UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-K

           [x]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                 For the fiscal year ended:  December 31, 1998

                                       OR

      [   ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR (15d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

               For the transition period from          to
                                               ------      ------


                         Commission File No.:  0-11927


                                MOTO PHOTO, INC.

             (Exact name of registrant as specified in its charter)

                Delaware                             31-1080650

       (State of Incorporation)             (Employer Identification No.)


               4444 Lake Center Dr. Dayton, OH              45426
            (Address of principal executive offices)     (Zip Code)


                                 (937) 854-6686

              (Registrant's telephone number, including area code)


      Securities registered pursuant to Section 12(b) of the Act:    None

          Securities registered pursuant to Section 12(g) of the Act:

                   Voting Common Stock, $.01 per share value
                  Common Stock Purchase Warrants, exercisable
                         on or before December 31, 1999




Indicate by check mark whether the registrant (1) has filed all reports required
   to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
 during the preceding 12 months (or for such shorter period that the registrant
  was required to file such reports), and (2) has been subject to such filing
               requirements for the past 90 days.  Yes  X   No


 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
  will not be contained, to the best of registrant's knowledge, in definitive
 proxy or information statements incorporated by reference in part of this Form
                  10-K or any amendment to this Form 10-K. [X]
 State the aggregate market value of the voting stock held by non-affiliates of
                                the registrant:


                       $8,085,570 in Voting Common Stock
                              as of March 25, 1999
                        (last actual transaction price)



             APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:


   Indicate by check mark whether the registrant has filed all documents and
   reports required to be filed by Section 12, 13 or 15(d) of the Securities
 Exchange Act of 1934 subsequent to the distribution of securities under a plan
                             confirmed by a court.

                              Yes         No
                                   -----     -----


Indicate the number of shares outstanding of each of the Registrant's classes of
                                  Common Stock
                             as of March 25, 1999:

                       7,840,173 shares of Voting Common
                         0 shares of Non-Voting Common



                      DOCUMENTS INCORPORATED BY REFERENCE
  Portions of the definitive proxy statement for the 1999 annual shareholders'
 meeting, to be filed pursuant to Regulation 14A, are incorporated by reference
                                 into Part III.


                                MOTO PHOTO, INC.
                                   FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1998

                               TABLE OF CONTENTS


PART I...................................................................7

ITEM  1.BUSINESS ........................................................7

        General .........................................................7

        Operating Segments ..............................................7

           Competition..................................................11
           Trade Names, Service Marks and Logo Types....................11
           Regulation...................................................12
           Royalty and Advertising......................................13
           Wholesale....................................................14
           Company Stores...............................................15

        The Business as a Whole ........................................15

           Seasonality..................................................15
           Employees....................................................16
           Supply Contract and Series G Preferred Stock.................16
           Competition..................................................18
           Expansion Plans..............................................19

        Development of the System in 1998 ..............................20

        Summary of Store Development ...................................21

ITEM  2.PROPERTIES .....................................................23

ITEM  3.LEGAL PROCEEDINGS ..............................................24

ITEM  4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............24

PART II.................................................................25

ITEM  5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS ........................................................25

ITEM  6.SELECTED FINANCIAL DATA ........................................26


ITEM  7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS ..........................................27

        General ........................................................27
        Year 2000 ......................................................29
        Results of Operation 1998 vs. 1997 .............................32
        Results of Operation 1997 vs 1996 ..............................35
        Liquidity and Capital Resources ................................37
        Forward Looking Statements .....................................39

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. ....40

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ....................40

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ...........40

PART III................................................................40

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT .............40

ITEM 11.EXECUTIVE COMPENSATION .........................................40

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .40

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................41

        Items 10-13 are incorporated by reference from the definitive
        proxy statement for the Company's 1999 annual meeting of
        shareholders to be filed pursuant to Regulation 14A. ...........41

PART IV.................................................................41

ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K41

        SIGNATURES .....................................................41

                                MOTO PHOTO, INC.

                                   FORM 10-K

PART I


ITEM  1.  BUSINESS

GENERAL

Moto Photo, Inc. (together with its  subsidiaries, "the Company") is engaged  in
the franchising  and  ownership of  stores  offering one-hour  photo  processing
services, portrait, and related imaging services and merchandise under the trade
names and service marks of   `MOTOPHOTO'', "ONE  HOUR MOTOPHOTO", and "ONE  HOUR
MOTOPHOTO & PORTRAIT STUDIO.'

The Company was incorporated as an Oklahoma corporation on July 29, 1981 and was
reincorporated under Delaware law in 1983.

OPERATING SEGMENTS

The operating segments of  the Company's business  are Development, Royalty  and
Advertising, Wholesale, and Company Stores.   Development markets the  Company's
franchise and recruits franchisees.   Royalty and Advertising provides  services
to current franchisees.   Wholesale sells  to franchisees  products and  related
services not covered under the franchise agreement which the franchisees need to
operate their businesses.  Company Stores  operates retail photo processing  and
portrait stores owned  by the  Company.   See Note  M to  the Audited  Financial
Statements of the Company included  elsewhere herein for information  concerning
the revenue, profit contribution or loss, and assets of each operating segment.
The  Company  offers  franchises  for   stores  which  provide  one-hour   photo
processing, portraiture, and sales of  related imaging services and  merchandise
under the trade names and service marks of  `MOTOPHOTO'', "ONE HOUR  MOTOPHOTO",
and "ONE  HOUR MOTOPHOTO  & PORTRAIT  STUDIO."   See  "Business -  Trade  Names,
Service Marks, and  Logo Types."   The Company, as  franchisor, licenses to  the
franchisee such  trade names,  service marks,  and other  proprietary names  and
marks.  The franchisee has the right to  use such trade names and service  marks
in an exclusive territory, the size  of which varies based on factors  including
the size of  the market and  the location of  the store.   The Company offers  a
franchise agreement for a single store.

The Company offers franchises in the  United States through area developers  and
Company personnel, who generate  leads through advertising, brokers,  referrals,
franchise shows, and  the internet.   At December 31,  1998, the  Company had  a
total of eleven area developers covering twenty-four states and the District  of
Columbia.  An area developer receives a portion of the initial franchise fee  as
compensation for the recruitment of a franchisee in its area and also receives a
portion of the  royalty paid to  the Company by  franchised stores  in its  area
(including the area developer's  own stores) and a  portion of any transfer  fee
paid, as compensation  for performing training,  marketing, quality control  and
other services which would otherwise be performed by the Company.  For the  year
ended December 31, 1998,  area developers accounted  for fifteen new  franchises
and Company personnel accounted for seven new franchises.

During 1998, the Company worked with  an award-winning design firm to develop  a
new store design  for Company and  franchised stores.   The new design,  Project
Aspire, is intended to  appeal to the target  customers of MOTOPHOTO stores  and
the Company believes it will complement the services the stores offer.   Project
Aspire will be used by all new stores opening in the system and will be retrofit
into existing stores over time.

In addition,  the  Company worked  with  a  national real  estate  modeling  and
consulting firm to develop a new real estate model for selecting store sites and
evaluating their potential  for both  sales and risk  of failure.   The  Company
believes that this  real estate model,  the MotoWizardO program,  will help  its
franchisees to choose better store sites and will also be useful as a sales tool
in attracting new franchisees.

During first quarter 1998,  the Company began to  offer a new financing  program
(`the MotoPhoto  QuickStartSM financing program'') which enables franchisees  to
open a MOTOPHOTO store for a much smaller initial cash investment (during  1998,
approximately $90,600) than a franchisee who used traditional financing  methods
would have (during 1998,  approximately  $152,000), as well as reduced  personal
financial risks.    The  MotoPhoto  QuickStartSM    financing  program  has  two
components:  (1) the Company will  finance $20,000 of the initial franchise  fee
for qualified new franchisees, payable at 1% of net sales over ten years, with a
balloon payment at the end of ten years if the fee has not been fully paid;  (2)
Provident Bank will finance the cost  of the photo processing equipment,  office
equipment, and the computerized  point-of-sale system and  will provide a  store
build-out allowance of up to $37,000, payable at a percentage of net sales  over
eight years  following the  month the  store opens.   Under  the business  lease
agreement, the franchisee  must make weekly  payments to Provident  Bank of  the
greater of a  specified monthly  minimum or a  percentage of  sales as  follows:
Stores without portrait studios will pay 15%  of net processing sales and 3%  of
all other sales;  stores with portrait  studios will pay  17% of net  processing
sales, 5% of net portrait sales,  and 3% of all other  sales.  During the  first
three years,  the  franchisee  must personally  guarantee  the  minimum  monthly
payment.  As a  condition of the MotoPhoto  QuickStartSM financing program,  the
franchisee must  purchase all  photo processing  paper  and chemicals  from  the
Company, must purchase  and display certain  other products made  by Fuji  Photo
Film U.S.A., Inc. (``Fuji''), and must use  certain Fuji equipment because  Fuji
is a guarantor of the franchisee's obligation to Provident Bank.

In 1999 the Company will begin  to offer an additional financing program  called
the MotoPhoto QuickStart IISM financing program.  The MotoPhoto QuickStart  IISM
financing program differs  from the original  QuickStartSM financing program  in
the following  two  respects:   (1)  Under  the business  lease  agreement,  the
franchisee will  make specified  weekly  payments which  are  not based  on  the
franchisee's sales; and  (2) the franchisee  will be personally  liable for  the
payments for the full eight-year term of the business lease agreement.

Fuji has agreed to guarantee the  franchisees' payments to Provident Bank  under
the MotoPhoto  QuickStartSM financing  programs and  the Company  has agreed  to
indemnify Fuji for one-half of any guarantee payments it makes to the Bank.

The  Company  targets  for  conversion  into  the  Company's  franchise   system
independently-operated stores offering one-hour photo processing services  which
meet the  Company's  criteria for  location  and have  an  acceptable  operating
history.  The Company  has developed certain  programs and incentives  described
below that  are intended  to encourage  such ``conversion  franchises.'    These
programs provide to the Company additional  means to penetrate new market  areas
and to broaden the Company's base of franchise sales.

The Company has a program to increase the number of conversion franchises, which
is used  primarily  by  franchisees  already in  the  System  who  acquire  non-
affiliated stores and convert them to  MOTOPHOTO franchise stores.  The  Company
receives an initial franchise fee of $20,000 but gives the conversion franchisee
a credit equal  to 6% of  the previous year's  sales, with a  minimum credit  of
$10,000.  In  addition, the Company  offers an alternative  royalty fee plan  to
conversion franchisees based on increases to  the store's sales over the  period
before conversion.  A  new system franchisee who  acquires an independent  store
for the  purpose of  converting it  pays  an initial  franchise fee  of  $20,000
without any credit and pays a straight 6% royalty fee.

The Company also offers financing of up to $5,000 of the cost of required  store
design changes to a  conversion franchisee which  purchases certain product  and
merchandise from the Company.
The Company receives initial franchise fees for new franchises of up to $35,000;
it offers a  discounted franchise  fee for each  additional store  opened by  an
existing franchisee.

In addition to the  MotoPhoto QuickStartSM financing  programs, the Company  has
arranged in the past and may in the future arrange for financing of portions  of
the initial investment for franchisees through third parties, which the  Company
may be required to guarantee in whole or in part.

  COMPETITION

In  marketing  its  franchise,  the  Company  faces  general  competition   from
franchisors of other types of businesses.  The opportunities available and costs
associated with other franchise operations may  affect the Company's ability  to
market MOTOPHOTO  franchises.    Furthermore, with  the  strong  economy,  fewer
individuals are leaving  the corporate workplace  to seek to  operate their  own
businesses;  the  number  of  franchise  sales  leads  is  down  throughout  the
franchising industry.  In addition,  the Company's franchisees face  competition
from other providers  of photo  processing services.   See ``The  Business as  a
Whole - Competition'' below.  Accordingly, as  market conditions change, it  may
be necessary to change some or all of the strategies discussed above.

  TRADE NAMES, SERVICE MARKS AND LOGO TYPES

The Company  owns no  patents.   The Company's  principal service  marks  "MOTO-
PHOTO," "ONE  HOUR  MOTOPHOTO," "ONE  HOUR  MOTOPHOTO &  PORTRAIT  STUDIO,"  and
`CLUB  MOTO'' are  registered on  the principal  register of  the United  States
Patent and Trademark  Office.   In addition,  the Company  has registered  other
secondary principal service marks.   The initial period  of registration is  for
twenty years and registration is renewable so  long as the Company is using  the
marks.  The  marks "MOTO-PHOTO", `MOTOPHOTO'', and/or  "moto-photo" plus  design
also are registered  in Australia,  Belgium, Canada,  Denmark, Finland,  France,
Italy, Kuwait,  Luxembourg, the  Netherlands, Norway,  Germany, and  the  United
Kingdom.  In addition, the Company has registered the mark "ONE HOUR  MOTOPHOTO"
in Canada, Mexico, and Saudi Arabia and the mark "ONE HOUR MOTOPHOTO &  PORTRAIT
STUDIO" in Mexico, and Saudi Arabia.  The initial period of registration  varies
among the countries.  These registrations are renewable at the Company's  option
regardless of usage but if the marks are not used, the registrations are subject
to expungement upon challenge by a third party.  These trade names and marks are
licensed to franchisees under franchise agreement provisions strictly regulating
their use.

The Company has devoted substantial time,  effort and expense toward  developing
name recognition  and goodwill  for stores  operated under  the trade  names  of
`MOTOPHOTO,'' "ONE HOUR MOTOPHOTO," and "ONE HOUR MOTOPHOTO & PORTRAIT  STUDIO."
The Company intends to maintain the integrity of its trade names, service  marks
and other proprietary names  and marks against unauthorized  use and to  protect
the franchisees' use against claims of infringement and unfair competition where
circumstances warrant.  Failure to defend and protect such trade names and other
proprietary names  and  marks could  adversely  affect the  Company's  sales  of
franchises under such trade  names and other proprietary  names and marks.   The
Company knows of no current materially infringing uses.

  REGULATION

The Company  is  subject to  Federal  Trade Commission  ("FTC")  regulation  and
certain state laws which regulate the offer and sale of franchises.  The Company
is also subject to a number of state laws which regulate substantive aspects  of
the franchisor-franchisee relationship.

Several additional  states  have  enacted  or  proposed  legislation  concerning
certain "key"  aspects  of  the  franchisor-franchisee  relationship,  including
termination and renewal of the franchise, franchise transfers, and encroachment.
Similar legislation  has been  proposed at  the federal  level.   Although  such
legislation, if enacted, could ultimately weaken the cohesiveness of franchise
systems, the Company  believes that  such legislation  is not  likely to  affect
materially the  operations  of the  Company.    The Company  believes  that  its
operations comply  substantially  with  FTC  regulations  and  applicable  state
franchise laws.

  ROYALTY AND ADVERTISING

The  Company  provides  to  franchisees  operation,  management,  and  marketing
programs and systems and other services designed to promote the business of  the
franchisee.   The Company  develops advertising  materials for  its  franchisees
which promote the franchisee's business and build goodwill and name  recognition
for the `MOTOPHOTO'', "ONE HOUR  MOTOPHOTO", and "ONE HOUR MOTOPHOTO &  PORTRAIT
STUDIO" trade names and service marks  and other proprietary names and marks  of
the Company.   In  turn, management  believes such  advertisement and  promotion
expands the Company's base of prospects for recruitment as new franchisees.

The Company also has devoted substantial efforts to the development of a  series
of manuals which provide operation and management guidelines for stores.   These
manuals deal  with,  among other  things,  technical operations,  store  design,
marketing, portraiture, and merchandising.   All of these  manuals are the  sole
property of the Company but are available for use by a franchisee of the Company
so long  as the  franchisee operates  its store  pursuant to  the terms  of  the
franchise agreement.  The Company has developed these manuals and other training
and operational materials and makes them available to its franchisees in written
form, on computer disk, through its fax-on-demand program, and through computer-
based training.

The Company enforces a strict quality control program to ensure the high quality
of products,  services, and  the maintenance  of appearance  and image  of  both
franchised and  Company  stores.   The  quality  control  program  requires  the
franchisee  to  conduct  daily  testing  of  equipment  and  chemicals  used  in
processing and  printing.   Store management  is encouraged  to stress  personal
service to build customer loyalty.

Generally, the  franchise agreements  are for  a  period of  ten years  and  are
renewable at  the  option of  the  franchisee  if certain  conditions  are  met.
Franchise agreements for most  franchises do not  give franchisees a  unilateral
right to  terminate.    However, twenty-two  stores  are  operated  under  older
agreements which  allow  the franchisee  to  terminate the  agreement  on  three
months' prior notice.  Franchises are transferable only with the prior  approval
of the Company.  Except in limited circumstances, the Company charges a transfer
fee of 15% of the initial franchise fee.

Under the form of franchise agreement for new franchises, the Company receives a
royalty of 6%  of the  franchisee's net  retail sales  and 3%  of net  wholesale
sales.  The franchise agreement requires franchisees to expend or contribute  to
their local advertising cooperative for advertising  an amount of at least  5.5%
of net retail  roll processing  and merchandise sales  and 15%  of net  portrait
sales.  In  addition, franchisees are  required to pay  to the  Company 0.5%  of
combined net retail sales for advertising development.

Management of the Company believes that relations with franchisees are generally
satisfactory.


  WHOLESALE

The franchisee is required to purchase MOTOPHOTO private label film and  single-
use cameras and certain  start-up advertising materials from  the Company.   The
franchisee generally is  not required to  purchase other  supplies or  equipment
from the Company but is required to purchase or lease supplies and equipment  in
accordance with  certain specifications  in order  to maintain  the quality  and
integrity of the  franchise.   The Company is  a distributor  to franchisees  of
photo processing paper, chemistry, promotional materials and other items and, at
the present  time, is  the sole  approved supplier  of certain  photo  packaging
materials and point of  sale materials.   Franchisees obtaining financing  under
the MotoPhoto QuickStartSM financing program  and the MotoPhoto QuickStart  IISM
financing program must use Fuji paper and Fuji-Hunt chemistry and purchase these
supplies through the Company.

The Company has negotiated arrangements with a number of suppliers which provide
favorable pricing to the  Company's franchisees on supplies  and equipment.   In
return for providing services for certain suppliers, the Company may receive  as
compensation, a  rebate or  commission on  certain products  and equipment  sold
directly to its franchisees  by those suppliers.   See also  "The Business as  a
Whole - Supply Contract" below.

  COMPANY STORES

At December 31, 1998, the Company had 37 Company stores in operation compared to
43 at year-end 1997.  Although the Company plans to continue the majority of its
growth of the  system through franchises,  the Company plans  to open 20  stores
during 1999.   The  Company plans  to open  these stores  to fill  out  existing
markets or in  concentration in  new markets.   With the  new MotoWizardTM  real
estate program  and  new  financing programs  available  to  it,  including  the
MotoPhoto QuickStartSM financing programs, the Company believes that it can open
and operate new stores cost-effectively and with reduced risk.  The Company will
continue to offer for sale some of its older stores which are in outlying areas.
The Company  operates  its Company  stores  both as  a  source of  revenues,  as
training sites and  as testing and  research sites for  products, services,  and
systems.

THE BUSINESS AS A WHOLE

  SEASONALITY

Seasonal demand in the photo processing  industry is at its greatest during  the
Christmas season and in the summer and at its lowest during the winter following
the Christmas season.   Demand for photo processing  services during spring  and
fall is fairly equal.

  EMPLOYEES

As of February 26, 1999, the Company had 403 employees, 185 of whom are employed
part-time.  None of the Company's employees belongs to any labor unions, and the
Company believes its relationship with its employees is good.

  SUPPLY CONTRACT AND SERIES G PREFERRED STOCK

The Company has a supply contract with Fuji  in which the Company has agreed  to
use best efforts to have  all system stores purchase  Fuji products to meet  the
stores' requirements for photographic paper, equipment, chemistry, certain film,
and other items. The supply contract has a term ending on December 31, 2001, and
automatically renews every three years, absent notice from either party that  it
does not wish to renew.  The supply  contract was executed in connection with  a
series of  transactions  also  involving  the issuance  of  all  shares  of  the
Company's Series G. Preferred Stock ("Series G Stock") to Fuji in 1995.

The Series G Stock is redeemable by the Company at any time in aggregate amounts
of at least  $1 million.   The shares were  subject to  mandatory redemption  on
January 1, 1999; however, because the market price of the Company's Common Stock
on January 1, 1999, was less than $3.00 per share, the redemption of the  Series
G Stock has been extended until the earlier of  (i) the first date on which  the
market price of  the Common  Stock equals  or exceeds  $3.00 per  share or  (ii)
January 1, 2000.  Any redemption  of the Series G Stock  must be either in  cash
from the proceeds of an equity offering or in Common Stock valued at 90% of  the
market price at the time of redemption.  Fuji may refuse any proposed redemption
by the Company  in shares  of Common Stock  and elect  to continue  to hold  the
Series G Stock without impairment of any right to require redemption at a  later
time.  The redemption price for  the Series G Stock is  $10.00 per share, or  an
aggregate of $10 million.  If the Series G Stock is redeemed in shares of Common
Stock, depending upon the  market price of  the Common Stock  and the number  of
shares of  Common Stock  outstanding, such  redemption  could result  in  Fuji's
acquiring control of the Company.

Fuji may terminate the supply contract and may require the Company to redeem the
Series G  Stock under  certain other  circumstances ("Redemption  Event")  which
include, after appropriate cure periods, failure by the Company to make payments
when due under the supply contract, failure by the Company to renegotiate prices
for the  Fuji  products  as  required by  the  supply  contract,  bankruptcy  or
insolvency of the Company, failure by  the Company to meet its obligation  under
other indebtedness in excess of $100,000, or if either Michael F. Adler or David
A. Mason ceases  to be  involved in the  day-to-day management  of the  Company.
Change in control of the Company, other than the acquisition of control by Fuji,
would require redemption of the Series G Stock but would not affect the validity
of the supply contract.  If the Company,  in the absence of a Redemption  Event,
redeems the Series G Stock,  the supply contract will  be extended to the  third
anniversary of the redemption without right of renewal.

The terms of the Series G Stock permit the holder to require redemption in  cash
from the proceeds of an equity offering  rather in Common Stock of the  Company.
If the Company defaulted  under the supply contract  so that Fuji could  require
redemption of  the Series  G Stock,  the Company  would have  to make  a  public
offering of equity securities to obtain the  funds to redeem the Series G  Stock
if the Company chose not to redeem it in Common Stock or if the holder chose not
to accept redemption in Common  Stock.  There is  no certainty that the  Company
would be able to  have a successful public  offering.  If  the Company fails  to
redeem all of the Series G Stock upon the occurrence of a Redemption Event, Fuji
has the right, until all of the share of the Series G Stock are redeemed or  the
Redemption Event is cured, to elect the majority of the Board of Directors.  The
Company would also  have to  find another  supplier for  system requirements  of
paper, chemistry and equipment; however, the Company believes these products are
available from alternate vendors  at comparable prices.   The Company has  never
defaulted under the supply contract and does not anticipate any defaults in  the
future.

  COMPETITION

The Company is the largest franchisor of one-hour photo processing franchises in
the United States, based on number  of franchises.  However, competition in  the
photo processing industry in general, and the one-hour photo processing industry
in particular,  is intense.   Photo  processing  services are  provided  through
various channels of  distribution, including one-hour  stores, specialty  stores
and photographic chains, large retail stores, drug stores, and mail order.   The
Company's competitors consist of many individuals  and companies, some of  which
are large and established and have substantially greater resources than those of
the Company.  There is pervasive competition from one-hour outlets, particularly
through the increasing  number of  one-hour labs in  drug stores.   The  Company
competes in the  marketplace with other  individuals and  companies in  securing
attractive locations for the opening of one hour photo processing stores, in the
sale of one-hour  photo processing  and related  products and  services, and  in
attracting franchisees for one-hour photo processing stores.  The success of the
Company depends on the success of the Company's franchises and Company  one-hour
photo processing stores.

Principal competitive  factors  in  the industry  are  convenience,  quality  of
service,  quality  of  product,  price,  and  timeliness.    Centralized   photo
processors can offer their services at significantly lower prices than those  of
the Company and its franchisees, although the customer may wait several days for
photo processing.  The Company's one-hour concept provides the market with  more
timely service.  In  addition, personnel at MOTOPHOTO  stores are trained to  be
able to  advise customers  on picture-taking.    The Company  maintains  quality
control standards intended to assure that the quality of one-hour processing  is
at least comparable to other methods of photo processing.
The operating  history  of  the  Company  and  its  franchisees  indicates  that
substantial demand exists for the one-hour photo service offered by the  Company
and its  franchisees; however,  significantly lower  prices offered  by  already
established centralized photo processing outlets and others may adversely affect
the business of the Company and  its franchisees.  Factors allowing the  Company
and its franchisees to realize higher  prices are quality and speed of  service,
the variety of imaging services offered by the Company and its franchisees,  and
the personalized service  and photographic  expertise of  store associates,  the
result of the Company's training programs.

The photo processing  industry in which  the Company operates  is continuing  to
introduce new products and services, such as digital imaging products and the 24
mm Advanced Photo System, introduced in  1997.  The Company has introduced,  and
will continue to introduce, these products and services into its franchised  and
Company  stores  as  the  markets  for  these  products  demonstrate  commercial
viability.

The Company does not  have exclusive right  to the use  of the photo  processing
equipment, which  is available  from several  manufacturers.   To the  Company's
knowledge, no manufacturers currently offer exclusive rights to the use of their
equipment or are anticipated to offer such rights in the future.

  EXPANSION PLANS

The Company is planning to expand its offerings of one-hour photo processing and
portrait services as quickly  as reasonably practicable in  order to assure  its
market position in the rapidly changing  retail photo processing industry.   The
Company is  adding digital  imaging to  the  services which  may be  offered  by
MOTOPHOTO stores.  In  addition, it is testing  an upscale portrait  experience,
repositioning its portrait offerings toward the premium market in the children's
and family portrait  segment.  The  Company is also  expanding its  relationship
marketing  of  customers  through   an  expanded  ClubMoto(R)  program,   school
portraiture, database marketing, and other forms of creative marketing.

During 1999, the Company plans system expansion through the establishment of new
franchises and conversion of profitable existing stores to MOTOPHOTO stores, and
through the  opening of  20 Company  stores, which  may include  acquisition  of
existing independent stores.  The Company is also devoting increased efforts  to
developing and  implementing operations  and training  programs to  improve  the
profitability of existing Company stores and franchised stores.

DEVELOPMENT OF THE SYSTEM IN 1998

During 1998, the Company granted nineteen new franchises, sold one Company store
as a  franchise,  and converted  two  independent stores  to  franchises,  while
thirty-four franchises were canceled or terminated, for a net decrease of twelve
franchises in the United States.

During 1998, the Company reorganized its international franchise  relationships.
On December 31, 1998, the Company's master licensor for the province of Ontario,
Canada, Canadian  Industrial  Services,  Inc.  (`CIS''),  signed  a  new  master
license agreement for  the development of  franchises throughout  Canada.   This
agreement supplements the existing  agreement for the  development of stores  in
Ontario.

The Company also initiated a new  program called the World Alliance  Partnership
of Moto Photo, Inc.  Pursuant  to this program, independent minilabs outside  of
the United States  and Canada, signing  a World  Alliance Partnership  agreement
will have the right to call themselves World Alliance Partners (``WAPs') of  the
Company, display limited signage  to that effect,  participate in the  Company's
ClubMoto(R) program for customers,  attend the Company's franchisee  convention,
and offer for  sale the  Company's private  label products,  including film  and
single-use cameras.  The WAP will pay an annual fee, currently set at $500.   In
August 1998,  the Company  agreed with  its master  licensor for  Norway,  Scan-
Franchise, A/S,  Ltd.  (``Scan-Franchise'),  to  terminate  the  master  license
agreement  between  the  Company  and  Scan-Franchise.    In  its  place,  Scan-
Franchise's parent company, G.L. Gruppen, A/S, Ltd., has agreed to act as master
licensor for the WAP  program in Norway, pending  execution of final  documents.
The 26 Norway franchises converted to WAPs in August 1998.

During 1998,  CIS granted  four  new franchises  in  Ontario and  converted  one
independent store  to  a  franchise,  while  six  franchises  were  canceled  or
terminated.   As  noted,  26 franchises  in  Norway  converted to  WAPs  and  an
additional 18  stores became  WAPs.   This  resulted in  a  net decrease  of  27
international franchises and a net increase  of 44 WAPs in  1998.  In 1998,  all
foreign source revenues represented less than 1% of total revenues.

During 1998, the  Company opened no  new Company stores.   Although the  Company
will continue  during  1999  to emphasize  development  of  the  system  through
franchised stores, the  Company plans  to open  approximately 20  new stores  in
1999, which  may include  the acquisition  of existing  independent stores.  The
Company will continue to offer for  sale some of its  older stores which are  in
outlying areas.



SUMMARY OF STORE DEVELOPMENT

Set forth below  is a summary  of the store  development of the  Company in  the
United States and abroad during 1997 and 1998:

<TABLE>
                                                 1997              1998
                                           U.S.  Int'l Total U.S.  Int'l Total

<S>                                        <C>   <C>   <C>   <C>   <C>   <C>
Store Open at Beginning of Year              363    81   444   356    77   433

  New Stores Opened                           13     1    14     9 22(a)    31
  Conversion                                   3     0     3     2     1     3
  Terminations or Non-renewals                23     5    28    34     6    40

Store Open at End of Year                    356    77   433   333    94   427

  Company Stores Open At End of Year          43     0    43    37     0    37
  Franchised Stores Open at End of Year (b)  313    77   390   296    50   346
  WAP Stores Open at End of Year               0     0     0     0    44    44

Stores Under Development at End of Year (c)   13     0    13    18     0    18
WAP Stores Under Development at End of Year    0     0     0     0     4     4

</TABLE>

(a)  Includes eighteen WAP stores added in Norway.

(b)  As of December 31, 1998, a total of 229 franchisees owned the 295
     franchised stores in the United States.

(c)  Stores under development include one store closed pending relocation and
     those for which a franchise agreement has been signed but which have not
     yet opened.  There is no assurance that these stores will open.

  As indicated in the chart above, a number of franchises were terminated or
failed to renew in 1997 and 1998.   Reasons for terminated franchises relate to
franchise management, failure to follow system requirements, market  conditions,
location, sales of stores, and other factors typically  affecting  franchisee
operations.  In addition, 26 Norway franchises converted to WAP stores.

    Set  forth below is the geographical location of the stores in operation  at
ecember 31, 1998:

Arizona        13       Kentucky           6       Oklahoma          19
California     27       Maryland          20       Pennsylvania       9
Colorado       14       Maine              1       Rhode Island       4
Connecticut    14       Massachusetts      7       Tennessee          8
Florida         3       Michigan           5       Texas              6
Georgia         8       North Carolina     1       Utah               5
Illinois       27       New Jersey        48       Virginia          22
Indiana         5       New York          20       Wisconsin          4
Kansas          3       Ohio              24

                      District of Columbia     10

                             Canada     50

                      WAP Stores:  Norway     44


ITEM  2.  PROPERTIES

The Company's primary corporate offices are  located at 4444 Lake Center  Drive,
Dayton, Ohio  45426.  Such offices, which have approximately 33,000 square  feet
on approximately 2.4 acres of land, have been leased by the Company, pursuant to
a lease providing for rent of $18,083 per month through June 1999.  The  Company
has agreed in principle to sign a new  lease for these offices on the  following
terms:  the  lease will have  an initial term  of ten years  commencing July  1,
1999, with two five-year renewal options.    The rent will be $20,327 per  month
through June 2004 and $22,374 from July  2004 through June 2009.  These  offices
are leased from  a partnership which  is controlled by  certain officers  and/or
directors of the Company.  At the direction of the Audit Committee of the  Board
of Directors, an independent appraisal was  made of rental value for  comparable
business properties  in  the  Dayton,  Ohio area.    Based  on  this  appraisal,
management believes that the terms of the  lease and proposed lease are no  less
favorable to the Company  than terms which could  be obtained from  unaffiliated
third parties.  The Company has also leased additional warehouse space away from
the primary offices.

Management of the Company believes these  facilities are generally adequate  for
its current operations.  In addition, management of the Company believes it will
not have  difficulty  in  securing  additional  facilities  as  it  expands  its
operations.

In connection with the resale of stores  acquired by it, the Company assigns  or
subleases to the franchisee the lease for  the store premises.  In addition,  in
certain instances, the  Company has secured  a lease for  rental space and  then
assigned the lease  to a franchisee.   The Company  is currently  the lessee  or
assignee of the leases  for approximately ten   MOTOPHOTO stores, which have  in
turn been  assigned to  franchisees.   In addition,  at December  31, 1998,  the
Company was the lessee or assignee of the leases for 37 Company stores.

ITEM  3.  LEGAL PROCEEDINGS

The Company is involved in legal  proceedings which it believes are routine  and
incidental to its  business.  These  actions are being  contested and  defended.
Management of the Company is of the opinion that such actions are not likely  to
result in  any liability  which would  have  a material  adverse effect  on  the
consolidated financial position of the Company.

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

No matters were  submitted by  the Company  to a  vote of  its security  holders
during the quarter ended December 31, 1998.


PART II

ITEM  5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The only shares of common stock which the Company has issued are Voting  Common.
At March 3, 1999, there were approximately 685 record holders and  approximately
1,600 beneficial holders of the Company's  Voting Common.  The Company's  Voting
Common trades on The NASDAQ Small-Cap MarketSM under the symbol "MOTO."

The following table sets forth for the  periods indicated the range of high  and
low last actual transaction prices for the Company's Voting Common, as  reported
by The NASDAQ Small-Cap MarketSM.  The  stock prices shown do not include  mark-
ups, mark-downs, and commissions.


                                               Voting
                                               Common
                                               Price

                                          High     Low

          1997:
            First Quarter                 $2.25   $1.63
            Second Quarter                 2.00    1.69
            Third Quarter                  2.25    1.63
            Fourth Quarter                 2.75    2.25

          1998:
            First Quarter                 $2.81   $2.25
            Second Quarter                 2.63    1.50
            Third Quarter                  2.00    1.31
            Fourth Quarter                 1.88    1.00


The Company has never declared a cash dividend on any class of its common stock.
It is the  present policy of  the Company not  to pay cash  dividends on  common
stock and  to  retain earnings  for  use in  its  business and  to  repay  debt.
Dividends on the Series G Stock in the aggregate amount of $700,000 are  payable
in 1999.  Any payment of  cash dividends on common stock  in the future will  be
dependent upon the prior  payment of any  dividends on the  Series G Stock,  the
amount of funds legally available  therefore, the Company's earnings,  financial
condition, capital  requirements, satisfaction  of  debt and  other  contractual
covenants restricting  the payment  of dividends,  and other  factors which  the
Board of Directors deems relevant.



ITEM  6.  SELECTED FINANCIAL DATA

The selected financial data of the Company is set forth below
[CAPTION]
<TABLE>
                     Year Ended  Year Ended  Year Ended  Year Ended  Year Ended
                     December    December    December    December    December
                         31,         31,         31,        31,         31,
                        1998        1997        1996       1995        1994

<S>                <C>          <C>          <C>         <C>          <C>
Revenue            $37,199,707  $41,897,343  $43,287,566 $42,217,722  $40,144,886

Net Income (Loss)  $ 1,690,253  $ 1,703,535  $ 1,073,873 $(5,673,647) $   725,230

Net Income (Loss)
Applicable
to Common Shares   $ 1,415,691  $ 1,420,707  $   784,583 $(5,307,782) $ (395,495)

Net Income (Loss)
Per Common Share 
- basic and 
diluted            $       .18  $       .18  $       .10 $      (.69) $     (.07)

Working Capital    $ 3,482,451  $ 3,231,884  $ (250,611) $(1,551,817) $ (251,921)
(Deficit)

Stockholders' 
Equity             $ 4,920,906  $ 3,771,156  $ 2,538,198 $ 1,908,325  $ 8,909,595

Long-Term 
Obligations        $ 9,064,001  $ 9,783,805  $ 8,207,762 $ 7,895,652  $ 7,288,842

Total Assets       $21,933,793  $21,038,115  $20,485,212 $21,324,474  $26,568,526

Common Shares
Outstanding (1)      7,816,165    7,793,905    7,785,973   7,687,249    5,664,446

Number of Stores 
Open                       427           433          444         447          433

<FN>
(1) Weighted Average Common Shares Outstanding - Basic
The Company has never paid a cash dividend on its common shares.
</TABLE>



MANAGEMENT'S DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION AND  RESULTS  OF
OPERATIONS


GENERAL
Through the  granting  of  franchises, conversion  of  independent  stores,  and
acquisitions, Moto  Photo,  Inc. and  its  subsidiaries  (`the  Company'')  have
developed a system of  427 operational stores at  December 31, 1998 compared  to
433 at December 31, 1997.

Systemwide  sales  increased   to  approximately  $143,000,000   in  1998   from
$140,000,000  in  1997.    The  Company  plans  to  grow  through  granting  new
franchises, conversion  of  independent  stores  to  franchise  stores,  opening
Company stores and  selective acquisitions, as  well as  increasing the  average
annual sales  per store  older  than one  year  from approximately  $400,000  to
$550,000 or more over the next several years.

The Company operates  primarily in  the specialty  retail channel  of the  photo
processing industry (see `Item 1.  Business-Competition'' on page 3).  There  is
a consolidation  of  photographic specialty  retail  outlets occurring  and  the
Company estimates that the  three largest chains, of  which the Company is  one,
have approximately 35-40% of the U.S. specialty retail photo processing  market.
The Company estimates its share at approximately 8% of the U.S. stand-alone one-
hour processing market.

The Company believes it is well positioned to be one of the major chains in  the
market as the consolidation continues because  of its unique advantage of  being
the only  significant franchisor  in the  industry.   Furthermore,  the  Company
believes its  product  offerings  are  different  from  those  of  many  of  its
competitors, thereby giving the Company a further advantage.

The more system stores in a  given local market, the  better the stores in  that
market will generally  do.  Therefore,  continued growth in  target markets  and
opening new  markets  with multiple  stores  are important  strategies  for  the
Company's long-range growth.

The Company believes it operates a ``recession resistant'' business; however,  a
growing economy  is  beneficial  for  demand  for  the  Company's  products  and
services.  Favorable weather,  particularly on weekends,  is important to  store
results and, therefore, Company results.

The Company's  business as  a whole  is subject  to seasonal  fluctuations.  The
demand for photo processing services is lowest in the first quarter and  highest
in the fourth quarter of the year.

The Company has market risk exposure to  interest rates.  At December 31,  1998,
the Company has  interest bearing debt  obligations that are  subject to  market
risk exposure relating  to changes  in interest rates.   At  December 31,  1998,
$2,124,360 of  outstanding  debt is  at  fixed  rates with  a  weighted  average
interest rate  of 9.29%  and $2,375,000  is at  variable rates  with a  weighted
average rate  of 8.5%.   The  estimated  fair value  of  the Company's  debt  at
December 31, 1998 is equal to its carrying amount.


The  aggregate  annual  maturities  of  the  Company's  variable  interest  debt
obligations for the five years subsequent  to December 31, 1998 are as  follows:
$583,333, $625,000, $625,000, $250,000 and $291,667.

Foreign  currency  transactions  are  not   material  to  the  Company   because
transactions with the Company's suppliers are  in U.S. dollars and the  majority
of the key supplier's  manufacturing is currently  done domestically.   However,
costs of  certain  photoprocessing equipment  could  be influenced  by  exchange
rates.

YEAR 2000

The year 2000 issue,  or Y2K, refers to  computer programs or computer  embedded
chips which use  two digits  rather than four  digits to  define the  applicable
year.   Any of  the Company's  computer software,  hardware or  other  equipment
having date sensitive software or  embedded chips could recognize  a ``00'  date
as year  1900 rather  than year  2000.   If this  happened, it  could result  in
miscalculations or system failures which could be disruptive to normal  business
activities.  The Company has a  plan to prepare its  systems for the Y2K  issue.
This plan includes  obtaining reasonable  assurance that  its critical  business
partners are also prepared.

The  Company's  plan  for  resolving  Y2K  issues  has  the  following   phases:
assessment, remediation, testing, and implementation.  The Company has completed
assessment of  its  internal  software  and  computer  hardware  that  could  be
significantly affected by the year 2000 issue.  The Company believes that it  is
currently Y2K compliant on all critical  internal systems with the exception  of
certain computer hardware used in some  Company store point of sale systems,  as
discussed below.

The Company  is still  in the  process of  gathering information  about the  Y2K
compliance status  of key  third  party suppliers.    The Company  has  received
written notification from most  of its key  suppliers that they  plan to be  Y2K
compliant by October 1, 1999. The Company has been informed by its primary  bank
that it  believes  it  is  Y2K  compliant.    The  Company  will  be  requesting
certification by  May  1,  1999  from  depository banks.    If  the  review  and
evaluation of responses indicate lack of  Y2K compliance by September 30,  1999,
the Company will change its depository banking relationships as required.

The Company is  in the  implementation phase on  certain of  the older  computer
hardware used  in its  approved point  of  sale systems  in both  franchise  and
Company stores.  A software modification is currently available, at no cost,  to
achieve Y2K compliance  for this hardware.   It will  be implemented in  Company
stores by June 30, 1999, and will be  installed in all franchise stores as  they
request it.

There are several versions  of the Company sponsored  point of sale software  in
use in franchise stores, all  of which are believed  to be Y2K compliant  except
for certain operating systems which are  no longer supported by their  provider.
Accordingly, the provider will not certify  as to its Y2K compliance.   However,
the Company has tested  the software and believes  that it will operate  without
any critical failures after  December 31, 1999.   The Company will continue  its
testing and will attempt  to develop solutions if  any disruptions occur  during
test.  The worst case solution would  be for the franchisee to upgrade  software
and hardware at a cost of  $2,000 to $7,000 per  store.  Currently 53  franchise
stores use the subject  operating system.   Seven other stores  are using a  POS
system that has not been supported by the Company since 1997.  These franchisees
are being notified  of where to  obtain assistance on  Y2K compliance for  these
systems.

The Company believes that all significant non-information systems are either Y2K
compliant or  has received  notification that  the vendors  will make  them  Y2K
compliant by no later than  September 30, 1999.   The Company plans to  continue
testing its  operating  equipment and  other  equipment  to ensure  that  it  is
operable in 2000 and beyond.

By April 30, 1999, the Company intends to further notify its franchisees of  the
steps they  should  take  to ensure  that  there  are no  disruptions  to  their
operations as a result of the Y2K issue.  The Company cannot guarantee that each
franchisee will follow  through on the  necessary steps,  and accordingly,  some
short-term interruptions could occur in certain  franchise stores.  The  Company
does not  believe  that this  disruption  will have  a  material impact  on  the
Company's results of operations, financial condition or cash flows.  The Company
will  develop  contingency  plans  to  assist  franchisees  if  any  significant
disruption risks are identified.

The Company has spent  no significant incremental funds  to date to achieve  Y2K
compliance and does not anticipate doing so in the future. All expenses paid  to
date as well as in the future will be funded through existing cash resources and
future operating cash flows.

While the Company believes it has an effective plan to resolve the Y2K issue  in
a timely manner, lack of historical experience and the forward-looking nature of
the issues involved make it difficult to predict with certainty what will happen
on January 1, 2000 and thereafter.  It is possible that there will be disruption
and unexpected business problems during the  early months of 2000.  The  Company
intends to  make contingency  plans if  any critical  systems or  suppliers  are
identified as representing  a significant  risk of  Y2K failure.  Unfortunately,
despite the Company's  efforts, unanticipated  third party  failures may  occur,
particularly in general public infrastructures.  If this were to occur, it could
have a material adverse impact on the Company's results of operations, financial
condition or cash  flows.   The amount of  potential loss  cannot be  reasonably
estimated at this time.

RESULTS OF OPERATION 1998 VS. 1997

In 1998 the Company recorded net income of $1,690,253, or $.18 per common  share
(basic and diluted),  compared to net  income of $1,703,535  or $.18 per  common
share (basic and diluted), in 1997.  Due to the Company's common share price  of
approximately $1.25,  certain  securities  could  become  dilutive  and  have  a
significant impact on diluted earnings per  common share in 1999 and  subsequent
periods (See Note G).

Development segment revenue increased $78,000, or 16%, in 1998 compared to  1997
due primarily to the  sale of development rights  to Canada which was  partially
offset by  11  U.S.  franchise openings  in  1998  versus 14  in  1997.    Costs
associated with the introduction of the MotoPhoto QuickStartSM financing program
more than  offset the  increased revenue.    The Company  anticipates  increased
operating segment  contributions in  1999 because  in  1998, the  Company  began
offering the MotoPhoto  QuickStartSM financing  program which  requires a  lower
initial investment and allows the franchisee  to lease a significant portion  of
the store investment and  pay a lease  payment as a  percentage of sales  rather
than a fixed  monthly loan payment.  In 1999, the  Company anticipates  offering
variations of  this  program,  each  of which  is  targeted  toward  a  specific
franchisee prospect profile  which the Company  believes is a  good fit for  its
concept.  The Company believes that these new programs will increase the  number
of franchises sold.  (See `Item 1 -- Business)

Company store revenue  declined by  $3.4 million, or  20%, in  1998 compared  to
1997.  One Company store was sold to a  franchisee in 1998 and five others  were
closed.  The decrease in Company store sales and related expenses were a  result
of the decrease in the number of Company stores operated and, along with a 3% or
$437,000 decrease  in  Company  comparable store  sales,  lead  to  a  decreased
contribution from the Company store segment, and Company comparable stores sales
decrease of $437,000,  or 3%.   The Company plans  to open approximately  twenty
Company stores in  1999 which would  lead to increased  revenues and  associated
costs and  expenses.   A new  store is  budgeted to  lose approximately  $16,000
during its first year open.

Royalty and advertising revenues  increased $157,000 or 3%  in 1998 compared  to
1997 primarily due to a 4%  increase in comparable franchise store sales  offset
by fewer  stores.   This increase  in  revenue was  approximately equal  to  the
increase in  costs  and expenses  in  this  segment.   The  Company  anticipates
continued growth in  royalty and advertising  revenue as a  result of  continued
increases in  comparable  franchise  stores sales,  addition  of  new  franchise
stores, continuing improvement  in the quality  of the  average franchisee,  and
better site selection.

Wholesale revenue  decreased $1.7  million, or  9%, in  1998 compared  to  1997.
During the  first  half of  1998  the Company  suffered  sales declines  due  to
uncompetitive pricing  on certain  products,  primarily photographic  paper  and
film.  In  the third and  fourth quarter of  1998, the  Company lowered  certain
prices to remain competitive and also obtained cost concessions from its vendors
late in the  year.   The Company  estimates that  approximately 6%  of its  1997
revenue was  lost  in  1998  due  to  franchisees  purchasing  merchandise  from
alternative suppliers.   The  Company believes  that its  new pricing  and  cost
programs have corrected this weakness and does not expect the trend to continue.
The  Company  anticipates  a   6%  increase  in   wholesale  revenue  in   1999.
Additionally, operating segment contribution was adversely impacted by  $161,000
more losses in 1998  than 1997 in the  Company's telemarketing operations  which
were closed in December 1998.

Selling, general and administrative expenses decreased $288,000, or 4%, in  1998
compared to 1997, primarily due to reduced bonuses paid on lower pretax profits.

Advertising expenses increased by $83,000, or  6%, in 1998 compared to 1997  due
to increases  associated  with  the initiation  of  the  MotoPhoto  QuickStartSM
financing program.

Depreciation and amortization expenses  increased by $168,000,  or 20%, in  1998
compared to 1997 primarily as a result of depreciation on additions to  property
and equipment in Company stores.  In 1999 depreciation and amortization expenses
are planned  to increase  by  approximately $450,000  because  of full  year  of
depreciation for 1998  additions as well  as the Company  continuing to add  new
services, such as 24  mm Advanced Photo System  processing, digital and  kiosks,
upgrading the design of certain Company stores, and opening new Company stores.

Interest expense decreased $34,000, or 8%, in 1998 compared to 1997 due to lower
levels of  interest  bearing  debt. Interest  expense  is  planned  to  increase
approximately 10% in  1999 as a  result of borrowings  to support Company  store
expansion discussed above.  Interest and  investment income, which is  primarily
interest income  from  notes  receivable  and  temporary  investments  of  cash,
increased in  1998 due  to  improved liquidity  and  collection of  interest  on
certain notes  classified  as  impaired  at December  31,  1997.    The  Company
anticipates interest income in 1999 to approximate the 1998 amount.

Income tax benefit in 1998 was $360,000,  with an effective tax benefit rate  of
27% compared to $800,000 of tax expense with  an effective rate of 32% in  1997.
The reduction is due  primarily to the closing  of certain Company stores  which
created a deductible  tax expense  for assets  previously written  off for  book
purposes, generating a realization of tax  deductions for which no net  deferred
tax asset recognition was available to the Company as of December 31, 1997.  The
Company does not believe it will generate a tax  benefit in 1999 but is not  yet
certain as to what its expected tax expense  will be due to various options  the
Company is currently investigating.

RESULTS OF OPERATION 1997 VS 1996

In 1997 the Company recorded net income of $1,703,535, or $.18 per common  share
(basic and diluted),  compared to net  income of $1,073,873  or $.10 per  common
share (basic and diluted), in 1996.   Company revenue decreased by $1.4  million
or 3% in 1997 compared to 1996.

In 1997 development revenue was 42%  lower than in 1996, reflecting the  opening
of 14 stores in the  US in 1997 compared  to 22 stores in  1996.  Of the  stores
opened in  1997,  11  were  either  conversions  or  stores  added  by  existing
franchisees, both  of  which carry  lower  initial  franchise fees.    This  mix
accounted for the further reduction of  1997 development revenue as compared  to
1996 and largely accounted for the decrease in operating segment contribution.

The Company refranchised six  stores in 1997  at a loss  of $48,280 compared  to
five stores refranchised in  1996 at a gain  of $78,051.  In  1997, the loss  on
sales of stores is included in selling, general, and administrative expenses.

Company store revenue declined by $1.6 million, or 9%, in 1997 compared to 1996.
Six Company stores were sold to franchisees in 1997 and two others were  closed.
Company store revenue  and related costs  and operating  expenses and  operating
segment contributions declined  as a  result of the  decrease in  the number  of
Company stores operated.  Company comparable stores sales increased $230,000  or
2% in 1997.

Royalty and advertising revenue increased by  $294,000, or 6%, in 1997  compared
to 1996, primarily  due to an  8% increase in  comparable franchise store  sales
offset by  a  net  reduction  of  approximately 2%  in  the  number  of  stores.
Furthermore, segment  expenses were  approximately $100,000  less in  1997  than
1996.

Wholesale revenue increased by  $590,000 or 3%,  in 1997 compared  to 1996 as  a
result of an  8% increase in  franchise comparable store  sales being  partially
offset by lower prices on film due to spot market conditions and a net reduction
of approximately 2% in the number of stores. Wholesale segment contribution  was
favorably impacted because of a 2% of revenue decrease in bad debt expense and a
 .5% of revenue decrease  in paper costs as  a result of  the systems using  Fuji
paper for the full year in 1997 as opposed to only a partial year in 1996.

Selling, general  and  administrative  expenses were  about  the  same  in  1997
compared  to  1996.    In  1997  certain  increases  in  selling,  general   and
administrative expenses were largely offset by  lower selling expenses on  lower
franchise fee revenue and reduced bad debt expenses.

Advertising expenses decreased by $136,000, or  9%, in 1997 compared to 1996  as
the Company operated fewer stores in 1997 and implemented a planned decrease  in
advertising expenditures.

Depreciation and amortization  expenses increased by  $90,000, or  12%, in  1997
compared to 1996 as  a result of  depreciation on additions  to fixed assets  in
1997.

Interest expense remained relatively  constant in 1997 compared  to 1996 as  the
Company had slightly lower average borrowing in 1997 at slightly higher interest
rates.   Investment  income,  which is  primarily  interest  income  from  notes
receivable and temporary investments of cash, increased in 1997 due to increased
notes receivable and improved liquidity.

Income tax expense  in 1997  was $800,000,  with an  effective tax  rate of  32%
compared to $850,000, or a rate of 44% in 1996.  The reduction is due  primarily
to the closing of two Company stores which created a deductible tax expense  for
assets previously written off for book purposes and to realization of other  tax
deductions for which no net deferred tax asset recognition was available to  the
Company.

LIQUIDITY AND CAPITAL RESOURCES

In 1998 the Company's operating activities provided  $1.4 million more cash than
in 1997.  The primary reason for the increase  is due to a decrease of  payments
on accounts payable in 1998 versus unusually high payments on payables otherwise
due in  1996 as  noted  below.   This  decrease was  offset  by an  increase  in
inventory generated by stockpiling certain products at year end.

In 1997 the Company's operating activities  provided  $2 million less cash  than
in 1996.   The primary reasons  for the decrease  were $2  million in  increased
accounts payable resulting from  paper stockpiling purchases  of late 1994,  and
payment of another  $1.1 million  in accounts payable  due to  payments made  in
early 1997 that would  have otherwise been  made in 1996.   These payments  were
partially offset by a reduction in  net accounts receivable of $1.1 million  due
to more  stringent credit  practices with  franchisees and  a generally  overall
improved franchise store performance.

In 1998 net cash  utilized by investing activities  was $664,000 as compared  to
net cash  provided by  investing  activities of  $485,000  in 1997.    Increased
purchases of property and equipment in 1998 accounted for about $900,000 of  the
change with about  $400,000 more  accounted for by  lower proceeds  on sales  of
assets. In 1999 the  Company anticipates investing about  $3 million in  opening
Company stores, service expansion, and equipment replacement.  The Company plans
to enter into operating leases for a substantial amount of the assets needed  to
open new Company stores.

In 1997 net cash provided by investing activities decreased $358,000 as compared
to 1996.  Increased  purchases of property and  equipment in 1997 accounted  for
most of the change because of a 1996 reduction of the Company's capital spending
program due to stores sold and closed.  The other major factor was $142,000 more
in proceeds from sales of assets in 1996 compared to 1997.

In 1998 the  Company borrowed $1.25  million for capital  expenditures and  made
principal  payments  of  $1.9  million  which,  along  with  dividend  payments,
generated a $1.2 million  use of cash  from financing activities.   In 1999  the
Company anticipates increasing its net  borrowing by approximately $1.5  million
to help fund its investing  activities.

In 1997 the Company entered into a  five year financing arrangement with a  bank
which resulted in a  net increase of approximately  $4,000,000 in proceeds  less
repayments on borrowed funds as compared to 1996.  This generated $1 million  in
cash from financing as compared to a $3.2 million use in 1996 as funded debt was
reduced in 1996 as compared to 1995.

The Company's  material  capital  commitments  consist  primarily  of  long-term
obligations (See  Notes E  and F).   Additionally,  the Company  has a  dividend
commitment on its Series G Stock of $700,000 in 1999.  Funds for repaying  these
commitments are anticipated to  be generated primarily  from operations in  1999
and beyond.

The Company  has available  a $2  million  line of  credit,  none of  which  was
borrowed as  of December  31, 1998.   This  line expires  April 30,  2000.   The
Company believes this is adequate to finance its seasonal working capital needs.

At December 31,  1998, the Company  had working capital  of $3.5  million.   The
Company has historically operated with a  working capital deficit.  The  Company
believes that the nature of its business allows it to operate adequately with  a
working  capital  deficit.    The  factors  that  contribute  to  this  are  the
substantial percentage of sales from cash, favorable terms with suppliers,  non-
cash charges to  income resulting from  depreciation and amortization  expenses,
and the line of credit to meet seasonal needs.
On December 31, 1998, the Company had income tax loss carryforwards, tax credits
and deductible temporary differences  with a tax  benefit of approximately  $3.4
million.   The  tax  benefit of these carryforwards  has a $2 million  valuation
allowance for financial reporting  purposes (See Note I).   These items, if  and
when used for tax purposes, preserve liquidity and capital resources because tax
payments are reduced by realization of these deferred tax assets.

The Company has $10,000,000 of Series G  Stock outstanding which is due in  2000
or earlier under certain  circumstances.  (See Note  G and Item  1 - Business  -
Supply Contract and Series G Preferred Stock)  These shares can be retired  only
by an exchange for  common shares or  from the proceeds  of an equity  offering.
The Company is uncertain at this time as to how or when the Series G Stock  will
be retired.

FORWARD LOOKING STATEMENTS

All statements,  other  than statements  of  historical fact  included  in  this
report, which  address  activities, events  or  developments which  the  Company
expects or anticipates  will or  may occur  in the  future constitute  ``forward
looking statements' within  the meaning of Section 27A of the Securities Act  of
1933, as amended, and  Section 21E of  the Securities Exchange  Act of 1934,  as
amended.  These statements are based on certain assumptions and analyses made by
the Company in light of its experience and its perception of historical  trends,
current conditions, and expected future developments,  as well as other  factors
it believes  are  appropriate  in the  circumstances.    These  forward  looking
statements are  subject to  all the  risks, and  uncertainties incident  to  the
Company's business,  including, without  limitation,  competition in  the  photo
processing industry,  possible  development  of  new  technology  affecting  the
Company's ability to compete, uncertainties with  respect to the ability of  the
Company to expand its business through  franchising, new store development,  the
level of consumer acceptance of the  Company's programs and services,  continued
stability in  market prices  of key  supply  items, decline  in demand  for  the
products and  services  offered,  continuity of  management,  liquidity  of  the
franchise system, the  ability of  the Company  to locate  and obtain  favorable
store sites  at  acceptable lease  terms,  management's ability  to  manage  its
franchisee, lender and supply relationships, economic conditions, the effect  of
severe weather  or  natural  disasters,  and  competitive  pressure  from  other
retailers.  For all of the foregoing reasons, actual results may vary materially
from the  forward looking  statements.   The Company  assumes no  obligation  to
update any forward looking statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Quantitative and  qualitative  disclosures about  market  risk are  included  in
management's discussion  and  analysis of  financial  conditions and  result  of
operations.

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data  of the Company are included  in
this report after the signature page.


ITEM 9.DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11.  EXECUTIVE COMPENSATION

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Items 10-13 are incorporated  by reference from  the definitive proxy  statement
for the Company's 1999  annual meeting of shareholders  to be filed pursuant  to
Regulation 14A.

PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)       The following documents are filed as part of this report:

                    1.Financial Statements:  See Financial  Statements
                      and  Schedules immediately  following  signature
                      page of this report.

                    2.Exhibits:  See Exhibit Index immediately preceding
                      Exhibits

     (b)       Reports on Form  8-K.  The Company filed no report on Form 8-K
               during the quarter ended December 31, 1998.


SIGNATURES

Pursuant to the requirements of Section  13 or 15(d) of the Securities  Exchange
Act of 1934,  the Registrant has  duly caused this  report to be  signed on  its
behalf by the undersigned, thereunto duly authorized.

                                     MOTO PHOTO, INC.
                                     By   /s/ David A. Mason
                                          David A. Mason
                                          Executive Vice President

Date:  March 26, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the Registrant  and
in the capacities and on the dates indicated.



/s/ Michael F. Adler                                     March 26, 1999
Michael F. Adler           Chairman of the Board,
                           Chief Executive
                           Officer, and Director
                           (Principal Executive
                            Officer)



/s/ David A. Mason                                       March 26, 1999
David A. Mason             Executive Vice President,
                           Treasurer, Assistant
                           Secretary, and Director
                           (Principal Financial
                            Officer)



/s/ Frank M. Montano                                     March 26, 1999
Frank M. Montano           President, and Chief
                           Operating Officer



/s/ Frank W. Benson                                      March 26, 1999
Frank W. Benson            Director



/s/ D. Lee Carpenter                                     March 26, 1999
D. Lee Carpenter           Director



/s/ Leslie Charm                                         March 26, 1999
Leslie Charm               Director



/s/ Dexter B. Dawes                                      March 26, 1999
Dexter B. Dawes            Director



/s/ Harry D. Loyle                                       March 26, 1999
Harry D. Loyle             Director



/s/ James F. Robeson                                     March 26, 1999
James F. Robeson           Director


/s/ Alfred E. Lefeld                                     March 26, 1999
Alfred E. Lefeld           Vice President, and
                           Controller(Principal
                           Accounting Officer)







                         REPORT OF INDEPENDENT AUDITORS


The Board of Directors and Stockholders
Moto Photo, Inc.

We have audited the accompanying consolidated balance sheets of Moto Photo, Inc.
and subsidiaries as of December 31, 1998 and 1997, and the related  consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in  the period  ended December  31,  1998. Our  audits also  included  the
financial statement schedule listed in the Index at Item 14(a). These  financial
statements and schedule are the responsibility of the Company's management.  Our
responsibility is  to  express an  opinion  on these  financial  statements  and
schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally  accepted   auditing
standards. Those standards require that we plan and perform the audit to  obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence  supporting
the amounts and disclosures in the financial statements. An audit also  includes
assessing the  accounting  principles used  and  significant estimates  made  by
management, as well as evaluating the overall financial statement  presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above  present
fairly, in all material  respects, the consolidated  financial position of  Moto
Photo, Inc. and subsidiaries at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years  in
the period  ended  December 31,  1998,  in conformity  with  generally  accepted
accounting principles. Also,  in our  opinion, the  related financial  statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly,  in all material respects,  the information set  forth
therein.


/s/ Ernst & Young LLP
Ernst & Young LLP

Dayton, Ohio
February 12, 1999
MOTO PHOTO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

[CAPTION]
<TABLE>
                                                            DECEMBER 31

                                                         1998        1997

<S>                                                   <C>         <C>
Assets
Current assets:
 Cash                                                 $ 2,918,396 $ 3,139,252
 Accounts receivable, less allowances of  $1,092,000    4,188,807   4,416,899
 in 1998 and $1,590,000 in 1997
 Notes receivable, less allowances of  $172,000 in        437,669     403,669
 1998 and $125,000 in 1997
 Inventory                                              2,457,950   1,388,010
 Deferred tax assets                                    1,213,000   1,025,000
 Prepaid expenses                                         116,081     223,176

Total current assets                                   11,331,903  10,596,006
Property and equipment                                  3,712,064   3,095,006

Other assets:
 Notes receivable, less allowances of  $1,228,000 in    1,897,755   2,157,360
 1998 and $893,000 in 1997

 Cost of franchises and contracts acquired                155,688     167,741
 Goodwill                                               3,728,816   3,932,883
 Deferred tax assets                                       57,000      57,000
 Other assets                                           1,050,567   1,032,119

Total assets                                          $21,933,793 $21,038,115


<FN>
See accompanying notes.
</TABLE>


MOTO PHOTO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
[CAPTION]
<TABLE>
                                                         DECEMBER 31
                                                       1998        1997

<S>                                                     <C>         <C>
Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                                 $ 4,251,043 $ 3,206,342
  Accrued payroll and benefits                         560,901   1,060,188
  Accrued expenses                                   1,192,968   1,472,306
  Current portion of long-term obligations           1,534,000   1,444,000
  Other                                                310,540     181,286

 Total current liabilities                           7,849,452   7,364,122

 Long-term debt                                      8,775,360   9,220,469
 Capitalized leases                                    288,641     563,336
 Deferred revenue                                       99,434     119,032

Total liabilities                                   17,012,887  17,266,959

Stockholders' equity
 Preferred stock $.01 par value:
  Authorized shares - 2,000,000:
  Series G cumulative nonvoting preferred shares,
  1,000,000 shares issued and outstanding with
  preferences aggregating $10,000,000                   10,000     10,000
 Common shares $.01 par  value:
  Authorized shares - 30,000,000
  Issued and outstanding shares - 7,833,573 in
  1998 and 7,802,973 in 1997                            78,336      78,030
 Paid in capital                                     6,404,734   6,670,981
 (Deficit) retained earnings subsequent to June 30,
 1991                                               (1,572,164) (2,987,855)

 Total stockholders' equity                          4,920,906   3,771,156

Total liabilities and stockholders' equity         $21,933,793 $21,038,115


<FN>
See accompanying notes.
</TABLE>




MOTO PHOTO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
[CAPTION]
<TABLE>
                                            YEAR ENDED DECEMBER 31
                                         1998        1997        1996

<S>                                        <C>         <C>         <C>
Revenue

Sales and other revenue              $36,674,620 $41,532,923 $42,599,365
Interest income                          413,087     364,420     214,614
Gain  on sale of stores                       -           -       78,051
Other income                             112,000          -      395,536

                                      37,199,707  41,897,343  43,287,566

Expenses

Cost of sales and operating           26,329,572  29,820,906  31,246,267
 expenses
Selling, general, and
 administrative expenses               6,553,425   6,841,931   6,924,163
Advertising                            1,416,855   1,333,934   1,469,531
Depreciation and amortization          1,015,611     847,509     757,673
Interest expense                         411,610     445,141     455,404
Impairment charge                        142,381     104,387     510,655

                                      35,869,454  39,393,808  41,363,693


Income before income taxes             1,330,253   2,503,535   1,923,873
Income tax benefit (expense):
 Current                                 172,000    (731,000)   (794,000)
 Deferred                                188,000          -           -
 Charge in lieu of income taxes               -      (69,000)    (56,000)

                                         360,000    (800,000)   (850,000)

Net income                             1,690,253   1,703,535   1,073,873

Dividend requirements:
 Series E and F preferred shares         325,438     317,172     210,710
 Series G preferred shares              (600,000)   (600,000)   (500,000)

Net income applicable to common      $ 1,415,691 $ 1,420,707 $   784,583
shares



Net income per common share - basic
 and diluted                         $      0.18 $      0.18 $     0.10


<FN>
See accompanying notes.
</TABLE>
MOTO PHOTO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

[CAPTION]
<TABLE>

                                   SERIES G PREFERRED      COMMON STOCK
                                         STOCK
                                   SHARES     AMOUNT     SHARES     AMOUNT

<S>                              <C>        <C>        <C>        <C>

Balance at December 31, 1995      1,000,000   $10,000  7,785,973  $  77,860
 Reversal of Series E and F
  previously accreted preferred
  dividend
 Series G preferred dividend
  paid
 Use of net operating loss
   carryforward
 Net income

Balance at December 31, 1996      1,000,000    10,000  7,785,973     77,860
 Common stock issued                                      17,000        170
 Reversal of Series E and F
  previously accreted preferred
  dividend
 Series G preferred dividend
  paid
 Warrants issued
 Use of net operating loss
   carryforward
 Net income

Balance at December 31, 1997      1,000,000    10,000  7,802,973     78,030
 Common Stock Issued                                      30,600        306
 Reversal of Series E and F
  previously accreted
  preferred dividend
 Series G preferred dividend
  paid
 Net Income

Balance at December 31, 1998      1,000,000   $10,000  7,833,573  $  78,336


<FN>
       See accompanying notes.
</TABLE>



[CAPTION]
<TABLE>
                                                   (DEFICIT)
                                     PAID IN       RETAINED
                                     CAPITAL       EARNINGS         TOTAL
<S>                              <C>            <C>            <C>
Balance at December 31, 1995     $   7,013,610  $  (5,193,145) $    1,908,325
 Reversal of Series E and F
  previously accreted preferred
  dividend                            (210,710)       210,710             -
 Series G preferred dividend
  paid                                               (500,000)       (500,000)
 Use of net operating loss
   carryforward                         56,000                         56,000
 Net income                                         1,073,873       1,073,873
Balance at December 31, 1996         6,858,900     (4,408,562)      2,538,198
 Common stock issued                    35,253                         35,423
 Reversal of Series E and F
  previously accreted preferred
  dividend                            (317,172)      317,172              -
 Series G preferred dividend
  paid                                               (600,000)      (600,000)
 Warrants issued                        25,000                        25,000
 Use of net operating loss
   carryforward                         69,000                        69,000
 Net income                                         1,703,535      1,703,535
Balance at December 31, 1997         6,670,981     (2,987,855)     3,771,156
 Common Stock Issued                    59,191                        59,497
 Reversal of Series E and F
  previously accreted
  preferred dividend                  (325,438)       325,438             -
 Series G preferred dividend
  paid                                              (600,000)      (600,000)
 Net Income                                        1,690,253      1,690,253
Balance at December 31, 1998     $   6,404,734  $ (1,572,164)  $  4,920,906
<FN>
       See accompanying notes.
</TABLE>



MOTO PHOTO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOW

[CAPTION]
<TABLE>
                                                  YEAR ENDED DECEMBER 31
                                              1998         1997        1996

<S>                                             <C>          <C>         <C>
OPERATING ACTIVITIES
Net income                                $ 1,690,253  $1,703,535  $ 1,073,873
Adjustments to reconcile net income to
 net cash provided by operating
 activities:
Impairment charge - goodwill                   88,618      30,887      372,409
Impairment charge - property and equipment     53,763      73,500      138,246
Depreciation and amortization               1,015,611     847,509      757,673
Charge in lieu of income tax                       -       69,000       56,000
Provision for losses on inventory and
 receivables                                  543,031     908,377    1,325,101
Notes receivable increase as a result of
 franchise activities                         (17,422)    (19,000)    (185,500)
Loss (gain) on sale of stores                     646      48,280     (344,023)
Lss on fixed asset disposals and close
 of telemarketing                             212,301          -           -
Issuance of stock for directors fees           37,622      35,253          -
Increase (decrease) resulting from
 changes in:
 Accounts receivable                         (678,631)   (374,471)  (2,164,947)
 Inventory and prepaid expenses            (1,241,275)     54,795      296,281
 Other assets                                (241,113)    (45,616)     (42,218)
 Deferred taxes                              (188,000)         -           -
 Accounts payable, accrued payroll,
  benefits, and accrued expenses              266,076  (3,167,576)     999,482
 Deferred revenue and other liabilities       109,656      78,009      (19,205)

Net cash provided by operating activities   1,651,136     242,482    2,263,172

INVESTING ACTIVITIES
Purchases of property and equipment        (1,368,316)   (477,513)    (290,788)
Payments received on notes receivable         643,253     509,848      499,806
Proceeds from sale of property and
 equipment                                     61,000     452,606      595,102
Loss from investments                              -           -        39,124

Net cash (utilized) provided by investing
 activities                                  (664,063)    484,941      843,244

FINANCING ACTIVITIES
Proceeds from revolving line of credit
 and long-term borrowings                   1,250,000  9,324,274     7,100,000
Principal payments on revolving line of
 credit, long-term debt and capital lease
 obligations                               (1,879,804) (7,711,389)  (9,847,160)
Payments of preferred dividends              (600,000)   (600,000)    (500,000)
Proceeds from issuance of common stock         21,875          -           -

Net cash (utilized) provided in financing
 activities                                (1,207,929)  1,012,885   (3,247,160)

(Decrease) increase in cash                  (220,856)  1,740,308     (140,744)
Cash at beginning of year                   3,139,252   1,398,944    1,539,688

Cash at end of year                       $ 2,918,396  $3,139,252  $ 1,398,944


<FN>
See accompanying notes.
</TABLE>


A.  THE COMPANY

Moto Photo,  Inc.  and its  subsidiaries  (`the  Company'') is  engaged  in  the
franchising and  ownership  of  stores offering  one-hour  processing  services,
portrait and related imaging services and merchandise under the trade names  and
service marks of `ONE HOUR MOTOPHOTO'', ``MOTOPHOTO'' and `ONE HOUR MOTOPHOTO  &
PORTRAIT STUDIO' and related marks.

During 1998, the Company initiated the World Alliance Partnership program (WAP).
Independent minilabs outside  of the  United States and  Canada who  sign a  WAP
agreement will have the right to  display limited signage, attend the  Company's
franchise convention and offer  for sale the  Company's private label  products.
The participants in the WAP will pay an annual fee.

At December  31, 1998  the 427  stores of  the Moto  Photo system  included  296
Franchise stores in the United States,  37 Company stores in the United  States,
50 stores in  Canada and  44 WAP stores  in Norway.   During  1998, the  Company
awarded 19 franchises, refranchised 1  Company store, converted two  independent
stores to franchises and closed 34 stores.

B.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the Company's significant accounting policies used
in the preparation of the accompanying consolidated financial statements.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Moto Photo,  Inc.,
and its  subsidiaries. All  significant intercompany  accounts and  transactions
have been eliminated.

ACCOUNTS AND NOTES RECEIVABLE

Accounts and  notes receivable  are  composed of  accounts  and notes  due  from
various  franchisees.    The  notes   receivable  carry  interest  rates   which
approximate the prevailing  interest rate at  the time of  the notes  receivable
inception.  The carrying value of each account and note receivable is  evaluated
to determine  if  facts and  circumstances  suggest the  receivable  has  become
impaired.  If the review indicates that a note has become impaired as determined
by an analysis of creditworthiness and payment history, interest income on  that
note is not recognized  unless collected.  During  1998 and 1997,  approximately
$400,000 and $612,000,  respectively were transferred  to notes receivable  from
accounts receivable.  The  carrying value of all  accounts and notes  receivable
approximates fair value.

INVENTORY

Inventory is valued at the lower  of cost or market.   Cost is determined  using
the first in, first out cost  method.  Inventory is  shown net of allowances  of
$150,000 in 1998 and $115,000 in 1997.



B.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PROPERTY AND EQUIPMENT

The costs of equipment and  leasehold improvements are capitalized.  Maintenance
and repairs are charged  to expense as incurred  while betterments and  renewals
are capitalized. When  equipment is  retired or  sold, the  cost and  applicable
accumulated depreciation  are  removed  from the  respective  accounts  and  the
resulting gain or loss is recorded in operations.

Property  and  equipment,  including  capitalized  leases,  are  depreciated  or
amortized by the straight-line method over the estimated useful lives, primarily
up to seven  years for  processing equipment, up  to five  years for  furniture,
fixtures, and automobiles, and up to  three years for software and hardware  and
over the lesser of the remaining term of the lease or the lives of the leasehold
improvements.
COST OF FRANCHISES AND CONTRACTS ACQUIRED

Franchises and contracts acquired  are valued at cost  and are amortized by  the
straight-line method over the term of  the agreement. These costs are shown  net
of accumulated amortization of $688,513 in 1998 and $646,813 in 1997.

GOODWILL

The excess of the cost over the fair value of the net assets of stores purchased
is recorded as goodwill and amortized on a straight-line basis not to exceed  40
years. Goodwill is shown net of  accumulated amortization of $2,255,130 in  1998
and $2,707,055 in 1997.

LONG LIVED ASSETS

The carrying value of long lived assets, including goodwill and property,  plant
and equipment  related  to  operating  stores  is  reviewed  if  the  facts  and
circumstances suggest  that  it may  be  permanently impaired.  If  this  review
indicates  that  goodwill  will  not  be  recoverable,  as  determined  by   the
undiscounted cash flows of the store(s) over the remaining amortization  period,
the Company's carrying value of the  goodwill is adjusted to its estimated  fair
value. When a decision is made  to dispose of a  store through sale or  closure,
the Company's carrying value  of the store, including  goodwill, is adjusted  to
its estimated fair value less costs to sell.

NON-COMPETE AGREEMENTS

The Company amortizes non-compete  agreements by the  straight line method  over
the life of the contract.



B.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

Franchise fees  are recognized  as income  when substantially  all services  and
conditions relating to  the granting  of the  franchise have  been performed  or
satisfied. Revenue from territorial development fees is deferred and  recognized
as stores  are opened  within the  development area.  Royalty and  company-owned
store revenue  are  recognized  as  sales  are  made.  Merchandise  revenue  are
recognized when the  goods are shipped.   Telemarketing  revenue are  recognized
when the services are rendered.  In 1998, the Company's master licensor for  the
province of  Ontario, Canada  signed  a new  master  license agreement  for  the
development of franchises throughout Canada.  The Company recognized $100,000 in
1998 for the sale of these rights.

PROFIT SHARING PLAN

The Company  sponsors a  profit sharing  plan covering  all employees  who  meet
certain eligibility requirements.  The  Company makes matching contributions  to
the Plan.  Additionally, the Company may make discretionary contributions, which
are subject to the  approval of the Board  of Directors. Profit sharing  expense
was $94,793 in 1998, $127,899 in 1997, and $125,000 in 1996.

STOCK-BASED COMPENSATION

The Company  accounts  for stock  based  compensation under  the  principles  of
Accounting Principles Board  Opinion No.  25, ``Accounting for  Stock issued  to
Employees'  (APB  25) and  related  Interpretations.   When  stock  options  are
exercised, the proceeds increase stockholders' equity.   No amounts are  charged
or credited to operations.

INCOME TAXES
The Company accounts  for income taxes  using the liability  method. Under  this
method, deferred tax assets and liabilities are determined based on  differences
between financial reporting  and tax  bases of  assets and  liabilities and  are
measured using tax rates and laws expected to be in effect when the  differences
are expected to reverse. Valuation allowances are provided against deferred  tax
assets for which it is `more likely than not'' the assets will not be realized.

NET INCOME PER COMMON SHARE - BASIC AND DILUTED

Basic income per common share is based on the weighted-average number of  common
shares outstanding during  the respective periods.   Diluted  income per  common
share is  based on  the weighted-average  number  of common  shares  outstanding
adjusted to include the effects of potentially dilutive stock options and  other
common stock equivalents.




B.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

<TABLE>
                                            1998        1997       1996
<S>                                     <C>         <C>         <C>
Net income applicable to common shares  $ 1,415,691 $ 1,420,707 $   784,583

Reconciliation of Shares:

Weighted average common shares
 outstanding                              7,816,165   7,793,905  7,785,973

Effect of dilutive stock options and
 other common stock equivalents             115,245     101,034      46,644


Weighted average common shares assuming
 dilution                                 7,931,410   7,894,939   7,832,617


</TABLE>


STORES FOR RESALE

Certain Company stores are  offered for sale along  with a franchise  agreement.
The Company generally cannot identify when  or if such transactions will  occur.
Consequently, until a  store is franchised,  sales, results  of operations,  and
related assets and liabilities are included with those of the Company stores  in
the respective line item in the respective financial statement. The Company sold
one store in 1998, six stores in 1997, and five stores in 1996.


USE OF ESTIMATES

The preparation  of  the  financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions that affect  the amounts reported  in the  financial statements  and
accompanying notes. Actual results could differ from those estimates.

RECLASSIFICATIONS

Certain  amounts  from  prior  years  have  been  restated  to  conform  to  the
presentation used in 1998.
C.  PROPERTY AND EQUIPMENT

The following is a summary of property and equipment as of December 31:

<TABLE>
                                                       1998         1997

<S>                                                     <C>          <C>
Equipment and other property                       $  7,801,086  $  7,379,716
Leasehold improvements                                2,601,003     2,869,816
Furniture and fixtures                                1,029,420     1,136,240

                                                     11,431,509    11,385,772
Less accumulated depreciation and amortization        7,719,445     8,290,766

Net book value                                     $  3,712,064  $  3,095,006


</TABLE>

Depreciation expense on property and equipment including amortization of  assets
recorded under capital leases for the year ended December 31, 1998 was  $813,462
($653,822 in 1997 and $567,131 in 1996).

D.  OTHER ASSETS

Other assets as of December 31  include the following items, net of  accumulated
amortization of $262,500 in 1998 and $237,500 in 1997:

<TABLE>
                                       1998        1997

<S>                                <C>         <C>
Non-compete agreements              $  737,500  $  762,500
Other                                  313,067     269,619

                                    $1,050,567  $1,032,119


</TABLE>

E.  LONG-TERM DEBT

The detail of long-term debt as of December 31 is:

<TABLE>
                                           1998         1997

<S>                                    <C>          <C>
Note payable to bank due January 2002
with interest at 9.29% per annum       $  2,124,360 $  2,748,469

Note payable to bank due January 2002
with interest at 8.75% (prime rate
plus 1%)                                  1,125,000    1,500,000

Note payable to bank due January 2004
with interest at 8.25% (prime rate
plus 1/2%)                                1,250,000           -

Revolving credit agreements with
supplier, non-interest-bearing, due
June 2002                                 5,515,000    5,971,000

                                         10,014,360   10,219,469

Portion classified as current             1,239,000      999,000

                                       $  8,775,360 $  9,220,469
</TABLE>

At December 31, 1998, the Company had an unused line of credit for $2,000,000 at
prime plus .50%.   The Company pays a  commitment fee of .25%  per annum on  the
unused  portion  of  the  line  of  credit.  The  carrying  value  of  all  debt
approximates fair value.

The aggregate annual maturities on long-term debt for the five years  subsequent
to December  31, 1998  are $1,239,000,  $1,312,092, $1,344,631,  $5,827,239  and
$291,398.  Interest  paid in 1998,  1997, and 1996  was $399,400, $436,808,  and
$476,695, respectively.

Long-term debt and borrowings on the line of credit are secured by substantially
all of the Company's assets. The revolving credit agreement requires the Company
and  its  franchisees  collectively  to   purchase  certain  amounts  of   their
requirements for  specified  products  including  paper  and  film  through  the
supplier.  Certain of the  long-term obligations contain restrictive  covenants;
the Company was in compliance with them at December 31, 1998.



F. LEASES

At December 31,  1998 and 1997,  property and equipment  included the  following
capitalized lease obligations:

<TABLE>
                                  1998        1997

<S>                              <C>          <C>
Processing equipment            $ 832,187  $1,737,753
Less accumulated amortization     261,714     554,918

                                $ 570,473  $1,182,835


</TABLE>

Future minimum lease payments for capitalized leases at December 31, 1998 are as
follows:

<TABLE>
      YEAR ENDING DECEMBER 31

<S>                        <C>
1999                    $  346,338
2000                       219,739
2001                        86,709
2002                        19,290

Total minimum lease
payments                   672,076

Less:  amount
 representing interest
 ranging from 5.7% to
 11.5%                      88,435

Present value of minimum
 lease payments            583,641
Current portion            295,000

Capitalized leases      $  288,641


</TABLE>

During 1998,  1997, and  1996, the  Company incurred  or assumed  capital  lease
obligations aggregating $0, $679,300, and $283,106, respectively, in  connection
with equipment purchases.

The Company also has operating leases for the real estate facilities of  several
franchised and company-owned  stores. The facilities  for the franchised  stores
have been  subleased  or  assigned to  the  franchisees.  The  lease  agreements
generally  require  the  lessee  to  pay  the  property  taxes,  insurance,  and
maintenance. Under most lease agreements, the  lessee is required to pay  common
area expenses and/or a contingent rental  based on a percentage of gross  sales.
The Company  also  leases  automobiles, office  and  warehouse  facilities,  and
equipment under operating lease agreements.  Certain leases have renewal options
which the  Company  may exercise.    Rental  expense for  operating  leases  was
$1,841,830 in 1998, $2,275,443 in 1997, and $2,554,979 in 1996, net of  sublease
rentals of $447,372, $444,734, and $409,088, respectively.


F.  LEASES (CONTINUED)

In 1998 and 1996  the Company sold the  lease rights for  a Company store  which
increased net income by approximately $112,000 and $300,000 respectively.

At December 31, 1998, noncancelable operating  leases provide for the  following
minimum annual obligations and sublease rentals:

<TABLE>
                 LEASE     SUBLEASE  NET LEASE
              OBLIGATION   RENTALS  OBLIGATION
                   S                     S

<S>           <C>        <C>        <C>
1999          $1,623,816 $  328,078 $1,295,738
2000           1,311,989    246,445  1,065,544
2001             984,830    222,398    762,432
2002             647,657     87,283    560,374
2003             298,063     56,945    241,118
2004 and
thereafter       206,786         -     206,786

Totals        $5,073,141 $ 941,149  $4,131,992


</TABLE>

G.  STOCKHOLDERS' EQUITY

The Company has authorized  30,000,000 voting common  shares and 1,000,000  non-
voting common shares. None of the non-voting common shares are outstanding  and,
unless otherwise stated, any reference herein to common shares refers to  voting
common shares.

In conjunction with the  1995 redemption of  outstanding $1.20 Preferred  Stock,
the cumulative  non-voting Series  E and  F  Preferred Shares  outstanding  were
exchanged  for  1,000,000  cumulative  non-voting  Series  G  Preferred   Shares
(`Series G  Stock').   The Series G Stock has  a cumulative annual dividend  per
share of $.50 in 1996, and $.60 in 1997 and 1998.  In 1998, 1997, 1996 $600,000,
$600,000, and $500,000, respectively, of dividends were paid on Series G  Stock.
The Series G Stock has a dividend  rate lower than the previously accreted  rate
of the  Series  E  and F  Preferred  Shares.   Accordingly,  the  1998  dividend
requirement on income  or applicable to  common shares was  reduced by  $325,438
($317,172 in 1997 and $210,710 in 1996).

The Series G  Stock is redeemable  at any time  by the Company.  The holder  can
redeem the Series  G Stock in  2000, or earlier  if the  Company's common  share
price is $3.00  or more.   Redemption  must be  in either  the Company's  common
shares at 90% of the then-current market price  or in cash from the proceeds  of
an equity offering. The holder has the right to refuse redemption in stock.  The
1999 dividend rate  is $.70 per  share.  If  the stock  remains unredeemed,  the
Company would pay dividends of $.80 per share  in 2000, $.90 per share in  2001,
and $1.00 per share per year in 2002 and thereafter.



G.  STOCKHOLDERS' EQUITY (CONTINUED)

The Company has 835,000 warrants outstanding  each of which entitles the  holder
to purchase  one common  share  for $4.25,  subject  to adjustments  in  certain
events, through December 31, 1999.  The holder of the Series G Stock also  holds
warrants to purchase  1,000,000 common  shares at  $2.38 per  share, subject  to
adjustment in certain events, through September 2002.  In addition, in 1997  the
Company granted 50,000 warrants  each of which entitles  the holder to  purchase
one common share  for $1.94  through September 2002.   The  warrants are  anti--
dilutive for diluted earnings per share calculations for all years.

As of December  31, 1998, 12,201,934  shares of common  stock were reserved  for
issuance pursuant to various outstanding  options, warrants, and redeemable  and
convertible securities.

H.  STOCK BASED COMPENSATION

The Company has several  incentive plans under which  the Board of Directors  or
the Compensation Committee  (``the Committee'') of  the Board  of Directors  may
grant awards  to directors,  officers and  key managerial,  administrative,  and
professional employees of  the Company. Awards  may consist  of incentive,  non-
qualified, and deferred compensation  stock options, stock appreciation  rights,
restricted stock and restricted unit grants, performance equity and  performance
unit grants,  and any  other stock-based  awards, or  any combination  of  these
awards.

At December 31, 1998 additional awards  aggregating up to 782,405 common  shares
can be granted  on the terms  and conditions established  by the Committee.  The
Board of Directors may grant additional non-qualified stock options.

The following summarizes the shares option activity for the years ended December
31:

<TABLE>
                                    1998                    1997

                             COMMON     AVERAGE      COMMON     AVERAGE
                             SHARES      PRICE       SHARES      PRICE

<S>                            <C>         <C>          <C>        <C>
Outstanding at beginning
 of year                    1,015,966     $1.99      985,286     $1.87
Granted                       406,219     $2.32      163,460     $2.57
Expired                       (88,104)    $2.47     (132,780)    $1.82

Outstanding at end of
 year                       1,334,081     $2.06    1,015,966     $1.99


Exercisable at end of
 year                         755,956                608,002


</TABLE>

The exercise price of all options granted has been at least equal to the  market
value at the date of  grant. The options generally  expire five years after  the
grant date except  for 352,041 options  which expire ten  years after the  grant
date.



H.  STOCK-BASED COMPENSATION (CONTINUED)

The Company has elected to  follow APB 25 in  accounting for its employee  stock
options because of the alternative fair value accounting provided for under  FAS
Statement No.  123, ``Accounting for  Stock-Based Compensation''  (`FAS  123''),
which requires use of option valuation models that were not developed for use in
valuing employee stock  options.  Because  the exercise price  of the  Company's
employee stock options equals  the market price of  the underlying stock on  the
date of grant, no compensation expense is recognized under APB 25.
Pro forma earnings amounts prepared under the assumption that the stock  options
granted in 1998, 1997 and 1996 were accounted  for based on their fair value  as
determined under FAS 123 are as follows:

<TABLE>
         PRO FORMA EARNINGS             1998        1997        1996

<S>                                 <C>         <C>         <C>
Net income applicable to common
 shares                             $ 1,157,652  $1,234,223 $   629,096
Net income per common share-basic
 and diluted                        $      0.15 $      0.16 $      0.08
</TABLE>

The weighted  average value  of an  option granted  during 1998,  1997 and  1996
approximated 50% of the grant price  of the respective option. using the  Black-
Scholes option pricing model and the following assumptions:

<TABLE>
FAIR VALUE ASSUMPTIONS       1998     1997     1996

<S>                        <C>      <C>      <C>
Dividend yield                   0%       0%       0%
Expected volatility             45%      39%      39%
Risk-free interest rate        5.8%     5.5%     5.5%
Expected life in years        5-10     5-10        5
</TABLE>

FAS 123 does  not apply to  awards granted prior  to 1995.   Because  additional
awards in future years are anticipated,  the pro forma effects of applying  this
statement are not necessarily indicative of future amounts.

I.  INCOME TAXES

Deferred taxes at December 31 are:

<TABLE>
                                        1998        1997

<S>                                      <C>         <C>
Deferred tax assets
 Capital loss carryforwards         $   712,000 $   586,000
 AMT credit carryforwards                85,000      37,000
 Asset impairment                     1,370,000   1,983,000
 Receivable allowances                  977,000     945,000
 Employee benefit accruals              117,000     138,000
 Inventory valuation allowances          82,000      65,000
 Depreciation                                -       28,000
 All other items, net                   125,000     109,000

 Total deferred tax assets            3,468,000   3,891,000

Deferred tax liability
 Depreciation                          (116,000)         -

 Total deferred tax liability          (116,000)         -


 Gross deferred tax assets            3,352,000   3,891,000

 Less:  valuation allowance          (2,082,000) (2,809,000)


Net deferred tax assets             $ 1,270,000 $ 1,082,000


</TABLE>

For financial reporting purposes, a valuation  allowance of $2,082,000 for  1998
and $2,809,000  for 1997  has been  recognized to  offset certain  deferred  tax
assets including the capital loss carryforwards and asset impairment.

Realization of  the net  deferred tax  assets depends  on generating  sufficient
taxable income to utilize the tax benefit of the assets. Although realization is
not assured,  management  believes it  is  more likely  than  not that  the  net
deferred tax assets will be realized.



I.  INCOME TAXES (CONTINUED)

The effective income tax  rates differed from the  federal statutory income  tax
rates as follows for the years ended December 31:

<TABLE>
                                  1998        1997        1996

<S>                                <C>         <C>         <C>
Expense (benefit):
Statutory federal income tax  $   452,000 $   850,000 $   654,000
Increase (decrease) resulting
 from effect of:
 Nondeductible amortization       168,000     169,000     162,000
 Change in deferred tax
  valuation allowance            (727,000)   (353,000)   (225,000)
 Other, net                      (233,900)     39,000      92,000
State income tax expense, net
 of federal tax benefit           (19,100)     95,000     167,000

                              $  (360,000)$   800,000 $   850,000


</TABLE>

<TABLE>
                                    1998        1997        1996
<S>                              <C>         <C>         <C>
Income tax benefit (expense)
  Current                        $  172,000  $(731,000)  $(794,000)
  Deferred                          188,000         -           -
  Change in lieu of income
  taxes                                   -    (69,000)    (56,000)

                                 $  360,000  $(800,000)  $(850,000)


</TABLE>

As a result of quasi-reorganization accounting treatment, $69,000 and $56,000 in
1997 and 1996, respectively, are charges in lieu of income taxes and payment  is
not required due  to use  of tax loss  carryforwards.   The resulting  financial
statement benefit is an addition to paid-in capital.

At December 31, 1998, the Company  has capital loss carryforwards of  $1,874,000
which begin to expire in 1999  and approximately $85,000 of alternative  minimum
tax (AMT) credit carryfowards which have no expiration date.

The Company paid $82,000, $174,000, and $134,000 of income taxes in 1998,  1997,
and 1996, respectively.


J.  RELATED PARTY TRANSACTIONS

The Company  manages  a  franchise store  controlled  by  certain  officers  and
directors of the Company. The Company derived revenue from this store, including
management incentive fees, of approximately $308,000 in 1998, $269,000 in  1997,
and $244,000 in 1996.

Another franchise  store  is  owned  and managed  by  a  corporation  owned  and
controlled by an officer/director and his family, from which the Company derived
revenue of approximately  $97,000 in  1998, $110,000  in 1997,  and $180,000  in
1996.

The Company leases its  headquarters from a partnership  which is controlled  by
certain officers and/or directors for. Rent expense for each of 1998, 1997,  and
1996, was $216,996.

K.  CONTINGENCIES

The Company is involved in legal proceedings, arising in the ordinary course  of
business, which are being contested and  defended. Management is of the  opinion
that there is no contingent liability that  would have a material effect on  the
consolidated financial statements.

L.  IMPAIRMENT CHARGE

During 1996, a charge of $510,655 was recorded, which brought the net book value
of certain stores  planned to be  disposed of in  conformance with  management's
estimate  of  what  price  the  stores  will  bring,  less  costs  to  sell,  in
transactions with  prospective  franchisees.    The  1996  charge  consisted  of
$372,409 related to goodwill and $120,246 to property and equipment and  $18,000
for lease terminations.  Additional charges of $104,387 in 1997 and $142,381  in
1998 were recorded.   The 1997 charge consisted  of $30,887 related to  goodwill
and $73,500 to property  and equipment.  The  1998 charges consisted of  $88,618
related to goodwill and $53,763 to property and equipment.

The 20 stores planned to be disposed of at December 31, 1997 had a fair value of
$898,000.

At December 31, 1998,  nine stores remained  to be disposed  of, three of  which
were closed in January  1999.  The six  stores remaining to  be disposed of  had
revenues of $1.3 million and a loss of $34,000 in 1998.   The six stores have  a
carrying value of  $164,000.  Management  is actively attempting  to dispose  of
these six stores in the shortest time practicable.

M.  SEGMENTS

In 1998, the Company adopted the provisions of Statement of Financial Accounting
Standards No.  131, Disclosures  about Segments  of  an Enterprise  and  Related
Information  (SFAS  131).    SFAS   131  establishes  standards  for   reporting
information about operating segments in annual financial statements and requires
selected information  about  operating  segments in  interim  financial  reports
issued to shareholders.   Operating  segments are  defined as  components of  an
enterprise about  which  separate financial  information  is available  that  is
evaluated regularly by  the decision making  group in deciding  how to  allocate
resources. The Company has eight

M.  SEGMENTS (CONTINUED)

business units.   The business units  have been aggregated  into four  operating
segments  with  each  segment  representing  a  strategic  segment  that  offers
different products  and services.   The  accounting policies  of the  reportable
segments are  the  same  as  those  described  in  the  summary  of  significant
accounting policies.

The Company's  four  reportable  operating  segments  are  Development,  Company
Stores, Royalty  and  Advertising,  and  Wholesale.    Development  markets  the
Company's franchise and  recruits franchisees.   Company  Stores operate  retail
photo processing  and  portrait  stores  owned by  the  Company.    Royalty  and
Advertising provide  services  to  current  franchisees.    Wholesale  sells  to
franchisees products  and  related  services not  covered  under  the  franchise
agreement which the franchisees need to operate their businesses.

Summarized financial information concerning the Company's reportable segments is
shown in the following table.


MOTO PHOTO, INC. AND SUBSIDIARIES
[CAPTION]
<TABLE>
                                                        1998
                                                                   ROYALTIES
                                                       COMPANY        AND
                                        DEVELOPMENT    STORES     ADVERTISING
<S>                                    <C>         <C>           <C>
Sales and other revenue                $  559,256  $ 13,710,748  $ 5,315,708

Depreciation and amortization               3,787       674,217       18,269

Operating segment contribution prior to
  interest expense, income taxes and
  unallocated corporate expenses         (344,535)     (911,889)   3,706,813

Identifiable segment assets               133,159     8,803,804    1,238,143

Capital expenditures for long lived
assets                                      1,812     1,115,136        4,207


                                                        1997
                                                                   ROYALTIES
                                                       COMPANY        AND
                                        DEVELOPMENT    STORES     ADVERTISING

Sales and other revenue                $   80,991  $ 17,102,706  $ 5,158,577

Depreciation and amortization               3,524       530,657        7,363

Operating segment contribution
  prior to interest expense, income
  taxes and  unallocated corporate
  expenses                               (166,375)     (545,667)   3,681,550

Identifiable segment assets                42,393     8,396,862    1,278,020

Capital expenditures for long lived
assets                                        114       277,023        6,531


                                                        1996
                                                       COMPANY     ROYALTIES
                                        DEVELOPMENT    STORES         AND
                                                                  ADVERTISING

Sales and other revenue                $  829,714  $ 18,704,617  $ 4,864,783

Depreciation and amortization               4,722       472,614        5,482

Operating segment contribution
  prior to interest expense, income
  taxes and  unallocated corporate
  expenses                                (25,251)     (387,112)   3,265,354

Identifiable segment assets                86,286     9,013,692      884,732

Capital expenditures for long lived
assets                                      1,710       169,054        2,977
</TABLE>



MOTO PHOTO, INC. AND SUBSIDIARIES
[CAPTION]
<TABLE>
                                                      1998
                                           WHOLESALE           TOTAL
<S>                                    <C>               <C>
Sales and other revenue                   $  17,088,908     $  36,674,620

Depreciation and amortization                    84,511           780,784

Operating segment contribution prior to
  interest expense, income taxes and
  unallocated corporate expenses             (1,038,767)        1,411,622

Identifiable segment assets                   4,451,862        14,626,968

Capital expenditures for long lived
assets                                           24,392         1,145,547


                                                      1997
                                             WHOLESALE           TOTAL
Sales and other revenue                   $  18,790,649     $  41,532,923

Depreciation and amortization                    94,850           636,394

Operating segment contribution
  prior to interest expense, income
  taxes and  unallocated corporate
  expenses                                     (259,016)        2,710,492

Identifiable segment assets                   3,661,687        13,378,962

Capital expenditures for long lived
assets                                           11,779           295,447


                                                      1996
                                             WHOLESALE           TOTAL
Sales and other revenue                   $  18,200,251     $  42,599,365

Depreciation and amortization                    92,969           575,787

Operating segment contribution
  prior to interest expense, income
  taxes and  unallocated corporate
  expenses                                     (588,877)        2,264,114

Identifiable segment assets                   5,092,950        15,077,660

Capital expenditures for long lived
assets                                           62,396           236,137
</TABLE>


MOTO PHOTO, INC. AND SUBSIDIARIES
[CAPTION]
<TABLE>

REVENUE                     1998                  1997                  1996
<S>                        <C>                  <C>                 <C>
Total sales and other
  revenue for
  reportable segments    $36,674,620           $41,532,923          $42,599,365
Interest income              413,087               364,420              214,614
Gain on sale of stores             -                    -                78,051
Other income                 112,000                    -               395,536

Total consolidated
 revenues                $37,199,707           $41,897,343          $43,287,566
</TABLE>



<TABLE>
                                     SEGMENT                 CONSOLIDATED
OTHER SIGNIFICANT ITEMS               TOTAL     CORPORATE        TOTAL
<S>                                   <C>         <C>             <C>

                                                   1998
Depreciation and
 amortization                        $780,784  $   234,827   $ 1,015,611
Operating segment
 contribution prior to
 interest expense,
 income taxes and
 unallocated corporate
 expenses for segment
 totals reconciled to
 income before taxes                1,411,622     (81,369)     1,330,253
Identifiable segment
 assets                             14,626,968   7,306,825    21,933,793
Capital expenditures
 for long lived assets               1,145,547     222,769     1,368,316

                                                    1997
Depreciation and
 amortization                       $  636,394 $   211,115   $   847,509
Operating segment
 contribution prior to
 interest expense,
 income taxes and
 unallocated corporate
 expenses for segment
 totals reconciled to
 income before taxes                 2,710,492   (206,957)     2,503,535
Identifiable segment                13,378,962   7,659,153    21,038,115
 assets
Capital expenditures
 for long lived assets                 295,447     182,066       477,513

                                                    1996
Depreciation and                    
 amortization                       $  575,787 $   181,886   $   757,673
Operating segment
 contribution prior to
 interest expense,
 income taxes and
 unallocated corporate              
 expenses for segment
 totals reconciled to
 income before taxes                 2,264,114   (340,241)     1,923,873
Identifiable segment                15,077,660  5,407,552     20,485,212
 assets
Capital expenditures
 for long lived assets                 236,137     54,651        290,788
</TABLE>


MOTO PHOTO, INC. AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
[CAPTION]
<TABLE>
                   BALANCE AT   CHARGED TO   CHARGED TO                 BALANCE
    YEAR ENDED      BEGINNING    COSTS AND      OTHER                  AT END OF
DECEMBER 31, 1998   OF PERIOD    EXPENSES     ACCOUNTS    DEDUCTIONS     PERIOD

<S>                <C>         <C>          <C>          <C>          <C>
Reserves and
 Allowances
 deducted from
 Accounts and
 Notes Receivable  $ 2,608,000 $   449,000  $   205,000  $770,000(1)  $2,492,000

Allowance for Cash
 Discounts              45,000                    1,000                   46,000

Allowance for
 Inventory
 Obsolescence          115,000      94,000                 59,000(2)     150,000


Total              $ 2,768,000 $   543,000  $   206,000  $829,000     $2,688,000


<FN>
(1) Uncollectible accounts written-off
(2) Disposal of Inventory
</TABLE>



MOTO PHOTO, INC. AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
[CAPTION]
<TABLE>
                   BALANCE AT   CHARGED TO                             BALANCE AT
    YEAR ENDED      BEGINNING    COSTS AND   CHARGEDRTO                  END OF
DECEMBER 31, 1997   OF PERIOD    EXPENSES     ACCOUNTS    DEDUCTIONS     PERIOD

<S>                <C>         <C>          <C>          <C>          <C>
Reserves and
 Allowances
 deducted from
 Accounts and                  
 Notes Receivable  $ 2,211,000  $ 809,000  $   226,000  $638,000(1)  $ 2,608,000
 
Allowance for Cash
 Discounts              61,000        -0-                 16,000          45,000

Allowance for
 Inventory
 Obsolescence          126,000    99,000                110,000(2)       115,000


Total              $ 2,398,000 $ 908,000  $   226,000  $764,000      $ 2,768,000


<FN>
(1) Uncollectible accounts written-off
(2) Disposal of Inventory
</TABLE>


MOTO PHOTO, INC. AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
[CAPTION]
<TABLE>
                   BALANCE AT   CHARGED TO                              BALANCE
    YEAR ENDED      BEGINNING    COSTS AND   CHARGED TO                AT END OF
DECEMBER 31, 1996   OF PERIOD    EXPENSES     ACCOUNTS    DEDUCTIONS     PERIOD

<S>                <C>         <C>          <C>          <C>          <C>
Reserves and
 Allowances
 deducted from
 Accounts and
 Notes Receivable  $1,354,000 $1,244,000   $   359,000  $746,000(1)  $2,211,000

Allowance for Cash
 Discounts             73,000    (12,000)                                61,000

Allowance for
 Inventory
 Obsolescence          70,000     93,000                  37,000(2)     126,000


Total              $1,497,000 $1,325,000   $   359,000  $783,000     $2,398,000


<FN>
(1) Uncollectible accounts written-off
(2) Disposal of Inventory
</TABLE>
                                 EXHIBIT INDEX


Copies of the following documents are filed as exhibits to this report:


NUMBER      DESCRIPTION

    3.1     Certificate of Incorporation, as amended
            (Incorporated by Reference to Exhibit 3.1 to
            Form 10-K dated March 29, 1995)

    3.2     Bylaws, as amended (Incorporated by
            Reference to Exhibit 3.2 to Form 10-K dated
            May 5, 1989)

    4.1     Certificate of Designation of Series G
            Preferred Stock (Incorporated by Reference to
            Exhibit 4.2 to Form 10-K dated March 29, 1995)

    4.2     Securities Purchase Agreement dated
            September 9, 1992 by and between Moto Photo, Inc.
            and Fuji Photo film U.S.A., Inc., with Exhibits
            (Incorporated by Reference to Exhibit 28.1 to Form 8-K
            dated September 9, 1992)

 *10.1      1992 Moto Photo Performance and Equity Incentive Plan
            and Amendment No. 1 to the Plan, as amended through
            April 11, 1995 (Incorporated by Reference to Exhibit 4.1
            to Registration Statement Number 033-59673 on Form S-8
            dated May 30, 1995)

 *10.2      Amendment No. 2 to the 1992 Moto Photo Performance
            and Equity Incentive Plan (Incorporated by Reference to
            Exhibit 10.2 to Form 10-Q dated May 14, 1998)

  10.3      Management Agreement dated April 15, 1983, between
            Foto Fair International, Inc. and National Photo Labs II, Inc.
            (Incorporated by Reference to Exhibit 10.20 to Form S-1
            Registration Statement, Registration No. 2-99676)

   10.4     Loan and Security Agreement dated as of February 19, 1997,
            between Moto Photo, Inc. and The Provident Bank (Incorporated
            by Reference to Exhibit 10.2 to Form 10-Q dated May 9, 1997)



NUMBER    DESCRIPTION

   10.5     First Amendment to Loan and Security Agreement,
            dated as of May 1, 1998, by and between Moto Photo, Inc.
            and The Provident Bank (Incorporated by Reference to
            Exhibit 10.3 to Form 10-Q dated May 14, 1998)

   10.6     Amended Supply Agreement dated as of  January 11, 1995
            between Moto Photo, Inc. and Fuji Photo Film U.S.A., Inc.
            (Incorporated by Reference to Exhibit 10.12 to Form 10-K
            dated March 29, 1995)

   10.7     Amendment No. 1 to Warrant Certificate held by Fuji Photo
            Film U.S.A., Inc.   (Incorporated by Reference to Exhibit 10.13
            to Form 10-K dated March 29, 1995)

   10.8     Project Agreement dated as of February 6, 1998 between
            Fuji Photo Film U.S.A., Inc., and Moto Photo, Inc.
            (Incorporated by Reference to Exhibit 10.7 to Form 10-K dated
            March 30, 1998)

   10.9     Master Lease Agreement dated as of February 6, 1998 between
            Fuji Photo Film U.S.A., Inc., Moto Photo, Inc., and The
            Provident Bank (Incorporated by Reference to Exhibit 10.8 to
            Form 10-K dated March 30, 1998)

   10.10    Lease dated as of August 27, 1990 between Moto Photo, Inc.
            and Sycamore Partnership (Incorporated by Reference to
            Exhibit 10.18 to Form 10-K dated March 29, 1991)

   10.11    Master License Agreement dated as of December 31, 1998
            between Moto Photo, Inc. and Canadian Industrial Services, Ltd.

  *10.12    Employment Agreement effective April 1, 1997 with Michael F. Adler
            (Incorporated by Reference to Exhibit 10.1 to Form 10-Q dated
            May 9, 1997)

  *10.13    Amendment to Employment Agreement, dated as of April 1, 1997,
            with Michael F. Adler (Incorporated by Reference to Exhibit 10.1 to
            Form 10-Q dated August 7, 1997)

  *10.14    Employment Agreement dated June 1, 1996 with David A. Mason
            (Incorporated by Reference to Exhibit 10.2 to Form 10-Q dated
            August 6, 1996)

  *10.15    Amendment to Employment Agreement, dated as of
            December 23, 1997, with David A. Mason (Incorporated by
            Reference to Exhibit 10.13 to Form 10-K dated March 30, 1998)

  *10.16    Employment Agreement dated June 1, 1996 with Frank M. Montano
            (Incorporated by Reference to Exhibit 10.1 to Form 10-Q dated
            August 6, 1996)

  *10.17    Amendment to Employment Agreement, dated as of December 23, 1997,
            with Frank M. Montano (Incorporated by Reference to Exhibit 10.15
            to Form 10-K dated March 30, 1998)

  *10.18    Employment Agreement dated as of January 1, 1999 with
            Lloyd F. Noland

   11.0     Statement Re: Computation of Per Share  Amounts (Included with the
            financial statements and supplementary data filed after the
            signature page
            of this report)

   22.0     List of subsidiaries of the Company (Incorporated by Reference to
            Exhibit 22 to Form 10-K dated March 27, 1996)

   23.0     Consents of Ernst & Young, LLP

   27.0     Financial Data Schedule