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

                                   FORM 10-K-A
                                   AMENDMENT 2

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

                For the fiscal year ended:    December 31, 1996


                                       OR

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

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


                        Commission File No. :    0-11927


                               MOTO PHOTO , INC.

             (Exact name of registrant as specified in its charter)


                      Delaware                 31-1080650

              (State of Incorporation)    (Employer Identification No.)
    
             4444 Lake Center Dr. Dayton, OH                  45426

          (Address of principal executive offices)          (Zip Code)

                                 (937) 854-6686

              (Registrant's telephone number, including area code)


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

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

                   Voting Common Stock, $.01 per share  value
                  Common Stock Purchase Warrants, exercisable
                         on or before December 31, 1997



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


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


 State the aggregate market value of the voting stock held by non-affiliates of
                                the registrant:


                     $11,034,515.90 in Voting Common Stock
                              as of March 17, 1997
                        (last actual transaction price)



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


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

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


Indicate the number of shares outstanding of each of the Registrant's classes of
                                  Common Stock
                             as of March 17, 1997:

                       7,789,973 shares of Voting Common
                         0 shares of Non-Voting Common



                      DOCUMENTS INCORPORATED BY REFERENCE

  Portions of the definitive proxy statement for the 1997 annual shareholders'
 meeting, to be filed pursuant to Regulation 14A, are incorporated by reference
                                 into Part III.


This Form 10-K-A, Amendment No. 2, is being filed to amend the notes to the 
financial statments (Note L Restructuring Charge).




                                MOTO PHOTO, INC.
                                   FORM 10-K
                      FOR THE YEAR ENDED DECEMBER 31, 1996

                               TABLE OF CONTENTS




                                                               PAGE

PART I

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

          General.............................................   1
          Development of the System in 1996...................   1
          Summary of Store Development........................   2
          Franchise Operations................................   3
          Seasonality.........................................   5
          Trade Names, Service Marks and Logo Types...........   6
          Regulation..........................................   6
          Supply Contract.....................................   7
          Competition.........................................   7
          Expansion Plans.....................................   8
          Employees...........................................   9

ITEM 2.   PROPERTIES..........................................   9

ITEM 3.   LEGAL PROCEEDINGS...................................   9

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF
          SECURITY HOLDERS....................................   9

ITEM 5.   MARKET FOR REGISTRANT'S COMMON
          EQUITY AND RELATED STOCKHOLDER MATTERS..............  10

PART II

ITEM 6.   SELECTED FINANCIAL DATA.............................  11

ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS.................  12

          General.............................................  12
          Results of Operations...............................  13
          Liquidity and Capital Resources.....................  17

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........  19

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
          ON ACCOUNTING AND FINANCIAL DISCLOSURE..............  19

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..  19

ITEM 11.  EXECUTIVE COMPENSATION..............................  19

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT......................................  19

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......  19

          Items 10-13 are incorporated by reference from the definitive proxy
          statement for the Registrant's 1997 annual meeting of shareholders,
          which is to be filed pursuant to Regulation 14A.

PART IV.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
          REPORTS ON FORM 8-K.................................  19

          SIGNATURES..........................................  20
                                MOTO PHOTO, INC.

                                   FORM 10-K


PART I

ITEM  1.  BUSINESS

General

Moto Photo, Inc. (together with its subsidiaries, "the Company") is engaged in
the franchising and ownership of stores offering one-hour photo processing
services, portrait, and related imaging services and merchandise under the trade
names and service marks of " MOTO-PHOTO" and "ONE HOUR MOTOPHOTO & PORTRAIT
STUDIO."  Since 1982, the Company has engaged in a program of expansion to
achieve strong market recognition in the one-hour segment of the photo
processing industry.  This expansion has been accomplished primarily through new
franchises, conversion of existing independent one-hour stores to Company
franchises, by various acquisitions of franchise rights or franchisors, and
through acquisition of existing stores.

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

Development of the System in 1996

1996 was a year of consolidation for the System.  The Company terminated a
number of underperforming franchises and franchises failing to meet System
standards. Although this means that the number of franchises decreased, the
Company believes these terminations will strengthen the System overall.  To take
advantage of the synergy and advertising power of groups of stores, the Company
concentrated its efforts on increasing the number of franchises in target
markets which already have a number of One Hour MotoPhoto stores.

During 1996, the Company granted nineteen new franchises and converted nine
independent stores to franchises, while thirty-two franchises were canceled or
terminated, for a net decrease of four franchises in the United States.

The Company's international franchises decreased by two.  The Company's master
licensor for the province of Ontario, Canada, Canadian Industrial Services,
Inc., granted one new franchise, while two franchises were canceled or
terminated.  The Company's master licensor for Norway, Scan-Franchise, A/S, Ltd.
granted no new franchises during 1996, while one franchise was terminated.

During 1996, the Company opened no new company stores. In accordance with its
decision in fourth quarter 1995 to keep only a core group of approximately 20
company stores to serve as training sites and as testing and research sites for
products, services, and systems, the Company closed two stores and sold five
others as franchises during 1996.


Summary of Store Development

Set forth below is a summary of the store development of the Company in the
United States and abroad during 1995 and 1996:

                                                           1995       1996
Stores Open or Under Development at
     Beginning of Year                                     467        471
     Stores Added Due to:
     Franchises Granted                                     41         19
     Conversions                                             7          9
     Company-owned Stores Opened                             1          0
Store Reductions Due to:
     Franchises Terminated                                  20         22
     Stores Never Opened                                    12(a)      10(a)
     Franchises Acquired by Company                          1(b)       0
     Company-owned Stores Refranchised                       2(c)       5(c)
     Company-owned Stores Closed                            10(d)       2
Stores Under Development at End of Year                      24        14
Stores in Operation at End of Period                        447       446
Stores in Operation or Under Development at End of Year     471       460

(a)  These stores were under development at the end of the preceding year,
     meaning that the franchise owners had signed franchise agreements.  The
     franchises were canceled during the development process, usually because
     the franchise owner could not obtain a suitable site for the store.
(b)  This store has been included above under "Company-owned Stores Opened"
(c)  These stores have been included above under `Franchises Granted"
(d)  This figure includes five portrait studios operated on a test basis in
     department stores.

As of December 31, 1996, the Company or its subsidiaries had 326 franchised
stores in the United States (312 in operation and 14 under development pursuant
to signed agreements).  A total of 249 franchisees owned such stores.  The
Company had fifty-one company stores.  In addition, as of December 31, 1996, the
Company's Norwegian master licensor had twenty-six stores open and none under
development and the Company's Canadian master licensor had fifty-five stores
open and one under development. In 1996, all foreign source revenues represented
less than 1% of total revenues.


As indicated in the chart above, a number of franchises were terminated in 1995
and 1996 or stores were never opened.  Reasons for terminated franchises relate
to franchise management, failure to follow system requirements, market
conditions, location, sales of stores, inability to obtain acceptable financing
and/or an acceptable site (for stores never opened), and other factors typically
affecting franchisee operations.



Set forth below is the geographical location of the stores in operation at
December 31, 1996:

Arizona        15        Kentucky         6       Ohio            27
California     33        Maryland        22       Oklahoma        17
Colorado       14        Maine            1       Pennsylvania     8
Connecticut    13        Massachusetts    8       Rhode Island     4
Florida         3        Michigan         5       Tennessee        8
Georgia        15        Minnesota        4       Texas            6
Hawaii          1        North Carolina   1       Utah             5
Illinois       30        New Jersey      49       Virginia        22
Indiana         6        New York        26       Wisconsin        5
Kansas          5
                    District of Columbia       6

          Canada         55        Norway         26

Franchise Operations

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 "MOTO PHOTO", 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 name,
service mark, and other proprietary names and marks.  The franchisee has the
right to use such trade names and service marks in an exclusive territory, the
size of which varies based on factors including the size of the market and the
location of the store.  The Company offers a franchise agreement for a single
store as well as a multi-store exclusive territorial agreement.

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

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

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

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.

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.

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.  For franchise agreements signed before March 1996, if the combined net
retail sales for all stores owned by a franchisee exceed $2,000,000 annually,
the royalty on the net retail sales in excess of $2,000,000 is 4.5%.  At
December 31, 1996, 1 franchisee owning 6 stores qualified for the reduced
royalty.  The franchise agreement requires franchisees to expend or contribute
to their local advertising cooperative for advertising an amount of at least
5.5% of net retail roll processing and merchandise sales and 15% of net portrait
sales.  In addition, franchisees are required to pay to the Company 0.5% of
combined net retail sales for advertising development.

The franchisee is required to purchase MOTO PHOTO private label film and single-
use cameras and certain start-up advertising materials from the Company.  The
franchisee generally is not required to purchase other supplies or equipment
from the Company but is required to purchase or lease supplies and equipment in
accordance with certain specifications in order to maintain the quality and
integrity of the franchise.  The Company is a distributor to franchisees of
photo processing paper, chemistry, promotional materials and other items and, at
the present time, is the sole approved supplier of certain photo packaging
materials and point of sale materials.  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 a rebate or commission on certain
products and equipment sold directly to its franchisees by those suppliers.

The Company offers franchises in the United States through area developers and
Company personnel, who generate leads through advertising, brokers, referrals,
and franchise shows.  At December 31, 1996, the Company had a total of ten area
developers covering seventeen states and the District of Columbia.  An area
developer receives a portion of the initial franchise fee as compensation for
the recruitment of a franchisee in its area and also receives a portion of the
royalty paid to the Company by franchised stores in its area (including the area
developer's own stores) and of any transfer fee paid, as compensation for
performing training, marketing, quality control and other services which would
otherwise be performed by the Company.  For the year ended December 31, 1996,
area developers accounted for fifteen new franchises and
Company personnel accounted for thirteen new franchises.

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 ``onversion franchises.''  These
programs provide to the Company additional means to penetrate new market areas
and to broaden the Company's base of franchise sales.

During the fourth quarter of 1996, the Company introduced its Affiliate Program,
designed to bring into the system additional conversion franchises.  The
Affiliate Program offers to independent minilab owners a trial period of one to
two years during which the `Affiliate'' may experience the Moto Photo franchise
system.  The Affiliate pays no initial franchise fee.  During the trial period,
the Affiliate pays a weekly royalty of $200, plus ten percent of any increase
over sales during the same period in the year before the Affiliate joined the
System.  The Affiliate must participate fully in advertising programs and follow
all system operational standards but is not required to change the store decor
until the Affiliate decides to become a fully-participating franchisee or the
end of the trial period, whichever comes first.  At the end of the trial period,
the length of which depends on the number of stores the Affiliate brings into
the system, the Affiliate may opt to cease any affiliation with the system and
return to operating as an independent; if the Affiliate does not do so, the
Affiliate automatically becomes a fully-participating franchisee, begins to pay
the standard 6% royalty fee, and must change the store decor to meet system
standards.

The Company has another 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 ONE HOUR MOTOPHOTO franchise stores.  The
Company receives an initial franchise fee of $20,000 but gives the conversion
franchisee a credit equal to 6% of the previous year's sales, with a minimum
credit of $10,000.  In addition, the Company offers an alternative royalty fee
plan to conversion franchisees, based on increases to the store's sales over the
period before conversion.  A new system franchisee who acquires an independent
store for the purpose of converting it pays an initial franchise fee of $20,000
without any credit and pays a straight 6% royalty fee.

The Company also offers financing of up to $5,000 of the cost of required store
design changes to a conversion franchisee which purchases certain product and
merchandise from the Company.  This financing is offered to Affiliates when they
become fully-participating franchisees.


The Company also offers a multi-store exclusive territorial development
agreement, pursuant to which the exclusive territorial developer is granted the
rights to develop three or more stores in a given area.  The exclusive
territorial developer pays a non-refundable fee of $10,000 per development right
after the first, $7,500 of which will be applied to the franchise fee for each
store after the first as it is opened.  The franchise fee for the first store
opened pursuant to an exclusive territorial agreement is $35,000 and $20,000 for
each subsequent store.

As market conditions change, it may be necessary to change some or all of the
strategies discussed above.

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


Seasonality

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


Trade Names, Service Marks and Logo Types

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

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

The Company also has devoted substantial efforts to the development of a series
of manuals which provide operation and management guidelines for ONE HOUR
MOTOPHOTO 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.


Regulation

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

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


Supply Contract

The Company acts as a distributor to franchisees for Fuji photographic chemistry
and film; it also purchases Fuji products for its Company-owned stores.

The Company has a supply contract with Fuji Photo Film U.S.A., Inc. (`Fuji''),
in which the Company has agreed that it and its franchisees will purchase at
least 80% of total system requirements ("the Purchase Requirement"), as defined
in the supply agreement, of photographic paper, equipment and chemistry from
Fuji, and at least 80% of forecasted system requirements for specified products
("the Forecast Requirement").  In the event of a failure to do so, dividends
otherwise payable on the Series G Preferred Stock in 1998 and beyond may be
increased.  An uncured Purchase Requirement default would also give Fuji the
right to elect a majority of the Board of Directors of the Company if the Series
G Preferred Stock is not redeemed.  The supply contract has a term ending on
December 31, 1998 and is subject to renewal for an indefinite number of three-
year terms.  If the Company redeems the Series G Preferred Stock, the supply
contract will be extended to the third anniversary of the redemption without
right of renewal.

If the Company defaulted under the supply contract, the Company would have to
find a source of funds to redeem the Series G Preferred Stock if it chose not to
redeem it in common stock or if the holder choose not to accept redemption in
common stock.  It would also have to find another supplier for system
requirements of paper, chemistry and equipment; however, these products are
available from alternate vendors at comparable prices.  The Company met the
Purchase Requirement and the Forecast Requirement for 1996 and anticipates that
it will be able to achieve the Purchase Requirement and the Forecast Requirement
in the future.

During the fourth quarter of 1994, the Company changed, on a temporary basis,
its primary supplier of photographic paper from Fuji to Agfa, a division of
Miles, Inc.  Fuji, then the Company's principal supplier of photographic paper,
entered into an agreement with the United States Department of Commerce to
resolve dumping claims brought by Eastman Kodak Company, which required Fuji to
raise prices of its photographic paper in the United States.  In May, 1996, Fuji
opened a plant in the United States, enabling it to sell photographic paper at
competitive prices that were lower than the transitional purchasing
arrangements, and the Company began using Fuji again as its primary supplier of
photographic paper.


Competition

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

Principal competitive factors in the industry are convenience, quality of
service, quality of product, price, and timeliness.  Centralized photo
processors can offer their services at significantly lower prices than those of
the Company and its franchisees, although the customer may wait several days for
photo processing.  The Company's one-hour concept provides the market with more
timely service.  In addition, personnel at ONE HOUR MOTOPHOTO stores are trained
to be able to advise customers on picture-taking.  The Company maintains quality
control standards intended to assure that the quality of one-hour processing is
at least comparable to other methods of photo processing.

The operating history of the Company and its franchisees indicates that
substantial demand exists for the one-hour photo service offered by the Company
and its franchisees; however, significantly lower prices offered by already
established centralized photo processing outlets and others may adversely affect
the business of the Company and its franchisees.  Factors allowing the Company
and its franchisees to realize higher prices are quality and speed of service,
the variety of imaging services offered by the Company and its franchisees, and
the personalized service and photographic expertise of store associates, the
result of the Company's training programs.

The photo processing industry in which the Company operates is introducing new
products and services, such as digital imaging products and the Advanced Photo
System, introduced in 1996.  The Company has introduced, and will continue to
introduce, these products and services into its franchised and company stores as
the markets for these products demonstrate commercial viability.

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

In addition to competition in the photo processing industry, 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 ONE HOUR MOTOPHOTO franchises.


Expansion Plans

The Company is planning to expand its offerings of one-hour photo processing and
portrait services as quickly as reasonably practicable in order to assure its
market position in the rapidly changing retail photo processing industry.  The
Company has added portrait, enlarging, video transfer and related imaging
services to the services which may be offered by ONE HOUR MOTOPHOTO stores.

During 1997, system expansion will be effected primarily through the
establishment of new franchises and conversion of profitable existing stores to
ONE HOUR MOTOPHOTO stores.  The Company plans to concentrate its efforts on
franchising new stores and refranchising existing Company-owned stores, as well
as developing and implementing operations programs to improve the profitability
of existing Company-owned stores and franchised stores.


Employees

As of February 21, 1997, the Company had 539 employees, 238 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.


ITEM  2.  PROPERTIES

The Company's primary corporate offices are located at 4444 Lake Center Drive,
Dayton, Ohio  45426.  Such offices, which have approximately 33,000 square feet
on approximately 2.4 acres of land, have been leased by the Company, pursuant to
a lease providing for rent of $18,083 per month through June 1999.  This
facility is leased from a partnership which is 76% owned by officers and
directors of the Company.  In the opinion of management, the terms of the lease
are no less favorable to the Company than terms which could be obtained from
unaffiliated third parties.  The Company has also leased additional warehouse
space and space for its telemarketing department away from the primary offices.

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

In connection with the resale of stores acquired by it, the Company assigns or
subleases to the franchisee the lease for the store premises.  In addition, in
certain instances, the Company has secured a lease for rental space and then
assigned the lease to a franchisee.  The Company is currently the lessee or
assignee of the leases for approximately fourteen ONE HOUR MOTOPHOTO stores,
which have in turn been assigned to franchisees.  In addition, at December 31,
1996, the Company was the lessee or assignee of the leases for 51 Company-owned
stores.


ITEM  3.  LEGAL PROCEEDINGS

The Company has pending against it a number of claims which it believes are
routine and incidental to its business.  These actions are being contested and
defended.  Management of the Company is of the opinion that such actions are not
likely to result in any liability which would have a material adverse effect on
the consolidated financial position of the Company or the results of operations.


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

No matters were submitted by the Company to a vote of its security holders
during the quarter ended December 31, 1996.


PART II


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

The only shares of common stock which the Company has issued are Voting Common.
At February 24, 1997, there were approximately 743 record holders of the
Company's Voting Common.  The Company's Voting Common is traded on the Nasdaq
Small-Cap Market under the symbol "MOTO."

The following table sets forth last actual transaction price for the Company's
Voting Common, as reported by the Nasdaq Small-Cap Market.  The stock prices
shown do not include mark-ups, mark-downs, and commissions.

                                                  Voting Common
                                                      Price

                                                    High   Low

1995:
     First Quarter                                 $2.88  $1.81
     Second Quarter                                 2.63   1.94
     Third Quarter                                  2.25   1.81
     Fourth Quarter                                 2.25   1.50


1996:
     First Quarter                                 $1.75  $1.13
     Second Quarter                                 2.13   1.19
     Third Quarter                                  2.13   1.75
     Fourth Quarter                                 2.13   1.63

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.  Dividends
on the Series G Preferred Stock in the aggregate amount of $600,000 are payable
in 1997.  Any payment of cash dividends on common stock in the future will be
dependent upon the prior payment of any dividends on the Series G Preferred
Stock, the amount of funds legally available therefor, the Company's earnings,
financial condition, capital requirements, satisfaction of debt and other
contractual covenants restricting the payment of dividends, and other factors
which the Board of Directors deems relevant.

<TABLE>
ITEM  6.  SELECTED FINANCIAL DATA

     The selected financial data of the Company is set forth below
<CAPTION>

<S>         <C>          <C>           <C>          <C>           <C>
             Year Ended    Year Ended   Year Ended    Year Ended   Year Ended
             December 31,  December 31, December 31,  December 31, December 31,
                1996          1995         1994          1993         1992


Revenue      $43,287,566   $42,217,722  $40,144,886   $38,866,397  $37,321,492

Net Income 
(Loss)       $ 1,073,873   $(5,673,647) $   725,230   $   537,516  $   330,535

Net Income 
(Loss)
Applicable
to Common 
Stock        $   784,583   $(5,307,782) $  (395,495)  $  (549,463) $  (345,613)

Net Income 
(Loss) Per   $       .10   $      (.69) $      (.07)  $      (.10) $      (.04)
Common Share

Working Capital

(Deficit)    $  (250,611)  $(1,551,817) $  (251,921)  $(2,257,570) $(2,852,106)

Stockholder's 
Equity       $ 2,538,198   $ 1,908,325  $ 8,909,595   $ 7,660,215  $ 5,855,324

Long-Term 
Obligations  $ 8,207,762   $ 7,895,652  $ 7,288,842   $ 5,832,028  $ 7,224,086

Total
Assets       $20,485,212   $21,324,474  $26,568,526   $22,955,841  $21,972,389

Common 
Shares         7,785,973     7,687,249    5,664,446     5,616,201    9,056,296
Outstanding (1)

Number of 
Stores Open          446           447          433           397          369


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














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


GENERAL

Through the granting of franchises, conversion of independent stores, and
acquisitions, Moto Photo, Inc. (`the Company'') has developed a system of 446
operational stores at December 31, 1996 compared to 447 at December 31, 1995.

Systemwide sales increased to approximately $136,000,000 in 1996 from
$130,000,000 in 1995.  The Company plans to grow through granting new
franchises, conversion of independent stores to franchise stores, and sale of
selected Company-owned stores as franchises (`refranchising''), as well as
increasing the average sales per store older than one year from $360,000 to
$500,000.  By 2000, the Company plans to have a 600 store system with systemwide
sales of $300,000,000.

The Company operates primarily in the specialty retail channel of the photo
processing industry (see ``ompetition'' on p. 7).  There is a consolidation of
specialty retail outlets occurring and the Company estimates that the four
largest chains, of which the Company is one, have approximately 35-40% of the
specialty retail photo processing market.  The Company estimates its share at
approximately 7% - 8% of the total.

The Company believes it is well positioned to be one of the major chains in the
market as the consolidation continues because of its unique advantage of being
the only significant franchisor in the industry. In a business where customer
service and satisfaction are critical success factors, franchisees generally
provide a higher level of service and customer satisfaction than company owned
outlets.  Furthermore, the Company believes its offerings are different than
many of its competitors, thereby giving the Company a further advantage.

The more stores the system has in a given local market, the better the stores in
that market will generally do.  Therefore, continued growth in target markets is
an important strategy for the Company's long range growth.

The Company believes that 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, in markets where
there are Moto Photo stores, is an important determinant in store results and,
therefore, Company results.

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

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

In January 1995, the Company redeemed each of the 417,500 shares of $1.20
Cumulative Convertible Preferred Stock (``1.20 Stock'') and satisfied a
cumulative dividend arrearage of $2,004,000 in exchange for $2.00 in cash and
five Common shares (``he Redemption''), resulting in a  $835,000  cash payment
and the issuance of 2,087,500 common shares.  Concurrently, the Series E and
Series F Preferred Shares were exchanged for $10,000,000 of cumulative non-
voting Series G Preferred Stock (``eries G Stock'').  The Redemption and the
Series G transaction lowered the preferred dividend requirements and accordingly
increased the net income or decreased the net loss per common share.  (See Note
G)


RESULTS OF OPERATION 1996 VS. 1995

In 1996 the Company recorded a net income of $1,073,873, or $.10 per common
share, compared to net loss of $5.7 million, or a loss per common share of $.69,
for 1995. Per share amounts are after provision for various preferred dividend
requirements. 1995 loss per common share also include a one time positive
adjustment of $673,219, or $.09 per share resulting from redemption of the $1.20
Stock (See Note G).  Company revenues increased $1 million, or 2.5%, in 1996
compared to 1995.  The factors accounting for these changes are discussed below.

Company store sales in 1996 declined $1,300,000, or 6%, compared to 1995.
Company comparable store sales increased $500,000, or 3%.  The lower number of
Company stores operated this year accounted for a $1.8 million decrease in
Company store sales.  Company store cost of sales and operating expenses
decreased by 2.9% of sales or in 1996 compared to 1995, as a result of lower
management overhead costs (.5%) and higher margins on certain merchandise
(1.2%).  The balance of the cost and expense reduction was primarily due to
spreading fixed costs over higher sales per store for the stores remaining in
the Company portfolio.

Future contributions from Company stores depends primarily on the Company's
ability to maintain and increase its comparable stores sales by achieving growth
in base sales and offering other products and services as well as being able to
continue to improve costs and operating expenses.  The Company's 1997 financial
planning assumption is that comparable store sales and costs will increase 1.6%.
Each 1% variance in sales will affect pre-tax contribution by approximately

$80,000.  The timing of the sale of Company stores will also affect this
contribution.

In 1995 the Company determined that its concept is being more effectively
implemented in the marketplace by franchisees rather than through Company
stores.  Accordingly, the Company decided to  refranchise 32 of its Company
stores while retaining a core group of approximately 21 company stores to be
used for training and  testing and research sites for products, services and
systems.  The Company recorded a restructuring charge of $5.8 million to write
down the book value of these stores to their fair value less costs to sell in
1995 and $510,000 in 1996 (See Note L).  Five Company stores were sold in 1996
pursuant to this plan.  As a result, a significant decline in Company store
sales, cost of sales and operating expenses is anticipated once the closings and
sales are final.  The Company anticipates that it will be two years before
substantially all the remaining stores are sold and many of these stores will
continue to operate as company stores through 1997 and into 1998.

1996 merchandise sales increased $2.1 million, or 13.6%, compared to 1995
primarily as a result of approximately a 7% increase in franchise comparable
store sales, more franchise stores ordering paper and chemistry supplies from
the Company (5%), and increased sales of film due to more targeted film
marketing efforts (2%).  Merchandise cost of sales and operating expenses
increased 1.5% of sales in 1996 compared to 1995 due to increased bad debt
expenses of 2% of sales, partially offset by an increase in margins on color
paper.  In 1994, the Company's principal supplier of photographic paper, Fuji
Photo Film USA, Inc. (``uji'') raised prices as a result of entering into an
agreement with the United States Department of Commerce to resolve dumping
claims brought by Eastman Kodak Company.  That decision required the Company to
make transitional purchasing arrangements with another supplier, who because of
the relatively temporary contract, charged higher prices that the Company could
not pass on.  A Fuji production facility in the United States became operational
in May 1996, permitting the Company to return to Fuji as its principal supplier
at competitive prices that were lower than the transitional purchasing
arrangements.  The Company anticipates a full year benefit from lower paper
prices in 1997.  Although paper selling prices are lower, unit volume is
anticipated to increase, and along with other product sales, should lead to
approximately a 5% increase in total merchandise sales.

Royalty revenue increased $419,000 or 9%, for 1996 compared to 1995 primarily
due to a 7% increase in comparable franchise store sales and a generally
improved quality of franchised store.  The Company anticipates continued growth
in royalty revenues as a result of the refranchising of Company stores,
continued increases in comparable store sales, new franchise stores, and
continuing improvement in the quality of the average franchisee.

In 1996, franchise fees were significantly lower than 1995 reflecting the
opening of 22 stores in 1996 compared to 43 in 1995.  Additionally, 11 of the
1996 openings were conversion of independent stores at a very low franchise fee.
See ``tem 1 - Business''.  The Company is planning a similar level of franchise
sales in 1997 and will concentrate its development activities in existing
markets.  The decision to concentrate in core markets has led to reductions in
selling, general and administrative costs that are greater than the decreased
franchise fee revenue.  The Company is working on programs and models to
substantially increase its rate of franchise sales.  However, it is uncertain if
such programs can be initiated.

The Company refranchised five stores in 1996 at a gain of $78,051 versus two
stores in 1995, at a gain of $46,266.

Sales of telemarketing services is expanding as a marketing method for portrait
appointments and the Company began performing telemarketing services for other
businesses in 1996.  The Company expects to increase telemarketing revenues by
up to 50% as a result of obtaining additional business other than franchisee
portrait marketing.  Other income reflects a non-recurring transaction for the
sale of lease rights for a Company store which increased  both income before
taxes and net income by approximately $300,000 or $.04 per share.

Selling, general, and administrative expenses fell $755,000, or 10% for 1996
compared to 1995.  For reasons noted above, the franchise development cost
component of selling, general and administrative costs were lower by $895,000.
In 1997 selling, general, and administrative expenses are planned to increase
approximately 10% as the Company increases its spending on training, portrait
marketing, market testing of new programs, and servicing the increased
telemarketing revenue.

Advertising expenses declined $261,000 because of the lower number of Company
stores, lowered company store advertising levels, and an $88,000 decrease in
franchise advertising consistent with the Company's 1996 development plan.  In
1997 advertising expenses are planned to decrease approximately $240,000 as the
Company becomes more proficient in its advertising spending.

Depreciation and amortization expenses in 1996 were down $773,000 from 1995
primarily due to the restructuring and the revaluation of Company stores to fair
value in anticipation of refranchising thirty-two stores, and closing 5 others.
Depreciation and amortization expenses are anticipated to increase approximately
10% in 1997.

Interest expense increased $57,000, or 14%, for 1996 compared to 1995 primarily
due to higher interest rates and increased borrowings.  Interest expenses will
increase in 1997 due to increased borrowing primarily incurred to pay $2.3
million of extended trade credit.  As Company stores are sold, the Company
anticipates using any cash generated to reduce borrowing and therefore, interest
expense.

Income tax expense in 1996 was $850,000 with an effective tax rate of 44%
compared to no income tax expense in 1995 reflecting profitable operations
versus a large loss.  The 1996 effective state income tax rate was 13% due to
non recognition of operating loss carryforwards by many states.  In 1997 the
effective tax rate is anticipated to be under 40% depending on when certain
stores close.


RESULTS OF OPERATION 1995 VS 1994

In 1995 the Company recorded a net loss of $5.7 million, or $.69 per common
share, compared to net income of $725,000, or a loss per common share of $.07,
for 1994.  Exclusive of a $5.8 million restructuring charge described below, the
Company's 1995 net income was $126,000, or $.02 per share.  Per share amounts
are after provision for various preferred dividend requirements. 1995 earnings
per common share also include a one time positive adjustment of $673,219
resulting from redemption of the $1.20 Stock (See Note G).  Company revenues
increased $2.1 million, or 5%, in 1995 compared to 1994.  The factors accounting
for these changes are discussed below.

Company store revenues in 1995 declined $386,000, or 2%, compared to 1994.
Company comparable store sales decreased $215,000, or 1%, with the balance of
the decrease accounted for by differing number of Company stores operated in
each period. Company store cost of sales and operating expenses increased by
2.3% of sales  in 1995 compared to 1994, because of higher paper and outlab
costs, and increasing labor and fixed expenses.

In the fourth quarter of 1995, the Company determined that its concept is being
more effectively implemented in the marketplace by franchisees rather than
through Company stores.  Accordingly, the Company decided to  refranchise 32 of
its Company stores while retaining a core group of approximately 21 company
stores to be used for training and testing and research sites for products,
services and systems.  The Company recorded a restructuring charge of $5.8
million to write down the book value of these stores to their fair value less
costs to sell (See Note L).  As a result, a significant decline in Company store
sales, cost of sales and operating expenses is anticipated once the closings and
sales are final.

1995 merchandise sales increased $1.7 million, or 12%, compared to 1994
primarily as a result of franchise stores in operation increasing to 388 at
December 31, 1995 from 364 at December 31, 1994 as well as approximately a  9%
increase in franchise comparable store sales.  Merchandise cost of sales and
expenses increased $2.1 million, or 4.6% of sales in 1995 compared to 1994
primarily as a result of increased paper costs which the Company was not able to
pass on to its franchisees.  In the fourth quarter of 1994, the Company's
principal supplier of photographic paper, Fuji Photo Film, USA, Inc. (``uji'')
raised prices as a result of entering into an agreement with the United States
Department of Commerce to resolve dumping claims brought by Eastman Kodak
Company.  This required the Company to make transitional purchasing arrangements
with another supplier who, because of the relatively temporary contract, charged
higher prices.  The Company anticipates this situation to be corrected in mid-
1996 when Fuji's new U.S. production facility is operational.
The Company will then use Fuji as its primary supplier at pre-1995 cost levels.

Royalty revenue increased $730,000, or 20%, for 1995 compared to 1994.  Royalty
revenue increases are primarily the result of more stores in operation and
increases in comparable franchise store sales of approximately 9%.

In 1995 franchise fees were $301,000 lower than 1994 reflecting the opening of
43 stores in 1995 compared to 59 in 1994.  The Company is planning to slow its
opening of new markets and concentrate is development activities in existing
markets.  The decision to concentrate in core markets should lead to reductions
in selling, general and administrative costs that are greater than the decreased
franchise fee revenue.

The Company refranchised two stores in 1995, at a gain of $46,266.  In 1994, the
gain is from the sale of the Company interest in a joint venture store in
Canada.  Investment income increased due to more interest income on a larger
note receivable balances.

Other income represents sales to franchisees for telemarketing services  which
is expanding as a marketing method for portrait appointments. In addition, 1994
other income includes $67,901 from the sale of the Company's investment in a
joint venture.

Selling, general, and administrative costs rose $709,000, or 10% for 1995
compared to 1994.  The Company incurred added costs associated with the
expansion, physical move and conversion of its telemarketing center to an
automated operation and the growth of that operation.  As noted above,
telemarketing revenues and therefore expenses are anticipated to increase but
the franchise development cost component of selling, general and administrative
costs will be lower.

Advertising expenses declined $71,000 because of lower Company store revenues
and increased emphasis on telemarketing as a marketing method.

Depreciation and amortization expenses in 1995 are up $43,000 from 1994.  Due to
the restructuring and the revaluation of Company stores to fair value in
anticipation of refranchising thirty-two stores, depreciation and amortization
expenses  are anticipated to decrease over $600,000 in 1996.


Interest expense increased $136,000, or 52%, for 1995 compared to 1994 primarily
due to higher interest rates and increased borrowings.  As stores are
refranchised, the Company anticipates using the cash generated to reduce
borrowing and thereby, interest expense.

There is no reported income tax expense for 1995 as outlined in Note I.


LIQUIDITY AND CAPITAL RESOURCES

In 1996 cash provided by operating activities increased by $2.2 million from
$100,000 in 1995 to $2.3 million in 1996.  Contributing to this change was an
increase in net income prior to restructuring charges of $1.5 million, a
$900,000 increase in accounts payable and accrued expenses, and $400,000 less of
an increase in net accounts receivable.  These increases were offset by an
$800,000 reduction in depreciation and amortization expenses.

In 1995 as compared to 1994, cash provided by operating activities decreased by
$2 million.  The primary change was that in late 1994 the Company purchased
large inventories of paper in anticipation of rising prices.  This resulted in a
$2 million increase in accounts payable and a $1 million increase in inventory
in 1994 for an increase in net cash provided by operations of $1 million.
Higher net income and charges in lieu of income taxes in 1994 accounted for most
of the balance of the difference between the two years in net cash provided by
operating activities.  In 1997 the Company will repay the $2 million of
increased accounts payable provided by the supplier for these increased
purchases.  The source of these funds will be bank borrowing.

Excluding the payables payment, in 1997 the Company anticipates increasing  cash
provided by operations, due to increases in net income and with no gain on sale
of a store lease increased in 1997.

In 1996 there was net cash provided by investing activities of over $800,000 as
compared to net cash utilized in investing activities in both 1995 and 1994 of
over $1 million each year.  Reduced purchases of property and equipment in 1996
accounted for most of the change.  The reduced purchases of property and
equipment were largely driven by the Company's change in emphasis from Company
stores to franchise stores and a corresponding reduction of its capital spending
program because of stores sold, closed and held for sale.

Also, there were proceeds from the sale of property and equipment of almost
$400,000 more in 1996 than in 1995, and over $500,000 more than in 1994.  As the
Company completes its program of selling its Company stores as franchises, it
will generate proceeds from the sale of property and equipment, however,
$395,000 in 1996 is a non-recurring transaction due to the sale of the lease
rights for a Company store lease.  Therefore, in 1997 and beyond the proceeds
from the sale of property and equipment may be more or less than the 1996
amount.

The Company used $3.2 million of cash in financing activities as funded debt was
reduced in 1996 as compared to 1995, when borrowings increased to fund the
redemption of the $1.20 Preferred Stock and the payment of preferred dividends.

In 1997 the Company will increase borrowings to fund $500,000 of its planned
1997 capital expenditures of $750,000 and to reduce payables as mentioned above.
The Company's material capital commitments consist primarily of long term
obligations (see Notes E and F).  Additionally, the Company has a dividend
commitment on its Series G preferred stock of $600,000 in 1997.  Funds for
repaying these commitments are anticipated to be generated primarily from
operations in 1997 and beyond, however the Company anticipates obtaining
financing for a portion of its planned capital expenditures in 1998 and
subsequent years.

The revolving credit agreement with suppliers is expiring in December 1998 and
is subject to renewal for an indefinite number of three year terms. If the
Company can not renew this agreement, the Company will be required to refinance
this credit agreement.

The Company has available a $3 million line of credit, of which nothing was
outstanding as of December 31, 1996.  This line expires April 30, 1998.  The
Company believes this is adequate to finance its seasonal working capital needs,
and will likely renew this or obtain a similar line in subsequent years.

The Company historically operates with a working capital deficit. The Company
believes that the nature of its business allows it to operate adequately with a
deficit working capital.  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 availability to meet seasonal needs.

The photo processing industry in which the Company operates is introducing new
products and services.  For example, the Advanced Photo System was introduced in
1996, and there is an increasing amount of digital imaging products being
brought to the market.  As demand for some or all of these products and services
increase, the Company's commitments for capital expenditures may need to be
increased over its normal levels.  This would probably require additional
financing, which the Company believes can be obtained.  However, it is uncertain
as to when these expenditures will be needed and what amounts may be required.

On December 31, 1996, the Company had income tax loss carryforwards, tax credits
and deductible temporary differences of approximately $4.2 million.   The tax
benefit of these carryforwards has a $3.1 million valuation allowance for
financial reporting purposes (see Note I).  These items, when used for tax
purposes, preserve liquidity and capital resources because tax payments are
reduced by realization of these deferred tax assets.  The Company anticipates
utilizing its tax loss carryforwards and tax credits during 1997.

The Company has $10,000,000 of Series G Preferred Shares outstanding which are
due in 1999 under certain circumstances .  (See Note G)  These shares can only
be retired by an exchange for common shares or from the proceeds of an equity
offering.  It is uncertain as to how or when the Series G Preferred will be
retired.

All statements, other than statements of historical fact included in this form
10K, which address activities, events or developments which the Company expects
or anticipates will or may occur in the future constitute, `forward looking
statements''within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These statements are based on certain assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions and expected future developments, as well as other factors it
believes are appropriate in the circumstances.  These forward looking statements
are subject to all the risks, and uncertainties incident to the Company's
business including, without limitation, competition in the photo processing
industry, possible development of new technology affecting the Company's ability
to compete, uncertainties with respect to the ability of the Company to expand
its business through franchising, new store development, the level of consumer
acceptance of the Company's programs and services, continued stability in market
prices of key supply items, decline in demand for the products and services
offered, continuity of management, liquidity of its franchise system, the
ability of the Company to locate and obtain favorable store sites at acceptable
lease terms,management's ability to manage its franchisee, lender and supply 
relationships, economic conditions, the effect of severe weather  or natural 
disasters and competitive pressure from other retailers.  For all of the 
foregoing reasons, actual results may vary materially from the forward 
looking statements.   The Company assumes no obligation to update any forward 
looking statements.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     None.

PART III.

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11.  EXECUTIVE COMPENSATION

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Items 10-13 are incorporated by reference from the definitive proxy statement
for the Company's 1997 annual meeting of shareholders to be filed pursuant to
Regulation 14A.

PART IV

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

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

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

          2.   Exhibits:  See Exhibit Index immediately preceding Exhibits

    (b)   Reports on Form 8-K.  The Company filed no report on Form 8-K during
          the quarter ended December 31, 1996.




SIGNATURES

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


                                MOTO PHOTO, INC.



                                By:   /s/ David A. Mason
                                     David A. Mason
                                     Executive Vice President


March 26, 1997



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


/s/ Michael F. Adler
Michael F. Adler                                              March 26, 1997
                                Chairman of the Board,
                                Chief Executive
                                Officer, and Director
                                (Principal Executive
                                Officer)



/s/ David A. Mason                                             March 26, 1997
David A. Mason                  Executive Vice President,
                                Treasurer, Assistant
                                Secretary, and Director
                                (Principal Financial
                                Officer)




/s/ Frank W. Benson
Frank W. Benson                                               March 26, 1997
                                Director




/s/ Leslie Charm                                              March 26, 1997
Leslie Charm                    Director



/s/ Dexter B. Dawes
Dexter B. Dawes                                               March 26, 1997
                                Director



/s/ Harry D. Loyle
Harry D. Loyle                                                March 26, 1997
                                Director




/s/ Douglas M. Thomsen                                        March 26, 1997
Douglas M. Thomsen
                                Director




/s/ Alfred E. Lefeld                                          March 26, 1997
Alfred E. Lefeld                Vice President and Controller
                                (Principal Accounting Officer)





                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Moto Photo, Inc.

We have audited the accompanying consolidated balance sheet of Moto Photo, Inc.
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Moto
Photo, Inc. at December 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.


/s/ Ernst & Young LLP
Ernst & Young LLP

Dayton, Ohio
February 28, 1997



MOTO PHOTO, INC. AND SUBSIDIARIES
<TABLE>

CONSOLIDATED BALANCE SHEETS
<CAPTION>

<S>                                                  <C>          <C>
                                                             DECEMBER 31
                                                          1996         1995


Assets

Current assets:
 Cash                                                 $1,398,944   $1,539,688
 Accounts receivable, less allowances of $1,218,000
  in 1996 and $769,000 in 1995                         5,518,380     ,068,668
 Notes receivable, less allowances of $133,000 in
  1996 and $70,000 in 1995                               292,419      269,000
 Inventory (Note B)                                    1,794,335    1,681,351
 Deferred tax assets (Note I)                            316,000      730,000
 Prepaid expenses                                         47,176      564,131

Total current assets                                   9,367,254    9,852,838

Property and equipment (Notes C and L)                 2,828,830    3,130,533

Other assets:
 Notes receivable, less allowances of $860,000 in
  1996 and $515,000 in 1995                            1,876,444    1,695,397
 Cost of franchises and contracts acquired (Note B)      214,479      293,565
 Goodwill (Notes B and L)                              4,407,058    4,898,385
 Deferred tax assets (Note I)                            766,000      352,000
 Other assets (Note D)                                 1,025,147    1,101,756



Total assets                                          $20,485,212  $21,324,474


</TABLE>



MOTO PHOTO, INC. AND SUBSIDIARIES

<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>

<S>                                                   <C>           <C>

                                                              DECEMBER 31
                                                           1996         1995


Liabilities and stockholders' equity
Current liabilities:
Line of credit                                         $         0  $ 1,000,000
Note payable                                               250,000      750,000
Accounts payable                                         6,245,879    6,711,669
Accrued payroll and benefits                             1,167,112      740,742
Accrued expenses                                         1,213,765      815,221
Current portion of long-term obligations
(Notes E and F)                                            587,859    1,214,023
Other                                                      153,250      173,000

Total current liabilities                                9,617,865   11,404,655

 Long-term debt (Note E)                                 7,752,070    7,399,327
 Capitalized leases (Note F)                               455,692      496,325
 Deferred revenue                                          121,387      115,842

 Stockholders' equity (Note G):
Preferred stock $.01 par value:
Authorized shares - 2,000,000:
     Series G cumulative nonvoting preferred shares,
     1,000,000 shares issued and outstanding with
     preferences aggregating $10,000,000                    10,000       10,000
 Common shares $.01 par  value:
   Authorized shares - 30,000,000
   Issued and outstanding shares - 7,785,973 in 1996
   and 7,785,973 in 1995                                    77,860       77,860
Paid-in capital                                          6,858,900    7,013,610
 (Deficit)retained earnings subsequent to June 30, 1991 (4,408,562)  (5,193,145)

 Total stockholders' equity                              2,538,198    1,908,325

Total liabilities and stockholders' equity             $20,485,212  $21,324,474



<FN>
See accompanying notes.

</TABLE>


MOTO PHOTO, INC. AND SUBSIDIARIES

<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
<S>                      <C>          <C>          <C>
                             YEAR ENDED DECEMBER 31
                           1996          1995         1994


Revenues

Company store sales      $18,704,617  $19,971,920  $20,357,841
Merchandise sales         17,531,497   15,430,221   13,716,568
Royalties                  4,864,783    4,445,891    3,715,863
Franchise fees               829,714    1,755,792    2,057,147
Investment income            214,614      179,778      126,240
Gain on sale of stores
(Note B)                      78,051       46,266       67,901
Telemarketing revenue        668,754      387,854      103,326
Other income (Note F)        395,536         -             -

                          43,287,566   42,217,722   40,144,886

Expenses

Company store cost of
 sales and operating      15,378,376   17,001,010   16,861,394
 expenses
Merchandise cost of 
 sales and operating      15,737,891   13,621,369   11,481,155
 expenses
Selling, general, and 
administrative costs       7,054,163    7,809,666    7,100,670
Advertising                1,469,531    1,730,389    1,801,537
Depreciation and 
amortization                 757,673    1,530,837    1,487,466
Interest expense             455,404      398,098      262,434
Restructuring charge 
(Note L)                     510,655    5,800,000          -

                          41,363,693   47,891,369   38,994,656


Income (loss) before 
  income taxes             1,923,873   (5,673,647)   1,150,230
Income taxes (Note I):
 Current                     794,000         -         287,000
 Deferred                       -            -        (272,000)
 Charge in lieu of 
  income taxes                56,000         -         410,000

                             850,000         -         425,000

Net income (loss)          1,073,873   (5,673,647)     725,230

Dividend requirements (Note G):
 Adjustment to net 
  income applicable to 
  common                          -       673,219          -
   shares
 $1.20 cumulative 
   preferred shares               -          -        (501,000)
 Series E and F preferred
   shares                    210,710       92,646     (619,725)
 Series G preferred 
  shares                    (500,000)    (400,000)         -

Net income (loss)
  applicable to common 
  shares                 $   784,583  $(5,307,782) $  (395,495)



Net income (loss) per 
  common share           $      0.10  $     (0.69) $     (0.07)



<FN>
See accompanying notes.


</TABLE>

                      Moto Photo, Inc. and Subsidiaries
<TABLE>
               Consolidated Statements of Stockholders' Equity

<CAPTION>

<S>                                   <C>                 <C>                 <C>                 <C>
                                   PREFERRED STOCK (Note G)

                           $1.20             SERIES E            SERIES F            SERIES G
                     SHARES    AMOUNT    SHARES    AMOUNT    SHARES    AMOUNT    SHARES    AMOUNT


Balance at 
December 31, 
1993                417,500      4,175  370,000   3,700     630,000      6,300
                                                                                                  -     -

Balance at 
December 31, 
1994                417,500      4,175   370,000     3,700  630,000      6,300
                                                                                                  -     -
Exchange of
 $1.20 preferred
 stock for common
 stock             (417,500)    (4,175)
 Exchange of Series 
 E and F
 preferred stock 
 for Series                             (370,000)   (3,700)(630,000)    (6,300) 1,000,000   10,000
 G preferred stock

Balance at 
December 31, 
1995               $                     $                  $                   1,000,000  $10,000

Balance at 
December 31, 
1996               $                     $                  $                   1,000,000  $10,000


</TABLE>







                      Moto Photo, Inc. and Subsidiaries
<TABLE>
         Consolidated Statements of Stockholders' Equity (continued)
<CAPTION>
<S>                 <C>       <C>                      <C>         <C>
                      COMMON STOCK                   PAID IN     RETAINED
                    SHARES    AMOUNT                 CAPITAL     EARNINGS

Balance at 
December 31, 
1993               5,618,673   56,187              6,907,502     682,351
 Common stock
 issued             76,467        764                 88,386
 Series E and 
  F accreted                                          619,725    (619,725)
  preferred dividend
 Net income                                                       725,230
 Use of net operating loss
  carryforwards
  (Note I)                                           410,000
 Tax benefit of stock
  options exercised                                   25,000
Balance at December
 31, 1994         5,695,140    56,951              8,050,613      787,856
 Exchange of $1.20 
preferred stock for 
common stock      2,087,500   20,875                (16,700)
 Redemption payments and
  costs associated with the
  exchange of stock                                 (931,998)
 Reversal of Series E and F
  previously accreted
  preferred dividend                                 (92,646)     92,646
 Series G preferred dividend
  paid                                                          (400,000)
 Stock option 
  exercise           3,333        34                   4,341
 Net loss                                                     (5,673,647)
Balance at December 31, 
1995             7,785,973 $  77,860              $7,013,610 $(5,193,145)
 Reversal of Series E and F
  previously accreted
  preferred dividend                                (210,710)    210,710
 Series G preferred dividend
  paid                                                          (500,000)
 Net income                                                    1,073,873
    Use of net operating loss
  carryforward (Note I)                               56,000
Balance at December 31, 
1996            7,785,973 $  77,860               $6,858,900 $(4,408,562)


<FN>
See accompanying notes
</TABLE>


MOTO PHOTO, INC. AND SUBSIDIARIES

<TABLE>
CONSOLIDATED STATEMENTS OF CASHFLOW

<CAPTION>
<S>                                                 <C>           <C>          <C>
                                            YEAR ENDED DECEMBER 31
                                       1996         1995          1994


OPERATING ACTIVITIES
Net income (loss)                 $ 1,073,873  $(5,673,647) $   725,230
Adjustments to reconcile 
 net income to net
 cash provided by operating 
 activities:
Restructuring charge                  510,655    5,800,000          -
Depreciation and amortization         757,673    1,530,837    1,487,466
Charge in lieu of income tax           56,000          -        410,000
Deferred tax benefit                                   -             -       (272,000)
Provision for losses on inventory 
 and receivables                    1,325,101      698,193      501,469
Notes receivable increase as a 
 result of franchise sales           (185,500)    (162,625)     (87,500)
Provision for loss on sale or 
 disposition of equipment             129,564        9,157      133,885
Gain on sale of stores               (473,587)     (46,266)         -
Increase (decrease) resulting 
from changes in:
   Accounts receivable             (2,164,947)  (1,956,431)  (1,633,491)
   Inventory and prepaid 
    expenses                          296,281      (39,789)  (1,130,752)
   Other assets                       (42,218)       2,429     (158,184)
   Accounts payable and accrued
    expenses                          999,482       72,222    2,122,598
   Deferred revenues and other 
    liabilities                       (19,205)    (133,590)      53,409

Net cash provided by operating 
   activities                       2,263,172      100,490    2,152,130

INVESTING ACTIVITIES
Purchases of property and 
   equipment                         (290,788)   (1,547,606)  (1,266,344)
Payments received on notes 
   receivable                         499,806       138,034      188,150
Proceeds from sale of property and 
   equipment                          595,102       211,476       74,000
(Gain) loss from investments                         39,124           -        (67,901)

Net cash provided (utilized) in 
   investing                          843,244    (1,198,096)  (1,072,095)
 activities

FINANCING ACTIVITIES
Proceeds from revolving line of 
   credit and                       7,100,000     7,550,000    5,300,000
   long-term borrowings
Principal payments on revolving 
   line of
   credit, long-term debt and 
   capital lease                   (9,847,160)   (5,912,869)  (5,521,242)
   obligations
Payments of preferred dividends      (500,000)     (400,000)         -
Payments related to redemption of
   $1.20
 Preferred stock                          -        (873,934)         -
Proceeds from stock option
   exercises                              -           4,375       89,150

Net cash provided (utilized) in 
   financing                       (3,247,160)      367,572     (132,092)
 activities

Increase (decrease) in cash and 
   equivalents                       (140,744)     (730,034)     947,943
Cash and cash equivalents at 
   beginning of year                1,539,688     2,269,722    1,321,779

Cash and cash equivalents at end 
   of year                         $1,398,944   $ 1,539,688  $ 2,269,722

<FN>
See accompanying notes.
</TABLE>



A. THE COMPANY

Moto Photo, Inc. and Subsidiaries (the Company) operate in one business segment-
franchising and operation of retail photo processing stores and portrait studios
under the trade names and service marks of `ONE HOUR MOTO PHOTO'' and ``ONE
HOUR MOTO PHOTO & PORTRAIT STUDIO''and related marks.

As of December 31, 1994, the Company had 466 stores (of which 433 were
operational), including 69 operational company-owned stores, 26 stores in
Norway, and 51 stores in Canada.  As of December 31, 1995, the Company had 471
stores (of which 447 were operational) including 58 operational company-owned
stores, 23 stores in Norway and 56 stores in Canada.

During 1996, the Company closed 26 stores, refranchised five stores, and awarded
23 franchises. As of December 31, 1996, the Company had 460 stores (of which 446
were operational), including 51 operational company-owned stores, 26 stores in
Norway, and 55 stores in Canada.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.

REVENUE RECOGNITION

Franchise fees are recognized as income when substantially all services and
conditions relating to the granting of the franchise have been performed or
satisfied. Revenue from territorial development fees is deferred and recognized
as stores are opened within the development area. Royalty and company-owned
store revenues are recognized as sales are made. Merchandise revenue is
recognized when the goods are shipped.  Telemarketing revenue is recognized when
the services are rendered.

INVENTORY

Inventories are valued at the lower of cost or market. Cost is determined using
the average cost method.  Inventory is shown net of allowances of $126,000 in
1996 and $70,250 in 1995.

COST OF FRANCHISES AND CONTRACTS ACQUIRED

Cost of 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 $609,314 in 1996 and $566,448 in 1995.


B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

STORES FOR RESALE

Certain company-owned stores are offered for sale along with a franchise
agreement.  The Company generally cannot identify when or if such transactions
will occur. Consequently, until a store is refranchised, sales, results of
operations, and related assets and liabilities are included with those of the

company-owned stores. The Company refranchised five stores in 1996, two stores
in 1995, and none in 1994 (See Note L).

GOODWILL

The excess of the cost over the fair value of the net operating assets of stores
purchased is recorded as goodwill and amortized on a straight-line basis not to
exceed 40 years. Goodwill is shown net of accumulated amortization of $2,756,092
in 1996 and $2,677,242 in 1995.  The Company adopted the provisions of Financial
Accounting Standards  No. 121, ``ccounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of''in 1995.  The carrying
value of goodwill related to operating stores is reviewed if the facts and
circumstances suggest that it may be permanently impaired. If this review
indicates that goodwill will not be recoverable, as determined by the
undiscounted cash flows of the store(s) over the remaining amortization period,
the Company's carrying value of the goodwill is adjusted to its estimated fair
value. When a decision is made to dispose of a store through sale or closure,
the Company's carrying value of the store, including goodwill, is adjusted to
its estimated fair value, less costs to sell (See Note L).

PROPERTY AND EQUIPMENT

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

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

STOCK BASED COMPENSATION

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

INCOME TAXES

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

PROFIT SHARING PLAN

The Company sponsors a profit sharing plan covering all employees who meet
certain eligibility requirements. Company contributions to the Plan are
discretionary and subject to the approval of the Board of Directors. Profit
sharing expense was $125,000 in 1996, $25,000 in 1995, and $55,000 in 1994.



NET INCOME (LOSS) PER COMMON SHARE

Net income (loss) per common share is calculated by dividing net income (loss)
after preferred dividend requirements for preferred shares by the weighted
average number of shares of common stock and dilutive common stock equivalents
outstanding during the year. Net income (loss) per common share is based upon
7,785,973 shares in 1996, 7,687,249 shares in 1995, and 5,664,446 shares in 1994
(see Note G).

USE OF ESTIMATES

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

C. PROPERTY AND EQUIPMENT
<TABLE>
The following is a summary of property and equipment as of December 31:
<CAPTION>

<S>                                    <C>          <C>

                                           1996          1995


Processing equipment and other         $ 7,304,560   $ 7,436,607
Leasehold improvements                   3,047,396     3,311,926
Furniture and fixtures                     970,673     1,046,966

                                        11,322,629    11,795,499

Accumulated depreciation and             8,493,799     8,664,966
amortization

Net book value                         $ 2,828,830   $ 3,130,533


</TABLE>

Depreciation and amortization expense on property and equipment for the year
ended December 31, 1996 was $567,131 ($1,118,629 in 1995 and $1,067,674 in 1994)
(See Note L).

D. OTHER ASSETS

Other assets include the following items, net of accumulated amortization of
$212,500 in 1996 and $187,500 in 1995 as of December 31:

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

                                         1996          1995


Non-compete agreements               $  787,500    $  812,500
Other                                   237,647       289,256

                                     $1,025,147    $1,101,756


</TABLE>


E. LONG-TERM DEBT AND OTHER OBLIGATIONS

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

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

                                        1996         1995

Note payable to bank due January
1998; varying monthly principal
installments, plus interest at
prime plus 1%                       $         0   $1,366,666

Note payable to bank due December
2000; monthly principal
installments of $24,167 plus
interest at prime plus 1%                     0    1,450,000

Note payable to bank due July 1998;
monthly principal installments of
$4,167 plus interest at 9%                    0      124,999

Note payable to bank due January
2002; varying monthly principal
installments plus interest at 9.29%
per annum                             1,968,333            0

Revolving credit agreements with
suppliers, non-interest-bearing,

expiring December 1998                6,081,000    5,431,000

                                      8,049,333    8,372,665

Portion classified as current           297,263      973,338

                                    $7,752,070    $7,399,327


</TABLE>

At December 31, 1996, the Company had a line of credit for $1,500,000 at prime
plus 1% of which nothing was outstanding.  In February 1997 the Company obtained
a new line of credit which expires April 30, 1998.  This line provides for
borrowing in amounts up to $3,000,000 at prime plus .75%.  The Company pays a
commitment fee of .25% per annum on the unused portion of the line of credit.
At December 31, 1996, the Company had a note payable to a supplier for $250,000
bearing interest at prime plus 1%.  The note was paid in February 1997.  The
weighted average interest rate for debt outstanding during 1996 was 9.26%.  The
carrying value of all debt approximates fair value.

The aggregate annual maturities on the long-term debt for the five years
subsequent to December 31, 1997 are $372,181, $6,470,808, $408,268, $427,602,
and $73,211.  Interest paid in 1996, 1995, and 1994 was $476,695, $377,780, and
$276,027, respectively.

In February 1997 the Company entered into a term loan agreement with a bank in
which the first three notes detailed above were paid by proceeds of a new loan
due 2002.

E. LONG-TERM DEBT AND OTHER OBLIGATIONS (CONTINUED)


Long-term debt and borrowings on the line of credit are secured by substantially
all of the Company's assets. The revolving credit agreements require the Company
and its franchisees collectively to purchase specified amounts of their
requirements for certain products including paper and film through the
suppliers.

F. LEASES

At December 31, 1996 and 1995, property and equipment included the following
capitalized lease obligations:


                                        1996        1995


Processing equipment                $1,379,194  $1,384,720
Accumulated amortization               485,340     714,798

                                    $  893,854  $  669,922



Future minimum lease payments for capitalized leases at December 31, 1996 are as
follows:


        Year ending December 31


1997                          $362,101
1998                           266,070
1999                           138,252
2000                            84,715
2001                            48,476

Total minimum lease payments
                              $899,614

Amount representing interest
 ranging from 5.7% to 16.2%
                               153,327

Present value of minimum lease
 payments                     $746,287

Current portion                290,595

Capitalized leases            $455,692



During 1996, 1995, and 1994, the Company incurred or assumed capital lease
obligations aggregating $283,106, $94,766, and $477,000, respectively, in
connection with equipment purchases.


F. LEASES  (CONTINUED)


The Company also has operating leases for the real estate facilities of several
franchised and company-owned stores. The facilities for the franchised stores
have been subleased or assigned to the franchisees. The lease agreements
generally require the lessee to pay the property taxes, insurance, and
maintenance. Under most lease agreements, the lessee is required to pay common
area expenses and/or a contingent rental based on a percentage of gross sales.
The Company also leases automobiles, office facilities, and equipment under
operating lease agreements. Rental expense for operating leases was $2,554,979
in 1996, $2,854,676 in 1995, and $2,714,804 in 1994, net of sublease rentals of
$409,088, $406,174, and $408,718, respectively.

In 1996 the Company sold the lease rights for a company owned store which
increased net income by approximately $300,000 for the year.

At December 31, 1996, noncancelable operating leases provide for the following
minimum annual obligations and sublease rentals:


                         LEASE      SUBLEASE     NET LEASE
                      OBLIGATIONS    RENTALS    OBLIGATIONS


1997                 $2,201,444   $  362,055   $1,839,389
1998                  1,531,341      310,215    1,221,126
1999                    929,092      229,226      699,866
2000                    556,005      164,619      391,386
2001                    429,896      139,374      290,522
2002 and thereafter     539,861       37,471      502,390



Totals               $6,187,639   $1,242,960   $4,944,679



G. STOCKHOLDERS' EQUITY

The Company has authorized 30,000,000 voting common shares and 1,000,000
nonvoting common shares. No shares of the non-voting common stock have been
issued and, unless otherwise designated, any reference herein to common shares
refers to voting common shares.

In January 1995, the Company redeemed each of the 417,500 outstanding $1.20
Preferred Shares in exchange for five common shares and $2.00 in cash. This
redemption extinguished the dividends in arrears on its $1.20 Preferred Shares
which were $2,004,000 or $4.80 per share. The difference between the market
value of the common shares and cash issued in the redemption was $673,219 less
than the aggregate liquidation value and dividend arrearage of the $1.20
Preferred Shares.  This is reflected as a one time positive adjustment to loss
applicable to common shares in 1995.

Concurrently with the redemption of the $1.20 Preferred Shares, the cumulative
non-voting Series E and F Preferred Shares were exchanged for 1,000,000
cumulative non-voting Series G Preferred Shares (`Series G Stock'').

The Series G Stock has a cumulative annual dividend per share of $.40 in 1995,
$.50 in 1996, and $.60 in 1997 and 1998.  In 1996, $500,000 ($400,000 in 1995)
of dividends were paid on Series G Stock.  The Series G Stock has a dividend
rate lower than the rate of the Series E and F Preferred Shares.  Therefore,
the 1996 dividend requirement on income or (loss) applicable to common shares
was reduced by $210,710 ($92,646 in 1995) of previously accreted Series E and F
dividends.

The Series G Stock is redeemable at any time by the Company. The holder can
redeem the Series G Stock in 1999. The 1999 redemption could be delayed up to
one year if the Company's common share price is less than $3.00, in which case
the dividend rate would be $.70 per share. 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 the stock remains unredeemed, the Company would pay
dividends of $.80 per share in 2000, $.90 per share in 2001, and $1.00 per share
per year in 2002 and thereafter.

The Series G Stock agreement contains certain covenants, the most restrictive of
which requires the Company and its franchisees collectively to purchase
specified amounts of their requirements for certain products through the
supplier. If certain covenants are not met and remain uncured, the supplier
would have the right to elect the majority of the Company's Directors, and
dividends on the Series G stock would increase in 1998.

The Company has 835,000 warrants outstanding. Each of these warrants entitles
the holder to purchase one common share for $4.25, subject to adjustments in
certain events, through December 31, 1997.  The holder of the Series G Stock
also holds warrants to purchase 1,000,000 common shares at $2.38 per share,
subject to adjustment in certain events, through September 2002.

As of December 31, 1996, 8,746,212 shares of common stock were reserved for
issuance pursuant to various outstanding options, warrants, and redeemable and
convertible securities.

H. STOCK BASED COMPENSATION

The Company has several incentive plans under which the Board of Directors or
the Compensation Committee (the Committee) of the Board of Directors may grant
awards to officers and key managerial, administrative, and professional
employees of the Company. Awards may consist of incentive, non-qualified, and
deferred compensation stock options, stock appreciation rights, restricted stock
and restricted unit grants, performance equity and performance unit grants, and
any other stock-based awards, or any combination of these awards. At December
31,1996 additional awards aggregating up to 369,714 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.




H. STOCK BASED COMPENSATION (CONTINUED)

The following summarizes the activity under these plans as of December 31:


                             1996                    1995

                    COMMON STOCK   AVERAGE   COMMON STOCK  AVERAGE
                                    PRICE                    PRICE


Outstanding at
 beginning of year    1,139,286 $1.29 - 2.53    683,333  $2.53-2.58
Granted                 445,000  1.57           503,086   2.22
Exercised                    -                   (3,333)  1.31
Expired                (599,000) 2.04           (43,800)  2.16

Outstanding at end      985,286 $1.19 - 2.38  1,139,286  $1.29-2.53
 of year                        


Exercisable at end      352,028                 553,750
 of year



The exercise price of all options granted has been at least equal to the market
value at the date of grant. The options are generally exercisable up to five
years from the grant date with the exception of 205,145 options which under
certain circumstances could be exercisable for up to nine years and nine months
from the grant date.

The Company has elected to follow Accounting Principles Board Opinion No. 25,
``ccounting for Stock Issued to Employees'' (APB 25) and related
Interpretations in accounting for its employee stock options because, the
alternative fair value accounting provided for under FASB Statement No. 123,
``ccounting for Stock-Based Compensation,'' requires use of  option valuation
models that were not developed for use in valuing employee stock options.  Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

Pro forma earnings amounts prepared under the assumption that the stock options
granted in 1996 and 1995 were accounted for based on their fair value as
determined under the Statement of Financial Accounting Standards No. 123,
`Accounting for Stock Based Compensation'' are as follows:


Pro Forma Earnings                           1996          1995


Net income (loss) applicable to common    $  629,096   $(5,348,484)
shares
Net income (loss) per common share        $     0.08   $     (0.70)

H. STOCK BASED COMPENSATION (CONTINUED)

The weighted average value of options granted during 1996 was $0.67 and $1.14 in
1995.  The fair value of each option granted during 1995 and 1996 is calculated
on the date of grant using the Black-Scholes option pricing model using the
following assumptions:


Fair Value Assumptions                 1996          1995


Dividend yield                            0%             0%
Expected volatility                      39%            39%
Risk free interest rate                 5.5%           5.5%
Expected life in years                    5         5 - 10

The effects of applying Statement of Financial Accounting Standards No. 123 in
the pro forma disclosure are not indicative of future amounts.  Statement of
Financial Accounting Standards No. 123 does not apply to awards prior to 1995.
Additional awards in future years are anticipated.

I. INCOME TAXES

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

                                  1996         1995         1994


Statutory federal income tax  $  654,000   $(1,929,000) $  391,000
Increase (decrease) resulting
 from effect of:
 Operating losses with no
  current tax benefit                -       2,086,000         -
 Nondeductible amortization
  and deductible goodwill
  related to disposed assets      39,000      (157,000)     38,800
 Realization of deferred tax         -            -       (272,000)
  asset
 AMT liability and other         (15,000)         -        198,600
State income tax expense, net
 of federal benefit              172,000          -         68,600

                              $  850,000   $      -     $  425,000



As a result of quasi-reorganization accounting treatment, $56,000 in 1996 and
$410,000 in 1994 is a charge in lieu of income taxes and payment is not required
due to use of tax loss carryforwards and the resulting financial statement
benefit is an addition to paid-in capital.



I. INCOME TAXES (CONTINUED)

At December 31, 1996, the Company had tax loss carryforwards of $409,000.  The
carry forwards expire $224,000 in 1998 and $185,000 in 2000. Utilization of
$182,000 of carryforwards expiring in 1998 is restricted to the operations of
the entity which created the loss. In addition, the Company has approximately
$190,000 of alternative minimum tax credit carryforwards which do not expire.

Deferred tax assets at December 31 are:

                                  1996        1995        1994

Loss carryforwards            $   156,000 $   604,000 $   532,000
AMT and other tax credit
 carry forwards                   211,000     223,000     290,000
Asset impairment reserves       2,271,000   2,204,000        -
Receivable allowances             914,000     681,000     202,000
Employee benefit accruals         124,000     123,000      94,000
Inventory valuation
 allowances                        80,000      54,000      72,000
Depreciation                      367,000     506,000     197,000
All other items, net              121,000      74,000      25,000

Total                           4,244,000   4,469,000   1,412,000

Deferred tax valuation         (3,162,000) (3,387,000)   (330,000)
 allowance


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



The valuation allowance was reduced by $225,000 in 1996 and $410,000 in 1994.
Of these reductions, $56,000 in 1996 and $410,000 in 1994 was added to paid-in
capital to reflect deferred tax assets existing at the quasi-reorganization
date.  At December 31, 1996, approximately $69,000 of the valuation allowance is
related to deferred tax assets existing at the quasi-reorganization date. Any
subsequent realization of this amount will be recorded as an addition to paid-in
capital.

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

The Company paid $134,000, $225,000, and $140,000, of actual and estimated
income taxes in 1996, 1995, and 1994, respectively, for alternative minimum
taxes and state income tax payments.

J. RELATED PARTY TRANSACTIONS

The Company earns incentive management fees for managing one-hour photo
processing store(s) controlled by certain officers and directors of the Company.
The Company derived revenues from these stores, including these fees, of
approximately $244,000 in 1996, $297,000 in 1995, and $395,000 in 1994.


Another franchise store is owned by a corporation owned and controlled by
officers and their families of which the Company derived revenue of $180,000 in
1996.

The Company leases its headquarters from a partnership which is 76%-controlled
by certain officers and/or directors for future annual rentals of $216,996. Rent
expense for 1996, 1995, and 1994 was $216,996, $216,996, and $209,940,
respectively.

K. CONTINGENCIES

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

L. RESTRUCTURING CHARGE

In 1995 the Company determined that its concept is being more effectively
implemented in the marketplace by franchisees rather than through company
stores.  Accordingly, the Company decided to sell as franchises 32 of its
company stores and retain only a core group of company stores to serve as
testing and research sites for products, services, and systems. Additionally,
seven company stores have been or will be closed.

In 1995 the Company recorded a $5.8 million restructuring charge related to the
sale and closure of these stores. The restructuring charge consists of $5.7
million of asset impairment reserves related to goodwill ($5.3 million) and
property and equipment ($400,000) to reduce the carrying value of the stores to
be sold or closed to their estimated fair value, less costs to sell and $100,000
for lease terminations.  

At December 31, 1996, 25 stores to be sold and 5 stores to be closed still
remain.  After review of the 1996 results of operation for these stores and
comparing the actual realized values of the five stores sold to their estimated
realizable value, an additional restructuring charge of $510,655 was recorded in
1996.  This brings the net book value ($1.7 million) of the stores to be sold 
in conformance with management's estimate of what price the stores will bring, 
less costs to sell, in transactions with prospective franchisees.

The 1996 charge consists of $372,409 of asset impairment reserves related to
goodwill and $120,246 to property and equipment and $18,000 for lease
terminations.

The company anticipates the sale of the stores will take approximately two years
to substantially complete. The stores to be sold had revenues of $8.5 million
and income of $676,000 in 1996. The stores to be closed had revenues of $1.1
million  and losses of $78,000 in 1996.



MOTO PHOTO, INC. AND SUBSIDIARIES
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>



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

                        BALANCE AT    CHARGED TO   CHARGED TO                 BALANCE AT
     YEAR ENDED        BEGINNING OF   COSTS AND       OTHER                     END OF
  DECEMBER 31, 1996       PERIOD       EXPENSES     ACCOUNTS     DEDUCTIONS     PERIOD




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

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

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

Allowance for
Property and
Equipment               5,328,000       492,655                               5,820,655


Total                  $6,825,000    $1,817,655   $359,000      $783,000     $8,218,655


<FN>

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



MOTO PHOTO, INC. AND SUBSIDIARIES
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>



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

                              BALANCE AT      CHARGED TO
        YEAR ENDED           BEGINNING OF      COSTS AND       CHARGED TO                    BALANCE AT END
    DECEMBER 31, 1995           PERIOD         EXPENSES      OTHER ACCOUNTS    DEDUCTIONS       OF PERIOD




Reserves and Allowances
deducted from Accounts and
Notes Receivable            $1,152,000      $  705,958      $               $503,958 (1)     $1,354,000

Allowance for Cash
Discounts                       96,000         (23,000)                                          73,000

Allowance for Inventory
Obsolescence                    94,000          15,235                        39,235 (2)         70,000

Allowance for Property and
Equipment                           -0-      5,328,000                                        5,328,000


Total                       $1,342,000      $6,026,193      $      -0-      $543,193         $6,825,000



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

</TABLE>


MOTO PHOTO, INC. AND SUBSIDIARIES
<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>

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

                        BALANCE AT    CHARGED TO   CHARGED TO                 BALANCE AT
     YEAR ENDED        BEGINNING OF   COSTS AND       OTHER                     END OF
  DECEMBER 31, 1994       PERIOD       EXPENSES     ACCOUNTS     DEDUCTIONS     PERIOD




Reserves and
Allowances deducted
from Accounts and      $   802,000   $  415,469   $             $ 65,469 (1) $1,152,000
Notes Receivable

Allowance for Cash
Discounts                   81,000       15,000                       -0-        96,000

Allowance for
Inventory
Obsolescence              145,000        86,000                 $137,000 (2)     94,000

Allowance for
Property and
Equipment                      -0-          -0-                       -0-            -0-


Total                  $1,028,000    $  516,469   $      -0-    $202,469     $1,342,000


<FN>

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