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

                                    FORM 10-Q

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

                For the quarterly period ended February 28, 1999
                           Commission File No. 1-14126


                                 UNIDIGITAL INC.
        -----------------------------------------------------------------
        (Exact Name of Small Business Issuer as Specified in Its Charter)


           Delaware                                      13-3856672
-------------------------------             ------------------------------------
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)


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

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

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

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

     State the number of shares  outstanding of each of the Issuer's  classes of
common stock, as of March 31, 1999:

Class                                                  Number of Shares
-----                                                  ----------------

Common Stock, $.01 par value                               5,297,248

     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, 1999 (unaudited)
          and August 31, 1998 (audited)......................................2

          CONSOLIDATED INCOME STATEMENTS
          For the Three Months and Six Months Ended
          February 28, 1999 and February 28, 1998
          (unaudited)........................................................3

          CONSOLIDATED STATEMENTS OF CASH FLOWS
          For the Six Months Ended
          February 28, 1999 and February 28, 1998
          (unaudited)........................................................4

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

     Item 2.  Management's Discussion of Financial Condition and
              Results of Operation...........................................12

              General........................................................12

              Results of Operations..........................................12

              Liquidity, Capital Resources and Other Matters.................15

     Item 3.  Quantitative and Qualitative Disclosure
              About Market Risk..............................................19

PART II       OTHER INFORMATION

     Item 1.  Legal Proceedings..............................................20

     Item 2.  Changes in Securities and Use of Proceeds......................20

     Item 3.  Default Upon Senior Securities.................................21

     Item 4.  Submission of Matters to a Vote of Security Holders............21

     Item 5.  Other Information..............................................22

     Item 6.  Exhibits and Reports on Form 8-K...............................22

SIGNATURES...................................................................23

                                      -i-
<PAGE>









                          PART I FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS









                                      -1-
<PAGE>

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

                                                                              FEBRUARY 28,            AUGUST 31,
                                                                                  1999                   1998
                                                                                --------               --------
                                                                              (UNAUDITED)
                                        ASSETS

<S>                                                                           <C>                     <C>          
Current assets:
   Cash and cash equivalents......................................            $     453,000           $     287,000
   Accounts receivable (less allowance for doubtful
     accounts of $723,000 and $581,000 at
     February 28, 1999 and August 31, 1998, respectively).........               24,396,000              16,917,000
   Deferred financing costs, net..................................                2,528,000               1,013,000
   Prepaid expenses...............................................                5,490,000               2,727,000
   Other current assets...........................................                2,880,000               3,360,000
                                                                              -------------           -------------
       Total current assets.......................................               35,747,000              24,304,000

Property and equipment, net.......................................               16,926,000              14,591,000
Intangible assets, net............................................               58,283,000              28,107,000
Other assets......................................................                  755,000                 313,000
                                                                              -------------           -------------
       Total assets...............................................            $ 111,711,000           $  67,315,000
                                                                              =============           =============
                                        LIABILITIES
Current liabilities:
   Accounts payable and accrued expenses..........................            $  10,130,000           $   8,571,000
   Current portion of capital lease obligations...................                2,418,000               1,935,000
   Current portion of long-term debt..............................               65,000,000               3,610,000
   Income taxes payable...........................................                1,790,000                 887,000
   Deferred income taxes..........................................                   26,000                 249,000
   Loans and notes payable to stockholders........................                  437,000                 155,000
                                                                              -------------           -------------
       Total current liabilities..................................               79,801,000              15,407,000

Capital lease obligations, net of current portion.................                4,757,000               2,830,000
Long-term debt, net of current portion............................                2,005,000              33,978,000
Deferred income taxes.............................................                  807,000                 500,000
Loans and notes payable to stockholders, net of current portion...                  208,000                 207,000
                                                                              -------------           -------------
       Total liabilities..........................................               87,578,000              52,922,000
                                                                              -------------           -------------

                               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; 5,247,248 and 3,902,643 shares
   issued and outstanding at February 28, 1999 and
   August 31, 1998, respectively..................................                   52,000                  39,000
Additional paid-in capital........................................               19,069,000               9,865,000
Retained earnings.................................................                5,197,000               4,374,000
Cumulative foreign translation adjustment.........................                 (185,000)                115,000
                                                                              -------------           -------------
       Total stockholders' equity.................................               24,133,000              14,393,000
                                                                              -------------           -------------
       Total liabilities and stockholders' equity.................            $ 111,711,000           $  67,315,000
                                                                              =============           =============
</TABLE>

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

                                      -2-
<PAGE>

                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------
                         CONSOLIDATED INCOME STATEMENTS
                         ------------------------------
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                           THREE MONTHS ENDED,                     SIX MONTHS ENDED,
                                                      ----------------------------          ------------------------------
                                                      FEBRUARY 28,     FEBRUARY 28,         FEBRUARY 28,      FEBRUARY 28,
                                                          1999             1998                 1999              1998
                                                          ----             ----                 ----              ----

<S>                                                   <C>               <C>                  <C>              <C>        
REVENUES
   Net sales...................................       $ 18,445,000      $ 9,556,000          $34,356,000      $19,256,000
                                                      ------------      -----------          -----------      -----------
EXPENSES
   Cost of sales...............................          8,587,000        5,275,000           17,310,000       10,300,000
   Selling, general and
     administrative  expenses .................          7,185,000        3,333,000           12,574,000        6,747,000
   Restructuring expenses......................                 --               --              196,000               --
                                                       -----------      -----------          -----------      -----------
   Total operating expenses....................         15,772,000        8,608,000           30,080,000       17,047,000
                                                       -----------      -----------          -----------      -----------
   Income from operations......................          2,673,000          948,000            4,276,000        2,209,000
   Interest expense............................         (1,634,000)        (366,000)          (2,801,000)        (749,000)
   Interest expense - deferred financing costs.           (135,000)        (138,000)            (191,000)        (276,000)
   Interest and other expenses.................            (48,000)        (125,000)             222,000          (86,000)
                                                       ------------     ------------         -----------      ------------
   Income before income taxes..................            856,000          319,000            1,506,000        1,098,000
   Provision for income taxes..................            402,000          127,000              682,000          400,000
                                                       -----------      -----------          -----------      -----------
Net income.....................................        $   454,000      $   192,000          $   824,000      $   698,000
                                                       ===========      ===========          ===========      ===========


Net income per share available to
   common stockholders:
   Basic.......................................        $      0.09      $      0.06          $      0.16      $      0.22
                                                       ===========      ===========          ===========      ===========
   Diluted.....................................        $      0.08      $      0.06          $      0.16      $      0.20
                                                       ===========      ===========          ===========      ===========


Shares used to compute net income per share:
   Basic.......................................          5,247,248        3,246,301            5,024,420        3,244,797
                                                       ===========      ===========          ===========      ===========
   Diluted.....................................          5,381,070        3,380,891            5,124,166        3,436,008
                                                       ===========      ===========          ===========      ===========
</TABLE>

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

                                      -3-
<PAGE>

                        UNIDIGITAL INC. AND SUBSIDIARIES
                        --------------------------------
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                      -------------------------------------
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                     SIX MONTHS ENDED,
                                                                             -------------------------------
                                                                             FEBRUARY 28,       FEBRUARY 28,
                                                                                 1999               1998
                                                                                 ----               ----

<S>                                                                           <C>                 <C>        
OPERATING ACTIVITIES
Net income.........................................................           $   824,000         $   698,000
Adjustments to reconcile net income to
 net cash provided by (used in) operating activities:
       Depreciation and amortization...............................             3,509,000           1,632,000
       Provision for deferred income taxes.........................                57,000              19,000
       Provision for bad debts.....................................               233,000              (9,000)
       Gain on sale of assets......................................              (313,000)                 --
Changes in assets and liabilities:
       Accounts receivable.........................................            (3,585,000)         (2,338,000)
       Prepaid expenses and other current assets...................            (2,199,000)           (959,000)
       Other assets................................................              (282,000)             71,000
       Accounts payable and accrued expenses.......................            (2,383,000)            (49,000)
       Income taxes payable........................................               485,000             340,000
                                                                              -----------         -----------
Net cash used in operating activities..............................            (3,654,000)           (595,000)
                                                                              ------------        ------------
INVESTING ACTIVITIES
Proceeds of sale of fixed assets...................................               941,000                  --
Additions to property and equipment................................              (711,000)           (599,000)
Business acquisitions..............................................           (24,789,000)                 --
                                                                               -----------        -----------
Net cash used in investing activities..............................           (24,559,000)           (599,000)
                                                                              ------------        ------------
FINANCING ACTIVITIES
Net proceeds from bank borrowings..................................            29,751,000             857,000
Payments of capital lease obligations..............................            (1,157,000)           (933,000)
Payments of long-term debt.........................................              (208,000)                 --
Stockholder loans..................................................               (50,000)                 --
Common stock issued................................................                92,000               1,000
                                                                              -----------         -----------
Net cash provided by (used in) financing activities................            28,428,000             (75,000)
                                                                              -----------         ------------
Effect of foreign exchange rates on cash...........................               (49,000)             12,000
                                                                              ------------        -----------
Net increase (decrease) in cash and cash equivalents...............               166,000          (1,257,000)
Cash and cash equivalents at beginning of period...................               287,000           3,202,000
                                                                              -----------         -----------
Cash and cash equivalents at end of period.........................           $   453,000         $ 1,945,000
                                                                              ===========         ===========
SUPPLEMENTAL DISCLOSURES
Interest paid......................................................           $ 3,385,000         $   370,000
                                                                              ===========         ===========
Income taxes paid..................................................           $   192,000         $   115,000
                                                                              ===========         ===========
Noncash transactions:
Equipment acquired under capital lease obligations.................           $ 2,597,000         $   407,000
                                                                              ===========         ===========
Value of warrants issued-business acquisitions.....................           $   931,000         $   100,000
                                                                              ===========         ===========
Value of warrants-additional financing (revised)...................           $   308,000         $        --
                                                                              ===========         ===========
Business acquisitions (net of liabilities of $5,010,000)...........           $ 2,466,000         $        --
                                                                              ===========         ===========
Stock issued for business acquisitions.............................           $ 7,886,000         $        --
                                                                              ===========         ===========
</TABLE>

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

                                      -4-
<PAGE>

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

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

NOTE A - BASIS OF PRESENTATION:

     The  information  presented for February 28, 1999, and for the  three-month
and the  six-month  periods  ended  February 28, 1999 and February 28, 1998,  is
unaudited, but, in the opinion 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 February  28, 1999 and the results of their
operations and their cash flows for the  three-month  and the six-month  periods
ended February 28, 1999 and February 28, 1998.

     The consolidated financial statements included herein have been prepared by
the Company in accordance  with  generally  accepted  accounting  principles for
interim  financial  information and the instructions to Form 10-Q and Rule 10-01
of Regulation S-X.  Accordingly,  certain  information and footnote  disclosures
normally included in financial  statements prepared in accordance with generally
accepted   accounting   principles   have  been  condensed  or  omitted.   These
consolidated  financial  statements  should  be read  in  conjunction  with  the
Company's audited financial statements for the year ended August 31, 1998, 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:

     The Company is a leading service  business within the graphic arts industry
that provides  imaging,  reproduction and integrated media solution  services to
advertising agencies, retailers,  corporations,  marketing/communications firms,
publishers, government agencies and financial institutions in the New York City,
Boston, San Francisco and London markets. Through active cross-selling among its
three  divisions,  Unison,  KWIK and  Elements  (collectively,  the  "Unidigital
Enterprise"),  the Company provides  imaging,  reproductive and integrated media
solutions to each of the large  format,  digital  prepress and digital  printing
segments of the industry. Cross-selling among the Unidigital Enterprise offers a
total  solution for  customers,  which the Company  believes  creates a distinct
advantage over competitors within the marketplace.

                                      -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 = $1.67 at August 31, 1998 and $1.60 at
February  28,  1999,  respectively,  for balance  sheets  accounts)  and average
exchange  rates  ((pound)1.00  = $1.66 for the year ended August 31,  1998;  and
$1.66 and $1.69 for the three  months  ended  February 28, 1999 and February 28,
1998,  respectively;  and $1.66 and $1.69 for the six months ended  February 28,
1999 and February 28, 1998,  respectively  for income statement  accounts).  The
translation  difference  is reflected as a separate  component of  stockholders'
equity.

     EARNINGS PER SHARE:

         The following  table sets forth the  computation  of basic and dilutive
earnings per share:

<TABLE>
<CAPTION>

                                                            THREE MONTHS ENDED,                    SIX MONTHS ENDED,
                                                     ----------------------------------    ----------------------------------
                                                               FEBRUARY 28,                          FEBRUARY 28,
                                                          1999             1998                 1999              1998
                                                          ----             ----                 ----              ----

<S>                                                  <C>              <C>                  <C>              <C>          
Numerator for basic and diluted earnings per
     share-net  income available  for common
     stockholders...............................     $     454,000    $     192,000        $     824,000    $     698,000
                                                      ============     ============         ============     ============
Denominator:
   Denominator for basic earnings per share-
     weighted average shares....................         5,247,248        3,246,301            5,024,420        3,244,797
   Effect of dilutive securities:
     Stock options..............................            17,180           15,909               11,534           32,674
     Warrants...................................           116,642          118,681               88,212          158,537
                                                       -----------      -----------          -----------      -----------
   Denominator for diluted earnings per share-
     adjusted   weighted-average  shares   and
     assumed conversions........................         5,381,070        3,380,891            5,124,166        3,436,008
                                                       ===========      ===========          ===========      ===========

</TABLE>

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

<TABLE>
<CAPTION>

                                                      THREE MONTHS ENDED,                      SIX MONTHS ENDED,
                                              --------------------------------------------------------------------------------
                                                         FEBRUARY 28,                             FEBRUARY 28,
                                                    1999              1998                 1999                  1998
                                              --------------------------------------------------------------------------------
<S>                                               <C>                <C>                 <C>                   <C>    
Stock Options.................................    559,798            178,917             559,798               132,918
Warrants......................................    342,000            117,000             342,000               117,000

</TABLE>

                                      -6-
<PAGE>

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

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

NOTE C - STOCK OPTION PLANS:

     On January 4, 1999, 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 $5.00 per share.

     On January 12, 1999, the Company  granted options to purchase 75,000 shares
of its  Common  Stock  to  Larry  Wooddell,  Senior  Vice  President,  Corporate
Development of the Company, at an exercise price of $4.00 per share.

NOTE D - LONG-TERM DEBT:

     Long-term debt consists of the following:

<TABLE>
<CAPTION>

                                                                           FACILITY
                                                                            AMOUNT               AMOUNT OUTSTANDING
                                                                          FEBRUARY 28,      FEBRUARY 28,      AUGUST 31,
                                                                              1999              1999             1998
                                                                         ------------------------------------------------
<S>                  <C>       <C>                                          <C>              <C>               <C>       
Credit facilities in the United Kingdom; interest at either the bank's
 overdraft  rate plus 2% or  2.5%,  including a  temporary facility of
 approximately  450,000  (pound) ($720,000) renewable  April 30, 1999;
 facility amount is approximately(pound)2,650,000 ($4,248,000)              $4,248,000       $2,394,000        $2,135,000
Term  loan,  matures  in  March  2003;  payable  in  sixteen quarterly
 installments ranging  from $960,000 to $1,920,000, commencing in June
 1999,  with  a  balloon  payment of  $8,960,000  in March 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%       32,000,000       32,000,000        25,000,000
Revolving  line of credit; matures in March 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%                             15,000,000       14,935,000         8,435,000
Acquisition line of credit; matures in March 2003,  payable  in eleven
 quarterly  installments of 5.0%  of the outstanding balance in  March
 2000  commencing  in  June  000  and  one installment of 45.0% of the
 outstanding  balance in March 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%                                         5,000,000        5,000,000
Subordinated  loan  matures in March  2004;  base interest of 12 1/2%;
 plus  0.25%  the  first day  after the first anniversary of the Note;
 plus 0.25% following the last day of each 90 day period until payment
in full                                                                     10,000,000       10,000,000
Installment  note due  seller  of  Elements  (SF);  payable  in  eight
 quarterly  installments of $11,600,  including interest at 6.0%                                     --            11,000
Installment note  due seller  of Unison (MA); matures in January 1999,
 payable in  two annual  installments of $75,000 including interest at
 8.0%                                                                                            75,000            75,000

                                      -7-
<PAGE>


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

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


Notes  payable  for  certain  equipment,   maturing  on  dates between
 October, 1998 and September, 2003, payable in monthly installments of
 $22,000 until October 1998 and $14,000 thereafter, including interest
 at 8.54% and 8.4%, respectively.                                                               530,000           618,000
Treasury loan  facility  in  United  Kingdom;  matures  in  July 2001,
 payable in monthly  installments  of  $19,000 plus interest of LIBOR,
 as defined, plus the Banks Margin of 2.4%                                                      517,000           651,000
Note  payable, payable  in monthly installments of approximately $1000
 including interest at 10.35%                                                                    12,000            17,000
Investment fee due May 2001, senior subordinated note                                         1,000,000                --
Installment note due seller of Kwik  International; matures in April
   2001, payable in thirty-six monthly installments of approximately
   $21,000 including interest at 5.7%                                                           542,000           646,000

                                                                                          ----------------- ---------------
                                                                                             67,005,000        37,588,000
Less current portion                                                                         65,000,000         3,610,000
                                                                                          ----------------- ---------------
                                                                                            $ 2,005,000      $ 33,978,000
                                                                                          ================= ===============
</TABLE>

     During the first  quarter of fiscal 1999 the Company  amended its  existing
bank financing facilities with Canadian Imperial Bank of Commerce ("CIBC"). As a
result,  the Company has credit  facilities with CIBC in the aggregate amount of
$52,000,000,  consisting  of a: (i)  $32,000,000  term  loan;  (ii)  $15,000,000
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 credit  facilities  are guaranteed by the Company's
United  States  subsidiaries,   including   subsidiaries   currently  owned  and
subsequently  acquired.  In  addition,  the  Company  pledged  all of its equity
interests in its United States subsidiaries,  including  subsidiaries  currently
owned and subsequently  acquired,  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 February 28, 1999, the Company had
an outstanding balance of $32,000,000 under the term loan, $14,935,000 under the
revolving credit facility and $5,000,000 under the acquisition loan.

     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 Company's agreement
with  CIBC  restricts  the  Company's  ability  to  pay  dividends.  The  credit
facilities  are  secured  by a first  priority  lien on all of the assets of the
Company and its subsidiaries.

     The Company has not met a financial  covenant  under its credit  facilities
with CIBC and has requested a waiver of such covenant from CIBC. At February 28,
1999, the credit facilities have been classified as a short-term liability until
such waiver is obtained.  The Company believes that CIBC will grant such waiver,
however, there can be no assurance that such waiver will be obtained.

                                      -8-
<PAGE>

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

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

     In addition,  the Company has received a commitment  from other  lenders to
replace the existing CIBC credit  facilities.  Such  commitment is initially for
$65,000,000 of senior debt with a potential  increase to  $100,000,000 of senior
and  subordinated  debt.  There  can be no  assurance,  however,  that  such new
financing agreements will be consummated by the Company.

     In November  1998, the Company  borrowed a principal  amount of $10,000,000
pursuant  to a  subordinated  unsecured  loan  (the  "Subordinated  Loan").  The
Subordinated  Loan  matures on March 31,  2004 and bears  interest at a rate per
annum equal to the sum of (i) 12.50% plus (ii) an additional  percentage  amount
equal to 0.25% commencing on November 30, 1999 and increasing by 0.25% following
the last day of each 90-day period  thereafter.  Until November 30, 1999, at the
option of the lender,  interest is payable in additional notes,  Common Stock of
the Company or warrants to purchase  Common  Stock of the  Company.  Thereafter,
interest is payable in either  additional  notes or cash,  depending  on certain
coverage ratios and, in the case of cash interest payments,  the approval of the
Bank. The Company will incur an additional premium of 5.0% on any prepayments of
the Subordinated  Loan made prior to November 30, 1999. Such additional  premium
will be reduced by 100 basis  points on December 1, 1999 and shall be reduced by
such  amount  on each  December  1st  thereafter  until  December  1,  2003.  In
connection with the Subordinated  Loan, the Company issued ten-year  warrants to
the  lender to  purchase  440,000  shares of the  Company's  Common  Stock at an
exercise  price not to exceed $5.00 per share.  In the event the Company has not
paid the loan in full by November  30, 1999  (subject  to  extension  in certain
instances),  the Company will issue ten-year  warrants to the lender to purchase
an additional  200,000 shares of the Company's Common Stock at an exercise price
not to exceed $5.00 per share. In the event the  Subordinated  Loan has not been
paid in full by May 31,  2001,  the  exercise  price of such  warrants  shall be
reduced by $1.00 per share and, on each  anniversary of such date, such exercise
price shall be reduced by an additional $1.00 per share. In addition, subject to
certain limitations, the Company granted registration rights, including "demand"
registration rights, to such lender.

     The warrants issued in connection with the  Subordinated  Loan,  which were
deemed to have a value of approximately $308,000, have been recorded as deferred
financing  costs,  and  are  being  amortized  on  a  straight-line  basis  over
approximately five years.

     The  Company's  credit  facility with its London bank provides for combined
lines of credit  of  (pound)2,650,000  (approximately  $4,248,000)  for  working
capital for its United Kingdom  operations.  Such credit  facility was increased
from (pound)1,400,000 (approximately $2,308,000) on May 13, 1998. These lines of
credit  renewed  annually and bear interest at 2.0% or 2.5% 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 substantially  all of the Company's United Kingdom assets. As of February 28,
1999, the Company had an outstanding balance of (pound)1,494,000  (approximately
$2,394,000) under its United Kingdom credit facility.

     In connection with its acquisition of certain of the assets (the "Five Star
Acquisition") of Five Star Finishers,  Ltd., a United Kingdom corporation ("Five
Star"),  the  Company  entered  into a  three-year  term loan of  (pound)400,000
(approximately  $660,000) with its London bank. Such term

                                      -9-
<PAGE>

loan bears interest at 2.4% over the bank's Base Rate, as defined,  and contains
covenants which require the Company to maintain  certain debt to earnings ratios
and Net  Tangible  Assets,  as  defined,  and  limits  borrowings  to 75% of Net
Tangible Assets. The Company's obligations under the term loan are guaranteed by
its United  Kingdom  subsidiaries.  As of February 28, 1999,  the Company had an
outstanding  balance of (pound)322,000  (approximately  $517,000) under the term
loan.

NOTE E - PRO FORMA FINANCIAL INFORMATION:

     The following  supplemental  pro forma  information  is presented as if the
Company had completed the Kwik Acquisition, the Mega Art Acquisition, the Zazula
Acquisition and the SuperGraphics  Acquisition (each as hereinafter  defined) as
of September 1, 1998 and 1997, respectively:

                                                SIX MONTHS ENDED,
                                        ---------------------------------
                                                   FEBRUARY 28,
                                               1999             1999
                                        ---------------------------------
Net sales............................... $  37,523,000      $28,225,000
Income from operations..................     4,332,000        3,845,000
Net income..............................       427,000        1,846,000
Net income per share - basic............          0.08             0.40
Net income per share - diluted..........          0.08             0.37

NOTE F - SUBSEQUENT EVENTS:

     On April 7, 1999, the Company,  through its wholly-owned  subsidiary Unison
(NY), Inc., a Delaware corporation ("Unison (NY)"),  consummated the acquisition
(the "X+C  Acquisition")  of  substantially  all of the  assets  of Peter  X(+C)
Limited, a New York corporation ("X+C"),  located in New York City. The purchase
price  included an initial  cash  payment of $70,000 and the  issuance of 40,000
shares of restricted Common Stock of the Company to the sole shareholder of X+C.
In addition,  the purchase  price  includes a deferred  cash payment of $100,000
payable on April 1, 2000, and an earn-out payment of up to $1,000,000 in cash or
in some  combination of cash and  restricted  Common Stock of the Company in the
event X+C achieves certain financial performance objectives.

     On March 31,  1999,  the Chapter 7 Trustee  (the  "Trustee")  for  Cardinal
Communications  Group, Inc.  ("Cardinal") filed an adversary  proceeding against
the Company in Cardinal's Chapter 7 bankruptcy  proceeding pending in the United
States  Bankruptcy  Court for the Southern  District of New York. The Trustee is
seeking  recovery of funds alleged to be the property of the  bankruptcy  estate
under various bankruptcy code provisions.  In addition, the Trustee is seeking a

                                      -10-
<PAGE>

declaratory  judgment regarding the bankruptcy estate's entitlement to a portion
of the proceeds from the sale of real property  acquired by the Company pursuant
to that  certain  Asset  Purchase  Agreement  dated as of  August  2,  1996 (the
"Cardinal Purchase Agreement").  The Company believes that the bankruptcy estate
is not entitled to any additional monies under the Cardinal Purchase Agreement.





                                      -11-
<PAGE>


ITEM 2.  MANAGEMENT'S   DISCUSSION  OF   FINANCIAL  CONDITION   AND  RESULTS  OF
         OPERATION.

GENERAL

     The Company is a leading  provider of imaging,  reproduction and integrated
media  solution  services  to  advertising  agencies,  retailers,  corporations,
marketing/communications  firms,  publishers,  government agencies and financial
institutions  in the New York City,  Boston,  San Francisco and London  markets.
Through  active  cross-selling  among the  Unidigital  Enterprise,  the  Company
provides  imaging,  reproductive  and integrated  media solutions to each of the
large format,  digital prepress and digital  printing  segments of the industry.
Cross-selling among the Unidigital  Enterprise offers a total media solution for
customers,  which the  Company  believes,  creates  a  distinct  advantage  over
competitors within the marketplace.

     The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts are forward-looking  statements (as such term is defined in the
Private  Securities  Litigation  Reform  Act of 1995)  that  involve  risks  and
uncertainties. Such forward-looking statements may be identified by, among other
things,  the use of forward-looking  terminology such as "believes,"  "expects,"
"may,"  "will,"  "should"  or  "anticipates"  or the  negative  thereof or other
variations thereon or comparable terminology, or by discussions of strategy that
involve  risks  and  uncertainties.  From  time  to  time,  the  Company  or its
representatives have made or may make forward-looking  statements,  orally or in
writing. Such forward-looking statements may be included in various filings made
by the Company with the Securities and Exchange Commission (the "SEC"), or press
releases  or oral  statements  made by or with  the  approval  of an  authorized
executive  officer of the Company.  These  forward-looking  statements,  such as
statements regarding  anticipated future revenues,  capital  expenditures,  Year
2000 compliance and other statements  regarding  matters that are not historical
facts,  involve  predictions.  The  Company's  actual  results,  performance  or
achievements  could differ  materially from the results expressed in, or implied
by, these  forward-looking  statements.  Potential risks and uncertainties  that
could affect the Company's future operating results include, but are not limited
to:  (i)  economic  conditions,  including  economic  conditions  related to the
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;  (vi) the
Company's ability to obtain  additional  financing at favorable rates; and (vii)
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 March 25,  1998 the
Company acquired  substantially  all of the assets of Kwik  International,  Ltd.
(the  "Kwik  Acquisition").  As a result of such  acquisition  the  Company  has
expanded its color separation and large format printing services in the New York
and  surrounding  area.  In July 1998,  the  Company  consummated  the Five Star
Acquisition in the United Kingdom. On September 2, 1998, the Company consummated
the Mega Art Acquisition (the "Mega Art Acquisition") resulting in the expansion
of its wide format,

                                      -12-
<PAGE>

digital  prepress  and  printing  services.  On October  30,  1998,  the Company
consummated the Zazula Acquisition (the "Zazula  Acquisition")  resulting in the
expansion of its  retouching  and prepress  services,  primarily to  advertising
agencies.  On  November  30,  1998,  the  Company  completed  the  SuperGraphics
Acquisition (the "SuperGraphics  Acquisition") resulting in the expansion of its
large format  services.  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 FEBRUARY 28, 1999 AND FEBRUARY 28, 1998
     ----------------------------------------------------------

     NET SALES.  Net sales for the three months ended February 28, 1999 ("Second
Quarter of Fiscal 1999")  increased by 93%, or $8,889,000,  to $18,445,000  from
$9,556,000  for the three months ended  February  28, 1998  ("Second  Quarter of
Fiscal 1998"). Net sales for the Company's United States operations increased by
185%, or  $9,883,000,  from  $5,346,000 in the Second  Quarter of Fiscal 1998 to
$15,229,000 in the Second Quarter of Fiscal 1999. This increase was attributable
primarily to an increase in net sales resulting from the Kwik  Acquisition,  the
Mega Art Acquisition,  the Zazula Acquisition and the SuperGraphics  Acquisition
and, to a lesser extent,  an increase in net sales in the Company's other United
States  subsidiaries.  Net sales for the  Company's  United  Kingdom  operations
decreased by 24%, or $994,000,  from  $4,210,000 in the Second Quarter of Fiscal
1998 to  $3,216,000  in the Second  Quarter of Fiscal  1999.  This  decrease was
attributable  primarily to a  market-driven  downturn in the financial  printing
industry in the United Kingdom.

     COST OF  SALES.  Cost of  sales  for the  Second  Quarter  of  Fiscal  1999
increased by 63% or  $3,312,000,  to $8,587,000  from  $5,275,000 for the Second
Quarter of Fiscal 1998. As a percentage of net sales, cost of sales decreased as
a percentage of net sales from 55% for the Second  Quarter of Fiscal 1998 to 47%
for the Second Quarter of Fiscal 1999. Such decrease was attributable  primarily
to the change in product  mix to include  more large  format  services.  Cost of
sales for the Company's  United States  operations  increased as a percentage of
net sales from 49% for the Second  Quarter of Fiscal  1998 to 44% for the Second
Quarter of Fiscal 1999.  Such increase was  attributable  primarily to increased
costs incurred in connection with the Company's preparation for expansion of its
large  format and  digital  print  businesses.  Cost of sales for the  Company's
United  Kingdom  operations  decreased as a percentage of net sales from 63% for
the Second  Quarter of Fiscal 1998 to 56% for the Second Quarter of Fiscal 1999.
Such decrease was attributable primarily to the change in product mix to include
less digital print  services as well as the reduced  operations at the Company's
financial printing facility.

     SELLING,  GENERAL  AND  ADMINISTRATIVE   EXPENSES.   Selling,  general  and
administrative expenses ("SG&A") increased 116%, or $3,852,000,  from $3,333,000
for the Second  Quarter of Fiscal 1998 to $7,185,000  for the Second  Quarter of
Fiscal 1999. Such increase was attributable  primarily to the increased level of
operations which resulted from the Kwik  Acquisition,  the Mega Art Acquisition,
the  Zazula  Acquisition  and the  SuperGraphics  Acquisition  and the hiring of
additional management and administrative personnel and costs associated with the
Company's  acquisitions.  As a percentage of net sales,  SG&A increased from 35%
for the Second Quarter of

                                      -13-
<PAGE>

Fiscal  1998 to 39% for the Second  Quarter of Fiscal  1999.  SG&A  increased  a
percentage of net sales as a result of increased salary expenses.

     INCOME FROM  OPERATIONS.  Income from  operations for the Second Quarter of
Fiscal 1999  increased by 182%, or $1,725,000,  to $2,673,000  from $948,000 for
the Second Quarter of Fiscal 1998. Of this amount, $2,537,000 was contributed by
the Company's  United  States  operations  and $136,000 by the Company's  United
Kingdom operations.  This increase resulted from higher net sales offset in part
by higher operating costs associated with such net sales.

     NET INTEREST EXPENSE. Net interest expense for the Second Quarter of Fiscal
1999  increased by 189%,  or  $1,188,000,  to  $1,817,000  from $629,000 for the
Second Quarter of Fiscal 1998. This increase resulted from increased  borrowings
under the  Company's  credit  facilities  primarily  relating  to the  Company's
acquisitions.

     INCOME TAXES.  Income taxes for the Second Quarter of Fiscal 1999 increased
by 217%, or $275,000, to $402,000 from $127,000 for the Second Quarter of Fiscal
1998.

     NET INCOME.  As a result of the factors described above, net income for the
Second  Quarter of Fiscal 1999  increased by 136%,  or $262,000,  to $454,000 as
compared to net income of $192,000 for the Second Quarter of Fiscal 1998.

     SIX MONTHS ENDED FEBRUARY 28, 1999 AND FEBRUARY 28, 1998
     --------------------------------------------------------

     NET SALES.  Net sales for the six months ended  February 28, 1999 increased
by 78%, or $15,100,000, to $34,356,000 from $19,256,000 for the six months ended
February  28,  1998.  Net  sales  for the  Company's  United  States  operations
increased by 173%,  or  $17,454,000,  from  $10,110,000  in the six months ended
February 28, 1998 to $27,564,000 in the six months ended February 28, 1999. This
increase was  attributable  primarily to an increase in net sales resulting from
the Kwik Acquisition and the Mega Art Acquisition  and, to a lesser extent,  the
Zazula Acquisition,  the SuperGraphics  Acquisition and an increase in net sales
in the Company's other United States  subsidiaries.  Net sales for the Company's
United Kingdom  operations  decreased by 26%, or $2,354,000,  from $9,146,000 in
the six months  ended  February 28, 1998 to  $6,792,000  in the six months ended
February 28, 1999. This decrease was  attributable  primarily to a market-driven
downturn in the financial printing industry in the United Kingdom.

     COST OF SALES.  Cost of sales for the six months  ended  February  28, 1999
increased by 68%, or $7,010,000,  to $17,310,000  from  $10,300,000  for the six
months  ended  February 28, 1998.  As a percentage  of net sales,  cost of sales
decreased from 53% for the six months ended February 28, 1998 to 50% for the six
months ended  February 28, 1999.  Cost of sales for the Company's  United States
operations  increased as a  percentage  of net sales from 46% for the six months
ended February 28, 1998 to 49% for the six months ended February 28, 1999.  Such
increase was  attributable  primarily to increased  costs incurred in connection
with the  Company's  preparation  for  expansion of its large format and digital
print  businesses.  Cost of sales for the Company's  United  Kingdom  operations
decreased  as a  percentage  of net  sales  from  61% for the six  months  ended
February 28, 1998 to 58% for the six months ended February 28, 1999. Such

                                      -14-
<PAGE>

decrease was attributable primarily to the change in product mix to include less
digital  print  services  as well as the  reduced  operations  at the  Company's
financial printing facility.

     SELLING,  GENERAL AND  ADMINISTRATIVE  EXPENSES.  SG&A increased by 86%, or
$5,827,000,  from  $6,747,000  for the six months  ended  February  28,  1998 to
$12,574,000  for the six months  ended  February  28,  1999.  Such  increase was
attributable  primarily to the increased level of operations which resulted from
the Kwik Acquisition and the Mega Art Acquisition,  and, to a lesser extent, the
Zazula Acquisition,  the SuperGraphics  Acquisition and the hiring of additional
management and administrative  personnel and costs associated with the Company's
acquisitions.  As a percentage of net sales, SG&A increased from 35% for the six
months  ended  February  28, 1998 to 37% for the six months  ended  February 28,
1999.  SG&A increased a percentage of net sales as a result of increased  salary
expenses.

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

     INCOME FROM  OPERATIONS.  Income from  operations  for the six months ended
February 28, 1999 increased by 94%, or $2,067,000, to $4,276,000 from $2,209,000
for the six months  ended  February 28, 1998.  Of this  amount,  $4,003,000  was
contributed  by the  Company's  United  States  operations  and  $273,000 by the
Company's  United  Kingdom  operations.  This increase  resulted from higher net
sales offset in part by higher  production  costs associated with such net sales
and the restructuring  expenses incurred in connection with the consolidation of
the Company's United Kingdom financial printing operations.

     NET  INTEREST  EXPENSE.  Net  interest  expense  for the six  months  ended
February  28,  1999  increased  by  149%,  or  $1,659,000,  to  $2,770,000  from
$1,111,000  for the six months ended February 28, 1998.  This increase  resulted
from  increased  borrowings  under the  Company's  credit  facilities  primarily
related to the Company's acquisitions.

     INCOME  TAXES.  Income  taxes for the six months  ended  February  28, 1999
increased  by 71%, or  $282,000,  to $682,000  from  $400,000 for the six months
ended February 28, 1998.

     NET INCOME.  As a result of the factors described above, net income for the
six months ended February 28, 1999 increased by 18%, or $126,000, to $824,000 as
compared to net income of $698,000 for the six months ended February 28, 1998.

LIQUIDITY, CAPITAL RESOURCES AND OTHER MATTERS

     CASH FLOW.  Net cash used in operating  activities  was  $3,654,000 for the
first six months of fiscal 1999 and  $595,000 for the first six months of fiscal
1998. Net cash used in investing  activities for the acquisition of property and
equipment  was $711,000 for the first six months of fiscal 1999 and $599,000 for
the first six months of Fiscal 1998. For the first six months of fiscal 1999 and
fiscal 1998, the Company  acquired  equipment under capital leases of $2,597,000
and $407,000, respectively, and made payments under capital leases of $1,157,000
and $933,000,

                                      -15-
<PAGE>

respectively.  Net bank  borrowings  provided funds of $29,543,000 for the first
six months of fiscal 1999 and $857,000 for the first six months of fiscal 1998.

     BANK  CREDIT  FACILITIES.  The  Company  has  borrowing  arrangements  with
commercial banks in both New York and London. During the First Quarter of Fiscal
1999,  the  Company  amended  its  existing  credit  facility  with  CIBC in the
aggregate amount of $52,000,000,  which consist of a: (i) $32,000,000 term loan;
(ii)  $15,000,000  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, including subsidiaries currently owned
and subsequently  acquired.  In addition,  the Company pledged all of its equity
interests in its United States subsidiaries,  including  subsidiaries  currently
owned and subsequently  acquired,  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 February 28, 1999, the Company had
an outstanding balance of $32,000,000 under the term loan, and $14,935,000 under
the revolving credit facility and $5,000,000 under the acquisition loan.

     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 Company's agreement
with  CIBC  restricts  the  Company's  ability  to  pay  dividends.  The  credit
facilities  are  secured  by a first  priority  lien on all of the assets of the
Company  and  its  subsidiaries,  including  subsidiaries  currently  owned  and
subsequently acquired.

     In November  1998, the Company  borrowed a principal  amount of $10,000,000
pursuant to the Subordinated  Loan. The  Subordinated  Loan matures on March 31,
2004 and bears  interest at a rate per annum equal to the sum of (i) 12.50% plus
(ii) an additional  percentage  amount equal to 0.25% commencing on November 30,
1999 and  increasing  by 0.25%  following  the  last day of each  90-day  period
thereafter.  Until  November 30, 1999, at the option of the lender,  interest is
payable in additional notes, Common Stock of the Company or warrants to purchase
Common  Stock  of  the  Company.  Thereafter,  interest  is  payable  in  either
additional notes or cash,  depending on certain coverage ratios and, in the case
of cash  interest  payments,  the  approval of CIBC.  The Company  will incur an
additional  premium of 5.0% on any  prepayments  of the  Subordinated  Loan made
prior to November 30, 1999. Such additional premium will be reduced by 100 basis
points on December 1, 1999 and shall be reduced by such amount on each  December
1st thereafter until December 1, 2003. In connection with the Subordinated Loan,
the Company issued ten-year warrants to the lender to purchase 440,000 shares of
the Company's  Common Stock at an exercise  price not to exceed $5.00 per share.
In the event the  Company  has not paid the loan in full by  November  30,  1999
(subject to extension  in certain  instances),  the Company will issue  ten-year
warrants to the lender to purchase an additional 200,000 shares of the Company's
Common Stock at an exercise  price not to exceed  $5.00 per share.  In the event
the  Subordinated  Loan has not been paid in full by May 31, 2001,  the exercise
price of such  warrants  shall  be  reduced  by $1.00  per  share  and,  on each
anniversary of such date, such exercise price

                                      -16-
<PAGE>

shall be  reduced by an  additional  $1.00 per share.  In  addition,  subject to
certain limitations, the Company granted registration rights, including "demand"
registration rights, to such lender.

     The warrants issued in connection with the  Subordinated  Loan,  which were
deemed to have a value of approximately $308,000, have been recorded as deferred
financing  costs,  and  are  being  amortized  on  a  straight-line  basis  over
approximately five years.

     The  Company's  credit  facility with its London bank provides for combined
lines of credit  of  (pound)2,650,000  (approximately  $4,248,000)  for  working
capital for its United Kingdom  operations.  Such credit  facility was increased
from (pound)1,400,000 (approximately $2,308,000) on May 13, 1998. These lines of
credit  renew  annually  and bear  interest at 2.0% or 2.5% 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 substantially  all of the Company's United Kingdom assets. As of February 28,
1999, the Company had an outstanding balance of (pound)1,494,000  (approximately
$2,394,000) under its United Kingdom credit facility.

     In connection  with the Five Star  Acquisition,  the Company entered into a
three-year term loan of (pound)400,000  (approximately $660,000) with its London
bank.  Such term loan  bears  interest  at 2.4% over the bank's  Base  Rate,  as
defined,  and contains  covenants which require the Company to maintain  certain
debt to  earnings  ratios  and Net  Tangible  Assets,  as  defined,  and  limits
borrowings to 75% of Net Tangible Assets.  The Company's  obligations  under the
term loan are guaranteed by its United Kingdom subsidiaries.  As of February 28,
1999, the Company had an outstanding  balance of  (pound)322,000  (approximately
$517,000) under the term loan.

     The Company has not met a financial  covenant  under its credit  facilities
with CIBC and has requested a waiver of such covenant from CIBC. At February 28,
1999, the credit facilities have been classified as a short-term liability until
such waiver is obtained.  The Company believes that CIBC will grant such waiver,
however, there can be no assurance that such waiver will be obtained.

     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 has
received a commitment  from other  lenders to replace the  existing  CIBC credit
facilities.  Such  commitment is initially for $65,000,000 of senior debt with a
potential increase to $100,000,000 of senior and subordinated debt. There can be
no assurance,  however, that such new financing arrangements will be consummated
by the Company.

     WORKING  CAPITAL.  The Company's  working capital  decreased by $52,951,000
from  $8,897,000 at August 31, 1998 to a working  capital deficit of $44,054,000
at February 28, 1999.  Such  decrease is  attributable to the  Company's  credit
facilities  with CIBC being  classified as a short-term liability until a waiver
from CIBC is  obtained.  If the  Company had  obtained a waiver  from CIBC,  the
Company's working capital at February 28, 1999 would have been $15,001,000.

     ACQUISITIONS.  Subsequent to the end of the quarter,  on April 7, 1999, the
Company,  through its wholly-owned  subsidiary Unison (NY),  consummated the X+C
Acquisition.  The purchase price included an initial cash payment of $70,000 and
the issuance of 40,000 shares of  restricted  Common Stock of the Company to the
sole shareholder of X+C. In addition, the

                                      -17-
<PAGE>

purchase price includes a deferred cash payment of $100,000  payable on April 1,
2000, and an earn-out payment of up to $1,000,000 in cash or in some combination
of cash and  restricted  Common  Stock of the Company in the event X+C  achieves
certain financial performance objectives.

     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.

     YEAR 2000 COMPLIANCE

     The  Company  believes  that it has  sufficiently  assessed  its  state  of
readiness with respect to its Year 2000 compliance. The Company has developed or
is  developing  a program to address  on a timely  basis the risk that  computer
applications developed,  marketed, sold and delivered or used by the Company may
be unable to recognize and properly perform  date-sensitive  functions involving
dates  prior to and after  December  31,  1999 (the  "Year 2000  Problem").  The
Company  does not  believe  that Year 2000  compliance  will  result in material
investments by the Company,  nor does the Company  anticipate that the Year 2000
Problem will have any adverse  effects on the business  operations  or financial
performance  of the  Company.  The  Company  does  not  believe  that it has any
material  exposure to the Year 2000 Problem with respect to its own  information
systems. There can be no assurance, however, that the Year 2000 Problem will not
adversely  affect  the  Company's  business,  operating  results  and  financial
condition.

     The Company  believes  that each of its  products  is Year 2000  compliant,
however,  it has no control over  whether  software  modification  made by third
parties or the combination of its products with the software  developed by third
parties and combined  with the Company's  products will be Year 2000  compliant.
Additionally,  there  can be no  assurance  that  such  potential  instances  of
non-compliance  will not  adversely  affect the  Company's  business,  operating
results and  financial  condition.  The Company has  established  no reserve for
auditing its software  products or for correcting  Year 2000  compliance  issues
with such products.

     Although the Company  believes its  products are Year 2000  compliant,  the
purchasing  patterns of customers  and  potential  customers  may be affected by
issues  associated with the Year 2000 Problem.  As companies expend  significant
resources to correct their current data storage  solutions,  these  expenditures
may  result in  reduced  funds to  purchase  products  as those  offered  by the
Company. There can be no assurance that the Year 2000 Problem will not adversely
affect the  Company's  business,  operating  results  and  financial  condition.
Conversely,  the Year 2000

                                      -18-
<PAGE>

Problem may cause other  companies to accelerate  purchases,  thereby causing an
increase in short-term demand and a consequent  decrease in long-term demand for
the Company's products.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Not applicable.










                                      -19-
<PAGE>

                                     PART II

ITEM 1.  LEGAL PROCEEDINGS.

     A  dispute  has  arisen  out of the  Company's  acquisition  of Libra  City
Corporate  Printing  Limited  ("Libra") in the United  Kingdom.  The Company has
withheld a portion of the  earn-out  payment  (approximately  (pound)230,000  or
$368,000)  because  of a  potential  breach  of  a  non-competition  clause  and
warranties.  The parties attempted to resolve the dispute outside of litigation.
However,  on August 13, 1998,  certain of the  shareholders  of Libra filed suit
against the Company in the High Court of Justice, Queen's Bench Division seeking
the balance of the earn-out payment. The Company filed a counterclaim seeking to
offset any earn-out  payments that may be owed to such  shareholders in addition
to any damages  arising out of the alleged  breach of  warranties.  On April 14,
1999, the Court ruled that the Company's counterclaim may proceed to trial.

     Subsequent  to the end of the quarter,  on March 31, 1999,  the Trustee for
Cardinal filed an adversary proceeding against the Company in Cardinal's Chapter
7 bankruptcy  proceeding  pending in the United States  Bankruptcy Court for the
Southern  District of New York. The Trustee is seeking recovery of funds alleged
to be the  property of the  bankruptcy  estate  under  various  bankruptcy  code
provisions. In addition, the Trustee is seeking a declaratory judgment regarding
the bankruptcy  estate's  entitlement to a portion of the proceeds from the sale
of real  property  acquired by the Company  pursuant  to the  Cardinal  Purchase
Agreement.  The Company  believes that the bankruptcy  estate is not entitled to
any additional monies under the Cardinal Purchase Agreement.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

     Subsequent to the end of the quarter, on March 12, 1999, the Company issued
25,000 shares of restricted Common Stock of the Company to each of Shimon Azulay
and Nadav Chen, employees of Mega Art, as partial consideration for the Mega Art
Acquisition.

     Subsequent to the end of the quarter,  on April 7, 1999, the Company issued
40,000 shares of restricted Common Stock of the Company to Peter Ksiezopolski as
partial consideration for the X+C 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
all recipients of such shares. All recipients had adequate access to information
about the Company.

                                      -20-
<PAGE>

ITEM 3.  DEFAULT UPON SENIOR SECURITIES.

     The Company has not met a financial  covenant  under its credit  facilities
with CIBC and has requested a waiver of such covenant from CIBC. At February 28,
1999, the credit facilities have been classified as a short-term liability until
such waiver is obtained.  The Company believes that CIBC will grant such waiver,
however, there can be no assurance that such waiver will be obtained.

     In addition,  the Company has received a commitment  from other  lenders to
replace the existing CIBC credit  facilities.  Such  commitment is initially for
$65,000,000 of senior debt with a potential  increase to  $100,000,000 of senior
and  subordinated  debt.  There  can be no  assurance,  however,  that  such new
financing arrangements will be consummated by the Company.

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

     The Annual Meeting of  Stockholders  of the Company was held on February 4,
1999.

     There were  4,156,308  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                           4,145,698                       10,610
Peter Saad                               4,145,698                       10,610
Richard J. Sirota                        4,145,198                       11,110
Anthony Manser                           4,145,198                       11,110
Harvey Silverman                         4,145,198                       11,110
David Wachsman                           4,145,198                       11,110

     Also at the  meeting,  a vote  was  taken  on the  proposal  to  amend  the
Certificate of Incorporation of the Company to increase the Company's authorized
shares  of  Common  Stock  from  10,000,000  to  25,000,000  and  the  Company's
authorized  Preferred  Stock from  5,000,0000  to  10,000,000.  Of the 4,156,308
shares present at the meeting in person or by proxy, 3,418,513 shares were voted
in favor of such proposal,  131,980 shares were voted against such proposal, and
600 shares abstained from voting.  There were also 605,215 broker non-votes with
respect to such proposal.

     Also at the  meeting,  a vote was taken on the  proposal  to amend the 1997
Equity  Incentive Plan to increase the number of shares of Common Stock reserved
for the issuance upon  exercise of options  granted under such plan from 500,000
to  1,000,000.  Of the 4,156,308  shares  present at the meeting in person or by
proxy,  3,151,213  shares were voted in favor of such  proposal,  398,880 shares
were voted against such proposal,  and 1,000 shares abstained from voting. There
were also 605,215 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,  1999.  Of the  4,156,308
shares present at the meeting in person or by proxy, 4,147,898 shares were voted
in favor of such  proposal,  800 shares were voted  against such  proposal,  and
7,610 shares abstained from voting.

                                      -21-
<PAGE>

ITEM 5.  OTHER INFORMATION.

     On February 4, 1999, the Company's application for listing of the Company's
Common Stock on the American Stock Exchange ("AMEX") was approved. The Company's
Common Stock began trading on AMEX on February 8, 1999.

     Subsequent  to the end of the  quarter,  on April  7,  1999,  the  Company,
through  its   wholly-owned   subsidiary   Unison  (NY),   consummated  the  X+C
Acquisition.  The purchase price included an initial cash payment of $70,000 and
the issuance of 40,000 shares of  restricted  Common Stock of the Company to the
sole  shareholder  of X+C. In addition,  the purchase  price includes a deferred
cash payment of $100,000 payable on April 1, 2000, and an earn-out payment of up
to $1,000,000 in cash or in some combination of cash and restricted Common Stock
of  the  Company  in  the  event  X+C  achieves  certain  financial  performance
objectives.

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

(A) EXHIBITS.

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

         10.1                              Asset Purchase Agreement dated  as of
                                           April 7, 1999 by and among Unidigital
                                           Inc., Unison (NY), Inc., Peter  X(+C)
                                           Limited  and Peter Ksiezopolski.

         27.1                              Financial Data Schedule.

(B) REPORTS ON FORM 8-K.

     On February  16,  1999,  the Company  filed a Current  Report on Form 8-K/A
containing  required  financial  statements and pro forma financial  information
relating to the  SuperGraphics  Acquisition  disclosed in its Current  Report on
form 8-K filed on December 14, 1998.

                                      -22-
<PAGE>

                                   SIGNATURES


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

                                                UNIDIGITAL INC.



DATE:      April 19, 1999                       By:  /s/William E. Dye
                                                   -----------------------------
                                                   William E. Dye,
                                                   Chief Executive Officer
                                                   (Principal Executive Officer)