FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



(Mark One)



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



For the quarterly period ended:    March 31, 2002

OR



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



For the transition period from______________ to ________________





Commission file number:   0-11927





Moto Photo, Inc.





(Exact name of registrant as specified in its charter)





Delaware		                            	31-1080650  	(State or other jurisdiction of			(IRS Employer Identification Number)

Incorporation or organization)





4444 Lake Center Dr. Dayton, OH  45426



(Address of principal executive offices with Zip Code)





(937) 854-6686



(Registrant's telephone number, including area code)





No Change



(Former name, former address, and former fiscal year, if changed since last report)











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  ____





APPLICABLE ONLY TO ISSUERS 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 Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.



Yes______ No______





APPLICABLE ONLY TO CORPORATE ISSUERS



Indicate the number of shares outstanding of each of the issuer's classes of common stock:

As of May 1, 2002:

8,227,389 - Voting Common,   0 - Non - Voting Common

Index



Moto Photo, Inc. and Subsidiaries

Page(s)

Part I.		Financial Information                                                                                        1 - 12

Item 1.	Financial Statements (Unaudited)                                                                        1 - 9



Consolidated Balance Sheets

March 31, 2002 and December 31, 2001                                                   1 - 2

Consolidated Statements of Operations

Three months ended March 31, 2002 and 2001                                               3

Consolidated Statements of Cash Flows

Three months ended March 31, 2002 and 2001                                               4

Notes to Consolidated Financial Statements - March 31, 2002                             5 - 9

Item 2.	Management's Discussion and Analysis of Financial Condition

and Results of Operations                                                                                  9 - 12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk                                   12

Part II.	Other Information                                                                                                    12



Item 3.	Defaults Upon Senior Securities                                                                               12

Item 6.	Exhibits and Reports on Form 8-K                                                                           12

Signature                                                                                                                                     13



Part I.	Financial Information

Item 1.	Financial Statements

Moto Photo, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)



|                                                                                                                                                                                                               | March 31,
2002 | December 31, 
2001
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------------------
|                                                                                                                                                                                                               |                |                   
|Assets                                                                                                                                                                                                         |                |                   
|Current Assets:                                                                                                                                                                                                |                |                   
|Cash                                                                                                                                                                                                           | $468,539       | $1,372,657        
|Accounts receivable, less allowances of $845,000 in
       2002 and $858,000 in 2001                                                                                                                           | 1,811,083      | 2,541,825         
|Notes receivable, less allowances of  $18,000 in 2002                                                                                                                                                 and 2001 | 73,000         | 73,000            
|Inventory                                                                                                                                                                                                      | 906,508        | 1,014,729         
|Deferred club costs                                                                                                                                                                                            | 111,000        | 111,000           
|Prepaid expenses                                                                                                                                                                                               | 69,476         | 25,782            
|Total current assets                                                                                                                                                                                           | 3,439,606      | 5,138,993         
|                                                                                                                                                                                                               |                |                   
|Property and equipment, net                                                                                                                                                                                    | 613,561        | 660,237           
|Assets held for sale                                                                                                                                                                                           | 1,456,000      | 1,496,000         
|                                                                                                                                                                                                               |                |                   
|Other assets:                                                                                                                                                                                                  |                |                   
|Notes receivable, less allowances of  $1,711,000  in 
     2002 and  $1,840,000 in 2001                                                                                                                        | 278,277        | 269,960           
|Cost of franchises and contract acquired                                                                                                                                                                       | 45,432         | 53,381            
|Other assets                                                                                                                                                                                                   | 82,253         | 84,653            
|Total assets                                                                                                                                                                                                   | $ 5,915,129    | $ 7,703,224       
|                                                                                                                                                                                                               |                |                   





See accompanying notes.

Moto Photo, Inc. and Subsidiaries

Consolidated Balance Sheets, continued

(Unaudited)



|                                                                                                                                            | March 31,
2002  | December 31,
2001
|------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | -----------------
|                                                                                                                                            |                 |                  
|Liabilities and stockholders' deficit                                                                                                       |                 |                  
|Current liabilities:                                                                                                                        |                 |                  
|Accounts payable                                                                                                                            | $     3,923,440 | $   4,739,305    
|Accrued payroll and benefits                                                                                                                | 591,199         | 876,122          
|Accrued expenses                                                                                                                            | 768,852         | 881,100          
|Accrued restructuring expenses                                                                                                              | 694,792         | 727,000          
|Deferred club revenue                                                                                                                       | 264,536         | 264,536          
|Current portion of long-term obligations                                                                                                    | 4,903,069       | 4,808,050        
|Other                                                                                                                                       | 114,010         | 105,450          
|Total current liabilities                                                                                                                   | 11,259,898      | 12,401,563       
|                                                                                                                                            |                 |                  
|Long-term debt, less current portion                                                                                                        | -               | 290,743          
|Capitalized lease obligations, less current portion                                                                                         | 56,496          | 59,929           
|Deferred compensation, less current portion                                                                                                 | 604,250         | 645,250          
|Deferred income                                                                                                                             | 628,065         | 666,671          
|Total liabilities                                                                                                                           | 12,548,709      | 14,064,156       
|                                                                                                                                            |                 |                  
|Stockholders' deficit:                                                                                                                      |                 |                  
|Preferred stock $.01 par value:                                                                                                             |                 |                  
|Authorized shares - 2,000,000:                                                                                                              |                 |                  
|Amended 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 - 31,000,000                                                                                                              |                 |                  
|Issued and outstanding shares - 8,227,352
 in  2002 and 7,884,565 in 2001                                                                   | 82,274          | 78,845           
|Treasury stock (0 shares in  2002 and 1,227 shares
          in 2000, at par)                                                               | -               | (12)             
|Paid-in capital                                                                                                                             | 7,904,609       | 7,653,102        
|Accumulated deficit subsequent to June 30, 1991                                                                                             | (14,630,463)    | (14,102,867)     
|Total stockholders' deficit                                                                                                                 | (6,633,580)     | (6,360,932)      
|Total liabilities and stockholders' deficit                                                                                                 | $  5,915,129    | $  7,703,224     
|                                                                                                                                            |                 |                  





Moto Photo, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)



|                                                        | 3 months       | 3 months      
|------------------------------------------------------- | -------------- | --------------
|                                                        | Ended          | Ended         
|                                                        | March 31, 2002 | March 31, 2001
|                                                        |                |               
|Revenues                                                |                |               
|                                                        |                |               
|Sales and other revenue                                 | $4,821,502     | $6,385,173    
|Interest income                                         | 11,321         | 43,412        
|                                                        | 4,832,823      | 6,428,585     
|                                                        |                |               
|Expenses                                                |                |               
|                                                        |                |               
|Cost of sales and operating expenses                    | 3,946,680      | 5,221,657     
|Selling, general, and administrative expenses           | 979,929        | 1,184,998     
|Advertising expense                                     | 105,775        | 176,459       
|Depreciation and amortization                           | 54,625         | 354,749       
|Interest expense                                        | 52,868         | 113,181       
|                                                        | 5,139,877      | 7,051,044     
|                                                        |                |               
|Loss before income taxes                                | (307,054)      | (622,459)     
|                                                        |                |               
|Income tax benefit (expense)                            | -              | -             
|                                                        |                |               
|Net loss                                                | (307,054)      | (622,459)     
|                                                        |                |               
|Preferred stock dividend accretion                      | (220,542)      | (196,682)     
|                                                        |                |               
|Net loss applicable to common shares                    | $ (527,596)    | $ (819,141)   
|                                                        |                |               
|Net loss per common share - basic and diluted           | $ (0.07)       | $ (0.11)      
|                                                        |                |               
|Weighted average shares outstanding - basic and diluted | 8,055,364      | 7,794,714     

See accompanying notes.

Moto Photo, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

|                                                                                                                                         |                              |                  
|---------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | -----------------
|                                                                                                                                         | Three Months Ended March 31,
|                                                                                                                                         | 2002                         | 2001             
|                                                                                                                                         |                              |                  
|Operating activities                                                                                                                     |                              |                  
|Net loss                                                                                                                                 | $      (307,054)             | $     (622,459)  
|Adjustments to reconcile to net cash utilized in operating activities:                                                                   |                              |                  
|Depreciation and amortization                                                                                                            | 54,625                       | 354,749          
|Provision for losses on inventory and receivables                                                                                        | 106,907                      | 80,737           
|Notes receivable increases as a result of franchise activities                                                                           | (35,000)                     | (15,113)         
|Loss on disposition of assets                                                                                                            | -                            | 2,026            
|Noncash directors fees expense                                                                                                           | 34,405                       | 6,170            
|Increase (decrease) resulting from changes in:                                                                                           |                              |                  
|Income tax receivable                                                                                                                    | -                            | 240,784          
|Accounts receivable                                                                                                                      | 617,808                      | 1,157,716        
|Inventory, prepaid expenses and deferred club costs                                                                                      | 66,317                       | 75,977           
|Accounts payable, accrued payroll, benefits, and                                                                        accrued expenses | (1,245,244)                  | (1,332,602)      
|Deferred revenue and other liabilities                                                                                                   | (71,046)                     | 12,588           
|Net cash utilized in operating activities                                                                                                | (778,282)                    | (39,427)         
|                                                                                                                                         |                              |                  
|Investing activities                                                                                                                     |                              |                  
|Purchases of property and equipment                                                                                                      | -                            | (186,073)        
|Proceeds from sale of property and equipment                                                                                             | 40,000                       | -                
|Payments received on notes receivable                                                                                                    | 30,920                       | 53,840           
|Other assets                                                                                                                             | 2,400                        | 1,200            
|Net cash provided by (utilized in) investing activities                                                                                  | 73,320                       | (131,033)        
|                                                                                                                                         |                              |                  
|Financing activities                                                                                                                     |                              |                  
|Principal payments on  long-term debt and capital 
lease obligations                                                                     | (199,156)                    | (856,799)        
|Net cash utilized in financing activities                                                                                                | (199,156)                    | (856,799)        
|                                                                                                                                         |                              |                  
|Decrease in cash                                                                                                                         | (904,118)                    | (1,027,259)      
|Cash at beginning of period                                                                                                              | 1,372,657                    | 1,504,233        
|Cash at end of period                                                                                                                    | $        468,539             | $         476,974









Moto Photo, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

March 31, 2002 and March 31, 2001

"Unaudited"



A.	Basis of Presentation

The accompanying unaudited consolidated financial statements have been derived from the unaudited accounting records of Moto Photo, Inc. and its subsidiaries ("the Company") and have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of management, all adjustments (all of which are of a normal recurring nature) considered necessary for a fair presentation have been included.  Operating results for the three-month period ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002.



The internal accounting for the Company is on a fiscal calendar quarter basis.  The fiscal quarter dates may vary from the calendar quarter dates (i.e., March 30 vs. March 31 for the first quarter 2002), except for the fourth quarter, which ends on December 31.  The differences in ending dates are immaterial.



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



The accompanying consolidated financial statements have been prepared on a going concern basis of accounting and do not reflect any adjustments that might result if the Company is unable to continue as a going concern.  The Company expects to generate sufficient cash to meet its obligations, assuming the Company's debt payments are not accelerated and the Company reaches a satisfactory agreement with Fuji Photo Film U.S.A., Inc. ("Fuji") regarding repayment terms of its trade and note payables.



The Company has a $1.9 million note with Fuji, as well as accounts payable of approximately $2.7 million, subject to other claims.  In May 2001, the Company's primary bank declared the Company to be in default of certain financial covenants under an agreement with the bank, although the Company remains current with its bank payment obligations.  The bank therefore has the right to accelerate repayments of the bank debt and lease obligations; however, the bank has not given notice of any intent to accelerate these payments.  The bank agreement prohibits principal payments on the note payable to Fuji until covenant compliance is achieved.  The Company has been in negotiations with Fuji to change the Company's payment schedule on the $1.9 million note, on its accounts payable and on the terms of the Amended Series G Stock, all of which is held by Fuji.  The Company has been unable to obtain agreement at this point.  On March 21, 2002 the Company advised Fuji that it was substantially reducing its monthly payments on its past due trade payables while negotiations are pending.  There can be no assurance negotiations will be successful.



The Company terminated its supply contract with Fuji on September 17, 2001, giving rise to a redemption event ("Redemption Event") that could ultimately result in Fuji's acquiring control of the Company.



On September 17, 2001 the Company signed a three-year contract with Eastman Kodak Company ("Kodak") for the purchase of photo processing paper, film, and batteries.  The Company has agreed to purchase 100 million square feet of photo processing paper from Kodak over three years; if the Company does not meet its purchase requirement, the contract will be extended for another year.  The Company believes that, at current purchasing levels, it will be able to meet the purchase commitment within the four-year period.  In addition, the Company has agreed to purchase at least one million rolls of film and/or one-time-use cameras from Kodak each year during the term of the supply contract; if the Company fails to do so, Kodak has the right to increase film prices.  Purchases from Kodak will be made primarily for resale to franchisees.



The ability of the Company to continue as a going concern depends upon, among other things, (i) the Company's obtaining satisfactory repayment terms on the Company's indebtedness to Fuji, (ii) the Company's obtaining an amendment or waiver from the bank concerning its financial covenants or the bank's refraining from accelerating repayment of the Company's indebtedness to the bank, (iii) the Company's generating sufficient cash from operations and/or other sources to meet its obligations, and (iv) success of the Company's restructuring plan, including the sale of the company stores at their estimated sales price.  The Company believes that its revised organizational structure, adherence to its operational plan (including the sale of company stores), and the closure of unprofitable company stores will provide liquidity to allow the Company to repay its obligations, assuming no acceleration of indebtedness and no significant decrease in future revenue.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or the amount and classification of liabilities, that might be necessary should the Company be unable to continue as a going concern, except for the increased deferred tax valuation allowance and the classification of the primary bank debt and capitalized lease obligations as current



For further information, see the consolidated financial statements and footnotes thereto included in the annual report on Form 10-K of Moto Photo, Inc. and Subsidiaries for the year ended December 31, 2001.

B.	Supplemental Noncash Investing and Financing Cash Flow Information



Noncash items included noncash expense for directors fees totaling $34,405 during the first quarter of 2002 and $6,170 during the first quarter of 2001.

C

During the fourth quarter of 2001, the Company announced its plan to exit all its company-owned stores, except for the stores operated in the Dayton, Ohio area.  The balance of the stores will be franchised, sold, or, if unprofitable, closed.  Annual revenue in 2001 for the stores that will be exited was approximately $12.3 million.



Following is a summary of the accrued restructuring liabilities and related activity through March 31, 2002:



|                           |  |            | Store Selling |             
|-------------------------- |  | ---------- | ------------- | ------------
|                           |  | Severance  | And Other     | Total       
|Balance, December 31, 2001 |  | $  287,000 | $   727,000   | $ 1,014,000 
|                           |  |            |               |             
|Credited to reserves       |  | -          | -             | -           
|                           |  |            |               |             
|Charged to reserves        |  | (98,093)   | (32,208)      | (130,301)   
|                           |  |            |               |             
|Balance, March 31, 2002    |  | $  188,907 | $    694,792  | $    883,699



The severance accrual is for hourly and salaried employees whose positions were eliminated due to the franchising, selling or closing of company stores.  The store selling and other liabilities relate to estimated store fix-up and closing costs, broker and legal fees, and operating lease net termination costs.



The photo processing and printing machinery, computer equipment, furniture and fixtures, and leasehold improvements in the stores to be sold are classified as assets held for sale.  The stores are being actively marketed and for the quarter ended March 31, 2002, two stores were sold.

D.	Segment Information

Three Months Ended March 31, 2002

|                                                                                                                                            | Development  | Company Stores | Royalties and Advertising | Wholesale  | Total     
|------------------------------------------------------------------------------------------------------------------------------------------- | ------------ | -------------- | ------------------------- | ---------- | ----------
|                                                                                                                                            |              |                |                           |            |           
|Sales and other revenue                                                                                                                     | $     15,250 | $ 1,834,794    | $  808,444                | $2,163,014 | $4,821,502
|                                                                                                                                            |              |                |                           |            |           
|Depreciation and amortization                                                                                                               | 429          | 22,676         | 2,482                     | 794        | 26,381    
|                                                                                                                                            |              |                |                           |            |           
|Operating segment contribution prior
       to interest income and expense, 
       income taxes and unallocated 
       corporate expenses | (35,337)     | (642,296)      | 565,339                   | (159,489)  | (271,783) 
|                                                                                                                                            |              |                |                           |            |           
|Identifiable segment assets                                                                                                                 | 24,296       | 2,555,191      | 349,462                   | 1,994,032  | 4,922,981 
|                                                                                                                                            |              |                |                           |            |           
|Capital expenditures                                                                                                                        | -            | -              | -                         | -          | -         
|                                                                                                                                            |              |                |                           |            |           
|                                                                                                                                            |              |                |                           |            |           

Three Months Ended March 31, 2001

|                                                                                                                                            | Development     | Company Stores | Royalties and Advertising | Wholesale   | Total      
|------------------------------------------------------------------------------------------------------------------------------------------- | --------------- | -------------- | ------------------------- | ----------- | -----------
|                                                                                                                                            |                 |                |                           |             |            
|Sales and other revenue                                                                                                                     | $        19,863 | $ 2,655,874    | $        985,551          | $ 2,723,885 | $ 6,385,173
|                                                                                                                                            |                 |                |                           |             |            
|Depreciation and amortization                                                                                                               | 425             | 299,459        | 2,929                     | 2,332       | 305,145    
|                                                                                                                                            |                 |                |                           |             |            
|Operating segment contribution prior
       to interest income and expense, 
       income taxes and unallocated 
       corporate expenses | (93,477)        | (901,967)      | 661,858                   | (184,880)   | (518,466)  
|                                                                                                                                            |                 |                |                           |             |            
|Identifiable segment assets                                                                                                                 | 53,380          | 9,417,334      | 749,033                   | 2,377,269   | 12,597,016 
|                                                                                                                                            |                 |                |                           |             |            
|Capital expenditures                                                                                                                        | -               | 186,073        | -                         | -           | 186,073    
|                                                                                                                                            |                 |                |                           |             |            









D.    Segment Information (continued)

|                                                           | Three Months Ended March 31, 2002 |  | Three Months Ended March 31, 2001 |  | 
|---------------------------------------------------------- | --------------------------------- |  | --------------------------------- |  | 
|REVENUE                                                    |                                   |  |                                   |  | 
|Total sales and other revenue for
     reportable segments | $  4,821,502                      |  | $  6,385,173                      |  | 
|Interest income                                            | 11,321                            |  | 43,412                            |  | 
|                                                           | $  4,832,823                      |  | $  6,428,585                      |  | 





|Other Significant Items                                                                                                                                       |           | Segment Totals   | Corporate      | Consolidated Total
|------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---------------- | -------------- | ------------------
|                                                                                                                                                              |           |                  |                |                   
|Three Months Ended March 31, 2002                                                                                                                             |           |                  |                |                   
|Depreciation and amortization                                                                                                                                 |           | $         26,381 | $       28,244 | $           54,625
|Operating segment contribution prior to                                                                                                                       |           |                  |                |                   
|interest income and expense,  income 
      taxes and unallocated corporate expenses 
      for segment totals reconciled to income (loss)
      before taxes | (271,783) | (35,271)         | (307,054)     
|Identifiable segment assets                                                                                                                                   |           | 4,922,981        | 992,148        | 5,915,129         
|Capital expenditures                                                                                                                                          |           | -                | -              | -                 
|                                                                                                                                                              |           |                  |                |                   
|Three Months Ended March 31, 2001                                                                                                                             |           |                  |                |                   
|Depreciation and amortization                                                                                                                                 |           | $        305,145 | $    49,604    | $         354,749 
|Operating segment contribution prior to                                                                                                                       |           |                  |                |                   
|interest income and expense,  income 
      taxes and unallocated corporate expenses 
      for segment totals reconciled to income (loss)
      before taxes | (518,466) | (103,993)        | (622,459)     
|Identifiable segment assets                                                                                                                                   |           | 12,597,016       | 2,025,768      | 14,622,784        
|Capital expenditures                                                                                                                                          |           | 186,073          | -              | 186,073           
|                                                                                                                                                              |           |                  |                |                   

































E.	Loss Per Share Data

The following table sets forth the calculation of basic and diluted loss per share for the periods indicated.

|                                                                   | Three Months
Ended
March 31, 2002 | Three Months
Ended
March 31, 2001
|------------------------------------------------------------------ | --------------------------------- | ---------------------------------
|                                                                   |                                   |                                  
|Net loss applicable to common shares                               | $     (527,596)                   | $      (819,141)                 
|                                                                   |                                   |                                  
|Reconciliation of shares:                                          |                                   |                                  
|Weighted average common share outstanding                          | 8,055,364                         | 7,794,714                        
|Effect of dilutive stock options and other commonstock equivalents | -                                 | -                                
|Weighted average common shares assuming dilution                   | 8,055,364                         | 7,794,714                        
|                                                                   |                                   |                                  
|Loss per common share - basic and diluted                          | $           (0.07)                | $            (0.11)              
|                                                                   |                                   |                                  



Item 2.

Results of Operations First Quarter 2002 vs. First Quarter 2001

The Company reported a net loss of $307,054, or a loss per common share, basic and diluted, of $.07 for the first quarter 2002, compared to a net loss of  $622,459, or a loss per common share, basic and diluted, of $.11 for the first quarter 2001.  Per share calculations are made after provision for preferred dividend requirements.  The dividend requirement is an imputed amount, and no cash payments are required.  Because the Company's common share price is approximately $0.09, certain securities could become dilutive and have a significant impact on diluted earnings per share in subsequent periods.



Development segment revenue decreased by $5,000 in 2002 compared to 2001.  Development segment operating contribution improved by $58,000 during the first quarter of 2002 as compared to the same period in 2001, primarily attributable to decreases in controllable costs and advertising costs.



Company store revenue decreased $821,000, or 31%, in 2002 compared to 2001, primarily due to $649,000 in decreased revenue from the closure or sale of twelve company stores in 2001 and early 2002 and a 9% comparable store sales decline attributable to a reduction in rolls processed.



Company store segment operating contribution improved by $260,000 in 2002 compared to 2001.  Of 
this, approximately $174,000 was from the elimination of depreciation expense in 2002 for assets of the 26 remaining company stores that are being offered for franchise or sale.  An improvement of $155,000 was due to the franchising, sale or closure of company stores that had previously reported net losses, partially offset by increased operating expenses.



Royalty and advertising revenue decreased $177,000, or 18%, in 2002 compared to 2001 due to a decline of approximately 5% in comparable store franchise sales, approximately 8% fewer franchise stores at the end of each respective quarter, and the balance primarily attributable to decreased equipment rebate and advertising revenue.  Segment operating profit contribution decreased by $97,000 in 2002 compared to 2001, primarily due to the reduced revenue which was partially offset by improved operating expenses



Wholesale revenue decreased by $561,000, or 21%, in 2002 compared to 2001.  Approximately 25% of the decrease resulted from the 5% decline in comparable franchised store sales for the period.  The balance of the decline is primarily attributable to fewer franchisees purchasing their supply requirements through the Company.  Wholesale segment operating contribution improved by $25,000 due to lower operating expenses and allocations of corporate overhead, partially offset by lower margins.



In 2002, selling, general and administrative expense decreased $205,000, or 17%, from the same period in the prior year, primarily due to reductions in corporate expenses.



Advertising expense decreased by $71,000 in 2002 as compared to 2001, primarily due to decreased store revenues and lower franchise development advertising.  Company store advertising as a percentage of sales remained at a comparable level with the first quarter of 2001.



Interest expense decreased $60,000, or 53%, in 2002 compared to 2001, primarily due to reduced average bank borrowings of approximately 40% and reduced interest rates on variable-rate debt.  Interest income, which is primarily interest income from notes receivable and temporary investments of cash, decreased $32,000 in 2002 due to lower notes receivable and cash balances.





Liquidity and Capital Resources



Net cash utilized in operating activities increased by approximately $0.7 million in 2002 compared to 2001, due to reductions in accounts receivable activity and the receipt of an income tax refund in 2001.



In 2002, net cash provided by investing activities was $73,000, as compared to net cash utilized in investing activities of  $131,000 in 2001.  Decreases in capital expenditures, arising from the Company's decision in November 2001 to franchise, sell or close most of its company stores, and an increase in proceeds from the sale of stores during the first quarter of 2002 were primarily responsible for the difference.



Net cash utilized in financing activities decreased by $658,000 in 2002 compared to 2001, primarily due to payments during 2001 of $613,000 on the Fuji revolving credit arrangement that has subsequently been reclassified as current accounts payable.



Working capital deficit as of March 31, 2002 increased over March 31, 2001 by approximately $4.7 million primarily due to a reclassification to accounts payable from long-term debt for a revolving credit arrangement with Fuji that was associated with a supply contract terminated in September 2001.  This reclassification totaled approximately $2.7 million as of March 31, 2002 and is subject to reduction for certain claims.  The Company has been making payments against these accounts payable amounts and is in negotiations with Fuji to change the payment schedule on the accounts payable.  There can be no assurance these negotiations will be successful.  The Company has been making timely payments within shortened credit terms on new Fuji purchases.



When comparing March 31, 2002 to March 31, 2001, the Company also reduced inventory levels by approximately $968,000 due to lower inventory requirements, reduced accounts receivable by approximately $421,000, primarily attributable to lower royalty and wholesale revenues, and added $695,000 of accrued restructuring expenses.  These reductions in working capital were partially offset by a lower current portion of long-term obligations of approximately $734,000.



The current portion of long-term obligations included approximately $2.0 million for March 31, 2002 and $3.1 million for March 31, 2001 due to the classification of all primary bank long-term debt and capitalized lease obligations as current because the Company is not in compliance with certain financial covenants with its primary bank, even though it remains current with its bank payment obligations. The bank therefore has the right to accelerate repayments of the bank debt and lease obligations; however, the bank has not given notice of any intent to accelerate these payments. The bank agreement also prohibits principal payments on the note payable to Fuji of $1.9 million until covenant compliance is achieved.  The Company believes the nature of the business allows it to operate with little or no working capital in a situation where debt payments are not accelerated and a satisfactory arrangement can be reached with Fuji regarding repayment of accounts and note payables.



The Company's material capital commitments consist primarily of long-term debt and lease obligations.  Funds for repaying these commitments are anticipated to be generated primarily from operations, working capital and other sources in future years.  If the Company could not generate sufficient funds to repay these commitments as they become due, the Company would need to raise additional capital.  There is no assurance the Company could do so, and even if the Company were successful, existing shareholders could suffer significant dilution.



The Company has $10,000,000 of Amended Series G Stock outstanding that Fuji may require the Company to redeem at any time subsequent to March 17, 2002, due to the occurrence of a redemption event ("Redemption Event").  If Fuji requests redemption, the Company may redeem by offering the requisite cash or common stock at its option.  If redemption were to occur in shares of common stock, depending upon the market price of the common stock and the number of shares of common stock outstanding at the time of redemption, Fuji could acquire control of the Company.  Based on current market prices of the common stock, full redemption of the Amended Series G Stock in shares of common stock would result in Fuji having the right to receive shares representing approximately 95% of the Company's outstanding common stock following such redemption.  If the Company fails to give notice of redemption of all of the Amended Series G Stock upon request by Fuji, Fuji would have the right, until all the shares of the Amended Series G Stock are redeemed or the Redemption Event is cured, to elect the majority of the Board of Directors.  The Company is uncertain at this time how and when the Amended Series G Stock will be retired.  The Company continues to explore various possibilities to negotiate a resolution of the Fuji relationship that would enhance shareholder value.



The Company currently has 21,772,611 authorized but unissued shares of voting common stock, which would be insufficient at current share prices to redeem all shares of the Amended Series G Stock should Fuji request redemption.  In such case, the Company would have to seek shareholder authorization of additional shares of common stock.



Forward Looking Statements



This report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements can be identified by such words as "anticipates", "believes", "assumes", "expects", "intends", "estimates", "planned", "scheduled", "may", "will", "would", "could" or similar expressions.  Such forward-looking statements, which reflect the Company's current views of future events and financial performance, involve known and unknown risks and uncertainties that may cause the Company's actual results to differ materially from planned or expected results.  Those risks and uncertainties include, but are not limited to: those risk factors described in the Company's Form 10-K for the year ended December 31, 2001, uncertainty relating to new store development and expansion, decline in consumer or franchisee demand for the products and services offered, consumer acceptance of new programs and services, stability in market prices of key supply items, continuity of management, liquidity of the Company and franchise system, lender and supply relationships, economic conditions, the ability of the Company to locate and obtain favorable store sites at acceptable lease terms, management's ability to manage its franchisees, the effect of severe weather or natural disasters, and the availability of capital and financing on acceptable terms.  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 3.	Quantitative and Qualitative Disclosures About Market Risk

There have been no significant changes in market risk since December 31, 2001.





PART II.	OTHER INFORMATION

Item 3.	Defaults Upon Senior Securities

See Part I, Item 2 for information about defaults on indebtedness of the Company.



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









SIGNATURE





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



MOTO PHOTO, INC.





By  /s/ Alfred E. Lefeld

Alfred E. Lefeld

Vice President, Chief

Financial Officer, Treasurer

and Assistant Secretary



Date:   May 14, 2002