U.S. SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

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

                                   FORM 10-QSB

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

                For the quarterly period ended November 30, 1997
                         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)


                 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 equity,  as of January 9, 1998: 

Class                                           Number of Shares 
-----                                           ----------------
Common Stock, $.01 par value                        3,249,294

     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 November 30, 1997 (unaudited) and
          August 31, 1997 (audited)..........................................2

          CONSOLIDATED INCOME STATEMENTS
          For the Three Months Ended November 30, 1997 and
          November 30, 1996 (unaudited)......................................3

          CONSOLIDATED STATEMENT OF CASH FLOWS 
          For the Three Months Ended November 30, 1997 and 
          November 30, 1996 (unaudited)......................................4

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

     Item 2. Management's Discussion and Analysis
             or Plan of Operation............................................9

          Results of Operations..............................................9

          Liquidity, Capital Resources and Other Matters.....................11

PART II   OTHER INFORMATION

     Item 5. Other Information...............................................14

     Item 6. Exhibits and Reports on Form 8-K................................14

SIGNATURES...................................................................15


                                      -i-
<PAGE>















                          PART I FINANCIAL INFORMATION

                          Item 1. Financial Statements



<PAGE>

<TABLE>

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

<CAPTION>
                                                                            November 30,    August 31,
                                                                               1997            1997
                                                                            -----------    ------------
                                                                            (unaudited)

                                        ASSETS
<S>                                                                         <C>            <C>   
Current assets:
   Cash and cash equivalents ............................................   $  2,193,854   $  3,202,766
   Accounts receivable (less allowance for doubtful
     accounts of $278,236 and $266,000 at
     November 30, 1997 and August 31, 1997, respectively) ...............     11,664,455      9,752,807
   Deferred financing costs, net ........................................        325,862        463,931
   Prepaid expenses .....................................................      2,018,481      1,529,664
   Other current assets .................................................      1,901,368        765,760
                                                                            ------------   ------------
       Total current assets .............................................   $ 18,104,020   $ 15,714,928
                                                                            ------------   ------------
Property and equipment, net .............................................     12,029,212     11,899,475
Intangible assets, net ..................................................      5,372,288      5,330,923
Other assets ............................................................         69,952         87,964
                                                                            ------------   ------------
       Total assets .....................................................   $ 35,575,472   $ 33,033,290
                                                                            ============   ============

                                        LIABILITIES
Current liabilities:
   Accounts payable and accrued expenses ................................   $  5,913,738   $  5,181,684
   Current portion of capital lease obligations .........................      2,113,032      1,998,443
   Current portion of long-term debt ....................................     10,912,745     10,018,332
   Income taxes payable .................................................        876,933        551,235
   Loans and notes payable to stockholders ..............................        164,510        154,591
                                                                            ------------   ------------
       Total current liabilities ........................................     19,980,958     17,904,285
                                                                            ------------   ------------
Capital lease obligations, net of current portion .......................      2,670,705      2,875,577
Long-term debt, net of current portion ..................................      2,124,899      2,127,796
Deferred income taxes ...................................................        412,186        445,000
Loans and notes payable to stockholders, net of current portion .........        207,496        207,496
                                                                            ------------   ------------
       Total liabilities ................................................     25,396,244     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; 3,243,243 shares
   issued and outstanding at November 30, 1997 and
   August 31, 1997, respectively ........................................         32,432         32,432
Additional paid-in capital ..............................................      6,291,613      6,291,613
Retained earnings .......................................................      3,745,857      3,237,984
Cumulative foreign translation adjustment ...............................        109,326        (88,893)
                                                                            ------------   ------------
       Total stockholders' equity .......................................     10,179,228      9,473,136
                                                                            ------------   ------------
       Total liabilities and stockholders' equity .......................   $ 35,575,472   $ 33,033,290
                                                                            ============   ============
                              
                               The Notes to Consolidated Financial Statements are made a part hereof

</TABLE>

                                                              - 2 -
<PAGE>
<TABLE>

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


<CAPTION>
                                                                                 Three Months Ended
                                                                            ---------------------------
                                                                            November 30,    August 31,
                                                                               1997            1997
                                                                            -----------    ------------
                                                                            (unaudited)

<S>                                                                         <C>            <C>   
Revenues
Net sales..........................................................         $  9,726,178    $ 5,227,719
Expenses
Cost of sales......................................................            5,041,243      2,650,103
Selling, general and administrative expenses ......................            3,419,649      1,809,738
                                                                            ------------    -----------
Total operating expenses...........................................            8,460,892      4,459,841
                                                                            ------------    -----------
Income from operations.............................................            1,265,286        767,878
Interest expense...................................................             (423,488)      (134,277)
Interest expense - deferred financing costs........................             (138,069)            --
Interest and other income..........................................               79,651         40,694
                                                                            ------------    -----------
Income before income taxes.........................................              783,380        674,295
Provision for income taxes.........................................              275,507        212,475
                                                                            ------------    -----------
Net income ........................................................         $    507,873    $   461,820
                                                                            ============    ===========
Net income per common share........................................         $       0.14    $      0.14
                                                                            ============    ===========
Weighted average common shares outstanding.........................            3,549,544      3,189,216
                                                                            ============    ===========

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


                                                              - 3 -
<PAGE>

<TABLE>


                                                 UNIDIGITAL INC. AND SUBSIDIARIES
                                                 --------------------------------
                                               CONSOLIDATED STATEMENT OF CASH FLOWS
                                               ------------------------------------
                                                           (unaudited)

<CAPTION>
                                                                                Three Months Ended
                                                                            -----------------------------
                                                                            November 30,       August 31,
                                                                               1997               1997
                                                                            -----------------------------
                                                                            (unaudited)

<S>                                                                          <C>              <C>   
Operating activities
Net income.........................................................          $    507,873     $   461,820
Adjustments to reconcile net income to
   net cash provided by (used in) operating activities:
       Depreciation and amortization...............................               807,659         424,466
       Provision for deferred income taxes.........................               (37,227)        (39,903)
       Provision for bad debts.....................................                22,748          10,112
Changes in assets and liabilities:
   Accounts receivable.............................................            (1,775,438)     (1,819,354)
   Prepaid expenses and other current assets.......................            (1,316,999)       (321,343)
   Other assets....................................................              (461,033)         (4,829)
   Accounts payable and accrued expenses...........................               831,961           3,081
   Income taxes payable............................................               244,259         147,454
                                                                             -------------    ------------
Net cash used in operating activities..............................            (1,176,197)     (1,138,496)
                                                                             -------------    ------------
Investing activities
Additions to property and equipment................................              (357,643)       (116,532)
                                                                             -------------    ------------
Net cash used in investing activities..............................              (357,643)       (116,532)
                                                                             -------------    ------------
Financing activities
Payments of capital lease obligations..............................              (444,540)       (549,510)
Payments for cancellation of options ..............................                    --        (162,490)
Proceeds from long-term debt.......................................               792,652         783,047
Payments of long-term debt.........................................               (13,522)        (29,584)
Stockholder repayments.............................................                    --          (5,859)
IPO issuance costs.................................................                    --          (2,312)
                                                                             ------------     -----------
Net cash provided by financing activities..........................               334,590          33,292
                                                                             ------------     -----------
Effect of foreign exchange rates on cash...........................               190,338          30,136
                                                                             ------------     -----------

Net decrease in cash and cash equivalents..........................             1,008,912       1,191,600
Cash and cash equivalents at beginning of period...................             3,202,766       4,145,514
                                                                             ------------     -----------
Cash and cash equivalents at end of period.........................          $  2,193,854     $ 2,953,914
                                                                             ============     ===========

Supplemental disclosures
Interest paid......................................................          $    461,302     $   122,494
                                                                             ============     ===========
Income taxes paid..................................................          $     82,242     $        --
                                                                             ============     ===========
Noncash transactions
Equipment acquired under capital lease obligations.................          $    260,565     $   878,116
                                                                             ============     ===========

                               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 November 30, 1997, and for the  three-month
periods ended November 30, 1997 and November 30, 1996, 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 November 30, 1997 and the
results of its operations and its cash flows for the  three-month  periods ended
November 30, 1997 and November 30, 1996.

     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  consolidated  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)"),   Unidigital/Cardinal
Corporation ("Unison (NY)"), and  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 and, through its wholly-owned  subsidiary,  Regent  Communications (UK)
Limited  ("Regent"),  operates a  financial  digital  print  business in London.
Elements (UK) also provides printing services to the London financial  community
through  its  wholly-owned  subsidiary  Libra City  Corporate  Printing  Limited
("Libra").  Elements (SF) owns and operates the San Francisco on-

                                     - 5 -
<PAGE>

                        UNIDIGITAL INC. AND SUBSIDIARIES

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


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.


     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
exchange rates ((pound)1.00 = $1.62 at August 31, 1997 and $1.72 at November 30,
1997,  respectively  for balance sheet  accounts),  and average  exchange  rates
((pound)1.00 = $1.70 and $1.62 for the three months ended November 30, 1997 and
November 30, 1996, 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.  Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options and warrants will be excluded.  SFAS No. 128 is not expected to
have a material  impact on the Company's net income and pro forma net income per
share.


Note C - Stockholders' Equity:


     Common Stock:

     As at January 9, 1998,  3,249,294  shares of Common  Stock were  issued and
outstanding.


     Preferred Stock:

     As at January 9, 1998,  there were no shares of  Preferred  Stock issued or
approved for issuance.


Note D - Stock Option Plans:

     Subsequent  to the end of the  quarter,  on December  1, 1997,  the Company
granted  options to purchase an aggregate of 173,600 shares of its Common Stock,
at an exercise  price of $7.00 per share,  under the 1997 Equity  Incentive Plan
(the "1997  Plan").  In  addition,  on December 19,  1997,  the Company  granted
options to purchase  10,000 shares of its Common Stock,  at an 

                                     - 6 -
<PAGE>
                        UNIDIGITAL INC. AND SUBSIDIARIES

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


exercise price of $5.875 per share, under the 1997 Plan. 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.


Note E - Bank Credit Facilities:

     At November 30, 1997, the Company's debt consisted of the following:  

<TABLE>
<CAPTION>
                                                               
                                                               Facility        Amount Outstanding
                                                                Amount      --------------------------
                                                             November 30,   November 30,   August 31,
                                                                 1997           1997         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   $ 2,089,189     $ 1,784,150     
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 plus 2.25%
   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     4,710,110       4,110,110          
SBA loan,  matures  December 1, 2014;  monthly payments of
   $3,665; interest at prime rate plus 2.74% .............       350,000       331,470         334,368
Installment note due seller of Elements (SF);  payable in
   eight (8) quarterly installments of $11,600 including 
   interest at 6% ........................................        85,000        31,875          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       150,000         150,000
                                                                           -----------     -----------
                                                                            13,037,644      12,146,128    
Less current portion .....................................                  10,912,745      10,018,332

                                                                           -----------     -----------
                                                                           $ 2,124,899     $ 2,127,796
                                                                           ===========     ===========
</TABLE>


                                     - 7 -

<PAGE>
                        UNIDIGITAL INC. AND SUBSIDIARIES

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


     The credit  facilities  contain  covenants  which  require  the  Company to
maintain  certain  tangible net worth and debt service  coverage ratios based on
the combined assets of the Company and its subsidiaries,  limit borrowings up to
specified  amounts of accounts  receivable,  as defined and limit the payment of
dividends.  Amounts  outstanding are  collateralized by substantially all of the
Company's  assets.  The lines of credit are renewable  annually  each  December.
Unidigital  is a  guarantor  on all bank debts of the  Company's  United  States
operating  subsidiaries.  As of  November  30,  1997,  the  Company  was  not in
compliance  with certain debt  covenants and received a waiver from the bank for
such noncompliance.

     Subsequent  to the end of the  quarter,  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   $2,408,000)   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
accounts  receivable  aged 90 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.


Note F - Other Loans:

     During  1997,  the  Company  borrowed  an  aggregate  principal  amount  of
$4,000,000  pursuant to  unsecured  five-year  loans.  Such loans are payable on
demand, one year after the date of issuance.  In connection with such loans, the
Company granted five-year warrants to the lenders to purchase up to an aggregate
amount of 400,000  shares of the Company's  Common Stock at an exercise price of
$4.00 per share.  In  addition,  the Company  granted  "piggyback"  registration
rights,  subject  to  certain  limitations.  Included  among  the  lenders  were
directors of the Company.  Such directors loaned an aggregate of $300,000 of the
above  amount to the Company and  received  warrants to purchase an aggregate of
30,000 shares of the Company's Common Stock.

     The warrants,  which were deemed to have a value of $602,000, were recorded
as deferred financing costs, which are being amortized on a straight-line  basis
over one year.

                                     - 8 -
<PAGE>


Item 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,  through a wholly-owned  subsidiary,  consummated the Boris Acquisition
and, as a result,  engages in the business of digital  imaging and  photographic
processing.  On May 22, 1997, the Company,  


                                     - 9 -
<PAGE>

through a wholly-owned  subsidiary,  consummated the Libra Acquisition and, as a
result,  provides financial printing services to the London financial community.
Such  acquisitions  have  been  accounted  for  under  the  purchase  method  of
accounting  and,  therefore,  results of operations from such  acquisitions  are
included in the Company's consolidated financial statements from the date of the
respective acquisition.

     Three Months Ended November 30, 1997 and November 30, 1996
     ----------------------------------------------------------

     Net Sales.  Net sales for the three months ended  November 30, 1997 ("First
Quarter of Fiscal 1998")  increased by 86%, or  $4,498,459,  to $9,726,178  from
$5,227,719  for the three  months ended  November  30, 1996  ("First  Quarter of
Fiscal 1997"). Net sales for the Company's United States operations increased by
73%,  or  $2,206,408,  from  $3,027,175  in the First  Quarter of Fiscal 1997 to
$5,233,583 in the First 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 104%,  or  $2,292,051,  from  $2,200,544  in the First
Quarter of Fiscal 1997 to $4,492,595  in the First 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 First Quarter of Fiscal 1998 increased
by 90%, or $2,391,140,  to $5,041,243  from  $2,650,103 for the First Quarter of
Fiscal 1997. As a percentage of net sales, cost of sales increased slightly from
51% for the First  Quarter of Fiscal 1997 to 52% for the First Quarter of Fiscal
1998. Cost of sales for the Company's United States operations remained constant
as a percentage of net sales at 49% for each of the First Quarter of Fiscal 1997
and the First  Quarter of Fiscal 1998.  Cost of sales for the  Company's  United
Kingdom operations increased as a percentage of net sales from 53% for the First
Quarter  of  Fiscal  1997 to 55% for the First  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 89%, or $1,609,911,  from $1,809,738
for the First  Quarter of Fiscal  1997 to  $3,419,649  for the First  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
remained  constant  at 35% for each of the First  Quarter of Fiscal 1997 and the
First Quarter of Fiscal 1998.

     Income from  Operations.  Income from  operations  for the First Quarter of
Fiscal 1998  increased  65%, or $497,408,  to  $1,265,286  from $767,878 for the
First Quarter of Fiscal 1997. Of this amount,  $481,819 was  contributed  by the
Company's United States  operations and $783,467 by the Company's United Kingdom
operations.  This  increase  resulted  from  higher  net 


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<PAGE>

sales offset 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 First Quarter of Fiscal
1998  increased by $388,323,  to $481,906  from $93,583 for the First 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 First Quarter of Fiscal 1998  increased
by 30%, or $63,032,  to $275,507  from  $212,475 for the First Quarter of Fiscal
1997.

     Net Income.  As a result of the factors described above, net income for the
First  Quarter of Fiscal  1998  increased  by 10%,  or  $46,053,  to $507,873 as
compared to net income of $461,820 for the First Quarter of Fiscal 1997.

Liquidity, Capital Resources and Other Matters

     Cash Flow.  Net cash used in operating  activities  was  $1,176,197 for the
First  Quarter of Fiscal  1998 and  $1,138,496  for the First  Quarter of Fiscal
1997. Net cash used in investing  activities for the acquisition of property and
equipment was $357,643 for the First Quarter of Fiscal 1998 and $116,532 for the
First Quarter of Fiscal 1997. For the First Quarter of Fiscal 1998 and the First
Quarter of Fiscal 1997, the Company  acquired  equipment under capital leases of
$260,565 and $878,116,  respectively,  and made payments under capital leases of
$444,540 and  $549,510,  respectively.  Net bank  borrowings  provided  funds of
$779,130 for the First Quarter of Fiscal 1998 and $753,463 for the First Quarter
of Fiscal 1997.

     Bank  Credit  Facilities.  The  Company  has  borrowing  arrangements  with
commercial  banks in both New York and London.  The Company has combined  credit
facilities  with  its New York  bank for its  United  States  operations  in the
aggregate  amount of $9,750,000,  which consist of a: (i)  $4,500,000  revolving
credit  facility  which is available for corporate  acquisition  purposes;  (ii)
$3,850,000  line of credit  facility  which is  available  for  working  capital
purposes;  and (iii) a  $1,400,000  term loan  which  was  rolled  over into the
Company's line of credit  facility.  Such credit  facilities are available to be
used by each of the Company's  four United States  subsidiaries.  Interest under
such credit  facilities is 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 November 30, 1997, the Company had an outstanding
balance of $1,725,000  under the revolving  credit facility and $4,710,110 under
the line of credit.

     The credit  facilities  contain  covenants  which  require  the  Company to
maintain  certain  tangible net worth and debt service  coverage ratios based on
the combined assets of the Company and its subsidiaries and limiting  borrowings
up to specified amounts of accounts  receivable aged 90 days or less. The credit
facilities  are  secured  by a first  priority  lien on all of 


                                     - 11 -
<PAGE>

the assets of the  borrowers.  The lines of credit are  renewable  annually each
December.  Unidigital is a guarantor on all bank debts of the  Company's  United
States operating subsidiaries.

     During the First Quarter of Fiscal 1998,  the Company had combined lines of
credit of  (pound)1,145,000  (approximately  $1,969,400) for working capital for
its United Kingdom operations. Subsequent to the end of the quarter, 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  $2,408,000) 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  accounts  receivable  aged 90 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  November  30,  1997,  the  Company  was not in  compliance  with all
covenants  under its credit  facilities  with its New York bank,  but received a
waiver from such bank for such noncompliance. 

     Other loans.  During  1997,  the Company  borrowed an  aggregate  principal
amount of  $4,000,000  pursuant to  unsecured  five-year  loans.  Such loans are
payable on demand, one year after the date of issuance.  In connection with such
loans, the Company granted  five-year  warrants to the lenders to purchase up to
an  aggregate  amount of  400,000  shares of the  Company's  Common  Stock at an
exercise price of $4.00 per share. In addition,  the Company granted "piggyback"
registration rights, subject to certain limitations.  Included among the lenders
were directors of the Company. Such directors loaned an aggregate of $300,000 of
the above amount to the Company and  received  warrants to purchase an aggregate
of 30,000 shares of the Company's Common Stock.

     The Company  expects that cash flow from  operations  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 or to repay the
Unsecured  Loans.  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
$312,419  from a working  capital  deficit of  $2,189,357  at August 31, 1997 to
$1,876,938 at November 30, 1997.

     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 

                                     - 12 -
<PAGE>

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.



                                     - 13 -
<PAGE>


                           PART II. OTHER INFORMATION

Item 5. Other Information.

     Subsequent  to the end of the  quarter,  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   $2,408,000)   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
accounts  receivable  aged 90 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.

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

     (a) Exhibits

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

       10.1                   Third Waiver and Amendment  Agreement  dated as of
                              December 12, 1997, among Unidigital Elements (NY),
                              Inc.,   Unison  (NY),  Inc.   (formerly  known  as
                              Unidigital/Cardinal    Corporation),    Unidigital
                              Elements  (SF),  Inc.,   Unison  (MA),  Inc.  (the
                              successor    by   merger    to    Unidigital/Boris
                              Corporation),   Unidigital   Inc.  and  The  Chase
                              Manhattan  Bank.  

       10.2                   Lease  dated July 14,  1992  between D Street Real
                              Estate  Trust for the benefit of D Street  Limited
                              Partnership  and Master  Motion  Picture Co., Inc.
                              (including all addenda and amendments thereto). 

       27                     Financial Data Schedule.  

     (b) Reports on Form 8-K.
     
         None.


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



                                     - 15-