U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                 ---------------
   
                                  FORM 10-QSB/A2
    

(MarkOne)
|X|  Quarterly  report under Section 13 or 15(d) of the Securities  Exchange Act
     of 1934

For the quarterly period ended May 31, 1998

[ ]  Transition  report under Section 13 or 15(d) of the  Securities  Exchange
     Act

For the transition period from __________ to __________
                         Commission file number 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)


                 229 West 28th Street, New York, New York 10001
                 ----------------------------------------------
                    (Address of Principal Executive Offices)

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

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

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

     State the number of shares  outstanding of each of the Issuer's  classes of
common stock, as of June 30, 1998:

Class                                             Number of Shares
-----                                             ----------------
Common Stock,  $.01 par value                        3,902,634

     Transitional Small Business Disclosure Format (check one):

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

<PAGE>

                        UNIDIGITAL INC. AND SUBSIDIARIES

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

PART I FINANCIAL INFORMATION


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

        CONSOLIDATED BALANCE SHEETS
        as at May 31, 1998 (unaudited)
        and August 31, 1997 (audited)........................................2

        CONSOLIDATED  INCOME  STATEMENTS
        For the Three  Months and Nine
        Months Ended May 31, 1998 and May 31, 1997
        (unaudited)..........................................................3

        CONSOLIDATED  STATEMENTS OF CASH FLOWS
        For the Nine Months Ended
        May 31, 1998 and May 31, 1997
        (unaudited)..........................................................4

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

   

SIGNATURES...................................................................11
    


                                       -i-
<PAGE>






                          PART I FINANCIAL INFORMATION

                          Item 1. Financial Statements



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

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

                                                                                May 31,               August 31,
                                                                                  1998                   1997
                                                                                --------               ------
                                                                              (unaudited)
                                        ASSETS

<S>                                                                           <C>                     <C>          
Current assets:
 Cash and cash equivalents......................................            $       162,098           $   3,202,766
   Accounts receivable (less allowance for doubtful
     accounts of $553,499 and $266,000 at
     May 31, 1998 and August 31, 1997, respectively)..............               14,546,337               9,752,807
   Deferred financing costs, net..................................                1,107,204                 463,931
   Prepaid expenses...............................................                3,201,952               1,529,664
   Other current assets...........................................                3,645,179                 765,760
                                                                              -------------           -------------
       Total current assets.......................................               22,662,770              15,714,928
Property and equipment, net.......................................               13,807,594              11,899,475
Intangible assets, net............................................               27,252,774               5,330,923
Other assets......................................................                  342,123                  87,964
                                                                              -------------           -------------
       Total assets...............................................            $  64,065,261           $  33,033,290
                                                                              =============           =============
                                        LIABILITIES
Current liabilities:
   Accounts payable and accrued expenses..........................            $   7,258,029           $   5,181,684
   Current portion of capital lease obligations...................                2,230,281               1,998,443
   Current portion of long-term debt..............................                2,942,775              10,018,332
   Income taxes payable...........................................                  890,412                 551,235
   Loans and notes payable to stockholders........................                  168,906                 154,591
                                                                              -------------           -------------
       Total current liabilities..................................               13,490,403              17,904,285
Capital lease obligations, net of current portion.................                3,275,900               2,875,577
Long-term debt, net of current portion............................               32,393,333               2,127,796
Deferred income taxes.............................................                  543,970                 445,000
Loans and notes payable to stockholders, net of current portion...                  207,495                 207,496
                                                                              -------------           -------------
       Total liabilities..........................................               49,911,101              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; 3,902,634 and 3,243,243 shares
   issued and outstanding at May 31, 1998 and
   August 31, 1997, respectively..................................                   39,206                  32,432
Additional paid-in capital........................................                9,814,625               6,291,613
Retained earnings.................................................                4,237,005               3,237,984
Cumulative foreign translation adjustment.........................                   63,324                 (88,893)
                                                                              -------------           -------------
       Total stockholders' equity.................................               14,154,160               9,473,136
                                                                              -------------           -------------
       Total liabilities and stockholders' equity.................            $  64,065,261           $  33,033,290
                                                                              =============           =============
</TABLE>

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

                                      -2-
<PAGE>
<TABLE>
<CAPTION>


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

                                                           Three Months Ended,                    Nine Months Ended,
                                                           -------------------                    ------------------
                                                         May 31,           May 31,              May 31,           May 31,
                                                          1998              1997                 1998              1997
                                                          ----              ----                 ----              ----

<S>                                                   <C>                <C>                <C>              <C>        
Revenues
   Net sales...................................        $13,994,679        $7,664,033         $32,845,094      $18,157,668
                                                       -----------        ----------         -----------      -----------
Expenses
   Cost of sales...............................          7,692,922         4,239,289          17,597,651        9,624,915
   Selling, general and
     administrative  expenses .................          4,203,955         2,273,727          10,943,509        6,018,091
   Expenses incurred due to restructuring......            246,930                --             246,930               --
                                                       -----------       -----------         ------------     -----------
   Total operating expenses....................         12,143,807         6,513,016          28,788,090       15,643,006
                                                       -----------       -----------         -----------      -----------

   Income from operations......................          1,850,872         1,151,017           4,057,004        2,514,662
   Interest expense............................            840,208           396,921           1,388,359          695,660
   Interest expense - deferred financing costs.            219,583                --             695,721               --
   Interest and other expenses (income)........             40,670           (67,175)            126,604          (60,792)
                                                       -----------       -----------         -----------     ------------
   Income before income taxes..................            750,411           821,271           1,846,320        1,879,794
   Provision for income taxes..................            306,815           281,162             704,299          634,378
                                                       -----------       -----------         -----------      -----------
Net income before extraordinary item...........            443,596           540,109           1,142,021        1,245,416

Extraordinary item-loss on early retirement of
debt (net of income tax benefit of $137,000)              (143,000)               --            (143,000)              --
                                                       -----------       -----------         -----------       ----------

Net income.....................................        $   300,596      $    540,109         $   999,021      $ 1,245,416
                                                       ===========      ============         ===========      ===========

Basic earnings (loss) per common share:
   Earnings before extraordinary item..........        $      0.12      $       0.17         $      0.34      $      0.39
   Extraordinary item..........................              (0.04)               --               (0.04)              --
                                                       -----------      ------------         -----------      -----------
   Net income..................................        $      0.08      $       0.17         $      0.30      $      0.39
                                                       ===========      ============         ===========      ===========

Diluted earnings (loss) per common share:
   Earnings before extraordinary item..........        $      0.11      $       0.17         $      0.31      $      0.39
   Extraordinary item..........................              (0.04)               --               (0.04)              --
                                                       -----------      ------------         -----------      -----------
   Net income..................................        $      0.07      $       0.17         $      0.27      $      0.39
                                                       ===========      ============         ===========      ===========

Shares used to compute net income per share:
   Basic.......................................          3,724,459         3,228,083           3,403,721        3,203,121
                                                       ===========       ===========         ===========      ===========
   Diluted.....................................          4,036,427         3,253,163           3,640,752        3,217,789
                                                       ===========       ===========         ===========      ===========
</TABLE>

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

                                      -3-
<PAGE>

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

                                                                   Nine Months Ended,
                                                               ---------------------------
                                                                 May 31,          May 31,
                                                                  1998             1997
                                                                  ----             ----

<S>                                                            <C>               <C>        
OPERATING ACTIVITIES
Net income..................................................   $   999,021       $ 1,245,416
Adjustments to reconcile  net income to
 net cash provided by (used in) operating activities:
   Depreciation and amortization............................     2,684,088         1,346,217
   Provision for deferred income taxes......................        91,069           (73,530)
   Provision for bad debts..................................        31,600            77,182
Net changes in assets and liabilities net of effects of 
businesses acquired:
   Accounts receivable......................................    (3,272,035)       (1,376,573)
   Prepaid expenses and other current assets................    (3,493,771)       (1,841,527)
   Other assets.............................................       (91,550)           (6,184)
   Accounts payable and accrued expenses....................       776,256         2,004,481
   Income taxes payable.....................................       316,976           181,743
                                                               -----------       -----------
Net cash (used in) provided by operating activities.........    (1,958,346)        1,557,225
                                                               -----------       -----------
INVESTING ACTIVITIES
Additions to property and equipment.........................      (836,694)         (959,996)
Business acquisitions.......................................   (21,245,349)       (5,320,902)
                                                               -----------       -----------
Net cash used in investing activities.......................   (22,082,043)       (6,280,898)
                                                               -----------       -----------
FINANCING ACTIVITIES
Net proceeds from bank borrowings...........................    22,386,042         5,721,404
Payments of capital lease obligations.......................    (1,421,939)       (1,493,261)
Payments of notes for cancellation of options
 and acquisition of business................................            --          (177,893)
IPO issuance costs..........................................            --            (4,214)
Stockholder loans...........................................            --               687
Common stock issued.........................................        20,134               460
                                                               -----------       -----------
Net cash provided by financing activities...................    20,984,237         4,047,183
                                                               -----------       -----------
Effect of foreign exchange rates on cash....................        15,484             6,152
                                                               -----------       -----------
Net decrease in cash and cash equivalents...................    (3,040,668)         (670,338)
Cash and cash equivalents at beginning of period............     3,202,766         4,145,514
                                                               -----------       -----------
Cash and cash equivalents at end of period..................   $   162,098       $ 3,475,176
                                                               ===========       ===========
SUPPLEMENTAL DISCLOSURES
Interest paid...............................................   $   406,943       $   685,467
                                                               ===========       ===========
Income taxes paid...........................................   $   159,443       $   706,879
                                                               ===========       ===========
Noncash transactions:
Equipment acquired under capital lease obligations..........   $ 1,310,243       $ 2,025,673
                                                               ===========       ===========
</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, 1998, and for the three-month and the
nine-month  periods ended May 31, 1998 and May 31, 1997,  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, 1998, the results of their operations
for the  three-month  and the nine-month  periods ended May 31, 1998 and May 31,
1997 and their cash flows for the nine-month  periods ended May 31, 1998 and May
31, 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 Item 310
of Regulation S-B.  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.

     This Form  10-QSB has been  amended  (the "Form  10-QSB/A")  to reflect the
correction of the impact of an extraordinary  loss related to the refinancing of
certain of the Company's debt in March 1998.  The impact of such  correction was
to  reduce  net  income  for the  three and nine  months  ended May 31,  1998 by
approximately $167,000. See Note E.

     The Form  10-QSB/A  has been  further  amended to correct the  reporting of
"Extraordinary  item-loss  on  early  retirement  of  debt,"  in the  amount  of
$143,000,  which  initially  had been  reported  under the column  "Three Months
Ended, May 31, 1997" of the  Consolidated  Income  Statements.  The reporting of
this item has been corrected to appear under the column "Nine Months Ended,  May
31, 1998" of the Consolidated Income Statements.

     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)


                                      -5-
<PAGE>

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

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

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,  and provides  general  printing,  color  separation  and large format
printing services to advertising agencies and corporations  primarily in the New
York City area.  Unison  (MA)  engages in the  business  of digital  imaging and
photographic processing in the Boston area.

     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 $1.67 at
May 31, 1998,  respectively,  for balance sheet  accounts) and average  exchange
rates  ((pound)  1.00 = $1.64 for the year ended August 31, 1997;  and $1.68 and
$1.64  for the  three  month  periods  ended  May  31,  1998  and May 31,  1997,
respectively;  and $1.68 and $1.64 for the nine month periods ended May 31, 1998
and May 31, 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 Financial Accounting Standards Board issued Statement
of  Financial  Accounting  Standards  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,                   Nine Months Ended,
                                                     ----------------------------------    --------------------------------
                                                                 May 31,                                May 31,
                                                          1998             1997                 1998              1997
                                                          ----             ----                 ----              ----

<S>                                                   <C>             <C>                 <C>                <C>
Numerator  for  basic  and  diluted   earnings  per   
     share-net    income   available   for   common
     stockholders...............................      $    300,596    $     540,109        $     999,021    $   1,245,416
                                                       ===========     ============         ============     ============
Denominator:
   Denominator for basic earnings per share-
     weighted average shares....................         3,724,459        3,228,083            3,403,721        3,203,121
   Effect of dilutive securities:
     Stock options..............................           109,555           17,128               64,896           11,978
     Warrants...................................           202,413            7,953              172,135            2,690
                                                       -----------      -----------          -----------      -----------
   Denominator    for    diluted    earnings    per
     share-adjusted   weighted-average  shares  and
     assumed conversions........................         4,036,427        3,253,163            3,640,752        3,217,789
                                                       ===========      ===========          ===========      ===========
</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,          Nine Months Ended,
                          ------------------------------------------------------
                                     May 31,                     May 31,
                                 1998       1997            1998         1997
                          ------------------------------------------------------
Stock options............       11,000     153,500         11,000       153,500
Warrants.................       25,000      92,000        117,000        92,000

NOTE C - STOCKHOLDERS' EQUITY:

     COMMON STOCK:

     As at June 30, 1998, 3,902,634 shares of common stock, $0.01 par value (the
"Common Stock"), were issued and outstanding.

     PREFERRED STOCK:

     As at June 30,  1998,  there were no shares of preferred  stock,  $0.01 par
value, issued or approved for issuance.

NOTE D - STOCK OPTION PLANS:

     Pursuant to the 1997 Equity  Incentive  Plan, as amended (the "Plan"),  the
Company granted options to purchase an aggregate of 222,599 shares of its Common
Stock  during the nine months  ended May 31,  1998.  All options were granted at
their fair market value.

     Subsequent to the end of the quarter, on July 13, 1998, the Company granted
options to  purchase  40,000  shares of its Common  Stock to Nicholas P. Gill in
connection with his employment as the Company's Vice President,  Chief Financial
Officer and  Secretary.  Such  options  were  granted at their fair market value
under the Plan.


                                      -7-
<PAGE>

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

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

NOTE E - LONG TERM DEBT AND NOTES PAYABLE:

     At May 31, 1998, the Company's debt consisted of the following:
<TABLE>
<CAPTION>

                                                                        Facility
                                                                         Amount
                                                                                             Amount Outstanding
                                                                                   -----------------------------------
                                                                        August 31,         May 31,         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)2,300,000 ($3,841,000)                                               --       2,557,358               --
Revolving  line of credit;  matures  April 30,  2000,  interest  at
   Alternate  Base Rate or Adjusted  LIBO Rate,  as  defined,  plus
   1/4% in the United States and 2.25% in the United Kingdom            4,500,000              --        1,725,000
Lines of credit;  interest at Alternate  Base Rate or Adjusted LIBO
   Rate,  as defined,  plus 1/4% in the United  States and 2.25% in
   the United Kingdom                                                   5,250,000              --        4,110,110
Term  loan;  matures  March  31,  2003,  payable  in  sixteen  (16)
   quarterly  installments ranging from $750,000 to $1,500,000, 
   commencing June 30, 1999,  together  with a balloon  payment of
   $7,000,000 at March 31, 2003, plus interest at the Base Rate or 
   at the Eurodollar Rate, as defined, plus an Applicable Margin,
   as  defined,  ranging  from  0.75% to 3.0%;  facility  amount is            
   $25,000,000                                                                 --      25,000,000               --
Revolving line of credit;  matures March 24, 2003,  interest at the
    Base Rate or at the Eurodollar Rate, as defined,  plus an 
    Applicable  Margin,  as defined,ranging from 0.75% to 3.0%;
   facility amount is $10,000,000                                              --       6,935,000               --
Acquisition  line of credit;  matures  March 31,  2003,  payable in
   eleven (11)  quarterly  installments  of 5.0% of the  outstanding
   balance at March 24, 2000  commencing  June 30, 2000 and one (1) 
   installment of 45.0% of the outstanding  balance at March 24, 2000,
   plus interest at the Base Rate or at the Eurodollar Rate, as defined,
   plus an Applicable  Margin,  as defined, ranging from
   0.75% to 3.0%; facility amount is $5,000,000                                --              --               --
SBA loan;  matures  December 1, 2014,  monthly  payments of $3,665,
   interest at prime rate plus 2.74%                                      350,000              --          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
Installment  note due seller of Unison  (MA);  matures  January 15,
   1999,  payable  in  two  (2)  annual   installments  of  $75,000
   including interest at 8.0%                                             150,000         114,167          150,000
Installment  note due Kwik  International;  matures April 15, 2001,
   payable in thirty-five  (35) monthly  installments of $20,833.33
   and one (1) installment of $20,833.45 including interest at 5.7%            --         708,333               --
                                                                                   ---------------- ------------------
                                                                                       35,336,108       12,146,128
Less current portion                                                                    2,942,775       10,018,332
                                                                                   ---------------- ------------------
                                                                                     $ 32,393,333     $  2,127,796
                                                                                   ================ ==================
</TABLE>
                                      -8-
<PAGE>

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

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

     The Company has borrowing  arrangements  with commercial  banks in both New
York and  London.  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 3.0%  depending  on the
Company's  consolidated  debt to earnings  ratio and the type of loan. As of May
31, 1998, the Company had an outstanding  balance of $25,000,000  under the term
loan and  $6,935,000  under the  revolving  credit  facility.  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. In connection therewith, the Company recorded an
extraordinary loss of $143,000, net of income tax benefit of $137,000 related to
the write-off of deferred financing costs.

     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 (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.

     The  Company's  credit  facility with its London bank provides for combined
lines of credit  of  (pound)2,300,000  (approximately  $3,841,000)  for  working
capital for its United Kingdom  operations.  Such credit  facility was increased
from (pound)1,400,000 (approximately $2,338,000) on May 13, 1998. 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 accounts receivable
aged 120 days or less and are guaranteed by the Company for the principal amount
of up to (pound)500,000. Amounts outstanding are collateralized by

                                      -9-
<PAGE>

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

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

substantially  all of the Company's  United Kingdom assets.  As of May 31, 1998,
the Company had an  outstanding  balance of $2,557,358  under its United Kingdom
credit facility.

NOTE F - ACQUISITION:

     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. 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 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."

     The following  supplemental  pro forma  information  is presented as if the
Company had  completed  the Kwik  Acquisition  as of September 1, 1997 and 1996,
respectively:

                            Nine Months Ended May 31,
                                      --------------------------------------
                                             1998               1997
                                      --------------------------------------
Net sales........................         41,675,406        36,257,283
Income from operations...........          4,636,498         3,216,370
Net income.......................            594,383         1,778,271
Net income per share - basic.....               0.16              0.46
Net income per share - diluted...               0.14              0.46


                                      -10-
<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:  December 8, 1998
    
                                         By: /s/William E. Dye
                                            -----------------------------------
                                            William E. Dye,
                                            Chief Executive Officer
                                            (Principal Executive, Financial
                                            and Accounting Officer)




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