**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 May 1, 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 Exchange Act Rule 12b-2 of the Exchange Act). Yes **¨**                  No                  **x**                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| As                  of August 11, 2005, there were 2,294,352 shares of the registrant’s common                  stock outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                            |

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| **PORTRAIT                  CORPORATION OF AMERICA, INC.****FORM                  10-Q****QUARTERLY                  PERIOD ENDED MAY 1, 2005** **TABLE                  OF CONTENTS** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Item                  Number in****Form                  10-Q**                                                                                                                           |   | **Page** |
|                                                                                                                                                                                        | **PART                  I. FINANCIAL INFORMATION** |   |
| 1.                                                                                                                                                                                          | Financial                  Statements (Unaudited) | **1** |
|                                                                                                                                                                                        | Condensed                  Consolidated Balance Sheets as of May 1, 2005 and January 30,                  2005 | 1 |
|                                                                                                                                                                                        | Condensed                  Consolidated Statements of Operations for the Thirteen Weeks Ended                  May 1,                  2005 and May 2, 2004 (Restated) | 3 |
|                                                                                                                                                                                        | Condensed                  Consolidated Statements of Cash Flows for the Thirteen Weeks Ended                  May 1,                  2005 and May 2, 2004 (Restated) | 4 |
|                                                                                                                                                                                        | Notes                  to Condensed Consolidated Financial Statements | 5 |
| 2.                                                                                                                                                                                          | Management’s                  Discussion and Analysis of Financial Condition and Results of                  Operations | 20 |
| 3.                                                                                                                                                                                          | Quantitative                  and Qualitative Disclosures About Market Risk | 29 |
| 4.                                                                                                                                                                                          | Controls                  and Procedures | 29 |
|                                                                                                                                                                                        | **PART                  II. OTHER INFORMATION** | **30** |
| 5.                                                                                                                                                                                          | Other                  Information | 30 |
| 6.                                                                                                                                                                                          | Exhibits                  and Reports on Form 8-K | 30 |
|                                                                                                                                                                                        | Signatures | 31 |

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**PART        I. FINANCIAL INFORMATION**

**Item        1. Financial Statements**

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

**CONDENSED        CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

**(dollar        amounts in thousands)**

|                                                         |   | **May                  1,****2005** |     | **January                  30,****2005** |   |
|--------------------------------------------------------------|--------|-------------------------------------|----------|------------------------------------------|--------|
| **ASSETS**                                                   |   |                                |     |                                     |   |
| CURRENT                  ASSETS:                             |   |                                |     |                                     |   |
| Cash                  and cash equivalents                   |   | $                                   | 3,799    |                                     | $      | 15,178 |   |
| Accounts                  receivable                         |   |                                | 2,915    |                                     |   | 2,781 |   |
| Inventories                                                  |   |                                | 12,096   |                                     |   | 11,439 |   |
| Deferred                  income taxes                       |   |                                | 108      |                                     |   | 108 |   |
| Prepaid                  expenses and other assets           |   |                                | 4,670    |                                     |   | 3,303 |   |
| Total                  current assets                        |   |                                | 23,588   |                                     |   | 32,809 |   |
|                                                         |   |                                |     |                                     |   |   |   |
| PROPERTY                  AND EQUIPMENT:                     |   |                                |     |                                     |   |   |   |
| Land                  and improvements                       |   |                                | 2,306    |                                     |   | 2,306 |   |
| Buildings                  and improvements                  |   |                                | 13,892   |                                     |   | 13,684 |   |
| Photographic,                  sales and finishing equipment |   |                                | 154,891  |                                     |   | 152,315 |   |
| Studio                  improvements                         |   |                                | 26,778   |                                     |   | 26,530 |   |
| Construction                  in progress                    |   |                                | 2,556    |                                     |   | 3,048 |   |
| Total                                                        |   |                                | 200,423  |                                     |   | 197,883 |   |
| Accumulated                  depreciation and amortization   |   |                                | (127,166 | )                                        |   | (123,974 | ) |
| Property                  and equipment, net                 |   |                                | 73,257   |                                     |   | 73,909 |   |
| GOODWILL                                                     |   |                                | 52,977   |                                     |   | 52,989 |   |
| OTHER                  INTANGIBLE ASSETS                     |   |                                | 135      |                                     |   | 135 |   |
| DEFERRED                  FINANCING COSTS, NET               |   |                                | 6,440    |                                     |   | 6,823 |   |
| OTHER                  ASSETS                                |   |                                | 124      |                                     |   | 127 |   |
| TOTAL                  ASSETS                                |   | $                                   | 156,521  |                                     | $      | 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)**

|                                                                                                                                                                                                                                               |   | **May                  1,****2005** |     | **January                  30,****2005** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------|----------|------------------------------------------|--------|
| **LIABILITIES                  AND SHAREHOLDERS’ DEFICIENCY**                                                                                                                                                                                |   |                                |     |                                     |   |
| CURRENT                  LIABILITIES:                                                                                                                                                                                                              |   |                                |     |                                     |   |
| Current                  portion of long-term debt                                                                                                                                                                                                 |   | $                                   | 20       |                                     | $      | 182 |   |
| Accounts                  payable—trade                                                                                                                                                                                                      |   |                                | 31,847   |                                     |   | 36,179 |   |
| Accrued                  insurance                                                                                                                                                                                                                 |   |                                | 4,698    |                                     |   | 4,141 |   |
| Accrued                  income taxes                                                                                                                                                                                                              |   |                                | 1,954    |                                     |   | 2,022 |   |
| Accrued                  compensation                                                                                                                                                                                                              |   |                                | 5,258    |                                     |   | 4,834 |   |
| Accrued                  interest                                                                                                                                                                                                                  |   |                                | 5,827    |                                     |   | 10,377 |   |
| Other                  accrued liabilities                                                                                                                                                                                                         |   |                                | 17,715   |                                     |   | 14,467 |   |
| Total                  current liabilities                                                                                                                                                                                                         |   |                                | 67,319   |                                     |   | 72,202 |   |
| LONG-TERM                  DEBT                                                                                                                                                                                                                    |   |                                | 244,528  |                                     |   | 245,680 |   |
| DEFERRED                  INCOME TAXES                                                                                                                                                                                                             |   |                                | 108      |                                     |   | 108 |   |
| OTHER                  LIABILITIES                                                                                                                                                                                                                 |   |                                | 6,859    |                                     |   | 4,843 |   |
| TOTAL                  LIABILITIES                                                                                                                                                                                                                 |   |                                | 318,814  |                                     |   | 322,833 |   |
| COMMITMENTS                  AND CONTINGENCIES                                                                                                                                                                                                     |   |                                |     |                                     |   |   |   |
| SERIES                  A REDEEMABLE CONVERTIBLE PREFERRED STOCK, $0.01 par value at May                  1, 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 May 1, 2005 and at January 30, 2005                  (authorized—20,000,000 shares; issued and outstanding at May 1, 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                                                                                                                                                                                                             |   |                                | (237     | )                                        |   | (256 | ) |
| Accumulated                  deficit                                                                                                                                                                                                               |   |                                | (204,309 | )                                        |   | (198,233 | ) |
| Accumulated                  other comprehensive loss                                                                                                                                                                                              |   |                                | (463     | )                                        |   | (268 | ) |
| Total                  shareholders’ deficiency                                                                                                                                                                                              |   |                                | (177,293 | )                                        |   | (171,041 | ) |
| TOTAL                  LIABILITIES AND SHAREHOLDERS’ DEFICIENCY                                                                                                                                                                              |   | $                                   | 156,521  |                                     | $      | 166,792 |   |
|                                                                                                                                                                                                                                               |   |                                |     |                                     |   |   |   |

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

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

**CONDENSED        CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

**(dollar        amounts in thousands)**

|                                        |   | **For                  the Thirteen****Weeks                  Ended** |   |
|---------------------------------------------|--------|-----------------------------------------------------------------------|--------|
|                                        |   | **May                  1,****2005**                                   |   | **May                  2,****2004****(as                  restated;****see                  Note 14)** |   |
| SALES                                       |   | $                                                                     | 78,168 |   | $ | 79,896 |   |
| COST                  OF SALES              |   |                                                                  | 62,963 |   |   | 62,790 |   |
| GROSS                  PROFIT               |   |                                                                  | 15,205 |   |   | 17,106 |   |
| GENERAL                  AND ADMINISTRATIVE |   |                                                                  | 12,724 |   |   | 11,744 |   |
| INCOME                  FROM OPERATIONS     |   |                                                                  | 2,481  |   |   | 5,362 |   |
| INTEREST                  INCOME            |   |                                                                  | 4      |   |   | 2 |   |
| INTEREST                  EXPENSE           |   |                                                                  | (8,561 | ) |   | (7,932 | ) |
| LOSS                  BEFORE INCOME TAXES   |   |                                                                  | (6,076 | ) |   | (2,568 | ) |
| INCOME                  TAX BENEFIT         |   |                                                                  | ---    |   |   | 1,283 |   |
| NET                  LOSS                   |   | $                                                                     | (6,076 | ) | $ | (1,285 | ) |
|                                        |   |                                                                  |   |   |   |   |   |

**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 Thirteen****Weeks                  Ended** |    |
|-------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------|---------|
|                                                                                                                    |   | **May                  1,****2005**                                   |    | **May                  2,****2004****(as                  restated;****see                  Note 14)** |   |
| OPERATING                  ACTIVITIES:                                                                                  |   |                                                                  |    |   |   |
| Net                  loss                                                                                               |   | $                                                                     | (6,076  | ) | $ | (1,285 | ) |
| Adjustments                  to reconcile net loss to cash provided by (used in) operating                  activities: |   |                                                                  |    |   |   |   |   |
| Depreciation                  and amortization                                                                          |   |                                                                  | 3,484   |   |   | 3,057 |   |
| Amortization                  of deferred financing costs                                                               |   |                                                                  | 383     |   |   | 419 |   |
| Amortization                  of debt discounts                                                                         |   |                                                                  | 153     |   |   | 153 |   |
| Stock                  compensation expense                                                                             |   |                                                                  | 19      |   |   | 19 |   |
| Provision                  for deferred income taxes                                                                    |   |                                                                  | ---     |   |   | (1,283 | ) |
| Loss                  on disposal of property and equipment                                                             |   |                                                                  | 157     |   |   | 89 |   |
| Changes                  in assets and liabilities which provided (used) cash:                                          |   |                                                                  |    |   |   |   |   |
| Accounts                  receivable                                                                                    |   |                                                                  | (134    | ) |   | (356 | ) |
| Inventories                                                                                                             |   |                                                                  | (657    | ) |   | 784 |   |
| Prepaid                  expenses and other assets                                                                      |   |                                                                  | (1,367  | ) |   | (572 | ) |
| Other                  noncurrent assets                                                                                |   |                                                                  | 3       |   |   | (2 | ) |
| Accounts                  payable—trade                                                                           |   |                                                                  | (4,332  | ) |   | 2,313 |   |
| Accrued                  expenses                                                                                       |   |                                                                  | 913     |   |   | 9 |   |
| Accrued                  interest                                                                                       |   |                                                                  | (4,550  | ) |   | (4,522 | ) |
| Other                  current accrued liabilities                                                                      |   |                                                                  | 3,248   |   |   | 2,455 |   |
| Other                  noncurrent accrued liabilities                                                                   |   |                                                                  | 2,016   |   |   | 1,949 |   |
| NET                  CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                                    |   |                                                                  | (6,740  | ) |   | 3,227 |   |
| INVESTING                  ACTIVITIES:                                                                                  |   |                                                                  |    |   |   |   |   |
| Purchases                  of property and equipment                                                                    |   |                                                                  | (3,073  | ) |   | (5,422 | ) |
| NET                  CASH USED IN INVESTING ACTIVITIES                                                                  |   |                                                                  | (3,073  | ) |   | (5,422 | ) |
| FINANCING                  ACTIVITIES:                                                                                  |   |                                                                  |    |   |   |   |   |
| Increase                  in borrowings under senior secured credit facility                                            |   |                                                                  | 27,100  |   |   | 24,400 |   |
| Repayment                  of senior secured credit facility and capital lease                  obligations             |   |                                                                  | (28,404 | ) |   | (22,225 | ) |
| Repayment                  of installment purchase agreement                                                            |   |                                                                  | (163    | ) |   | (73 | ) |
| NET                  CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                                    |   |                                                                  | (1,467  | ) |   | 2,102 |   |
| EFFECT                  OF EXCHANGE RATE CHANGES ON CASH                                                                |   |                                                                  | (99     | ) |   | 287 |   |
| INCREASE                  (DECREASE) IN CASH AND CASH EQUIVALENTS                                                       |   |                                                                  | (11,379 | ) |   | 194 |   |
| CASH                  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                       |   |                                                                  | 15,178  |   |   | 4,820 |   |
| CASH                  AND CASH EQUIVALENTS AT END OF PERIOD                                                             |   | $                                                                     | 3,799   |   | $ | 5,014 |   |
|                                                                                                                    |   |                                                                  |    |   |   |   |   |
| SUPPLEMENTAL                  CASH FLOW INFORMATION:                                                                    |   |                                                                  |    |   |   |   |   |
| Interest                  paid                                                                                          |   | $                                                                     | 10,482  |   | $ | 10,289 |   |
| Income                  taxes paid                                                                                      |   | $                                                                     | 68      |   | $ | 166 |   |
|                                                                                                                    |   |                                                                  |    |   |   |   |   |

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

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**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*

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*    Foreign        Tax        Claim and Forensic Investigation*

*Defaults        under Debt and Supplier Agreements*

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*Management’s        Plan*

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

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

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

*** ***

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|                                                  |   | **For                  the Thirteen Weeks Ended** |   |
|-------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                  |   | **May                  1,****2005**               |   | **May                  2,****2004** |   |
| Net                  loss:                            |   |                                              |   |   |   |
| As                  reported                          |   | $                                                 | (6,076 | ) | $ | (1,285 | ) |
| Recorded                  stock compensation expense  |   |                                              | 19     |   |   | 19 |   |
| Pro                  forma stock compensation expense |   |                                              | (26    | ) |   | (28 | ) |
| Pro                  forma net loss                   |   | $                                                 | (6,083 | ) | $ | (1,294 | ) |
|                                                  |   |                                              |   |   |   |   |   |

**6.         **
**Seasonality**

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

|                                                     |   | **For                  the Thirteen Weeks Ended** |   |
|----------------------------------------------------------|--------|---------------------------------------------------|--------|
|                                                     |   | **May                  1,****2005**               |   | **May                  2,****2004** |   |
| Net                  loss                                |   | $                                                 | (6,076 | ) | $ | (1,285 | ) |
| Foreign                  currency translation adjustment |   |                                              | (195   | ) |   | 24 |   |
| Total                  comprehensive loss                |   | $                                                 | (6,271 | ) | $ | (1,261 | ) |
|                                                     |   |                                              |   |   |   |   |   |

----

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

|                                             |   | **May                  1,****2005** |   | **January                  30,****2005** |   |
|--------------------------------------------------|--------|-------------------------------------|--------|------------------------------------------|--------|
| Accrued                  taxes other than income |   | $                                   | 2,657  |                                     | $      | 2,655 |   |
| Other                  accrued expenses          |   |                                | 8,811  |                                     |   | 6,398 |   |
| Customer                  deposits               |   |                                | 6,247  |                                     |   | 5,414 |   |
| Total                  other accrued liabilities |   | $                                   | 17,715 |                                     | $      | 14,467 |   |
|                                             |   |                                |   |                                     |   |   |   |

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

|                                                                          |   | **May                  1,****2005** |   | **January                  30,****2005** |   |
|-------------------------------------------------------------------------------|--------|-------------------------------------|--------|------------------------------------------|--------|
| Long-term                  portion of workers’ compensation obligations |   | $                                   | 4,204  |                                     | $      | 4,053 |   |
| Accrued                  interest                                             |   |                                | 2,555  |                                     |   | 695 |   |
| Long-term                  occupancy obligations                              |   |                                | 100    |                                     |   | 95 |   |
| Total                  other accrued liabilities                              |   | $                                   | 6,859  |                                     | $      | 4,843 |   |
|                                                                          |   |                                |   |                                     |   |   |   |

**10.         **
**Commitments        and Contingencies**

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**11.         **
**Goodwill        and Intangible Assets**

|                                                  |   | **May                  1,****2005** |   | **January                  30,****2005** |   |
|-------------------------------------------------------|--------|-------------------------------------|--------|------------------------------------------|--------|
| Unamortized                  intangible assets:       |   |                                |   |                                     |   |
| Goodwill                                              |   | $                                   | 52,977 |                                     | $      | 52,989 |   |
| Trademark                                             |   |                                | 135    |                                     |   | 135 |   |
| Total                  goodwill and intangible assets |   | $                                   | 53,112 |                                     | $      | 53,124 |   |
|                                                  |   |                                |   |                                     |   |   |   |

**12.         **
**Business        Segment and Geographic Data**

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**Business        Segment Data**

|                                                           |   | **Retail** |   | **Institutional** |   | **Consolidated** |   |
|----------------------------------------------------------------|--------|------------|--------|-------------------|--------|------------------|--------|
| **For                  the thirteen weeks ended May 1, 2005:** |   |       |   |              |   |             |   |
| Net                  loss                                      |   | $          | (5,825 | )                 | $      | (251             | )      | $ | (6,076 | ) |
| Reconciling                  items:                            |   |       |   |              |   |             |   |   |   |   |
| Depreciation                  and amortization                 |   |       | 3,446  |              |   | 38               |   |   | 3,484 |   |
| Interest                  income                               |   |       | (4     | )                 |   | -                |   |   | (4 | ) |
| Interest                  expense                              |   |       | 8,298  |              |   | 263              |   |   | 8,561 |   |
| Adjusted                  EBITDA                               |   | $          | 5,915  |              | $      | 50               |   | $ | 5,965 |   |
|                                                           |   |       |   |              |   |             |   |   |   |   |
| **For                  the thirteen weeks ended May 2, 2004:** |   |       |   |              |   |             |   |   |   |   |
| Net                  loss                                      |   | $          | (610   | )                 | $      | (675             | )      | $ | (1,285 | ) |
| Reconciling                  items:                            |   |       |   |              |   |             |   |   |   |   |
| Depreciation                  and amortization                 |   |       | 2,609  |              |   | 448              |   |   | 3,057 |   |
| Income                  tax benefit                            |   |       | (1,260 | )                 |   | (23              | )      |   | (1,283 | ) |
| Interest                  income                               |   |       | (2     | )                 |   | -                |   |   | (2 | ) |
| Interest                  expense                              |   |       | 7,667  |              |   | 265              |   |   | 7,932 |   |
| Adjusted                  EBITDA                               |   | $          | 8,404  |              | $      | 15               |   | $ | 8,419 |   |
|                                                           |   |       |   |              |   |             |   |   |   |   |

|                                                           |   | **Retail** |    | **Institutional** |   | **Consolidated** |   |
|----------------------------------------------------------------|--------|------------|---------|-------------------|--------|------------------|--------|
| **For                  the thirteen weeks ended May 1, 2005:** |   |       |    |              |   |             |   |
| Sales                                                          |   | $          | 75,689  |              | $      | 2,479            |   | $ | 78,168 |   |
| Adjusted                  EBITDA                               |   | $          | 5,915   |              | $      | 50               |   | $ | 5,965 |   |
| Total                  assets                                  |   | $          | 154,296 |              | $      | 2,225            |   | $ | 156,521 |   |
|                                                           |   |       |    |              |   |             |   |   |   |   |
| **For                  the thirteen weeks ended May 2, 2004:** |   |       |    |              |   |             |   |   |   |   |
| Sales                                                          |   | $          | 77,157  |              | $      | 2,739            |   | $ | 79,896 |   |
| Adjusted                  EBITDA                               |   | $          | 8,404   |              | $      | 15               |   | $ | 8,419 |   |
|                                                           |   |       |    |              |   |             |   |   |   |   |

**               Geographic Data**

|                              |   | **United****States** |    | **Canada** |   | **Mexico** |   | **Other****Foreign** |   | **Consolidated** |   |
|-----------------------------------|--------|----------------------|---------|------------|--------|------------|--------|----------------------|--------|------------------|--------|
| **May                  1, 2005**  |   |                 |    |       |   |       |   |                 |   |             |   |
| Sales                             |   | $                    | 69,832  |       | $      | 5,372      |   | $                    | 2,506  |             | $      | 458 |   | $ | 78,168 |   |
| Long-term                  assets |   |                 | 114,506 |       |   | 7,402      |   |                 | 2,302  |             |   | 2,283 |   |   | 126,493 |   |
|                              |   |                 |    |       |   |       |   |                 |   |             |   |   |   |   |   |   |
| **May                  2, 2004**  |   |                 |    |       |   |       |   |                 |   |             |   |   |   |   |   |   |
| Sales                             |   | $                    | 72,739  |       | $      | 4,614      |   | $                    | 2,274  |             | $      | 269 |   | $ | 79,896 |   |

----

**13.         **
**Guarantor        and Non-Guarantor Financial Statements**

| **PORTRAIT                  CORPORATION OF AMERICA, INC.****CONDENSED                  CONSOLIDATING BALANCE SHEET****May                  1, 2005** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                 |   | **Parent/****Guarantor** |   | **Co-issuers** |   | **Guarantor****Subsidiaries** |   | **Non-guarantor****Subsidiaries** |   | **Eliminations** |   | **Total** |   |
| Assets:                                                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash                  and cash equivalents                                                                                                           |   | $ | --- |   | $ | --- |   | $ | 3,544 |   | $ | 255 |   | $ | --- |   | $ | 3,799 |   |
| Accounts                  receivable                                                                                                                 |   |   | --- |   |   | --- |   |   | 2,100 |   |   | 815 |   |   | --- |   |   | 2,915 |   |
| Inventories                                                                                                                                          |   |   | --- |   |   | --- |   |   | 12,036 |   |   | 60 |   |   | --- |   |   | 12,096 |   |
| Deferred                  income taxes                                                                                                               |   |   | (1,090 | ) |   | 1,090 |   |   | 108 |   |   | --- |   |   | --- |   |   | 108 |   |
| Prepaid                  expenses and other assets                                                                                                   |   |   | --- |   |   | --- |   |   | 4,508 |   |   | 162 |   |   | --- |   |   | 4,670 |   |
| Total                  current assets                                                                                                                |   |   | (1,090 | ) |   | 1,090 |   |   | 22,296 |   |   | 1,292 |   |   | --- |   |   | 23,588 |   |
| Investments                  and intercompany accounts                                                                                               |   |   | (117,538 | ) |   | 84,179 |   |   | (43,335 | ) |   | (11,688 | ) |   | 88,382 |   |   | --- |   |
| Property                  and equipment, net                                                                                                         |   |   | --- |   |   | --- |   |   | 68,685 |   |   | 4,572 |   |   | --- |   |   | 73,257 |   |
| Goodwill,                  intangible and other assets, net                                                                                          |   |   | ------ |   |   | --- |   |   | 53,226 |   |   | 10 |   |   | --- |   |   | 53,236 |   |
| Deferred                  financing costs, net                                                                                                       |   |   | 1,360 |   |   | 5,080 |   |   | --- |   |   | --- |   |   | --- |   |   | 6,440 |   |
| Total                  assets                                                                                                                        |   | $ | (117,268 | ) | $ | 90,349 |   | $ | 100,872 |   | $ | (5,814 | ) | $ | 88,382 |   | $ | 156,521 |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities                  and shareholders’ equity (deficiency):                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Current                  portion of long-term debt                                                                                                   |   | $ | --- |   | $ | --- |   | $ | 20 |   | $ | --- |   | $ | --- |   | $ | 20 |   |
| Accounts                  payable—trade                                                                                                        |   |   | --- |   |   | --- |   |   | 31,555 |   |   | 292 |   |   | --- |   |   | 31,847 |   |
| Accrued                  insurance                                                                                                                   |   |   | --- |   |   | --- |   |   | 4,698 |   |   | --- |   |   | --- |   |   | 4,698 |   |
| Accrued                  income taxes                                                                                                                |   |   | 66 |   |   | 1,886 |   |   | --- |   |   | 2 |   |   | --- |   |   | 1,954 |   |
| Accrued                  compensation                                                                                                                |   |   | --- |   |   | --- |   |   | 5,149 |   |   | 109 |   |   | --- |   |   | 5,258 |   |
| Accrued                  interest                                                                                                                    |   |   | --- |   |   | 5,647 |   |   | 180 |   |   | --- |   |   | --- |   |   | 5,827 |   |
| Other                  accrued liabilities                                                                                                           |   |   | --- |   |   | --- |   |   | 15,592 |   |   | 2,123 |   |   | --- |   |   | 17,715 |   |
| Total                  current liabilities                                                                                                           |   |   | 66 |   |   | 7,533 |   |   | 57,194 |   |   | 2,526 |   |   | --- |   |   | 67,319 |   |
| Long-term                  debt, less current portion                                                                                                |   |   | 43,814 |   |   | 200,686 |   |   | 28 |   |   | --- |   |   | --- |   |   | 244,528 |   |
| Deferred                  income taxes                                                                                                               |   |   | (1,724 | ) |   | 1,724 |   |   | 108 |   |   | --- |   |   | --- |   |   | 108 |   |
| Other                  liabilities                                                                                                                   |   |   | 2,555 |   |   | --- |   |   | 4,304 |   |   | --- |   |   | --- |   |   | 6,859 |   |
| Series                  A redeemable convertible preferred stock                                                                                     |   |   | 15,000 |   |   | --- |   |   | --- |   |   | --- |   |   | --- |   |   | 15,000 |   |
| Total                  shareholders’ equity (deficiency)                                                                                       |   |   | (176,979 | ) |   | (119,594 | ) |   | 39,238 |   |   | (8,340 | ) |   | 88,382 |   |   | (177,293 | ) |
| Total                  liabilities and shareholders’ equity (deficiency)                                                                       |   | $ | (117,268 | ) | $ | 90,349 |   | $ | 100,872 |   | $ | (5,814 | ) | $ | 88,382 |   | $ | 156,521 |   |
|                                                                                                                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| **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 May 1, 2005** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                              |   | **Parent/****Guarantor** |   | **Co-issuers** |   | **Guarantor****Subsidiaries** |   | **Non-guarantor****Subsidiaries** |   | **Eliminations** |   | **Total** |   |
| Sales                                                                                                                                                                                             |   | $ | --- |   | $ | --- |   | $ | 75,205 |   | $ | 2,963 |   | $ | --- |   | $ | 78,168 |   |
| Cost                    of sales                                                                                                                                                                  |   |   | --- |   |   | --- |   |   | 59,801 |   |   | 3,162 |   |   | --- |   |   | 62,963 |   |
| Gross                    profit (loss)                                                                                                                                                            |   |   | --- |   |   | --- |   |   | 15,404 |   |   | (199 | ) |   | --- |   |   | 15,205 |   |
| General                    and administrative                                                                                                                                                     |   |   | --- |   |   | --- |   |   | 12,339 |   |   | 385 |   |   | --- |   |   | 12,724 |   |
| Income                    (loss) from operations                                                                                                                                                  |   |   | --- |   |   | --- |   |   | 3,065 |   |   | (584 | ) |   | --- |   |   | 2,481 |   |
| Interest                    income                                                                                                                                                                |   |   | --- |   |   | --- |   |   | 4 |   |   | --- |   |   | --- |   |   | 4 |   |
| Interest                    expense                                                                                                                                                               |   |   | (1,942 | ) |   | (6,430 | ) |   | (189 | ) |   | --- |   |   | --- |   |   | (8,561 | ) |
| Investment                    income (loss) in equity of wholly-owned subsidiaries                                                                                                                |   |   | (4,134 | ) |   | 2,296 |   |   | (584 | ) |   | --- |   |   | 2,422 |   |   | --- |   |
| Net                    income (loss)                                                                                                                                                              |   | $ | (6,076 | ) | $ | (4,134 | ) | $ | 2,296 |   | $ | (584 | ) | $ | 2,422 |   | $ | (6,076 | ) |
|                                                                                                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **PORTRAIT                    CORPORATION OF AMERICA, INC.****CONDENSED                    CONSOLIDATING STATEMENT OF OPERATIONS****For                    the Thirteen Weeks Ended May 2, 2004 (as restated; see Note                    14)** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                            |   | **Parent/****Guarantor** |   | **Co-issuers** |   | **Guarantor****Subsidiaries** |   | **Non-guarantor****Subsidiaries** |   | **Eliminations** |   | **Total** |   |
| Sales                                                                                                                                                                                                                                           |   | $ | --- |   | $ | --- |   | $ | 77,353 |   | $ | 2,543 |   | $ | --- |   | $ | 79,896 |   |
| Cost                    of sales                                                                                                                                                                                                                |   |   | --- |   |   | --- |   |   | 59,978 |   |   | 2,812 |   |   | --- |   |   | 62,790 |   |
| Gross                    profit                                                                                                                                                                                                                 |   |   | --- |   |   | --- |   |   | 17,375 |   |   | (269 | ) |   | --- |   |   | 17,106 |   |
| General                    and administrative                                                                                                                                                                                                   |   |   | --- |   |   | --- |   |   | 11,121 |   |   | 623 |   |   | --- |   |   | 11,744 |   |
| Income                    (loss) from operations                                                                                                                                                                                                |   |   | --- |   |   | --- |   |   | 6,254 |   |   | (892 | ) |   | --- |   |   | 5,362 |   |
| Interest                    income                                                                                                                                                                                                              |   |   | --- |   |   | --- |   |   | 1 |   |   | 1 |   |   | --- |   |   | 2 |   |
| Interest                    expense                                                                                                                                                                                                             |   |   | (1,660 | ) |   | (6,272 | ) |   | --- |   |   | --- |   |   | --- |   |   | (7,932 | ) |
| Investment                    income (loss) in equity of wholly-owned subsidiaries                                                                                                                                                              |   |   | (434 | ) |   | 5,364 |   |   | (891 | ) |   | --- |   |   | (4,039 | ) |   | --- |   |
| Income                    (loss) before income taxes                                                                                                                                                                                            |   |   | (2,094 | ) |   | (908 | ) |   | 5,364 |   |   | (891 | ) |   | (4,039 | ) |   | (2,568 | ) |
| Income                    tax benefit                                                                                                                                                                                                           |   |   | 809 |   |   | 474 |   |   | --- |   |   | --- |   |   | --- |   |   | 1,283 |   |
| Net                    income (loss)                                                                                                                                                                                                            |   | $ | (1,285 | ) | $ | (434 | ) | $ | 5,364 |   | $ | (891 | ) | $ | (4,039 | ) | $ | (1,285 | ) |
|                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| **PORTRAIT                    CORPORATION OF AMERICA, INC.****CONDENSED                    CONSOLIDATING STATEMENT OF CASH FLOWS****For                    the Thirteen Weeks Ended May 1, 2005** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                              |   | **Parent/****Guarantor** |   | **Co-issuers** |   | **Guarantor****Subsidiaries** |   | **Non-guarantor****Subsidiaries** |   | **Eliminations** |   | **Total** |   |
| Net                    cash provided by (used) in) operating activities                                                                                                                           |   | $ | --- |   | $ | 1,300 |   | $ | (7,662 | ) | $ | (378 | ) | $ | --- |   | $ | (6,740 | ) |
| Net                    cash used in investing activities                                                                                                                                          |   |   | --- |   |   | --- |   |   | (2,974 | ) |   | (99 | ) |   | --- |   |   | (                    3,073 | ) |
| Net                    cash provided by (used in) financing activities                                                                                                                            |   |   | --- |   |   | (1,300 | ) |   | (167 | ) |   | --- |   |   | --- |   |   | (                    1,467 | ) |
| Effect                    of exchange rate changes on cash                                                                                                                                        |   |   | --- |   |   | --- |   |   | 6 |   |   | (105 | ) |   | --- |   |   | (99 | ) |
| Increase                    in cash and cash equivalents                                                                                                                                          |   |   | --- |   |   | --- |   |   | (10,797 | ) |   | (582 | ) |   | --- |   |   | (11,379 | ) |
| Cash                    and cash equivalents at beginning of period                                                                                                                               |   |   | --- |   |   | --- |   |   | 14,341 |   |   | 837 |   |   | --- |   |   | 15,178 |   |
| Cash                    and cash equivalents at end of period                                                                                                                                     |   | $ | --- |   | $ | --- |   | $ | 3,544 |   | $ | 255 |   | $ | --- |   | $ | 3,799 |   |
|                                                                                                                                                                                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| **PORTRAIT                    CORPORATION OF AMERICA, INC.****CONDENSED                    CONSOLIDATING STATEMENT OF CASH FLOWS****For                    the Thirteen Weeks Ended May 2, 2004 (as restated; see Note                    14)** |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                            |   | **Parent/****Guarantor** |   | **Co-issuers** |   | **Guarantor****Subsidiaries** |   | **Non-guarantor****Subsidiaries** |   | **Eliminations** |   | **Total** |   |
| Net                    cash provided by (used) in) operating activities                                                                                                                                                                         |   | $ | --- |   | $ | (2,200 | ) | $ | 5,550 |   | $ | (123 | ) | $ | --- |   | $ | 3,227 |   |
| Net                    cash used in investing activities                                                                                                                                                                                        |   |   | --- |   |   | --- |   |   | (5,226 | ) |   | (196 | ) |   | --- |   |   | (5,422 | ) |
| Net                    cash provided by (used in) financing activities                                                                                                                                                                          |   |   | --- |   |   | 2,200 |   |   | (98 | ) |   | --- |   |   | --- |   |   | 2,102 |   |
| Effect                    of exchange rate changes on cash                                                                                                                                                                                      |   |   | --- |   |   | --- |   |   | 44 |   |   | 243 |   |   | --- |   |   | 287 |   |
| Increase                    in cash and cash equivalents                                                                                                                                                                                        |   |   | --- |   |   | --- |   |   | 270 |   |   | (76 | ) |   | --- |   |   | 194 |   |
| Cash                    and cash equivalents at beginning of period                                                                                                                                                                             |   |   | --- |   |   | --- |   |   | 4,441 |   |   | 379 |   |   | --- |   |   | 4,820 |   |
| Cash                    and cash equivalents at end of period                                                                                                                                                                                   |   | $ | --- |   | $ | --- |   | $ | 4,711 |   | $ | 303 |   | $ | --- |   | $ | 5,014 |   |
|                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

**14.         **
**Restatement**

----

|                                        |   | **For                  the Thirteen Weeks Ended****May                  2, 2004** |   |
|---------------------------------------------|--------|-----------------------------------------------------------------------------------|--------|
|                                        |   | *As                  Previously**Reported*                                        |   | *As                  Restated* |   |
| Statements                  of operations:  |   |                                                                              |   |   |   |
| Cost                  of sales              |   | $                                                                                 | 62,706 |   | $ | 62,790 |   |
| Gross                  profit               |   |                                                                              | 17,190 |   |   | 17,106 |   |
| General                  and administrative |   |                                                                              | 11,720 |   |   | 11,744 |   |
| Income                  from operations     |   |                                                                              | 5,470  |   |   | 5,362 |   |
| Loss                  before income taxes   |   |                                                                              | (2,460 | ) |   | (2,568 | ) |
| Net                  loss                   |   |                                                                              | (1,177 | ) |   | (1,285 | ) |

| Statements                  of cash flows:                                                                                  |   |   |   |   |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|
| Net                  loss                                                                                                   |   | $      | (1,177 | )      | $      | (1,285 | ) |
| Adjustments                  to reconcile net loss to net cash provided by (used in) operating                  activities: |   |   |   |   |   |   |   |
| Depreciation                  and amortization                                                                              |   |   | 3,069  |   |   | 3,057 |   |
| Changes                  in assets and liabilities which provided (used) cash:                                              |   |   |   |   |   |   |   |
| Accounts                  receivable                                                                                        |   |   | (90    | )      |   | (356 | ) |
| Prepaid                  expenses and other assets                                                                          |   |   | (575   | )      |   | (572 | ) |
| Other                  noncurrent assets                                                                                    |   |   | (1     | )      |   | (2 | ) |
| Accounts                  payable—trade                                                                               |   |   | 2,338  |   |   | 2,313 |   |
| Accrued                  expenses                                                                                           |   |   | (254   | )      |   | 9 |   |
| Other                  current accrued liabilities                                                                          |   |   | 2,446  |   |   | 2,455 |   |
| Net                  cash provided by (used in) operating activities                                                        |   |   | 3,364  |   |   | 3,227 |   |
| Purchases                  of property and equipment                                                                        |   |   | (5,465 | )      |   | (5,422 | ) |
| Net                  cash used in investing activities                                                                      |   |   | (5,465 | )      |   | (5,422 | ) |
| Effect                  of exchange rate changes on cash                                                                    |   |   | 256    |   |   | 287 |   |
| Increase                  in cash and cash equivalents                                                                      |   |   | 257    |   |   | 194 |   |
| Cash                  and cash equivalents at end of period                                                                 |   |   | 5,077  |   |   | 5,014 |   |
|                                                                                                                        |   |   |   |   |   |   |   |

----

**15.         **
**Subsequent        Event**

----

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

*Thirteen          Weeks Ended May 1, 2005 Compared With Thirteen Weeks Ended May 2,          2004.*

| **Attributable                    to**                                                                                                      |   | **Amount****(in                    millions)** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|--------|
| 7.9%                    decrease in same studio sales in Wal-Mart permanent portrait                    studios                             |   | $                                              | (5.7   | ) |
| Wal-Mart                    permanent portrait studios not yet included in the same studio                    sales                    base |   |                                           | 5.9    |   |
| Decrease                    in sales in our Wal-Mart traveling locations due to fewer locations                    visited                  |   |                                           | (1.6   | ) |
| Total                    decrease attributable to our Wal-Mart portrait photography                    business                             |   |                                           | (1.4   | ) |
| Decrease                    in sales in institutional segment                                                                               |   |                                           | (0.3   | ) |
| **Total                    decrease in sales**                                                                                              |   | $                                              | (1.7   | ) |
|                                                                                                                                        |   |                                           |   |   |

| **Attributable                    to**                                                                                                                                                                                                                                                                 |   | **%                    of sales** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
| Change                    in our product mix                                                                                                                                                                                                                                                           |   |                              | (1.1   | )% |
| Increase                    in retail photography and sales labor, general studio supplies,                    freight                    costs for portraits and supplies, and distribution costs as a                    percentage                    of sales due to decrease in same studio sales |   |                              | (0.6   | ) |
| Increase                    in depreciation expense due to studio expansion                                                                                                                                                                                                                            |   |                              | (0.6   | ) |
| Decrease                    in manufacturing and film cost                                                                                                                                                                                                                                             |   |                              | 0.4    |   |
| **Total                    decrease in gross profit percentage**                                                                                                                                                                                                                                       |   |                              | (1.9   | )% |
|                                                                                                                                                                                                                                                                                                   |   |                              |   |   |

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| **Attributable                    to**                                                                                                                                                |   | **Amount****(in                    millions)** |    |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|---------|
| Increase                    in life and health expense insurance for general and administrative                    employees                                                          |   | $                                              | 0.8     |   |
| Increase                    in professional services primarily related to our Sarbanes-Oxley                    effort,                    legal services and audit fees              |   |                                           | 0.5     |   |
| Increase                    in foreign currency transaction gain                                                                                                                      |   |                                           | (0.4    | ) |
| Increase                    in payroll cost                                                                                                                                           |   |                                           | 0.3     |   |
| Decrease                    in workers’ compensation expense and general casualty insurance expense                    primarily due to elevated charges experienced in Q1 2004 |   |                                           | (0.2    | ) |
| **Total                    increase in general and administrative expenses**                                                                                                          |   | **$**                                          | **1.0** |   |
|                                                                                                                                                                                  |   |                                           |    |   |

| **Attributable                    to**                                                                          |   | **Amount****(in                    millions)** |    |
|-----------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|---------|
| Increase                    from Parent Notes issued in June 2002                                               |   | $                                              | 0.3     |   |
| Increase                    from supplier provided financing                                                    |   |                                           | 0.2     |   |
| Increase                    from prior senior secured credit facility entered into June                    2002 |   |                                           | 0.1     |   |
| **Total                    increase in interest expense**                                                       |   | **$**                                          | **0.6** |   |
|                                                                                                            |   |                                           |    |   |

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**Liquidity          and Capital Resources**

*Liquidity*

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*Seasonality.          *

*Purchases          of Property and Equipment*

*Net          Cash Provided by Operating Activities.*

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*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. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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

|    |   | **Q1                  2005**        |   | **Q1                  2004** |   |
|---------|--------|-------------------------------------|--------|------------------------------|--------|
|    |   | **(in                  thousands)** |   |
|    |   | +10%                                |   | -10%                         |   | +10% |   | -10% |   |
| Canada  |   | $                                   | 119    |                         | $      | (145 | ) | $ | (230 | ) | $ | 283 |   |
| Mexico  |   | $                                   | (537   | )                            | $      | 659 |   | $ | (387 | ) | $ | 473 |   |
| Germany |   | $                                   | (387   | )                            | $      | 475 |   | $ | (250 | ) | $ | 304 |   |
| U.K.    |   | $                                   | (105   | )                            | $      | 129 |   | $ | (65 | ) | $ | 78 |   |
|    |   |                                |   |                         |   |   |   |   |   |   |   |   |   |

**Item        4.  Controls and Procedures**

*Disclosure        controls and procedures*

*Internal        control over financial reporting*

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**PART        II.  OTHER INFORMATION**

**Item        5.  Other Information**

**Item        6.  Exhibits**

Section        302 Certification of Principal Executive Officer

Section        302 Certification of Principal Financial Officer

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**SIGNATURES**

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