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
------ -----

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

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PART I FINANCIAL INFORMATION

Item 1. Financial Statements

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

November 30, August 31,
1997 1997
----------- ------------
(unaudited)

ASSETS

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

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

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

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

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

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

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

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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 -

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

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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:

Facility Amount Outstanding
Amount --------------------------
November 30, November 30, August 31,
1997 1997 1997
------------------------------------------

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
=========== ===========

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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 -

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 -

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

- 10 -

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.

- 11 -

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

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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.

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PART II. OTHER INFORMATION

Item 5. Other Information.

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.

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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)

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