--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                        ---------------------------------

                                    FORM 10-K

                       ----------------------------------

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

[ ]   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: 0-24087

                             ITERATED SYSTEMS, INC.
               (EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S>                                                                                       <C>
                                  GEORGIA                                                 58-1741516
             (State or other jurisdiction of incorporation or                (I.R.S. Employer Identification No.)
                               organization)

                            3525 PIEDMONT ROAD                                            30305-1530
                     SEVEN PIEDMONT CENTER, SUITE 600                                     (zip code)
                             ATLANTA, GEORGIA
                  (Address of principal executive office)
</TABLE>
       Registrant's telephone number, including area code: (404) 264-8000

                        ---------------------------------

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                      NONE

                        ---------------------------------

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

         Title of each class                Name of exchange on which registered
         -------------------                ------------------------------------
Common Stock, par value $.01 per share               Oslo Stock Exchange

         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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes [X]  No [ ]

         The aggregate market value of the voting stock held by non-affiliates
of the Registrant, based upon the closing price for the Common Stock on March
24, 2000 as reported by the Oslo Stock Exchange, was approximately $23,666,000.
The shares of Common Stock held by each officer and director and by each person
known to the Registrant who owns 5% or more of the outstanding Common Stock have
been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes. As of March 24, 2000, Registrant had outstanding 17,527,940
shares of Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1999 are incorporated by reference in Parts II
and IV of this Form 10-K to the extent stated herein. The Registrant's
definitive Proxy Statement for the Annual Meeting of Shareholders to be held
April 28, 2000 is incorporated by reference in Part III of this Form 10-K to the
extent stated herein.
--------------------------------------------------------------------------------
<PAGE>
                                     PART I

FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENTS

         THE DISCUSSIONS HEREIN CONTAIN TREND INFORMATION AND OTHER
FORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES. THE
ACTUAL RESULTS OF THE COMPANY COULD DIFFER MATERIALLY FROM ITS HISTORICAL
RESULTS OF OPERATIONS AND THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. THE
FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF THE COMPANY'S MANAGEMENT
AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO THE
COMPANY'S MANAGEMENT. WHEN USED HEREIN, THE WORDS "ANTICIPATE," "BELIEVE,"
"ESTIMATE," "EXPECT" AND "INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS
THEY RELATE TO THE COMPANY OR THE COMPANY'S MANAGEMENT, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. THE FORWARD-LOOKING STATEMENTS SHOULD BE READ IN
LIGHT OF THESE FACTORS AND THE FACTORS IDENTIFIED IN "ITEM 1. BUSINESS" AND IN
"ITEM 7. FINANCIAL INFORMATION--MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS." ALL REFERENCES TO YEAR PERIODS
REFER TO THE COMPANY'S FISCAL YEAR ENDED DECEMBER 31, 1999.



ITEM 1. BUSINESS.

INTRODUCTION
         Iterated Systems is focused on creating a commercial software product
line designed to dramatically improve the productivity, control and time to
market for the management, production, and delivery of digital product (or
brand) images. Iterated's target market is Global 1000 corporations that use
images to sell their products in e-commerce and in print. Such corporations
include major retailers with large brand product image collections and the
advertising agencies and print production companies that serve them. Iterated's
MediaBintm platform has been developed from the Company's research and
development expertise in digital image science and fractal-based mathematics,
which have evolved over more than twelve years in the digital image business.

         The Company was founded in 1987 by Dr. Michael Barnsley and Dr. Alan
Sloan, who at that time were tenured members of the mathematics faculty at the
Georgia Institute of Technology. Their early work was based on the discovery
that real-world images could be generated by plotting fractal equations. An
early experiment produced the Iterated Systems fern logo from only a few bits of
data, using a fractal process known as an Iterated Function System. Iterated's
initial products provided fractal image compression based on Dr. Barnsley's
patented Fractal Transform algorithm method, which was used to store and display
fractal-compressed images in Microsoft's Encarta CD-ROM encyclopedia, the Great
Artists CD-ROM series, and other CD-ROM and screen saver titles.

         The Company was organized under the laws of the State of Georgia on May
28, 1987. On May 20, 1991, Iterated Systems Limited (ISL) was incorporated in
the United Kingdom as a wholly owned subsidiary of the Company to function as
the Company's European sales office.



HISTORY

         The Company's current strategies and business direction, including the
decision to focus its primary efforts on the development of software for the
corporate digital image management market, were developed during 1997 and 1998
based on internal and external factors affecting the Company and its markets.
Prior to that time one of its significant focuses was for the development of
software products to be sold to end users for use on the Internet. Developments
in that market lead the Company to believe that its expertise was better suited
to developing and delivering its technology to OEMs for inclusion in their
products. As a result of this shift, during 1997 the Company experienced a
significant reduction and restructuring in its workforce. During 1998 and 1999,
the Company continued to focus its development and marketing efforts to target
large corporate users of digital images with needs for cross-media production.
The Company expects its business plans to continue to evolve based on
competitive forces and the ongoing need to generate new and innovative products
on a continual basis. These external market factors make estimates of product
acceptance and financial performance of the Company difficult to predict, and in
response thereto the Company expects to make ongoing revisions to its business
plan.

         In September 1994, the Company entered into an agreement (the 1994
Agreement) with MCI Telecommunications Corporation (MCI) to provide for
development of certain advanced compression technology for use in
telecommunications applications. MCI paid the Company approximately $36,000,000
over the next three years for development of specific technology and the
exclusive rights to use and sublicense specified technology in
telecommunications markets until September 1997. The 1994 Agreement expired in
September 1997. Effective August 7, 1998, the Company and MCI entered into a new
agreement that provides MCI with a non-exclusive, royalty-free license to use
certain deliverables developed by the Company. In addition, MCI holds a warrant
to purchase up to 1,798,000 shares of common stock at $4 per share. The warrant
expires in August 2002.


                                      -1-
<PAGE>

THE MEDIABIN PLATFORM

         With the advent of e-commerce, brand-centered corporations are facing
an exploding number of images that are burdening their corporate information
technology infrastructures as they try to promote their brands in tightly
integrated Web/e-commerce and print campaigns. In mid-1999, Iterated announced
the MediaBin platform, a new, advanced approach to dealing with this
proliferation of images and the publication problems that have ensued.
Integrated print and online campaigns, known as cross-media or multi-channel
campaigns place a unique demand and burden on the workflow of images, which
MediaBin is designed to solve.

         Specifically MediaBin is designed to address the image problems of
large, geographically dispersed corporations that have:

               High consideration brands (brands that require significant
               customer evaluation or review before purchase such as
               automobiles, recreational products, clothing items, consumer
               electronics, sporting goods, etc.) supported by large numbers of
               high quality images. These corporations are typically in rapid
               transition to control their brands as they launch e-commerce
               business strategies while maintaining their print media needs.

         In addition to the brand-centered corporations, there is a significant
set of associated companies that service these large corporations. These
organizations include Web/e-commerce site developers, advertising agencies,
marketing services firms, and printing agencies. MediaBin is designed to enhance
collaboration for all of these supporting groups and to complement the corporate
installations of MediaBin.

         The MediaBin platform is a substantial extension to the existing value
and feature set provided by Iterated's earlier imaging software. MediaBin
delivers image automation services that are analogous to "just-in-time"
manufacturing methods that have been deployed with such great success in the
manufacturing marketplace. MediaBin provides image services on an extensible,
scalable, enterprise server platform that, in addition to providing resolution
management, can also transform images in any color space and image format. The
MediaBin platform is built on open, industry standards such as HTTP (Web
browser) and TCP/IP (file transfer) protocols, the ODBC (Open Data Base Connect)
standard that allows for the use of industry standard databases like Oracle,
Informix, SQL Server, and the Windows NT operating system. MediaBin is written
using the Microsoft Windows compatible approaches to programming known as DCOM
(Distributed Common Object Method) and C++ (the most common object oriented
programming language in use today).

     MediaBin provides workflow automation in six critical areas:

o Automation of image production,
o Repurposing of images,
o Tracking and revision management,
o Collaboration for workgroups,
o Unique searching methods, and
o Image format independence.

AUTOMATION OF IMAGE PRODUCTION. Today, an ever increasing and significant amount
of image production or post-creative work is required to prepare images for use
in the print and Web environment. These tasks include time-consuming operations
that take a digital image that is artistically complete and prepare that image
for use in another medium. This process is typically tedious and repetitive and
includes such tasks such as flattening Adobe PhotoShop layers, filtering,
scaling, cropping, converting the color space, making the correct image format,
and transferring files to remote locations.

         Creative professionals, whose time is both valuable and expensive, can
spend up to 70% of their time doing this post-creative work that does not
require their creative skills. As corporations move rapidly to place their
product images on the Web, the need for multiple copies of the same images, some
suited for print, some suited for the Web, becomes costly and very time
consuming. MediaBin relieves the creative professional of post-creative work and
moves it to automated processes on the MediaBin server. Organizations can
perform post-creative operations using a fraction of the time and effort.

REPURPOSING OF IMAGES. At its core, MediaBin is designed to enable universal
reuse, or REPURPOSING as is it called in the industry, of images so that one
image can serve the needs of any and all print or Web uses. Today, an image is
created for one specific use, then discarded. Any further use of that image
requires a complete re-work of the image from scratch. This approach is highly
inefficient when rapidly executing cross-media campaigns, where images must be
repurposed for use on the Web, in print ads, for store merchandising displays,
and even for billboards. MediaBin enables a highly efficient single image asset
approach, wherein a single image is captured, stored, and automatically
processed, so it can be used and then repurposed FOR ANY USE--on the Web, in
print ads, for store merchandising displays, and on billboards. This unique
approach is enabled by and automated through the MediaBin platform.

                                      -2-
<PAGE>

TRACKING AND REVISION MANAGEMENT. One of the largest challenges facing
organizations with many images is tracking image usage and ensuring that the
images in use are the most current versions. Iterated has developed a
patent-pending method that provides automated tracking and revision of
DERIVATIVE images. Derivative images are images created from a single image
original (core asset) that are slightly different from the original to serve
different purposes. An example would be a small image needed on a Web site that
is created as a derivative of the original image that was used in a print
advertisement or catalog. MediaBin keeps track of the relationships between the
assets and derivatives, so that updates can be made automatically throughout an
entire collection of derivatives, simply by updating their common core asset.
Similarly, derivative images are tagged such that their parent core image source
can be located on MediaBin servers located anywhere--on a local network or on
the other side of the world across the Internet.

COLLABORATION FOR WORKGROUPS. As the global reach of brands and brand companies
expands, the need to rapidly and efficiently share brand images is increasing
dramatically. MediaBin is built to provide easy sharing and collaboration of
entire sets of images used in projects as well as single images or even a single
layer of multi-layered PhotoShop image file. MediaBin is designed to use highly
efficient compression methods to allow multiple MediaBin servers to share images
across geographically dispersed teams. MediaBin also uses a concept of
'just-in-time' image creation, where images are created only at the moment of
need. This not only provides significant savings in storage, but also insures
that the most current version of an image is used.

UNIQUE SEARCHING METHOD. To aid in the sharing and locating of images, MediaBin
has the ability to search for images in any local or remote MediaBin by image
metadata (the text information associated with an image) or by using images to
search for other like images based upon a match of color, texture, shape, and/or
content. This image searching method uses a unique, patented, fractal-based
image recognition algorithm and represents the third generation of work by
Iterated in the area of image only based searching.

IMAGE FORMAT INDEPENDENCE. The MediaBin platform is built so that all of the
MediaBin capabilities are available to all images entered into the MediaBin.
MediaBin is format independent (format agnostic) and can apply all the benefits
for the proprietary image technology without the burden of requiring users to
adopt a new image format into their workflow.


MEDIABIN MARKET SIZE AND OPPORTUNITY

         The worldwide market for commercial publishing, which includes print
AND electronic-based media, generated approximately $260 billion in revenues in
1998. (GartnerGroup, "Commercial Publishing Transitions: A Blueprint Through
2002," C. Abrams, 1998). This huge market is undergoing dramatic and rapid
changes brought on by the substantial adoption of digital computer based methods
used to create, edit, distribute, and publish/print all types of media content.
The tumultuous effects of the Internet and Web based business are substantially
altering the traditional methods and workflows used to publish and distribute
media. The digital publishing tools that provided an efficient workflow in a
pre-Internet era just a few years ago are no longer sufficient to quickly and
efficiently handle the needs for cross-media publishing. These dramatic changes
have created a demand in the market for software solutions that can help deal
with the needs of both traditional print production and the explosive growth of
Web/e-commerce--the cross-media solution space.

         So significant is this change that the GartnerGroup has characterized
this as "causing a revolution as great as that caused by Gutenberg's press." The
marketplace has responded to this need for improved productivity and cost
reductions by spending capital on automation products. The Delphi Group, a
leading industry analyst group, tracks a market known as Business to Business
(B2B) Tools. Within that grouping is a segment known as eContent - which
addresses the tools, like MediaBin needed to help corporations automate content
management and delivery. They expect the eContent segment to grow from $1.6
billions as of the end of 1999 to over $12.8 billions by 2002, a growth rate of
200%.


MEDIABIN SALES CHANNELS

         The current sales model for MediaBin involves the license of MediaBin
to 'end users' or final, end customers for the MediaBin platform. This method,
known as a direct sales model, provides Iterated with the important direct
control over the entire sales process during the critical early stages of
product use in the market. This hands-on approach to the sale of the product
enables very important early market feedback to help define revisions and
improvements to the product.

         During the initial launch period for the product, the sale of MediaBin
is typically being bundled with consulting and integration services. These
integration services are designed to ensure that the early MediaBin usage fits
well with the customer's existing workflows. As the MediaBin product matures in
the market, it is expected that the need for Iterated to provide these services
will diminish and result in the Company's ability to achieve more MediaBin
installations using fewer resources. At this time the direct selling model will
be augmented by expanding the sales channel to include a select set of System
Integration partners. These partners will add value in the sale of MediaBin
through services including integration into existing systems, training,
installation, and, potentially, total system support. In many cases the System
Integrators will sell the product directly to end users, but they may in some
cases act as aggregators and recommenders for the use of MediaBin to end users
in the market.

                                      -3-
<PAGE>

         Iterated has begun discussions with several partners and OEMs who are
considering the inclusion of MediaBin platform as an integral part of their
product. OEMs or Original Equipment Manufacturers resell other software products
by including or embedding those products into their own products. The lead-time
for the inclusion of products into OEM's products is typically long and revenue
associated with such relationships is very difficult to forecast. One such
product is the Media Asset Management (MAM) System. MAMs are computerized
storage and retrieval systems specifically designed for digital media.


COMPETITION

         There are a few companies marketing products that perform some, but not
all, of the functions of the MediaBin Platform. These companies include Warp 10,
and Equilibrium.

         The Digital Toolkit from Warp 10 is a media management system that
enables systems integrators, web developers and others to build applications to
manage their digital resources using a Digital Asset Management (DAM) system.
Since MediaBin reduces the number of files designers have to manage, and because
it enables more efficient archiving, MediaBin could be seen as a competitor of
Warp 10. However, MediaBin is really a complement to DAM systems. ISI recently
announced complimentary working relationships with a number of DAM vendors
(Canto and North Plains). DAM's track files, manage version control, and other
system-related issues, whereas MediaBin adds an ability to create any image form
needed by a client on demand and just-in-time image creation and delivery.

         Equilibrium's DeBabelizer is an image conversion tool that enables
users to, among other tasks, scale images for different output. However,
DeBabelizer does not enable users to repurpose images automatically in many
different sizes while delivering the extremely high quality images clients
demand. DeBabelizer is also not an image storage or repository.



MAJOR CUSTOMERS

         As discussed above, since the Company is refining its market to focus
on users of high quality digital imaging systems, its major customers in the
future will probably not be ones that have contributed significantly in the
past. A discussion of the contributions of major customers during 1996-1998 is
included in the footnotes to the Company's Financial Statements referred to in
Item 8 of this Form 10-K and incorporated by reference.



RESEARCH AND DEVELOPMENT/PATENTS

         During 1997, 1998 and 1999, the Company has spent $8,261,000,
$5,237,000 and $4,891,000, respectively, in the research and development of new
technologies, refining and improving its technologies and the customization of
its technologies to the needs of specific customers. During 1996 and 1997, the
majority of these expenditures were made under the 1994 Agreement discussed
above. The Company expects that continued significant expenditures in this area
will be necessary to successfully introduce new products and improve its core
technology and no assurances can be made that these development efforts will be
successful.

         Consistent with its emphasis on research and development, the Company
maintains an aggressive patent filing program. To date, the Company holds 20
issued U.S. patents with expiration dates from 2009-2017 and holds an exclusive
license to a seventh issued U.S. patent expiring in 2007.

         The Company's patents and patent applications are intended to provide a
degree of patent protection of the Company's technology as applied to products
developed under the Company's Imaging Systems Architecture(TM) (ISA),
particularly as applied in the area of real time video codecs, store and forward
video codecs and still image codecs. The markets for these codecs are highly
competitive, and the Company believes that its research and development efforts
and resulting patents are essential to an effective market presence.



EMPLOYEES

         The Company currently has approximately 50 full time employees based in
its offices in Atlanta, Georgia and Reading, England. The Company also makes
extensive use of independent contractors to fulfill short term specialized
needs.


ITEM 2. PROPERTIES.

         The Company leases approximately 21,000 square feet of office space in
Atlanta, Georgia for its corporate, sales and development operations. The lease
runs through July 31, 2005.

                                      -4-
<PAGE>

         The Company also leases approximately 3,000 square feet of office space
near Reading, England. The lease runs through June 27, 2012 with an option to
terminate in June 2007. All of this space has been sublet for the term of the
lease.

         The aggregate net monthly rental for these leased offices and
facilities is currently approximately $29,000, and the Company's management
believes that these facilities are adequate for its intended activities in the
foreseeable future.

ITEM 3. LEGAL PROCEEDINGS.

         The nature of the Company's business exposes it to the risk of lawsuits
for damages or penalties relating to, among other things, breach of contract,
employment disputes and copyright, trademark or patent infringement. The Company
is not currently a party to any pending material litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         A Special Meeting of Stockholders was held on October 28, 1999 at which
time certain matters were submitted to such stockholders for a vote. Below is a
brief description of each such matter as well as the number of shares
represented at the meeting and entitled to vote and voting for, against or
abstaining as to the matter.

         To approve an amendment to Iterated's Articles of Incorporation to
increase the number of authorized shares of common stock, par value $.01 per
share, from 20,000,000 shares to 40,000,000 shares.


   -------------------------- ------------------------ ----------------------
          Shares For              Shares Against         Shares Abstained
   -------------------------- ------------------------ ----------------------
           7,674,384                   2,835                     0
   -------------------------- ------------------------ ----------------------
             99.9%                     0.1%                    0.0%
   -------------------------- ------------------------ ----------------------

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

         The Company's Common Stock has been traded on the Oslo Stock Exchange
under the symbol "ITR" since October 1,1997. Prior to that time there was no
established market for the shares. The Company has not registered any securities
with the United States Securities and Exchange Commission other than pursuant to
its Form S-8 Registration Statement filed on December 9, 1998. Securities of the
Company may not be offered for sale or sold in the U.S. or to or for the account
or benefit of any U.S. person unless the securities are registered or an
exemption from registration requirements is available.

         The price per share reflected in the table below represents the range
of low and high closing sale prices for the Company's Common Stock as reported
by the Oslo Stock Exchange for the periods indicated:



            FISCAL PERIOD               HIGH PRICE              LOW PRICE
            -------------               ----------              ---------

         01/01/98 - 03/31/98             $ 9.24                  $ 5.99
           4/1/98 - 6/30/98                7.51                    3.92
           7/1/98 - 9/30/98                3.23                    0.95
          10/1/98 - 12/31/98               1.63                    0.22

         01/01/99 - 03/31/99               1.75                    0.67
           4/1/99 - 6/30/99                1.27                    0.81
           7/1/99 - 9/30/99                1.14                    0.76
          10/1/99 - 12/31/99               1.83                    0.45

         The closing sale price of the Company's Common Stock as reported by the
Oslo Stock Exchange on March 24, 2000, was U.S. $2.88.

         The number of shareholders of record of the Company's Common Stock as
of February 29, 2000, was approximately 2,400.

         The Company as of February 29, 2000, has options and warrants
outstanding to acquire 5,860,000 shares of Common Stock of the Company, of which
options and warrants as to 3,456,000 shares are currently exercisable.

         The Company has never paid cash dividends on its capital stock. The
Company currently intends to retain any earnings for use in the business and
does not anticipate paying any cash dividends in the foreseeable future.

                                      -5-
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

         The information set forth under the section entitled "Summary
Consolidated Financial Data" on page 11 of the Company's 1999 Annual Report to
Shareholders is incorporated herein by reference and filed herewith as part of
Exhibit 13.1.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

         The information set forth under the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 12 through 14 of the Company's 1999 Annual Report to Shareholders is
incorporated herein by reference and filed herewith as a part of Exhibit 13.1.

RIGHTS OFFERING
         From November 8, 1999 to November 19, 1999, the Company sold an
aggregate of 4,445,000 shares of Common Stock to its shareholders at $0.50 per
share pursuant to a rights offering ("Rights Offering").

         Prior to the issuance and trading of the rights, pursuant to the Rights
Offering, certain U.S. shareholders did not receive a copy of the prospectus.
Therefore, it is possible that all applicable federal and state securities laws
were not complied with in all material respects. As a result, the Company
offered to those U.S. shareholders who purchased the Company's Common Stock
pursuant to the Rights Offering an opportunity to rescind their purchase. No
U.S. shareholders rescinded their purchase. The Company also extended the
effective date of the Rights Offering until January 28, 2000, for those U.S.
shareholders who did not receive a copy of the Prospectus prior to the issuance
and trading of rights. During this extended period an additional 7,600 shares
were sold at $0.50 per share.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         Financial instruments that potentially subject the Company to
significant concentrations of market risk consist principally of short-term
investments, trade accounts receivable, and accounts payable.

         ISL considers the British pound to be its functional currency. The
Company considers its functional currency to be the U.S. dollar. ISL's assets
and liabilities are translated at year-end rates of exchange and its revenues
and expenses are translated at the average rates of exchange during the year.

         The Company believes that the potential effects of market risk is not
material to its operations.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
         The quarterly results of operations set forth on page 11 of the
Company's 1999 Annual Report to Shareholders and the following consolidated
financial statements, related notes thereto and report of independent auditors
set forth on pages 15 through 29 of the Company's 1999 Annual Report to
Shareholders are incorporated herein by reference and filed herewith as a part
of Exhibit 13.1.

         Consolidated Balance Sheets as of December 31, 1999 and 1998.

         Consolidated Statements of Operations for the years ended December 31,
         1999, 1998 and 1997.

         Consolidated Statements of Shareholders' Equity for the years ended
         December 31, 1999, 1998 and 1997.

         Consolidated Statements of Cash Flows for the years ended December 31,
         1999, 1998 and 1997.

         Notes to Consolidated Financial Statements.

         Independent Auditors' Report.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

         None.


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.


         The information required by this item is contained in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be filed with the
Commission not later than 120 days after the close of the Company's fiscal year
ended December 31, 1999 under the caption "Election of Directors" and
incorporated by reference herein.

                                      -6-
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION.

         The information required by this item will be included in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be filed with the
Commission not later than 120 days after the close of the Company's fiscal year
ended December 31, 1999 under the caption "Executive Compensation" and is
incorporated by reference herein.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         The information required by this item will be included in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be filed with the
Commission not later than 120 days after the close of the Company's fiscal year
ended December 31, 1999 under the caption "Security Ownership of Certain
Beneficial Owners and Management" and is incorporated by reference herein.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         The information required by this item will be included in the Company's
Proxy Statement for the Annual Meeting of Shareholders to be filed with the
Commission not later than 120 days after the close of the Company's fiscal year
ended December 31, 1999 under the caption "Certain Transactions" and is
incorporated by reference herein.


                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)      The following documents are filed as part of this report:

         1.  Financial Statements

         The financial statements of Iterated Systems, Inc. and reports of
independent auditors as set forth under Item 8 of this report on Form 10-K are
incorporated by reference herein.

         2.  Financial Statement Schedules

         (i) The following Financial Statement Schedule of Iterated Systems,
Inc. for the Years Ended December 31, 1999, 1998 and 1997 is filed as a part of
this report on Form 10-K and should be read in conjunction with the Financial
Statements, and related notes thereto, of Iterated Systems, Inc.

                             ITERATED SYSTEMS, INC.
                                   SCHEDULE II
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

           VALUATION AND QUALIFYING ACCOUNTS WHICH ARE DEDUCTED IN THE
                BALANCE SHEET FROM THE ASSETS TO WHICH THEY APPLY
<TABLE>
<CAPTION>
<S>         <C> <C>                                <C>
                                                                    Additions
                                                        ----------------------------------
                                        Balance at         Charged to         Charged to                        Balance at
                                        Beginning          Costs and            Other                          End of Period
                                        of Period           Expenses           Accounts       Deductions
                                       -------------    -----------------    -------------   --------------    --------------
Allowance for doubtful
accounts:
  Year Ended:
   December 31, 1999                        $  6               $  24              $ 0           $  (25)            $ 5
   December 31, 1998                           9                   0                0               (3)              6
   December 31, 1997                          70                 399                0             (460)              9
</TABLE>

<TABLE>
<CAPTION>
<S>         <C> <C>                                <C>
                                                                    Additions
                                                        ----------------------------------
                                        Balance at         Charged to         Charged to                        Balance at
                                        Beginning          Costs and            Other                          End of Period
                                        of Period           Expenses           Accounts       Deductions
                                       -------------    -----------------    -------------   --------------    --------------
Reserve for inventory obsolescence:
  Year Ended:

                                       -7-
<PAGE>

   December 31, 1999                       $   0                 $ 0              $ 0           $    0             $ 0
   December 31, 1998                           0                   0                0                0               0
   December 31, 1997                         581                   0                0             (581)              0


                                                                    Additions
                                                        ----------------------------------
                                        Balance at         Charged to         Charged to                        Balance at
                                        Beginning          Costs and            Other                          End of Period
                                        of Period           Expenses           Accounts       Deductions
                                       -------------    -----------------    -------------   --------------    --------------
Valuation allowance for deferred
 income tax assets:
  Year Ended:
   December 31, 1999                     $ 10,985            $ 3,169              $ 0              $ 0           $ 14,154
   December 31, 1998                        6,862              4,123                0                0             10,985
   December 31, 1997                        4,387              2,484                0                0              6,862
</TABLE>

(b)  REPORTS ON FORM 8-K. None.

(c)  EXHIBITS. The following exhibits are filed as part of, or are incorporated
     by reference into, this report on Form 10-K:


                                      -8-
<PAGE>

EXHIBIT
NUMBER                             DESCRIPTION
-------                            -----------


3.1      Restated Articles of Incorporation of the Registrant

3.2*     Restated Bylaws of the Registrant

4.1*     Warrant for the Purchase of Shares of Common Stock of the Registrant
         issued to Mosvold Farsund AS dated May 31, 1996

10.1*    Loan Agreement between Mosvold Farsund AS and the Registrant, dated May
         31, 1996, as amended June 30, 1997

10.2*    Lease between California State Teachers' Retirement System and the
         Registrant dated January 31, 1995 for premises situated at 3525
         Piedmont Road, N.E., Seven Piedmont Center, Suite 600, Atlanta, Georgia
         30305

10.3*    Lease between T.A. Fisher & Sons Limited and Iterated Systems Limited
         dated June 27, 1997 relating to land and office buildings forming Unit
         No. 32 at Wellington Business Park, Dukes Ride, Crowthorne, Berkshire

10.4*    Amended and Restated Executive Employment Agreement between the
         Registrant and John C. Bacon, dated as of February 16, 1998

10.5*    Executive Severance Agreement between the Registrant and John R. Festa,
         dated February 16, 1998

10.6*    Employment Agreement between the Registrant and Michael F. Barnsley,
         dated May 1, 1994, as amended

10.7*    Employment Agreement between the Registrant and Alan D. Sloan, dated
         May 1, 1994, as amended

10.8*    Iterated Systems, Inc. 1994 Amended and Restated Stock Option Plan

10.9*    Iterated Systems, Inc. Amended and Restated 1994 Directors Stock Option
         Plan

13.1     The following financial information included within the Company's
         Annual Report to Shareholders for the fiscal year ended December 31,
         1999:

                  (i)   Summary Consolidated Financial Data;

                  (ii)  Selected Quarterly Operating Results;

                  (iii) Management's Discussion and Analysis of Financial
                        Condition and Results of Operations; and

                  (iv)  Financial Statements, Notes to Financial Statements, and
                        Independent Auditor's Report.

21*      Subsidiaries of the Registrant

23.1     Consent of Ernst & Young LLP

27.1     Financial Data Schedule (SEC use only)

----------
*    Incorporated by reference to Exhibits filed in response to Item 16(a),
     "Exhibits" of the Company's Registration Statement on Form 10 (File No.
     000-24087) filed on April 24, 1998, as amended.

(d)  FINANCIAL STATEMENT SCHEDULES.  None.

                                      -9-
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                  ITERATED SYSTEMS, INC.


                                  By: /s/ John C. Bacon
                                      --------------------------------------
                                       John C. Bacon
                                       President and Chief Executive Officer
                                      (Principal Executive Officer) and Director

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
                   SIGNATURE                             TITLE                              DATE
                   ---------                             -----                              ----
<S>                                         <C>                                        <C>
        /s/ John C. Bacon                   PRESIDENT, CHIEF EXECUTIVE                 March 29, 2000
       --------------------------------     OFFICER; DIRECTOR (PRINCIPAL
       John C. Bacon                        EXECUTIVE OFFICER)


        /s/ Haines H. Hargrett              CHIEF FINANCIAL OFFICER,                   March 29, 2000
       --------------------------------     (PRINCIPAL FINANCIAL OFFICER;
       Haines H. Hargrett                   PRINCIPAL ACCOUNTING OFFICER)


        /s/ John R. Festa                   DIRECTOR AND VICE CHAIRMAN OF              March 29, 2000
       --------------------------------     THE BOARD OF DIRECTORS
       John R. Festa

        /s/ Terje Mikalsen                  DIRECTOR                                   March 29, 2000
       --------------------------------
       Terje Mikalsen

        /s/ Alan D. Sloan                   EXECUTIVE VICE PRESIDENT AND               March 29, 2000
       --------------------------------     DIRECTOR
       Alan D. Sloan

        /s/ Asmund R. Slogedal              DIRECTOR AND CHAIRMAN OF THE               March 29, 2000
       --------------------------------     BOARD OF DIRECTORS
       Asmund R. Slogedal
</TABLE>


                                      -10-