(Mark One)

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

For the quarterly period ended: September 30, 2000

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

(Exact name of registrant as specified in its charter)

Delaware 31-1080650
(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 November 1, 2000:

7,760,654 - Voting Common, 0 - Non - Voting Common

Part I. Financial Information

Part II. Other Information

1. Merger Announcement

On September 20, 2000 Moto Photo, Inc. (the "Company") and PhotoChannel Networks Inc. ("PhotoChannel"), an e-commerce company developing an on-line photo print service for both digital and conventional film photographers, announced the signing of a non-binding letter of intent relating to the proposed merger of the Company with a subsidiary of PhotoChannel.to merge the two companies and their subsidiaries. PhotoChannel is a British Columbia company with common shares listed on The Montreal Exchange in Canada (Symbol: PNI) and quoted on the NASD OTC Bulletin Board in the United States (Symbol: PHCHF).

The proposed merger would value Moto Photo common stock at US $1.75 per share and provide for each Company common share to be converted into shares of common stock of PhotoChannel based upon an exchange ratio equal to US $1.75 divided by the average closing price of PhotoChannel common stock for the 20 trading days immediately preceding the merger, with a ceiling of US $2.50 per PhotoChannel share and a floor of US $1.00 per PhotoChannel share. As a result, subject to completion of the merger, the existing Company common shareholders would own between approximately 5,600,000 to 14,000,000 common shares of PhotoChannel. The transaction is anticipated to be tax-free to Company shareholders. The proposed merger is subject to the completion of a US $25 million financing by PhotoChannel, negotiation and execution of a definitive agreement providing for the merger as well as other requirements and conditions, including Board of Directors and shareholder approvals, regulatory approvals, the filing of a registration statement with the SEC, and the conversion of Company options into PhotoChannel options, and other conditions. AThe closing date cannot be determined at this time.is uncertain but not likely to be prior to spring 2001.

Additional information was filed on Form 8-K dated September 21, 2000.

The Company announced on October 31, 2000 that it received notification from the Nasdaq Stock Market ("Nasdaq") that the Company's common shares failed to achieve compliance with Nasdaq's minimum bid price requirements for continued inclusion on the Nasdaq SmallCap Market and were delisted as of the opening of trading on October 31, 2000. The Company's common shares now trade under the symbol MOTO on the OTC Bulletin Board.

Additional information was filed on Form 8-K dated November 1, 2000.

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 (all of which are of normal recurring nature) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 30, 2000, are not necessarily indicative of the results that may be expected for the year ended December 31, 2000 .

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, 1999.

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

Noncash items in the first nine months of 2000 included $684,151645,056 of capital expenditures for the company store segment from entering into capitalized leases and from the trade-in of equipment. Noncash expense for directors' fees was $40,122 during the first nine months. Cash paid for interest during the first nine months of 2000 was $569,073 compared to $319,496 for the same period in 1999. Cash paid for income taxes was $200 for the first nine months of 2000 and $6,350 for the same period in 1999.

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

The Company reported a net loss of $64,657, or a loss per common share, basic and diluted, of $.03 for the third quarter 2000 compared to net income of $570,707, or basic income per common share of $.06 and diluted income per common share of $.05 for the third quarter 1999. For the nine months ended September 30, 2000, the Company recorded a net loss of $663,964, or a loss per common share, basic and diluted, of $.16, compared to a net income of $784,373, or income per common share, basic and diluted, of $.07 for the same period during 1999. Per share calculations are made after provision for preferred dividend requirements. The 2000 dividend requirement is an imputed amount, and no cash payments are required until 2003. Due to the Company's common share price during the third quarter of 1999, certain securities became dilutive for the third quarter of 1999.

Development segment operating expenses were up $66,000 in the third quarter and $120,000 in the first nine months. The increase was primarily due to expanded advertising and marketing efforts designed to increase potential franchise prospects. Lower payroll costs partially offset these increases in the nine months.

Company store segment operating contribution decreased by $187,000 in the third quarter 2000 compared to the same period in 1999, with $110,000 of this decrease caused by $222,000 of lower sales and margins at stores opened more than one year, partially offset by $112,000 in reduced expenses in the same stores. The balance was attributable to the losses generated by new stores in their ramp-up phase. Of this, $222,000 was from lower sales and margins at stores opened more than one year, partially offset by $112,000 in reduced expenses in the same stores. For the first nine months of 2000, Company store segment operating contribution decreased by $897,000 from the same period in 1999. New stores in their ramp-up phase accounted for $444,000 of this decrease with the balance primarily caused by lower sales, margins and expenses in stores opened more than one year.

Selling, general and administrative expenses increased $186,000 for the quarter and $330,000 for the first nine months of the year. In 2000, a concept development team was implemented whose mission is to explore strategies to test, refine, and implement conceptual enhancements, new technologies and new methods of communicating with customers, franchisees and associatesemployees. The additional cost associated with this team was approximately $114,000 for the third quarter and $288,000 for the first nine months. In addition, the Company recorded a loss on store closings of $474,000 for the quarter and nine months compared to $3,000 in the prior year.

Advertising expense decreased $31,000 in the quarter and increased $185,000 for the first nine months compared to the prior year. The quarterly decrease was primarily due to reduced grand opening advertising due to timing of store openings, while the year-to-date increase was attributable to supporting increased company store revenue, including grand openings, and increases in advertising for development activities.

Depreciation and amortization expense increased over 1999 by $36,000 for the quarter and $221,000 for the yearfirst nine months, primarily as a result of the property and equipment in the new company stores.

Interest expense increased $56,000 for the quarter ended September 30, 2000 compared to the same period in 1999 and $250,000 for the nine months ended September 30, 2000 compared to the same period in 1999. This was primarily due to increased borrowing to finance Company store asset additions, the expansion discussed above, higher interest rates this year and the effect of converting $2,700,000 of accounts payable to a term note at the end of 1999. During the first six months of 2000, the Company prepaid substantially all of its long-term obligations which were scheduled to be paid during 2000.

Net cash utilized by operating activities was $648356,000 for the first nine months in 2000 compared to net cash provided by operating activities of $772,000 for the same period in 1999. This change was largely due to a net loss for the year compared to net income last year. Rreduction of accounts payable due to timing differences and a larger loss, were largely partially offset by reductions in accounts receivable and inventory.

Net cash provided by investing activities was $435143,000 for the first nine months in 2000 compared to net cash utilized by investing activities of $934,000 for the comparable period in 1999. Increases in collections of notes receivable and a decrease in cash purchases of property and equipment were primarily responsible for the differences.

Net cash utilized by financing activities was $2,410,000 for the first nine months in 2000 compared to $1,474,000 for the same period in 1999. The difference was due primarily to prepayments of long-term debt in 2000, partially offset by the elimination of cash dividend payments of cash dividends on preferred stock this year and higher collections on notes receivableproceeds from new long-term obligations this year.

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", "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 competitive pressures, technological changes affecting the Company's ability to compete, the ability to expand the Company's franchising operations, new store development and expansion, consumer acceptance of new programs and services, market prices of key supply items, continuity of management, liquidity of the franchise system, lender and supply relationships, economic conditions, the effect of severe weather or natural disasters, the continued availability of capital and financing at acceptable interest rates, the ability to finalize the proposed merger with PhotoChannel, and other risks indicated in the Company's filings with the United States Securities and Exchange Commission.

(a) The following exhibits are filed with this report:

2. The following Reports on Form 8-K were filed in the third quarter:

• July 17, 2000, the Company filed a report on Form 8-K, dated July 12, 2000, to report, under Item 4 of Form 8-K, the retention of Arthur Andersen LLP as the Company's independent public accountants for the examination of the financial statements of the Company for the fiscal year ending December 31, 2000.
• September 21, 2000, the Company filed a report on Form 8-K, dated September 20, 2000, to report its intent to enter into a proposed business combination between the Company and PhotoChannel Networks Inc.

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.

David A. Mason

Executive Vice President,

Treasurer, and Chief

Financial Officer

Date: November 9, 2000

No. Description

27 Financial Data Schedule