THIS AGREEMENT is made as of the first day of October, 1986 by and between MOTO PHOTO, INC., a Delaware corporation ("Moto"), and NATIONAL PHOTO LABS II, INC., a Texas corporation ("NPL"), under the following circumstances:

an agent of NPL.

Duties and Authority of of Moto.

2.1

General Duties and Authority.

Subject only to the restrictions and

limitations provided in paragraphs 2.14 and 2.15,

Moto shall have the sole and

exclusive authority to fully and completely supervise and direct the business and

affairs associated or related to the daily operation thereof, and to that end to cause

or direct NPL to execute such documents or instruments, hire or discharge employees,

and take other appropriate actions, as, in the sole judgment of Moto may be deemed

necessary or advisable.

Such duties and authority shall include but not be limited

to those set forth as follows, which are not in limitation of the foregoing.

2.2

Marketing.

Moto shall establish policies and procedures for directing the

marketing activities of personnel engaged by or on behalf of NPL.

Such activities

shall include,

but not be limited to, determining the services offered, establishing

prices, producing advertising, conducting promotions, running sales contests, etc.

Moto shall have the sole discretion, which discretion shall be exercised in good

faith, to establish the terms, conditions and locations of occupancy of the Properties

and Moto is hereby authorized to direct and control employees in entering into

leases on behalf, in the name, and for the account of NPL with Lessors.

2.3

Repair, Maintenance and Improvements.

Moto shall make and execute, or

supervise and have control over the making and executing, of all decisions concerning

the acquisition of equipment, fixtures and supplies for the Properties, and the

purchase lease or other acquisition of the same on behalf, in the name, and for the

account of NPL.

Moto shall make and execute or supervise and have control over

the making and executing,

of all decisions concerning the maintenance of the

properties; all cost incurred in connection therewith shall be on behalf, in the name

and for the account of NPL.

2.4

Personnel and Suppliers.

Moto, or personnel engaged on behalf of Moto

acting pursuant to Moto direction, shall select all vendors, suppliers, contractors

subcontractors and employees with respect to the Properties and shall hire, discharge

and supervise all labor and employees required for the operation and maintenance

of the Properties, including attorneys, accountants and consultants.

All such acts

shall be on behalf, in the name of, and for the account of NPL and any employees

so hired shall be carried on the payroll of either NPL or a corporation organized

to employ such personnel and shall not be deemed to be employees of Moto. Employees

of NPL will include but will not be limited to, on-site managers, on-site assistant

managers, and other lab personnel.

Where appropriate, Moto may hire or use

employees of Moto or an affiliate to perform necessary work for the account and

expense of NPL.

Moto and its employees shall be responsible for the disbursement of NPL's

funds in payment of all expenses incurred in connection with the operation of the

Properties and NPL shall not be required to employ personnel to assist in such

disbursement.

Moto shall not be separately reimbursed for the cost of furnishing

such service and shall not be reimbursed for the time of its executive officers

devoted to NPL affairs or for other overhead expenses.

2.5 Agreements.

Moto shall negotiate and execute on behalf and in the name

of NPL such agreements which Moto deems necessary or advisable for the furnishing

of utilities, services, concessions and suppliers, for the maintenance, repair and

operation of the Properties and such other agreements which may benefit the

Properties or be incidental to the matters for which Moto is responsible hereunder.

2.6

Other Decisions.

Moto shall make all policy decisions and shall have

control over the making of all of the more routine decisions in connection with the

daily operation of the Properties.

2.7

Regulations and Permits.

Moto shall use its best efforts to cause all

things to be done on behalf, in the name, and for the account of NPL on the

Properties necessary to comply with any statute, ordinance, law, rule, regulation or

order of any governmental or regulatory body, having jurisdiction over the Properties,

respecting the use of the Properties or the construction, maintenance, or operation

thereof, and with all orders and requirements of the local Board of Fire Underwriters

Moto shall cause

or any other body which may hereafter exercise similar functions.

NPL to apply for and attempt to obtain and maintain, on behalf, in the name, and

for the account of NPL, all licenses and permits required or advisable (in Moto's

sole judgment) in connection with the management and operation of the Properties.

2.8

Accounting.

Moto shall establish, supervise, direct and maintain the

operation of an accounting system and shall cause to be prepared and delivered to

NPL, at Moto expense, financial statements as follows:

(i) On or before thirty (30) days after the close of each month a statement of operations showing the results of operation of the Properties for the next preceding month and of the fiscal year to date having annexed thereto a

computation of the Management Fee, as such fee is defined in this Agreement, for such month.

(ii) On or before seventy-five (75) days after the close of the fiscal year, a balance sheet and related statement of operations showing the results of the operations of the Properties during said fiscal year (if desired, NPL may have both examined and reported on by an independent certified public accounting firm retained on behalf, in the name and for the account of NPL) and having annexed thereto a computation of the Management, Annual Incentive and Additional Management Fees for such fiscal year.

2.9 Deposits and Disbursements.

Moto shall cause the establishment of bank

accounts in the name of NPL and shall deposit or cause personnel engaged by or

on behalf of NPL to deposit therein all receipts and monies arising from the operation

of the Properties or otherwise received for and on behalf of NPL.

Moto shall

disburse NPL funds from said accounts on behalf and in the name of NPL in such

amounts and at such times as disbursement of such revenues for payment of payroll

and other obligations of NPL as required.

Moto shall establish and be responsible

for administering a policy for specifying the identity of signatories to the NPL bank

accounts and establishing the number of signatories required for checks of various

amounts.

Moto shall have discretion over making temporary investment of NPL

funds, for the account and benefit of NPL.

Moto shall advance funds,

if needed ,

to NPL for temporary working capital needs as may be required by NPL, but in no

event shall the outstanding advances exceed $50,000 and such advances shall be

repaid from the first sums available, and Moto shall have the discretion to make

repayments.

NPL will pay Moto interest on the amounts outstanding from time to

time at the prime rate of the First National Bank of Dayton, Ohio.

2.10

Collection.

Moto shall supervise and direct personnel engaged by or on

behalf of NPL in the collection and billing of all accounts receivable due to NPL

with respect to the Properties and shall be responsible for establishing policies and

procedures to minimize the amount of bad debts.

2.11

Legal Actions.

Moto shall cause to be instituted, on behalf and in the

name of NPL any and all legal actions or proceedings Moto deems necessary or

advisable to collect charges or other income due NPL with respect to the Properties.

The costs of all such legal actions or proceeding shall be borne by NPL.

2.12 Insurance. Moto shall use its best efforts to assure that there is obtained

and kept in force, at the expense of NPL, fire, comprehensive, liability and other

insurance policies in amounts generally carried with respect to similar facilities.

2.13

Taxes.

Moto shall disburse from NPL funds all taxes and assessments

properly levied on NPL with respect to its business and Properties, on behalf, in

the name and for the account of NPL.

2.14 Restrictions.

Notwithstanding anything to the contrary set forth in this

Section 2, Moto shall not be required to do, or cause to be done, anything for the

account of NPL (i) which may make Moto liable to third parties, (ii) which may not

be commenced, undertaken or completed because of insufficient funds available in

the accounts established pursuant to this Section, or (iii) which may, under applicable

law, constitute an impermissible delegation of NPL's duties and responsibilities,

including, but not limited to, the purchase or construction of capital improvement,

the sale or disposition of all or substantially all of the corporation's assets, and any

action which may result in a change in NPL's primary business.

2.15 Limitations on Motors Authority. Notwithstanding anything to the contrary

be commenced, undertaken or completed because of insufficient funds available in

set forth in this Section 2, Moto shall not, without obtaining the prior written

consent of NPL, make any capital expenditure in excess of $5,000 per location per

calendar year.

However, permission is expressly granted for Moto to make all

expenditures necessary to construct, install and make operational each mini-lab,

including making all necessary improvements.

Moto shall not make any agreement

on NPL's behalf which exceeds one year except for leases.

2.16

General.

NPL acknowledges and agrees that the Properties will be

operated as any other franchise of Moto in accordance with the standard franchise

rules and regulations, except that compensation payable to Moto shall be as provided

for in Section 4.

Duties of NPL.

NPL hereby agrees to cooperate with Moto in the performance of its duties

under this Agreement and to that end, upon the request of Moto, to execute all

documents or instruments and hire and discharge such employees as Moto in its sole

judgment deems necessary or advisable to enable it to fulfill its duties under this

Agreement.

Such employees shall include, but not necessarily be limited to on-site

personnel.

It is understood and acknowledged that some or all of such employees

may be employed by Moto and loaned to NPL, in which case NPL will bear the

hourly cost, including fringes, of such employees.

4.
Compensation to Moto.

4.1

Monthly Management Fee.

NPL shall pay to Moto for the services herein

provided a Management Fee equal to five percent (5%) of the net sales of NPL, as

defined by generally accepted accounting principles, derived from or connected with

each Property. The Management Fee for each month shall be paid promptly at the

end of such month and shall be calculated on the basis of the net sales for such

month.

Notwithstanding the foregoing, in no event will the fee for each Property

be less than $1,000 per month.

4.2

Annual Incentive Fee.

Within 60 days after the end of each fiscal year

of NPL, NPL shall pay Moto an Annual Incentive Fee which shall be an amount equal

to 33-1/3% of Cash Generated.

For purposes of the Annual Incentive Fee, "Cash

Generated" means, and is calculated for each fiscal year of NPL, as follows:

Net Revenues, less all operating expenses exclusive of depreciation, less principal and interest payments, whether paid or accrued.

4.3

Additional Management Fee.

As an additional inducement to Moto and

as compensation for services rendered by Moto in the refinancing of the Properties,

NPL shall pay Moto an Additional Management Fee in the amount of $50,000.00,

payable as follows:

4.3.1 Interest shall accrue on the unpaid Fee at the rate of 9% per annum and shall be payable monthly on the first day of each calendar month.

4.3.2 The Additional Management Fee shall be payable in 84 equal monthly installments of principal and interest in the amount of $804.45 each, due and payable monthly on the first day of each calendar month until paid in full.

5. Use of Trademarks, Service Marks and Related Items.

It is understood and agreed that the name, trademark and service mark, "Moto"

and related marks, slogans, caricatures, designs and other trade or service items

shall be utilized for the non-exclusive benefit of NPL on the Properties, and in

comparable operations elsewhere.

It is further understood and agreed that this name

and all such marks, slogans, caricatures, designs and other trade or service items

shall remain and be at all times the property of Moto and its affiliates, and that,

except during the term hereof, NPL shall have no right whatsoever therein.

Upon

termination of this Agreement at any time for any reason, all such use by and for

the benefit of NPL of any such name, mark, slogan, caricature, design or other trade

or service item in connection with the Properties shall, in any event, be terminated

and any signs bearing any of the foregoing shall be removed from view and no longer

used by NPL. It is understood and agreed that Moto will use and shall be unrestricted

in its use of such name, mark, slogan, caricature, design or other trade or service

items in the management and operation of other facilities both during and after the

expiration or termination of the term of this Agreement.

6.
Indemnification.

NPL hereby agrees to indemnify and hold Moto, all companies affiliated with

Moto, all officers, directors and employees of Moto and any affiliated companies

harmless from any and all costs, expenses, attorney's fees, suits, liabilities, judgments,

damages and claims in connection with the management of the Properties (including

the loss of use thereof following any damage, injury or destruction), arising from

any cause except for the willful misconduct, negligence, or negligent omissions on

Moto, all persons affiliated

with Moto, all officers, directors and employees of Moto, and any affiliated persons

also shall not be liable for any error of judgment or for any mistake of fact or law

or for anything which it may do or refrain from doing hereinafter, except in cases

of wilful misconduct or negligence.

Moto hereby agrees to indemnify and hold NPL

harmless from any and all costs, expenses, attorneys' fees, suits, liabilities, judgments,

damages and claims in connection with the management of the Properties arising

from the willful misconduct or negligence of Moto or any of its affiliates.

7. Extension.

This Agreement may only be extended upon the written agreement of Moto

and NPL.

8.
Termination.

Upon termination of this Agreement or any extension thereof, all funds advanced

by Moto to or for the benefit of NPL, whether due or not, shall become immediately

due and payable by NPL to Moto.

9. Assignment.

Neither this Agreement nor any right hereunder shall be assigned by NPL and

any attempt to do so shall be void ab initio. Moto shall have the right to assign

this Agreement to an affiliate or a wholly or majority owned subsidiary; provided,

however, any such assignee must assume all obligations of Moto hereunder.

NPL's

rights hereunder will be enforceable against any such assignee and Moto shall not

be released from its liabilities hereunder unless NPL shall expressly agree thereto

in writing.

10.
Headings.

The headings contained are for convenience of reference only and are not

intended to define, limit or describe the scope or intent of any provision of his Agreement.

11. Governing Law. The

validity of this Agreement,

the construction of

its terms and the

interpretation of the rights and duties of the parties shall be governed by the laws

of the State of Ohio.

12.
Notices.

Any notice required or permitted to be given shall be given in writing and shall be

personally delivered or mailed, first class postage prepaid, to the respective addresses of the parties set forth below their signatures on the signature page

hereof, or to such other address as any party may give to the other in writing.

13.

Severability.

Should any term or provision hereof be deemed invalid, void or unenforceable

either in its entirety or in a particular application, the remainder of this Agreement

shall nonetheless remain in full force and effect and, if the subject term or provision

is deemed to be invalid, void or unenforceable only with respect to a particular

application, such term or provision shall remain in full force and effect with respect

to all other applicat ions.

The parties recognize that broad discretionary authority

has been granted by NPL to Moto in the management and direction of NPL's business

and financial affairs and it is their intent that such authority be fully exercisable

by Moto within the limitations imposed by applicable law.

If, however, any court

of competent jurisdiction should render a final judgment that the authority granted

to Moto herein exceeds the bounds of permissible delegation under applicable law,

the parties agree that this Agreement shall be deemed amended, modified and reformed

to the extent necessary to reduce the scope of authority delegated by NPL to Moto

so as to limit such authority to that permissible under applicable law as evidenced

by the written legal opinion of counsel to Moto.

The parties agree that in no event

shall any determination that the discretion and authority granted to Moto hereunder

exceeds permissible bounds result in this Agreement being declared or adjudged

invalid, void or unenforceable in its entirety; rather, the parties request that any

court examining such issue employ great latitude in reforming this Agreement so as

to make the same, as reformed, valid and unenforceable. 14. Successors.

This Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their permitted assigns and successors in interest.

15. Attorneys' Fees.

If it shall become necessary for either party hereto to engage attorneys to

institute legal action for the purpose of enforcing its rights hereunder or for the

purpose of defending legal action brought by the other party hereto, the party or

parties prevailing in such litigation shall be entitled to receive all costs, expenses

and fees (including reasonable attorney's fees) incurred by it in such litigation

( including appeals ).

16.

Arbitration.

Any claim or controversy arising out of, or relating to this Agreement or any

modification or extension thereof, between the parties shall be settled by final and

binding arbitration in Dayton, Ohio in accordance with the rules then obtaining of

the American Arbitration Association.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as

of the date first above written.

NATIONAL PHOTO LABS II, INC.

By _______________________________

David A. Mason, President

MOTO PHOTO, INC.

By _______________________________

Michael F. Adler, President

EX-10 3 e1005enpl.htm NPL EXHIBIT

NATIONAL PHOTO LABS II, INC.

4444 LAKE CENTER DRIVE

DAYTON, OH 45426

937-854-6686 - OFFICE

937-854-0140 - FAX

December 14, 1998

Mr. Frank Montano

President

Moto Photo, Inc.

4444 Lake Center Drive

Dayton, Ohio 45426

Dear Frank:

The purpose of this letter is to document the agreement that Moto Photo, Inc. and National Photo Labs II, Inc. mutually wish to extend the expiration date of the amended management agreement between the two companies dated October 1, 1986.

It is agreed that the subject agreement between the two companies be extended until December 31, 2003 under the same terms and conditions as contained in said agreement.

Please acknowledge your acceptance of this change by signing below.

Best regards,

/s/ D. A. Mason

David A. Mason

President

DM/ps

Agreed and Accepted:

Moto Photo, Inc.

/s/ Frank M. Montano 12/15/98

Frank Montano, President Date

EX-10 4 e1031nol.htm NOLAND EXHIBIT

AMENDED EMPLOYMENT AGREEMENT

This Amended Employment Agreement ("Amended Agreement") is made as of the twenty-sixth day of January, 2001, by and between MOTO PHOTO, INC., a Delaware corporation ("Employer"), and LLOYD F. NOLAND ("Employee"). This Amended Agreement is based on the following understandings:

(a) The parties entered into an Employment Agreement (the "Agreement") as of January 1, 1999.

(b) Employer has notified Employee pursuant to Sections 9 and 10.3 of the Agreement that it is terminating his employment without cause effective December 28, 2000.

Accordingly, the parties agree as follows:

1. MODIFICATION. Employee's employment is terminated by Employer without

cause effective December 28, 2000, pursuant to Section 10.3 of the Agreement. The Agreement is therefore terminated and null and void in all respects, except as set forth in this Amended Agreement.

2. SALARY: MITIGATION. In accordance with Sections 10.3 and 2 of the

Agreement, until December 31, 2001, Employer shall continue to pay Employee an annualized salary of $139,050.00, net of all withholdings, pursuant to the regular payroll practices of Employer, except that Employer's obligation to pay this salary shall be reduced by the amount of any salary, consulting fees or other income (with the exception of investment income) earned by Employee from a third party during the calendar year 2001. Employee acknowledges that payment of this salary amount does not make him an employee of Employer and that he therefore is not eligible to contribute to Employer's 401(k) plan or to receive fringe benefits.

3. AUTOMOBILE. Until December 31, 2001, or Employee finds new employment

to his satisfaction, whichever occurs first, Employer shall furnish Employee with an automobile allowance in the annualized amount of Five Thousand Seven Hundred Sixty Dollars ($5, 760.00) payable pursuant to the regular payroll practices of Employer .

4. EXPENSES. To assist Employee with his job search, Employer shall pay Employee the sum of One Thousand Four Hundred Dollars ($1,400.00) upon execution of this Amended Agreement, to reimburse Employee for his long-distance costs, fax and copying charges, and mailing costs to be included by Employee in connection with his search for employment, and the cost of his portfolio. Until June 30, 2001, Employer shall provide and maintain for Employee at Employer's place of business a dedicated phone line for Employee with a dedicated voice mailbox with remote access, an e-mail address with remote access, dedicated mailbox, and mailing privileges, all for use solely in connection with Employee's job search. The payment and other arrangements set forth in this paragraph 4 shall satisfy and supersede the obligations of Employer under section 10.3 of the Agreement.

5. MUTUAL RELEASE. In consideration of the mutual promises set forth in this Amended Agreement, including the payments and privileges set forth in paragraphs 2, 3, and 4, and the release of all obligations of Employer or Employee under the Agreement, Employer and Employee hereby release each other from any and all obligations set forth in the Agreement with the exception of Article 4 thereof and, further, Employer and Employee hereby release each other from any and all claims or liabilities that it or he may have against the other on or before the date of this Amended Agreement. The provisions of this paragraph shall not apply to the obligations

set forth in or affirmed by this Amended Agreement.

6. ARTICLE 4 OF AGREEMENT. The terms, provisions, rights and obligations set forth in Article 4 of the Agreement shall remain in full force and effect, notwithstanding this Amended Agreement.

7. NOTICE. Any notice required to be given pursuant to the provisions of this Amended Agreement shall be in writing and shall be delivered by certified mail or in person to the parties at the following addresses:

Employer:

Moto Photo, Inc.

4444 Lake Center Drive

Dayton, Ohio 45426

Employee:

Lloyd F. Noland

10731 Weatherstone Court

Loveland, Ohio 45140

or at such other place as either party may designate in writing to the other.

8. GOVERNING LAW. This Amended Agreement shall be construed and enforced in accordance with the internal laws of the State of Ohio without reference to Ohio's choice of law or conflict of laws provisions.

9. WAIVER. No delay, waiver, omission or forbearance by either party to enforce any right arising out of the breach of any provision of this Amended Agreement by the other party shall be construed as or constitute a continuing waiver or a waiver of any other breach of any provision of this Amended Agreement.

10. PARTIAL INVALIDITY. In the event that any word, phrase, clause, sentence or other provision in this Amended Agreement violates any applicable statute, ordinance, or role of law in any jurisdiction in which it is used, such provision shall be ineffective to the extent of such violation, without violating any other provision in this Amended Agreement.

11. COMPLETE AGREEMENT: MODIFICATION. This Amended Agreement supersedes all prior agreements, written or oral, between the parties, including the Agreement, is intended as a complete and exclusive statement of the terms of the understanding between the parties, and may be amended, modified, or rescinded only by a written instrument executed by both parties.

12. CAPTIONS. All captions in this Amended Agreement are intended solely for the convenience of the parties, and none shall be deemed to affect the meaning or construction of any provision of this Amended Agreement.

13. MULTIPLE COPIES. This Amended Agreement may be executed in multiple copies, each of which shall be deemed an original.

IN WITNESS WHEREOF, the parties have executed this Amended Agreement the day and year first written above.

WITNESSES EMPLOYER

____________________________ ____________________________

Frank M. Montano

President and Chief Operating Officer

____________________________

EMPLOYEE:

____________________________ ____________________________

Lloyd F. Noland

____________________________

EX-23 5 e2301aa.htm ARTHUR ANDERSEN CONSENT

Exhibit 23.01

Consent of Independent Auditors

As independent public accountants, we hereby consent to the incorporation by reference of our report dated May 21, 2001 on the consolidated financial statements of Moto Photo, Inc. and subsidiaries for the year ended December 31, 2000 which is included in this Form 10-K, into the Company's previously filed Registration Statement File Numbers 33-14356 on Form S-8 dated May 15, 1987, 33-53188 on Form S-8 dated October 13, 1992, 33-59673 on Form S-8 dated May 30, 1995, 333-39347 on Form S-8 dated November 3, 1997 and 333-65315 on Form S-8 dated October 5, 1998.

/s/ Arthur Andersen LLP

ARTHUR ANDERSEN LLP

Dayton, Ohio

May 21, 2001

EX-23 6 e2302ey.htm ERNST & YOUNG CONSENT

EXHIBIT 23.02

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration Statement Numbers 33-14356 on Form S-8 dated May 15, 1987, 33-53188 on Form S-8 dated October 13, 1992, 33-59673 on Form S-8 dated May 30, 1995, 333-39347 on Form S-8 dated November 3, 1997 and 333-65315 on Form S-8 dated October 5, 1998, of our report dated February 11, 2000, with respect to the consolidated financial statements and schedules of Moto Photo, Inc. and subsidiaries included in this Annual Report (Form 10-K) for the year ended December 31, 1999.

/s/ Ernst & Young LLP

Ernst & Young LLP

Dayton, Ohio

May 21, 2001

-----END PRIVACY-ENHANCED MESSAGE-----

	2000			1999
	U.S.	Int'l.	Total	U.S.	Int'l.	Total

Stores Open at Beginning of Year	332	87	419	333	94	427

New Stores Opened	17	2	19	17	9	26
Conversions	3	-	3	5	-	5
Terminations or Non-Renewals	20	4	24	23	16	39
Expiration of Norway affiliate program	-	47	47	-	-	-


Stores Open at End of Year	332	38	370	332	87	419

Company Stores Open at End of Year	42	-	42	44	-	44
Franchised Stores Open at End of Year (a)	290	38	328	288	40	328
Affiliate Stores Open at End of Year	-	-	-	-	47	47

Stores Under Development at End of Year (b)	13	1	14	23	1	24

Arizona	12	Kentucky	5	Oklahoma	22
California	24	Maryland	19	Pennsylvania	7
Colorado	17	Maine	1	Rhode Island	1
Connecticut	13	Massachusetts	10	Tennessee	6
Florida	3	Michigan	12	Texas	7
Georgia	6	North Carolina	1	Utah	5
Illinois	25	New Jersey	49	Virginia	27
Indiana	2	New York	16	Wisconsin	3
Kansas	2	Ohio	25

		District of Columbia 12

		Canada 38

		Voting Common Price
		High	Low

1999:
	First Quarter	$ 1.63	$ 1.00
	Second Quarter	1.25	0.94
	Third Quarter	2.25	0.94
	Fourth Quarter	1.50	0.47

2000:
	First Quarter	$ 1.38	$ 0.75
	Second Quarter	1.13	0.69
	Third Quarter	1.13	0.44
	Fourth Quarter	0.97	0.28

	Years Ended December 31
	2000	1999	1998	1997	1996

Revenue	$ 36,450,935	$ 37,061,455	$ 37,664,183	$ 42,148,727	$ 43,547,291

Net Income (Loss)	$ (3,200,661)	$ 1,653,543	$ 1,690,253	$ 1,703,535	$ 1,073,873

Net Income (Loss) Applicable
to Common Shares	$ (3,933,433)	$ 1,388,432	$ 1,415,691	$ 1,420,707	$ 784,583

Net Income (Loss) Per Common Share
Basic	$ (.51)	$ .18	$ .18	$ .18	$ .10
Diluted	$ (.51)	$ .12	$ .18	$ .18	$ .10

Working Capital (Deficit)	$ (1,867,468)	$ 4,238,962	$ 3,383,017	$ 3,112,852	$ (371,998)

Stockholders' Equity	$ 2,591,224	$ 5,756,792	$ 4,920,906	$ 3,771,156	$ 2,538,198

Long-term Obligations	$ 5,291,104	$ 10,037,325	$ 9,064,001	$ 9,783,805	$ 8,207,762

Total Assets	$ 17,415,886	$ 24,084,018	$ 22,171,661	$ 21,369,261	$ 21,013,477

Common Shares Outstanding (1)	7,747,567	7,814,063	7,816,165	7,793,905	7,785,973

Number of Stores Open: North America	370	372	383	407	418
Norway (2)	-	47	44	26	26

	Annual Compensation				Long Term Compensation
Name and Principal Position	Fiscal Year	Salary	Bonus	Other Annual Compen-sation(1)	Securities Underlying Options(#)	All Other Compen-sation(2)

Michael F. Adler Chairman and Chief Executive Officer Frank M. Montano President and Chief Operating Officer David A. Mason Executive Vice President, Chief Financial Officer And Treasurer Leonard S. Swartz Former Senior Vice President - Franchise Operations (3) Lloyd F. Noland Former Senior Vice President Marketing (4) Paul Pieschel Senior Vice President - Franchise Sales (5) Alfred E. Lefeld Vice President - Controller	2000 1999 1998 2000 1999 1998 2000 1999 1998 2000 1999 1998 2000 1999 1998 2000 1999 1998 2000 1999 1998	$200,000 200,000 189,634 $168,300 167,437 162,604 $127,500 126,846 123,223 $109,878 112,058 108,332 $139,050 137,991 54,519 $ 95,508 91,500 89,301 $ 95,261 81,772 78,559	$ - 25,906 - $ - 21,048 - $ - 21,125 - $ - 2,500 - $ - 20,619 15,000 $ 17,233 20,656 23,493 $ 9,500 5,000 -	$ 29,525 28,561 23,544 $ 4,704 4,090 3,895 $ 4,022 4,090 3,895 $ 3,713 3,498 2,776 - - - $ 16,608 4,090 3,895 $ 4,704 4,090 3,895	- - 38,760 - 7,544 37,464 - 7,023 28,416 - 6,160 25,299 - 17,585 75,000 9,323 4,384 20,808 4,168 3,616 17,816	$ 5,870 7,370 5,900 $ 3,200 6,782 13,044 $ 3,200 2,787 3,200 $ 1,850 2,446 2,523 $197,365 14,530 8,453 $ 2,404 2,434 2,496 $ 2,307 1,807 1,811

	Individual Grants					Potential Realized Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(2)
Name	Number of Securities Underlying Options Granted(1)	% of Total Options Granted to Employees in 2000	Exercise Price Per Share	Expiration Date	5%		10%

Paul Pieschel	9,323	9%	$.4062	12/13/2005	$1,042		$2,310
Alfred E. Lefeld	4,168	4%	$.4062	12/13/2005	1,066		2,700

	Number of Unexercised Options Held at Fiscal Year End		Value of Unexercised in-the-Money Options at Fiscal Year End($)(1)
Name	Exercisable	Unexercisable	Exercisable	Unexercisable
Michael F. Adler	228,295	33,799	-	-
Frank M. Montano	238,300	38,648	-	-
David A. Mason	84,486	30,398	-	-
Paul Pieschel	19,507	30,493	-	-
Alfred E. Lefeld	13,882	26,218	-	-
Leonard S. Swartz	52,086	-	-	-
Lloyd F. Noland	13,517	54,068	-	-

	December 31,
	2000	1999

Assets
Current Assets:
Cash	$ 1,504,233	$ 3,953,375
Accounts receivable, less allowances of $822,000 in 2000 and $636,000 in 1999	3,475,782	4,015,690
Notes receivable, less allowances of $41,000 in 2000 and $89,000 in 1999	190,669	281,669
Inventory	1,875,500	2,381,148
Income taxes receivable	240,784	390,000
Deferred tax assets	-	1,063,000
Deferred club costs	160,305	167,204
Prepaid expenses	218,817	276,777
Total current assets	7,666,090	12,528,863

Property and equipment, net	4,955,205	5,315,573

Other assets:
Notes receivable, less allowances of $1,861,000 in 2000 and $1,536,000 in 1999	671,282	1,393,440
Cost of franchises and contract acquired	86,424	120,293
Goodwill, net	3,282,415	3,635,596
Deferred tax assets	-	130,000
Other assets	754,470	960,253
Total assets	$ 17,415,886	$ 24,084,018

	Years Ended December 31,
	2000	1999	1998

Revenues

Sales and other revenue	$36,227,700	$36,803,388	$37,139,096
Interest income	223,235	258,067	413,087
Other income	-	-	112,000
	36,450,935	37,061,455	37,664,183

Expenses

Cost of sales and operating expenses	27,897,611	26,942,025	26,872,589
Selling, general, and administrative expenses	7,291,675	5,794,632	6,733,132
Advertising expense	1,438,030	1,324,990	1,300,988
Depreciation and amortization	1,499,493	1,269,909	1,015,611
Interest expense	528,787	479,356	411,610
	38,655,596	35,810,912	36,333,930

Income (loss) before income taxes	(2,204,661)	1,250,543	1,330,253

Income tax benefit (expense):
Current	197,000	480,000	172,000
Deferred	(1,193,000)	(77,000)	188,000
	(996,000)	403,000	360,000

Net income (loss)	(3,200,661)	1,653,543	1,690,253

Preferred stock dividend accretion or requirement	(732,772)	(265,111)	(274,562)

Net income (loss) applicable to common shares	$(3,933,433)	$1,388,432	$1,415,691

Net income (loss) per common shares - basic	$ (0.51)	$ 0.18	$ 0.18
Net income (loss) per common share - diluted	$ (0.51)	$ 0.12	$ 0.18

		Amended Series G Preferred Stock
			(Series G through 1998)		Common Stock			Treasury Stock			Paid-in		(Deficit) Retained
	Shares			Amount		Shares	Amount		Shares	Amount		Capital		Earnings	Total

Balance at December 31, 1997	1,000,000			$ 10,000		7,802,973	$ 78,030		-	$ -		$ 6,670,981		$ (2,987,855)	$ 3,771,156

Common stock issued						30,600	306					59,191			59,497
Preferred stock dividend requirement												(325,438)		(274,562)	(600,000)
Net income														1,690,253	1,690,253
Balance at December 31, 1998	1,000,000			10,000		7,833,573	78,336		-	-		6,404,734		(1,572,164)	4,920,906

Common stock issued						50,955	509					60,678			61,187
Treasury shares repurchased									(151,294)	(1,513)				(177,331)	(178,844)
Preferred stock dividend requirement												(434,889)		(265,111)	(700,000)
Net income														1,653,543	1,653,543
Balance at December 31, 1999	1,000,000			10,000		7,884,528	78,845		(151,294)	(1,513)		6,030,523		(361,063)	5,756,792

Treasury shares repurchased									(22,600)	(226)				(20,168)	(20,394)
Treasury shares issued									72,343	723		53,351			54,074
Preferred stock dividend accretion												732,772		(732,772)	-
Contributed capital												1,413			1,413
Net loss														(3,200,661)	(3,200,661)
Balance at December 31, 2000	1,000,000			$ 10,000		7,884,528	$ 78,845		(101,551)	$ (1,016)		$ 6,818,059		$ (4,314,664)	$ 2,591,224

	2000	1999

Equipment and other property	$ 8,732,293	$ 8,814,841
Leasehold improvements	2,884,239	2,902,803
Furniture and fixtures	1,337,715	1,384,962
	12,954,247	606
Less accumulated depreciation and amortization	7,999,042	7,787,033
Net book value	$ 4,955,205	$ 5,315,573

	2000	1999

Non-compete agreements	$ 591,250	$ 712,500
Other	163,220	247,753
Total Other Assets	470	253

	2000	1999

Note payable to primary bank due January 2002 with interest at 9.29% per annum	$ 659,558	$ 1,470,017

Note payable to primary bank due January 2002 with interest at 9.5% (prime rate plus 1%)	312,500	750,000

Note payable to primary bank due January 2004 with interest at 9.0% (prime rate plus 1/2%)	750,102	1,041,768

Note payable to primary bank due January 2005 with interest at 9.5% (prime rate plus 1%)	1,637,062	1,680,320

Revolving credit agreement with supplier, non-interest bearing, due June 2002	4,000,000	4,000,000

Note payable to supplier due January 2003, with interest at 8.5%	2,100,000	2,700,004

Note payable to bank due October 2007 with interest at 9.5%	52,724	57,960
	9,511,946	11,700,069

Portion classified as current	4,239,900	2,202,000
	$ 5,272,046	$ 9,498,069

	2000	1999

Processing equipment	$ 2,057,331	$ 1,144,117
Less accumulated amortization	644,815	303,880
	$ 1,412,516	$ 840,237

Years Ending December 31,	Amount
2001	$ 271,411
2002	249,284
2003	258,198
2004	286,136
2005	314,090
2006 and thereafter	529,560
Total minimum lease payments	1,908,679
Less: amount representing interest ranging from 8.8% to 10.5%	484,921
Present value of minimum lease payments	1,423,758
Current portion	1,404,700
Capitalized leases	$ 19,058

	Years Ended December 31,
	2000	1999	1998
Operating activities
Net income (loss)	$ (3,200,661)	$ 1,653,543	$ 1,690,253
Adjustments to reconcile to net cash provided by (utilized in ) operating activities:
Depreciation and amortization	1,499,493	1,269,909	1,015,611
Provision for losses on inventory and receivables	425,998	(322,000)	543,031
Notes receivable increases as a result of franchise activities	(54,816)	(20,000)	(17,422)
Gain on short term bond trade	-	(474,610)	-
Loss on sale of store	-	3,962	646
Loss on write-downs and disposition of assets	816,028	99,218	354,682
Noncash directors fees expense	54,075	61,187	37,622
Deferred taxes	1,193,000	77,000	(188,000)
Increase (decrease) resulting from changes in (other than changes resulting from acquisitions):
Accounts receivable	336,965	545,655	(678,631)
Inventory, prepaid expenses and deferred club costs	599,507	38,832	(1,241,275)
Income tax receivable	149,216	(390,000)	-
Accounts payable, accrued payroll, benefits, and accrued expenses	(2,149,278)	545,515	266,076
Deferred revenue and other liabilities	(113,666)	(55,700)	109,656
Net cash provided by (utilized in) operating activities	(444,139)	3,032,511	1,892,249

Investing activities
Purchases of property and equipment	(457,380)	(2,048,237)	(1,368,316)
Acquisition of company stores	-	(341,700)	-
Issue notes receivable	-	(153,478)	-
Payments received on notes receivable	894,383	781,179	643,253
Other assets	24,244	(9,236)	(241,113)
Proceeds from sale of property and equipment	-	40,512	61,000
Purchase of U.S. Treasury Bond investments	-	(75,011,718)	-
Sale of U.S. Treasury Bond investments	-	75,486,328	-
Net cash provided by (utilized in) investing activities	461,247	(1,256,350)	(905,176)

Financing activities
Proceeds from long-term borrowing	292,806	1,680,320	1,250,000
Principal payments on long-term debt and capital lease obligations	(2,740,075)	(1,542,658)	(1,879,804)
Payments of preferred dividends	-	(700,000)	(600,000)
Purchase of common shares for treasury stock	(20,394)	(178,844)	-
Contributed capital	1,413	-	-
Common shares issued	-	-	21,875
Net cash utilized in financing activities	(2,466,250)	(741,182)	(1,207,929)

	2000	1999	1998

Beginning balance	$ 277,748	$ 337,302	$ 450,178

Cash received from customers	728,952	699,699	718,689

Revenue recognized	(731,469)	(759,253)	(831,565)

Ending balance	$ 275,231	$ 277,748	$ 337,302

	Lease Obligations	Sublease Rentals	Net Lease Obligations

2001	$ 2,346,495	$ 169,788	$ 2,176,707
2002	1,943,607	78,599	1,865,008
2003	1,423,399	68,936	1,354,463
2004	1,130,234	12,498	1,117,736
2005	765,532	-	765,532
2006 and thereafter	2,261,927	-	2,261,927
Totals	$ 9,871,194	$ 821	$ 9,541,373

		2000			1999			1998
	Common Shares		Average Price	Common Shares		Average Price	Common Shares		Average Price

Outstanding at beginning of year	1,361,142		$1.99	1,334,081		$2.06	1,015,966		$1.99
Granted	103,121		$0.41	142,669		$1.12	406,219		$2.32
Expired	(262,235)		$2.00	(115,608)		$1.90	(88,104)		$2.47
Outstanding at end of year	1,202,028		$1.85	1,361,142		$1.99	1,334,081		$2.06
Exercisable at end of year	779,696		$1.89	809,535		$1.91	755,956		$2.56

			Weighted Average		Remaining
Range of	Number of Options		Exercise Price		Life (Years)
Exercise Prices	Outstanding	Exercisable	Outstanding	Exercisable	Outstanding

$ 0.41 - $ 1.31	419,219	259,220	$ 1.03	$ 1.27	2.0
$ 1.75 - $ 2.25	406,266	345,013	$ 2.02	$ 2.00	2.5
$ 2.50 - $ 2.63	376,543	175,463	$ 2.59	$ 2.57	3.7

Pro Forma Earnings	2000	1999	1998

Net income/(loss) applicable to common shares	$ (4,050,603)	$ 1,296,896	$ 1,330,464
Net income/(loss) per common share-basic	$ (0.52)	$ 0.17	$ 0.17
Net income/(loss) per common share-diluted	$ (0.52)	$ 0.11	$ 0.17

Fair Value Assumptions	2000	1999	1998

Dividend yield	0%	0%	0%
Expected volatility	56%	47%	45%
Risk-free interest rate	5.9%	6.4%	5.8%
Expected life in years	6.2	5	5-10

	2000	1999

Deferred tax assets:
Capital loss carryforwards	$ 459,000	$ 522,000
AMT credit carryforwards	353,000	85,000
Asset impairment	754,000	915,000
Receivable allowances	991,000	793,000
Employee benefit accruals	136,000	84,000
Inventory valuation allowances	60,000	85,000
Reserve for store closures	90,000	-
Net operating loss carryforward	726,000	-
All other items, net	117,000	101,000
Total deferred tax assets	3,686,000	2,585,000

Deferred tax liability:
Depreciation	(146,000)	(477,000)
Total deferred tax liability	(146,000)	(477,000)

	3,540,000	2,108,000
Less: valuation allowance	(3,540,000)	(915,000)

Net deferred tax assets	$ -	$ 1,193,000

	First	Second	Third	Fourth
2000	Quarter	Quarter	Quarter	Quarter (5)

Sales and other revenue as originally reported (1)	$ 7,232,437	$ 9,432,391	$ 9,319,439	$ 10,062,489
Reclassification of freight income (2)	49,470	67,690	63,784	-
Sales and other revenue as restated	$ 7,281,907	$ 9,500,081	$ 9,383,223	$ 10,062,489

Gross profit as originally reported (3)	$ 1,417,455	$ 2,387,251	$ 2,302,109	$ 2,382,212
Reclassification of interest rebate (4)	(57,218)	(52,979)	(48,741)	-
Gross profit as restated (3)	$ 1,360,237	$ 2,334,272	$ 2,253,368	$ 2,382,212

Net income (loss):
As originally reported and as restated	$ (546,241)	$ (53,066)	$ (64,657)	$ (2,536,697)

Net income (loss) applicable to common:
As originally reported and as restated	$ (721,645)	$ (233,564)	$ (250,395)	$ (2,727,829)

Net income (loss) per common share:
Basic - as originally reported and as restated	(0.09)	(0.03)	(0.03)	(0.35)
Diluted - as originally reported and as restated	(0.09)	(0.03)	(0.03)	(0.35)


	First	Second	Third	Fourth
1999	Quarter	Quarter	Quarter	Quarter

Sales and other revenue as originally reported (1)	$ 6,974,983	$ 9,308,361	$ 9,647,795	$ 10,655,315
Reclassification of freight income (2)	41,600	52,619	58,991	63,724
Sales and other revenue as restated	$ 7,016,583	$ 9,360,980	$ 9,706,786	$ 10,719,039

Gross profit as originally reported and restated (3)	$ 1,622,681	$ 2,629,636	$ 2,478,736	$ 3,130,310

Net income (loss):
As originally reported and as restated	$ (193,207)	$ 406,873	$ 570,707	$ 869,170

Net income (loss) applicable to common:
As originally reported and as restated	$ (260,531)	$ 340,243	$ 504,777	$ 803,943

Net income (loss) per common share:
Basic - as originally reported and as restated	(0.03)	0.04	0.06	0.10
Diluted - as originally reported and as restated	(0.03)	0.04	0.05	0.06

	2000
	Development	Company Stores	Royalties and Advertising	Wholesale	Total

Sales and other revenue	$ 328,359	$ 14,969,514	$ 5,050,774	$ 15,879,053	$ 36,227,700

Depreciation	2,575	1,239,111	68,498	4,216	1,314,400

Operating segment contribution prior to interest income and expense, income taxes and unallocated corporate expenses	(560,920)	(2,885,557)	3,347,406	(1,147,340)	(1,246,411)

Identifiable segment assets	54,186	9,776,611	738,226	2,964,253	13,533,276

Capital expenditures including capitalized leases	-	1,012,128	44,500	-	1,056,628

	1999
	Development	Company Stores	Royalties and Advertising	Wholesale	Total

Sales and other revenue	$ 424,045	$ 13,560,203	$ 5,129,929	$ 17,689,211	$ 36,803,388

Depreciation	3,878	951,274	12,244	9,013	976,409

Operating segment contribution prior to interest income and expense, income taxes and unallocated corporate expenses	(410,461)	(1,342,482)	3,520,999	(187,058)	1,580,998

Identifiable segment assets	98,963	10,631,721	757,932	4,359,745	15,848,361

Capital expenditures including capitalized leases	1,432	2,638,092	8,795	3,446	2,651,765

	1998
	Development	Company Stores	Royalties and Advertising	Wholesale	Total

Sales and other revenue	$ 559,256	$ 13,710,748	$ 5,315,708	$ 17,553,384	$ 37,139,096

Depreciation	3,787	674,217	18,269	84,511	780,784

Operating segment contribution prior to interest income and expense, income taxes and unallocated corporate expenses	(344,535)	(911,889)	3,706,813	(1,038,767)	1,411,622

Identifiable segment assets	133,159	8,803,804	1,238,143	4,451,862	14,626,968

Capital expenditures including capitalized leases	1,812	1,115,136	4,207	24,392	1,145,547

Other Significant Items	Segment Totals	Corporate	Consolidated Total

2000
Depreciation and amortization	$ 1,314,400	$ 185,093	$ 1,499,493
Operating segment contribution prior to interest income and expense, investment expense, income taxes and unallocated corporate expenses for segment totals reconciled to income (loss) before taxes	(1,246,411)	(958,250)	(2,204,661)
Identifiable segment assets	13,533,276	3,882,610	17,415,886
Capital expenditures including capitalized leases	1,056,628	84,903	1,141,531

1999
Depreciation and amortization	$ 976,409	$ 293,500	$ 1,269,909
Operating segment contribution prior to interest income and expense, investment expense, income taxes and unallocated corporate expenses for segment totals reconciled to income (loss) before taxes	1,580,998	(330,455)	1,250,543
Identifiable segment assets	15,848,361	8,235,657	24,084,018
Capital expenditures including capitalized leases	2,651,765	142,630	2,794,395

1998
Depreciation and amortization	$ 780,784	$ 234,827	$ 1,015,611
Operating segment contribution prior to interest income and expense, investment expense, income taxes and unallocated corporate expenses for segment totals reconciled to income (loss) before taxes	1,411,622	(81,369)	1,330,253
Identifiable segment assets	14,626,968	7,544,693	22,171,661
Capital expenditures including capitalized leases	1,145,547	222,769	1,368,316

Year Ended December 31, 2000	Balance at Beginning of Period	Charged to Costs and Expenses	Charged / (Credited) to Other Accounts	Deductions	Balance at End of Period

Reserves and Allowances deducted from Accounts Receivable	$ 584,000	$ 337,000	$ 33,000	$ (187,000)(1)	$ 767,000

Allowance for Cash Discounts	52,000	3,000	-	-	55,000

Reserves and Allowances deducted from Notes Receivable	1,625,000	337,000	280,000	(340,000)(1)	1,902,000

Allowance for Inventory Obsolescence	111,000	24,000	-	(53,000)(2)	82,000

Total	$ 2,372,000	$ 701,000	$ 313,000	$ (580,000)	$ 2,806,000

Year Ended December 31, 1999	Balance at Beginning of Period	Charged to Costs and Expenses	Charged / (Credited) to Other Accounts	Deductions	Balance at End of Period

Reserves and Allowances deducted from Accounts Receivable	$ 1,092,000	$ 235,000	$ (145,000)	$ (598,000)(1)	$ 584,000

Allowance for Cash Discounts	46,000	-	6,000	-	52,000

Reserves and Allowances deducted from Notes Receivable	1,400,000	235,000	368,000	(378,000)(1)	1,625,000

Allowance for Inventory Obsolescence	150,000	36,000	-	(75,000)(2)	111,000

Total	$ 2,688,000	$ 506,000	$ 229,000	$ (1,051,000)	$ 2,372,000

Year Ended December 31, 1998	Balance at Beginning of Period	Charged to Costs and Expenses	Charged / (Credited) to Other Accounts	Deductions	Balance at End of Period

Reserves and Allowances deducted from Accounts Receivable	$ 1,590,000	$ 224,000	(227,000)	$ (495,000)(1)	$ 1,092,000

Allowance for Cash Discounts	45,000	-	1,000	-	46,000

Reserves and Allowances deducted from Notes Receivable	1,018,000	225,000	432,000	(275,000)(1)	1,400,000

Allowance for Inventory Obsolescence	115,000	94,000	-	(59,000)(2)	150,000

Total	$ 2,768,000	$ 543,000	$ 206,000	$ (829,000)	$ 2,688,000