obligations ..............................        2,042,579         1,998,443
   Current portion of long-term debt .........................................       11,264,459        10,018,332
   Income taxes payable ......................................................          900,836           551,235
   Loans and notes payable to stockholders ...................................          164,364           154,591
                                                                                   ------------      ------------
       Total current liabilities .............................................       19,809,515        17,904,285

Capital lease obligations, net of current portion ............................        2,338,283         2,875,577
Long-term debt, net of current portion .......................................        2,044,202         2,127,796
Deferred income taxes ........................................................          399,036           445,000
Loans and notes payable to stockholders, net of current portion ..............          207,496           207,496
                                                                                   ------------      ------------
       Total liabilities .....................................................       24,798,532        23,560,154
                                                                                   ------------      ------------

                               STOCKHOLDERS' EQUITY
Preferred stock -- authorized 5,000,000 shares,
   $.01 par value each; none issued or outstanding ...........................            --                --
Common stock -- authorized 10,000,000 shares,
   $.01 par value each; 3,249,461 and 3,243,243 shares
   issued and outstanding at February 28, 1998 and
   August 31, 1997, respectively .............................................          32,495            32,432
Additional paid-in capital ...................................................       6,392,427         6,291,613
Retained earnings ............................................................       3,936,409         3,237,984
Cumulative foreign translation adjustment ....................................        (312,814)          (88,893)
                                                                                  ------------      ------------
       Total stockholders' equity ............................................      10,048,517         9,473,136
                                                                                  ------------      ------------
       Total liabilities and stockholders' equity ............................    $ 34,847,049      $ 33,033,290
                                                                                  ============      ============

     The Notes to Consolidated Financial Statements are made a part hereof.
</TABLE>

                                      - 2 -
<PAGE>
<TABLE>
<CAPTION>
                                                 UNIDIGITAL INC. AND SUBSIDIARIES
                                                 --------------------------------
                                                  CONSOLIDATED INCOME STATEMENTS     
                                                  ------------------------------
                                                            (unaudited)

                                                          Three Months Ended,                    Six Months Ended,
                                                            February 28,    February 28,    February 28,     February 28,
                                                               1998            1997            1998             1997
                                                               ----            ----            ----             ----
<S>                                                         <C>             <C>             <C>              <C> 
Revenues
   Net sales .........................................      $9,556,272      $5,265,916      $19,255,448      $10,493,635
                                                            ----------      ----------      -----------      -----------
Expenses
   Cost of sales .....................................       5,275,296       2,735,523       10,300,273        5,385,626
   Selling, general and
     administrative  expenses ........................       3,333,384       1,934,626        6,746,376        3,744,364
                                                            ----------      ----------      -----------      -----------
   Total operating expenses ..........................       8,608,680       4,670,149       17,046,649        9,129,990
                                                            ----------      ----------      -----------      -----------
   Income from operations ............................         947,592         595,767        2,208,799        1,363,645
   Interest expense...................................         366,074         164,462          748,607          298,739
   Interest expense - deferred financing costs .......         138,069              --          276,138               --
   Interest and other expenses .......................         124,765          47,077           86,071            6,383
                                                            ----------      ----------      -----------      -----------
   Income before income taxes ........................         318,684         384,228        1,097,983        1,058,523
   Provision for income taxes ........................         126,448         140,741          399,558          353,216
                                                            ----------      ----------      -----------      -----------
Net income ...........................................      $  192,236      $  243,487      $   698,425      $   705,307
                                                            ==========      ==========      ===========      ===========

Net income per share available to common stockholders:
   Basic .............................................      $     0.06      $     0.08      $      0.22      $      0.22
                                                            ==========      ==========      ===========      ===========
   Diluted ...........................................      $     0.06      $     0.08      $      0.20      $      0.22
                                                            ==========      ==========      ===========      ===========

Shares used to compute net income per share:
   Basic .............................................       3,246,301       3,192,065        3,244,797        3,190,641
                                                            ==========      ==========      ===========      ===========
   Diluted ...........................................       3,380,891       3,196,694        3,436,008        3,194,273
                                                            ==========      ==========      ===========      ===========

     The Notes to Consolidated Financial Statements are made a part hereof.
</TABLE>

                                     - 3 -
<PAGE>

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

                                                                                             Six Months Ended,
                                                                                      February 28,       February 28,
                                                                                         1998               1997
                                                                                         ----               ----
<S>                                                                                   <C>               <C> 
OPERATING ACTIVITIES
Net income .....................................................................      $   698,425       $   705,307
Adjustments to reconcile  net income to net cash provided by (used in) operating
     activities:
       Depreciation and amortization ...........................................        1,632,293           884,584
       Provision for deferred income taxes .....................................           19,400           (42,861)
       Provision for bad debts .................................................           (8,748)           59,325
Changes in assets and liabilities:
       Accounts receivable .....................................................       (2,338,573)       (2,124,397)
       Prepaid expenses and other current assets ...............................         (959,542)         (953,865)
       Other assets ............................................................           71,025          (209,013)
       Accounts payable and accrued expenses ...................................          (49,368)        1,831,800
       Income taxes payable ....................................................          339,658           (51,269)
                                                                                      -----------       -----------
Net cash (used in) provided by operating activities ............................         (595,430)           99,611
                                                                                      -----------       -----------
Investing activities
Additions to property and equipment ............................................         (599,031)         (464,125)
                                                                                      -----------       -----------
Net cash used in investing activities ..........................................         (599,031)         (464,125)
                                                                                      -----------       -----------
Financing activities
Net proceeds from bank borrowings ..............................................          856,723          (295,241)
Payments of capital lease obligations ..........................................         (932,556)         (903,654)
Payments of notes for cancellation of options
   and acquisition of business .................................................               --          (178,383)
IPO issuance costs .............................................................               --            (4,214)
Stockholder loans ..............................................................               --             4,008
Common stock issued ............................................................              877               430
                                                                                      -----------       -----------
Net cash used in financing activities ..........................................          (74,956)       (1,377,054)
                                                                                      -----------       -----------
Effect of foreign exchange rates on cash .......................................           12,087            54,758
                                                                                      -----------       -----------
Net decrease in cash and cash equivalents ......................................       (1,257,330)       (1,686,810)
Cash and cash equivalents at beginning of period ...............................        3,202,766         4,145,514
                                                                                      -----------       -----------
Cash and cash equivalents at end of period .....................................      $ 1,945,436       $ 2,458,704
                                                                                      ===========       ===========
Supplemental disclosures
Interest paid ..................................................................      $   369,648       $   225,102
                                                                                      ===========       ===========
Income taxes paid ..............................................................      $   115,267       $   563,746
                                                                                      ===========       ===========
Noncash transactions:
Equipment acquired under capital lease obligations .............................      $   407,309       $ 1,570,875
                                                                                      ===========       ===========
Value of warrants issued .......................................................      $   100,000       $        --
                                                                                      ===========       ===========

     The Notes to Consolidated Financial Statements are made a part hereof.
</TABLE>

                                      - 4 -
<PAGE>


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

NOTE A - BASIS OF PRESENTATION:

         The   information   presented  for  February  28,  1998,  and  for  the
three-month  and the six-month  periods ended February 28, 1998 and February 28,
1997,  is  unaudited,  but,  in the  opinion of the  Company's  management,  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 28, 1998 and the results of its  operations  and its cash flows for the
three-month  and the six-month  periods ended February 28, 1998 and February 28,
1997.

         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-QSB
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, 1997, which
were included as part of the Company's Annual Report on Form 10-KSB.

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

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


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         Organization and Business:

         Unidigital Inc., a Delaware corporation,  is the parent holding company
of five wholly-owned  operating  subsidiaries,  Unidigital  Elements (NY), Inc.,
formerly known as  LinoGraphics  Corporation  ("Elements  (NY)"),  Elements (UK)
Limited ("Elements  (UK)"),  Unidigital  Elements (SF), Inc.,  formerly known as
LinoGraphics   (Delaware)  Corporation  ("Elements   (SF)"),Unison  (NY),  Inc.,
formerly known as  Unidigital/Cardinal  Corporation  ("Unison (NY)"), and Unison
(MA),  Inc.,  formerly known as  Unidigital/Boris  Corporation  ("Unison (MA)").
Elements (NY) engages in the on-demand  print and digital  prepress  business in
New York City. Elements (UK) engages in the on-demand print and digital prepress
business  in London.  In  addition,  Elements  (UK),  through  its  wholly-owned
subsidiary, Regent Group Limited, operates a financial digital print business in
London.  Elements  (SF) owns and operates the San Francisco  on-demand  prepress
business and retouching studio.  Unison (NY) engages in the digital prepress and
digital printing business  services to advertising  agencies and corporations in
the New York City area.  Unison (MA) engages in the business of digital  imaging
and photographic processing in the Boston area.




                                      - 5 -

<PAGE>

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

         Foreign Currency Translation:

         The  portion of the  Company's  financial  statements  relating  to the
Company's  United Kingdom  operations are translated  into United States Dollars
using  period-end  exchange rates  ((pound)1.00  = $1.62 at August 31, 1997 and
$1.65 at February 28,  1998,  respectively,  for balance  sheets  accounts)  and
average exchange rates ((pound)1.00 = $1.64 for the year ended August 31, 1997;
and $1.69 and $1.64 for the three  months  ended  February 28, 1998 and February
28, 1997,  respectively;  and $1.69 and $1.64 for the six months ended  February
28, 1998 and February 28, 1997, respectively for income statement accounts). The
translation  difference  is reflected as a separate  component of  stockholders'
equity.

         Earnings Per Share:

         In February 1997,  the FASB issued SFAS No. 128,  "Earnings per Share,"
which is  required to be adopted  for years  ending  after  December  15,  1997.
Accordingly, the Company has adopted the provisions of the new statement.

         The following  table sets forth the  computation  of basic and dilutive
earnings per share:
<TABLE>
<CAPTION>
 
                                                                Three Months Ended,                  Six Months Ended,
                                                        ---------------------------------     -----------------------------
                                                                   February 28,                         February 28,
                                                              1998              1997                1998             1997
                                                              ----              ----                ----             ----

<S>                                                     <C>                <C>                <C>                <C>    
Numerator  for  basic  and  diluted  earnings  per
     share-net income available for common
     stockholders ................................      $     192,236      $     243,487      $     698,425      $  705,307
                                                        =============      =============      =============      ==========
Denominator:
   Denominator for basic earnings per share-
     weighted average shares .....................          3,246,301          3,192,065          3,244,797       3,190,641
   Effect of dilutive securities:
     Stock options................................             15,909              4,629             32,674           3,632
     Warrants.....................................            118,681                 --            158,537              --
                                                            ---------          ---------          ---------       ---------
   Denominator  for  basic  and  diluted  earnings
     per share-adjusted  weighted-average  shares
     and assumed conversions .....................          3,380,891          3,196,694          3,436,008       3,194,273
                                                            =========          =========          =========       =========

</TABLE>

                                     - 6 -
<PAGE>


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

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

                                  Three Months Ended       Six Months Ended
                                 -------------------      ------------------
                                     February 28,             February 28,
                                 1998          1997       1998          1997
                                 -------------------      ------------------
                              
Stock Options..................   178,917    41,166         132,918   67,833
Warrants.......................   117,000    92,000         117,000   92,000


NOTE C - STOCKHOLDERS' EQUITY:

         Common Stock:

         As at March 31, 1998,  3,899,302 shares of Common Stock were issued and
outstanding.


         Preferred Stock:

         As at March 31, 1998, there were no shares of Preferred Stock issued or
approved for issuance.


NOTE D - STOCK OPTION PLANS AND WARRANTS:

         Pursuant  to  the 1997  Equity  Incentive  Plan (the  "1997  Plan") the
Company granted options to purchase an aggregate of 208,599 shares if its Common
Stock during the six months ended February 28, 1998. All options were granted at
their fair market value.  On January 2, 1998,  the  Company  granted  options to
purchase  2,500 shares of its Common Stock to each of David  Wachsman and Harvey
Silverman,  at an exercise price of $5.53 per share, under the 1997 Non-Employee
Director Stock Option Plan. 

         In connection with its engagement of CIBC  Oppenheimer  ("Oppenheimer")
as its investment  banker, on November 26, 1997, the Company granted a five-year
warrant to Oppenheimer  to purchase up to 25,000 shares of the Company's  Common
Stock at an exercise price of $8.25 per share.  The warrants,  which were deemed
to  have a value of approximately  $100,000  based on an independent  appraisal,
have  been recorded as deferred  financing  costs  and are being  amortized on a
straight line basis over five years.



                                     - 7 -
<PAGE>

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

NOTE E - BANK CREDIT FACILITIES:

         At February 28, 1998, the Company's debt consisted of the following:
<TABLE>
<CAPTION>

                                                                                    Facility               Amount Outstanding
                                                                                     Amount         --------------------------------
                                                                                    August 31,        February 28,  August 31,
                                                                                      1997               1998          1997
                                                                              ------------------------------------------------------

<S>                                                                                <C>               <C>            <C>   
Credit  facilities in the United  Kingdom;  interest at 
   the bank's overdraft rate plus 3%; facility amount is
   approximately(pound)1,145,000 ($1,969,400)                                      $ 1,969,400            --        $ 1,784,150
Credit  facilities in the United Kingdom;  interest at the
   bank's  overdraft  rate  plus 2%;  facility  amount  is
   approximately(pound)1,400,000 ($2,310,000)                                             --         2,465,028             --
Revolving interest at Alternate  Base Rate or Adjusted LIBO Rate,      
   line  of  credit;matures  April 30, 2000, as defined, plus
   1/4% in the United States plus 2.25% in the United Kingdom
   in the United Kingdom                                                             4,500,000       1,725,000        1,725,000
Lines  of  credit;  interest  at  Alternate  Base  Rate or
   Adjusted  LIBO  Rate,  as  defined,  plus 1/4% in the
   United States plus 2.25% in the United Kingdom ..                                 5,250,000       4,634,110        4,110,110
SBA loan,  matures  December 1, 2014;  monthly payments of
   $3,665; interest at prime rate plus 2.74%
                                                                                       350,000         325,773          334,368
Installment note due seller of Elements (SF);  payable in eight (8) quarterly
   installments of $11,600 including interest at 6%                                     85,000          21,250           42,500
Loans  from  private investors, beginning May 1997, maturing between
   May 2002 and August 2002;  interest at 10% for first six months,
   11% for  second  six months and 12% thereafter                                    4,000,000       4,000,000        4,000,000
Installment  note  due  seller  of  Unison  (MA),  matures
   January 15, 1999,  payable in two equal installments of
   $75,000 plus interest at 8%                                                         150,000         137,500          150,000
                                                                                                  ------------------------------
                                                                                                    13,308,661       12,146,128
Less current portion                                                                                11,264,459       10,018,332
                                                                                                  ------------------------------
                                                                                                   $ 2,044,202      $ 2,127,796
                                                                                                  ==============================
</TABLE>

         The Company has borrowing  arrangements  with commercial  banks in both
New York and London. During the first six months of fiscal 1998, the Company had
combined  credit  facilities with its former New York bank for its United States
operations  in the aggregate  amount of  $9,750,000,  which  consisted of a: (i)
$4,500,000   revolving   credit  facility  which  was  available  for  corporate
acquisition  purposes;  (ii)  $3,850,000  line  of  credit  facility  which  was
available for working capital purposes; and (iii) $1,400,000 term loan which was
rolled over into the Company's line of credit facility.  Such credit  facilities
were  available  to be  used  by  each  of  the  


                                      - 8 - 

<PAGE>

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

Company's four United States subsidiaries. Interest under such credit facilities
was at the Company's  option at the Alternate  Base Rate or at the Adjusted LIBO
Rate,  as  defined,  plus  0.25% in the  United  States  and 2.25% in the United
Kingdom.  As of February 28,  1998,  the Company had an  outstanding  balance of
$1,725,000  under the revolving credit facility and $4,634,110 under the line of
credit.

         On  March 24, 1998,  the Company  terminated  its financing  facilities
with its former New York bank and entered into borrowing  arrangements  with its
current New York Bank (the "Bank") in the aggregate amount of $40,000,000, which
consist of a: (i)  $25,000,000  term loan;  (ii)  $10,000,000  revolving line of
credit  facility  which is available  for working  capital  purposes;  and (iii)
$5,000,000  credit  facility  which  is  available  for  corporate   acquisition
purposes.  Such  borrowings  are  guaranteed  by  the  Company's  United  States
subsidiaries.  In addition,  the Company pledged all of its equity  interests in
its United States  subsidiaries  and  two-thirds of its equity  interests in its
wholly-owned United Kingdom subsidiary as collateral for such credit facilities.
Interest under such credit  facilities is, at the Company's  option, at the Base
Rate or at the  Eurodollar  Rate,  as defined,  plus an  Applicable  Margin,  as
defined,  ranging from 0.75% to 3% depending on the Company's  consolidated debt
to earnings ratio and the type of loan. As of March 31, 1998, the Company had an
outstanding  balance of  $8,350,000  under the  revolving  credit  facility  and
$25,000,000  under the term loan.  A portion of the  proceeds  of such loans was
used to repay in full promissory notes previously  issued by the Company in 1997
to certain private investors in the aggregate principal amount of $4,000,000.

         The credit  facilities  contain  covenants which require the Company to
maintain certain earnings and debt to earnings ratio  requirements  based on the
combined  operations of the Company and its subsidiaries.  The credit facilities
are secured by a first priority lien on all of the assets of the Company and its
subsidiaries,  a mortgage on the Company's  facilities  located at 545 West 45th
Street, New York, New York and a leasehold mortgage on the Company's  facilities
acquired as part of the March 1998 Kwik  Acquisition  (as defined below) located
at 229 West 28th Street,  New York, New York. The Company,  the Bank and Richard
J. Sirota ("Sirota"),  the sole shareholder of Kwik (as defined below),  entered
into an  intercreditor  subordination  agreement  with respect to the Bank's and
Sirota's relative interests in the Company.

         The Company's  agreement with the Bank restricts the Company's  ability
to pay certain dividends without the Bank's prior written consent.

         On December 4, 1997, the Company  terminated its credit facilities with
its prior  United  Kingdom  bank and  entered  into a new credit  facility  with
another  United  Kingdom bank.  The Company's new credit  facility  provides for
combined  lines of credit of  (pound)1,400,000  (approximately  $2,310,000)  for
working capital for its United Kingdom  operations.  These lines of credit renew
annually  and bear  interest at 2.0% over the Bank's Base Rate,  as defined.  In
addition,  the  Company is  required  to pay a service  charge  equal to 0.2% of
invoice  value.  These  lines of credit  contain  covenants  which  require  the
Company's  United  Kingdom  subsidiaries  to  maintain  a  minimum  net worth of
(pound)500,000,  limit borrowings up to specified amounts of 



                                     - 9 -
<PAGE>

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

accounts  receivable  aged 120 days or less and are guaranteed by Unidigital for
the  principal  amount  of  up  to  (pound)500,000.   Amounts   outstanding  are
collateralized  by substantially  all of the Company's United Kingdom assets. As
of February 28, 1998, the Company had an outstanding balance of $2,465,028 under
its United Kingdom credit facility.

NOTE F - SUBSEQUENT EVENTS:

         On March 25, 1998, the Company,  through its  wholly-owned  subsidiary,
Unison (NY),  consummated the acquisition of substantially  all of the assets of
Kwik  International  Color,  Ltd.  ("Kwik")  located in New York City (the "Kwik
Acquisition"). Kwik provided general printing, color separation and large format
printing  services.  The Company intends to continue such line of business.  The
assets  purchased  included Kwik's entire customer list,  inventory,  equipment,
cash,  accounts  receivable  and trade name.  The purchase  price  included cash
payments of $20,590,349,  issuance of a 5.7% subordinated promissory note in the
principal  amount of  $750,000  (payable in 36 monthly  installments  commencing
April 15, 1998),  issuance of 649,841  shares of restricted  Common Stock of the
Company and the assumption of certain trade obligations of Kwik.

         The purchase  price is subject to adjustment in the event Kwik does not
achieve  a  certain  net  asset  value as of the date of the  acquisition.  Such
determination  shall be made within  sixty (60) days of the date of closing.  Of
the purchase price, $1,000,000 in cash and $1,000,000 of restricted Common Stock
of the  Company  (190,589  shares)  is being  held in escrow for a period of two
years to satisfy any purchase price adjustments or indemnification claims.

          The  Company  funded  the cash  portion  of the  purchase  price  from
proceeds of a $25,000,000 term loan and a $10,000,000 revolving credit loan from
the Bank. See "Note E - Bank Credit Facilities."





                                     - 10 -
<PAGE>


 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

GENERAL

         The  Company  provides  a full range of  digital  prepress,  four color
digital  offset  printing,  wide  format and  financial  printing  products  and
services to the New York City, San Francisco,  London and Boston markets.  Using
advanced computer technology,  the Company provides the imaging and reproduction
services  required by graphic artists and marketing  professionals in connection
with the creation of printed and photographic  materials for their clients.  The
Company's  clients  include  advertising  agencies,  publishers,   corporations,
government  agencies,  retailers,  marketing  communications firms and financial
institutions.  The Company's services are designed to afford graphic artists and
marketing professionals the ability to make numerous changes and enhancements in
the design and content of printed  materials  throughout the design and approval
process,  with  shorter  turnaround  times and at reduced  costs as  compared to
traditional industry methods.

         The statements  contained in this Quarterly  Report on Form 10-QSB 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 digital print industry;  (ii) the
availability  of  equipment  from the  Company's  vendors at current  prices and
levels;  (iii) the intense competition in the markets for the Company's products
and services;  (iv) the Company's  ability to integrate  acquired  companies and
businesses in a cost-effective  manner; (v) the Company's ability to effectively
implement  its branding  strategy;  and (vi) the  Company's  ability to develop,
market,  provide,  and achieve market acceptance of new service offerings to new
and existing clients.

RESULTS OF OPERATIONS

         The  consolidated  financial  information  includes  both the Company's
United States  operations and its United Kingdom  operations.  On April 4, 1997,
the Company  consummated the acquisition of Boris Image Group,  Inc. (the "Boris
Acquisition") and, on May 22, 1997, the


                                     - 11 -
<PAGE>

Company  consummated  the acquisition of Libra City Corporate  Printing  Limited
(the "Libra Acquisition").

         THREE MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
         ----------------------------------------------------------

         Net Sales.  Net sales for the three  months  ended  February  28,  1998
("Second Quarter of Fiscal 1998") increased by 81%, or $4,290,356, to $9,556,272
from $5,265,916 for the three months ended February 28, 1997 ("Second Quarter of
Fiscal 1997"). Net sales for the Company's United States operations increased by
65%,  or  $2,113,984  from  $3,232,524  in the Second  Quarter of Fiscal 1997 to
$5,346,508 in the Second Quarter of Fiscal 1998. This increase was  attributable
primarily to an increase in net sales resulting from the Boris  Acquisition and,
to a lesser  extent,  an  increase in net sales in each of the  Company's  three
other United States  subsidiaries.  Net sales for the Company's  United  Kingdom
operations  increased by 107%,  or  $2,176,372,  from  $2,033,392  in the Second
Quarter of Fiscal 1997 to $4,209,764 in the Second Quarter of Fiscal 1998.  This
increase was attributable primarily to the inclusion of net sales resulting from
the  Libra  Acquisition,  and to a lesser  extent,  increases  in the  Company's
prepress operations.

         Cost of Sales.  Cost of sales for the  Second  Quarter  of Fiscal  1998
increased by 93%, or $2,539,773,  to $5,275,296  from  $2,735,523 for the Second
Quarter of Fiscal 1997.  As a percentage of net sales,  cost of sales  increased
from 52% for the Second  Quarter of Fiscal 1997 to 55% for the Second Quarter of
Fiscal 1998. Cost of sales for the Company's United States operations  increased
as a percentage  of net sales from 46% for the Second  Quarter of Fiscal 1997 to
49% for the Second  Quarter  of Fiscal  1998.  Such  increase  was  attributable
primarily to higher  costs  associated  with  increased  digital  print and wide
format  services  provided by the Company's  United States  operations.  Cost of
sales for the  Company's  United  Kingdom  operations  increased  slightly  as a
percentage  of net sales from 62% for the Second  Quarter of Fiscal  1997 to 63%
for the Second Quarter of Fiscal 1998. Such increase was attributable  primarily
to the change in product  mix in the  Company's  United  Kingdom  operations  to
include more digital  print and  financial  print  services.  Digital  print and
financial  print  services  have  higher  costs  compared  to  digital  prepress
services.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative   expenses  ("SG&A")  increased  by  72%,  or  $1,398,758,   from
$1,934,626  for the Second  Quarter of Fiscal 1997 to $3,333,384  for the Second
Quarter  of  Fiscal  1998.  Such  increase  was  attributable  primarily  to the
increased level of operations which resulted from the Boris  Acquisition and the
Libra  Acquisition,  the  hiring of  additional  management  and  administrative
personnel and costs associated with the Company's acquisitions.  As a percentage
of net sales,  SG&A  decreased from 37% for the Second Quarter of Fiscal 1997 to
35% for the Second Quarter of Fiscal 1998. Such decrease in SG&A as a percentage
of net sales was due  primarily  to  increased  sales  volume and the  Company's
ability to contain certain corporate expenses.

         Income from  Operations.  Income from operations for the Second Quarter
of Fiscal 1998 increased by 59%, or $351,825,  to $947,592 from $595,767 for the
Second Quarter of Fiscal 1997. Of this amount,  $490,568 was  contributed by the
Company's United States  operations and 

                                     - 12 -
<PAGE>

$457,024 by the Company's United Kingdom operations. This increase resulted from
higher net sales offset in part by higher  production  costs associated with the
changing  product mix of the Company's  operations to include more digital print
and financial print services.

         Net Interest  Expense.  Net interest  expense for the Second Quarter of
Fiscal 1998  increased by 197%,  or $417,369,  to $628,908 from $211,539 for the
Second Quarter of Fiscal 1997. This increase resulted from increased  borrowings
under the Company's credit  facilities and capital leases assumed by the Company
as part of the Boris  Acquisition and the Libra  Acquisition.  In addition,  the
Company  incurred  deferred  financing   costs  of $138,069 in  connection  with
the  issuance  of  warrants  relating  to the  unsecured  loans.  Such  deferred
financing costs are non-cash, non-recurring expenses.

          Income  Taxes.  Income  taxes for the Second  Quarter  of Fiscal  1998
decreased by 10%, or $14,293,  to $126,448 from $140,741 for the Second  Quarter
of Fiscal 1997.

         Net Income.  As a result of the factors described above, net income for
the Second Quarter of Fiscal 1998  decreased by 21%, or $51,251,  to $192,236 as
compared to a net income of $243,487 for the Second Quarter of Fiscal 1997.

         SIX MONTHS ENDED FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
         --------------------------------------------------------

         Net  Sales.  Net sales  for the six  months  ended  February  28,  1998
increased by 83%, or  $8,761,813,  to 19,255,448  from  $10,493,635  for the six
months ended  February  28,  1997.  Net sales for the  Company's  United  States
operations  increased by 62%, or $3,850,103,  from  $6,259,699 in the six months
ended  February 28, 1997 to  $10,109,802  in the six months  ended  February 28,
1998.  This  increase  was  attributable  primarily  to an increase in net sales
resulting from the Boris Acquisition and, to a lesser extent, an increase in net
sales in each of the Company's three other United States subsidiaries. Net sales
for the Company's  United Kingdom  operations  increased by 116%, or $4,911,710,
from  $4,233,936 in the six months ended  February 28, 1997 to $9,145,646 in the
six months ended February 28, 1998. This increase was attributable  primarily to
the inclusion of net sales resulting from the Libra Acquisition and, to a lesser
extent, increases in the Company's prepress operations.

         Cost of Sales. Cost of sales for the six months ended February 28, 1998
increased by 91%, or  $4,914,647,  to  $10,300,273  from  $5,385,626 for the six
months  ended  February 28, 1997.  As a percentage  of net sales,  cost of sales
increased from 51% for the six months ended February 28, 1997 to 53% for the six
months ended  February 28, 1998.  Cost of sales for the Company's  United States
operations  decreased slightly as a percentage of net sales from 47% for the six
months  ended  February  28, 1997 to 46% for the six months  ended  February 28,
1998. Such decrease was attributable primarily to the Company's renegotiation of
its vendor contracts resulting in reduced supply costs to the Company, offset in
part by higher costs  associated  with  increased  digital print and wide format
services provided by the Company's United States  operations.  Cost of sales for
the Company's United Kingdom  operations  increased as a percentage of net sales
from 58% for the six months  ended  February  28, 1997 to 61% for the six months
ended February 28, 1998. Such increase was attributable  primarily to the change
in product  mix in the  Company's  United  Kingdom  operations  to include  more
digital print and

                                     - 13 -
<PAGE>

financial print services. Digital print and financial print services have higher
costs compared to digital prepress services.

         Selling, General and Administrative Expenses. SG&A increased by 80%, or
$3,002,012,  from  $3,744,364  for the six months  ended  February  28,  1997 to
$6,746,376  for the six months  ended  February  28,  1998.  Such  increase  was
attributable  primarily to the increased level of operations which resulted from
the  Boris  Acquisition  and the Libra  Acquisition,  the  hiring of  additional
management and administrative  personnel and costs associated with the Company's
acquisitions. As a percentage of net sales, SG&A decreased slightly from 36% for
the six months ended  February 28, 1997 to 35% for the six months ended February
28, 1998.  Such  decrease in SG&A as a percentage of net sales was due primarily
to increased sales volume.

         Income from Operations. Income from operations for the six months ended
February 28, 1998 increased by 62%, or $845,154,  to $2,208,799  from $1,363,645
for the six months  ended  February 28, 1997.  Of this  amount,  $1,006,231  was
contributed  by the Company's  United States  operations  and  $1,202,568 by the
Company's  United  Kingdom  operations.  This increase  resulted from higher net
sales offset in part by higher  production  costs  associated  with the changing
product  mix of the  Company's  operations  to include  more  digital  print and
financial print services.

         Net Interest  Expense.  Net  interest  expense for the six months ended
February 28, 1998  increased by 264%, or $805,694,  to $1,110,816  from $305,122
for the six  months  ended  February  28,  1997.  This  increase  resulted  from
increased  borrowings under the Company's  credit  facilities and capital leases
assumed  by the  Company  as  part  of  the  Boris  Acquisition  and  the  Libra
Acquisition.  In addition,  the Company  incurred  deferred  financing  costs of
$276,138 in  connection  with the  issuance of  warrants  relating to  unsecured
loans. Such deferred financing costs are non-cash, non-recurring expenses.

         Income Taxes.  Income taxes for the six months ended  February 28, 1998
increased by 13%, or $46,342, to $399,558 from $353,216 for the six months ended
February 28, 1997.

         Net Income.  As a result of the factors described above, net income for
the six months ended February 28, 1998 decreased  slightly by 1%, or $6,882,  to
$698,425  as  compared  to a net income of  $705,307  for the six  months  ended
February 28, 1997.

LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS

         Cash Flow. Net cash used in operations  was  $595,430 for the first six
months of fiscal 1998. Net cash provided by operations was $99,611 for the first
six  months  of  fiscal  1997.  Net cash used in  investing  activities  for the
acquisition  of property and  equipment was $599,031 for the first six months of
fiscal 1998 and $464,125 for the first six months of fiscal 1997.  For the first
six months of fiscal 1998 and fiscal 1997, the Company acquired  equipment under
capital leases of $407,309 and $1,570,875, respectively, and made payments under
capital  leases of $932,556  and  $903,654,  respectively.  Net bank  borrowings
provided  funds of  $856,723  for the first six  months of fiscal  1998 and used
funds of $295,241 for the first six months of fiscal 1997.


                                     - 14 -
<PAGE>


         Bank Credit  Facilities.  The Company has borrowing  arrangements  with
commercial  banks in both New York and  London.  During  the first six months of
fiscal 1998, the Company had combined credit facilities with its former New York
bank for its United States  operations in the  aggregate  amount of  $9,750,000,
which  consisted  of a: (i)  $4,500,000  revolving  credit  facility  which  was
available for corporate  acquisition  purposes;  (ii)  $3,850,000 line of credit
facility which was available for working capital purposes;  and (iii) $1,400,000
term loan which was rolled over into the Company's line of credit facility. Such
credit facilities were available to be used by each of the Company's four United
States subsidiaries. 

         Subsequent  to the end of the quarter,  on March 24, 1998,  the Company
terminated  its financing  facilities  with its former New York bank and entered
into  borrowing   arrangements   with  the  Bank  in  the  aggregate  amount  of
$40,000,000,  which consist of a: (i) $25,000,000  term loan;  (ii)  $10,000,000
revolving  line of  credit  facility  which is  available  for  working  capital
purposes;  and (iii) $5,000,000 credit facility which is available for corporate
acquisition  purposes.  Such  borrowings are guaranteed by the Company's  United
States  subsidiaries.  In  addition,  the  Company  pledged  all of  its  equity
interests  in its  United  States  subsidiaries  and  two-thirds  of its  equity
interests in its wholly-owned  United Kingdom  subsidiary as collateral for such
credit  facilities.  Interest under such credit  facilities is, at the Company's
option,  at the  Base  Rate  or at the  Eurodollar  Rate,  as  defined,  plus an
Applicable  Margin,  as  defined,  ranging  from  0.75% to 3%  depending  on the
Company's  consolidated debt to earnings ratio and the type of loan. As of March
31,  1998,  the  Company  had an  outstanding  balance of  $8,350,000  under the
revolving credit facility and $25,000,000  under the term loan. A portion of the
proceeds  of such loans was used to repay in full  promissory  notes  previously
issued by the  Company in 1997 to certain  private  investors  in the  aggregate
principal amount of $4,000,000.

         The credit  facilities  contain  covenants which require the Company to
maintain certain earnings and debt to earnings ratio  requirements  based on the
combined  operations of the Company and its subsidiaries.  The credit facilities
are secured by a first priority lien on all of the assets of the Company and its
subsidiaries,  a mortgage on the Company's  facilities  located at 545 West 45th
Street, New York, New York and a leasehold mortgage on the Company's  facilities
acquired as part of the Kwik  Acquisition  located at 229 West 28th Street,  New
York, New York. The Company,  the Bank and Sirota entered into an  intercreditor
subordination  agreement  with  respect  to the  Bank's  and  Sirota's  relative
interests in the Company.

         The Company's  agreement with the Bank restricts the Company's  ability
to pay certain dividends without the Bank's prior written consent.

         On December 4, 1997, the Company  terminated its credit facilities with
its prior  United  Kingdom  bank and  entered  into a new credit  facility  with
another  United  Kingdom bank.  The Company's new credit  facility  provides for
combined  lines of credit of  (pound)1,400,000  (approximately  $2,310,000)  for
working capital for its United Kingdom  operations.  These lines of credit renew
annually and bear interest at 2.0% over the Bank's Base Rate, as defined.  These
lines of credit  contain  covenants  which require the Company's  United Kingdom
subsidiaries to maintain a minimum net worth of (pound)500,000, limit borrowings
up to  specified  amounts of 

                                     - 15 -
<PAGE>

accounts  receivable  aged 120 days or less and are guaranteed by Unidigital for
the  principal  amount  of  up  to  (pound)500,000.   Amounts   outstanding  are
collateralized  by substantially  all of the Company's United Kingdom assets. As
of February 28, 1998, the Company had an outstanding balance of $2,465,028 under
its United Kingdom credit facility.

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

         Working  Capital.  The Company's  working capital deficit  decreased by
$240,966 from $2,189,357 at August 31, 1997 to $1,948,391 at February 28, 1998.

         Acquisitions.  Subsequent to the end of the quarter, on March 25, 1998,
the Company, through its wholly-owned  subsidiary,  Unison (NY), consummated the
Kwik  Acquisition.  The purchase  price  included cash payments of  $20,590,349,
issuance  of a 5.7%  subordinated  promissory  note in the  principal  amount of
$750,000  (payable  in 36  monthly  installments  commencing  April  15,  1998),
issuance of 649,841  shares of  restricted  Common  Stock of the Company and the
assumption of certain trade obligations of Kwik.

         The purchase  price is subject to adjustment in the event Kwik does not
achieve  a  certain  net  asset  value as of the date of the  acquisition.  Such
determination  shall be made within  sixty (60) days of the date of closing.  Of
the purchase price, $1,000,000 in cash and $1,000,000 of restricted Common Stock
of the  Company  (190,589  shares)  is being  held in escrow for a period of two
years to satisfy any purchase price adjustments or indemnification claims.

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


                                     - 16 -
<PAGE>
                                     PART II

ITEM 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS.

                  In  connection  with  its  engagement  of  Oppenheimer  as its
investment banker, on November 26, 1997, the Company granted a five-year warrant
to Oppenheimer to purchase up to 25,000 shares of the Company's  Common Stock at
an exercise price of $8.25 per share. In addition,  in January 1998, the Company
issued 6,051 shares of restricted Common Stock of the Company (with an aggregate
value of $50,000)  to an  employee  of the Company  pursuant to the terms of his
employment agreement with the Company dated November 1, 1996.

                  Subsequent to the end of the quarter,  on March 25, 1998,  the
Company issued 649,841 shares of restricted Common Stock of the Company (with an
aggregate value of $3,409,651) to Sirota as partial  consideration  for the Kwik
Acquisition.

                  No underwriter  was employed by the Company in connection with
the issuances and sales of the securities  described above. The Company believes
that the issuances and sales of all of the foregoing securities were exempt from
registration  under either (i) Section 4(2) of the  Securities  Act of 1933,  as
amended (the "Act"), as transactions not involving a public offering, or (ii) in
the case of the  shares  issued  to the  employee,  Rule 701  under the Act as a
transaction made pursuant to a written  compensatory benefit plan or pursuant to
a written contract relating to compensation. No public offering was involved and
the securities were acquired for investment and not with a view to distribution.
Appropriate  legends have been affixed to the stock  certificates  issued to the
employee  and Sirota.  In addition,  appropriate  legends will be affixed to the
stock  certificates  issued upon  Oppenheimer's  exercise of the  warrants.  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 January
29, 1998.

         There were  2,934,202  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         2,919,852            14,350
          Peter Saad             2,919,852            14,350
          Anthony Manser         2,919,852            14,350
          Harvey Silverman       2,919,852            14,350
          David Wachsman         2,919,852            14,350


         Also at the meeting, a vote was taken on the proposal to amend the 1997
Plan to increase the number of shares of Common Stock reserved for issuance upon
exercise of options granted 


                                     - 17 -
<PAGE>

under such plan from 300,000 to 500,000 shares.  Of the 2,934,202 shares present
at the  meeting in person or by proxy,  2,259,956  shares were voted in favor of
such proposal, 348,482 shares were voted against such proposal, and 6,350 shares
abstained from voting.  There were also 319,414 broker non-votes with respect to
such proposal.

         Finally,  a vote was taken at the meeting on the proposal to ratify the
appointment of Ernst & Young LLP as the independent certified public accountants
of the  Company for the fiscal year ending  August 31,  1998.  Of the  2,934,202
shares present at the meeting in person or by proxy, 2,926,677 shares were voted
in favor of such proposal,  2,725 shares were voted against such  proposal,  and
4,800 shares abstained from voting.




                                     - 18 -
<PAGE>


ITEM 5.           OTHER INFORMATION.

         Subsequent  to the end of the quarter,  on March 24, 1998,  the Company
terminated  its financing  facilities  with its former New York Bank and entered
into  borrowing   arrangements   with  the  Bank  in  the  aggregate  amount  of
$40,000,000,  which consist of a: (i) $25,000,000  term loan;  (ii)  $10,000,000
revolving  line of  credit  facility  which is  available  for  working  capital
purposes;  and (iii) $5,000,000 credit facility which is available for corporate
acquisition  purposes.  Such  borrowings are guaranteed by the Company's  United
States  subsidiaries.  In  addition,  the  Company  pledged  all of  its  equity
interests  in its  United  States  subsidiaries  and  two-thirds  of its  equity
interests in its wholly-owned  United Kingdom  subsidiary as collateral for such
credit  facilities.  Interest under such credit  facilities is, at the Company's
option,  at the  Base  Rate  or at the  Eurodollar  Rate,  as  defined,  plus an
Applicable  Margin,  as  defined,  ranging  from  0.75% to 3%  depending  on the
Company's  consolidated debt to earnings ratio and the type of loan. As of March
31,  1998,  the  Company  had an  outstanding  balance of  $8,350,000  under the
revolving credit facility and $25,000,000  under the term loan. A portion of the
proceeds  of such loans was used to repay in full  promissory  notes  previously
issued by the  Company in 1997 to certain  private  investors  in the  aggregate
principal amount of $4,000,000.

         The credit  facilities  contain  covenants which require the Company to
maintain certain earnings and debt to earnings ratio  requirements  based on the
combined  operations of the Company and its subsidiaries.  The credit facilities
are secured by a first priority lien on all of the assets of the Company and its
subsidiaries,  a mortgage on the Company's  facilities  located at 545 West 45th
Street, New York, New York and a leasehold mortgage on the Company's  facilities
acquired as part of the Kwik  Acquisition  located at 229 West 28th Street,  New
York, New York. The Company,  the Bank and Sirota entered into an  intercreditor
subordination  agreement  with  respect  to the  Bank's  and  Sirota's  relative
interests in the Company.

         The Company's  agreement with the Bank restricts the Company's  ability
to pay certain dividends without the Bank's prior written consent.

         Subsequent to the end of the quarter,  on March 25, 1998,  the Company,
through  its  wholly-owned   subsidiary,   Unison  (NY),  consummated  the  Kwik
Acquisition.  Kwik provided general printing,  color separation and large format
printing  services.  The Company intends to continue such line of business.  The
assets  purchased  included Kwik's entire customer list,  inventory,  equipment,
cash,  accounts  receivable  and trade name.  The purchase  price  included cash
payments of $20,590,349,  issuance of a 5.7% subordinated promissory note in the
principal  amount of  $750,000  (payable in 36 monthly  installments  commencing
April 15, 1998),  issuance of 649,841  shares of restricted  Common Stock of the
Company and the assumption of certain trade obligations of Kwik.

         The purchase  price is subject to adjustment in the event Kwik does not
achieve  a  certain  net  asset  value as of the date of the  acquisition.  Such
determination  shall be made within  sixty (60) days of the date of closing.  Of
the purchase price, $1,000,000 in cash and $1,000,000 of restricted Common Stock
of the  Company  (190,589  shares)  is being  held in escrow for a period of two
years to satisfy any purchase price adjustments or indemnification claims.



                                     - 19 -
<PAGE>

         The Company funded the cash portion of the purchase price from proceeds
of a  $25,000,000  term loan and a  $10,000,000  revolving  credit loan from the
Bank.

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

                  (a)      Exhibits.

                            4.1   Warrant   dated   November   26,  1997  issued
                                  by  Unidigital  Inc.  to CIBC Oppenheimer.

                           27.1   Financial Data Schedule.

                  (b)      Reports on Form 8-K.

                           Subsequent  to the end of the  quarter,  on  April 8,
                  1998,  the Company filed a Current Report on Form 8-K with the
                  Securities and  Exchange   Commission  relating  to  the  Kwik
                  Acquisition. Such Form 8-K also disclosed the terms of certain
                  loans made to the  Company,  the proceeds of which the Company
                  used to fund the purchase price of the Kwik Acquisition.




                                     - 20 -
<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 14, 1998             By:  /s/William E. Dye
                                                -------------------
                                                 William E. Dye,
                                                 Chief Executive Officer
                                                 (Principal Executive, Financial
                                                 and Accounting Officer)