FOR IMMEDIATE RELEASE

 

Exhibit 99.1

 

PhotoWorks' 3rd Quarter Digital Sales

Are Up 78% to $1.4M

 

SEATTLE—August 7, 2006--PhotoWorks®, Inc. (OTCBB:PHTW), an Internet based digital photo-publishing company, today reported results for the 3^rd quarter of fiscal year 2006 ended June 30, 2006.

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Digital revenue increased 77.7% over the same period last year to $1.4 Million

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Gross Margin jumped to 36.1% compared to 29.9% in the same period last year

"PhotoWorks is continuing to show strong demand for its online digital photography services with our third consecutive quarter with over 75% growth," said Joseph W. Waechter, Chairman of PhotoWorks. "Our restructuring and investments in our new digital product line are continuing to show good results."

For the 3rd fiscal quarter ended June 30, 2006:

Digital revenue totaled $1,356,000, an increase of 78% from $763,000 over the same quarter of 2005. For the fiscal year to date, digital revenue totaled $5,030,000, an increase of 75.3% over the same period last year of $2,870,000.

Traditional 35mm film processing revenue totaled $1,329,000 for the quarter, a 44.6% decline from $2,397,000 over the same period last year. For the fiscal year to date, traditional film revenues were $4,145,000, a 44% decline from $7,443,000.

"Q3 represents a significant point in the turn-around of PhotoWorks. Our higher margin digital revenue now represents the majority of total revenue, and we look forward to further gains in this area," Waechter said.

Gross margin as a percentage of net revenues increased to 36.1% compared to 29.9% in the 3^rd quarter of fiscal year 2005. For the fiscal year to date, gross margin increased to 39.7% compared to 31.5% over the same period last year. The increase of gross margin is the result of higher margin sales and the streamlining of operations.

The Company reported a net loss of $1,283,000 compared to a net loss of $1,631,000 in the 3rd quarter of fiscal year 2005. For the fiscal year to date, the Company reduced its net loss to $2,544,000 from $4,173,000 over the same period last year, a 39.0% improvement.

About PhotoWorks, Inc.

PhotoWorks®, Inc. is an Internet based digital photo-publishing company. The company's web based services allow PC and Mac users to create hard bound photo books, customized greeting cards, calendars, prints and other photography sourced products straight from their computers. Formerly known as Seattle Film Works, PhotoWorks has a 30-year national heritage of helping photographers share and preserve their memories with innovative and inspiring products and services. More information on the Company is available at www.photoworks.com or by e-mailing customercare@photoworks.com.

PhotoWorks® is a trademark of PhotoWorks, Inc.

Contact:

PhotoWorks, Lisa Amore, 206-322-4658, lisa@amorepr.com