(Mark One)

{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 1999

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)

(State or other jurisdiction of (IRS Employer Identification Number)

Incorporation or organization)

(Address of principal executive offices with Zip Code)

(Registrant's telephone number, including area code)

(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 August 10, 1999:

7,835,478 - Voting Common 0 - Non - Voting Common

Part I. Financial Information

Part II. Other Information

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presenta

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. July 3 vs. June 30 for the second quarter 1999), 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 generally accepted accounting principles requires management to make estimates that affect amounts reported in the financial statements. Actual results could differ from those estimates.

For further information, refer to the consolidated financial statements and footnotes thereto included in Moto Photo, Inc. and Subsidiaries' annual report on Form 10-K for the year ended December 31, 1998.

Certain amounts from the prior period have been reclassified to conform to the current period presentation.

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

In the first six months of 1999, $350,000 of dividends were paid on the Series G preferred shares. Of this amount $216,046 was for previously reported and accreted dividends.

The Company reported a net income of $406,873, or earnings per common share, basic and diluted, of $0.04 for the second quarter 1999 compared to a net income of $395,848, or earnings per common share, basic and diluted of $0.04 for the second quarter of 1998. For the six months ended June 30, 1999, the Company recorded a net income of $213,666 and basic and diluted earnings per common share of $0.01, compared to a net income of $194,210 and basic and diluted earnings per common share of

Development segment revenue increased approximately $90,000, or 153% for the six months this year, compared to the same period a year ago primarily due to four store openings in 1999 compared to one in 1998.

Wholesale operating segment contribution increased approximately $175,000, on a sales increase of $117,000 for the second quarter 1999 and approximately $206,000, on a sales increase of $94,000 for the six months ended June 30, 1999 compared to the same periods a year ago. During 1999, the Company was able to regain sales lost in the first half of 1998 due to competitive pricing on certain products, primarily photographic paper and film. In 1998 wholesale revenue included $143,000 for t

Depreciation and amortization expenses increased by approximately $56,000, or 25% for the second quarter 1999 and approximately $126,000, or 29% for the six months ended June 30, 1999, compared to the same periods a year ago primarily as a result of depreciation on additions to property and equipment in Company stores from June 30, 1998 until June 30, 1999.

Interest income, which is primarily interest income from notes receivable and temporary investments of cash, decreased primarily due to collections of interest income in 1998 on certain notes which income interest was not being accrued due to the past due status of these notes.

Cash used in operating activities decreased by $1,542,000 in 1999 as compared to 1998. Other assets decreased approximately $400,000 due to certain equipment deposits made in 1998, and during the first six months of 1998, made a special purchase of approximately $500,000 of film. Accrued compensation expenses decreased approximately $800,000 more in 1998 than 1999 due to timing of payroll accruals and payments of accrued bonuses.

Increased purchases of property and equipment in 1999 accounted for approximately $507,000 of the $596,000 change in net cash utilized by investing activities as compared to net cash provided by investing activities of $9,000 in 1998.

At June 30, 1999 the Company's Board of Directors authorized a common stock repurchase program. The timing of the program and the amount of stock repurchased will be dictated by the overall financial and market conditions. The Board authorized management to spend up to $500,000 to make purchases until December 31, 2000. At recent market prices, that is approximately 400,000 shares, or about five percent of the 7,843,238 common shares outstanding.

The year 2000 issue, or Y2K, refers to computer programs or computer embedded chips which use two digits rather than four digits to define the applicable year. Any of the Company's computer software, hardware or other equipment having date sensitive software or embedded chips could recognize a "00" date as year 1900 rather than year 2000. If this happened, it could result in miscalculations or system failures which could be disruptive to normal business activities. The Company has a pl

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

The Company is still in the process of gathering information about the Y2K compliance status of key third party suppliers. The Company has received written notification from most of its key suppliers that they plan to be Y2K compliant by October 1, 1999. The Company has been informed by its primary bank and its depository banks that they believe they are Y2K compliant.

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

There are several versions of the Company sponsored point of sale software in use in franchise stores, all of which are believed to be Y2K compliant except for certain operating systems which are no longer supported by their provider. Accordingly, the provider will not certify as to its Y2K compliance. However, the Company has tested the software and believes that it will operate without any critical failures after December 31, 1999. The Company will continue its testing and will attem

The Company believes that all significant non-information systems are either Y2K compliant or has received notification that the vendors will make them Y2K compliant by October 1, 1999. The Company plans to continue testing its operating equipment and other equipment to ensure that it is operable in 2000 and beyond.

The Company has notified its franchisees of the steps they should take to ensure that there are no disruptions to their operations as a result of the Y2K issue. The Company cannot guarantee that each franchisee will follow through on the necessary steps, and accordingly, some short-term interruptions could occur in certain franchise stores. The Company does not believe that this disruption will have a material impact on the Company's results of operations, financial condition or cash f l

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

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

There have been no significant changes in market risk since December 31, 1998.

All statements, other than statements of historical fact included in this report, which address activities, events or developments which the Company expects or anticipates will or may occur in the future constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are based on certain assumptions and analyses made by the Company in light o

PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders.

1. On June 30, 1999, the Company held its annual meeting of shareholders.
2. At the meeting the shareholders voted on the election of directors. The voting tabulation for each director is set next to his name.

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

1. Exhibits: See Exhibit Index immediately preceding exhibits.
2. Reports on Form 8-K. The Company filed no reports on Form 8-K during the quarter ended June 30, 1999.

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.

Date: August 13, 1999

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

No. Description

10.1 Lease dated as of May 7, 1999 by and between Sycamore Partnership and Moto Photo, Inc.

27.0 Financial Data Schedule