**UNITED        STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**Washington,        D.C. 20549**

**FORM        10-Q**

| **(Mark                  One)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                            |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
| x                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | **QUARTERLY                  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                  ACT OF                  1934**  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | **For                  the quarterly period ended July 31, 2005**                                                                               |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | **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 0-8550**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **PORTRAIT                  CORPORATION OF AMERICA, INC.**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **(Exact                  name of registrant as specified in its                  charter)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                            |
| **Delaware**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | **57-1208051**                                                                                                                                  |
| **(State                  or other jurisdiction of****incorporation                  or organization)**                                                                                                                                                                                                                                                                                                                                                                                                                                                             | **(IRS                  Employer****Identification                  No.)**                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                            |
| **815                  Matthews-Mint Hill Road**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **Matthews,                  North Carolina 28105**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **(Address                  of principal executive offices)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **(Zip                  Code)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **(704)                  847-8011**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **(Registrant’s                  telephone number, including area code)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Indicate                  by check mark whether the registrant (1) has filed all reports                  required to                  be filed by Section 13 or 15(d) of the Securities Exchange Act                  of 1934                  during the preceding 12 months (or for such shorter period that                  the                  registrant was required to file such reports), and (2) has been                  subject to                  such filing requirements for the past 90 days. Yes **x**** **No                  **¨** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Indicate                  by check mark whether the registrant is an accelerated filer (as                  defined                  in Rule 12b-2 of the Exchange Act). Yes                  **¨**                  No                  **x**                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Indicate                  by check mark whether the registrant is a shell company (as defined                  in                  Rule 12b-2 of the Exchange Act).Yes                  **¨**                  No                  **x**                                                                                                                                                                                                                                                                                                                       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| As                  of September 13, 2005, there were 2,294,352 shares of the registrant’s                  common stock outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                         |

----

| **PORTRAIT                  CORPORATION OF AMERICA, INC.****FORM                  10-Q****QUARTERLY                  PERIOD ENDED JULY 31, 2005** **TABLE                  OF CONTENTS** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Item                  Number in****Form                  10-Q**                                                                                                                             |   | **Page** |
|                                                                                                                                                                                          | **PART                  I. FINANCIAL                  INFORMATION** | **1** |
| 1.                                                                                                                                                                                            | Financial                  Statements                  (Unaudited) | 1 |
|                                                                                                                                                                                          | Condensed                  Consolidated Balance Sheets as of July                  31, 2005 and January 30, 2005 | 1 |
|                                                                                                                                                                                          | Condensed                  Consolidated Statements of Operations                  for the Thirteen Weeks Ended and Twenty-Six Weeks Ended July 31,                  2005 and                  August 1, 2004 (Restated) | 3 |
|                                                                                                                                                                                          | Condensed                  Consolidated Statements of Cash Flows for the                  Twenty-Six Weeks Ended July 31, 2005 and August 1, 2004                  (Restated) | 4 |
|                                                                                                                                                                                          | Notes                  to Condensed Consolidated                  Financial Statements | 5 |
| 2.                                                                                                                                                                                            | Management’s                  Discussion and Analysis of Financial                  Condition and Results of Operations | 23 |
| 3.                                                                                                                                                                                            | Quantitative                  and Qualitative Disclosures About                  Market Risk | 34 |
| 4.                                                                                                                                                                                            | Controls                  and                  Procedures | 35 |
|                                                                                                                                                                                          | **PART                  II. OTHER                  INFORMATION** | **36** |
| 1.                                                                                                                                                                                            | Legal                  Proceedings | 36 |
| 5.                                                                                                                                                                                            | Other                  Information | 36 |
| 6.                                                                                                                                                                                            | Exhibits                  and Reports on Form                  8-K | 36 |
|                                                                                                                                                                                          | Signatures | 37 |

----

**PART        I.  FINANCIAL        INFORMATION**

**Item        1.  Financial Statements**

**PORTRAIT        CORPORATION OF AMERICA, INC. AND        SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

**(dollar        amounts in thousands)**

|                                                               |   | **July                  31,****2005** |     | **January                  30,****2005** |   |
|--------------------------------------------------------------------|--------|---------------------------------------|----------|------------------------------------------|--------|
| **ASSETS**                                                         |   |                                  |     |                                     |   |
| CURRENT                  ASSETS:                                   |   |                                  |     |                                     |   |
| Cash                  and cash equivalents                         |   | $                                     | 6,622    |                                     | $      | 15,178 |   |
| Restricted                  cash for senior notes interest payment |   |                                  | 9,797    |                                     |   | --- |   |
| Accounts                  receivable                               |   |                                  | 2,922    |                                     |   | 2,781 |   |
| Inventories                                                        |   |                                  | 12,056   |                                     |   | 11,439 |   |
| Deferred                  income taxes                             |   |                                  | 108      |                                     |   | 108 |   |
| Prepaid                  expenses and other assets                 |   |                                  | 6,463    |                                     |   | 3,303 |   |
| Total                  current assets                              |   |                                  | 37,968   |                                     |   | 32,809 |   |
|                                                               |   |                                  |          |                                     |   |  |   |
| PROPERTY                  AND EQUIPMENT:                           |   |                                  |          |                                     |   |  |   |
| Land                  and improvements                             |   |                                  | 2,306    |                                     |   | 2,306 |   |
| Buildings                  and improvements                        |   |                                  | 13,893   |                                     |   | 13,684 |   |
| Photographic,                  sales and finishing equipment       |   |                                  | 158,088  |                                     |   | 152,315 |   |
| Studio                  improvements                               |   |                                  | 27,082   |                                     |   | 26,530 |   |
| Construction                  in progress                          |   |                                  | 1,445    |                                     |   | 3,048 |   |
| Total                                                              |   |                                  | 202,814  |                                     |   | 197,883 |   |
| Accumulated                  depreciation and amortization         |   |                                  | (130,598 | )                                        |   | (123,974 | ) |
| Property                  and equipment, net                       |   |                                  | 72,216   |                                     |   | 73,909 |   |
| GOODWILL                                                           |   |                                  | 52,998   |                                     |   | 52,989 |   |
| OTHER                  INTANGIBLE ASSETS                           |   |                                  | 135      |                                     |   | 135 |   |
| DEFERRED                  FINANCING COSTS, NET                     |   |                                  | 9,658    |                                     |   | 6,823 |   |
| OTHER                  ASSETS                                      |   |                                  | 174      |                                     |   | 127 |   |
| TOTAL                  ASSETS                                      |   | $                                     | 173,149  |                                     | $      | 166,792 |   |
|                                                               |   |                                  |          |                                     |   |  |   |

**See        notes to condensed consolidated financial statements.**

----

**PORTRAIT        CORPORATION OF AMERICA, INC. AND SUBSIDIARIES**

**CONDENSED        CONSOLIDATED BALANCE SHEETS (continued)**

**(Unaudited)**

**(dollar        amounts in thousands)**

|                                                                                                                                                                                                                                                   |   | **July                  31,****2005** |     | **January                  30,****2005** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|----------|------------------------------------------|--------|
| **LIABILITIES                  AND SHAREHOLDERS’ DEFICIENCY**                                                                                                                                                                                    |   |                                  |     |                                     |   |
| CURRENT                  LIABILITIES:                                                                                                                                                                                                                  |   |                                  |     |                                     |   |
| Current                  portion of long-term debt                                                                                                                                                                                                     |   | $                                     | 20       |                                     | $      | 182 |   |
| Accounts                  payable—trade                                                                                                                                                                                                          |   |                                  | 32,574   |                                     |   | 36,179 |   |
| Accrued                  insurance                                                                                                                                                                                                                     |   |                                  | 4,437    |                                     |   | 4,141 |   |
| Accrued                  income taxes                                                                                                                                                                                                                  |   |                                  | 1,860    |                                     |   | 2,022 |   |
| Accrued                  compensation                                                                                                                                                                                                                  |   |                                  | 5,101    |                                     |   | 4,834 |   |
| Accrued                  interest                                                                                                                                                                                                                      |   |                                  | 10,790   |                                     |   | 10,377 |   |
| Other                  accrued liabilities                                                                                                                                                                                                             |   |                                  | 17,997   |                                     |   | 14,467 |   |
| Total                  current liabilities                                                                                                                                                                                                             |   |                                  | 72,779   |                                     |   | 72,202 |   |
| LONG-TERM                  DEBT                                                                                                                                                                                                                        |   |                                  | 270,655  |                                     |   | 245,680 |   |
| DEFERRED                  INCOME TAXES                                                                                                                                                                                                                 |   |                                  | 108      |                                     |   | 108 |   |
| OTHER                  LIABILITIES                                                                                                                                                                                                                     |   |                                  | 4,550    |                                     |   | 4,843 |   |
| TOTAL                  LIABILITIES                                                                                                                                                                                                                     |   |                                  | 348,092  |                                     |   | 322,833 |   |
| COMMITMENTS                  AND CONTINGENCIES                                                                                                                                                                                                         |   |                                  |          |                                     |   |  |   |
| SERIES                  A REDEEMABLE CONVERTIBLE PREFERRED STOCK, $0.01 par value at July                  31, 2005                  and at January 30, 2005 (authorized—200,000 shares; outstanding—15,000                  shares)       |   |                                  | 15,000   |                                     |   | 15,000 |   |
| SHAREHOLDERS’                  DEFICIENCY:                                                                                                                                                                                                       |   |                                  |          |                                     |   |  |   |
| Common                  stock, $0.01 par value at July 31, 2005 and at January 30, 2005                  (authorized—20,000,000 shares; issued and outstanding at July 31, 2005 and                  at January 30, 2005—2,294,352 shares) |   |                                  | 23       |                                     |   | 23 |   |
| Warrants                  to purchase Series A redeemable convertible preferred stock (issued                  and                  outstanding—287)                                                                                             |   |                                  | 642      |                                     |   | 642 |   |
| Warrants                  to purchase common stock (issued and outstanding—306,610)                                                                                                                                                              |   |                                  | 2,947    |                                     |   | 2,947 |   |
| Additional                  paid-in capital                                                                                                                                                                                                            |   |                                  | 24,104   |                                     |   | 24,104 |   |
| Deferred                  compensation                                                                                                                                                                                                                 |   |                                  | (219     | )                                        |   | (256 | ) |
| Accumulated                  deficit                                                                                                                                                                                                                   |   |                                  | (217,253 | )                                        |   | (198,233 | ) |
| Accumulated                  other comprehensive loss                                                                                                                                                                                                  |   |                                  | (187     | )                                        |   | (268 | ) |
| Total                  shareholders’ deficiency                                                                                                                                                                                                  |   |                                  | (189,943 | )                                        |   | (171,041 | ) |
| TOTAL                  LIABILITIES AND SHAREHOLDERS’ DEFICIENCY                                                                                                                                                                                  |   | $                                     | 173,149  |                                     | $      | 166,792 |   |
|                                                                                                                                                                                                                                                   |   |                                  |          |                                     |   |  |   |

**See        notes to condensed consolidated financial statements.**

----

**PORTRAIT        CORPORATION OF AMERICA, INC. AND        SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

**(dollar        amounts in thousands)**

|                                           |   | **For                  the Thirteen****Weeks                  Ended** |    | **For                  the Twenty-Six****Weeks                  Ended**                                   |   |
|------------------------------------------------|--------|-----------------------------------------------------------------------|---------|-----------------------------------------------------------------------------------------------------------|--------|
|                                           |   | **July                  31,****2005**                                 |    | **August                  1,****2004****(as                  restated;****see                  Note 15)** |   | **July                  31,****2005** |   | **August                  1,****2004****(as                  restated;****see                  Note 15)** |   |
| SALES                                          |   | $                                                                     | 66,900  |                                                                                                      | $      | 68,442 |   | $ | 145,068 |   | $ | 148,338 |   |
| COST                  OF SALES                 |   |                                                                  | 58,443  |                                                                                                      |   | 57,178 |   |   | 121,406 |   |   | 119,968 |   |
| GROSS                  PROFIT                  |   |                                                                  | 8,457   |                                                                                                      |   | 11,264 |   |   | 23,662 |   |   | 28,370 |   |
| GENERAL                  AND ADMINISTRATIVE    |   |                                                                  | 11,321  |                                                                                                      |   | 10,498 |   |   | 24,045 |   |   | 22,242 |   |
| INCOME                  (LOSS) FROM OPERATIONS |   |                                                                  | (2,864  | )                                                                                                         |   | 766 |   |   | (383 | ) |   | 6,128 |   |
| INTEREST                  INCOME               |   |                                                                  | 3       |                                                                                                      |   | 2 |   |   | 7 |   |   | 4 |   |
| INTEREST                  EXPENSE              |   |                                                                  | (9,103  | )                                                                                                         |   | (7,946 | ) |   | (17,664 | ) |   | (15,878 | ) |
| EARLY                  EXTINGUISHMENT OF DEBT  |   |                                                                  | (980    | )                                                                                                         |   | --- |   |   | (980 | ) |   | --- |   |
| LOSS                  BEFORE INCOME TAXES      |   |                                                                  | (12,944 | )                                                                                                         |   | (7,178 | ) |   | (19,020 | ) |   | (9,746 | ) |
| INCOME                  TAX BENEFIT            |   |                                                                  | ---     |                                                                                                      |   | 5,051 |   |   | --- |   |   | 6,334 |   |
| NET                  LOSS                      |   | $                                                                     | (12,944 | )                                                                                                         | $      | (2,127 | ) | $ | (19,020 | ) | $ | (3,412 | ) |
|                                           |   |                                                                  |         |                                                                                                      |   |  |   |   |  |   |   |  |   |

**See        notes to condensed consolidated financial statements.**

----

**PORTRAIT        CORPORATION OF AMERICA, INC. AND        SUBSIDIARIES**

**CONDENSED        CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

**(dollar        amounts in thousands)**

|                                                                                                                    |   | **For                  the Twenty-Six****Weeks                  Ended** |    |
|-------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------|---------|
|                                                                                                                    |   | **July                  31,****2005**                                   |    | **August                  1,****2004****(as                  restated;****see                  Note 15)** |   |
| OPERATING                  ACTIVITIES:                                                                                  |   |                                                                    |         |   |   |  |   |
| Net                  loss                                                                                               |   | $                                                                       | (19,020 | ) | $ | (3,412 | ) |
| Adjustments                  to reconcile net loss to cash provided by (used in) operating                  activities: |   |                                                                    |         |   |   |  |   |
| Depreciation                  and amortization                                                                          |   |                                                                    | 6,973   |   |   | 6,255 |   |
| Amortization                  of deferred financing costs                                                               |   |                                                                    | 824     |   |   | 831 |   |
| Paid-in-kind                  interest                                                                                  |   |                                                                    | 3,679   |   |   | 3,139 |   |
| Early                  extinguishment of debt                                                                           |   |                                                                    | 980     |   |   | --- |   |
| Amortization                  of debt discounts                                                                         |   |                                                                    | 305     |   |   | 307 |   |
| Stock                  compensation expense                                                                             |   |                                                                    | 37      |   |   | 39 |   |
| Provision                  for deferred income tax benefit                                                              |   |                                                                    | ---     |   |   | (6,334 | ) |
| Loss                  on disposal of property and equipment                                                             |   |                                                                    | 395     |   |   | 202 |   |
| Changes                  in assets and liabilities which provided (used) cash:                                          |   |                                                                    |         |   |   |  |   |
| Accounts                  receivable                                                                                    |   |                                                                    | (141    | ) |   | (300 | ) |
| Inventories                                                                                                             |   |                                                                    | (617    | ) |   | (18 | ) |
| Prepaid                  expenses and other assets                                                                      |   |                                                                    | (3,400  | ) |   | (185 | ) |
| Other                  noncurrent assets                                                                                |   |                                                                    | (47     | ) |   | - |   |
| Accounts                  payable—trade                                                                           |   |                                                                    | (3,605  | ) |   | 7,731 |   |
| Accrued                  expenses                                                                                       |   |                                                                    | 401     |   |   | (67 | ) |
| Accrued                  interest                                                                                       |   |                                                                    | 413     |   |   | (31 | ) |
| Other                  current accrued liabilities                                                                      |   |                                                                    | 3,530   |   |   | 1,995 |   |
| Other                  noncurrent accrued liabilities                                                                   |   |                                                                    | (293    | ) |   | (445 | ) |
| NET                  CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                                    |   |                                                                    | (9,586  | ) |   | 9,707 |   |
| INVESTING                  ACTIVITIES:                                                                                  |   |                                                                    |         |   |   |  |   |
| Purchases                  of property and equipment                                                                    |   |                                                                    | (5,631  | ) |   | (11,033 | ) |
| Proceeds                  from sales of property and equipment                                                          |   |                                                                    | 4       |   |   | --- |   |
| Restricted                  cash for senior notes interest payment                                                      |   |                                                                    | (9,797  | ) |   | --- |   |
| NET                  CASH USED IN INVESTING ACTIVITIES                                                                  |   |                                                                    | (15,424 | ) |   | (11,033 | ) |
| FINANCING                  ACTIVITIES:                                                                                  |   |                                                                    |         |   |   |  |   |
| Proceeds                  from issuance of senior secured notes                                                         |   |                                                                    | 50,000  |   |   | --- |   |
| Increase                  in borrowings under senior secured credit facility                                            |   |                                                                    | 34,100  |   |   | 41,500 |   |
| Repayment                  of senior secured credit facility and capital lease                  obligations             |   |                                                                    | (63,108 | ) |   | (39,251 | ) |
| Repayment                  of installment purchase agreement                                                            |   |                                                                    | (163    | ) |   | (149 | ) |
| Deferred                  financing costs                                                                               |   |                                                                    | (4,399  | ) |   | (37 | ) |
| NET                  CASH PROVIDED BY FINANCING ACTIVITIES                                                              |   |                                                                    | 16,430  |   |   | 2,063 |   |
| EFFECT                  OF EXCHANGE RATE CHANGES ON CASH                                                                |   |                                                                    | 24      |   |   | 344 |   |
| INCREASE                  (DECREASE) IN CASH AND CASH EQUIVALENTS                                                       |   |                                                                    | (8,556  | ) |   | 1,081 |   |
| CASH                  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                       |   |                                                                    | 15,178  |   |   | 4,820 |   |
| CASH                  AND CASH EQUIVALENTS AT END OF PERIOD                                                             |   | $                                                                       | 6,622   |   | $ | 5,901 |   |
|                                                                                                                    |   |                                                                    |         |   |   |  |   |
| SUPPLEMENTAL                  CASH FLOW INFORMATION:                                                                    |   |                                                                    |         |   |   |  |   |
| Interest                  paid                                                                                          |   | $                                                                       | 12,137  |   | $ | 11,632 |   |
| Income                  taxes paid                                                                                      |   | $                                                                       | 162     |   | $ | 167 |   |
|                                                                                                                    |   |                                                                    |         |   |   |  |   |

**See        notes to condensed consolidated financial statements.**

----

**PORTRAIT        CORPORATION OF AMERICA, INC. AND        SUBSIDIARIES**

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

**(dollar        amounts in thousands, except where noted)**

**1.         **
**Organization        and Basis of Presentation**

**2.         **
**Operations,        Liquidity and Other Matters**

*Operations        and Liquidity*

----

*Management’s        Plan*

*Management’s        Plan*

----

*Foreign        Tax Claim and Forensic Investigation*

*Defaults        under Debt*

----

**3.         **
**Concentration        of Sales**

**4.         **
**Impact        of Newly Issued Accounting Standards**

**5.         **
**Stock        Option Plan**

*** ***

----

|                                                  |   | **For                  the Thirteen Weeks Ended** |    | **For                  the Twenty-Six Weeks Ended** |   |
|-------------------------------------------------------|--------|---------------------------------------------------|---------|-----------------------------------------------------|--------|
|                                                  |   | **July                  31,****2005**             |    | **August                  1,****2004**              |   | **July                  31,****2005** |   | **August                  1,****2004** |   |
| Net                  loss:                            |   |                                              |    |                                                |   |   |   |   |   |
| As                  reported                          |   | $                                                 | (12,944 | )                                                   | $      | (2,127 | ) | $ | (19,020 | ) | $ | (3,412 | ) |
| Recorded                  stock compensation expense  |        |                                                   | 18      |                                                     |        | 20 |  |  | 37 |  |  | 39 |   |
| Pro                  forma stock compensation expense |        |                                                   | (22     | )                                                   |        | (27 | ) |  | (48 | ) |  | (55 | ) |
| Pro                  forma net loss                   |        | $                                                 | (12,948 | )                                                   | $      | (2,134 | ) | $ | (19,031 | ) | $ | (3,428 | ) |
|                                                  |   |                                              |    |                                                |   |   |   |   |   |   |   |   |   |

**6.         **
**Seasonality**

**7.         **
**Comprehensive        Loss**

|                                                     |   | **For                  the Thirteen Weeks Ended** |    | **For                  the Twenty-Six Weeks Ended** |   |
|----------------------------------------------------------|--------|---------------------------------------------------|---------|-----------------------------------------------------|--------|
|                                                     |   | **July                  31,****2005**             |    | **August                  1,****2004**              |   | **July                  31,****2005** |   | **August                  1,****2004** |   |
| Net                  loss                                |   | $                                                 | (12,944 | )                                                   | $      | (2,127 | ) | $ | (19,020 | ) | $ | (3,412 | ) |
| Foreign                  currency translation adjustment |   |                                              | 276     |                                                |   | 104 |   |   | 81 |   |   | 128 |   |
| Total                  comprehensive loss                |   | $                                                 | (12,668 | )                                                   | $      | (2,023 | ) | $ | (18,939 | ) | $ | (3,284 | ) |
|                                                     |   |                                              |    |                                                |   |   |   |   |   |   |   |   |   |

----

**8.         **
**Other        Accrued Liabilities**

|                                             |   | **July                  31,****2005** |   | **January                  30,****2005** |   |
|--------------------------------------------------|--------|---------------------------------------|--------|------------------------------------------|--------|
| Accrued                  taxes other than income |   | $                                     | 2,341  |                                     | $      | 2,655 |   |
| Other                  accrued expenses          |   |                                  | 9,369  |                                     |   | 6,398 |   |
| Customer                  deposits               |   |                                  | 6,287  |                                     |   | 5,414 |   |
| Total                  other accrued liabilities |   | $                                     | 17,997 |                                     | $      | 14,467 |   |
|                                             |   |                                  |   |                                     |   |   |   |

**9.         **
**Other        Liabilities**

|                                                                          |   | **July                  31,****2005** |   | **January                  30,****2005** |   |
|-------------------------------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------------|--------|
| Long-term                  portion of workers’ compensation obligations |   | $                                     | 3,687  |                                     | $      | 4,053 |   |
| Accrued                  interest                                             |   |                                  | 752    |                                     |   | 695 |   |
| Long-term                  occupancy obligations                              |   |                                  | 111    |                                     |   | 95 |   |
| Total                  other accrued liabilities                              |   | $                                     | 4,550  |                                     | $      | 4,843 |   |
|                                                                          |   |                                  |   |                                     |   |   |   |

**10.         **
**Debt**

----

**11.         **
**Commitments        and Contingencies**

----

**12.         **
**Goodwill        and Intangible Assets**

|                                                  |   | **July                  31,****2005** |   | **January                  30,****2005** |   |
|-------------------------------------------------------|--------|---------------------------------------|--------|------------------------------------------|--------|
| Unamortized                  intangible assets:       |   |                                  |   |                                     |   |
| Goodwill                                              |   | $                                     | 52,998 |                                     | $      | 52,989 |   |
| Trademark                                             |   |                                  | 135    |                                     |   | 135 |   |
| Total                  goodwill and intangible assets |   | $                                     | 53,133 |                                     | $      | 53,124 |   |
|                                                  |   |                                  |   |                                     |   |   |   |

----

**13.         **
**Business        Segment and Geographic Data**

----

**Business        Segment Data**

|                                                                |   | **Retail** |    | **Institutional** |   | **Consolidated** |   |
|---------------------------------------------------------------------|--------|------------|---------|-------------------|--------|------------------|--------|
| **For                  the thirteen weeks ended July 31, 2005:**    |   |       |    |              |   |             |   |
| Net                  loss                                           |   | $          | (12,562 | )                 | $      | (382             | )      | $ | (12,944 | ) |
| Reconciling                  items:                                 |   |       |    |              |   |             |   |   |   |   |
| Depreciation                  and amortization                      |   |       | 3,452   |              |   | 37               |   |   | 3,489 |   |
| Interest                  income                                    |   |       | (3      | )                 |   | ---              |   |   | (3 | ) |
| Interest                  expense                                   |   |       | 8,859   |              |   | 244              |   |   | 9,103 |   |
| Early                  extinguishment of debt                       |   |       | 951     |              |   | 29               |   |   | 980 |   |
| Adjusted                  EBITDA                                    |   | $          | 697     |              | $      | (72              | )      | $ | 625 |   |
|                                                                |   |       |    |              |   |             |   |   |   |   |
| **For                  the thirteen weeks ended August 1, 2004:**   |   |       |    |              |   |             |   |   |   |   |
| Net                  income (loss)                                  |   | $          | (2,340  | )                 | $      | 213              |   | $ | (2,127 | ) |
| Reconciling                  items:                                 |   |       |    |              |   |             |   |   |   |   |
| Depreciation                  and amortization                      |   |       | 3,155   |              |   | 43               |   |   | 3,198 |   |
| Income                  tax benefit                                 |   |       | (4,859  | )                 |   | (192             | )      |   | (5,051 | ) |
| Interest                  income                                    |   |       | (2      | )                 |   | ---              |   |   | (2 | ) |
| Interest                  expense                                   |   |       | 7,672   |              |   | 274              |   |   | 7,946 |   |
| Adjusted                  EBITDA                                    |   | $          | 3,626   |              | $      | 338              |   | $ | 3,964 |   |
|                                                                |   |       |    |              |   |             |   |   |   |   |
| **For                  the twenty-six weeks ended July 31, 2005:**  |   |       |    |              |   |             |   |   |   |   |
| Net                  loss                                           |   | $          | (18,387 | )                 | $      | (633             | )      | $ | (19,020 | ) |
| Reconciling                  items:                                 |   |       |    |              |   |             |   |   |   |   |
| Depreciation                  and amortization                      |   |       | 6,898   |              |   | 75               |   |   | 6,973 |   |
| Interest                  income                                    |   |       | (7      | )                 |   | ---              |   |   | (7 | ) |
| Interest                  expense                                   |   |       | 17,157  |              |   | 507              |   |   | 17,664 |   |
| Early                  extinguishment of debt                       |   |       | 951     |              |   | 29               |   |   | 980 |   |
| Adjusted                  EBITDA                                    |   | $          | 6,612   |              | $      | (22              | )      | $ | 6,590 |   |
|                                                                |   |       |    |              |   |             |   |   |   |   |
| **For                  the twenty-six weeks ended August 1, 2004:** |   |       |    |              |   |             |   |   |   |   |
| Net                  loss                                           |   | $          | (2,950  | )                 | $      | (462             | )      | $ | (3,412 | ) |
| Reconciling                  items:                                 |   |       |    |              |   |             |   |   |   |   |
| Depreciation                  and amortization                      |   |       | 6,164   |              |   | 91               |   |   | 6,255 |   |
| Income                  tax benefit                                 |   |       | (6,119  | )                 |   | (215             | )      |   | (6,334 | ) |
| Interest                  income                                    |   |       | (4      | )                 |   | ---              |   |   | (4 | ) |
| Interest                  expense                                   |   |       | 15,339  |              |   | 539              |   |   | 15,878 |   |
| Adjusted                  EBITDA                                    |   | $          | 12,430  |              | $      | (47              | )      | $ | 12,383 |   |
|                                                                |   |       |    |              |   |             |   |   |   |   |

----

**Business        Segment        Data****continued)**

|                                                                |   | **Retail** |    | **Institutional** |   | **Consolidated** |   |
|---------------------------------------------------------------------|--------|------------|---------|-------------------|--------|------------------|--------|
| **For                  the thirteen weeks ended July 31, 2005:**    |   |       |    |              |   |             |   |
| Sales                                                               |   | $          | 65,067  |              | $      | 1,833            |   | $ | 66,900 |   |
| Adjusted                  EBITDA                                    |   | $          | 697     |              | $      | (72              | )      | $ | 625 |   |
| Total                  assets                                       |   | $          | 170,870 |              | $      | 2,279            |   | $ | 173,149 |   |
|                                                                |   |       |    |              |   |             |   |   |   |   |
| **For                  the thirteen weeks ended August 1, 2004:**   |   |       |    |              |   |             |   |   |   |   |
| Sales                                                               |   | $          | 66,086  |              | $      | 2,356            |   | $ | 68,442 |   |
| Adjusted                  EBITDA                                    |   | $          | 3,626   |              | $      | 338              |   | $ | 3,964 |   |
|                                                                |   |       |    |              |   |             |   |   |   |   |
| **For                  the twenty-six weeks ended July 31, 2005:**  |   |       |    |              |   |             |   |   |   |   |
| Sales                                                               |   | $          | 140,756 |              | $      | 4,312            |   | $ | 145,068 |   |
| Adjusted                  EBITDA                                    |   | $          | 6,612   |              | $      | (22              | )      | $ | 6,590 |   |
| Total                  assets                                       |   | $          | 170,870 |              | $      | 2,279            |   | $ | 173,149 |   |
|                                                                |   |       |    |              |   |             |   |   |   |   |
| **For                  the twenty-six weeks ended August 1, 2004:** |   |       |    |              |   |             |   |   |   |   |
| Sales                                                               |   | $          | 143,243 |              | $      | 5,095            |   | $ | 148,338 |   |
| Adjusted                  EBITDA                                    |   | $          | 12,430  |              | $      | (47              | )      | $ | 12,383 |   |
|                                                                |   |       |    |              |   |             |   |   |   |   |

**Geographic        Data**

|                                                  |   | **United****States** |    | **Canada** |   | **Mexico** |   | **Other****Foreign** |   | **Consolidated** |   |
|-------------------------------------------------------|--------|----------------------|---------|------------|--------|------------|--------|----------------------|--------|------------------|--------|
| **July                  31, 2005**                    |   |                 |    |       |   |       |   |                 |   |             |   |
| Sales                  for the thirteen weeks ended   |   | $                    | 58,459  |       | $      | 5,381      |   | $                    | 2,637  |             | $      | 423 |   | $ | 66,900 |   |
| Sales                  for the twenty-six weeks ended |   | $                    | 128,291 |       | $      | 10,753     |   | $                    | 5,143  |             | $      | 881 |   | $ | 145,068 |   |
| Long-term                  assets                     |   | $                    | 113,552 |       | $      | 7,486      |   | $                    | 2,410  |             | $      | 2,075 |   | $ | 125,523 |   |
|                                                  |   |                 |    |       |   |       |   |                 |   |             |   |   |   |   |   |   |
| **August                  1, 2004**                   |   |                 |    |       |   |       |   |                 |   |             |   |   |   |   |   |   |
| Sales                  for the thirteen weeks ended   |   | $                    | 61,384  |       | $      | 4,596      |   | $                    | 2,180  |             | $      | 282 |   | $ | 68,442 |   |
| Sales                  for the twenty-six weeks ended |   | $                    | 134,123 |       | $      | 9,210      |   | $                    | 4,454  |             | $      | 551 |   | $ | 148,338 |   |

----

**14.         **
**Guarantor        and Non-Guarantor Financial Statements**

| **PORTRAIT                  CORPORATION OF AMERICA, INC.****CONDENSED                  CONSOLIDATING BALANCE SHEET****July                  31, 2005** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                   |   | **Parent/****Guarantor** |   | **Co-issuers** |   | **Guarantor****Subsidiaries** |   | **Non-guarantor****Subsidiaries** |   | **Eliminations** |   | **Total** |   |
| Assets:                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                  and cash equivalents                                                                                                             |   | $ | --- |   | $ | --- |   | $ | 6,415 |   | $ | 207 |   | $ | --- |   | $ | 6,622 |   |
| Restricted                  cash                                                                                                                       |   |   | --- |   |   | 9,797 |   |   | --- |   |   | --- |   |   | --- |   |   | 9,797 |   |
| Accounts                  receivable                                                                                                                   |   |   | --- |   |   | --- |   |   | 2,351 |   |   | 571 |   |   | --- |   |   | 2,922 |   |
| Inventories                                                                                                                                            |   |   | --- |   |   | --- |   |   | 12,007 |   |   | 49 |   |   | --- |   |   | 12,056 |   |
| Deferred                  income taxes                                                                                                                 |   |   | (1,090 | ) |   | 1,090 |   |   | 108 |   |   | --- |   |   | --- |   |   | 108 |   |
| Prepaid                  expenses and other assets                                                                                                     |   |   | --- |   |   | --- |   |   | 6,246 |   |   | 217 |   |   | --- |   |   | 6,463 |   |
| Total                  current assets                                                                                                                  |   |   | (1,090 | ) |   | 10,887 |   |   | 27,127 |   |   | 1,044 |   |   | --- |   |   | 37,968 |   |
| Investments                  and intercompany accounts                                                                                                 |   |   | (128,523 | ) |   | 87,000 |   |   | (50,238 | ) |   | (12,204 | ) |   | 103,965 |   |   | --- |   |
| Property                  and equipment, net                                                                                                           |   |   | --- |   |   | --- |   |   | 67,743 |   |   | 4,473 |   |   | --- |   |   | 72,216 |   |
| Goodwill,                  intangible and other assets, net                                                                                            |   |   | --- |   |   | --- |   |   | 53,294 |   |   | 10 |   |   | 3 |   |   | 53,307 |   |
| Deferred                  financing costs, net                                                                                                         |   |   | 1,315 |   |   | 8,343 |   |   | --- |   |   | --- |   |   | --- |   |   | 9,658 |   |
| Total                  assets                                                                                                                          |   | $ | (128,298 | ) | $ | 106,230 |   | $ | 97,926 |   | $ | (6,677 | ) | $ | 103,968 |   | $ | 173,149 |   |
|                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities                  and shareholders’ equity (deficiency):                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                  portion of long-term debt                                                                                                     |   | $ | --- |   | $ | --- |   | $ | 20 |   | $ | --- |   | $ | --- |   | $ | 20 |   |
| Accounts                  payable—trade                                                                                                          |   |   | --- |   |   | --- |   |   | 32,258 |   |   | 316 |   |   | --- |   |   | 32,574 |   |
| Accrued                  insurance                                                                                                                     |   |   | --- |   |   | --- |   |   | 4,437 |   |   | --- |   |   | --- |   |   | 4,437 |   |
| Accrued                  income taxes                                                                                                                  |   |   | 66 |   |   | 1,792 |   |   | --- |   |   | 2 |   |   | --- |   |   | 1,860 |   |
| Accrued                  compensation                                                                                                                  |   |   | --- |   |   | --- |   |   | 4,993 |   |   | 108 |   |   | --- |   |   | 5,101 |   |
| Accrued                  interest                                                                                                                      |   |   | --- |   |   | 10,192 |   |   | 598 |   |   | --- |   |   | --- |   |   | 10,790 |   |
| Other                  accrued liabilities                                                                                                             |   |   | --- |   |   | --- |   |   | 16,189 |   |   | 1,808 |   |   | --- |   |   | 17,997 |   |
| Total                  current liabilities                                                                                                             |   |   | 66 |   |   | 11,984 |   |   | 58,495 |   |   | 2,234 |   |   | --- |   |   | 72,779 |   |
| Long-term                  debt, less current portion                                                                                                  |   |   | 47,531 |   |   | 223,102 |   |   | 22 |   |   | --- |   |   | --- |   |   | 270,655 |   |
| Deferred                  income taxes                                                                                                                 |   |   | (1,724 | ) |   | 1,724 |   |   | 108 |   |   | --- |   |   | --- |   |   | 108 |   |
| Other                  liabilities                                                                                                                     |   |   | 752 |   |   | --- |   |   | 3,798 |   |   | --- |   |   | --- |   |   | 4,550 |   |
| Series                  A redeemable convertible preferred stock                                                                                       |   |   | 15,000 |   |   | --- |   |   | --- |   |   | --- |   |   | --- |   |   | 15,000 |   |
| Total                  shareholders’ equity (deficiency)                                                                                         |   |   | (189,923 | ) |   | (130,580 | ) |   | 35,503 |   |   | (8,911 | ) |   | 103,968 |   |   | (189,943 | ) |
| Total                  liabilities and shareholders’ equity (deficiency)                                                                         |   | $ | (128,298 | ) | $ | 106,230 |   | $ | 97,926 |   | $ | (6,677 | ) | $ | 103,968 |   | $ | 173,149 |   |
|                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| **PORTRAIT                  CORPORATION OF AMERICA, INC.****CONDENSED                  CONSOLIDATING BALANCE SHEET****January                  30, 2005** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                      |   | **Parent/****Guarantor** |   | **Co-issuers** |   | **Guarantor****Subsidiaries** |   | **Non-guarantor****Subsidiaries** |   | **Eliminations** |   | **Total** |   |
| Assets:                                                                                                                                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                  and cash equivalents                                                                                                                |   | $ | --- |   | $ | --- |   | $ | 14,341 |   | $ | 837 |   | $ | --- |   | $ | 15,178 |   |
| Accounts                  receivable                                                                                                                      |   |   | --- |   |   | --- |   |   | 2,145 |   |   | 636 |   |   | --- |   |   | 2,781 |   |
| Inventories                                                                                                                                               |   |   | --- |   |   | --- |   |   | 11,391 |   |   | 48 |   |   | --- |   |   | 11,439 |   |
| Deferred                  income taxes                                                                                                                    |   |   | (1,090 | ) |   | 1,090 |   |   | 108 |   |   | --- |   |   | --- |   |   | 108 |   |
| Prepaid                  expenses and other assets                                                                                                        |   |   | --- |   |   | --- |   |   | 3,300 |   |   | 3 |   |   | --- |   |   | 3,303 |   |
| Total                  current assets                                                                                                                     |   |   | (1,090 | ) |   | 1,090 |   |   | 31,285 |   |   | 1,524 |   |   | --- |   |   | 32,809 |   |
| Investments                  and intercompany accounts                                                                                                    |   |   | (113,404 | ) |   | 93,885 |   |   | (54,830 | ) |   | (11,531 | ) |   | 85,880 |   |   | --- |   |
| Property                  and equipment, net                                                                                                              |   |   | --- |   |   | --- |   |   | 69,258 |   |   | 4,651 |   |   | --- |   |   | 73,909 |   |
| Goodwill,                  intangible and other assets, net                                                                                               |   |   | ------ |   |   | --- |   |   | 53,244 |   |   | 7 |   |   | --- |   |   | 53,251 |   |
| Deferred                  financing costs, net                                                                                                            |   |   | 1,404 |   |   | 5,419 |   |   | --- |   |   | --- |   |   | --- |   |   | 6,823 |   |
| Total                  assets                                                                                                                             |   | $ | (113,090 | ) | $ | 100,394 |   | $ | 98,957 |   | $ | (5,349 | ) | $ | 85,880 |   | $ | 166,792 |   |
|                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities                  and shareholders’ equity (deficiency):                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                  portion of long-term debt                                                                                                        |   | $ | --- |   | $ | --- |   | $ | 182 |   | $ | --- |   | $ | --- |   | $ | 182 |   |
| Accounts                  payable—trade                                                                                                             |   |   | --- |   |   | --- |   |   | 35,743 |   |   | 436 |   |   | --- |   |   | 36,179 |   |
| Accrued                  insurance                                                                                                                        |   |   | --- |   |   | --- |   |   | 4,141 |   |   | --- |   |   | --- |   |   | 4,141 |   |
| Accrued                  income taxes                                                                                                                     |   |   | 66 |   |   | 1,883 |   |   | --- |   |   | 73 |   |   | --- |   |   | 2,022 |   |
| Accrued                  compensation                                                                                                                     |   |   | --- |   |   | --- |   |   | 4,771 |   |   | 63 |   |   | --- |   |   | 4,834 |   |
| Accrued                  interest                                                                                                                         |   |   | --- |   |   | 10,377 |   |   | --- |   |   | --- |   |   | --- |   |   | 10,377 |   |
| Other                  accrued liabilities                                                                                                                |   |   | --- |   |   | --- |   |   | 12,698 |   |   | 1,769 |   |   | --- |   |   | 14,467 |   |
| Total                  current liabilities                                                                                                                |   |   | 66 |   |   | 12,260 |   |   | 57,535 |   |   | 2,341 |   |   | --- |   |   | 72,202 |   |
| Long-term                  debt, less current portion                                                                                                     |   |   | 43,776 |   |   | 201,870 |   |   | 34 |   |   | --- |   |   | --- |   |   | 245,680 |   |
| Deferred                  income taxes                                                                                                                    |   |   | (1,724 | ) |   | 1,724 |   |   | 108 |   |   | --- |   |   | --- |   |   | 108 |   |
| Other                  liabilities                                                                                                                        |   |   | 695 |   |   | --- |   |   | 4,148 |   |   | --- |   |   | --- |   |   | 4,843 |   |
| Series                  A redeemable convertible preferred stock                                                                                          |   |   | 15,000 |   |   | --- |   |   | --- |   |   | --- |   |   | --- |   |   | 15,000 |   |
| Total                  shareholders’ equity (deficiency)                                                                                            |   |   | (170,903 | ) |   | (115,460 | ) |   | 37,132 |   |   | (7,690 | ) |   | 85,880 |   |   | (171,041 | ) |
| Total                  liabilities and shareholders’ equity (deficiency)                                                                            |   | $ | (113,090 | ) | $ | 100,394 |   | $ | 98,957 |   | $ | (5,349 | ) | $ | 85,880 |   | $ | 166,792 |   |
|                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| **PORTRAIT                    CORPORATION OF AMERICA, INC.****CONDENSED                    CONSOLIDATING STATEMENT OF OPERATIONS****For                    the Thirteen Weeks Ended July 31, 2005** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                |   | **Parent/****Guarantor** |   | **Co-issuers** |   | **Guarantor****Subsidiaries** |   | **Non-guarantor****Subsidiaries** |   | **Eliminations** |   | **Total** |   |
| Sales                                                                                                                                                                                               |   | $ | --- |   | $ | --- |   | $ | 63,839 |   | $ | 3,061 |   | $ | --- |   | $ | 66,900 |   |
| Cost                    of sales                                                                                                                                                                    |   |   | --- |   |   | --- |   |   | 55,403 |   |   | 3,040 |   |   | --- |   |   | 58,443 |   |
| Gross                    profit                                                                                                                                                                     |   |   | --- |   |   | --- |   |   | 8,436 |   |   | 21 |   |   | --- |   |   | 8,457 |   |
| General                    and administrative                                                                                                                                                       |   |   | --- |   |   | --- |   |   | 10,679 |   |   | 642 |   |   | --- |   |   | 11,321 |   |
| Loss                    from operations                                                                                                                                                             |   |   | --- |   |   | --- |   |   | (2,243 | ) |   | (621 | ) |   | --- |   |   | (2,864 | ) |
| Interest                    income                                                                                                                                                                  |   |   | --- |   |   | --- |   |   | 3 |   |   | --- |   |   | --- |   |   | 3 |   |
| Interest                    expense                                                                                                                                                                 |   |   | (1,958 | ) |   | (6,926 | ) |   | (219 | ) |   | --- |   |   | --- |   |   | (9,103 | ) |
| Early                    extinguishment of debt                                                                                                                                                     |   |   | --- |   |   | --- |   |   | (980 | ) |   | --- |   |   | --- |   |   | (980 | ) |
| Investment                    income (loss) in equity of wholly-owned subsidiaries                                                                                                                  |   |   | (10,986 | ) |   | (4,060 | ) |   | (621 | ) |   | --- |   |   | 15,667 |   |   | --- |   |
| Net                    loss                                                                                                                                                                         |   | $ | (12,944 | ) | $ | (10,986 | ) | $ | (4,060 | ) | $ | (621 | ) | $ | 15,667 |   | $ | (12,944 | ) |
|                                                                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **PORTRAIT                    CORPORATION OF AMERICA, INC.****CONDENSED                    CONSOLIDATING STATEMENT OF OPERATIONS****For                    the Thirteen Weeks Ended August 1, 2004 (as restated; see Note                    15)** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                               |   | **Parent/****Guarantor** |   | **Co-issuers** |   | **Guarantor****Subsidiaries** |   | **Non-guarantor****Subsidiaries** |   | **Eliminations** |   | **Total** |   |
| Sales                                                                                                                                                                                                                                              |   | $ | --- |   | $ | --- |   | $ | 65,980 |   | $ | 2,462 |   | $ | --- |   | $ | 68,442 |   |
| Cost                    of sales                                                                                                                                                                                                                   |   |   | --- |   |   | --- |   |   | 54,785 |   |   | 2,393 |   |   | --- |   |   | 57,178 |   |
| Gross                    profit                                                                                                                                                                                                                    |   |   | --- |   |   | --- |   |   | 11,195 |   |   | 69 |   |   | --- |   |   | 11,264 |   |
| General                    and administrative                                                                                                                                                                                                      |   |   | --- |   |   | --- |   |   | 9,719 |   |   | 779 |   |   | --- |   |   | 10,498 |   |
| Income                    (loss) from operations                                                                                                                                                                                                   |   |   | --- |   |   | --- |   |   | 1,476 |   |   | (710 | ) |   | --- |   |   | 766 |   |
| Interest                    income                                                                                                                                                                                                                 |   |   | --- |   |   | --- |   |   | 2 |   |   | --- |   |   | --- |   |   | 2 |   |
| Interest                    expense                                                                                                                                                                                                                |   |   | (1,658 | ) |   | (6,146 | ) |   | (142 | ) |   | --- |   |   | --- |   |   | (7,946 | ) |
| Investment                    income (loss) in equity of wholly-owned subsidiaries                                                                                                                                                                 |   |   | (1,782 | ) |   | 626 |   |   | (710 | ) |   | --- |   |   | 1,866 |   |   | --- |   |
| Income                    (loss) before income taxes                                                                                                                                                                                               |   |   | (3,440 | ) |   | (5,520 | ) |   | 626 |   |   | (710 | ) |   | 1,866 |   |   | (7,178 | ) |
| Income                    tax benefit                                                                                                                                                                                                              |   |   | 1,313 |   |   | 3,738 |   |   | --- |   |   | --- |   |   | --- |   |   | 5,051 |   |
| Net                    income (loss)                                                                                                                                                                                                               |   | $ | (2,127 | ) | $ | (1,782 | ) | $ | 626 |   | $ | (710 | ) | $ | 1,866 |   | $ | (2,127 | ) |
|                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| **PORTRAIT                    CORPORATION OF AMERICA, INC.****CONDENSED                    CONSOLIDATING STATEMENT OF OPERATIONS****For                    the Twenty-Six Weeks Ended July 31, 2005** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                  |   | **Parent/****Guarantor** |   | **Co-issuers** |   | **Guarantor****Subsidiaries** |   | **Non-guarantor****Subsidiaries** |   | **Eliminations** |   | **Total** |   |
| Sales                                                                                                                                                                                                 |   | $ | --- |   | $ | --- |   | $ | 139,044 |   | $ | 6,024 |   | $ | --- |   | $ | 145,068 |   |
| Cost                    of sales                                                                                                                                                                      |   |   | --- |   |   | --- |   |   | 115,204 |   |   | 6,202 |   |   | --- |   |   | 121,406 |   |
| Gross                    profit (loss)                                                                                                                                                                |   |   | --- |   |   | --- |   |   | 23,840 |   |   | (178 | ) |   | --- |   |   | 23,662 |   |
| General                    and administrative                                                                                                                                                         |   |   | --- |   |   | --- |   |   | 23,018 |   |   | 1,027 |   |   | --- |   |   | 24,045 |   |
| Income                    (loss) from operations                                                                                                                                                      |   |   | --- |   |   | --- |   |   | 822 |   |   | (1,205 | ) |   | --- |   |   | (383 | ) |
| Interest                    income                                                                                                                                                                    |   |   | --- |   |   | --- |   |   | 7 |   |   | --- |   |   | --- |   |   | 7 |   |
| Interest                    expense                                                                                                                                                                   |   |   | (3,900 | ) |   | (13,356 | ) |   | (408 | ) |   | --- |   |   | --- |   |   | (17,664 | ) |
| Early                    extinguishment of debt                                                                                                                                                       |   |   | --- |   |   | --- |   |   | (980 | ) |   | --- |   |   | --- |   |   | (980 | ) |
| Investment                    income (loss) in equity of wholly-owned subsidiaries                                                                                                                    |   |   | (15,120 | ) |   | (1,764 | ) |   | (1,205 | ) |   | --- |   |   | 18,089 |   |   | --- |   |
| Net                    loss                                                                                                                                                                           |   | $ | (19,020 | ) | $ | (15,120 | ) | $ | (1,764 | ) | $ | (1,205 | ) | $ | 18,089 |   | $ | (19,020 | ) |
|                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **PORTRAIT                    CORPORATION OF AMERICA, INC.****CONDENSED                    CONSOLIDATING STATEMENT OF OPERATIONS****For                    the Twenty-Six Weeks Ended August 1, 2004 (as restated; see Note                    15)** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                 |   | **Parent/****Guarantor** |   | **Co-issuers** |   | **Guarantor****Subsidiaries** |   | **Non-guarantor****Subsidiaries** |   | **Eliminations** |   | **Total** |   |
| Sales                                                                                                                                                                                                                                                |   | $ | --- |   | $ | --- |   | $ | 143,333 |   | $ | 5,005 |   | $ | --- |   | $ | 148,338 |   |
| Cost                    of sales                                                                                                                                                                                                                     |   |   | --- |   |   | --- |   |   | 114,763 |   |   | 5,205 |   |   | --- |   |   | 119,968 |   |
| Gross                    profit (loss)                                                                                                                                                                                                               |   |   | --- |   |   | --- |   |   | 28,570 |   |   | (200 | ) |   | --- |   |   | 28,370 |   |
| General                    and administrative                                                                                                                                                                                                        |   |   | --- |   |   | --- |   |   | 20,840 |   |   | 1,402 |   |   | --- |   |   | 22,242 |   |
| Income                    (loss) from operations                                                                                                                                                                                                     |   |   | --- |   |   | --- |   |   | 7,730 |   |   | (1,602 | ) |   | --- |   |   | 6,128 |   |
| Interest                    income                                                                                                                                                                                                                   |   |   | --- |   |   | --- |   |   | 3 |   |   | 1 |   |   | --- |   |   | 4 |   |
| Interest                    expense                                                                                                                                                                                                                  |   |   | (3,318 | ) |   | (12,418 | ) |   | (142 | ) |   | --- |   |   | --- |   |   | (15,878 | ) |
| Investment                    income (loss) in equity of wholly-owned subsidiaries                                                                                                                                                                   |   |   | (2,216 | ) |   | 5,990 |   |   | (1,601 | ) |   | --- |   |   | (2,173 | ) |   | --- |   |
| Income                    (loss) before income taxes                                                                                                                                                                                                 |   |   | (5,534 | ) |   | (6,428 | ) |   | 5,990 |   |   | (1,601 | ) |   | (2,173 | ) |   | (9,746 | ) |
| Income                    tax benefit                                                                                                                                                                                                                |   |   | 2,122 |   |   | 4,212 |   |   | --- |   |   | --- |   |   | --- |   |   | 6,334 |   |
| Net                    income (loss)                                                                                                                                                                                                                 |   | $ | (3,412 | ) | $ | (2,216 | ) | $ | 5,990 |   | $ | (1,601 | ) | $ | (2,173 | ) | $ | (3,412 | ) |
|                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| **PORTRAIT                    CORPORATION OF AMERICA, INC.****CONDENSED                    CONSOLIDATING STATEMENT OF CASH FLOWS****For                    the Twenty-Six Weeks Ended July 31, 2005** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                  |   | **Parent/****Guarantor** |   | **Co-issuers** |   | **Guarantor****Subsidiaries** |   | **Non-guarantor****Subsidiaries** |   | **Eliminations** |   | **Total** |   |
| Net                    cash used in operating activities                                                                                                                                              |   | $ | --- |   | $ | (6,804 | ) | $ | (2,307 | ) | $ | (475 | ) | $ | --- |   | $ | (9,586 | ) |
| Net                    cash used in investing activities                                                                                                                                              |   |   | --- |   |   | (9,797 | ) |   | (5,426 | ) |   | (201 | ) |   | --- |   |   | (15,424 | ) |
| Net                    cash provided by (used in) financing activities                                                                                                                                |   |   | --- |   |   | 16,601 |   |   | (171 | ) |   | --- |   |   | --- |   |   | 16,430 |   |
| Effect                    of exchange rate changes on cash                                                                                                                                            |   |   | --- |   |   | --- |   |   | (22 | ) |   | 46 |   |   | --- |   |   | 24 |   |
| Decrease                    in cash and cash equivalents                                                                                                                                              |   |   | --- |   |   | --- |   |   | (7,926 | ) |   | (630 | ) |   | --- |   |   | (8,556 | ) |
| Cash                    and cash equivalents at beginning of period                                                                                                                                   |   |   | --- |   |   | --- |   |   | 14,341 |   |   | 837 |   |   | --- |   |   | 15,178 |   |
| Cash                    and cash equivalents at end of period                                                                                                                                         |   |   | --- |   |   | --- |   | $ | 6,415 |   | $ | 207 |   | $ | --- |   | $ | 6,622 |   |
|                                                                                                                                                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **PORTRAIT                    CORPORATION OF AMERICA, INC.****CONDENSED                    CONSOLIDATING STATEMENT OF CASH FLOWS****For                    the Twenty-Six Weeks Ended August 1, 2004 (as restated; see Note                    15)** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                 |   | **Parent/****Guarantor** |   | **Co-issuers** |   | **Guarantor****Subsidiaries** |   | **Non-guarantor****Subsidiaries** |   | **Eliminations** |   | **Total** |   |
| Net                    cash provided by (used in) operating activities                                                                                                                                                                               |   | $ | --- |   | $ | (2,263 | ) | $ | 10,979 |   | $ | 991 |   | $ | --- |   | $ | 9,707 |   |
| Net                    cash used in investing activities                                                                                                                                                                                             |   |   | --- |   |   | --- |   |   | (10,607 | ) |   | (426 | ) |   | --- |   |   | (11,033 | ) |
| Net                    cash provided by (used in) financing activities                                                                                                                                                                               |   |   | --- |   |   | 2,263 |   |   | (200 | ) |   | --- |   |   | --- |   |   | 2,063 |   |
| Effect                    of exchange rate changes on cash                                                                                                                                                                                           |   |   | --- |   |   | --- |   |   | 89 |   |   | 255 |   |   | --- |   |   | 344 |   |
| Increase                    in cash and cash equivalents                                                                                                                                                                                             |   |   | --- |   |   | --- |   |   | 261 |   |   | 820 |   |   | --- |   |   | 1,081 |   |
| Cash                    and cash equivalents at beginning of period                                                                                                                                                                                  |   |   | --- |   |   | --- |   |   | 4,441 |   |   | 379 |   |   | --- |   |   | 4,820 |   |
| Cash                    and cash equivalents at end of period                                                                                                                                                                                        |   | $ | --- |   | $ | --- |   | $ | 4,702 |   | $ | 1,199 |   | $ | --- |   | $ | 5,901 |   |
|                                                                                                                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

**15.         **
**Restatement**

----

|                                        |   | **For                  the Thirteen Weeks Ended****August                  1, 2004** |   | **For                  the Twenty-Six Weeks Ended****August                  1, 2004** |   |
|---------------------------------------------|--------|--------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------|--------|
|                                        |   | *As                  Previously**Reported*                                           |   | *As                  Restated*                                                         |   | *As                  Previously**Reported* |   | *As                  Restated* |   |
| Statements                  of operations:  |   |                                                                                 |   |                                                                                   |   |   |   |   |   |
| Cost                  of sales              |   | $                                                                                    | 57,415 |                                                                                   | $      | 57,178 |   | $ | 120,121 |   | $ | 119,968 |   |
| Gross                  profit               |   |                                                                                 | 11,027 |                                                                                   |   | 11,264 |   |   | 28,217 |   |   | 28,370 |   |
| General                  and administrative |   |                                                                                 | 10,149 |                                                                                   |   | 10,498 |   |   | 21,869 |   |   | 22,242 |   |
| Income                  from operations     |   |                                                                                 | 878    |                                                                                   |   | 766 |   |   | 6,348 |   |   | 6,128 |   |
| Loss                  before income taxes   |   |                                                                                 | (7,066 | )                                                                                      |   | (7,178 | ) |   | (9,526 | ) |   | (9,746 | ) |
| Net                  loss                   |   |                                                                                 | (2,015 | )                                                                                      |   | (2,127 | ) |   | (3,192 | ) |   | (3,412 | ) |

| Statements                  of cash flows:                                                                                  |   |   |    |   |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|
| Net                  loss                                                                                                   |   | $      | (3,192  | )      | $      | (3,412 | ) |
| Adjustments                  to reconcile net loss to net cash provided                  by (used in) operating activities: |   |   |    |   |   |   |   |
| Depreciation                  and amortization                                                                              |   |   | 6,277   |   |   | 6,255 |   |
| Changes                  in assets and liabilities which provided (used)                  cash:                             |   |   |    |   |   |   |   |
| Accounts                  receivable                                                                                        |   |   | 200     |   |   | (300 | ) |
| Prepaid                  expenses and other assets                                                                          |   |   | (256    | )      |   | (185 | ) |
| Other                  noncurrent assets                                                                                    |   |   | 15      |   |   | --- |   |
| Accounts                  payable—trade                                                                               |   |   | 7,745   |   |   | 7,731 |   |
| Accrued                  expenses                                                                                           |   |   | (489    | )      |   | (67 | ) |
| Other                  current accrued liabilities                                                                          |   |   | 1,986   |   |   | 1,995 |   |
| Net                  cash provided by operating activities                                                                  |   |   | 9,976   |   |   | 9,707 |   |
| Purchases                  of property and equipment                                                                        |   |   | (11,217 | )      |   | (11,033 | ) |
| Net                  cash used in investing activities                                                                      |   |   | (11,217 | )      |   | (11,033 | ) |
| Effect                  of exchange rate changes on cash                                                                    |   |   | 306     |   |   | 344 |   |
| Increase                  in cash and cash equivalents                                                                      |   |   | 1,128   |   |   | 1,081 |   |
| Cash                  and cash equivalents at end of period                                                                 |   |   | 5,948   |   |   | 5,901 |   |
|                                                                                                                        |   |   |    |   |   |   |   |

----

**Item        2.  Management’s Discussion and Analysis of        Financial Condition and Results of Operations**

**Results        of Operations**

*Twenty-Six        Weeks Ended July 31, 2005 Compared With Twenty-Six Weeks Ended August 1,        2004.*

| **Attributable                  to**                                                                                                  |   | **Amount****(in                  millions)** |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
| 7.5%                  decrease in same studio sales in Wal-Mart permanent portrait                  studios                           |   | $                                            | (9.9   | ) |
| Wal-Mart                  permanent portrait studios not yet included in the same studio                  sales                  base |   |                                         | 10.0   |   |
| Decrease                  in sales in our Wal-Mart traveling locations due to fewer locations                  visited                |   |                                         | (2.5   | ) |
| Total                  decrease attributable to our Wal-Mart portrait photography                  business                           |   |                                         | (2.4   | ) |
| Decrease                  in sales in institutional segment                                                                           |   |                                         | (0.8   | ) |
| Other                                                                                                                                 |   |                                         | (0.1   | ) |
| **Total                  decrease in sales**                                                                                          |   | $                                            | (3.3   | ) |
|                                                                                                                                  |   |                                         |   |   |

| **Attributable                  to**                                                                                                                                              |   | **%                  of sales** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|
| Increase                  in retail photography labor and general studio supplies as a percentage                  of                  sales due to decrease in same studio sales |   |                            | (1.8   | )% |
| Change                  in our product mix                                                                                                                                        |   |                            | (0.5   | ) |
| Increase                  in depreciation expense as a percentage of sales due to decrease                  in same                  studio sales                                 |   |                            | (0.5   | ) |
| **Total                  decrease in gross profit percentage**                                                                                                                    |   |                            | (2.8   | )% |
|                                                                                                                                                                              |   |                            |   |   |

----

| **Attributable                  to**                                                                                                                                               |   | **Amount****(in                  millions)** |    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|---------|
| Savings                  recognized in Q2 2004 related to termination of benefit plan for                  certain                  retired employees                              |   | $                                            | 1.1     |   |
| Increase                  in professional services primarily related to our Sarbanes-Oxley                  effort,                  legal services and audit fees                 |   |                                         | 1.0     |   |
| Decrease                  in workers’ compensation expense and general casualty insurance expense                  primarily due to elevated charges experienced in YTD 2004 |   |                                         | (0.8    | ) |
| Increase                  in payroll cost                                                                                                                                          |   |                                         | 0.8     |   |
| Decrease                  in foreign currency transaction loss                                                                                                                     |   |                                         | (0.2    | ) |
| Increase                  in health insurance costs                                                                                                                                |   |                                         | 0.2     |   |
| Other                                                                                                                                                                              |   |                                         | (0.3    | ) |
| **Total                  increase in general and administrative expenses**                                                                                                         |   | **$**                                        | **1.8** |   |
|                                                                                                                                                                               |   |                                         |    |   |

| **Attributable                  to**                                                                        |   | **Amount****(in                  millions)** |    |
|-------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|---------|
| Increase                  from Parent Notes issued in June 2002                                             |   | $                                            | 0.6     |   |
| Increase                  from prior senior secured credit facility entered into June                  2002 |   |                                         | 0.6     |   |
| Increase                  from supplier provided financing                                                  |   |                                         | 0.3     |   |
| Increase                  from Senior Secured Notes issued in July 2005                                     |   |                                         | 0.3     |   |
| **Total                  increase in interest expense**                                                     |   | **$**                                        | **1.8** |   |
|                                                                                                        |   |                                         |    |   |

----

*Thirteen        Weeks Ended July 31, 2005 Compared With Thirteen Weeks Ended August 1,        2004.*

| **Attributable                  to**                                                                                                  |   | **Amount****(in                  millions)** |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|--------|
| 6.9%                  decrease in same studio sales in Wal-Mart permanent portrait                  studios                           |   | $                                            | (4.3   | ) |
| Wal-Mart                  permanent portrait studios not yet included in the same studio                  sales                  base |   |                                         | 4.2    |   |
| Decrease                  in sales in our Wal-Mart traveling locations due to fewer locations                  visited                |   |                                         | (0.9   | ) |
| Total                  decrease attributable to our Wal-Mart portrait photography                  business                           |   |                                         | (1.0   | ) |
| Decrease                  in sales in institutional segment                                                                           |   |                                         | (0.5   | ) |
| **Total                  decrease in sales**                                                                                          |   | $                                            | (1.5   | ) |
|                                                                                                                                  |   |                                         |   |   |

| **Attributable                  to**                                                                                                                                              |   | **%                  of sales** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------|
| Increase                  in retail photography labor and general studio supplies as a percentage                  of                  sales due to decrease in same studio sales |   |                            | (2.8   | )% |
| Increase                  in depreciation expense as a percentage of sales due to decrease                  in same                  studio sales                                 |   |                            | (0.5   | ) |
| Change                  in our product mix                                                                                                                                        |   |                            | (0.3   | ) |
| Other                                                                                                                                                                             |   |                            | (0.3   | ) |
| **Total                  decrease in gross profit percentage**                                                                                                                    |   |                            | (3.9   | )% |
|                                                                                                                                                                              |   |                            |   |   |

----

| **Attributable                  to**                                                                                                                                              |   | **Amount****(in                  millions)** |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|---------|
| Savings                  recognized in Q2 2004 related to termination of benefit plan for                  certain                  retired employees                             |   | $                                            | 1.1     |   |
| Decrease                  in health insurance costs due to change in health benefit                  plan                                                                         |   |                                         | (0.6    | ) |
| Decrease                  in workers’ compensation expense and general casualty insurance expense                  primarily due to elevated charges experienced in Q2 2004 |   |                                         | (0.6    | ) |
| Increase                  in professional services primarily related to legal services and                  audit                  fees                                           |   |                                         | 0.5     |   |
| Increase                  in payroll cost                                                                                                                                         |   |                                         | 0.5     |   |
| Increase                  in foreign currency transaction loss                                                                                                                    |   |                                         | 0.2     |   |
| Decrease                  in loss on disposal of property, plant and equipment                                                                                                    |   |                                         | (0.1    | ) |
| Other                                                                                                                                                                             |   |                                         | (0.2    | ) |
| **Total                  increase in general and administrative expenses**                                                                                                        |   | **$**                                        | **0.8** |   |
|                                                                                                                                                                              |   |                                         |    |   |

| **Attributable                  to**                                                                        |   | **Amount****(in                  millions)** |    |
|-------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|---------|
| Increase                  from prior senior secured credit facility entered into June                  2002 |   | $                                            | 0.5     |   |
| Increase                  from Senior Secured Notes issued in July 2005                                     |   |                                         | 0.3     |   |
| Increase                  from Parent Notes issued in June 2002                                             |   |                                         | 0.3     |   |
| Increase                  from supplier provided financing                                                  |   |                                         | 0.1     |   |
| **Total                  increase in interest expense**                                                     |   | **$**                                        | **1.2** |   |
|                                                                                                        |   |                                         |    |   |

----

**Liquidity        and Capital Resources**

*Liquidity*

----

----

----

----

*Seasonality.        *

*Purchases        of Property and Equipment*

*Net        Cash Provided by (Used in) Operating Activities.*

----

*Net        Cash Used in Investing Activities*

*Net        Cash Provided by Financing Activities.*

**Critical        Accounting Policies**

**Changes        in Studios/Stores**

**Forward-Looking        Statements**

----

| ·   | risks                  associated with substantial indebtedness, leverage, debt service                  and                  liquidity; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | risks                  associated with our relationship with Wal-Mart, our principal business                  relationship; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|

| ·   | performance                  of our new studios and their future operating                  results; |
|--------------------|------------------------------------------------------------------------------------------------------|

| ·   | risks                  of competition from companies including, but not limited to, those                  currently operating in other photography                  markets; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | risks                  associated with the domestic professional portrait photography                  industry;                  and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------|

| ·   | other                  risks and uncertainties affecting Portrait Corporation of America,                  Inc.                  and its subsidiaries referred to in this Form 10-Q (see especially“Item                  2. Management’s Discussion and Analysis of Financial Condition and Results                  of Operations” and “Item 3. Quantitative and Qualitative Disclosures About                  Market Risk”) and in our other current and periodic filings with the                  Securities and Exchange Commission, all of which are difficult                  or                  impossible to predict accurately and many of which are beyond our                  control. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Item        3.  Quantitative and Qualitative Disclosures        About Market Risk**

|    |   | **Q2                  2005**        |   | **Q2                  2004** |   |
|---------|--------|-------------------------------------|--------|------------------------------|--------|
|    |   | **(in                  thousands)** |   |
|    |   | +10%                                |   | -10%                         |   | +10% |   | -10% |   |
| Canada  |   | $                                   | (26    | )                            | $      | 31 |   | $ | 30 |   | $ | (36 | ) |
| Mexico  |   | $                                   | 10     |                         | $      | (31 | ) | $ | (98 | ) | $ | 119 |   |
| Germany |   | $                                   | 5      |                         | $      | (4 | ) | $ | (2 | ) | $ | 7 |   |
| U.K.    |   | $                                   | 7      |                         | $      | (13 | ) | $ | 1 |   | $ | (1 | ) |
|    |   |                                |   |                         |   |   |   |   |   |   |   |   |   |

|    |   | **YTD                  2005**       |   | **YTD                  2004** |   |
|---------|--------|-------------------------------------|--------|-------------------------------|--------|
|    |   | **(in                  thousands)** |   |
|    |   | +10%                                |   | -10%                          |   | +10% |   | -10% |   |
| Canada  |   | $                                   | 93     |                          | $      | (113 | ) | $ | (200 | ) | $ | 247 |   |
| Mexico  |   | $                                   | (527   | )                             | $      | 628 |   | $ | (485 | ) | $ | 591 |   |
| Germany |   | $                                   | (382   | )                             | $      | 471 |   | $ | (252 | ) | $ | 311 |   |
| U.K.    |   | $                                   | (98    | )                             | $      | 116 |   | $ | (64 | ) | $ | 78 |   |
|    |   |                                |   |                          |   |   |   |   |   |   |   |   |   |

----

**Item        4.  Controls and        Procedures**

*Disclosure        controls and procedures*

*Internal        control over financial reporting*

**.**

** **
** **
** **
** **

----

**PART        II.  OTHER        INFORMATION**

**Item        1. ****Legal        Proceedings**

**Item        5.  Other        Information**

**Item        6.  Exhibits**

Section        302 Certification of Principal Executive        Officer

Section        302 Certification of Principal Financial        Officer

----

** **
**SIGNATURES**

----