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<B><FONT SIZE=4><P ALIGN="CENTER">UNITED STATES</P>
<P ALIGN="CENTER">SECURITIES AND EXCHANGE COMMISSION</P>
<P ALIGN="CENTER">Washington, D.C.  20549</P>
</B></FONT><FONT SIZE=3><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">FORM 10-K</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">[x]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE </P>
<P ALIGN="CENTER">SECURITIES EXCHANGE ACT OF 1934</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">For the fiscal year ended:	<U>December 31, 1999</P>
</U><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">OR</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">[   ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR (15d) OF THE</P>
<P ALIGN="CENTER">	SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">For the transition period from  ______  to  ______</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Commission File No.: 	<U>0-11927</P>
</U><P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">MOTO PHOTO, INC.</P>
</FONT><FONT SIZE=2><P ALIGN="CENTER"><HR WIDTH="44%" SIZE=0></P>
</FONT><FONT SIZE=3><P ALIGN="CENTER">(Exact name of registrant as specified in its charter)</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Delaware				31-1080650</P>
</FONT><FONT SIZE=2><P ALIGN="CENTER"><HR ALIGN="LEFT" WIDTH="18%" SIZE=0><HR ALIGN="RIGHT" WIDTH="22%" SIZE=0></P>
</FONT><FONT SIZE=3><P ALIGN="CENTER"> (State of Incorporation)			 (Employer Identification No.)</P>
<P ALIGN="CENTER"></P>
<U><P ALIGN="CENTER"> </P>
</U><P ALIGN="CENTER">4444 Lake Center Dr. Dayton, OH		45426</P>
</FONT><FONT SIZE=2><P ALIGN="CENTER"><HR WIDTH="33%" SIZE=0><HR ALIGN="RIGHT" WIDTH="9%" SIZE=0></P>
</FONT><FONT SIZE=3><P ALIGN="CENTER">(Address of principal executive offices)		(Zip Code)</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">(937) 854-6686</P>
</FONT><FONT SIZE=2><P ALIGN="CENTER"><HR WIDTH="46%" SIZE=0></P>
</FONT><FONT SIZE=3><P ALIGN="CENTER">(Registrant's telephone number, including area code)</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Securities registered pursuant to Section 12(b) of the Act: 	None</P>
</FONT><FONT SIZE=2><P ALIGN="CENTER"><HR ALIGN="RIGHT" WIDTH="10%" SIZE=0></P>
</FONT><FONT SIZE=3><P ALIGN="CENTER">Securities registered pursuant to Section 12(g) of the Act:</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">Voting Common Stock, $.01 per share value</P>
</FONT><FONT SIZE=2><P></P>
<P></P>
</FONT>
<P ALIGN="CENTER">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  <U>X  </U> No  <U>	</P>
</U><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="CENTER">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. [   ]</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="CENTER">State the aggregate market value of the voting stock held by non-affiliates of the registrant:</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">$7,698,102 in Voting Common Stock </P>
<P ALIGN="CENTER">as of March 20, 2000</P>
<P ALIGN="CENTER">(last actual transaction price)</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY</P>
<P ALIGN="CENTER">PROCEEDINGS DURING THE PRECEDING FIVE YEARS:</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">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.</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">Yes  _____  No _____</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Indicate the number of shares outstanding of each of the Registrant's classes of Common Stock</P>
<P ALIGN="CENTER">as of March 20, 2000:</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">7,884,565 shares of Voting Common</P>
<P ALIGN="CENTER">0 shares of Non-Voting Common</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">DOCUMENTS INCORPORATED BY REFERENCE</P>
<P ALIGN="CENTER"></P>
<P ALIGN="CENTER">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.</P>
<FONT SIZE=2><P ALIGN="JUSTIFY"></P>
</FONT><B><FONT SIZE=5><P ALIGN="CENTER"><A NAME="WexPlaceHolder"></A>MOTO PHOTO, INC.</P>
<P ALIGN="CENTER">FORM 10-K</P>
</FONT><FONT SIZE=4><P ALIGN="CENTER">For the year ended December 31, 1999</P>
</B></FONT><FONT SIZE=2><P ALIGN="CENTER"></P>
</FONT><B><FONT SIZE=4><P ALIGN="CENTER">TABLE OF CONTENTS</P>
</B></FONT><FONT SIZE=3>
<B><U><P></B></U>PART I	</FONT><A HREF="#_Toc478267846">*</A>
<FONT SIZE=3>
<P>ITEM  1.	BUSINESS	</FONT><A HREF="#_Toc478267847">*</A></P>
<FONT SIZE=3><DIR>
<DIR>
<DIR>

<P>General	</FONT><A HREF="#_Toc478267848">*</A></P>
<FONT SIZE=3>
<P>Operating Segments	</FONT><A HREF="#_Toc478267849">*</A></P>
<I><FONT SIZE=3><DIR>

</I><P>Development	</FONT><A HREF="#_Toc478267850">*</A></P>
<FONT SIZE=3><P>Competition	</FONT><A HREF="#_Toc478267851">*</A></P>
<FONT SIZE=3><P>Trade Names, Service Marks and Logo Types	</FONT><A HREF="#_Toc478267852">*</A></P>
<FONT SIZE=3><P>Regulation	</FONT><A HREF="#_Toc478267853">*</A></P>
<FONT SIZE=3><P>Royalty and Advertising	</FONT><A HREF="#_Toc478267854">*</A></P>
<FONT SIZE=3><P>Wholesale	</FONT><A HREF="#_Toc478267855">*</A></P>
<FONT SIZE=3><P>Company Stores	</FONT><A HREF="#_Toc478267856">*</A></P>
<FONT SIZE=3></DIR>

<P>The Business as a Whole	</FONT><A HREF="#_Toc478267857">*</A></P>
<I><FONT SIZE=3><DIR>

</I><P>Seasonality	</FONT><A HREF="#_Toc478267858">*</A></P>
<FONT SIZE=3><P>Employees	</FONT><A HREF="#_Toc478267859">*</A></P>
<FONT SIZE=3><P>Supply Contract	</FONT><A HREF="#_Toc478267860">*</A></P>
<FONT SIZE=3><P>Competition	</FONT><A HREF="#_Toc478267861">*</A></P>
<FONT SIZE=3><P>Expansion Plans	</FONT><A HREF="#_Toc478267862">*</A></P>
<FONT SIZE=3></DIR>

<P>Development of the System in 1999	</FONT><A HREF="#_Toc478267863">*</A></P>
<FONT SIZE=3>
<P>Summary of Store Development	</FONT><A HREF="#_Toc478267864">*</A></P>
<FONT SIZE=3></DIR>
</DIR>
</DIR>

<P>ITEM  2.	PROPERTIES	</FONT><A HREF="#_Toc478267865">*</A></P>
<FONT SIZE=3>
<P>ITEM  3.	LEGAL PROCEEDINGS	</FONT><A HREF="#_Toc478267866">*</A></P>
<FONT SIZE=3>
<P>ITEM  4. 	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	</FONT><A HREF="#_Toc478267867">*</A></P>
<FONT SIZE=3>
<P>PART II	</FONT><A HREF="#_Toc478267868">*</A></P>
<FONT SIZE=3><DIR>
<DIR>
<DIR>

<P>ITEM  5.	MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED <BR>
STOCKHOLDER MATTERS	</FONT><A HREF="#_Toc478267869">*</A></P>
<FONT SIZE=3></DIR>
</DIR>
</DIR>

<P>ITEM  6.	SELECTED FINANCIAL DATA	</FONT><A HREF="#_Toc478267870">*</A></P>
<FONT SIZE=3><DIR>
<DIR>
<DIR>

<P>ITEM  7.	Management's Discussion and Analysis of Financial Condition <BR>
and Results of Operations	</FONT><A HREF="#_Toc478267871">*</A></P>
<FONT SIZE=3>
<P>General	</FONT><A HREF="#_Toc478267872">*</A></P>
<FONT SIZE=3><P>market risk	</FONT><A HREF="#_Toc478267873">*</A></P>
<FONT SIZE=3><P>Results of Operations 1999 vs. 1998	</FONT><A HREF="#_Toc478267873">*</A></P>
<FONT SIZE=3><P>Results of Operations 1998 vs. 1997	</FONT><A HREF="#_Toc478267874">*</A></P>
<FONT SIZE=3><P>Liquidity and Capital Resources	</FONT><A HREF="#_Toc478267875">*</A></P>
<FONT SIZE=3><P>year 2000	</FONT><A HREF="#_Toc478267876">*</A></P>
<FONT SIZE=3><P>Forward Looking Statements	</FONT><A HREF="#_Toc478267876">*</A></P>
<FONT SIZE=3>
<P>ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET <BR>
RISK.	</FONT><A HREF="#_Toc478267877">*</A></P>
<FONT SIZE=3></DIR>
</DIR>
</DIR>

<P>ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	</FONT><A HREF="#_Toc478267878">*</A></P>
<FONT SIZE=3>
<P>ITEM 9.	DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	</FONT><A HREF="#_Toc478267879">*</A></P>
<FONT SIZE=3>
<P>PART III	</FONT><A HREF="#_Toc478267880">*</A></P>
<FONT SIZE=3>
<P>ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	</FONT><A HREF="#_Toc478267881">*</A></P>
<FONT SIZE=3>
<P>ITEM 11.	EXECUTIVE COMPENSATION	</FONT><A HREF="#_Toc478267882">*</A></P>
<FONT SIZE=3><DIR>
<DIR>
<DIR>

<P>ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.	</FONT><A HREF="#_Toc478267883">*</A></P>
<FONT SIZE=3></DIR>
</DIR>
</DIR>

<P>ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.	</FONT><A HREF="#_Toc478267884">*</A></P>
<FONT SIZE=3><DIR>
<DIR>
<DIR>

<P>Items 10-13 are incorporated by reference from the definitive proxy <BR>
statement for the Company's 2000 annual meeting of shareholders to <BR>
be filed pursuant to Regulation 14A.	</FONT><A HREF="#_Toc478267885">*</A></P>
<FONT SIZE=3></DIR>
</DIR>
</DIR>

<P>PART IV.	</FONT><A HREF="#_Toc478267886">*</A></P>
<FONT SIZE=3><DIR>
<DIR>
<DIR>

<P>ITEM 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON <BR>
FORM 8-K	</FONT><A HREF="#_Toc478267887">*</A></P>
<FONT SIZE=3></DIR>
</DIR>
</DIR>

<P>	SIGNATURES	</FONT><A HREF="#_Toc478267888">*</A></P>
<FONT SIZE=2></P>
</FONT><B><FONT SIZE=3><P ALIGN="CENTER"><A NAME="_Toc442589388"><A NAME="_Toc443124369"><A NAME="_Toc445892849">MOTO PHOTO, INC.</P>
</B><P ALIGN="CENTER"></P>
<B><P ALIGN="CENTER">FORM 10-K</P>
</B><P ALIGN="CENTER"></P>
</FONT><B><P><A NAME="_Toc478267479"><A NAME="_Toc478267778"><A NAME="_Toc478267846">PART I</A></A></A></P>
</B><U><FONT SIZE=3>
<P> </P>
</U></FONT><B><P><A NAME="_Toc478267480"><A NAME="_Toc478267779"><A NAME="_Toc478267847">ITEM  1.  BUSINESS</A></A></A></P>
</B><FONT SIZE=3>
</FONT><B><P><A NAME="_Toc478267481"><A NAME="_Toc478267780"><A NAME="_Toc478267848">General</A></A></A></P>
</B><FONT SIZE=3>
<P ALIGN="JUSTIFY">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."</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company was incorporated as an Oklahoma corporation on July 29, 1981 and was reincorporated under Delaware law in 1983.  </P>
<P ALIGN="JUSTIFY"> </P>
</FONT><B><P><A NAME="_Toc478267482"><A NAME="_Toc478267781"><A NAME="_Toc478267849">Operating Segments</A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 owne
<P ALIGN="JUSTIFY"> </P><DIR>

<B><P><A NAME="_Toc478267483"><A NAME="_Toc478267782"><A NAME="_Toc478267850">Development</A></A></A></P>
</B><P ALIGN="JUSTIFY"></P></DIR>

<P ALIGN="JUSTIFY">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 righ
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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, 1999, 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 for providing assistance in
openin
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">During 1999, the Company continued to use its new store design in all new stores opening in the system.  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 also be used to retrofit existing stores over time.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In addition, the Company continued to use and refine its new real estate model, developed with a national real estate modeling and consulting firm, for selecting store sites and evaluating their potential for both sales and risk of
failure.  The Company believes that this real estate model, the MotoWizard<FONT FACE="Symbol">Ô</FONT>
 program, will help choose better store sites and is also useful as a sales tool in attracting new franchisees.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">During fourth quarter 1999, the Company began to offer two new programs to attract franchisees.  Under its Limited Time Offer, it has lowered its initial franchise fee from $35,000 to $15,000 for first-time franchisees and to $7,500 for
existing franchisees and agreed to contribute $4,000 to grand opening advertising expenses, provided the franchisee signs a franchise agreement by June 30, 2000 and opens its store by December 31, 2000.  The franchisee must also agree to purchase all of it
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company also began to offer the MotoPhoto QuickStart II<SUP>SM</SUP> financing program, replacing the MotoPhoto QuickStart I<SUP>SM</SUP> program which the Company first offered in 1998.  Under the MotoPhoto QuickStart II<SUP>SM</SUP>
 program, a third party lender offers financing which enables franchisees to open a MOTOPHOTO store for a much smaller initial cash investment (currently approximately $58,900) than a franchisee who used traditional financing methods would have (currently
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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

<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 has
lowered its initial franchise fee for conversion franchises to $10,000.  If the conversion franchisee's sales in the preceding twelve months were over $167,000, the Company will give the conversion franchisee a credit equal to 6% of the previous year's sale
s
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In addition to the MotoPhoto QuickStart<SUP>SM</SUP> program, 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.</P>
<P ALIGN="JUSTIFY"> </P><DIR>

<B><P><A NAME="_Toc478267484"><A NAME="_Toc478267783"><A NAME="_Toc478267851">Competition</A></A></A></P>
</B><I><P ALIGN="JUSTIFY"></P></DIR>

</I><P ALIGN="JUSTIFY">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,

ees 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.</P>
<P ALIGN="JUSTIFY"> </P><DIR>

<B><P><A NAME="_Toc478267485"><A NAME="_Toc478267784"><A NAME="_Toc478267852">Trade Names, Service Marks and Logo Types</A></A></A></P>
</B><P ALIGN="JUSTIFY"></P></DIR>

<P ALIGN="JUSTIFY">The Company owns no patents.  The Company's principal service marks "MOTO-PHOTO," "ONE HOUR MOTOPHOTO," "ONE HOUR MOTOPHOTO & PORTRAIT STUDIO," and  "CLUBMOTO" 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", "M
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 wa
<P ALIGN="JUSTIFY"> </P><DIR>

<B><P><A NAME="_Toc478267486"><A NAME="_Toc478267785"><A NAME="_Toc478267853">Regulation</A></A></A></P>
</B><P ALIGN="JUSTIFY"></P></DIR>

<P ALIGN="JUSTIFY">The Company is subject to Federal Trade Commission ("FTC") regulation and certain state laws that regulate the offer and sale of franchises.  The Company is also subject to a number of state laws that regulate substantive aspects of the
franchisor-franchisee relationship.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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.  If such legislation were enacted, it could ultimately weaken the cohesiveness of franchise systems and could affect the way the Company does business in the future.  The Company believes that
its opera
<P ALIGN="JUSTIFY"> </P><DIR>

<B><P><A NAME="_Toc478267487"><A NAME="_Toc478267786"><A NAME="_Toc478267854">Royalty and Advertising</A></A></A></P>
<U><P ALIGN="JUSTIFY"></P></DIR>

</B></U><P ALIGN="JUSTIFY">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.  I
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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.  Th
e
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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, fifteen stores are operated under older agreements that 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 circumst
a
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 sales.  In addition, franchisees are required to pay to the Company 0.5% of net retail sales for advertising development.   </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Management of the Company believes that relations with franchisees are generally satisfactory.  </P>
<P ALIGN="JUSTIFY"> </P><DIR>

<B><P><A NAME="_Toc478267488"><A NAME="_Toc478267787"><A NAME="_Toc478267855">Wholesale</A></A></A></P>
<P ALIGN="JUSTIFY"></P></DIR>

</B><P ALIGN="JUSTIFY">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,
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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.</P>
<P ALIGN="JUSTIFY"> </P><DIR>

<B><P><A NAME="_Toc478267489"><A NAME="_Toc478267788"><A NAME="_Toc478267856">Company Stores</A></A></A></P>
</B><P ALIGN="JUSTIFY"></P></DIR>

<P ALIGN="JUSTIFY">At December 31, 1999, the Company had 44 company stores in operation compared to 37 at year-end 1998.  This increase in the number of Company stores was part of its plan to open stores to fill out existing markets.  Although it plans to
continue the majority of its growth of the system through franchises, the Company plans to open approximately five additional stores during 2000.  The Company will continue to offer for sale some of its older stores that are in outlying areas.  The Company
<P ALIGN="JUSTIFY"> </P>
</FONT><B><P><A NAME="_Toc478267490"><A NAME="_Toc478267789"><A NAME="_Toc478267857">The Business as a Whole</A></A></A></P>
</B><U><FONT SIZE=3><P ALIGN="JUSTIFY"> </P><DIR>

</U><B><P><A NAME="_Toc478267491"><A NAME="_Toc478267790"><A NAME="_Toc478267858">Seasonality</A></A></A></P>
</B><P ALIGN="JUSTIFY"></P></DIR>

<P ALIGN="JUSTIFY">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.</P>
<P ALIGN="JUSTIFY"> </P><DIR>

<B><P><A NAME="_Toc478267492"><A NAME="_Toc478267791"><A NAME="_Toc478267859">Employees</A></A></A></P>
</B><P ALIGN="JUSTIFY"></P></DIR>

<P ALIGN="JUSTIFY">As of February 25, 2000, the Company had 478 employees, 225 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.</P>
<U><P ALIGN="JUSTIFY"> </P><DIR>

</U><B><P><A NAME="_Toc478267493"><A NAME="_Toc478267792"><A NAME="_Toc478267860">Supply Contract</A></A></A></P>
</B><P ALIGN="JUSTIFY"></P></DIR>

<P ALIGN="JUSTIFY">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 1992 in connection with a
series
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In December 1999, the Company exchanged its Series G Stock, all of which was held by Fuji, for an Amended Series G Preferred Stock issue.  The Amended Series G Stock extended the mandatory redemption date from January 1, 2000 to January
1, 2003.  The Amended Series G Stock is redeemable by the Company at any time in aggregate amounts of at least $1 million.  No dividends will be paid.  Scheduled payments of $800,000 in 2000 under the Series G Stock would have increased to $900,000 in 2001
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In connection with the Amended Series G Stock transactions, the supply agreement was amended to reduce the associated revolving credit agreement by $2.7 million to $4 million.  The Company executed a note to pay Fuji the $2.7 million
over three years.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Fuji may terminate the supply contract and may require the Company to redeem the Amended 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 indebtedn
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The terms of the Amended 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 Amended Series G Stock, the Company would have to make an offering of equity securities to obtain the funds to redeem the Amended Series G Stock if the Company chose not to redeem it in Common Stock.  There is no certainty
that t

<B><P><A NAME="_Toc478267494"><A NAME="_Toc478267793"><A NAME="_Toc478267861">Competition</A></A></A></P>
</B><P ALIGN="JUSTIFY"></P></DIR>

<P ALIGN="JUSTIFY">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
competito
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 p
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 other one-hour outlets 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 variet
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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.</P>
<P ALIGN="JUSTIFY"> </P><DIR>

<B><P><A NAME="_Toc478267495"><A NAME="_Toc478267794"><A NAME="_Toc478267862">Expansion Plans</A></A></A></P>
</B><P ALIGN="JUSTIFY"></P></DIR>

<P ALIGN="JUSTIFY">The Company is planning to expand its offerings of imaging services as quickly as reasonably practicable in order to assure its market position in the rapidly changing retail photo processing industry.  During 1999, the directors,
officers, and senior managers of the Company, together with outside consultants, engaged in strategic planning processes and rethinking of the Company's business concept.  As one result of this process, the Company has allocated funds and formed a
separate manag
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">The Company continues to add digital imaging to the services which may be offered by MOTOPHOTO stores.  The Company believes that its base of two million customers represents both an opportunity and advantage to it in the
rapidly-expanding world of e-commerce and digital services.  The Company is working to develop marketing strategies and services to meet those customers' digital imaging needs.  During fourth quarter 1999, new equipment expanding the range of digital
imaging capabilities
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">During 2000, the Company plans to effect system expansion through the establishment of new franchises, the conversion of profitable existing stores to MOTOPHOTO stores, and through the planned opening of Company 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.</P>
<U><P ALIGN="JUSTIFY"> </P>
</U></FONT><B><P><A NAME="_Toc478267496"><A NAME="_Toc478267795"><A NAME="_Toc478267863">Development of the System in 1999</A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">During 1999, the Company granted fourteen new franchises and sold one company store as a franchise, while twenty-two franchises were canceled or terminated, for a net decrease of eight franchises in the United States.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">During 1999, the number of stores in foreign countries declined overall.  The Company's master franchisor for Canada, Canadian Industrial Systems, Inc., granted four new franchises in Ontario, while fourteen franchises were canceled or
terminated, for a net decrease of ten international franchises. The Company also has an affiliate store program in Norway.  Affiliate stores are not franchises but independent stores that have the right to advertise themselves as affiliate stores of the Mot
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">During 1999, the Company opened or acquired thirteen 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 five new
stores in 2000.  The Company will continue to offer for sale as franchises some of its stores that are in outlying areas.</P>
</FONT><B><I><P> </P>
</I><P><A NAME="_Toc478267497"><A NAME="_Toc478267796"><A NAME="_Toc478267864">Summary of Store Development</A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Set forth below is a summary of the store development of the Company in the United States and abroad during 1998 and 1999:</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=2 WIDTH=561>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="21%" VALIGN="TOP" COLSPAN=3 HEIGHT=20>
<B><U><FONT SIZE=3><P ALIGN="CENTER">1998</B></U></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="21%" VALIGN="TOP" COLSPAN=3 HEIGHT=20>
<B><U><FONT SIZE=3><P ALIGN="CENTER">1999</B></U></FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<B><FONT SIZE=3><P ALIGN="CENTER">U.S.</B></FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<B><FONT SIZE=3><P ALIGN="CENTER">Int'l.</B></FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<B><FONT SIZE=3><P ALIGN="CENTER">Total</B></FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<B><FONT SIZE=3><P ALIGN="CENTER">U.S.</B></FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<B><FONT SIZE=3><P ALIGN="CENTER">Int'l.</B></FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<B><FONT SIZE=3><P ALIGN="CENTER">Total</B></FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Stores Open at Beginning of Year</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">356</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">77</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">433</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">333</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">94</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">427</FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><DIR>

<FONT SIZE=3><P>New Stores Opened</DIR>
</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">9</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">22(a)</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">31</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">17</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">9</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">26</FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><DIR>

<FONT SIZE=3><P>Conversions</DIR>
</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">2</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">1</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">3</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">5</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">0</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">5</FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><DIR>

<FONT SIZE=3><P>Terminations or Non-renewals</DIR>
</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">34</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">6</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">40</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">23</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">16</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">39</FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Stores Open at End of Year</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">333</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">94</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">427</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">332</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">87</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">419</FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><DIR>

<FONT SIZE=3><P>Company Stores Open at End of Year</DIR>
</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">37</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">0</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">37</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">44</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">0</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">44</FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><DIR>

<FONT SIZE=3><P>Franchised Stores Open at End of Year (b)</DIR>
</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">296</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">50</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">346</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">288</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">40</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">328</FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><DIR>

<FONT SIZE=3><P>Affiliate Stores Open at End of Year</DIR>
</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">0</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">44</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">44</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">0</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">47</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">47</FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20><P></P></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Stores Under Development at End of Year (c)</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">18</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">0</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">18</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">23</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">1</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">24</FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Affiliate Stores Under Development at End of Year</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">0</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">4</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">4</FONT></TD>
<TD WIDTH="3%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">0</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">0</FONT></TD>
<TD WIDTH="7%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">0</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<U><FONT SIZE=3><P ALIGN="JUSTIFY">																										</P>
</U><DIR>
<DIR>

<P>(a)	Includes eighteen affiliate stores added in Norway.</P>

<P>(b)	As of December 31, 1999, a total of 229 franchisees owned the 288 franchised stores in the United States.<BR>
</P>
<P>(c)	Stores under development include, at year-end 1998 and 1999 one and two stores, respectively 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. </P>
<P ALIGN="JUSTIFY"></P></DIR>
</DIR>

<P ALIGN="JUSTIFY">As indicated in the chart above, a number of franchises were terminated or failed to renew in 1998 and 1999.  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 affiliate stores during 1998.  </P>
<P ALIGN="JUSTIFY"></P>
<P> </P><DIR>

<P>Set forth below is the geographical location of the stores in operation at December 31, 1999:</P>

<P> </P></DIR>
</FONT>
<P ALIGN="CENTER"><CENTER><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=2 WIDTH=506>
<TR><TD WIDTH="19%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Arizona</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">13</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Kentucky</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">6</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Oklahoma</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=3 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">20</FONT></TD>
</TR>
<TR><TD WIDTH="19%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>California</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">25</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Maryland</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">18</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Pennsylvania</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=3 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">7</FONT></TD>
</TR>
<TR><TD WIDTH="19%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Colorado</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">15</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Maine</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">1</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Rhode Island</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=3 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">3</FONT></TD>
</TR>
<TR><TD WIDTH="19%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Connecticut</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">14</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Massachusetts</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">8</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Tennessee</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=3 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">9</FONT></TD>
</TR>
<TR><TD WIDTH="19%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Florida</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">3</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Michigan</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">7</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Texas</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=3 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">7</FONT></TD>
</TR>
<TR><TD WIDTH="19%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Georgia</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">7</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>North Carolina</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">1</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Utah</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=3 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">4</FONT></TD>
</TR>
<TR><TD WIDTH="19%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Illinois</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">27</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>New Jersey</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">49</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Virginia</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=3 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">23</FONT></TD>
</TR>
<TR><TD WIDTH="19%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Indiana</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">3</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>New York</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">18</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Wisconsin</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=3 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">4</FONT></TD>
</TR>
<TR><TD WIDTH="19%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Kansas</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">3</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Ohio</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT">26</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=3 HEIGHT=20><P></P></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=14 HEIGHT=20><P></P></TD>
</TR>
<TR><TD WIDTH="19%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="60%" VALIGN="TOP" COLSPAN=10 HEIGHT=20>
<FONT SIZE=3><P>District of Columbia     11</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=20><P></P></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=14 HEIGHT=20><P></P></TD>
</TR>
<TR><TD WIDTH="19%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="14%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Canada      40</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=3 HEIGHT=20><P></P></TD>
</TR>
<TR><TD VALIGN="TOP" COLSPAN=14 HEIGHT=20><P></P></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP" COLSPAN=4 HEIGHT=20>
<FONT SIZE=3><P ALIGN="CENTER">                 Affiliate Stores:</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2 HEIGHT=20>
<FONT SIZE=3><P>Norway     47</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
<TD WIDTH="5%" VALIGN="TOP" COLSPAN=2 HEIGHT=20><P></P></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
</FONT><B><P><A NAME="_Toc478267498"><A NAME="_Toc478267797"><A NAME="_Toc478267865">ITEM  2.  PROPERTIES</A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company's 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 $20,327 per month through June 2004 and $22,374 from July 2004 through June 2009.  There are two five-year renewal options on the lease.  These offices are leased from a partnership controlled by certain officers and/or
directors o
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Management of the Company believes these facilities are generally adequate for its current operations.  In addition, management of the Company believes it will be able to secure additional facilities as it expands its operations.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 six MOTOPHOTO stores, which have in turn been assigned to franchisees.  In addition, at December 31, 1999, the Company was the lessee or ass
i
<P ALIGN="JUSTIFY"> </P>
<B><I><P> </P>
</I></FONT><P><A NAME="_Toc478267499"><A NAME="_Toc478267798"><A NAME="_Toc478267866">ITEM  3.  LEGAL PROCEEDINGS</A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company is involved in legal proceedings that 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 that would have a material adverse effect on the consolidated financial position of the Company.  </P>
<P ALIGN="JUSTIFY"></P>
<U><P ALIGN="JUSTIFY"> </P>
</U></FONT><B><P><A NAME="_Toc478267500"><A NAME="_Toc478267799"><A NAME="_Toc478267867">ITEM  4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS</A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">No matters were submitted by the Company to a vote of its security holders during the quarter ended December 31, 1999.</P>
<B><P ALIGN="JUSTIFY"> </P>
</FONT><P><A NAME="_Toc478267501"><A NAME="_Toc478267800"><A NAME="_Toc478267868">PART II</A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"> </P>
</FONT><B><P><A NAME="_Toc478267502"><A NAME="_Toc478267801"><A NAME="_Toc478267869">ITEM  5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS</A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The only shares of common stock that the Company has issued are Voting Common.  At March 1, 2000, there were approximately 799 record holders and approximately 1,291 beneficial holders of the Company's Voting Common.  The Company's
Voting Common trades on The NASDAQ Small-Cap Market<SUP>SM</SUP> under the symbol "MOTO."</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 Market<SUP>SM</SUP>.  The stock prices shown do not
include mark-ups, markdowns, and commissions.</P>

<P> </P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=2 WIDTH=290>
<TR><TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="42%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="33%" VALIGN="TOP" COLSPAN=3 HEIGHT=17>
<B><FONT SIZE=3><P ALIGN="CENTER">Voting Common Price</B></FONT></TD>
</TR>
<TR><TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="42%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" COLSPAN=2 HEIGHT=17>
<B><U><FONT SIZE=3><P ALIGN="RIGHT">High</B></U></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=17>
<B><U><FONT SIZE=3><P ALIGN="RIGHT">Low</B></U></FONT></TD>
</TR>
<TR><TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="42%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" COLSPAN=2 HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
</TR>
<TR><TD WIDTH="17%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>1998:</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" COLSPAN=2 HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
</TR>
<TR><TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="42%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>First Quarter</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" COLSPAN=2 HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"> $ 2.81 </FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"> $ 2.25 </FONT></TD>
</TR>
<TR><TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="42%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>Second Quarter</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" COLSPAN=2 HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"> 2.63 </FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"> 1.50 </FONT></TD>
</TR>
<TR><TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="42%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>Third Quarter</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" COLSPAN=2 HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"> 2.00 </FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"> 1.31 </FONT></TD>
</TR>
<TR><TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="42%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>Fourth Quarter</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" COLSPAN=2 HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"> 1.88 </FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"> 1.00 </FONT></TD>
</TR>
<TR><TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="42%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" COLSPAN=2 HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
</TR>
<TR><TD WIDTH="17%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>1999:</FONT></TD>
<TD WIDTH="42%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" COLSPAN=2 HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
</TR>
<TR><TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="42%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>First Quarter</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" COLSPAN=2 HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"> $ 1.63 </FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"> $ 1.00 </FONT></TD>
</TR>
<TR><TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="42%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>Second Quarter</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" COLSPAN=2 HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">    1.25 </FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">0.94 </FONT></TD>
</TR>
<TR><TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="42%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>Third Quarter</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" COLSPAN=2 HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">    2.25 </FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"> 0.94 </FONT></TD>
</TR>
<TR><TD WIDTH="17%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="42%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>Fourth Quarter</FONT></TD>
<TD WIDTH="8%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" COLSPAN=2 HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">    1.50 </FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"> 0.47 </FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 pay debt.  The
Company may not pay any dividends on common stock so long as any Amended Series G Stock is outstanding. Should the Amended Series G Stock be redeemed, any payment of cash dividends on common stock in the future will depend upon the amount of funds legally
avai
<P ALIGN="JUSTIFY"> </P>
</FONT><B><P><A NAME="_Toc478267503"><A NAME="_Toc478267802"><A NAME="_Toc478267870">ITEM  6.  SELECTED FINANCIAL DATA</A></A></A></P>
</B><U><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
</U><P ALIGN="JUSTIFY">The selected financial data of the Company is set forth below</P>
</FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=2 WIDTH=640>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="71%" VALIGN="TOP" COLSPAN=5>
<FONT SIZE=2><P ALIGN="CENTER">Year Ended December 31</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">1999</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">1998</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">1997</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">1996</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="CENTER">1995</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=2><P>Revenue</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$  36,844,251</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$  37,436,873</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$  41,897,343</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$  43,287,566</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$   42,217,722</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=2><P>Net Income (Loss)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    1,653,543</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    1,690,253</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    1,703,535</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    1,073,873</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$   (5,673,647)</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=2><P>Net Income (Loss) Applicable</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=2><P>to Common Shares</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    1,388,432</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    1,415,691</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    1,420,707</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$       784,583</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$   (5,307,782)</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=2><P>Net Income (Loss) Per Common Share - basic</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT">$               .18</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT">$               .18</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT">$               .18</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT">$               .10</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT">$              (.69)</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=2><P>Share - diluted</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$               .12</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$               .18</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$               .18</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$               .10</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$              (.69)</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=2><P>Working Capital (Deficit)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    4,349,506</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    3,482,451</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    3,231,884</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$      (250,611)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$   (1,551,817)</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=2><P>Stockholders' Equity </FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    5,756,792</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    4,920,906</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    3,771,156</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    2,538,198</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$     1,908,325</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=2><P>Long-Term Obligations</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    10,037,325</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    9,064,001</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    9,783,805</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$    8,207,762</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$     7,895,652</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=2><P>Total Assets</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$  23,916,814</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$  21,933,793</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$  21,038,115</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$  20,485,212</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">$   21,324,474</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=2><P>Common Shares Outstanding (1)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">      7,814,063</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">      7,816,165</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">      7,793,905</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">      7,785,973</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">       7,687,249</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=2><P>Number of Stores Open</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">                419</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">                427</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">                 433</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">                 444</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">                 447</FONT></TD>
</TR>
</TABLE>

<FONT SIZE=3>
</FONT><FONT SIZE=2><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">(1) Weighted-Average Common Shares Outstanding - Basic</P>
<P ALIGN="JUSTIFY">The Company has never paid a cash dividend on its common shares.</P>
</FONT><FONT SIZE=3>
<P> </P>
</FONT><B><P> </P>
<P><A NAME="_Toc478267504"><A NAME="_Toc478267803"><A NAME="_Toc478267871"></A></A></A>ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS</A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
</FONT><B><P><A NAME="_Toc442589389"><A NAME="_Toc443124370"><A NAME="_Toc445892850"><A NAME="_Toc478267505"><A NAME="_Toc478267804"><A NAME="_Toc478267872">General</A></A></A></A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Through the granting of franchises, conversion of independent stores, and acquisitions, Moto Photo, Inc. and its subsidiaries ("the Company") have developed a system of 419 operational stores, including 47 affiliate stores in Norway, at
December 31, 1999 compared to 427 operational stores, including 44 affiliate stores, at December 31, 1998.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Systemwide sales, which include sales by franchisees, were approximately $140,000,000 in 1999 compared to $143,000,000 in 1998.  The Company goal is to expand its basic store concept to increase the average sale per store from
approximately $400,000 per year to over $600,000 by 2005.  To facilitate this concept expansion, the Company has established a separate management team that is responsible for identifying, testing, and presenting implementation plans for new services,
products and i
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">To fund this initiative, the Company has re-examined programs and functions and has eliminated or is eliminating those that have been determined to be marginal or modest contributors.  However, contributions from these changes will
likely not be sufficient to fully fund these initiatives and accordingly, there is a likelihood of lower profit in the next two years.  The Company is budgeting $500,000 per year for the next two years for these expansion efforts.  </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Furthermore, to facilitate growth, management is examining "new economy" opportunities.  The term "new economy" is used to categorize the rapid expansion of the Internet and its implication for businesses and the relatively high market
capitalization achieved by "dot.com" companies.  Management believes that the transformation to the new economy will be shaped by emerging technologies and the Internet.  To enhance shareholder value, the Company is examining ways to participate in this gro
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company believes that successful implementation of the above strategies will make its franchise investment opportunity more attractive to prospects and will make its Company stores more profitable.  This will lead to system growth
through granting of new franchises, conversion of independent stores to franchise stores, and opening and or acquiring new Company stores.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company's experience suggests the more system stores in a local market, the better individual stores in that market perform.  Therefore, growth in existing markets and opening new markets with multiple stores are important for the
Company's long-range growth.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">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.
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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. </P>
<P ALIGN="JUSTIFY"> </P>
</FONT><B><P>Market Risk</P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company has market risk exposure to interest rates.  At December 31, 1999, the Company has interest bearing debt obligations that are subject to market risk exposure relating to changes in interest rates.  At December 31, 1999,
$4,227,981 of outstanding debt is at fixed rates with a weighted-average interest rate of 8.8% and $3,472,088 is at variable rates with a weighted-average rate of 9.4%.  The estimated fair value of the Company's debt at December 31, 1999 is equal to its
carryin
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The aggregate annual maturities of the Company's variable interest debt obligations for the five years subsequent to December 31, 1999 are as follows:  $905,053, $961,064, $586,064, $586,064 and $433,843.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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.</P>
<P ALIGN="JUSTIFY"> </P>
</FONT><B><P ALIGN="JUSTIFY"><A NAME="_Toc478267506"><A NAME="_Toc478267805"><A NAME="_Toc478267873">Results of Operations 1999 vs. 1998</A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In 1999 the Company recorded net income of $1,653,543, or $.18 per common share basic and $.12 per common share diluted.  This compared to net income of $1,690,253, or $.18 per common share basic and $.18 per common share diluted in
1998.  </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Development segment revenue decreased $135,000, or 24.2% in 1999 compared to 1998, primarily due to $100,000 of revenue in 1998 from the sale of development rights in Canada.  The decreased revenue led to a decrease of $66,000 in
operating segment contribution.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">During 1999 the Company modified its MotoPhoto QuickStart<SUP>SM</SUP> financing program and introduced the QuickStart II<SUP>SM</SUP> financing program.  Along with this new financing program, the Company restructured its franchise
offering and has a lower cost franchise fee program for stores that open by December 31, 2000.  The Company believes that these modifications are making its franchise business opportunity more attractive to potential prospects and will lead to an increase
in t
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Company store revenue declined $150,000, or 1% in 1999 compared to 1998.  One Company store was sold to a franchisee in 1999 and three others were closed.  Additionally, the Company opened seven new Company stores during the year and
acquired six stores including two from a franchisee.  However, these openings and acquisitions occurred over the last six months of 1999 and, hence, only contributed low start-up level revenue for a partial year.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The change in mix in stores along with a 1.7% comparable store sales decrease accounted for the 1% decrease in revenue.  Operating segment contribution declined $430,000 as a result of the opening of the new stores, which were
responsible for $309,000 of the decline with increased allocations of overhead expenses primarily accountable for the balance.  The Company plans to open approximately five Company stores in 2000.  Company store revenue as a result of the openings in 1999
and 2000 s
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Royalty and advertising revenue decreased $186,000, or, 3.5% in 1999 compared to 1998 due to a decrease in eight stores during the year offset by a 1.3 % comparable store sales increase and a decrease in revenue earned from rebates on
franchisee's equipment purchases.  This decrease in revenue led to a $186,000 decrease in operating segment contribution.  The Company anticipates modest growth in royalty and advertising revenue as a result of increases in comparable franchise store sales
a
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Wholesale revenue increased $146,000, or 0.8% in 1999 compared to 1998.  The increases in revenue are due to a reversal of the sales declines the Company suffered during the first half of 1998 due to uncompetitive pricing on certain
products, primarily photographic paper and film, offset by lost revenue of $426,000 contributed in 1998 by telemarketing which was closed in 1998.  The increased revenue, lower costs of certain products for resale, the absence of the telemarketing
operation co
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In 1999, the Company disposed of certain fixed assets from its stores at a loss aggregating $99,000 compared to a $137,000 loss in 1998 from the same activity.  Also, in 1998 the Company closed its telemarketing operation creating a
loss on disposal of furniture and fixtures, and leasehold write-offs totaling $75,000.  The Company disposes of various fixed assets in the course of its business and will likely continue to do so in 2000 and future years.  It is not possible to predict
the ti
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Selling general and administrative expenses decreased by $796,000, or 12% in 1999 compared to 1998 primarily as a result of $840,000 reduced expenses from closing the telemarketing operation.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Depreciation and amortization expenses increased $254,000, or 25% for 1999 as compared to 1998.  Additions to property and equipment in Company stores led to increased depreciation of $267,000.  Depreciation in the wholesale segment
decreased $75,000 due to the absence of telemarketing.  In 2000, depreciation and amortization expenses will continue to increase to approximately $1.6 million due to investments made in new company stores in late 1999 and during 2000.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Interest expense in 1999 increased $68,000 from 1998, primarily because of the Company's short-term bond transaction.  Interest income, which is primarily from notes receivable and temporary investments of cash, decreased $155,000 in
1999 compared to 1998, due to greater collections in 1998 of interest on notes classified as non-performing.  The Company anticipates interest income in 2000 to approximate the 1999 amount.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Income tax benefit in 1999 was $403,000, with an effective tax benefit rate of 32% compared to a tax benefit of $360,000 and an effective tax benefit rate of 27% in 1998.  The tax benefits are due 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 deferred tax asset recognition was available as of December 31, 1998.  Additionally, the Company
decreased
 deferred tax assets because it developed strategies which will make it more likely than not that the Company will be able to realize tax benefits from deferred tax assets related to capital loss carryforwards.  The Company believes that it will show
"fully taxed" book earnings in 2000.</P>
<P ALIGN="JUSTIFY"> </P>
</FONT><B><P ALIGN="JUSTIFY"><A NAME="_Toc443124372"><A NAME="_Toc445892852"><A NAME="_Toc478267507"><A NAME="_Toc478267806"><A NAME="_Toc478267874">Results of Operations 1998 vs. 1997</A></A></A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Development segment revenue increased $78,000, or 16%, in 1998 compared to 1997, due primarily to the sale of development rights to Canada that was partially offset by 11 U.S. franchise openings in 1998 versus 14 in 1997.  Costs
associated with the introduction of the MotoPhoto QuickStart<SUP>SM</SUP> financing program more than offset the increased revenue.  </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 was 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, led to a decreased contribution from the Company store segment.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Royalty and advertising revenue 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.  </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Wholesale revenue decreased $1.5 million, or 8%, 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 fra
n
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">In 1998, the Company closed its telemarketing operation and incurred a loss on the disposal of equipment, furniture, and fixtures and wrote off unamortized leaseholds totaling $75,443.  No further losses from telemarketing are
anticipated in 1999 and subsequent years.  The Company also disposed of certain fixed assets from its stores at a loss aggregating $136,858. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Advertising expenses decreased by $33,000, or 3%, in 1998 compared to 1997, due to decreases associated with there being fewer Company stores, which more than offset the increases associated with the initiation of the MotoPhoto QuickStart
<SUP>SM </SUP>program.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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.  </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Interest expense decreased $34,000, or 8%, in 1998 compared to 1997, due to lower levels of interest bearing debt.  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 non-performing notes.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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. </P>
<P ALIGN="JUSTIFY"> </P>
</FONT><B><P ALIGN="JUSTIFY"><A NAME="_Toc443124374"><A NAME="_Toc445892854"><A NAME="_Toc478267508"><A NAME="_Toc478267807"><A NAME="_Toc478267875">Liquidity and Capital Resources</A></A></A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In 1999, the Company's operating activities provided $1.1 million more cash than in 1998 due to increased collections on accounts receivable, less cash required for inventory increases in 1999 than in 1998, and an increase in accounts
payable due to timing of expenditures offset by the transfer of $1.2 million to a note payable..</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In 1998 the Company's operating activities provided  $1.6 million more cash than in 1997.  The primary reason for the increase was a decrease in payments on accounts payable in 1998 versus unusually high payments on payables otherwise
due in 1996.  This decrease was offset by an increase in inventory generated by stockpiling certain products at year-end.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In 1999 the combined allowances on notes and accounts receivable decreased $277,000 due to the charge offs exceeding current year provisions.  Current year provisions were able to be reduced due to a more stringent credit practice.
Allowances of $362,000 were transferred from account receivable allowances to notes receivable allowances when the Company obtained notes from certain franchisees whose accounts were excessively delinquent.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">It is likely that cash provided by operations will decrease in 2000 due to lower net income and less cash generated from decreases in accounts receivable.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In 1998 the combined allowances on current notes receivable and long-term notes receivable increased $382,000 as a result of the transfer of $432,000 from accounts receivable allowances to notes receivable allowances when the Company
obtained notes from certain franchisees whose accounts were excessively delinquent.  This also accounts for a corresponding decrease in the allowance from accounts receivable.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In 1999, net cash utilized in investing activities was $350,000 more than in 1998.  Purchases of property and equipment plus acquisitions increased by $1,000,000 in 1999 as compared to 1998, primarily as a result of opening seven
Company stores, acquiring six stores and continuing to replace equipment and expand services in its older Company stores.  In 2000, the Company plans to open approximately five stores and to reduce the level of its equipment replacement and service
expansion in e
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In 1998 net cash utilized by investing activities was $905,000 as compared to net cash provided by investing activities of $439,000 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.   </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In 1999 the Company borrowed $1,680,000 for capital expenditures, made principal payments of $1,543,000, dividend payments of $700,000, and purchased common shares for treasury stock of $179,000, accounting for the $741,000 net cash
utilized in financing activities.  The Company has no cash dividend obligations in 2000.  It will probably reduce bank borrowing in 2000 but will finance its new Company stores by capitalized leases.  The Company is not able to predict whether and when
additio
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In 1998 the Company borrowed $1.25 million for capital expenditures and made principal payments of $1.9 million that, along with dividend payments, generated a $1.2 million use of cash from financing activities. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company's material capital commitments consist primarily of long-term obligations (See Notes E and F).  Funds for repaying these commitments are anticipated to be generated primarily from operations and from working capital in 2000
and beyond.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company has available a $1.5 million line of credit, none of which was borrowed as of December 31, 1999.  This line expires April 30, 2001.  The Company believes this is adequate to finance its seasonal working capital needs.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">At December 31, 1999, the Company had working capital of $4.35 million.  The Company has often operated with a working capital deficit and believes 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.  The
working capital in 2000 due to the factors discussed above.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">On December 31, 1999, the Company had income tax loss carryforwards, tax credits and deductible temporary differences with a tax benefit of approximately $2.1 million.  The tax benefit of these carryforwards has a $915,000 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.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company has $10,000,000 of Amended Series G Stock outstanding which is due in 2003  (See Note G and "Item 1.  Business - Supply Contract and Amended Series G Preferred Stock" on page 7).  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 the Amended Series G Stock will be retired.  </P>
<P ALIGN="JUSTIFY"> </P>
</FONT><B><P>Year 2000<BR>
</P>
</B><FONT SIZE=3><P>The Company has completed the changes required to ensure that all software, hardware, operating equipment and third-party service providers will function properly with respect to dates in the Year 2000 and thereafter.  These changes
did not require any material incremental costs.  As of the date of this report, the Company's ability to provide services has not been adversely affected by Year 2000 issues.  The Company continues to monitor its systems and providers.</P>
</FONT><B><P ALIGN="JUSTIFY"><A NAME="_Toc478267509"><A NAME="_Toc478267808"><A NAME="_Toc478267876">Forward Looking Statements</A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 expe
<P> </P>
</FONT><B><P><A NAME="_Toc443124375"><A NAME="_Toc445892855"><A NAME="_Toc478267510"><A NAME="_Toc478267809"><A NAME="_Toc478267877">ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.</A></A></A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Quantitative and qualitative disclosures about market risk are included in management's discussion and analysis of financial conditions and result of operations.</P>
<B><I><P> </P>
</I></FONT><P><A NAME="_Toc443124376"><A NAME="_Toc445892856"><A NAME="_Toc478267511"><A NAME="_Toc478267810"><A NAME="_Toc478267878">ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA</A></A></A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The financial statements and supplementary data of the Company are included in this report after the signature page.</P>
<P ALIGN="JUSTIFY"> </P>
</FONT><B><P><A NAME="_Toc443124377"><A NAME="_Toc445892857"><A NAME="_Toc478267512"><A NAME="_Toc478267811"><A NAME="_Toc478267879">ITEM 9.	DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE</A></A></A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">None.</P>
<P ALIGN="JUSTIFY"> </P>
</FONT><B><P><A NAME="_Toc442597752"><A NAME="_Toc442672094"><A NAME="_Toc443124378"><A NAME="_Toc445892858"><A NAME="_Toc478267513"><A NAME="_Toc478267812"><A NAME="_Toc478267880">PART III</A></A></A></A></A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"> </P>
</FONT><B><P><A NAME="_Toc443124379"><A NAME="_Toc445892859"><A NAME="_Toc478267514"><A NAME="_Toc478267813"><A NAME="_Toc478267881">ITEM 10.</B>	<B>DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT</A></A></A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"> </P>
</FONT><B><P><A NAME="_Toc443124380"><A NAME="_Toc445892860"><A NAME="_Toc478267515"><A NAME="_Toc478267814"><A NAME="_Toc478267882">ITEM 11.	EXECUTIVE COMPENSATION</A></A></A></A></A></P>
</B><FONT SIZE=3><P> </P><DIR>
<DIR>
<DIR>

</FONT><B><P><A NAME="_Toc443124381"><A NAME="_Toc445892861"><A NAME="_Toc478267516"><A NAME="_Toc478267815"><A NAME="_Toc478267883">ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT</A></A>.</A></A></A></P></DIR>
</DIR>
</DIR>

</B><FONT SIZE=3><P><A NAME="_Toc443124382"></P>
</FONT><B><P><A NAME="_Toc445892862"><A NAME="_Toc478267517"><A NAME="_Toc478267816"><A NAME="_Toc478267884">ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</A></A>.</A></A></A></P>
</B><U><FONT SIZE=3><P ALIGN="JUSTIFY"> </P>
</U><P><A NAME="_Toc442672099"><A NAME="_Toc443124383"><A NAME="_Toc445892863"><A NAME="_Toc446056563"><A NAME="_Toc446056645"><A NAME="_Toc446056736"><A NAME="_Toc446061650"><A NAME="_Toc478267518"><A NAME="_Toc478267817"><A NAME="_Toc478267885">Items
10-13 are incorporated by reference from the definitive proxy statement for the Company's 2000 annual meeting of shareholders to be filed pursuant to Regulation 14A.</A></A></A></A></A></A></A></A></A></A></P>
<B><P ALIGN="JUSTIFY"> </P>
<P><A NAME="_Toc442597757"><A NAME="_Toc442672100"><A NAME="_Toc443124384"><A NAME="_Toc445892864"></P>
</FONT><P><A NAME="_Toc478267519"><A NAME="_Toc478267818"><A NAME="_Toc478267886">PART IV</A></A></A></A>.</A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"> </P><DIR>
<DIR>
<DIR>

</FONT><B><P><A NAME="_Toc443124385"><A NAME="_Toc445892865"><A NAME="_Toc478267520"><A NAME="_Toc478267819"><A NAME="_Toc478267887">ITEM 14.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON <BR>
FORM 8-K</A></A></A></A></A></P>
</B><FONT SIZE=3><P ALIGN="JUSTIFY"></P></DIR>
</DIR>
</DIR>

<OL TYPE="a">

<OL TYPE="a">

<LI>The following documents are filed as part of this report:<BR>
</LI></OL>
</OL>

<OL>
<DIR>
<DIR>

<OL>

<LI>Financial Statements:  See Financial Statements and Schedules immediately following signature page of this report.</LI>

<LI>Exhibits:  See Exhibit Index immediately preceding Exhibits</LI></OL>
</DIR>
</DIR>
</OL>


<OL TYPE="a">

<OL TYPE="a">

<U><LI>Reports on Form 8-K</U>.  The Company filed no report on Form 8-K during the<BR>
quarter ended December 31, 1999. </LI></OL>
</OL>

<B><P> </P>
<P><A NAME="_Toc443124386"><A NAME="_Toc445892866"><A NAME="_Toc478267521"><A NAME="_Toc478267820"><A NAME="_Toc478267888">SIGNATURES</A></A></A></A></A></P>
</B>
<P>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.</P>
<B><U><DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>

</B></U><P>MOTO PHOTO, INC.</P>

<P> </P>
<P> </P>
<P>By<U>   /s/ David A. Mason		</P>
</U><P>     David A. Mason</P>
<P>     Executive Vice President     </P>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>

<P>Date:  March 27, 2000</P>

<P>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.</P>

<P> </P>
<P> </P>
<U><P>/s/ Michael F. Adler		</U>							March 27, 2000</P>
<P>Michael F. Adler				Chairman of the Board,</P>
<P>						Chief Executive</P>
<P>						Officer, and Director</P>
<P>						(Principal Executive </P>
<P>						 Officer)</P>
<U>
<P> </P>
<P> </P>
<P>/s/ David A. Mason		</U>							March 27, 2000</P>
<P>David A. Mason				Executive Vice President,</P>
<P>						Treasurer, Assistant </P>
<P>						Secretary, and Director</P>
<P>						(Principal Financial</P>
<P>						 Officer)</P>

<P> </P>
<P> </P>
<U><P>/s/ Frank M. Montaño		</U>						March 27, 2000</P>
<P>Frank M. Montaño				President and Chief Operating</P>
<P>						Officer</P>

<P> </P>
<P> </P>
<P> </P>
<U><P>/s/ Frank W. Benson		</U>						March 27, 2000</P>
<P>Frank W. Benson				Director</P>

<P> </P>
<P> </P>
<U><P>/s/ D. Lee Carpenter		</U>							March 27, 2000</P>
<P>D. Lee Carpenter				Director</P>
<U>
<P> </P>
<P> </P>
<P>/s/ Leslie Charm			</U>						March 27, 2000</P>
<P>Leslie Charm				Director</P>

<P> </P>
<P> </P>
<U><P>/s/ Dexter B. Dawes		</U>							March 27, 2000</P>
<P>Dexter B. Dawes				Director</P>

<P> </P>
<P> </P>
<U><P>/s/ Harry D. Loyle			</U>						March 27, 2000</P>
<P>Harry D. Loyle 				Director</P>

<P> </P>
<P> </P>
<U><P>/s/ James F. Robeson		</U>	Director				March 27, 2000</P>
<P>James F. Robeson</P>

<P> </P>
<U><P>/s/ Alfred E. Lefeld		</U>							March 27, 2000</P>
<P>Alfred E. Lefeld				Vice President and Controller </P>
<P>						(Principal Accounting Officer)</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </P>
<B><P ALIGN="CENTER">Report of Independent Auditors</P>
</B>
<P> </P>
<P>The Board of Directors and Stockholders</P>
<P>Moto Photo, Inc. </P>

<P ALIGN="JUSTIFY">We have audited the accompanying consolidated balance sheets of Moto Photo, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1999.  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
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">We conducted our audits in accordance with auditing standards generally accepted in the United States.  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 ma
valuating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.  Also, in our opinion, the related financial
statement s

<P> </P>
<U><P ALIGN="JUSTIFY">/s/ Ernst & Young LLP</P><DIR>

</U><P ALIGN="JUSTIFY">Ernst & Young LLP</P>
</DIR>

<P>Dayton, Ohio</P>
<P>February 11, 2000</P>

<P> </P>
<P> </P>
</FONT><B><P>Moto Photo, Inc. and Subsidiaries</P>

<P>Consolidated Balance Sheets</P>
</B><FONT SIZE=2>
<P></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=3 WIDTH=634>
<TR><TD WIDTH="57%" VALIGN="TOP"> </TD>
<TD WIDTH="43%" VALIGN="TOP" COLSPAN=3>
<B><FONT SIZE=3><P ALIGN="CENTER">December 31</B></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<B><FONT SIZE=3><P>Assets</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=3><P>Current Assets:</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=3><P>Cash</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $          3,953,375 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $           2,918,396 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Accounts receivable, less allowances of $636,000 in 1999 and $1,138,000 in 1998</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> 4,015,690 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> 4,188,807 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Notes receivable, less allowances of $89,000 in 1999 in $172,000 in 1998</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> 281,669 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> 437,669 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=3><P>Inventory</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 2,381,148 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 2,457,950 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=3><P>Income taxes receivable</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 390,000 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> -   </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=3><P>Deferred tax assets</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,063,000 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,213,000 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=3><P>Prepaid expenses</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 276,777 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 116,081 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=3><P>Total current assets</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 12,361,659 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 11,331,903 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=3><P>Property and equipment, net</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 5,315,573 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 3,712,064 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<B><FONT SIZE=3><P>Other assets:</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Notes receivable, less allowances of $1,536,000 in 1999 and $1,228,000 in 1998</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,393,440 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,897,755 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=3><P>Cost of franchises and contract acquired</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 120,293 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 155,688 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=3><P>Goodwill, net</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 3,635,596 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 3,728,816 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=3><P>Deferred tax assets</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 130,000 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 57,000 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=3><P>Other assets </FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 960,253 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,050,567 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=3><P>Total assets</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $        23,916,814 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $         21,933,793 </FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP"> </TD>
</TR>
</TABLE>

<FONT SIZE=2>
<P> </P></P>
</FONT><I><P>See accompanying notes.</P>
</I><FONT SIZE=3>
</FONT><B><P>Moto Photo, Inc. and Subsidiaries</P>
</B>
<B><P>Consolidated Balance Sheets, continued</P>
</B>
<FONT SIZE=2><P></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=3 WIDTH=615>
<TR><TD WIDTH="58%" VALIGN="TOP"> </TD>
<TD WIDTH="42%" VALIGN="TOP" COLSPAN=3>
<B><FONT SIZE=3><P ALIGN="CENTER">December 31</B></FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<B><FONT SIZE=3><P>Liabilities and stockholders' equity</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<FONT SIZE=3><P>Current liabilities:</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Accounts payable</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $3,725,527 </FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $4,251,043 </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Accrued payroll and benefits</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 736,771 </FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 560,901 </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Accrued expenses</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">903,125</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,192,968</FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Current portion of long-term obligations</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 2,403,000 </FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,534,000 </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Other</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 243,730 </FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 310,540 </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<FONT SIZE=3><P>Total current liabilities</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 8,012,153 </FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 7,849,452 </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<FONT SIZE=3><P>Long-term debt</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 9,498,069 </FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 8,775,360 </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<FONT SIZE=3><P>Capitalized leases</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 539,256 </FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 288,641 </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<FONT SIZE=3><P>Deferred revenue</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 110,544 </FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 99,434 </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<FONT SIZE=3><P>Total liabilities</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 18,160,022 </FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 17,012,887 </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<B><FONT SIZE=3><P>Stockholders' equity</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<FONT SIZE=3><P>Preferred stock $.01 par value:</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Authorized shares - 2,000,000:</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Series G (Amended Series G in 1999) cumulative nonvoting preferred shares, 1,000,000 shares issued and outstanding with preferences aggregating $10,000,000</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> 10,000 </FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> 10,000 </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<FONT SIZE=3><P>Common shares $.01 par value:</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Authorized shares - 30,000,000</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Issued andoutstanding shares - 7,884,528 in 1999 and 7,833,573  in 1998</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 78,845 </FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 78,336 </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<FONT SIZE=3><P>Treasury stock (151,300 shares at par in 1999)</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> (1,513)</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> -   </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<FONT SIZE=3><P>Paid-in capital</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">6,030,523</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 6,404,734 </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<FONT SIZE=3><P>(Deficit) retained earning subsequent to June 30, 1991</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> (361,063)</FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> (1,572,164)</FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<FONT SIZE=3><P>Total stockholders' equity</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 5,756,792 </FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 4,920,906 </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP">
<FONT SIZE=3><P>Total liabilities and stockholders' equity</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $23,916,814 </FONT></TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $21,933,793 </FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="5%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
</TABLE>

<FONT SIZE=2>
<P> </P></FONT><I>See accompanying notes.</P>
</I><FONT SIZE=3><P> </P>
</FONT><B><P>Moto Photo, Inc. and Subsidiaries</P>
</B>
<B><P>Consolidated Statements of Income</P>
</B>
<FONT SIZE=2><P></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=3 WIDTH=648>
<TR><TD WIDTH="56%" VALIGN="TOP"> </TD>
<TD WIDTH="44%" VALIGN="TOP" COLSPAN=3>
<B><FONT SIZE=3><P ALIGN="CENTER">Year Ended December 31</B></FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1997</B></FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=3><P>Revenue</B></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Sales and other revenue</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $36,586,454 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $36,911,786 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $41,532,923 </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Interest income</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 258,067 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 413,087 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 364,420 </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Other income</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> -   </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 112,000 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> -   </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 36,844,521 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 37,436,873 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 41,897,343 </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<B><FONT SIZE=3><P>Expenses</B></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Cost of sales and operating expenses</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 26,725,091 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 26,645,279 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 29,820,906 </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Selling, general, and administrative expenses</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 5,794,632 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 6,590,751 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 6,841,931 </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Advertising</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,324,990 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,300,988 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,333,934 </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Depreciation and amortization</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,269,909 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,015,611 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 847,509 </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Interest expense</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 479,356 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 411,610 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 445,141 </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Impairment charge</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> -   </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 142,381 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 104,387 </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 35,593,978 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 36,106,620 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 39,393,808 </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Income before income taxes</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,250,543 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,330,253 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 2,503,535 </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Income tax benefit (expense):</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Current</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 326,000 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 172,000 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> (731,000)</FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Deferred</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 77,000 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 188,000 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> -   </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Charge in lieu of income taxes</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> -   </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> -   </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> (69,000)</FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 403,000 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 360,000 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> (800,000)</FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Net income</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,653,543 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,690,253 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 1,703,535 </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Preferred stock dividend requirement</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">(265,111)</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">(274,562)</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">(282,828)</FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Net income applicable to common shares</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $1,388,432 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $1,415,691 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $1,420,707 </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Net income per common shares - basic</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $0.18 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $0.18 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $0.18 </FONT></TD>
</TR>
<TR><TD WIDTH="56%" VALIGN="TOP">
<FONT SIZE=3><P>Net income per common share - diluted</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $0.12 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $0.18 </FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $0.18 </FONT></TD>
</TR>
</TABLE>

<FONT SIZE=2>
<P> </P></P>
</FONT><I><FONT SIZE=3><P>See accompanying notes.</P>
</I></FONT><B><P>Moto Photo, Inc. and Subsidiaries</P>

<P>Consolidated Statements of Stockholders' Equity </P>
<U><FONT SIZE=3>
</B></U></FONT><FONT SIZE=2><P> </P>
<P> </P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=4 WIDTH=753>
<TR><TD WIDTH="30%" VALIGN="TOP"> </TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P ALIGN="CENTER">Series G Preferred Stock</B></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<B><FONT SIZE=1><P ALIGN="CENTER">(Deficit)</B></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"> </TD>
<TD WIDTH="20%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=1><P ALIGN="CENTER">(Amended Series G in 1999)</B></FONT></TD>
<TD WIDTH="19%" VALIGN="TOP" COLSPAN=3>
<B><FONT SIZE=1><P ALIGN="CENTER">Common Stock</B></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<B><FONT SIZE=1><P ALIGN="CENTER">Paid-in</B></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<B><FONT SIZE=1><P ALIGN="CENTER">Retained</B></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<B><FONT SIZE=1><P ALIGN="CENTER">Shares</B></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<B><FONT SIZE=1><P ALIGN="CENTER">Amount</B></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<B><FONT SIZE=1><P ALIGN="CENTER">Shares</B></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<B><FONT SIZE=1><P ALIGN="CENTER">Amount</B></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<B><FONT SIZE=1><P ALIGN="CENTER">Capital</B></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<B><FONT SIZE=1><P ALIGN="CENTER">Earnings</B></FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<B><FONT SIZE=1><P ALIGN="CENTER">Total</B></FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>

<FONT SIZE=1><P>Balance at December 31, 1996</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">1,000,000</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="CENTER">$   10,000</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>7,785,973</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>$     77,860</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>$  6,858,900</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P> $  (4,408,562)</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>$    2,538,198</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>

<FONT SIZE=1><P>Common stock issued</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>17,000</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>170</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>35,253</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>           35,423</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>

<FONT SIZE=1><P>Preferred stock dividend requirement</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>(317,172)</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>      (282,828)</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>      (600,000)</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>

<FONT SIZE=1><P>Warrants issued</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>25,000</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>           25,000</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>
<DIR>

<FONT SIZE=1><P>Use of net operating loss carryforward </DIR>
</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>69,000</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>           69,000</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>
<DIR>

<FONT SIZE=1><P>Net income</DIR>
</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>      1,703,535</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>      1,703,535</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>

<FONT SIZE=1><P>Balance at December 31, 1997</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">1,000,000</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="CENTER">     10,000</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>7,802,973</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>78,030</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>6,670,981</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>     (2,987,855)</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>      3,771,156</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>

<FONT SIZE=1><P>Common stock issued</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>30,600</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>306</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>59,191</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>         59,497</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>

<FONT SIZE=1><P>Preferred stock dividend requirement</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>(325,438)</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>      (274,562)</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>      (600,000)</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>

<FONT SIZE=1><P>Net income</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>     1,690,253</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>    1,690,253</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>

<FONT SIZE=1><P>Balance at December 31, 1998</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">1,000,000</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="CENTER">    10,000</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>7,833,573</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>78,336</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>6,404,734</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>   (1,572,164)</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>    4,920,906</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>

<FONT SIZE=1><P>Common stock issued</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>50,955</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>509</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>60,678</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>         61,187</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>

<FONT SIZE=1><P>Treasury shares</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>(151,300)</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>(1,513)</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>      (177,331) </FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>      (178,844)</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>

<FONT SIZE=1><P>Preferred stock dividend requirement0</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>(434,889)</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>      (265,111)</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>      (700,000)</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>

<FONT SIZE=1><P>Net income</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>     1,653,543</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>     1,653,543</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"><DIR>

<FONT SIZE=1><P>Balance at December 31, 1999</DIR>
</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="RIGHT">1,000,000</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P ALIGN="CENTER">$    10,000</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>7,733,228</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>$     77,332</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>$  6,030,523</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>$    (361,063)</FONT></TD>
<TD WIDTH="10%" VALIGN="TOP">
<FONT SIZE=1><P>$   5,756,792</FONT></TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="30%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
<TD WIDTH="10%" VALIGN="TOP"> </TD>
</TR>
</TABLE>
</CENTER></P>

<I><FONT SIZE=1><DIR>
<DIR>
<DIR>

<P>See accompanying notes.</P></DIR>
</DIR>
</DIR>

</I></FONT><B><P>Moto Photo, Inc. and Subsidiaries</P>
</B><FONT SIZE=3>
</FONT><B><P>Consolidated Statements of Cash Flow</P>
</B><FONT SIZE=2><P></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=2 WIDTH=648>
<TR><TD WIDTH="59%" VALIGN="TOP"> </TD>
<TD WIDTH="41%" VALIGN="TOP" COLSPAN=3>
<B><FONT SIZE=2><P ALIGN="CENTER">Year ended December 31</B></FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">1998</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<B><FONT SIZE=2><P ALIGN="CENTER">1997</B></FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<B><FONT SIZE=2><P>Operating activities</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Net income</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> $     1,653,543 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> $     1,690,253 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> $     1,703,535 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Adjustments to reconcile net cash provided by operating activities:</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Impairment charge - goodwill</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 88,618 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 30,887 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Impairment charge - property and equipment</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 53,763 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 73,500 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Depreciation and amortization</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 1,269,909 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 1,015,611 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 847,509 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Charge in lieu of income</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 69,000 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Provision for losses on inventory and receivables</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (322,000)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 543,031 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 908,377 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Notes receivable increases as a result of franchise activities</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (20,000)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (17,422)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (19,000)</FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Gain on short term bond trade</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (474,610)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Loss on sale of store</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 3,962 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 646 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 48,280 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Loss on fixed asset disposal and close of telemarketing</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 99,218 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 212,301 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Issuance of stock for directors fees</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 61,187 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 37,622 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 35,253 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Increase (decrease) resulting from changes in (other than changes resulting from acquisitions):</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Accounts receivable</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 545,655 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (678,631)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (374,471)</FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Inventory and prepaid expenses</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 38,832 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (1,241,275)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 54,795 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Income tax receivable</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (390,000)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Deferred taxes</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 77,000 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (188,000)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Accounts payable, accrued payroll, benefits, and accrued expenses</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 545,515 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 266,076 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (3,167,576)</FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Deferred revenue and other current liabilities</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (55,700)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 109,656 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 78,009 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Net cash provided by operating activities</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 3,032,511 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT">1,892,249 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 288,098 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<B><FONT SIZE=2><P>Investing activities</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Purchases of property and equipment</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (2,048,237) </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (1,368,316)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (477,513)</FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Acquisition of Company stores</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (341,700)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Issue notes receivable</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (153,478)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Payments received on notes receivable</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 781,179 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 643,253 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 509,848 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Other assets</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (9,236)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (241,113)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (45,616)</FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Proceeds from sale of property and equipment</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 40,512 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 61,000 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 452,606 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Purchase of U.S. Treasury Bond investments</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (75,011,718)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Sale of U.S. Treasury Bond investments</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 75,486,328 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Net cash (utilized in) provided by investing activities</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (1,256,350)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (905,176)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 439,325 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<B><FONT SIZE=2><P>Financing activities</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"><DIR>

<FONT SIZE=2><P>Proceeds from revolving line of credit and long-term borrowing</DIR>
</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 1,680,320 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 1,250,000 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 9,324,274 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Prinicpal payments on revolving line of credit, long-term debt and capital lease obligations</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (1,542,658)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (1,879,804)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (7,711,389)</FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Payments of preferred dividends</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (700,000)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (600,000)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (600,000)</FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Purchase of common shares for treasury stock</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (178,844)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Common shares issued</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 21,875 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> - </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Net cash (utilized in ) provided by financing activities</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (741,182)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (1,207,929)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 1,012,885 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
<TD WIDTH="13%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Increase (decrease) increase in cash</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 1,034,979 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> (220,856)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 1,740,308 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Cash at beginning of year</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 2,918,396 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 3,139,252 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> 1,398,944 </FONT></TD>
</TR>
<TR><TD WIDTH="59%" VALIGN="TOP">
<FONT SIZE=2><P>Cash at end of year</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> $   3,953,375 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> $   2,918,396 </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"> $   3,139,252 </FONT></TD>
</TR>
</TABLE>

<I><FONT SIZE=1>
<P> </P>
</FONT><FONT SIZE=3><P>See accompanying notes.</P>
</I></FONT><FONT SIZE=2></P>
</FONT><B><P>Moto Photo, Inc. and Subsidiaries</P>
</B><I><FONT SIZE=2>
</I><B><P>Notes to Consolidated Financial Statements<BR>
</P>
</FONT><FONT SIZE=3><P ALIGN="JUSTIFY">A.  The Company</P>
<P ALIGN="JUSTIFY"></P>
</B><P ALIGN="JUSTIFY">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.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">At December 31, 1999 the 419 stores of the Moto Photo system included 288 Franchise stores in the United States, 44 Company stores in the United States, 40 stores in Canada and 47 affiliate stores in Norway.  During 1999, the Company
awarded nine franchises, refranchised one Company store, opened or acquired 13 Company stores, converted five independent stores to franchises, and closed 23 stores.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">B.  Summary of Significant Accounting Policies</P>
<P ALIGN="JUSTIFY"></P>
</B><P ALIGN="JUSTIFY">The following is a summary of the Company's significant accounting policies used in the preparation of the accompanying consolidated financial statements.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Principles of Consolidation</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The consolidated financial statements include the accounts of Moto Photo, Inc., and its subsidiaries.  All significant intercompany accounts and transactions have been eliminated.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Accounts and Notes Receivable</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Accounts and notes receivable are composed primarily 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
creditwor
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Inventory</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 $111,000 in 1999 and $150,000 in 1998.</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">B.  Summary of Significant Accounting Policies (continued)</P>
</B><P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Property and Equipment </P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The cost of equipment and leasehold improvements is 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.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Property and equipment, including capitalized leases, are depreciated or amortized by the straight-line method over the estimated useful lives, primarily up to eight 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.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Cost of Franchises and Contracts Acquired</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 $715,679 in 1999 and $688,513 in 1998.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Goodwill</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 recorded after January 1, 1999 is being amortized over a
period not to exceed 15 years.  Goodwill is shown net of accumulated amortization of $2,035,497 in 1999 and $2,255,130 in 1998.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Long Lived Assets</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 dis
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Non-Compete Agreements</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company amortizes non-compete agreements by the straight-line method over the life of the contract.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Revenue Recognition</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Franchise fees are recognized as revenue 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 </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">B.  Summary of Significant Accounting Policies (continued)</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">store revenue is recognized as sales are made.  Revenue for the sale of ClubMoto plans is deferred and recognized over the 12-month life of the plan.  Merchandise revenue is recognized when the goods are shipped.  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.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Profit Sharing Plan</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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</FONT><FONT SIZE=3 COLOR="#0000ff"> </FONT>
<FONT SIZE=3>make discretionary contributions, which are subject to the approval of the Board of Directors.  Profit sharing expense was $95,635 in 1999, $94,793 in 1998, and $127,899 in 1997.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Stock-Based Compensation</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Income Taxes</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Supplemental Non-cash Investing and Financing Cash Flow Information</P>
</B><P ALIGN="JUSTIFY"></P>
<P>In 1999, the Company made $559,658 of capital expenditures by entering into capitalized lease transactions for $459,658, assuming a $60,000 note in connection with an acquisition and $40,000 by transfer from other assets.  Capital expenditures of
$186,500 in cash were made in connection with acquisitions of stores (See Note N).  Additionally, the Company transferred $1,515,000 from a revolving credit agreement and $1,185,004 from accounts payable to a $2,700,004 note payable.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Advertising</P>
<P ALIGN="JUSTIFY"></P>
</B><P ALIGN="JUSTIFY">Advertising costs are charged to expense on the first showing of the ad.  The Company had no prepaid advertising costs at December 31, 1999 or 1998.</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">B.  Summary of Significant Accounting Policies (continued)</P>
</B><P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Net Income Per Common Share - Basic and Diluted</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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.</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=2 WIDTH=585>
<TR><TD WIDTH="48%" VALIGN="TOP"> </TD>
<TD WIDTH="16%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"> </TD>
<TD WIDTH="16%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
<TD WIDTH="2%" VALIGN="TOP"> </TD>
<TD WIDTH="16%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1997</B></FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>Numerator:</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>Net income</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>$      1,653,543</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>$      1,690,253</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>$      1,703,535</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>Preferred stock dividend requirement</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">(265,111)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">(274,562)</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">(282,828)</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17><DIR>

<FONT SIZE=3><P>Numerator for basic earnings per share--income available to common shareholders</DIR>
</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">1,388,432</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">1,415,691</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">1,420,707</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P>Effect of dilutive securities:</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17><DIR>

<FONT SIZE=3><P>Series G preferred dividend requirement</DIR>
</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">700,000</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">0</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">0</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17><DIR>

<FONT SIZE=3><P>Numerator for diluted earnings per share--income available to common stockholders after effect of dilutive securities</DIR>
</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">$       2,088,432</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">$       1,415,691</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">$       1,420,707</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17><DIR>

<FONT SIZE=3><P>Denominator:</DIR>
</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17><DIR>

<FONT SIZE=3><P>Denominator for basic earnings per share-weighted-average share outstanding</DIR>
</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT">7,814,063</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT">7,816,165</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT">7,793,905</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17><DIR>

<FONT SIZE=3><P>Effect of dilutive securities:</DIR>
</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17><P></P></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17><DIR>

<FONT SIZE=3><P>Employee stock options</DIR>
</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">4,348</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">115,245</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">101,034</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17><DIR>

<FONT SIZE=3><P>Convertible Series G preferred </DIR>
</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">9,517,030</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">0</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT">0</FONT></TD>
</TR>
<TR><TD WIDTH="48%" VALIGN="TOP" HEIGHT=17><DIR>

<FONT SIZE=3><P>Denominator for diluted earnings per <BR>
share--adjusted weighted-average shares and dilutive securities</DIR>
</FONT></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">17,335,441</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">7,931,410</FONT></TD>
<TD WIDTH="2%" VALIGN="TOP" HEIGHT=17><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=17>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">7,894,939</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<B><P ALIGN="JUSTIFY">Stores for Resale</P>
<P ALIGN="JUSTIFY"></P>
</B><P ALIGN="JUSTIFY">Certain Company stores are offered for sale as franchises.  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 financial statement.  The Company sold one store in 1999, one store in 1998, and six stores in 1997.</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">B.  Summary of Significant Accounting Policies (continued)</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Segments</P>
<P ALIGN="JUSTIFY"></P>
</B><P ALIGN="JUSTIFY">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 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 t
h
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Use of Estimates</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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. </P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">Reclassifications</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Certain amounts from prior years have been restated to conform to the presentation used in 1999.</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">C.  Property and Equipment</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The following is a summary of property and equipment as of December 31:</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 WIDTH=518>
<TR><TD WIDTH="65%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP">
<FONT SIZE=3><P>Equipment and other property</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">$  8,814,841</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">$  7,801,086</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP">
<FONT SIZE=3><P>Leasehold improvements</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">2,902,803</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">    2,601,003</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP">
<FONT SIZE=3><P>Furniture and fixtures</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">1,384,962</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">    1,029,420</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">13,102,606</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=2><P ALIGN="RIGHT"></FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP">
<FONT SIZE=3><P>Less accumulated depreciation and amortization</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">7,787,033</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">    7,719,445</FONT></TD>
</TR>
<TR><TD WIDTH="65%" VALIGN="TOP">
<FONT SIZE=3><P>Net book value</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">$  5,315,573</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">$  3,712,064</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">Depreciation expense on property and equipment including amortization of assets recorded under capital was $1,064,282  in 1999, $813,462 in 1998 and $653,822 in 1997.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">D.  Other Assets</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Other assets as of December 31 include the following items, net of accumulated amortization of $287,500 in 1999 and $262,500 in 1998:</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 WIDTH=492>
<TR><TD WIDTH="61%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="JUSTIFY">Non-compete agreements</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">$    712,500</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">$    737,500</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="JUSTIFY">Other</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">247,753</FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">        313,067</FONT></TD>
</TR>
<TR><TD WIDTH="61%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></FONT></TD>
<TD WIDTH="20%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<B><FONT SIZE=3><P ALIGN="JUSTIFY">E.  Long-Term Debt</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The detail of long-term debt as of December 31 is:</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 WIDTH=556>
<TR><TD WIDTH="66%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP">
<FONT SIZE=3><P>Note payable to bank due January 2002 with interest at 9.29% per annum</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3>
<P>$      1,470,017</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3>
<P>$      2,124,360</FONT></TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP">
<FONT SIZE=3><P>Note payable to bank due January 2002 with interest at 9.5% (prime rate plus 1%)</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3>
<P>           750,000</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3>
<P>        1,125,000</FONT></TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP">
<FONT SIZE=3><P>Note payable to bank due January 2004 with interest at 9.0% (prime rate plus 1/2%)</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3>
<P>        1,041,768</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3>
<P>        1,250,000</FONT></TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP">
<FONT SIZE=3><P>Note payable to bank due January 2005 with interest at 9.5% (prime rate plus 1%)</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3>
<P>        1,680,320</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3>
<P>-</FONT></TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP">
<FONT SIZE=3><P>Revolving credit agreements with supplier, non-interest bearing, due June 2002</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3>
<P>        4,000,000</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3>
<P>        5,515,000</FONT></TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP">
<FONT SIZE=3><P>Note payable to supplier due January 2003 with interest at 8.5% per annum.</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P><BR>
        2,700,004</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3>
<P>-</FONT></TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP">
<FONT SIZE=3><P>Note payable to bank due October 2007 with interest at 9.5%</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>             57,960</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>-</FONT></TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>      11,700,069 </FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>      10,014,360</FONT></TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Portion classified as current</DIR>
</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>        2,202,000</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>        1,239,000</FONT></TD>
</TR>
<TR><TD WIDTH="66%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>$      9,498,069</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>$      8,775,360</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<B><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
</B><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">At December 31, 1999, the Company had an unused line of credit with a bank for $1,500,000 at prime plus .50% through April 2001.  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.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The aggregate annual maturities on long-term debt for the five years subsequent to December 31, 1999 are $2,202,000, $2,561,253, $5,630,917, $842,877 and $385,339.  Interest paid in 1999, 1998, and 1997 was $475,761, $399,400, and
$436,808, respectively.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Long-term debt and borrowings on the line of credit are secured by substantially all of the Company's assets.  The revolving credit agreement requires the Company and its franchisees collectively to purchase certain amounts of their
requirements for specified products including paper and film through the supplier.  Certain of the long-term obligations contain restrictive covenants; the Company was in compliance with them at December 31, 1999.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">F. Leases</P>
<P ALIGN="JUSTIFY"></P>
</B><P ALIGN="JUSTIFY">The detail of property and equipment included the following capitalized lease obligations at December 31 is:</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 WIDTH=450>
<TR><TD WIDTH="57%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">Processing equipment </FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">$   1,144,117</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">$     832,187</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P ALIGN="JUSTIFY">Less accumulated amortization</DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">          303,880</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">         261,714</FONT></TD>
</TR>
<TR><TD WIDTH="57%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">$      840,237</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">$     570,473</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">Future minimum lease payments for capitalized leases at December 31, 1999 are as follows:</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 WIDTH=312>
<TR><TD VALIGN="TOP" COLSPAN=2 HEIGHT=16>
<B><FONT SIZE=3><P ALIGN="CENTER">Year ending December 31</B></FONT></TD>
</TR>
<TR><TD WIDTH="69%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="31%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="69%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P>2000</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P> $      265,814</FONT></TD>
</TR>
<TR><TD WIDTH="69%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P>2001</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P>147,423</FONT></TD>
</TR>
<TR><TD WIDTH="69%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P>2002</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P>89,300</FONT></TD>
</TR>
<TR><TD WIDTH="69%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P>2003</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P>85,110</FONT></TD>
</TR>
<TR><TD WIDTH="69%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P>2004</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P>96,065</FONT></TD>
</TR>
<TR><TD WIDTH="69%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P>2005 and thereafter</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P>353,925</FONT></TD>
</TR>
<TR><TD WIDTH="69%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P>Total minimum lease payments</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P>1,037,637</FONT></TD>
</TR>
<TR><TD WIDTH="69%" VALIGN="TOP" HEIGHT=16><DIR>

<FONT SIZE=3><P>Less:  amount representing interest ranging from 5.7% to 11.5%</DIR>
</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3>
<P>297,381</FONT></TD>
</TR>
<TR><TD WIDTH="69%" VALIGN="TOP" HEIGHT=16><DIR>

<FONT SIZE=3><P>Present value of minimum lease payments</DIR>
</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3>
<P>740,256</FONT></TD>
</TR>
<TR><TD WIDTH="69%" VALIGN="TOP" HEIGHT=16><DIR>

<FONT SIZE=3><P>Current portion</DIR>
</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P>201,000</FONT></TD>
</TR>
<TR><TD WIDTH="69%" VALIGN="TOP" HEIGHT=16><DIR>

<FONT SIZE=3><P>Capitalized leases</DIR>
</FONT></TD>
<TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P> $      539,256</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">During 1999, 1998, and 1997, the Company incurred or assumed capital lease obligations aggregating $459,658, $0, and $679,300, respectively, in connection with equipment purchases.  </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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
autom
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">In 1998 the Company sold the lease rights for a store location which increased net income by approximately $112,000.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">F. Leases (continied)</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">At December 31, 1999, noncancelable operating leases provide for the following minimum annual obligations and sublease rentals:</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=1 WIDTH=458>
<TR><TD WIDTH="31%" VALIGN="TOP">
<B><I><FONT SIZE=3><P ALIGN="CENTER"> </P>
<P ALIGN="CENTER"> </B></I></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Lease Obligations</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Sublease Rentals</B></FONT></TD>
<TD WIDTH="23%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Net Lease Obligations</B></FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="JUSTIFY">2000</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">$  2,489,824</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">$   253,354</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">$   2,236,470</FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="JUSTIFY">2001</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">2,346,595</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">169,788</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">2,176,807</FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="JUSTIFY">2002</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">1,900,102</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">78,599</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">1,821,503</FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="JUSTIFY">2003</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">1,330,578</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">68,936</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">1,261,642</FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="JUSTIFY">2004</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">1,018,872</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">12,498</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">1,006,374</FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="JUSTIFY">2005 and thereafter</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">2,624,667</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">-</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">2,624,667</FONT></TD>
</TR>
<TR><TD WIDTH="31%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="JUSTIFY">Totals</FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">$ </FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">$  </FONT></TD>
<TD WIDTH="23%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=3><P ALIGN="RIGHT">$ </FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">G.  Stockholders' Equity</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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. </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">On December 30, 1999 the Company exchanged its Series G Preferred Shares ("Series G Stock") for non-voting Amended Series G Preferred Shares ("Amended Series G Stock").  The book value of the Amended Series G Stock is $6,040,523.  The
Amended Series G Stock is redeemable at any time by the Company.  The holder can redeem the Amended Series G Stock on January 1, 2003.  The Series G Stock had an annual dividend per share of  $.70 in 1999 and  $.60 in 1998 and 1997.  In 1999, 1998, and 1997
,
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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.  If redemption does not occur
in 2003, the Company is obligated to make penalty payments of $.90 per share in 2003 and $1.00 per share per annum thereafter.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The holder of the Amended 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.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">As of December 31, 1999, 12,032,830 shares of common stock were reserved for issuance pursuant to various outstanding options, warrants, and redeemable and convertible securities.</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">G.  Stockholders' Equity (continued)</P>
<P ALIGN="JUSTIFY"></P>
</B><P ALIGN="JUSTIFY">The Company's Board of Directors authorized a common stock repurchase program at June 30, 1999.  The timing of the amount of stock repurchased will be dictated by the overall financial and market conditions.  The Board authorized
management to spend up to $500,000 to make repurchases until December 31, 2000.  As of December 31, 1999 the Company has repurchased 151,000 shares for $178,844.</P>
<B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">H.  Stock Based Compensation</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 s
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The following summarizes the shares option activity for the years ended December 31:</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 WIDTH=561>
<TR><TD WIDTH="38%" VALIGN="TOP"> </TD>
<TD WIDTH="31%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="31%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Common Shares</B></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Average</P>
<P ALIGN="CENTER">Price</B></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Common Shares</B></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Average</P>
<P ALIGN="CENTER">Price</B></FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Outstanding at beginning of year</DIR>
</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>      1,334,081</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">$2.06</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>     1,015,966</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">$1.99</FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Granted</DIR>
</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>         142,669</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">$1.12</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>        406,219</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">$2.32</FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Expired</DIR>
</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>       (115,608)</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">$1.90</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>        (88,104)</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">$2.47</FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Outstanding at end of year</DIR>
</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>      1,361,142</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">$1.99</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>     1,334,081</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER">$2.06</FONT></TD>
</TR>
<TR><TD WIDTH="38%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Exercisable at end of year</DIR>
</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>         809,535</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>        755,956</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">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 314,448 options which expire ten years after the grant
date.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">At December 31, 1999, additional awards aggregating up to 698,466 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.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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
compens
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">H.  Stock-Based Compensation (continued)</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Pro forma earnings amounts prepared under the assumption that the stock options granted in 1999, 1998, and 1997 were accounted for based on their fair value as determined under FAS 123 are as follows:</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 WIDTH=576>
<TR><TD WIDTH="50%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Pro Forma Earnings</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1997</B></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>Net income applicable to common shares</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>$      1,296,896</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>  $ 1,330,464</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>  $ 1,359,252</FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>Net income per common share-basic </FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>$          0.17</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>  $          0.17</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>  $          0.17</FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P>Net income per common share-diluted</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>$          0.11</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>  $          0.17</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>  $          0.17</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The weighted-average value of an option granted during 1999, 1998, and 1997 approximated 50% of the grant price of the respective option using the Black-Scholes option pricing model and the following assumptions:</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=2 WIDTH=523>
<TR><TD WIDTH="50%" VALIGN="TOP">
<B><FONT SIZE=3><P>Fair Value Assumptions</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1997</B></FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">Dividend yield</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">             0%</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">             0%</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">             0%</FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">Expected volatility</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">           47%</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">           45%</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">           39%</FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">Risk-free interest rate</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P>            6.4%</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">          5.8%</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">          5.5%</FONT></TD>
</TR>
<TR><TD WIDTH="50%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">Expected life in years</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">             5</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">        5-10</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">        5-10</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Because additional awards in future years are anticipated the pro forma effects of applying this statement are not necessarily indicative of future amounts.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">I.  Income Taxes</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Significant components of deferred tax assets and liabilities at December 31 are:</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 WIDTH=456>
<TR><TD WIDTH="58%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Deferred tax assets</DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Capital loss carryforwards</DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">   $     522,000</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">   $     712,000</FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>AMT credit carryforwards </DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">85,000</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">85,000</FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Asset impairment </DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">915,000</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">1,370,000</FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Receivable allowances</DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">793,000</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">977,000</FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Employee benefit accruals</DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">84,000</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">117,000</FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Inventory valuation allowances</DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">85,000</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">82,000</FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>All other items, net</DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">101,000</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">125,000</FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Total deferred tax assets</DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">2,585,000</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">3,468,000</FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Deferred tax liability</DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Depreciation</DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">(477,000)</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">(116,000)</FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Total deferred tax liability</DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">(477,000)</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">(116,000)</FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">2,108,000</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">3,352,000</FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Less:  valuation allowance</DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">(915,000)</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">(2,082,000)</FONT></TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP"> </TD>
<TD WIDTH="21%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="58%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Net deferred tax assets</DIR>
</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">   $  1,193,000</FONT></TD>
<TD WIDTH="21%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">   $  1,270,000</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">For financial reporting purposes, a valuation allowance of $915,000 for 1999 and $2,082,000 for 1998 has been recognized to offset certain deferred tax assets.  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.  </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">At December 31, 1999, the Company has capital loss carryforwards of $1,668,000 that begin to expire in 2000 and approximately $85,000 of alternative minimum tax (AMT) credit carryfowards that have no expiration date.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company paid $6,000, $82,000, and $174,000 of income taxes in 1999, 1998, and 1997, respectively.</P>
<P ALIGN="JUSTIFY"></P>
</FONT><FONT SIZE=2><P ALIGN="JUSTIFY"> </P>
</FONT><B><FONT SIZE=3><P ALIGN="JUSTIFY">I.  Income Taxes (continued)</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The effective income tax rates differed from the federal statutory income tax rates as follows for the years ended December 31:</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 WIDTH=528>
<TR><TD WIDTH="45%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1997</B></FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Expense (benefit):</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Statutory federal income tax</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P> $       425,000</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P> $       452,000</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P> $       850,000</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Increase (decrease) resulting from effect of:</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Nondeductible amortization </DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P>            67,000</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P>          168,000</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P>          169,000</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Change in deferred tax valuation allowance</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3>
<P>         (952,000)</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3>
<P>        (727,000)</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3>
<P>         (353,000)</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Other, net</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P>           98,000</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P>        (233,900)</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P>            39,000</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>State income tax expense, net of federal tax benefit</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3>
<P>           (41,000)</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3>
<P>          (19,100)</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3>
<P>            95,000</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P> $      (403,000)</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P> $     (360,000)</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P> $       800,000</FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">Significant components of the provision for income taxes are as follows for the year ended December 31:</P>
<P ALIGN="JUSTIFY"></P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=7 WIDTH=528>
<TR><TD WIDTH="45%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1997</B></FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="JUSTIFY">Income tax benefit (expense)</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P ALIGN="JUSTIFY">Current</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">$  326,000</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">$  172,000</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">$  (731,000)</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P ALIGN="JUSTIFY">Deferred</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">77,000</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">    188,000</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P>                   - </FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P ALIGN="JUSTIFY">Charge in lieu of income taxes</DIR>
</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">             -</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">             -</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">      (69,000)</FONT></TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="45%" VALIGN="TOP"> </TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">$  403,000</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">$  360,000</FONT></TD>
<TD WIDTH="18%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">$  (800,000)   </FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">As a result of quasi-reorganization accounting treatment, $69,000 in 1997, is a charge 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.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">J.  Related Party Transactions</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 $283,000 in 1999, $308,000 in 1998,
and $269,000 in 1997.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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 $98,000 in 1999, $97,000 in 1998, and $110,000 in 1997.</P>

<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY"> </P>
<P ALIGN="JUSTIFY">J.  Related Party Transactions (continued)</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company leases its headquarters from a partnership which is controlled by certain officers and/or directors.  The lease provides for rent at $20,327 per month through June 2004 and $22,364 from July 2004 through June 2009.  Rent
expense was $225,660 for 1999 and $216,996 for 1998 and 1997.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">A corporation controlled by a director and his spouse own one store and is a partner in four others.  The Company derived revenue of $481,000 in 1999, $444,000 in 1998 and $344,000 in 1997 from this group.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">K.  Contingencies</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">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.</P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">The Company has agreed to reimburse a supplier for 50% of any payments the supplier would be required to make under the suppliers agreement with a bank to guarantee leases made by the bank to franchisees under the MotoPhoto QuickStart<SUP>
SM </SUP>program.</P>
<P ALIGN="JUSTIFY"></P>
<B><P ALIGN="JUSTIFY">L.  Impairment Charge</P>
</B><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">During 1997, a charge of $104,387 was recorded, which brought the net book value of certain Company 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 1997 charge consisted of $30,887 related to goodwill and $73,500 to property and equipment.  The 20 stores planned to be disposed of at December 31, 1997 had a fair value of $898,000.  </P>
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">An additional charge of $142,381 was recorded in 1998 consisting of $88,618 related to goodwill and $53,763 to property and equipment.  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 revenue of $1.3 million and a loss of $34,000 in 1998.  The six stores had a carrying value of $164,000. </P>
<P ALIGN="JUSTIFY"></P>
<P>In 1999, one store was sold, one was closed and four were reclassified from 'planned to be disposed' to held for use.  No impairment charges were recorded.<BR>
</P>
<OL START=13 TYPE="A">

<B><P ALIGN="JUSTIFY"><LI>Short Term Bond Transaction</LI></P></OL>

<P ALIGN="JUSTIFY"><BR>
</B>During 1999, the Company entered into a short-term bond transaction relating to $75,000,000 of U.S. Treasury Securities.  The transaction to generate net interest income in an increasing interest rate environment and capital gains that could be used
to offset previously incurred capital losses.  As a result of this transaction, the Company earned interest income of $993,338, a short-term capital gain of $474,610 and interest expense of $1,532,099.  The net effect $64,150 is included in the statement
of operations as interest expense.  The Company may enter into similar transactions in the future if management determines conditions are appropriate for generating profit from the transactions.</P>

<B><P> </P>
<P>N.  Acquisitions</P>
</B></FONT><FONT SIZE=2>
</FONT><FONT SIZE=3><P>During 1999, the Company acquired six stores.  The acquisitions were accounted for as purchases.  The aggregate purchase price paid was $401,700, of which $341,700 was in cash and $60,000 in notes assumed.</P>

<P>The results of operations for the acquired stores were included in the consolidated statement of income from the acquisition date.  The pro forma revenue, net income and earnings per share information are not presented because they are not material.</P>

<B>
<P>O.  New Accounting Standards<BR>
</P>
</B><P>The Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities.  The statement is not required to be adopted by the Company until 2001.  The Company makes minimal use of derivatives
instruments and anticipates no material impact from adopting this standard.</P>
<B>
<P>P.  Segments</P>
</B>
<P ALIGN="JUSTIFY">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 operates retail photo
processing and portrait stores owned by the Company.  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
<P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY">Summarized financial information concerning the Company's reportable segments is shown in the following table.</P>

<P> </P>
<B><P>Moto Photo, Inc. and Subsidiaries</P>
</B></FONT><FONT SIZE=2><P></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=3 WIDTH=679>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="65%" VALIGN="TOP" COLSPAN=5 HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">1999</B></FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">Development</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">Company Stores</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">Royalties and Advertising</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">Wholesale</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">Total</B></FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P>Sales and other revenue</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $      424,045  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $ 13,560,203  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $     5,129,929  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $ 17,472,277  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $ 36,586,454  </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P>Depreciation</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">3,878  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">951,274  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">12,244  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">9,013  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">976,409  </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><DIR>

<FONT SIZE=2><P>Operating segment contribution prior to interest income and expense, income taxes and unallocated corporate expenses</DIR>
</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">(410,461)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">(1,342,482)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">3,520,999  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">(187,058)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">1,580,998  </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P>Identifiable segment assets</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">98,963  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">10,631,721  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">757,932  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">4,359,745  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">15,848,361  </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P>Capital expenditures</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">1,432  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">2,638,092  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">8,795  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">3,446  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">2,651,765  </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="65%" VALIGN="TOP" COLSPAN=5 HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">1998</B></FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">Development</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">Company Stores</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">Royalties and Advertising</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">Wholesale</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">Total</B></FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P>Sales and other revenue</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $      559,256  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $ 13,710,748  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $     5,315,708  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $ 17,326,074  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $ 36,911,786  </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P>Depreciation</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">3,787  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">674,217  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">18,269  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">84,511  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">780,784  </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><DIR>

<FONT SIZE=2><P>Operating segment contribution prior to interest income and expense, income taxes and unallocated corporate expenses</DIR>
</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">(344,535)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">(911,889)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">3,706,813  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">(1,038,767)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">1,411,622  </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P>Identifiable segment assets</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">133,159  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">8,803,804  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">1,238,143  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">4,451,862  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">14,626,968  </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P>Capital expenditures</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">1,812  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">1,115,136  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">4,207  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">24,392  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">1,145,547  </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="65%" VALIGN="TOP" COLSPAN=5 HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">1997</B></FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">Development</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">Company Stores</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER">Royalties and Advertising</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">Wholesale</B></FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<B><FONT SIZE=2><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">Total</B></FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P>Sales and other revenue</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $      480,991  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $ 17,102,706  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $     5,158,577  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $ 18,790,649  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">  $ 41,532,923  </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P>Depreciation</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">3,524  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">530,657  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">7,363  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">94,850  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">636,394  </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><DIR>

<FONT SIZE=2><P>Operating segment contribution prior to interest income and expense, income taxes and unallocated corporate expenses</DIR>
</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">(166,375)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">(545,667)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">3,681,550  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">(259,016)</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">2,710,492  </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P>Identifiable segment assets</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">42,393  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">8,396,862  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">1,278,020  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">3,661,687  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">13,378,962  </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P>Capital expenditures</FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">114  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">277,023  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">6,531  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">11,779  </FONT></TD>
<TD WIDTH="13%" VALIGN="TOP" HEIGHT=16>
<FONT SIZE=2><P ALIGN="RIGHT">295,447  </FONT></TD>
</TR>
</TABLE>

<FONT SIZE=2></P>
</FONT><B><FONT SIZE=3><P>Moto Photo, Inc. and Subsidiaries</P>
</B>
</FONT><FONT SIZE=2><P></FONT>
<P ALIGN="CENTER"><CENTER><TABLE BORDER CELLSPACING=1 CELLPADDING=3 WIDTH=571>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=20>
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=20>
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=20>
<B><FONT SIZE=3><P ALIGN="CENTER">1997</B></FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP"> </TD>
<TD WIDTH="17%" VALIGN="TOP"> </TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="16%" VALIGN="TOP"> </TD>
<TD WIDTH="6%" VALIGN="TOP"> </TD>
<TD WIDTH="19%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=20>
<B><FONT SIZE=3><P>Revenue</B></FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="6%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="6%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=20><P></P></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=40><DIR>

<FONT SIZE=3><P>Total sales and other revenue for reportable segments</DIR>
</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=40>
<FONT SIZE=3><P ALIGN="RIGHT"> $36,586,454 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" HEIGHT=40><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=40>
<FONT SIZE=3><P ALIGN="RIGHT"> $36,911,786 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" HEIGHT=40><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=40>
<FONT SIZE=3><P ALIGN="RIGHT"> $41,532,923 </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Interest income</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT"> 258,067 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT"> 413,087 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT"> 364,420 </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Other income</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT"> - </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT"> 112,000 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT"> - </FONT></TD>
</TR>
<TR><TD WIDTH="35%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P>Total consolidated revenue</FONT></TD>
<TD WIDTH="17%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT"> $36,844,521 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="16%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT"> $37,436,873 </FONT></TD>
<TD WIDTH="6%" VALIGN="TOP" HEIGHT=20><P></P></TD>
<TD WIDTH="19%" VALIGN="TOP" HEIGHT=20>
<FONT SIZE=3><P ALIGN="RIGHT"> $41,897,343 </FONT></TD>
</TR>
</TABLE>
</CENTER></P>

<FONT SIZE=2>
<P> </P></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=3 WIDTH=628>
<TR><TD WIDTH="43%" VALIGN="TOP">
<B><FONT SIZE=3>
<P>Other Significant Items</B></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Segment Totals</B></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">Corporate</B></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Consolidated Total</B></FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1999</B></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<FONT SIZE=3><P>Depreciation and amortization</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $        976,409 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $        293,500 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $     1,269,909 </FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Operating segment contribution prior to interest income and expense, investment expense, income taxes and unallocated corporate expenses for segment totals reconciled to income before taxes</DIR>
</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">1,580,998 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">(330,455)</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">1,250,543 </FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<FONT SIZE=3><P>Identifiable segment assets</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">15,848,361 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">8,068,453 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">23,916,814 </FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<FONT SIZE=3><P>Capital expenditures</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 2,651,765 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 143,630 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> 2,794,395 </FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1998</B></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<FONT SIZE=3><P>Depreciation and amortization</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $        780,784 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $        234,827</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $     1,015,611 </FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Operating segment contribution prior to interest income and expense, investment expense, income taxes and unallocated corporate expenses for segment totals reconciled to income before taxes</DIR>
</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">1,411,622 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">(81,369)</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">1,330,253 </FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<FONT SIZE=3><P>Identifiable segment assets</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">14,626,968 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">7,306,825 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">21,933,793 </FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<FONT SIZE=3><P>Capital expenditures</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">1,145,547 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">222,769 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">1,368,316 </FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">1997</B></FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<FONT SIZE=3><P>Depreciation and amortization</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $        636,394 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $        211,115 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"> $        847,509 </FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP"><DIR>

<FONT SIZE=3><P>Operating segment contribution prior to interest income and expense, investment expense, income taxes and unallocated corporate expenses for segment totals reconciled to income before taxes</DIR>
</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">2,710,492 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">(206,957)</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">2,503,535 </FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<FONT SIZE=3><P>Identifiable segment assets</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">13,378,962 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">7,659,153 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">21,038,115 </FONT></TD>
</TR>
<TR><TD WIDTH="43%" VALIGN="TOP">
<FONT SIZE=3><P>Capital expenditures</FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">295,447 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">182,066 </FONT></TD>
<TD WIDTH="4%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">477,513 </FONT></TD>
</TR>
</TABLE>

<FONT SIZE=2>
<P> </P></P>
</FONT><FONT SIZE=3><P> </P>
<P> </P>
<B><P>Moto Photo, Inc. and Subsidiaries</P>
</B>
<B><P>Schedule II - Valuation and Qualifying Accounts</P>
</B>
<P> </P></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=2 WIDTH=686>
<TR><TD WIDTH="29%" VALIGN="TOP">
<B><FONT SIZE=3><P> </P>
<P ALIGN="CENTER">Year Ended</P>
<P ALIGN="CENTER">December 31, 1999</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Balance at Beginning of Period</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Charged to Costs and Expenses</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Charged to Other Accounts</B></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Deductions</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">Balance at End of Period</B></FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>Reserves and Allowances deducted from Accounts Receivable</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>$     1,092,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>$       235,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="RIGHT">$     (145,000)</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>$    (598,000)(1)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>$        584,000</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>Allowance for Cash Discounts</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P>          46,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P>              6,000</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P>            52,000</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>Reserves and Allowances deducted from Notes Receivable</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>       1,400,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>           235,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>          368,000</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>      (378,000)(1)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>       1,625,000</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>Allowance for Inventory Obsolescence</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P>          150,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P>           36,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3>
<P>        (75,000)(2)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P>          111,000</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>Total</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P>$     2,688,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P>$       506,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P>$        229,000</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>$ (1,051,000)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P>$     2,372,000</FONT></TD>
</TR>
</TABLE>

<FONT SIZE=3>
<P> </P>
<P>(1) Uncollectible accounts written-off</P>
<P>(2) Disposal of Inventory</P>

<P> </P>
<B><P>Moto Photo, Inc. and Subsidiaries</P>
</B>
<B><P>Schedule II - Valuation and Qualifying Accounts</P>
</B>
<P> </P></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=2 WIDTH=686>
<TR><TD WIDTH="14%" VALIGN="TOP"></TD>
<TD WIDTH="14%" VALIGN="TOP"></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2></TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=3></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2></TD>
<TD WIDTH="29%" COLSPAN=2></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" COLSPAN=3>
<B><FONT SIZE=3><P>December 31, 1998</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" COLSPAN=3>
<B><FONT SIZE=3><P>Reserves and Allowances deducted from Accounts Receivable</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2>
<B><FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
</B><P ALIGN="RIGHT">  $    1,590,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">  $       224,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">       (227,000)</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=3><P ALIGN="JUSTIFY"></P>
<P ALIGN="JUSTIFY"> </P>
<P>  $   (495,000)(1)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">  $    1,092,000</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" COLSPAN=3> </TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" COLSPAN=3>
<FONT SIZE=3><P>Allowance for Cash Discounts</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=3><P>             45,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=3><P ALIGN="RIGHT">            1,000</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">          46,000</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" COLSPAN=3> </TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" COLSPAN=3>
<FONT SIZE=3><P>Reserves and Allowances deducted from Notes Receivable</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">     1,018,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">      225,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">        432,000</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">    (275,000)(1)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">     1,400,000</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" COLSPAN=3> </TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" COLSPAN=3>
<FONT SIZE=3><P>Allowance for Inventory Obsolescence</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT">         115,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT">         94,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=2>
<B><U><FONT SIZE=3><P ALIGN="JUSTIFY"></P>
</B></U><P ALIGN="RIGHT">      (59,000)(2)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT">      150,000</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" COLSPAN=3> </TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=2> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP" COLSPAN=3>
<FONT SIZE=3><P>Total</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=3><P ALIGN="RIGHT">  $    2,768,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">  $       543,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=3><P ALIGN="RIGHT">$      206,000</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP" COLSPAN=2>
<FONT SIZE=3><P ALIGN="JUSTIFY">  $   (829,000)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT">  $    2,688,000</FONT></TD>
</TR>
</TABLE>

<FONT SIZE=3>
<P> </P>
<P>(1) Uncollectible accounts written-off</P>
<P>(2) Disposal of Inventory</P>

<B><P> </P>
</B><P> </P>
<B><P>Moto Photo, Inc. and Subsidiaries</P>
</B>
<B><P>Schedule II - Valuation and Qualifying Accounts</P>
</B>
<P> </P></FONT>
<TABLE BORDER CELLSPACING=1 CELLPADDING=2 WIDTH=686>
<TR><TD WIDTH="29%" VALIGN="TOP">
<B><FONT SIZE=3><P> </P>
<P ALIGN="CENTER">Year Ended</P>
<P ALIGN="CENTER">December 31, 1997</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Balance at Beginning of Period</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Charged to Costs and Expenses</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER">Charged to Other Accounts</B></FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER"></P>
<P ALIGN="CENTER"> </P>
<P ALIGN="CENTER">Deductions</B></FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<B><FONT SIZE=3><P ALIGN="CENTER"></P>
<P ALIGN="CENTER">Balance at End of Period</B></FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>Reserves and Allowances deducted from Accounts Receivable</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>$     1,218,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>$      587,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">  $  (215,000)(1)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>  $   1,590,000</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>Allowance for Cash Discounts</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P>            61,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>        (16,000)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P>            45,000</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>Reserves and Allowances deducted from Notes Receivable</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>          993,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>        222,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">        226,000</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT"> </P>
<P ALIGN="RIGHT">    (423,000)(1)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P> </P>
<P>       1,018,000</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>Allowance for Inventory Obsolescence</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P>          126,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P>         99,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P ALIGN="RIGHT"></P>
<P ALIGN="RIGHT">    (110,000)(2)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3>
<P>          115,000</FONT></TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
<TD WIDTH="15%" VALIGN="TOP"> </TD>
<TD WIDTH="14%" VALIGN="TOP"> </TD>
</TR>
<TR><TD WIDTH="29%" VALIGN="TOP">
<FONT SIZE=3><P>Total</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P>$     2,398,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P>$     908,000</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P>  $      226,000</FONT></TD>
<TD WIDTH="15%" VALIGN="TOP">
<FONT SIZE=3><P>  $  (764,000)</FONT></TD>
<TD WIDTH="14%" VALIGN="TOP">
<FONT SIZE=3><P>  $   2,768,000</FONT></TD>
</TR>
</TABLE>

<FONT SIZE=3>
<B><P> </P>
</B><P>(1) Uncollectible accounts written-off</P>
<P>(2) Disposal of Inventory</P>
</FONT><FONT SIZE=2><P ALIGN="CENTER"></P>
</FONT><B><FONT SIZE=3><P ALIGN="CENTER">EXHIBIT INDEX</P>
</B>
<P>Copies of the following documents are filed as exhibits to this report:</P>

<B><P> </P>
<P>NUMBER				DESCRIPTION</P>

</B><P> </P><DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>

<P>    3.01	Certificate of Incorporation, as amended (Incorporated by Reference to Exhibit 3.1 to Form 10-K dated March 29, 1995)</P>

<P>    3.02	Bylaws, as amended (Incorporated by Reference to Exhibit 3.2 to Form 10-K dated May 5, 1989)</P>

<P>    4.01	Certificate of Designation of Series G Preferred Stock (Incorporated by Reference to Exhibit 4.2 to Form 10-K dated March 29, 1995)</P>

<P>    4.02		Certificate of Elimination of Series G Preferred Stock</P>

<P>    4.03		Certificate of Designation of Amended Series G Preferred Stock </P>

<P>    4.04		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)</P>

<P>*10.01		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)
</P>

<P>*10.02	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)</P>

<P>  10.03	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)</P>

<P>  10.04		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)</P>

<P>  10.05	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)</P>

<P>  10.06	Second Amendment to Loan and Security Agreement dated as of September 2, 1999, by and between Moto Photo, Inc. and The Provident Bank (Incorporated by Reference to Exhibit 10.1 to Form 10-Q dated November 15, 1999)</P>
<B>
<P> </P></DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>

<P>NUMBER				DESCRIPTION</P>

</B><P> </P>
<P> </P><DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>

<P>  10.07	Third Amendment to Loan and Security Agreement dated as of December 30, 1999, by and between Moto Photo, Inc. and The Provident Bank</P>

<P>  10.08		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)</P>

<P>  10.09	Amendment Agreement to Amended Supply Agreement, dated as of December 30, 1999, by and between Moto Photo, Inc. and Fuji Photo Film U.S.A., Inc.</P>

<P>  10.10		Term Note dated December 30, 1999 from Moto Photo, Inc. in favor of Fuji Photo Film U.S.A., Inc.</P>

<P>  10.11		Agreement dated as of December 30, 1999, by and among Moto Photo, Inc., Fuji Photo Film U.S.A., Inc. and The Provident Bank</P>

<P>  10.12	</FONT><FONT SIZE=2>	</FONT><FONT SIZE=3>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) </P>

<P>  10.13	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) <BR>
</P>
<P>  10.14	First Amendment to Project Agreement, dated as of September 14, 1999, by and between Fuji Photo Film U.S.A., Inc., and Moto Photo, Inc.  (Incorporated by Reference to Exhibit 10.2 to Form 10-Q dated November 15, 1999) </P>

<P>  10.15 	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) </P>

<P ALIGN="JUSTIFY">  10.16	First Amendment to Master Lease Agreement, dated as of September 14, 1999, between Fuji Photo Film U.S.A., Inc., and Moto Photo, Inc. (Incorporated by Reference to Exhibit 10.3 to Form 10-Q dated November 15, 1999) </P>
<B>
</B><P>  10.17		Lease dated as of May 7, 1999 between Moto Photo, Inc. and Sycamore Partnership (Incorporated by Reference To Exhibit 10.1 to Form 10-Q dated August 13, 1999)</P>

<P>  10.18		Master License Agreement dated as of December 31, 1998 between Moto Photo, Inc. and Canadian Industrial Services, Ltd. (Incorporated by Reference to Exhibit 10.11 to Form 10-K dated March 26, 1999)</P>

<P> </P></DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>

<B><P>NUMBER				DESCRIPTION</P>

</B><P> </P>
<P> </P><DIR>
<DIR>
<DIR>
<DIR>
<DIR>
<DIR>

<P>*10.19		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)</P>

<P>*10.20		Amendment to Employment Agreement, dated as of April 1, 1997, with <BR>
Michael F. Adler (Incorporated by Reference to Exhibit 10.1 to Form 10-Q dated August 7, 1997)</P>

<P>*10.21		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)</P>

<P>*10.22		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) </P>

<P>*10.23		Amendment to Employment Agreement, dated as of December 20, 1999, with David A. Mason</P>

<P ALIGN="JUSTIFY">*10.24	Employment Agreement dated June 1, 1996 with Frank M. Montaño (Incorporated by Reference to Exhibit 10.1 to Form 10-Q dated August 6, 1996)</P>

<P ALIGN="JUSTIFY">*10.25	Amendment to Employment Agreement, dated as of December 23, 1997, with Frank M. Montaño (Incorporated by Reference to Exhibit 10.15 to Form 10-K dated March 30, 1998) </P>

<P>*10.26		Amendment to Employment Agreement, dated as of December 20, 1999, with Frank M. Montaño </P>

<P ALIGN="JUSTIFY">*10.27	Employment Agreement dated as of January 1, 1999 with Lloyd F. Noland (Incorporated by Reference to Exhibit 10.19 to Form 10-K dated March 26, 1999)</P>

<P>*10.28		Employment Agreement dated as of April 1, 1999,with Paul Pieschel</P>

<P ALIGN="JUSTIFY">  22.0	List of subsidiaries of the Company (Incorporated by Reference to Exhibit 22 to Form 10-K dated March 27, 1996)</P>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>
</DIR>

<P>  23.0 				Consent of Ernst & Young LLP</P>

<P>  27.0				Financial Data Schedule</P>

<P> </P>
<U><P>						</P>
</U><P>*Indicates management contract or compensatory plan.</P>
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