<PAGE>
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

                                   (Mark One)

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

For the fiscal year ended December 31, 2001

                                       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                                                 00-26363

                         INTERNET PICTURES CORPORATION

             (Exact name of registrant as specified in its charter)

DELAWARE                                                             52-2213841

State or other jurisdiction                                       (IRS Employer
incorporation or organization                               Identification No.)

               3160 CROW CANYON ROAD, SAN RAMON, CALIFORNIA 94853
               --------------------------------------------------
              (Address of principal executive offices) (Zip Code)

       Registrant's telephone number, including area code: (925) 242-4002
                               -----------------

       Securities registered pursuant to Section 12(b) of the Act: NONE.

          Securities registered pursuant to Section 12(g) of the Act:

                         COMMON STOCK, $.001 PAR VALUE
                         -----------------------------
                                (Title of Class)

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. [  ]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 2002 was $13,533,520 (based on the average bid and
ask price of $2.05).

The number of shares outstanding of the registrant's common stock, $.001 par
value, as of March 1, 2002 was 6,780,317. On August 22, 2001 our shareholders
approved a ten-for-one reverse stock split. All share and per share data is
presented to give effect to the retroactive application of the reverse stock
split.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement for the Annual Stockholders'
Meeting to be held on or about May 30, 2002, to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended, are incorporated by reference into Part III
of this report on Form 10-K. Such Proxy Statement, except for the portions
thereof which are specifically incorporated herein by reference, shall not be
deemed "filed" for purposes of this report on Form 10-K.


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                                     PART I


ITEM 1.  BUSINESS.

OVERVIEW

Internet Pictures Corporation, or iPIX, is a technology provider and the leader
in the delivery of mission-critical imaging. The Company's open imaging
platform and immersive imaging technologies allow businesses to harness the
power of imaging to increase revenues, improve operations and enhance the
overall Internet user experience.

Our robust and reliable imaging infrastructure manages in excess of 200 million
image views and 1.5 million image submissions every 24 hours, facilitating
millions of dollars in commerce each and every day.

iPIX combines its people, technology, processes and partnerships to deliver an
extensive range of full and self-service imaging solutions worldwide. Our
end-to-end solutions include the capture, processing, hosting and distribution
of immersive, still and video images. We deliver the necessary imaging
solutions to facilitate commerce, communication and security so customers can
outsource their imaging needs and focus on their core competencies.

iPIX is organized in two primary business units: Transaction Services and
Immersive Solutions. The Transaction Services unit focuses on the sale of iPIX
solutions to customers who rely on images to complete business transactions
such as real estate, auctions and classifieds. The Immersive Solutions business
unit focuses on the sale of immersive technology licenses into the observation
and security, travel and hospitality and visual documentation markets.

THE IPIX SOLUTION

iPIX Rimfire(R) Imaging Platform

iPIX's open imaging platform, Rimfire, allows business and consumer sites to
quickly and easily capture, manage and distribute media from site viewers to
live Web pages. Rimfire is an end-to-end, fully automated imaging management
solution that addresses the preparation, submission and management of digital
media. With Rimfire, users can easily publish still photos and other digital
media to the Web with simple drag-and-drop image submission. Through processes
that are nearly instantaneous and invisible to the user, Rimfire automatically
sizes the images to the target Web site's specifications. At the same time, on
behalf of the target Web site, Rimfire can handle all of the data and image
management, storage and serving requirements associated with that image. The
iPIX open imaging platform solves the most common problems associated with
user-supplied digital media by automating the tasks and simplifying the process
for the user and the Web site.

         Digital Media Preparation

         Rimfire allows Web sites to attract and retain users regardless of
         their technical skill. Rimfire's drag-and-drop technology allows users
         to quickly and easily submit their own media content to the Web
         without the need to prepare it with desktop software ahead of time.
         Challenging tasks such as formatting, sizing and cropping, are easily
         and automatically accomplished through Rimfire's integrated and
         intuitive tools. Instant previews of the media supplied prevent
         incorrect submissions.


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         Digital Media Submission

         Rimfire accepts a wide and growing variety of file formats and
         converts the files to customer specifications automatically, without
         user intervention. Rimfire's smart-sizing feature allows the user to
         supply files of any size without worry about upload times for
         submission, or viewing times. Like file formats, Rimfire automatically
         prepares the media for transmission by optimizing its size to the
         requirements of the site. In addition, Rimfire supports the submission
         of multiple files and associated data.

         Media Deployment

         Once media is received by Rimfire, it is processed to customer
         specifications. This includes database management, further processing
         such as creating multiple files of varying sizes or quality and
         distribution to the appropriate storage facility. Rimfire's "layered"
         architecture enables services such as the transformation of still
         images into interactive advertisements, slide shows, images
         watermarked with text or graphics or new capabilities created by iPIX
         or our third party developers. Rimfire technology was designed to be
         scalable and fault tolerant to handle high volumes of user submissions
         and our clients' rapid pace of growth. Built on industry standard
         hardware and software platforms, Rimfire allows for rapid expansion of
         rich media acquisition, processing, transformation and delivery.

Rimfire generates direct and indirect revenue opportunities for our customer's
Web sites by incorporating imaging into their e-commerce and community
offerings. Rimfire's media processing capabilities include the mechanism to
take different media items supplied from users such as text, audio and images
and transform them into one new rich media item. iPIX can then serve the media
directly from iPIX servers or send the media to a remote database to be served
directly from the customer's Web site.

By offering an outsourced infrastructure solution, we offer our customers an
alternative to building costly infrastructure, enabling them to utilize scarce
technical resources in other mission critical capacities. Our solution
eliminates expensive media processing tasks and decreases customers' support
expenses. Further, our solution optimizes storage and bandwidth resources for
our customers.

iPIX Immersive Imaging

iPIX patented technology creates iPIX immersive images from film or digital
photographs taken with a fisheye lens. Our technology automatically compensates
for any minor error in camera placement and corrects the distortion inherent in
these photographs. The resulting immersive image can be viewed in any
direction, up-down, left-right and horizon to horizon. The viewer can easily
navigate the image by moving a cursor inside the image or using the iPIX
navigation bar. iPIX immersive imaging provides maximum field of view with a
single image.

Previously priced only on a per image basis, iPIX now offers a new image key
pricing model that allows users to purchase an annual, unlimited subscription
to create iPIX immersive images. These iPIX licenses make iPIX technology
easier to use, cost effective and more accessible to a larger audience.

Current iPIX immersive imaging solutions and applications include:


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         iPIX Immersive Images and Virtual Tours

         iPIX provides the leading immersive, 360-degree virtual tours for real
         estate, e-commerce, travel and hospitality and entertainment Web
         sites. In addition, iPIX immersive imaging is designed for
         documentation, project management and facilities planning
         applications. iPIX immersive images offer viewers the opportunity to
         navigate a scene on their own terms, looking in any direction, and
         zooming in and out as they choose. This interactive imaging experience
         helps to increase buyer confidence and immerses the viewer in the
         photographed scene so everything is viewed in context of its complete
         surroundings.

         iPIX Camera Solutions

         Partnering with leading camera manufacturers, iPIX offers complete
         camera solutions for the self-service capture of iPIX immersive
         images. Photographers, Web developers and other businesses may
         purchase complete camera solutions including a digital camera, fisheye
         lens, iPIX software, camera rotator and tripod. Users may also
         purchase partial kits to use with their existing digital camera
         equipment.

         iPIX Immersive Imaging Software & Keys

         iPIX offers complete immersive imaging software to allow users the
         ability to create their own 360-degree by 360-degree immersive images.
         The software offers automatic de-warping of fisheye images and
         seamless generation of 360-degree by 360-degree immersive images from
         two 185-degree images. iPIX software creates an iPIX immersive image
         that has a small file size, typically between 25 and 160 kilobytes,
         and can be quickly delivered, even across low bandwidth systems.

         An iPIX Image Key is an encryption tool that enables the user to save
         a single iPIX immersive image captured using iPIX software. One iPIX
         Image Key enables the user to save one iPIX image, just as one film
         negative enables the creation of one film photograph. Customers can
         purchase additional keys through our online store or through our
         toll-free order system. iPIX Image Keys are sold on a pay-per-use or
         unlimited use subscription basis.

         iPIX Immersive Video

         iPIX immersive video is a revolutionary development in security and
         surveillance imaging that provides the most expansive view of live and
         archival video from a single camera without requiring pan/tilt/zoom
         hardware. iPIX-enabled cameras capture immersive wide-angle views up
         to 200-degrees that can be navigated in any direction with zoom in and
         out capabilities.

         The iPIX Viewer Software Development Kit (SDK) offers security system
         designers and integrators an immersive enhancement for expansive
         wide-field viewing without the need for pan/tilt/zoom hardware.


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THE IPIX STRATEGY

Establish iPIX as the Standard for Mission-Critical Imaging

We believe iPIX imaging solutions deliver the most interactive, reliable,
high-quality and expansive imaging available on and offline. Because iPIX
offers end-to-end imaging solutions, we are able to deliver multi-dimensional
and exponential value to businesses. As a result, we believe we are poised to
be the standard for mission-critical imaging technology. We will focus our
business, sales and marketing strategies to support this position. We will
continue research and development efforts so that our technology remains at the
forefront of innovation, yet open for easy integration with other technologies.
We will concentrate on developing partnerships to make iPIX imaging a standard
component of every security solution and the preferred technology for online
image management.

With these combined efforts, we believe the value proposition of iPIX imaging
solutions will become well known and we will earn the reputation as the
standard and extensible platform for mission-critical imaging.

Build Indirect Sales & Marketing Channels

iPIX has adopted a strategy that will leverage relationships with business
partners and major market leaders in order to increase market penetration and
revenue while reducing operating expenses. This strategy will develop multiple
sales and marketing channels for iPIX products and services including:

         Vertical Market Leaders

         iPIX has partnered with major customers such as eBay, Clairol, LA
         Times and Homestore.com to leverage their leading sales channels to
         our target markets with iPIX products and services. Through these
         relationships, our customers market and sell imaging products and
         services, powered by iPIX, along with their existing services directly
         to their customers. iPIX benefits from the brand equity and buying
         recommendation provided by the customer's sales channel to increase
         sales and market penetration while maintaining the ability to focus on
         iPIX technology support and enhancements. We will continue to partner
         with additional vertical market leaders to serve as direct and
         indirect channels for the promotion and sale of iPIX products and
         services.

         Integrators and Resellers

         iPIX has partnered with established security system resellers and
         integrators to help penetrate the security and observation markets.
         Resellers and integrators such as ADT Security Services, Public Safety
         Systems, LLC and Visual Security offer iPIX the opportunity to be
         integrated into full security systems sold and marketed by vendors
         well-known and respected in the industry. Through relationships, we
         believe iPIX technology will be incorporated in NetCams, digital and
         analog CCTV cameras, security applications and other embedded security
         solutions.

         Partner with Web Developers

         We will leverage the community of Web developers currently building
         and designing Web sites to drive the use and adoption of iPIX dynamic
         imaging. We will also generate revenue through the purchase of camera
         kits and Keys by Web developers and their customers. We will continue
         to support iPIX Web Developers through the iPIX Developer Network
         program. This dedicated program was specifically designed to


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         increase iPIX-to-developer and developer-to-developer interactivity
         and will provide Web developers a competitive advantage through
         availability of increased resources, technical support and special
         pricing for iPIX offerings.

         Partner Internationally

         We intend to capitalize on what we believe to be significant revenue
         opportunities in international markets. International licensing and
         distribution agreements with partners in a wide range of countries
         spanning Europe, the Middle East and Asia. Relationships with
         companies such as Emirates Venture Group in the United Arab Emirates
         and LAC in Japan allow us to deploy iPIX technology into regions of
         the world that would normally require significant time and effort for
         marketing and development.

         Business Development and Strategic Direct Sales

         In addition to our existing sales channels, iPIX employs a team of
         senior sales professionals focused on new business development
         opportunities and strategic direct sales across our target markets.

New Initiatives

In the year 2002, iPIX intends to execute several new initiatives to support
our overall business strategies. These new initiatives will include:

         Indirect Channel Support

         iPIX will institute sales and marketing programs to support our
         indirect channel partners. These programs will be designed to educate
         our partners on how to sell our solutions and provide them with the
         tools to do so. We will also work together with our partners to
         jointly develop tools and materials in support of the channel.

         iPIX is also committed to support indirect channels through technology
         development and enhancement that meet channel-specific business
         requirements, including partnering with complementary technologies.

         Third Party Solution Integration

         Leveraging our open imaging platform, we intend to enhance the iPIX
         solutions offering through the integration of third party solutions.
         These initiatives will be pursued based upon value to our customers
         and potential long-term revenue opportunity.

         Government Imaging Projects and Technology Grants

         iPIX is proactively researching and pursuing government projects and
         technology grants that will allow iPIX technology to be incorporated
         into major US government imaging initiatives. We believe these
         projects offer iPIX the opportunity to drive revenue and advance iPIX
         technology through government-funded projects and grants.


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MARKETS

We have directed our sales efforts and channel strategies toward the industry
leaders within the following markets.

Auctions and Classifieds: As the primary mechanism for ecommerce, auction and
classified sites and portals such as eBay rely heavily upon imaging to drive
sales of new and used consumer items. Sellers require an easy to use method for
uploading images to accompany their item listing and buyers desire confidence
in items they can view and inspect online. In our experience, listings with
images result in more bids and higher final sale amounts. With Rimfire, auction
and classified sites can offer photo services that make adding images to Web
sites easy, affordable and efficient.

Consumer Product Manufacturers: Traditional businesses and consumer product
manufacturers rely on imaging to help sell, market and enhance their current
products. They often capture and distribute images using systems that have been
developed internally and typically require manual and time-consuming processes.
With Rimfire, these companies can outsource their imaging infrastructure and
automate imaging processes saving time and operational expenses. Rimfire
technology makes it cost-effective, fast and easy for businesses to leverage
imaging for online and offline catalogs, operational directories, new
interactive marketing tools and personalized, image-enhanced consumer products.
For example, Clairol uses Rimfire services to allow consumers to upload
personal photos into Clairol's "Try It On Studio" tool and test different hair
colors and styles.

Real estate: Residential and commercial real estate companies and professionals
use our solutions to provide online iPIX immersive images of properties
including existing homes, new homes, rental apartments, time-share units and
office buildings and their surrounding areas. Our imaging solutions allow real
estate companies and professionals offering real estate for sale or lease to
use the Internet to provide more visual information about the property to
prospective buyers. Our solutions enable real estate professionals to
cost-effectively market properties to a wide audience, thereby providing a
value-added service to both buyers and sellers.

Observation and Security: Businesses, facilities, airlines and airports can use
iPIX immersive technology to monitor and secure buildings, people and property.
Whether observing department store activity through a security camera, or
offering airline pilots a full-cabin view from the cockpit, iPIX immersive
imaging offers the best way to capture the most data in a single image. Unlike
traditional cameras that capture only what is directly in front of the camera,
iPIX-enabled cameras capture 180(degree) by 360(degree) scenes that can be
navigated in any direction with zoom in and out capabilities without additional
hardware. The unique features of iPIX immersive imaging offer the most
cost-effective solutions to capture the maximum field of view.

Travel and Hospitality: Hotel chains, vacation resorts, cruise lines, golf
courses, restaurants, theme parks, major tourist attractions and tourism
bureaus use our digital media content solutions to enhance their online
marketing. iPIX immersive images provide a prospective visitor the opportunity
to take online tours of rooms, meeting and conference facilities and
attractions. Our visual content and digital media solutions enable consumers to
more effectively research, plan and reserve travel arrangements over the
Internet. Further, online tours allow destination operators to feature premier
packages as well as showcase specific destinations. We distribute our
customer's digital media content to their own Web sites and to selected travel
destination affiliate Web sites.


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Visual Documentation: Because iPIX immersive technology allows customers to
capture a full 360-degree by 360-degree environment, iPIX is simply the best
way to photographically document facilities, public buildings, schools and
other spaces for emergency and tactical preparedness, project management,
historical archival image database, facilities planning and design, training
vulnerability and disaster assessments. iPIX visual documentation is also
proven to be effective in presenting locations that would otherwise be
inaccessible or entail a risk of exposure to hazardous materials or situations.

SALES AND MARKETING

Our marketing efforts focus on supporting our sales force with marketing
materials and sales tools that help generate and close new business for iPIX.
Using this strategy, we intend to acquire new customers for our end-to-end
solutions, increase purchases of iPIX kits and iPIX keys and develop new sales
opportunities. We also intend to continue utilizing distributors and resellers
to penetrate indirect markets. Our marketing efforts include traditional and
Internet advertising as well as direct mailings, participation in trade shows,
co-marketing with strategic partners and public relations campaigns.

Our sales and marketing groups focus on direct and indirect sales. Located in
Oak Ridge, TN, San Ramon, CA and London, England, our sales teams focus on
developing strategic relationships and opening sales channels with potential
partners and customers in our targeted vertical markets. We also employ a
telesales team that targets additional business customers, provides support for
the direct sales teams and fields inquiries from our Web site and toll-free
customer service number.

We also maintain a customer relations department to answer inquiries regarding
our offerings and respond to technical questions. Our service personnel also
perform quality assurance checks on each component included in an iPIX kit
prior to shipping and process customer service inquiries concerning order
status, shipping information, returns and exchanges.

COMPETITION

We currently compete with several providers of immersive imaging technology.
However, we do not believe any of our competitors are dominant in this
industry. We compete with these companies on the basis of ease of use,
reliability, end user experience and price.

In the security markets, our immersive video solutions compete with traditional
pan/tilt/zoom cameras. iPIX technology, however, can deliver the pan/tilt/zoom
functionality at a lower cost and without the need for additional hardware that
requires maintenance and repair over the life of the camera. Our navigable
solution also captures a larger field of view with fewer cameras.

When selling our imaging platform and image management services, we often find
that potential customers are considering internal development of an imaging
system. The time, cost and imaging expertise required to build their own
imaging system typically leads them to the conclusion that they should
outsource. There are other companies marketing image servers and interactive
imaging services to our target markets. However, they offer only components or
layers of the iPIX comprehensive imaging solution and do not currently address
how their technology successfully integrates with others to deliver an
end-to-end solution (capture, process, host and distribute) to compete with
iPIX.


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While these companies may offer only components of the end-to-end solution iPIX
imaging solution, they may have greater financial, marketing, distribution and
technical resources with which to target our markets. Our success will be
dependent on our ability to compete on the cost-effectiveness and quality of
our solutions, the success of our indirect channel partners, and the tangible
value our solutions offer.

INTELLECTUAL PROPERTY

We rely on a combination of patent, copyright, trade secret and trademark laws
and contractual restrictions to establish and protect proprietary rights in our
products. Our patents are intended to protect and support current and future
development of our technology. We currently have 16 U.S. patents. In addition,
we hold international counterparts to many of our U.S. patents in selected
countries covering various aspects of our products. We have numerous patent
applications pending in the United States as well as international counterparts
to many of these applications. There can be no assurance that our current and
future patent applications will be granted, or, if granted, that the claims
covered by the patents will not be reduced from those included in our
applications.

Our success and ability to compete are dependent on our ability to develop and
maintain the proprietary aspects of our technology and operate without
infringing on the proprietary rights of others. We seek to limit disclosure of
our intellectual property by requiring employees, suppliers and customers with
access to our proprietary information to execute confidentiality agreements
with us and by restricting access to our source code. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy
aspects of our services or software or to obtain and use information that we
regard as proprietary. We have experienced wrongful use in the past, and
although we have taken steps to stop that use, we expect to experience more
attempts in the future. The laws of many countries do not protect our
proprietary rights to as great an extent as to the laws of the United States.
Litigation may be necessary in the future to enforce our intellectual property
rights to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. There can be no assurance that the statutory and contractual
arrangements we currently depend upon will provide sufficient protection to
prevent misappropriation of our technology or deter independent third-party
development of competing technologies.

Claims by third parties that our current or future products infringe upon their
intellectual property rights may have a material adverse effect on us.
Intellectual property litigation is complex and expensive, and the outcome of
this litigation is difficult to predict. We have been involved in litigation
relating to the protection of our intellectual property rights. We are
currently subject to a third party infringement claim that is in litigation.
This litigation, and any future litigation, regardless of outcome, may result
in substantial expense to us and significant diversion of our management and
technical personnel. An adverse determination in any litigation may subject us
to significant liabilities to third parties, require us to license disputed
rights from other parties, if licenses to these rights could be obtained, or
require us to cease using the technology.

EMPLOYEES

As of March 1, 2002, we employed 87 full-time employees. Our employees are not
represented by any collective bargaining unit. We believe our relations with
our employees are good.


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ITEM 2.  PROPERTIES.

We lease approximately 13,000 square feet of space in Oak Ridge, Tennessee for
our corporate office and operations and approximately 19,000 square feet in San
Ramon, California for our co-headquarters. We also maintain an office in
London, England from which we direct our European operations. We also lease
34,489 square feet of office space in Toronto, Canada. We have sublet
approximately 18,000 square feet of our Toronto, Canada space to a wholly-owned
subsidiary of Homestore.com, Inc. In February 2002, we exited the remaining
space in Toronto, Canada, and we are actively marketing this space to potential
sub-tenants. We have also exited approximately 31,000 square feet of office
space in Oak Ridge for which we are actively marketing to potential
sub-tenants. We have also exited approximately 6,500 square feet of office
space in San Ramon for which we are actively marketing to potential
sub-tenants. If we are unable to successfully sublease our vacated and
unoccupied office space, or if any of our current sub-tenants fail to make
required lease payments, our business, financial condition, results of
operations and cash flows may be adversely affected. (See Note 13 to our
consolidated financial statements included elsewhere in this Annual Report on
From 10-K).

ITEM 3.  LEGAL PROCEEDINGS.

On October 28, 1998, Minds-Eye-View, Inc. and Mr. Ford Oxaal filed a lawsuit
against us in the United States District Court for the Northern District of New
York. Minds-Eye alleged in its lawsuit that we breached a duty of confidence to
them, made misrepresentations and misappropriated trade secrets. The plaintiffs
alleged that our technology wrongfully incorporated trade secrets and other
know-how gained from them in breach of various duties. The court removed this
action to arbitration upon our motion, and we cross-claimed alleging various
affirmative claims, including trade secret theft. Minds-Eye and Mr. Oxaal filed
a motion to dismiss the suit, and the court dismissed the lawsuit on May 19,
1999. Although the lawsuit was dismissed, we intend to proceed with the
arbitration in Knoxville, Tennessee. The arbitration has been stayed pending
resolution of the following lawsuit.

On May 20, 1999, Mr. Oxaal filed a lawsuit against us and certain of our
customers in the same court alleging that our technology infringes upon a
patent claim for 360 degree spherical visual technology held by him. Mr. Oxaal
claims that this alleged infringement is deliberate and willful and is seeking
treble damages against us in an unspecified amount plus interest, an accounting
by us, costs and attorney's fees, in addition to a permanent injunction
prohibiting the alleged infringement of his patent by us. Mr. Oxaal filed an
additional complaint on December 5, 2000 in the United States District Court
for the Northern District of New York, naming us as the sole defendant. The
complaint states a single claim for relief, alleging infringement of U.S.
Patent No. 6,157,385, which issued on December 5, 2000. This patent encompasses
a method of seamlessly combining at least two images into a spherical image.

We have asserted defenses to Mr. Oxaal's claims as we believe we did not
infringe any valid claims of his patents. We believe that Mr. Oxaal's claims
are without merit, and we intend to vigorously defend against his claims.
However, if Mr. Oxaal were to prevail in either of these lawsuits, our
financial condition, results of operations and cash flows could be materially
adversely affected.

On May 10, 2001, Stanley Fry, Woodhaven Venture Partners, L.P., Cyrus Greg,
Patrick Oliver and related entities, all of whom are former stockholders of
PictureWorks Technology, Inc. (which we acquired in April 2000) filed a lawsuit
in the Delaware Chancery Court alleging causes of action for failure to timely
issue stock certificates and breach of contract. An unspecified amount of
damages is sought. Discovery proceedings in the case are on-going. We believe
that the plaintiffs' claims are without merit, and we intend to vigorously
defend against


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these claims. If the plaintiffs were to prevail in their action, however, our
financial condition, result of operations in cash flows could be materially
adversely affected.

We are not currently a party to any other legal proceedings the adverse outcome
of which, individually or in the aggregate, we believe could have a material
adverse effect on our business, financial condition, results of operations or
cash flows.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

No matters where submitted to a vote of the Company's stockholders during the
fourth quarter of fiscal year 2001.

ITEM 4A.  EXECUTIVE OFFICERS OF REGISTRANT

The following sets forth information with respect to our executive officers as
of March 1, 2002:

<TABLE>
<CAPTION>
                  NAME                                   AGE                       TITLE
<S>                                                      <C>
Donald W. Strickland............................         52        President and Chief Executive Officer

Paul A. Farmer..................................         43        Chief Financial Officer, Executive
                                                                   Vice President and Treasurer

Matthew S. Heiter...............................         41        Executive Vice President, General
                                                                   Counsel and Secretary
</TABLE>

DONALD W. STRICKLAND has been the chief executive officer of iPIX since May
2001 and has been president and chief operating officer since October 2000. Mr.
Strickland joined iPIX in April 2000 and served as executive vice president
until his appointment as president and chief operating officer in October 2000.
Prior to joining us, Mr. Strickland was president and chief executive officer
of PictureWorks Technology, Inc. from March 1996 until March 2000. From June
1993 until March 1996, Mr. Strickland held the position of vice president,
Imaging and Publishing at Apple Computer. Prior to joining Apple in June 1993,
Mr. Strickland spent twenty years at Eastman Kodak Company where he held a
succession of positions in engineering, sales, marketing and executive
management. Mr. Strickland holds several degrees including a bachelor's degree
in physics from Virginia Tech, a master's degree in physics from the University
of Notre Dame, a master's degree in optics from the University of Rochester, a
master's degree in management from the Stanford Sloan School of Management and
a law degree from George Washington University.

PAUL A. FARMER has been the chief financial officer, executive vice president
and treasurer of iPIX since June 2001. Prior to joining us, Mr. Farmer was the
chief financial officer of Buzzsaw.com from June 2000 to June 2001. Prior to
Buzzsaw, Mr. Farmer was chief financial officer, chief administrative officer
and executive vice president of CCAi Consulting from June 1998 to June 2000.
Prior to CCAi, Mr. Farmer was chief financial officer of TCSI, Inc. from June
1994 to June 1998 and vice president and corporate controller of Technology
Solutions Company from November 1990 to June 1994. Mr. Farmer is a CPA and was
with PricewaterhouseCoopers LLP from January 1982 through November 1990. Mr.
Farmer holds a bachelor's degree in accounting from the University of Illinois
and a masters in business administration from the University of Chicago.



                                      10
<PAGE>


MATTHEW S. HEITER has been the executive vice president, general counsel and
secretary of iPIX since January 2000. Mr. Heiter served as vice president,
secretary and general counsel of Interactive Pictures from October 1999 until
January 2000. Prior to joining us, Mr. Heiter was a shareholder in the law firm
of Baker, Donelson, Bearman & Caldwell, P.C. Mr. Heiter holds a bachelor's
degree in political science from the University of Mississippi and a juris
doctor from Vanderbilt University Law School.


                                      11
<PAGE>


                                    PART II


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

Our common stock is traded on the Nasdaq National Market (symbol: IPIX). Prior
to August 26, 1999, there was no public market for our common stock. As of
March 1, 2002, there were 955 stockholders of record.

The following table reflects the range of the high and low bid information for
our common stock for the periods indicated and takes into account the
ten-for-one reverse stock split in August 2001.

<TABLE>
<CAPTION>
                                                                                  HIGH               LOW
                                                                                 ------            ------
<S>                                                                               <C>               <C>
FISCAL 2001
Fourth Quarter.....................................................               $3.33             $1.63
Third Quarter......................................................                3.60              1.10
Second Quarter.....................................................               11.50              1.25
First Quarter......................................................               14.69              1.25

FISCAL 2000
Fourth Quarter.....................................................               56.25              9.69
Third Quarter......................................................              171.25             51.25
Second Quarter.....................................................              288.75             93.75
First Quarter......................................................              450.00            165.00
</TABLE>

We currently intend to retain all future earnings to finance the continuing
development of our business and do not anticipate paying cash dividends on our
common stock in the foreseeable future. Any payment of cash dividends in the
future will depend upon our financial condition, future loan covenants, capital
spending requirements and earnings, as well as other factors the board of
directors may deem relevant.

ITEM 6.  SELECTED FINANCIAL DATA

SELECTED HISTORICAL FINANCIAL INFORMATION

The statement of operations data presented below for the years ended December
31, 1999, 2000 and 2001 and the balance sheet data as of December 31, 2000 and
2001 have been derived from our consolidated financial statements audited by
PricewaterhouseCoopers LLP, independent accountants, that are included
elsewhere in this report. The statement of operations data for the years ended
December 31, 1997 and 1998 and the balance sheet data as of December 31, 1997,
1998 and 1999 are derived from audited consolidated financial statements that
are not included in this report. These results are not necessarily indicative
of results to be expected for any future period. You should read the data
presented below together with our consolidated financial statements and related
notes to those statements and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in this report.


                                      12
<PAGE>


<TABLE>
<CAPTION>
                                                            FISCAL YEARS ENDED DECEMBER 31,
                                          ----------------------------------------------------------------
                                           1997          1998          1999           2000          2001
                                          ------         ------       -------        -------       -------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>            <C>          <C>            <C>           <C>
STATEMENT OF OPERATIONS DATA
Revenues:
   Products............................   $2,174         $2,789       $12,523        $48,943       $14,758
   Services............................      318            329            --          4,730        14,148
                                          ------         ------       -------        -------       -------
                                           2,492          3,118        12,523         53,673        28,906
Cost of revenues:
   Products............................      461          1,274         7,262         25,442         7,205
   Services............................      316            241            --          2,464         4,961
                                          ------         ------       -------        -------       -------

                                             777          1,515         7,262         27,906        12,166
                                          ------         ------       -------        -------       -------

Gross profit...........................    1,715          1,603         5,261         25,767        16,740
                                          ------         ------       -------        -------       -------

Operating expenses:
   Sales and marketing.................   $2,839         $8,783       $37,785        $80,026       $19,647
   Research and development............    1,213          2,885         5,359         13,202         7,021
   General and administrative..........    2,720          3,939        13,906         22,306        13,667
   Amortization of product development
      and patent costs.................      858             --            --             --            --
   Stock based compensation expense           --          1,162        20,675          5,127         4,499
   Impairment and amortization of
      intangibles......................       --             --            --        234,024         2,433
   Merger expenses.....................       --             --            --         15,175            --
   Loss on disposal of assets..........       --             --            --             --         1,655
   Restructuring charges...............       --             --            --          4,161        11,655
                                          ------         ------       -------        -------       -------
           Total operating expenses....    7,630         16,769        77,725        374,021        60,577
                                          ------         ------       -------        -------       -------
Loss from operations...................   (5,915)       (15,166)      (72,464)      (348,254)      (43,837)
Interest expense.......................      (42)          (202)       (6,684)          (436)      (10,667)
Other income (expense), net............      236            303         2,545          2,095           (75)
                                          ------         ------       -------        -------       -------
Net loss before extraordinary gain....`   (5,721)       (15,065)      (76,603)      (346,595)      (54,579)
Extraordinary gain                            --             --            --             --           901
                                          ------         ------       -------        -------       -------
       Net loss                           (5,721)       (15,065)      (76,603)      (346,595)      (53,678)
Dividend relative to beneficial
   conversion feature of Series B
   convertible preferred stock.........       --             --         1,000             --            --
                                          ------         ------       -------        -------       -------
Net loss attributable to common
   stockholders........................  $(5,721)      $(15,065)     $(77,603)     $(346,595)     $(53,678)
                                         =======       ========      ========      =========      ========
Net loss per common share -
   basic and diluted                     $ (5.01)      $ (12.22)     $ (30.13)     $  (61.55)     $  (8.22)
                                         =======       ========      ========      =========      ========
Weighted average common shares -
   basic and diluted                       1,143          1,233         2,576          5,631         6,534
                                         =======       ========      ========      =========      ========
</TABLE>


<TABLE>
<CAPTION>
                                                                  AS OF DECEMBER 31,
                                          -----------------------------------------------------------------
                                           1997           1998         1999           2000           2001
                                          ------         ------       -------        -------        -------
                                                       (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>            <C>          <C>            <C>            <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
   securities available for sale.......   $2,830         $1,494       $73,366        $11,035        $11,103
Working capital (deficit)..............     (157)          (371)       58,617          1,174         3,506
Total assets...........................    4,599          4,769        95,803         60,614        23,078
Long-term liabilities..................       29             21           387            957         2,392
Total stockholders' equity.............      510          1,310        81,041         28,213         8,770
</TABLE>


                                      13
<PAGE>


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

The following discussion is intended to assist in the understanding and
assessment of significant changes and trends related to our results of
operations and our financial condition together with our consolidated
subsidiaries. This discussion and analysis should be read in conjunction with
the consolidated financial statements and notes thereto included elsewhere in
this Annual Report on Form 10-K. Historical results and percentage
relationships set forth in the statement of operations, including trends which
might appear, are not necessarily indicative of future operations.

OVERVIEW

In 2001, we restructured our Company around our higher gross margin businesses.
The result is that we are focused on two businesses: (1) providing outsourced
imaging services to facilitate online transactions in the auction, classifieds
and real estate markets and (2) providing imaging solutions for the real
estate, security and observation and visual documentation markets. Our products
and services include the capture, processing, management and distribution of
images and related data. Revenues from online auctions and classifieds are
primarily transactions based. Our transaction services involve designing,
building and managing an image management infrastructure as well as leasing
spaces from state-of-the-art co-location facilities with access to bandwidth.
Since these services are capital intensive, a high percentage of the costs
associated with transaction services are fixed and accordingly the margins from
transaction services are highly dependent upon asset utilization.

Our immersive technology primarily generates revenues in two ways: licenses of
software and re-sale of camera equipment. We utilize iPIX keys to license our
still immersive technology to capture and save a single immersive image. We
also offer time-based seat or user licenses which permit an unlimited number of
immersive images to be captured and saved within a specific time period,
usually a year. Our video immersive technology, which may be off-line or
online, may be purchased on a per-unit basis or a per-year license. We sell our
immersive products and services primarily into the real estate, security and
observation and visual documentation markets. The cost of sales for our
licenses is very low. The cost of sales for the re-sale of camera equipment can
be 50 to 75% of revenues.

We also provide professional services to customers that request specific
customizations or integrations of our products and services. Providing
professional services is labor intensive, and our cost of sales for
professional service tends to be 50 to 60% of revenues.

Our real estate business has changed over the past few years. In 2000, our real
estate focused revenues were generated from four primary sources: full service
virtual tours; image management services; camera kits and immersive keys; and
professional services. We offered full service virtual tours through January
2001. A full service tour includes the capture, processing, management and
distribution of real estate images and related data for one price. As part of
the sale of assets to a subsidiary of Homestore.com in January 2001, we no
longer directly sell full service virtual tours to customers in the US
residential real estate market.

Throughout 2001, our real estate focused revenues were generated from three
primary sources: image management services; camera kits and immersive keys; and
other services. Our image management products and services were used in the
real estate industry primarily to associate online still images with for-sale
listings. This service is offered to customers under license


                                      14
<PAGE>


agreements, transaction based agreements and revenue share agreements for real
estate properties around the world. Through January 12, 2002, we provided
Homestore.com with processing, hosting and distribution services and received
transaction fees.

CRITICAL ACCOUNTING POLICIES

Financial Reporting Release No. 60, which was recently issued by the Securities
and Exchange Commission ("SEC"), requires all registrants to discuss critical
accounting policies or methods used in the preparation of the financial
statements. The notes to the consolidated financial statements include a
summary of the significant accounting policies and methods used in the
preparation of our Company's consolidated financial statements. Further, we
have made a number of estimates and assumptions that affect reported amounts of
assets, liabilities, revenues and expenses and actual results may differ from
those estimates. Those areas that require the greatest degree of management
judgment include adequacy of the allowance for doubtful accounts, reserves for
obsolete inventory, valuations of intangible assets and the estimated costs for
excess facilities related to lease terminations and non-cancelable lease costs
utilized in satisfaction of outstanding lease obligations.

We believe that full consideration has been given to all relevant circumstances
that we may be subject to, and our financial statements accurately reflect
management's best estimate of the results of operations, financial position and
cash flows for the years presented.

We believe the following represent our critical accounting policies:

Revenue Recognition.

We recognize revenue in accordance with SOP 97-2, Software Revenue Recognition
and SAB No. 101, Revenue Recognition in Financial Statements.

Transaction hosting revenues are recognized ratably as transactions are
performed provided there was persuasive evidence of an arrangement, the fee was
fixed and determinable and collection of the resulting receivable was probable.

Initial license fees are recognized when a contract exists, the fee is fixed
and determinable, software delivery has occurred and collection of the
receivable is deemed probable. If there are continuing obligations, then we
recognize revenue ratably over the life of the contract.

Product revenue is recognized upon shipment or delivery provided there are no
uncertainties surrounding product acceptance or significant vendor obligations,
the fees are fixed and determinable and collection is considered probable.

Royalties derived from desktop imaging products are recognized as revenues upon
receipt of the royalty sell-through reports from customers, which are generally
in the quarter following the quarter in which the sale by the customer took
place.

Revenue from the sale of the Company's virtual tour product are recognized upon
distribution to the Website designated by the customer.

We provide an allowance for returns upon recognizing revenue as deemed
necessary based on historical experience. Returns were insignificant for all
years presented. Payments received in


                                      15
<PAGE>


advance were initially recorded as deferred revenue and recognized ratably as
obligations are fulfilled.

Revenues generated from professional services are recognized as the related
services are performed. When such professional services are combined with
on-going transaction services or are deemed to be essential to the
functionality of the delivered software product, revenue from the entire
arrangement is recognized while the transaction services are performed, on a
percentage of completion method or not until the contract is completed in
accordance with SOP 81-1, Accounting for Performance of Construction-Type and
Certain Production-Type Contracts, and ARB No. 45, Long-Term Construction-Type
Contracts.

Our operating expenses are primarily based on anticipated revenue levels. Since
a high percentage of those expenses are relatively fixed, a delay in revenue
from licenses or transactions could cause significant variations in operating
results from quarter to quarter, and we may sustain losses as a result.

Allowances for Doubtful Accounts.

Significant management judgments and estimates must be made and used in
connection with establishing the doubtful account allowances in any accounting
period. Management specifically analyzes accounts receivable and historical bad
debts, customer concentrations, customer credit-worthiness, current economic
trends and changes in our customer payment terms when evaluating the adequacy
of the allowance for doubtful accounts. Material differences could result in
the amount and timing of expense recorded if management made different judgment
or utilized different estimates.

RECENT DEVELOPMENTS

During 2001 and into 2002, we introduced new products, formed new international
partnerships and entered into new markets.

New product introductions include the NetCam technology for Internet based
immersive video. New international partnerships include an exclusive agreement
for distribution of NetCam technology in Japan and an exclusive distribution
agreement for all product lines (including immersive stills, immersive video
and Rimfire content management solutions) in the United Arab Emirates and some
neighboring Middle Eastern countries. Our entry into new markets included
online classifieds and security. During the last six months, several new
classified customers have entered into agreements to utilize our image
management services for their online sites. In addition, in early 2002, the
Utah Olympic Public Safety Command, made up of more than 60 law enforcement
agencies including the FBI and Secret Service, used our immersive imagery for
surveillance and emergency response planning at the Salt Lake City Winter
Olympic Games.

In January 2001, we sold assets to a subsidiary of Homestore.com. The
Homestore.com subsidiary purchased computers, furniture, fixtures and equipment
with a recorded book value of $0.3 million. The Homestore.com subsidiary also
assumed certain obligations for undelivered virtual tours under assigned sales
contracts with residential real estate brokers and agents. The accounts
receivable and deferred revenue associated with these tours was $7.5 million.
As part of the acquisition, Homestore.com's subsidiary hired a number of our
sales force and customer service personnel. The purchase price for these assets
was $12 million. We also granted Homestore.com's subsidiary an exclusive
license of iPIX's virtual tour technology for the US residential real estate
market. The assets that were sold were related to the pooling of Interactive


                                      16
<PAGE>


Pictures Corporation and bamboo.com; accordingly, the gain on the sale of these
assets was recorded as an extraordinary gain in 2001.

In August 2001, our shareholders approved a ten-for-one reverse stock split of
all of our outstanding $0.001 par value common stock and our $0.0001 Class B
common stock. All share and per share data is presented to give effect to the
retroactive application of the reverse stock split.

During September 2001, we completed the final stage of our 2001 financing. We
issued 1,115,080 shares of the Company's Series B Preferred Stock for total
consideration of $22 million. Each share of Series B Preferred Stock is
convertible into approximately 9.2 shares of the Company's common stock.

RESTRUCTURING ACTIONS AND IMPAIRMENT CHARGES

We executed several restructuring actions throughout 2001. These actions and
the charges relating to them are described below.

On March 1, 2001, we had 552 employees, but by the end of the second quarter we
had reduced our workforce by approximately 440 positions. The reductions were
primarily in the full-service virtual real estate business. The first quarter
reductions resulted in a restructuring charge of $3.0 million. In the second
quarter of 2001, we reorganized our management personnel, closed our sales
offices throughout the USA and made further reductions in our workforce. As a
result of these actions, we recorded a $7.2 million restructuring charge in the
second quarter of 2001.

Included in the third quarter of 2001 is a $1.5 million impairment charge
related to the write off of the unamortized portion of our directors' and
officers' insurance policy. We were required to obtain a new policy due to the
change in control related to our 2001 financing which culminated in the third
quarter.

In summary, we recorded a total of $11.7 million in restructuring charges for
the year ended December 31, 2001, of which $1.4 million was primarily for lease
obligations, $3.0 million was for write-offs of equipment and leasehold
improvements and $6.7 million was for separation agreements. We expect to
realize significant savings annually beginning in 2002 as a result of these
restructuring actions. The savings are expected to be realized primarily in
cost of sales but also in selling, general and administrative expenses and
research and development expenses.

OUTLOOK

The Company is subject to generally prevailing economic conditions and, as
such, believes that 2002 will be a challenging year. With the elimination of
$7.5 million of 2001 full service real estate revenue and other lower margin
businesses, the Company believes revenue in 2002 will be less than 2001 but
that due to the restructuring actions described above, our gross margins will
be improved. Additionally, the Company expects to make significant capital
investments in its image management infrastructure, which is expected to
consume some of the Company's cash reserves.

Management believes we have sufficient cash resources to meet our funding needs
for 2002. We finished the year with $11.1 million in cash and short-term
investments. Management's focus in 2002 will be to reduce our cash requirements
to manageable levels and focus our operations on profitability. Our long-term
strategy remains unchanged. We will continue to make significant investments in
research and development for all segments and will invest in the expansion of
the


                                      17
<PAGE>


online auction and classified businesses and in the development of new security
and observation products and services during this economic downturn.

<TABLE>
<CAPTION>
                                                                    FISCAL YEARS ENDED DECEMBER 31,
                                                                 ----------------------------------------
                                                                 1999              2000            2001
                                                                 --------         --------      ---------
                                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                              <C>              <C>           <C>   <C>
STATEMENT OF OPERATIONS DATA:
Revenues
   Products............................................          $ 12,523        $  48,943       $ 14,758
   Services............................................                --            4,730         14,148
                                                                 --------        ---------       --------
                                                                   12,523           53,673         28,906
Cost of revenues
   Products............................................             7,262           25,442          7,205
   Services............................................                --            2,464          4,961
                                                                 --------        ---------       --------
                                                                    7,262           27,906         12,166
                                                                 --------        ---------       --------
Gross profit...........................................             5,261           25,767         16,740
                                                                 --------        ---------       --------

Operating expenses:
   Sales and marketing.................................            37,785           80,026         19,647
   Research and development............................             5,359           13,202          7,021
   General and administrative..........................            13,906           22,306         13,667
   Stock-based compensation expense....................            20,675            5,127          4,499
   Impairment and amortization of intangibles..........                --          234,024          2,433
   Merger expenses.....................................                --           15,175             --
   Loss on disposal of assets..........................                --               --          1,655
   Restructuring and impairment........................                --            4,161         11,655
                                                                 --------        ---------       --------
          Total operating expenses.....................            77,725          374,021         60,577
                                                                 --------        ---------       --------
Loss from operations...................................           (72,464)        (348,254)       (43,837)
Interest expense.......................................            (6,684)            (436)       (10,667)
Interest income and other, net.........................             2,545            2,095            (75)
                                                                 --------        ---------       --------
Net loss before extraordinary gain.....................           (76,603)        (346,595)       (54,579)
Extraordinary gain.....................................                --               --            901
                                                                 --------        ---------       --------
Net loss...............................................           (76,603)        (346,595)       (53,678)
Dividend relative to beneficial conversion feature
   of Series B convertible preferred stock.............             1,000               --             --
                                                                 --------        ---------       --------
Net loss attributable to common stockholders...........          $(77,603)       $(346,595)      $(53,678)
                                                                 ========        =========       ========
Net loss per common share - basic and diluted..........          $ (30.13)       $  (61.55)      $  (8.22)
                                                                 ========        =========       ========
Weighted average common shares - basic and diluted.....             2,576            5,631          6,534
                                                                 ========        =========       ========
</TABLE>


                                      18
<PAGE>


The following table presents for the periods indicated, the percent
relationship to total revenues of select items of our statement of operations:

<TABLE>
<CAPTION>
                                                                    FISCAL YEARS ENDED DECEMBER 31,
                                                                 -------------------------------------
                                                                  1999            2000          2001
                                                                 ------          ------         ------
<S>                                                              <C>              <C>            <C>
Revenues
   Products............................................           100.0%           91.2%          51.1%
   Services............................................              --             8.8           48.9
                                                                 ------          ------         ------
                                                                  100.0           100.0          100.0
Cost of revenues
   Products............................................            58.0            47.4           24.9
   Services............................................              --             4.6           17.2
                                                                 ------          ------         ------
                                                                   58.0            52.0           42.1
                                                                 ------          ------         ------
Gross profit...........................................            42.0            48.0           57.9
                                                                 ------          ------         ------

Operating expenses:
   Sales and marketing.................................           301.7           149.1           68.0
   Research and development............................            42.8            24.6           24.3
   General and administrative..........................           111.0            41.6           47.3
   Stock-based compensation expense....................           165.1             9.6           15.6
   Impairment and amortization of intangibles..........              --           436.0            8.4
   Merger expenses.....................................              --            28.3             --
   Loss on disposal of assets..........................              --              --            5.7
   Restructuring and impairment........................              --             7.7           40.3
                                                                 ------          ------         ------
          Total operating expenses.....................           620.6           696.9          209.6
                                                                 ------          ------         ------
Loss from operations...................................          (578.6)         (648.9)        (151.7)
Interest expense.......................................           (53.4)           (0.8)         (36.9)
Interest income and other, net.........................            20.3             3.9           (0.3)
                                                                 ------          ------         ------
Net loss before extraordinary gain.....................          (611.7)         (645.8)        (188.8)
Extraordinary gain.....................................              --              --            3.1
                                                                 ------          ------         ------
Net loss...............................................          (611.7)         (645.8)        (185.7)
Beneficial conversion of Series B convertible
   preferred stock.....................................            (8.0)             --             --
                                                                 ------          ------         ------
Net loss attributable to common stockholders...........          (619.7)%        (645.8)%       (185.7)%
                                                                 ======          ======         ======
</TABLE>

Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000

Revenues. Total revenues decreased to $28.9 million in 2001, compared to $53.7
million in 2000, a decrease of $24.8 million or 46%. This decrease was due
primarily to a decrease of $27.9 million in sales of full service virtual tours
to the residential real estate market, which was off-set by an increase of $3.1
million in technology products and services revenues.

As part of the sale of assets to Homestore.com during the first quarter of
2001, we no longer directly sell full service virtual tours or iPIX keys to
customers in the U.S. residential real estate market. Instead, through January
12, 2002, we provided Homstore.com certain processing, hosting and distribution
services and received transaction fees and royalties. Throughout 2001, other
than full service virtual tours, our real estate focused revenues were
generated from three primary sources: image management services; camera kits
and immersive keys; and other services.

The 2001 revenues of $28.9 million included $21.4 million from the sale of our
technology products and services and $7.5 million related to full service
virtual real estate tours. The 2000 revenues of $53.7 million included $18.3
million from the sale of our technology products and services and $35.4 million
related to full service virtual real estate tours. We expect to generate


                                      19
<PAGE>


minimal future revenues from the sale of full service virtual real estate tours
in the U.S. residential markets. The increase in 2001 technology products and
services revenues was primarily related to image management solutions for the
auction industry.

Product revenues decreased to $14.8 million in 2001, compared to $48.9 million
in 2000, a decrease of $34.1 million. This decrease was due primarily to the
reduction in sales of virtual tours. Services revenues from our professional
services and Rimfire technology were $14.1 million in 2001, compared to $4.7
million in 2000. The increase in professional service revenues related
primarily to integrations of our technology with new customers.

Cost of Revenues. Cost of revenues consists of our direct expenses associated
with the processing, hosting and distribution of digital content and the costs
of the digital camera and related components included in an iPIX kit. Cost of
revenues decreased to $12.1 million in 2001, compared to $27.9 million in 2000,
a decrease of $15.7 million or 56%. Cost of revenues as a percentage of total
revenues decreased to 42% in 2001 from 52% in 2000. This decrease was primarily
the result of a lower volume of virtual tour deliveries and an increase in
higher margin Rimfire based revenue.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries
for marketing, sales and business development personnel. Sales and marketing
expenses also include commissions and related benefits for sales personnel and
consultants, traditional advertising and promotional expenses. Sales and
marketing expenses decreased to $19.6 million in 2001, compared to $80.0
million in 2000, a decrease of $60.4 million or 75%. This decrease was due
primarily to our decision to sell more of our products and services through
third parties and become less reliant upon a worldwide direct sales force. As a
result, we significantly reduced our sales force and eliminated our field
operations personnel. In addition, we eliminated costs relating to technology
access and sponsorship fees and decreased advertising and branding expenses.

Research and Development. Research and development expenses consist primarily
of personnel costs related to building and enhancing our digital media
infrastructure and immersive imaging technology. Research and development
expenses decreased to $7.0 million in 2001, compared to $13.2 million in 2000,
a decrease of $6.2 million or 47%. This decrease was due primarily to decreased
personnel and related costs as a result of our reduction in work force and our
exit from the full service virtual tour real estate business.

General and Administrative. General and administrative expenses consist
primarily of salaries and related benefits for administrative and executive
staff, fees for outside professional services, bad debt expenses and other
costs associated with being a public company. General and administrative
expenses decreased to $13.7 million in 2001, compared to $22.3 million in the
third quarter of 2000, a decrease of $8.6 million or 39%. This decrease was due
primarily to a decrease in personnel and related costs and fees related to
professional services. Bad debt expense was $4.4 million 2001, compared to $4.0
million in 2000, an increase of $0.4 million.

Stock-based Compensation. Stock-based compensation expense consists of the
amortization of deferred compensation related to stock options granted to
employees and others prior to our initial public offering with an exercise
price below the deemed fair market value of our common stock on the date of
grant. In addition, it also includes the amortization of the fair value of
warrants and options issued to non-employees and restricted stock granted to
employees. The related compensation is amortized over the vesting period of the
options or stock grants. Expenses related to the warrants are amortized over
the term of the agreements to which they relate. Stock-


                                      20
<PAGE>


based compensation expense decreased to $4.5 million in 2001, compared to $5.1
million in 2000, a decrease of $0.6 million or 12%. This decrease was due to a
decrease in expense related to stock options and warrants which were issued
prior to 2001. In 2001, we did not issue any additional warrants or stock
options priced below the deemed fair market value of our common stock on the
date of grant.

Impairment and amortization of intangibles. The amortization consists of
goodwill associated with corporate acquisitions during the second quarter of
2000. Amortization of goodwill was $2.4 million in 2001, compared to $234.0
million in 2000, a decrease of $231.6 million or 99%. The decrease is related
to the impairment charge taken in the fourth quarter of 2000 of $176.8 million.

Merger Expenses. Merger expenses consist of costs incurred as a result of the
merger of Interactive Pictures and bamboo.com that occurred on January 19,
2000. Merger expense was $0.0 million in 2001, compared to $15.2 million in
2000, a decrease of 100%.

Restructuring and Impairment. Restructuring and Impairment charges were $11.7
million in 2001, compared to $4.2 million in 2000, an increase of $7.5 million
or 180%. Restructuring charges are primarily associated with reductions of our
workforce, outstanding obligations under non-productive leases resulting from
the consolidation of certain offices and write-offs of abandoned computers and
office furniture and equipment. Included in the 2001 impairment expense is $1.5
million related to the write off of the unamortized portion of our directors'
and officers' insurance policy. We were required to obtain a new policy due to
the change in control related to our 2001 financing which culminated in the
third quarter.

Interest Expense. Interest expense was $10.7 million 2001, compared to $0.4
million in 2000, an increase of $10.3 million. In 2001, we recorded non-cash
interest expense of $10.0 million related to the accretion of the second
quarter 2001 promissory note issued in the second quarter to its face value
when converted to preferred stock during the third quarter of 2001.

Interest Income and Other. Interest income and other consists primarily of
interest earned on cash and investments. Interest income and other decreased to
$(0.1) million in 2001, compared to $2.1 million in 2000. This decrease was due
primarily to decreased earnings on our cash investments related to lower
average cash balances throughout the years.

Extraordinary Gain. Extraordinary gain was $0.9 million 2001, compared to $0.0
million in 2000. We recorded an extraordinary gain from the cash received from
the sale of assets to Homestore.com in January, 2001. The assets were used to
provide tours of residential real estate properties that were related to the
pooling of Interactive Pictures Corporation and bamboo.com.

Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999

Revenues. Total revenues increased to $53.6 million in 2000, compared to $12.5
million in 1999, an increase of $41.2 million. Product revenues increased to
$48.9 million in 2000, compared to $12.5 million in 1999, an increase of $36.4
million. This increase was due primarily to an increase of $20.1 million in
sales of virtual tours and an increase of $3.9 million in sales of iPIX kits
and iPIX keys, primarily to e-commerce and real estate customers. Services
revenues from our professional services and Rimfire technology were $4.7
million in 2000.

We did not have services revenues in 1999.


                                      21
<PAGE>


Cost of Revenues. Cost of product revenues increased to $25.4 million in 2000,
compared to $7.2 million in 1999, an increase of $18.1 million. This increase
was due primarily to the sale of a higher volume of virtual tours. Cost of
product revenues as a percentage of product revenues decreased from 58% in 1999
to 47% in 2000. This decrease was primarily related to productivity
improvements in the virtual tours and a favorable product mix toward higher
margin products.

Cost of service revenues was $2.5 million in 2000, or 53% of service revenues.
We did not incur any cost of services revenues in 1999.

Sales and Marketing. Sales and marketing expenses increased to $80.0 million in
2000, compared to $37.8 million in 1999, an increase of $42.2 million, or 112%.
This increase was due primarily to a significant increase in our sales force,
increased costs relating to technology access and sponsorship fees and
increased advertising and branding expenses. Sales and marketing expenses also
increased due to the acquisitions in the second quarter of 2000.

Research and Development. Research and development expenses increased to $13.2
million in 2000, compared to $5.4 million in 1999, an increase of $7.8 million,
or 146%. This increase was due primarily to increased staffing associated with
expanding our research and development efforts to build and enhance our digital
media infrastructure.

General and Administrative Expenses. General and administrative expenses
increased to $22.3 million in 2000, compared to $13.9 million in 1999, an
increase of $8.4 million, or 60%. This increase was due primarily to an
increase in personnel and related expenses required to support our growth,
professional services, expansion of our leased facilities, bad debt expense and
other costs associated with being a public company. Bad debt expense was $4.0
million 2000, compared to $0.4 million in 1999, an increase of $3.6 million.

Stock-based Compensation Expense. Stock-based compensation expense decreased to
$5.1 million in 2000, compared to $20.7 million in 1999. This change is due to
a decrease in expense related to stock options issued in previous years offset
by an increase in expense related to warrants issued during 2000.

Impairment and amortization of intangibles. Amortization of intangible assets
was $57.2 million in 2000 and $0.0 million in 1999. The amortization was a
result of acquisitions during the second quarter of 2000. During the fourth
quarter of 2000, we recorded an impairment of goodwill of $176.8 million.
Certain events occurred during the fourth quarter including the decline of our
stock price and market capitalization that led us to reevaluate expected future
cash flows from acquired businesses which indicated a need to record the
impairment charge.

Merger Expenses. Merger expenses consist of costs incurred as a result of the
merger of Interactive Pictures and bamboo.com that occurred on January 19,
2000. Merger expense was $15.2 million in 2000, compared to $0.0 million in
1999. These merger costs consisted primarily of investment banking fees and
costs of attorneys, accountants and other directly related external costs.

Restructuring and Impairment. Restructuring expense was $4.2 million in 2000,
compared to $0.0 million in 1999. During the fourth quarter of 2000, we
recorded a restructuring charge of $4.2 million primarily associated with a
reduction of our workforce, the consolidation of certain offices and a
write-off of abandoned computer equipment.


                                      22
<PAGE>


Interest Expense. Interest expense was $0.4 million 2000, compared to $6.7
million in 1999, a decrease of $6.3 million. In June 1999, we entered into an
agreement to sell 1,100 shares of our Series C mandatorily redeemable preferred
stock and 12,518 shares of our common stock for total gross proceeds of $11
million. The $11 million of proceeds was allocated $4.4 million to the Series C
mandatorily redeemable preferred stock and $6.6 million to the common stock,
based on their relative fair values. The shares of the Series C mandatorily
redeemable preferred stock were redeemed in accordance with their original
terms after completion of our initial public offering by payment of their face
value of $11 million. Consequently, we recorded interest expense of $6.6
million in 1999, which represented primarily the original discount on the
Series C mandatorily redeemable preferred stock.

Interest Income and Other. Interest income and other decreased to $2.1 million
in 2000 from $2.5 million in 1999. This decrease was due primarily to
relatively higher average cash and investment balances in 1999. The decrease
was also due to the write-off of investments during 2000.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations through our registered public
offerings, the private placements of capital stock, a convertible debenture, a
convertible promissory note and warrant and option exercises. At December 31,
2001, we had $11.1 million of cash and cash equivalents.

On May 14, 2001, we executed definitive agreements with Paradigm Capital
Partners and Memphis Angels, LLC for an investment by the parties into the
Company. The agreement called for the investment to occur in two tranches.
Tranche A consisted of the sale of $10.0 million in convertible notes and
warrants to purchase Series B preferred stock. On September 26, 2001, we
completed Tranche B of the investment. At the close of Tranche B, we issued
1,115,080 shares of our Series B Preferred Stock represented by the conversion
of the $10.0 million note, the conversion of $0.3 million of interest on the
note and $12.0 million in cash through the exercise of warrants from Tranche A.

Net cash used in operating activities was $26.5 million for year ended December
31, 2001 and $99.9 million for the year ended December 31, 2000. Net cash used
for operating activities in each of these periods is primarily a result of net
losses offset by changes in net operating assets. Our net loss for the years
ended December 31, 2001 and 2000 included non-cash charges for $5.9 million and
$239.9 million, respectively, of depreciation and amortization, $6.7 million
and $5.1 million, respectively, of non-cash stock based compensation and $10.0
million and $0.0 million, respectively, of non-cash interest related to debt
and warrants.

Net cash provided by investment activities was $16.1 million for the year ended
December 31, 2001 and $24.6 million for the year ended December 31, 2000. Net
cash provided by investing activities was related to the net purchases and
maturities of short-term investments, the acquisition of computer software and
hardware and other equipment and the proceeds from the sale of assets.

Net cash provided by financing activities was $17.1 million for the year ended
December 31, 2001 and $61.7 million for the year ended December 31, 2000. The
net cash provided by financing activities for these periods was due primarily
to the sale of shares of our common and preferred stock, the exercise of stock
options and the issuance of a convertible promissory note, off-set by the
repayment of capital lease obligations and other notes payable.


                                      23
<PAGE>


Management believes we have sufficient cash resources to meet our funding needs
for 2002. We finished the year with $11.1 million in cash and short-term
investments. Management's focus in 2002 will be to reduce our cash requirements
to manageable levels and focus our operations on profitability. Our long-term
strategy remains unchanged. We will continue to make significant capital
investments as well as investments in research and development for all segments
and will invest in the expansion of the online auction and classified
businesses and in the development of new security and observation products and
services during this economic downturn.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued Statement No. 141 (FAS 141), "Business
Combinations" and Statement No. 142 (FAS 142), "Goodwill and Other Intangible
Assets". FAS 141 supercedes APB 16, Business Combinations and primarily
addresses the accounting for the cost of an acquired business (i.e., the
purchase price allocation), including any subsequent adjustments to its cost.

The most significant changes made by FAS 141 involve the requirement to use the
purchase method of accounting for all business combinations, thereby
eliminating use of the pooling-of-interests method along with the establishment
of new criteria for determining whether intangible assets acquired in a
business combination should be recognized separately from goodwill. FAS 141 is
effective for all business combinations (as defined in the statement) initiated
after September 30, 2001 and for all business combinations accounted for by the
purchase method that are completed after September 30, 2001 (that is, the date
of the acquisition is July 1, 2001 or later). We do not expect adoption of FAS
141 to have a material impact on our reported results of operations, financial
position or cash flows.

The Company also adopted FAS No 142, for fiscal years beginning after December
31, 2001. Under FAS No. 142, goodwill is no longer amortized but reviewed for
impairment annually, or more frequently if certain indicators arise. The
Company completed its transitional impairment test in the quarter ended
December 31, 2001 and no impairment loss resulted.

In August 2001, the FASB issued Statement No. 144 (FAS 144), "Accounting for
the Impairment or Disposal of Long-Lived Assets." FAS 144 replaces FAS 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." The FASB issued FAS 144 to establish a single accounting
model, based on the framework established in FAS 121, as FAS 121 did not
address the accounting for a segment of a business accounted for as a
discontinued operation under APB 30, "Reporting The Results of Operations --
Reporting The Effects of Disposal of a Segment of a Business and Extraordinary
Unusual and Infrequently Occurring Events and Transactions." FAS 144 also
resolves significant implementation issues related to FAS 121. Companies are
required to adopt FAS 144 for fiscal years beginning after December 15, 2001,
but early adoption is permitted. We do not expect adoption of FAS 144 to have a
material impact on our reported results of operations, financial position or
cash flows.

In November 2001, the FASB's Emerging Issues Task Force reached a consensus on
EITF Issue 01-09, "Accounting for Consideration Given by a Vendor to a Customer
or a Reseller of the Vendor's Products," which is a codification of EITF 00-14,
00-22 and 00-25. This issue presumes that consideration from a vendor to a
customer or reseller of the vendor's products to be a reduction in the selling
prices of the vendor's product and, therefore, should be characterized as a
reduction of revenue when recognized in the vendor's income statement and could
lead to negative revenue under certain circumstances. Revenue reduction is
required unless consideration related to a separate identifiable benefit and
the benefit's fair value can be


                                      24
<PAGE>


established. This issue is to be applied retroactively in the first fiscal
quarter beginning after December 15, 2001. We have not yet evaluated the
effects of this consensus on our consolidated financial statements.

INFLATION

Inflation has not had a significant impact on our operations to date.

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

None.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated financial statements of the Company, together with the report
thereon of PricewaterhouseCoopers, LLP, independent accountants, are set forth
on the pages indicated in item 14(a) below of this Annual Report on Form 10-K.

This Form 10-K contains certain forward-looking statements regarding, among
other things, the anticipated financial and operating results of the Company.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. We do not undertake any
obligation to publicly release any modifications or revisions to these
forward-looking statements to reflect events or circumstances occurring after
the date hereof or to reflect the occurrence of unanticipated events. In
connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, we caution investors that future financial and
operating results may differ materially from those projected in forward-looking
statements made by, or on behalf of, us. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, performance, or achievements to be materially different
form any future results, performance, or achievements expressed or implied by
such forward-looking statements.

RISK FACTORS

Our limited operating history and recent restructuring efforts makes it
difficult to evaluate our business

During the quarter ended March 31, 2001, we sold our full-service, residential
real estate business and completed a significant restructuring of our Company.
We focused our business on generating higher margin revenue from our Rimfire
and iPIX immersive solutions and significantly reduced our operating expenses
and number of employees. As a result, we have a limited operating history on
which you can base an evaluation of our business and prospects. Our prospects
must be considered in the light of the risks, uncertainties, expenses and
difficulties frequently encountered by companies that have undertaken a
substantial business restructuring. To address these risks and uncertainties,
we must, among other things:

         -        increase our customer base for Rimfire services;

         -        maintain and enhance our brand and expand our immersive
                  product and service offerings;

         -        attract, integrate, retain and motivate qualified personnel;
                  and

         -        adapt to meet changes in our markets and competitive
                  developments.


                                      25
<PAGE>


We may not be successful in accomplishing these objectives.

Failure to increase our revenues or increases in expenses would prevent us from
achieving and maintaining profitability

We have never been profitable. We have incurred significant losses and expect
to continue to incur losses in the future. A substantial portion of our
revenues for 2001 and our future revenues will be derived from transaction fees
and license fees from our Rimfire customers, particularly eBay Inc. In the
future, we may introduce new products and services and enhancements and
improvements to our current product and service offerings. We may have to
increase our operating expenses in order to increase our customer base, enhance
our brand image and support our growing infrastructure. In order for us to
become profitable, we must increase our revenues and gross profit margins
sufficiently to cover current and future operating expenses. If we fail to do
so, we may never achieve profitability.

Our quarterly results may fluctuate, which could make financial forecasting
difficult and increase volatility in our common stock

Our revenues and operating results may vary significantly from
quarter-to-quarter. As a result, quarter-to-quarter comparisons of our revenues
and operating results may not be meaningful. In addition, due to our limited
operating history and restructuring, it may be difficult to predict our future
revenues and results of operations accurately. It is likely that, in one or
more future quarters, our operating results will fall below the expectations of
investors. If this happens, the trading price of our common stock is likely to
be materially and adversely affected.

We rely on third party systems to provide our Rimfire service

We rely on certain third-party computer systems and third-party service
providers, including a third party Internet service provider, to host and
maintain our production services for all of our Rimfire customers. The
performance and availability of our Internet systems is critical to our
business and reputation. Any system failure, including network, software or
hardware failure that interrupts the delivery of Rimfire services or decreases
our responsiveness to our customers could be disruptive to our business. Our
Internet service provider does not guarantee that its Internet access will be
uninterrupted, error free or secure. Because our revenue from our Rimfire
service is transaction based, any interruption in Internet access will result
in a loss of revenue for the period that Internet access is unavailable.

Our operating results are highly dependent on generating recurring revenue from
our existing Rimfire service customers, and we must be successful in adding new
Rimfire service customers and generating revenue from new markets

Substantially all of our recurring revenue is derived from transaction fees
generated by our Rimfire service. In particular, eBay and Homestore.com, Inc.
are our largest Rimfire customers. eBay represented approximately 21% of total
revenue and 43% of total Rimfire service revenue for 2001. Homestore.com
represented approximately 23% of total revenue and 44% of total Rimfire service
revenue for 2001. The loss of either of these customers would have a material
adverse effect on our business. We believe that transaction fees from eBay will
continue to increase as a percentage of revenue as more eBay customers utilize
our service on the eBay auction Website. Because we are dependent on these two
customers, we must continue to add new Rimfire customers in order to increase
revenues and diversify our sources of revenue. We must also be successful in
developing our product and service offerings for new markets, such as


                                      26
<PAGE>


security and observation and classified advertising. In order to achieve and
maintain profitability, we must be successful in generating revenue from sales
of our product and service offerings into existing and new markets. In
addition, any significant decrease in demand for our picture services on the
eBay auction site could have a material adverse effect on our revenue and our
ability to achieve profitability. We must also continue to improve and enhance
our Rimfire service. If we fail to do so in a timely manner, or if we suffer a
decrease in demand for our products and services, our revenue will decrease.

Our success depends on our ability to protect our intellectual property

We rely on trademark, copyright and patent law, trade secret protection and
confidentiality and/or license agreements with our employees, customers,
partners and others to protect our proprietary rights. If we are not successful
in protecting our intellectual property, there could be a material adverse
effect on our business.

While we believe that our issued patents and pending patent applications help
to protect our business, there can be no assurance that:

         -        any patent can be successfully defended against challenges by
                  third parties;

         -        pending patent applications will result in the issuance of
                  patents;

         -        our competitors or potential competitors will not devise new
                  methods of competing with us that are not covered by our
                  patents or patent applications;

         -        new prior art will not be discovered which may diminish the
                  value of or invalidate an issued patent; or

         -        a third party will not have or obtain one or more patents
                  that prevent us from practicing features of our business or
                  will require us to pay for a license to use those features.

Also, our patents, service marks or trademarks may be challenged and
invalidated or circumvented. In addition, we are exposed to infringement of our
intellectual property in foreign markets because our intellectual property is
protected under United States laws that may not extend to foreign uses.

We have been involved in litigation relating to the protection of intellectual
property rights and could be involved in future litigation as third parties
develop products that we believe infringe on our patents and other intellectual
property rights. We have experienced attempts to misappropriate our technology,
and we expect those attempts may continue. We are currently involved in
litigation in which our rights to technology have been challenged. The cost of
such litigation, or the determination against us in this type of lawsuit, could
have a material adverse effect on our business.

If we lose key members of our personnel, our future success could be limited

Our future success depends on our ability to attract and retain key management,
engineering, technical and other personnel. In addition, we must recruit
additional qualified management, engineering, technical and marketing and sales
and support personnel for our operations. Competition for this type of
personnel is intense, and we may not be successful in attracting or retaining
personnel. The loss of the services of one or more members of our management
group or other key employees or the inability to hire additional qualified
personnel will limit our ability to grow our business.



                                      27
<PAGE>


Our success is dependent upon our ability to adapt to technological changes,
and if we fail to do so, our offerings may become obsolete

We compete in a market characterized by rapidly changing technology, evolving
industry standards, frequent new service and product announcements,
introductions and enhancements and changing customer demands. These market
characteristics are intensified by the emerging nature of the Internet and the
multitude of companies offering Internet-based products and services. Thus, our
success depends on our ability to adapt to rapidly changing technologies, to
adapt our offerings to evolving industry standards and to continually improve
the performance, features and reliability of our offerings in response to
competitive products and shifting demands of the marketplace. In addition,
widespread changes in Internet, networking or telecommunications technologies
or other technological alterations could require substantial expenditures to
modify our products, services or infrastructure. Failure to adapt to new
technology in any of these areas could have a material adverse effect on our
business, results of operations and financial condition.

We may not be successful in expanding our business into international markets

A part of our long-term strategy has been to expand into international markets.
The success of any additional foreign operations will be substantially
dependent upon our entering and succeeding in those markets. We may experience
difficulty in managing international operations as a result of competition,
technical problems, distance, language or cultural differences.

As we manage our international efforts, we will be subject to a number of
risks, including the following:

         -        failure of foreign countries to rapidly adopt the Internet,
                  digital imaging or other required technologies;

         -        unexpected changes in regulatory requirements, especially
                  regarding the Internet;

         -        slower payment and collection of accounts receivable than in
                  our domestic market; and

         -        political and economic instability.

We cannot assure you that we will be able to successfully market our products
in foreign markets.

We are susceptible to breaches of online commerce security

A party able to circumvent our security measures could misappropriate
proprietary database information or cause interruptions in operations. As a
result, we may need to expend significant capital and other resources to
protect against security breaches or to alleviate problems caused by security
breaches. This additional expense could harm our business, financial condition
and results of operation.

Our certificate of incorporation and bylaws contain anti-takeover provisions
that may make it more difficult or expensive to acquire us in the future, which
could negatively affect our stock price

Our amended and restated certificate of incorporation and amended and restated
bylaws and applicable provisions of Delaware law contain several provisions
that may make it more difficult for a third party to acquire control of us
without the approval of our board of directors. In addition, in October of
2000, our board of directors approved a shareholder rights plan that has the
effect of making an acquisition of us prohibitively expensive unless our board
of directors


                                      28
<PAGE>


approves of the acquisition. The provisions of our certificate and bylaws and
the Delaware General Corporation Law may make it more difficult or expensive
for a third party to acquire a majority of our outstanding voting common stock
or delay, prevent or deter a merger, acquisition, tender offer or proxy
contest, which may negatively affect our stock price.

Because our product and service offerings are intended to enhance internet
commercial transactions, the success of our business will be dependent upon
continued growth of internet commerce

Our products and services are intended to enhance and facilitate commercial
transactions over the Internet. Our future revenues are substantially dependent
upon the widespread acceptance and use of the Internet and other online
services as a medium for commerce by consumers and sellers. If continued
acceptance and growth of Internet use does not occur, it could have a material
adverse effect on our business.

The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and in the amount of traffic.
Continued development and maintenance of the Internet's infrastructure to
handle this increased traffic must continue. In addition, timely development of
complimentary products, such as high-speed modems, providing reliable Internet
access and services will also be required.

The Internet has experienced a variety of outages and other delays as a result
of computer viruses and other damages to portions of its infrastructure.
Outages and delays and infections by computer viruses are likely to continue
and affect the level of Internet usage generally. Such outages and delays will
affect processing of transactions on Rimfire integrated Websites. We will
experience a reduction in revenues and increased expenses as a result of such
outages and delays. We will be required to continually make capital investments
to enhance our infrastructure and protect our services from computer viruses
and other outages and delays on the Internet. The cost of such improvements
could have a material adverse effect on our business.

Our market is highly competitive, and our business may suffer if we are unable
to compete successfully

The market for our immersive products and our Rimfire products and services are
new and rapidly evolving. We currently compete with other providers of image
management services, such as Kodak and MGI Software. The market for immersive
products and services is intensely competitive. We compete with other providers
of immersive imaging technology, such as Apple and BeHere Corporation. Each of
these companies develops and markets products and services similar to ours. We
expect additional competition from other emerging and established companies.
There can be no assurance that the Company's current and potential competitors
will not develop products that are more effective than our current or future
products, or that our products and technology will not be rendered obsolete by
such developments. Some of our competitors have longer operating histories,
greater name recognition and significantly greater financial, technical and
marketing resources. As a result, they may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements or devote greater
resources to promotion and sale of their products than us. Our business will
suffer if we are unable to compete effectively.


                                      29
<PAGE>


Concentrated control over our voting stock could adversely affect stockholders

As of December 31, 2001, the holders of our Series B Preferred Stock
beneficially owned approximately 62% of our outstanding voting stock. As a
result, these stockholders are able to exercise control over certain matters
requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. Such control could discourage
others from initiating potential merger, takeover or other change of control
transactions. As a result, the market price of our common stock could be
adversely affected.

Recent terrorist activities and resulting military and other actions could
adversely affect our business

Terrorist attacks in New York, Pennsylvania and Washington, D.C. on September
11, 2001 disrupted commerce throughout the United States and other parts of the
world. The continued threat of terrorism within the United States and abroad,
and the continued military action and heightened security measures, may cost
significant disruptions to global commerce. Such disruptions could result in
the delay or cancellation of customer orders, a general decrease in corporate
spending on information technology or our ability to effectively market and
sell our products and services. Such events could have material adverse affect
on our business.

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

None.


                                      30
<PAGE>


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information called for by this item is incorporated herein by reference to
iPIX's Proxy Statement for its Annual Meeting of Stockholders to be held on or
about May 30, 2002, to be filed with the SEC pursuant to Regulations 14A under
the Securities Exchange Act of 1934, as amended.

ITEM 11.  EXECUTIVE COMPENSATION

The information called for by this item is incorporated herein by reference to
iPIX's Proxy Statement for its Annual Meeting of Stockholders to be held on or
about May 30, 2002, to be filed with the SEC pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.

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

The information called for by this item is incorporated herein by reference to
iPIX's Proxy Statement for its Annual Meeting of Stockholders to be held on or
about May 30, 2002, to be filed with the SEC pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information called for by this item is incorporated herein by reference to
iPIX's Proxy Statement for its Annual Meeting of Stockholder to be held on or
about May 30, 2002, to be filed with the SEC pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.


                                      31
<PAGE>


                                    PART IV

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

         (a) The following documents are filed as part of this Annual Report on
         Form 10-K:

<TABLE>
<CAPTION>
                                                                                                      Page
                                                                                                      ----
<S>                                                                                                   <C>
Internet Pictures Corporation Consolidated Financial Statements
   Consolidated Balance Sheets at December 31, 2000 and 2001 ..........................................F-2

   Consolidated Statements of Operations for the years ended December 31, 1999,2000
     and 2001..........................................................................................F-3

   Consolidated Statements of Stockholders' Equity for the period from
     January 1, 1999 to December 31, 2001..............................................................F-4

   Consolidated Statements of Cash Flows for the years ended December 31,
     1999, 2000 and 2001...............................................................................F-7

   Notes to Consolidated Financial Statements..........................................................F-8
</TABLE>

         All schedules have been omitted because they are not required or
because the required information is contained in the financial statements or
notes thereto.


                                      32
<PAGE>


         (b) Reports on Form 8-K.

                  1. October 3, 2001; Item 5

         (c) Exhibits.

         The following exhibits are filed herewith or incorporated by
reference:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                     DESCRIPTION
------                     -----------

<S>                <C>
3.1                Form of Amended and Restated Certificate of Incorporation of the Registrant
                   (incorporated herein by reference to Form S-1 as declared effective on August 25, 1999
                   (File No. 333-80639)).

3.1(a)             Form of Amendment to the Amended and Restated Certificate of Incorporation of the
                   Registrant (incorporated herein by reference to Form S-1 as filed with the Commission on
                   March 17, 2000).

3.2                Form of Amended and Restated Bylaws of the Registrant (incorporated herein by reference
                   to Form 10-Q as filed with the Commission on November 14, 2000).

3.3                Certificate of Designations of Series A Junior Participating Preferred Stock
                   (incorporated herein by reference to Form 8-A as filed with the Commission on November
                   2, 2000).

3.3                Amended Certificate of Designations of Series B Preferred
                   Stock (incorporated herein by reference to Form 8-K as filed
                   with the Commission on October 3, 2001).

4.1                Form of certificate representing the common stock, $.001 par value per share of Internet
                   Pictures Corporation (incorporated herein by reference to Form 10-K as filed with the
                   Commission on March 30, 2000).

4.2                Rights Agreement dated October 31, 2000 between Internet Pictures Corporation and
                   EquiServe (incorporated herein by reference to Form 8-A as filed with the Commission on
                   November 2, 2000).

4.3                Registration Rights Agreement dated May 14, 2001 between Internet Pictures Corporation
                   and Image Investors Portfolio, a separate series of Memphis Angels, LLC (incorporated
                   herein by reference to Form 8-K as filed with the Commission on May 29, 2001).

10.1*              Executive Employment Agreement dated January 24, 1997,
                   between Interactive Pictures Corporation and James M.
                   Phillips, as amended (incorporated herein by reference to
                   Form S-1 as declared effective on August 4, 1999 (File No.
                   333-78983)) as further amended by amendment number 3 on
                   February 22, 2001 (incorporated herein by reference to Form
                   10-K as filed with the Commission on March 30, 2000).
</TABLE>


                                      33
<PAGE>


<TABLE>
<S>                <C>
10.2*              Separation of Employment and Consulting Agreement between Internet Pictures Corporation
                   and James M. Phillips dated as of May 14, 2001 (incorporated herein by reference to Form
                   8-K as filed with the Commission on May 29, 2001)

10.3*              Employment Agreement dated July 1, 2001, between Internet Pictures Corporation and
                   Donald W. Strickland (incorporated herein by reference to Form 10-Q as filed with the
                   Commission on August 14, 2001).

10.4#*             Employment Agreement dated May 31, 2001, between Internet Pictures Corporation and
                   Matthew S. Heiter,  as amended.

10.5*              Employment Agreement dated July 1, 2001, between Internet
                   Pictures Corporation and Paul A. Farmer (incorporated herein
                   by reference to Form 10-Q as filed with the Commission on
                   August 14, 2001).

10.6               Amended and Restated Internet Pictures Corporation 2001 Equity Incentive Plan
                   (incorporated herein by reference to Form S-8 as filed with the Commission on January
                   16, 2002).

10.7               Amended and Restated 1997 Equity Compensation Plan (incorporated herein by reference to
                   Form S-4 as declared effective on December 16, 1999 (File No. 91139))

10.8               Amended and Restated 1998 Employee, Director and Consultant Stock Plan (incorporated
                   herein by reference to Form S-4 as declared effective on December 16, 1999 (File No.
                   91139)).

10.9               1999 Employee Stock Purchase Plan (incorporated herein by reference to Form S-4 as
                   declared effective on December 16, 1999 (File No. 91139)

10.10              2000 Equity Incentive Plan (incorporated herein by reference to Form S-8 as declared
                   effective on June 27, 2000 (File No. 333-40160).

10.11              PictureWorks Technology, Inc. 1994 Stock Option Plan (incorporated herein by reference
                   to Form S-8 as declared effective on May 2, 2000 (File No. 333-36068))

10.12              PictureWorks Technology, Inc. 1996 Stock Option Plan (incorporated herein by reference
                   to Form S-8 as declared effective on May 2, 2000 (File No. 333-36068))

10.13              PictureWorks Technology, Inc. 1997 Stock Option Plan (incorporated herein by reference
                   to Form S-8 as declared effective on May 2, 2000 (File No. 333-36068))

10.14              Form of Indemnification Agreement between the Registrant and each of its directors and
                   officers (incorporated herein by reference to Form S-1 as declared effective on August
                   25, 1999 (File No. 333-80639)).

10.15              Acquisition Agreement dated January 12, 2001 between Internet Pictures Corporation and
                   Homestore Virtual Tours, Inc. (incorporated herein by reference to Form 8-K as filed
                   with the Commission on January 29, 2001).
</TABLE>


                                      34
<PAGE>


<TABLE>
<S>                <C>
10.16**            License Agreement dated January 12, 2001 between Internet Pictures Corporation and
                   Homestore Virtual Tours, Inc. (incorporated herein by reference to Form 10-K as filed
                   with the Commission on April 2, 2001).

10.17**            Visual Content Service Agreement, as amended, between Internet Pictures Corporation and
                   eBay Inc. (incorporated herein by reference to Form 10-Q filed with the Commission on
                   October 31, 2001).

10.18              Purchase Agreement between Internet Pictures Corporation and eBay Inc. dated September
                   26, 2001 (incorporated herein by reference to Form 10-Q filed with the Commission on
                   October 31, 2001).

10.19              Master Lease Agreement between Internet Pictures Corporation and eBay Inc. dated
                   September 26, 2001 (incorporated herein by reference to Form 10-Q filed with the
                   Commission on October 31, 2001).

10.20#             Purchase Agreement between Internet Pictures Corporation and eBay Inc. dated December 1,
                   2001.

21.1#              Subsidiaries of the Registrant.

23.1#              Consent of PricewaterhouseCoopers LLP

24.1               Power of Attorney (included on page 28)

                   *Executive Compensation Plan or Agreement
                   **Portions of the exhibit have been omitted pursuant to a request for confidential
                   treatment.
                   # Filed Herewith
</TABLE>


                                      35
<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.


                                    INTERNET PICTURES CORPORATION


                                    By: /s/ Donald W. Strickland
                                       ----------------------------------------
                                                 Donald W. Strickland
                                         President and Chief Executive Officer

Date:  March 29, 2002


                                      36
<PAGE>


                               POWER OF ATTORNEY

         Each person whose signature appears below hereby appoints Donald W.
Strickland, Paul A. Farmer and Matthew S. Heiter, or any of them, as such
person's true and lawful attorney-in-fact, with full power of substitution or
resubstitution for such person and in such person's name, place and stead, in
any and all capacities, to sign on such person's behalf, individually and in
each capacity stated below, any and all amendments to this Report on Form 10-K,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact, or their substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.

         Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
     SIGNATURE                                           TITLE                              DATE
     ---------                                           -----                              ----

<S>                                       <C>                                             <C>
/s/ Donald W. Strickland                  President, Chief Executive Officer and          March 29, 2002
------------------------                  Director
Donald W. Strickland

/s/Paul A. Farmer                         Chief Financial Officer (Chief Accounting       March 29, 2002
-----------------                         Officer)
Paul A. Farmer

/s/ David M. Wilds                        Chairman of the Board of Directors              March 29, 2002
------------------
David M. Wilds

/s/ Gregory S. Daily                      Director                                        March 29, 2002
--------------------
Gregory S. Daily

/s/ Michael D. Easterly                   Director                                        March 28, 2002
-----------------------
Michael D. Easterly

/s/ Thomas M. Garrott                     Director                                        March 29, 2002
---------------------
Thomas M. Garrott

/s/ Laban P. Jackson, Jr.                 Director                                        March 29, 2002
-------------------------
Laban P. Jackson, Jr

/s/ Andrew P. Seamons                     Director                                        March 25, 2002
---------------------
Andrew P. Seamons
</TABLE>


                                      37
<PAGE>
                       REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors and Stockholders of
Internet Pictures Corporation

         In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, changes in stockholders' equity
and of cash flows present fairly, in all material respects, the financial
position of Internet Pictures Corporation and its subsidiaries (the "Company")
at December 31, 2000 and 2001 and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001,
in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statements presentation. We believe that
our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Knoxville, Tennessee
February 1, 2002


<PAGE>


                         INTERNET PICTURES CORPORATION
                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                                     DECEMBER 31,
                                                                                            -----------------------------
                                                                                              2000               2001
                                                                                            ---------           ---------
                                                                                          (In thousands, except share and
                                                                                                 per share amounts)
<S>                                                                                         <C>                 <C>
ASSETS
CURRENT ASSETS:

Cash and cash equivalents ........................................................          $   5,322           $  11,103
Securities available-for-sale ....................................................              5,713                  --
Accounts receivable, net of allowance for doubtful accounts of
   $4,617 in 2000 and $2,171 in 2001 .............................................             13,732                 921
Inventory, net of reserve for obsolescence of $203 in 2000 and $493 in 2001 ......              1,061                 219
Prepaid expenses and other current assets ........................................              6,790               3,179
                                                                                            ---------           ---------
       Total current assets ......................................................             32,618              15,422

Property and equipment, net ......................................................             20,965               4,614
Other assets .....................................................................              1,555                  --
Goodwill .........................................................................              5,476               3,042
                                                                                            ---------           ---------
       Total assets ..............................................................          $  60,614           $  23,078
                                                                                            =========           =========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:

Accounts payable .................................................................          $   4,077           $   1,500
Accrued liabilities ..............................................................             16,682               7,557
Deferred revenue .................................................................              9,077               1,592
Current portion of promissory note and obligations under capital leases ..........              1,608               1,267
                                                                                            ---------           ---------
       Total current liabilities .................................................             31,444              11,916
                                                                                            ---------           ---------
Promissory note and obligations under capital leases, net of current portion .....                957               1,277
                                                                                            ---------           ---------
Other non-current liabilities ....................................................                 --               1,115
                                                                                            ---------           ---------

Commitments and contingencies (Note 13)

STOCKHOLDERS' EQUITY:

Preferred stock, $0.001 par value: ...............................................                 --                  --
   Authorized:  5,001,100 in 1999 and 2000
    Issued and outstanding: 0 in 2000 and 1,115,080 in 2001
Class B common stock, $0.0001 par value: .........................................                 --                  --
    Authorized:  7,421,536 in 1999 and 2000
    Issued and outstanding:  404,173 in 2000 and 179,480 in 2001
Common stock, $0.001 par value: ..................................................                 59                  66
   Authorized:  150,000,000 in 1999 and 2000
   Issued and outstanding:  5,946,402 in 2000 and 6,568,337 in 2001
Additional paid-in capital .......................................................            484,098             513,468
Notes receivable from stockholders ...............................................             (2,349)               (179)
Unearned stock-based compensation ................................................             (3,361)               (142)
Accumulated deficit ..............................................................           (450,296)           (503,974)
Accumulated other comprehensive income ...........................................                 62                (469)
                                                                                            ---------           ---------
       Total stockholders' equity ................................................             28,213               8,770
                                                                                            ---------           ---------
       Total liabilities and stockholders' equity ................................          $  60,614           $  23,078
                                                                                            =========           =========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-2
<PAGE>


                         INTERNET PICTURES CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                            YEARS ENDED DECEMBER 31,
                                                                    -------------------------------------------
                                                                      1999             2000              2001
                                                                    --------         ---------         --------
                                                                      (In thousands, except per share amounts)

<S>                                                                 <C>              <C>               <C>
REVENUES:
Products ...................................................        $ 12,523         $  48,943         $ 14,758
Services ...................................................              --             4,730           14,148
                                                                    --------         ---------         --------
                                                                      12,523            53,673           28,906
                                                                    --------         ---------         --------
COST OF REVENUES:
Products (excludes stock-based compensation of $398, $113
    and $65) ...............................................           7,262            25,442            7,205
Services (excludes stock-based compensation of
    $0, $52 and $30) .......................................              --             2,464            4,961
                                                                    --------         ---------         --------

                                                                       7,262            27,906           12,166
                                                                    --------         ---------         --------
Gross profit ...............................................           5,261            25,767           16,740
                                                                    --------         ---------         --------

OPERATING EXPENSES:
Sales and marketing (excludes stock-based
    compensation of $13,353, $3,083 and $1,605) ............          37,785            80,026           19,647
Research and development (excludes stock-based
    compensation of $1,331, $1,380 and $650) ...............           5,359            13,202            7,021
General and administrative (excludes stock-based
    compensation of $5,593, $544 and $2,149) ...............          13,906            22,306           13,667
Stock-based compensation expense ...........................          20,675             5,127            4,499
Impairment and amortization of intangibles .................              --           234,024            2,433
Merger expenses ............................................              --            15,175               --
Loss on disposal of assets .................................              --                --            1,655
Restructuring charges ......................................              --             4,161           11,655
                                                                    --------         ---------         --------

Total operating expenses ...................................          77,725           374,021           60,577
                                                                    --------         ---------         --------
Loss from operations .......................................         (72,464)         (348,254)         (43,837)

OTHER INCOME (EXPENSE):
Interest expense ...........................................          (6,684)             (436)         (10,667)
Other income (expense), net ................................           2,545             2,095              (75)
                                                                    --------         ---------         --------
Net loss before extraordinary gain .........................         (76,603)         (346,595)         (54,579)
Extraordinary gain .........................................              --                --              901
                                                                    --------         ---------         --------
Net loss ...................................................         (76,603)         (346,595)         (53,678)
Beneficial conversion related to issuance of Series B
    convertible preferred stock ............................          (1,000)               --               --
                                                                    --------         ---------         --------
Net loss attributable to common stockholders ...............        $(77,603)        $(346,595)        $(53,678)
                                                                    ========         =========         ========
Basic and diluted loss per common share ....................        $ (30.13)        $  (61.55)        $  (8.22)
                                                                    ========         =========         ========

Weighted average common shares - basic and diluted .........           2,576             5,631            6,534
                                                                    ========         =========         ========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-3
<PAGE>


                         INTERNET PICTURES CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
            FOR THE PERIOD FROM JANUARY 1, 1999 TO DECEMBER 31, 2001
                   (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                  CLASS B COMMON                                          NOTES
                                          PREFERRED STOCK             STOCK               COMMON STOCK     ADDITIONAL  RECEIVABLE
                                       ---------------------    -------------------     -----------------   PAID IN       FROM
                                         NUMBER       AMOUNT     NUMBER      AMOUNT      NUMBER    AMOUNT   CAPITAL    STOCKHOLDERS
                                       -----------    ------    --------     -------    ---------  ------  ---------   ------------
<S>                                    <C>            <C>       <C>         <C>        <C>          <C>    <C>           <C>
  Balances -- December 31, 1998 ...      6,430,376        6      742,154           1      561,537      6       27,458       (54)
 Issuance of Series B preferred
   stock, net .....................      2,324,780        2           --          --           --     --       13,403        --
 Conversion of Series A and Series
   B preferred stock into common
   stock ..........................     (2,556,030)      (1)          --          --      715,687      7           (6)       --
 Issuance of common stock with
   Series C mandatorily redeemable
   preferred stock in June 1999 ...                                   --          --      125,083      1        6,605        --
 Issuance of common stock on
   IPOs ...........................             --       --           --          --      964,665     10       90,076        --
 Conversion of Class B common stock
   to common stock ................             --       --      (40,880)                  40,880                  --        --
 Issuance of common stock upon
   exercise of warrants ...........             --       --           --          --      103,468      1          723        --
 Stock options granted for services
   in 1999 ........................             --       --           --          --           --     --        5,610        --
 Unearned stock-based
   compensation ...................             --       --           --          --           --     --       16,750        --
 Amortization of stock-based
   compensation ...................             --       --           --          --           --     --           --        --
 Restricted common stock issued to
   service provider in January
   1999 ...........................             --       --           --          --       12,040     --        1,270        --
 Amortization of stock-based
   compensation for service
   provider .......................             --       --           --          --           --     --           --        --
 Stock issued on exercise of stock
   options ........................             --       --           --          --      189,956      2          418      (127)
 Dividend relative to beneficial
   conversion feature related to
   issuance of Series B preferred
   stock ..........................             --       --           --          --           --     --        1,000        --
Proceeds from issuance of Series D
   preferred stock and warrants,
   net of related costs ...........      4,264,885        4           --          --           --     --       22,080        --
 Issuance of common stock upon
   exercise of stock options ......             --       --           --          --       30,546     --          326        --
 Conversion of $1,000 debenture and
   interest into Series C preferred
   stock ..........................        238,939       --           --          --           --     --        1,036        --
 Conversion of preferred stock to
   common stock ...................    (10,702,950)     (11)          --          --    1,070,295     11           --        --
 Conversion of redeemable common
   stock to common stock ..........             --       --           --          --        1,395     --           80        --
 Issuance of common stock for
   advertising fees ...............             --       --           --          --        7,606     --        1,000        --
 Net loss .........................             --       --           --          --           --     --           --        --
 Other comprehensive income .......             --       --           --          --           --     --           --        --
                                       -----------     ----     --------     -------    ---------    ---    ---------     -----
Balances -- December 31, 1999 .....             --     $ --      701,274     $     1    3,823,158    $38    $ 187,829     $(181)
                                       ===========     ====     ========     =======    =========    ===    =========     =====

<CAPTION>
                                                     ACCUMULATED
                                       UNEARNED         OTHER
                                     STOCK-BASED    COMPREHENSIVE   ACCUMULATED
                                     COMPENSATION   INCOME (LOSS)     DEFICIT      TOTAL
                                     ------------   -------------   -----------   --------

<S>                                  <C>            <C>             <C>           <C>
 Balances -- December 31, 1998......        --            (9)          (26,098)      1,310
 Issuance of Series B preferred
   stock, net......................         --            --                --      13,405
 Conversion of Series A and Series
   B preferred stock into common
   stock...........................         --            --                --          --
 Issuance of common stock with
   Series C mandatorily redeemable
   preferred stock in June 1999....         --            --                --       6,606
 Issuance of common stock on
   IPOs............................         --            --                --      90,086
 Conversion of Class B common stock
   to common stock.................         --            --                --          --
 Issuance of common stock upon
   exercise of warrants............         --            --                --         724
 Stock options granted for services
   in 1999.........................         --            --                --       5,610
 Unearned stock-based
   compensation....................    (16,750)           --                --          --
 Amortization of stock-based
   compensation....................     13,795            --                --      13,795
 Restricted common stock issued to
   service provider in January
   1999............................     (1,270)           --                --          --
 Amortization of stock-based
   compensation for service
   provider........................      1,270            --                --       1,270
 Stock issued on exercise of stock
   options.........................         --            --                --         293
 Dividend relative to beneficial
   conversion feature related to
   issuance of Series B preferred
   stock...........................         --            --            (1,000)         --
 Proceeds from issuance of Series D
   preferred stock and warrants,
   net of related costs............         --            --                --      22,084
 Issuance of common stock upon
   exercise of stock options.......         --            --                --         326
 Conversion of $1,000 debenture and
   interest into Series C preferred
   stock...........................         --            --                --       1,036
 Conversion of preferred stock to
   common stock....................         --            --                --          --
 Conversion of redeemable common
   stock to common stock...........         --            --                --          80
 Issuance of common stock for
   advertising fees................         --            --                --       1,000
 Net loss..........................         --            --           (76,603)    (76,603)
 Other comprehensive income........         --            19                --          19
                                       -------           ---         ---------    --------
Balances -- December 31, 1999......    $(2,955)          $10         $(103,701)   $ 81,041
                                       =======           ===         =========    ========
</TABLE>


                                      F-4
<PAGE>


<TABLE>
<CAPTION>
                                                                      Class B                                         Additional
                                                                   Common Stock                     Common Stock        Paid-in
                                                                      Number       Amount        Number      Amount     Capital
                                                                ----------------------------------------------------------------

<S>                                                                  <C>          <C>           <C>           <C>     <C>
Balances, December 31, 1999......................................    701,274      $     1       3,823,158     $38     $ 187,829
Issuance of common stock from secondary offering.................         --           --         611,500       6        68,768
Issuance of common stock from acquisitions.......................         --           --         486,657       5       218,473
Stock issued on exercise of stock options........................         --           --         433,266       4         2,113
Conversion of Class B common stock into common stock.............   (297,101)          (1)        297,101       3            (2)
Stock issued from ESPP...........................................         --           --          49,539      --         1,387
Stock issued from option exchange program........................         --           --         245,181       3         3,197
Notes receivable from shareholders                                        --           --              --      --            --
Repayment of notes from shareholders                                      --           --              --      --            --
Unearned stock-based compensation................................         --           --              --      --         2,333
Amortization of stock-based compensation
Net loss                                                                  --           --              --      --            --
Other comprehensive income                                                --           --              --      --            --
                                                                   ---------      -------      ----------     ---     ---------
Balances, December 31, 2000......................................    404,173      $    --       5,946,402     $59     $ 484,098
                                                                   =========      =======      ==========     ===     =========

<CAPTION>
                                                              Notes                    Accumulated
                                                           Receivable     Unearned        Other
                                                              From       Stock-Based  Comprehensive   Accumulated
                                                           Shareholders  Compensation Income (Loss)     Deficit       Total
                                                           ------------------------------------------------------------------

<S>                                                         <C>          <C>            <C>           <C>           <C>
Balances, December 31, 1999...............................  $  (181)     $(2,955)       $10           $(103,701)    $  81,041
Issuance of common stock from secondary offering..........       --           --         --                  --        68,774
Issuance of common stock from acquisitions................       --           --         --                  --       218,478
Stock issued on exercise of stock options.................       --           --         --                  --         2,117
Conversion of Class B common stock into common stock             --           --         --                  --            --
Stock issued from ESPP....................................                                                              1,387
Stock issued from option exchange program.................       --       (3,200)        --                  --            --
Notes receivable from shareholders........................   (2,349)          --         --                  --        (2,349)
Repayment of notes from shareholders......................      181           --         --                  --           181
Unearned stock-based compensation.........................       --       (2,333)                            --            --
Amortization of stock-based compensation..................                 5,127                             --         5,127
Net loss..................................................       --           --         --            (346,595)     (346,595)
Other comprehensive income................................       --           --         52                  --            52

                                                            -------      -------        ---           ---------     ---------
Balances, December 31, 2000...............................  $(2,349)     $(3,361)       $62           $(450,296)    $  28,213
                                                            =======      =======        ===           =========     =========

<CAPTION>
                                                   Class B                                                             Additional
                                                 Common Stock                Preferred Stock        Common Stock         Paid-in
                                                    Number     Amount       Number    Amount    Number      Amount       Capital
                                                 -------------------------------------------------------------------------------

<S>                                                <C>        <C>        <C>             <C>     <C>           <C>     <C>
Balance, December 31, 2000......................   404,173    $    --           --       $--     5,946,402     $59     $ 484,098
Stock issued on exercise of stock options.......                   --           --        --        37,977      --            28
Stock issued from ESPP..........................        --         --           --        --        31,581      --            86
Stock issued from option exchange program.......        --         --           --        --       137,684       2           968
Notes receivable from shareholders                      --         --           --        --            --      --            --
Repayment of notes from shareholders                    --         --           --        --            --      --            --
Unearned stock-based compensation...............        --         --           --        --            --      --           310
Sale of convertible debt and preferred stock....        --         --    1,115,080        --            --      --        30,962
Amortization of stock-based compensation                --         --           --        --            --      --            --
Dividend to shareholder.........................        --         --           --        --       190,000       2        (2,981)
Conversion of Class B...........................  (224,693)        --           --        --       224,693       3            (3)
Net loss                                                --         --           --        --            --      --            --
Other comprehensive income                              --         --           --        --            --      --            --
                                                 ---------    -------    ---------      ----    ----------     ---     ---------
Balances, December 31, 2001.....................   179,480    $    --    1,115,080       $--     6,568,337     $66     $ 513,468
                                                 =========    =======    =========      ====    ==========     ===     =========
</TABLE>


                                      F-5
<PAGE>


<TABLE>
<CAPTION>
                                                               Notes                    Accumulated
                                                            Receivable     Unearned        Other
                                                               From       Stock-Based  Comprehensive   Accumulated
                                                            Shareholders  Compensation Income (Loss)     Deficit       Total
                                                            ------------------------------------------------------------------

<S>                                                          <C>          <C>          <C>             <C>           <C>
Balances, December 31, 2000                                  $(2,349)     $(3,361)     $  62           $(450,296)    $  28,213
Stock issued on exercise of stock options                         --           --         --                  --            28
Stock issued from ESPP                                            --           --         --                  --            86
Stock issued from option exchange program                         --         (970)        --                  --            --
Notes receivable from shareholders                             2,170           --         --                  --         2,170
Repayment of notes from shareholders                              --           --         --                  --            --
Unearned stock-based compensation                                 --         (310)        --                  --            --
Sale of convertible debt and preferred stock                      --           --         --                  --        30,962
Amortization of stock-based compensation                          --        4,499         --                  --         4,499
Dividend to shareholder                                           --           --         --                  --        (2,979)
Conversion of Class B common stock into common stock              --           --         --                  --            --
Net loss                                                          --           --         --             (53,678)      (53,678)
Other comprehensive income                                        --           --       (531)                 --          (531)
                                                             -------      -------      -----            ---------     ---------
Balances, December 31, 2001                                  $  (179)     $  (142)     $(469)           $(503,974)    $   8,770
                                                             =======      =======      =====            =========     =========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-6
<PAGE>


                         INTERNET PICTURES CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                              YEARS ENDED DECEMBER 31,
                                                                                   -----------------------------------------------
                                                                                      1999             2000               2001
                                                                                   ---------        -----------        -----------
                                                                                                   (In thousands)

<S>                                                                                <C>              <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ...................................................................       $ (76,603)       $  (346,595)       $  (53,678)
Adjustments to reconcile net loss to net cash used in operating activities:
  Depreciation and amortization ............................................           1,325             63,047             3,477
  Impairment and amortization of intangibles................................              --            176,831             2,434
  Provision for doubtful accounts receivable ...............................              27              4,419             4,421
  Provision for inventory obsolescence .....................................             195                145               276
  Amortization of discounts on securities available-for-sale ...............            (177)               141                --
  Interest charge for amortization of discount on convertible debt..........           6,606                 --            10,000
  Non-cash compensation expense related to issuance of options and warrants.          13,821              5,127             4,499
  Issuance of common stock, options and warrant in exchange for services ...           6,882                 --                --
  Other compensation expense related to forgiveness of loan.................              --                 --             2,193
  Impairment loss ..........................................................              --                 --             1,122
  Loss on disposal of fixed assets .........................................              --                 --             1,655
  Extraordinary item .......................................................              --                 --              (901)
Changes in operating assets and liabilities, net of effects of acquisitions:
  Accounts receivable ......................................................          (2,522)           (13,731)            1,546
  Inventory ................................................................            (926)              (147)              566
  Prepaid expenses and other current assets ................................          (5,826)               804               904
  Other assets .............................................................          (1,383)                64             1,199
  Accounts payable .........................................................           2,189             (2,219)           (2,697)
  Accrued liabilities ......................................................           4,462              8,818            (3,741)
  Deferred revenue .........................................................           5,144              3,402               158
                                                                                   ---------        -----------        -----------
      Net cash used in operating activities ................................         (46,786)           (99,894)          (26,567)
                                                                                   ---------        -----------        -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment .......................................          (8,426)           (13,745)           (1,440)
Proceeds from sale of assets ...............................................              --                 --            11,506
Acquisitions, net of cash received .........................................              --             (8,290)               --
Purchases of securities available-for-sale .................................        (113,328)           (44,766)               --
Maturities of securities available-for-sale ................................          58,766             93,369             6,000
Notes receivable from stockholder...........................................              --             (2,000)               --
Other ......................................................................            (108)                32                --
                                                                                   ---------        -----------        -----------
      Net cash provided by (used in) investing activities ..................         (63,096)            24,600            16,066
                                                                                   ---------        -----------        -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock .................................          97,474             70,161                --
Net proceeds from issuance of preferred stock ..............................          41,075                 --                --
Net proceeds from issuance of convertible debt and exercise of warrants for
  preferred stock ..........................................................              --                 --            20,666
Repurchase of preferred and common stock ...................................          (3,730)                --                --
Proceeds from exercise of stock options and warrants .......................           1,343              2,117                30
Proceeds from obligation under capital lease ...............................             204                 --                --
Repayments of capital lease obligations and notes payable ..................            (149)           (10,623)           (2,762)
Repayment of Series C mandatorily redeemable convertible preferred stock ...         (11,000)                --                --
Issuance of convertible debenture ..........................................           1,800                 --                --
Notes payable to stockholders ..............................................              (8)                --                --
Distribution to Stockholders  ..............................................              --                 --              (839)
                                                                                   ---------        -----------        -----------
      Net cash provided by financing activities ............................         127,009             61,655            17,095
                                                                                   ---------        -----------        -----------
Effect of exchange rate changes on cash ....................................               6                334              (813)
                                                                                   ---------        -----------        -----------
Net increase (decrease) in cash and cash equivalents .......................          17,133            (13,305)            5,781
Cash and cash equivalents, beginning of year ...............................           1,494             18,627             5,322
                                                                                   ---------        -----------        -----------
Cash and cash equivalents, end of year .....................................       $  18,627        $     5,322        $   11,103
                                                                                   =========        ===========        ===========
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                      F-7
<PAGE>


                         INTERNET PICTURES CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1.  NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Internet Pictures Corporation ("iPIX" or "Company")is an Internet
infrastructure company that provides visual content and other digital media
solutions to facilitate commerce, communication and entertainment. The Company
offers solutions that may include the capture, processing, hosting and
distribution of visual content and other digital media for the Internet. iPIX
solutions are designed for many types of digital media content, including still
images, 360 by 360 immersive images, slide shows, video, animation and audio.

On January 19, 2000, bamboo.com, Inc. (bamboo) merged with Interactive Pictures
Corporation (Interactive) in a transaction accounted for using the pooling of
interests method of accounting (see Note 3). Concurrent with the merger, bamboo
changed its name to Internet Pictures Corporation. For financial reporting
purposes, bamboo is considered the successor business to Jutvision Corporation,
a Canadian corporation.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the
accounts of Internet Pictures Corporation and its wholly-owned subsidiaries,
Interactive Pictures Corporation, Interactive Pictures UK Limited, Internet
Pictures (Canada)and PW Technology, Inc. The consolidation of these entities
will collectively be referred to as the Company. All significant intercompany
balances and transactions have been eliminated.

FOREIGN CURRENCY TRANSLATION. The functional currency of the Company's Canadian
and United Kingdom subsidiaries is the U.S. dollar. Monetary assets and
liabilities denominated in foreign currencies are translated into the Company's
functional currency, U.S. dollars, at the exchange rate prevailing at the
balance sheet date. Non-monetary assets and liabilities and transactions are
translated at exchange rates prevailing at the respective transaction dates.
Revenue and expenses are translated at the average rates of exchange during the
year. Translation gains and losses are recorded in accumulated other
comprehensive income. Transaction exchange gains and losses are included in the
statement of operations.

CASH AND CASH EQUIVALENTS. The Company considers all highly liquid debt
instruments with an original maturity or remaining maturity at date of purchase
of three months or less to be cash equivalents. All other liquid investments
are classified as either short-term or long-term investments.

Management determines the appropriate classification of investment securities
at the time of purchase and reevaluates such designation as of each balance
sheet date. At December 31, 2001, the Company had no investments with a
maturity of greater than three months.

Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in the
statement of operations. There have been no such transactions in the year ended
December 31, 2001.

Interest income includes interest, amortization of purchase premiums and
discounts and realized gains and losses on sales of securities. The cost of
securities sold is based on the specific identification method.

CERTAIN RISKS AND CONCENTRATIONS. Financial instruments that potentially
subject the Company to a concentration of credit risk consist of cash and cash
equivalents and accounts receivable. Cash and cash equivalents are deposited
with high quality financial institutions. Accounts receivable are derived from
revenue earned from clients located in the U.S. and abroad. The Company
performs ongoing credit evaluations of clients' financial condition and the
Company does not require collateral from clients.


                                      F-8
<PAGE>


The following table summarizes the revenue from customers in excess of 10% of
total revenues:

<TABLE>
<CAPTION>
                          Year ended
                      December 31, 2001

<S>                        <C>
Customer A                 23%
Customer B                 21%
</TABLE>

At December 31, 2001, Customer A and Customer B represented 0% and 58% of
accounts receivable, respectively. All amounts due from Customer B as of
December 31, 2001, were collected in full during January 2002. No customer
represented 10% of revenue or accounts receivable at December 31, 1999 or 2000.

INVENTORY. Inventory, which consists primarily of digital cameras and related
hardware, is stated at the lower of cost or market, with costs determined using
standard costs (which approximate first-in, first-out costs). The Company
records a provision for obsolete inventory whenever an impairment has been
identified.

PREPAID EXPENSES. Prepaid expenses consist primarily of insurance and rent,
which will be reflected as an expense during the period benefited.

PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost and are
depreciated primarily using the straight-line method over estimated useful
lives, which range from two to ten years. Leasehold improvements are amortized
over the term of the lease or estimated useful life, whichever is shorter.
Routine maintenance and repair costs are expensed as incurred. The costs of
major additions, replacements and improvements are capitalized. Gains and
losses from disposals are included in operations as incurred.

ACCOUNTING FOR LONG-LIVED ASSETS. The carrying value of intangible assets,
property and equipment and other long-lived assets is reviewed on a regular
basis for the existence of facts, both internally and externally, that may
suggest impairment. The Company recognizes impairment losses whenever events or
circumstances result in the carrying amount of the assets exceeding the sum of
the expected future cash flows associated with such assets. The measurement of
the impairment losses to be recognized is based on the difference between the
discounted cash flows from such assets and the carrying amounts of the assets.
During 2000, the Company recorded an impairment of goodwill (see Note 4).

INCOME TAXES. The Company uses the asset and liability method of accounting for
income taxes, which requires the recognition of deferred tax liabilities and
assets for expected future tax consequences of temporary differences between
the carrying amounts and the tax basis of assets and liabilities. A valuation
allowance against deferred tax assets is recorded if, based upon available
evidence, it is more likely than not that some or all of the deferred tax
assets will not be realized. Tax credits are accounted for as a reduction of
tax expense in the year in which the credits reduce taxes payable.

The Company did not recognize deferred income taxes for temporary differences
associated with its investment in the foreign subsidiaries because the
differences are essentially permanent in duration.

Interactive Pictures UK Limited is not included in the tax filing of its
parent, Internet Pictures Corporation. As a result, Interactive Pictures UK
Limited files a separate return with the United Kingdom tax authorities.
Internet Pictures (Canada), Inc. is not included in the tax filing of its
parent, Internet Pictures Corporation. As a result, Internet Pictures (Canada),
Inc. files a separate return with Canadian tax authorities.

REVENUE RECOGNITION. The Company recognizes revenue in accordance with SOP
97-2, Software Revenue Recognition and SAB No. 101,Revenue Recognition in
Financial Statements. Transaction hosting revenues are recognized ratably as
transactions are performed provided there was persuasive evidence of an
arrangement, the fee was fixed and determinable and collection of the resulting
receivable was probable. Initial license fees are recognized when a contract
exists, the fee is fixed and determinable, software delivery has occurred and
collection of the receivable is


                                      F-9
<PAGE>


deemed probable. If there are continuing obligations, then license fees are
recognized ratably over the life of the contract. Product revenue is recognized
upon shipment or delivery provided there are no uncertainties surrounding
product acceptance, there are no significant vendor obligations, the fees are
fixed and determinable and collection is considered probable. Revenues
generated from professional services are recognized as the related services are
performed. When such professional services are combined with on-going
transaction services or are deemed to be essential to the functionality of the
delivered software product, revenue from the entire arrangement is recognized
while the transaction services are performed, on a percentage of completion
method or not until the contract is completed in accordance with SOP 81-1,
Accounting for Performance of Construction-Type and Certain Production-Type
Contracts, and ARB No. 45, Long-Term Construction-Type Contracts. Our operating
expenses are primarily based on anticipated revenue levels. Revenue from the
sale of the Company's virtual tour product was recognized upon distribution to
the Website designated by the customer. Royalties derived from desktop imaging
products were recognized as revenues upon receipt of the royalty sell-through
reports from customers, which are generally in the quarter following the
quarter in which the sale by the customer took place.

The Company provides an allowance for returns upon recognizing revenue as
deemed necessary based on historical experience. Returns were insignificant for
all years presented. Payments received in advance are initially recorded as
deferred revenue and recognized ratably as obligations are fulfilled.

BARTER REVENUES. Barter revenues come from barter sales of the Company's
products, which are similar in nature to the Company's cash sales for the same
products. Barter revenues have resulted from the exchange by the Company of
certain products for advertising. Barter revenues are recognized in accordance
with APB 29, "Accounting for Nonmonetary Transactions." The Company records
barter revenue at fair value of the products exchanged for advertising.

Revenues and sales and marketing expenses arising from these transactions are
recorded at fair value as the Company has an established historical practice of
receiving cash for similar sales. The Company recorded no barter revenue or
related expense in 2001. The Company recorded barter revenues of $229 and
$3,060 in 1999 and 2000, respectively, which represented 2% and 6% of total
revenues for 1999 and 2000, respectively. Sales and marketing expense arising
from these barter transactions is recognized when the advertising takes place,
which is typically the same period in which the products are delivered.

RESEARCH AND DEVELOPMENT COSTS. Research and development expenditures are
expensed as incurred.

ADVERTISING EXPENSES. All advertising expenditures are expensed as incurred.
Advertising expenses for 1999, 2000 and 2001, were $8,513, $24,186 and $4,130,
respectively.

STOCK-BASED COMPENSATION. The Company has adopted the disclosure provisions of
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("FAS") No. 123. "Accounting for Stock-based Compensation." The
Company has elected to continue accounting for stock-based compensation issued
to employees using Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and, accordingly, pro forma
disclosures required under FAS No. 123 have been presented (see Note 11). Under
APB 25, compensation expense is based on the difference, if any, on the date of
grant, between the fair value of the Company's stock and exercise price of the
option. Stock and other equity instruments issued to non-employees have been
accounted for in accordance with FAS No. 123 and Emerging Issues Task Force
Issue No. 96-18, "Accounting for Equity Instruments Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods, or Services,"
and valued using the Black-Scholes model.

In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 (FIN 44), which clarifies the application of Accounting
Principles Board Opinion 25 for certain transactions. The interpretation
addresses many issues related to granting or modifying stock options including
changes in accounting for modifications of awards (increased life, reduction of


                                     F-10
<PAGE>


exercise price, etc.). It became effective July 1, 2000 but certain conclusions
cover specific events that occurred after either December 15, 1998 or January
12, 2000. The effects of applying the interpretation were recognized on a
prospective basis from July 1, 2000. The adoption of FIN 44 has not had a
material impact on the Company.

In connection with certain employee and non-employee stock option and
restricted stock grants, the Company amortizes unearned stock-based
compensation over the vesting period of the related grant using the method
prescribed in FASB Interpretation No. 28. Under this method, each vested
tranche of options is accounted for as a separate grant awarded for past
services. Accordingly, the compensation expense is recognized over the period
in which the services have been provided. This method results in higher
compensation expense in the earlier vesting periods of the related grants.

The Company presents stock-based compensation expense as a separate line item
in its consolidated statements of operations.

ESTIMATES. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Examples of
items affected by certain significant estimates made by management are adequacy
of the allowance for doubtful accounts, reserves for obsolete inventory,
valuations of intangible assets and the projected future cash flows utilized in
satisfaction of outstanding lease obligations.

SEGMENT REPORTING. The Company uses a "management" approach, which designates
the internal organization that is used by management for making operating
decisions and assessing performance as the source of the Company's reportable
segments. Segment reporting includes disclosures about products and services,
geographic areas and major customers for years ending December 31, 1999, 2000
and 2001. In addition, for fiscal year 2001, segment reporting includes the
Company's newly organized primary business units: Transaction Services and
Immersive Solutions.

NET LOSS PER SHARE. The Company computes net loss per share in accordance with
FAS No. 128, "Earnings Per Share". Basic and diluted net loss per share is
computed by dividing the net loss available to common shareholders for the
period by the weighted average number of shares of common stock outstanding
during the period. The calculation of diluted net loss per share excludes
potential common shares if the effect is antidilutive. Potential common shares
are composed of incremental shares of common stock issuable upon the exercise
of potentially dilutive stock options and warrants and upon conversion of the
Company's preferred stock and convertible debenture.

The following table sets forth common stock equivalents that are not included
in the diluted net loss per share calculation above because to do so would be
antidilutive for the periods indicated:

<TABLE>
<CAPTION>
                                                                                 YEARS ENDED DECEMBER 31,
                                                                     -------------------------------------------------
                                                                       1999                2000                2001
                                                                     ---------          ----------          ----------
<S>                                                                  <C>                   <C>              <C>
Weighted average effect of common stock
   Equivalents
Preferred Stocks:
  Series A .................................................         1,488,868                  --                  --
  Series B .................................................         1,460,197                  --           2,700,387
  Series C .................................................         1,918,406                  --                  --
  Series D .................................................         2,082,783                  --                  --
Employee stock options .....................................           551,788             255,300             539,983
Warrants to purchase common stock ..........................            68,551             151,748                  --
Warrants to purchase Series B preferred stock ..............                --                  --           2,051,902
Unvested common stock subject to repurchase ................             1,924                  --                  --
Convertible debenture ......................................             5,178                  --                  --
Convertible Note ...........................................                --                  --           1,702,756
                                                                     ---------          ----------          ----------
                                                                     7,577,695             407,048           6,995,028
                                                                     =========          ==========          ==========
</TABLE>


                                     F-11
<PAGE>


COMPREHENSIVE INCOME (LOSS). The Company adopted FAS No. 130, "Reporting
Comprehensive Income" ("FAS 130"), which establishes requirements for reporting
and displaying the comprehensive income (loss) and its components. The adoption
of FAS 130 has no impact on the Company's net loss or total stockholders'
equity. This new accounting standard requires net unrealized gains or losses on
the Company's available-for-sale securities and cumulative foreign currency
translation adjustments to be reported as accumulated other comprehensive
income (loss).

The components of comprehensive income (loss) are as follows:

<TABLE>
<CAPTION>
                                                                                  Years Ended December 31,
                                                                     ---------------------------------------------------
                                                                        1999               2000                 2001
                                                                     ---------          -----------          -----------
<S>                                                                  <C>                <C>                  <C>
Net loss                                                             $ (76,603)         $  (346,595)         $  (53,678)
Foreign currency translation adjustment                                     19                  334                (813)
Fair market value adjustment of investments                                 --                 (282)                 --
                                                                     ---------          -----------          -----------
                                                                     $ (76,584)         $  (346,543)         $  (54,491)
                                                                     =========          ===========          ===========
</TABLE>


RECENT ACCOUNTING PRONOUNCEMENTS. In June 2001, the FASB issued Statement No.
141 (FAS 141), "Business Combinations" and Statement No. 142 (FAS 142),
"Goodwill and Other Intangible Assets". FAS 141 supercedes APB 16, Business
Combinations, and primarily addresses the accounting for the cost of an
acquired business (i.e., the purchase price allocation), including any
subsequent adjustments to its cost.

The most significant changes made by FAS 141 involve the requirement to use the
purchase method of accounting for all business combinations, thereby
eliminating use of the pooling-of-interests method along with the establishment
of new criteria for determining whether intangible assets acquired in a
business combinations should be recognized separately from goodwill. FAS 141 is
effective for all business combinations (as defined in the statement) initiated
after September 30, 2001 and for all business combinations accounted for by the
purchase method that are completed after September 30, 2001 (that is, the date
of the acquisition is July 1, 2001 or later). The Company does not expect
adoption of FAS 141 to have a material impact on the Company's reported results
of operations, financial position or cash flows.

The Company also adopted Statement of Accounting Standards No. 142, "Goodwill
and Other Intangible Assets"(FAS 142), effective for fiscal years beginning
after December 31, 2001. Under FAS 142, goodwill is no longer amortized, but
reviewed for impairment annually, or more frequently if certain indicators
arise. The Company completed its transitional impairment test in the quarter
ended December 31, 2001 and no impairment loss resulted.

In August 2001, the FASB issued FAS 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." FAS 144 replaces FAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The FASB issued FAS 144 to establish a single accounting model, based on the
framework established in FAS 121, as FAS 121 did not address the accounting for
a segment of a business accounted for as a discontinued operation under APB 30,
"Reporting The Results of Operations -- Reporting The Effects of Disposal of a
Segment of a Business and Extraordinary Unusual and Infrequently Occurring
Events and Transactions." FAS 144 also resolves significant implementation
issues related to FAS 121. Companies are required to adopt FAS 144 for fiscal
years beginning after December 15, 2001, but early adoption is permitted. The
Company does not expect adoption of FAS 144 to have a material impact on our
reported results of operations, financial position or cash flows.

In November 2001, the FASB's Emerging Issues Task Force reached a consensus on
EITF Issue 01-09, "Accounting for Consideration Given by a Vendor to a Customer
or a Reseller of the Vendor's Products," which is a codification of EITF 00-14,
00-22 and 00-25. This issue presumes that consideration from a vendor to a
customer or


                                     F-12
<PAGE>


reseller of the vendor's products to be a reduction in the selling prices of
the vendor's product and, therefore, should be characterized as a reduction of
revenue when recognized in the vendor's income statement and could lead to
negative revenue under certain circumstances. Revenue reduction is required
unless consideration related to a separate identifiable benefit and the
benefit's fair value can be established. This issue is to be applied
retroactively in the first fiscal quarter beginning after December 15, 2001.
The Company has not yet evaluated the effects of this consensus on the
consolidated financial statements.

3. POOLING OF INTERESTS

Interactive and iPIX received shareholder approval and executed an Agreement
and Plan of Merger ("the merger agreement") in January 2000. Pursuant to the
merger agreement, Interactive became a wholly-owned subsidiary of iPIX and iPIX
issued 1.369 shares of its common stock for every share of Interactive common
stock outstanding immediately prior to the Effective Time (as defined in the
merger agreement) of the merger. The transaction was accounted for as a pooling
of interests. Accordingly, prior period financial statements have been restated
to reflect the exchange ratio and to include the results of operations,
financial position and cash flows of Interactive as though it had always been a
part of the Company.

The results of operations for the separate companies and the combined amounts
presented in the consolidated financial statements are as follows:

<TABLE>
<CAPTION>
                                                                        FISCAL YEAR ENDED DECEMBER 31,
                                                                        ------------------------------
                                                                                    1999
                                                                                 ----------
<S>                                                                     <C>
Total revenue
     Internet Pictures Corporation .........................                     $   3,756
     Interactive ...........................................                         8,767
                                                                                 ----------
     Combined ..............................................                     $  12,523
                                                                                 ----------
Net loss attributable to common stockholders
     Internet Pictures Corporation .........................                     $ (53,645)
     Interactive ...........................................                       (23,958)
                                                                                 ----------
     Combined ..............................................                     $ (77,603)
                                                                                 ----------
</TABLE>


Immaterial adjustments were made to conform the Company's and Interactive
Pictures Corporation's accounting policies.

The Company recorded a charge of $15,175 in operating expenses for costs
incurred related to the merger. These merger costs consisted primarily of
investment banking fees and costs of attorneys, accountants and other directly
related external costs.

4. FISCAL YEAR 2000 ACQUISITIONS

During April 2000, the Company acquired all of the capital stock of both TBI
Imaging, Inc. and Opticom Corporation. Consideration consisted of an aggregate
of 22,223 shares with an aggregate value of $8,120 and $2,130 in cash
consideration. The Company accounted for these transactions under the purchase
method of accounting and recorded goodwill of $9,446.

On April 3, 2000, iPIX acquired all of the capital stock of PictureWorks
Technology, Inc. The Company issued 464,433 shares to the stockholders of
PictureWorks with an aggregate value of $173,234. The Company accounted for
this transaction under the purchase method of accounting and accordingly,
allocated the purchase price to cash, accounts receivable, prepaid expenses,
fixed assets and intangibles including goodwill of $205,879.

The net assets of businesses acquired, which are accounted for as purchases,
have been reflected at their fair values at dates of acquisition. The excess of
acquisition costs over such net assets (goodwill) is reflected in the
consolidated balance sheets as intangible assets.


                                     F-13
<PAGE>


The Company periodically reviews the net realizable value of its intangible
assets, including goodwill, through an assessment of the estimated future cash
flows related to such assets. The reviews determine whether future cash flows
over the remaining estimated useful lives of the assets provide for recovery of
the assets. During the fourth quarter of 2000, certain events, including the
decline in the Company's stock price and market capitalization, led us to
perform an impairment review of goodwill in accordance with the requirements of
FAS No. 121. This review indicated that goodwill was being carried at amounts
in excess of revised estimates of undiscounted future cash flows of the
acquired businesses, which resulted in a charge of $176,831 to expense.

5.  RESTRUCTURING

During 2000 and 2001, the Company recorded as a separate line item in the
accompanying income statements restructuring charges of $4,161 and $11,655,
respectively, which consist of expenses associated with reductions in
workforce, the consolidation of certain offices, principally lease obligations
for vacated offices, as well as a write down of abandoned office equipment and
leasehold improvements to net realizable values. The Company's combined current
and long-term accrual for restructuring increased from $1,928 at December 31,
2000 to $2,553 at December 31, 2001. During 2001, the $11,655 of additions to
the accrual was offset by payments for $4,027 for payroll and benefits related
to the severance of employees and $1,834 for abandoned lease obligations. On
March 1, 2001, the Company had 552 employees, but by the end of the second
quarter the Company had reduced its workforce by approximately 440 positions.
The reductions were primarily in the full-service virtual real estate business.
In addition, $3,006 of equipment and leasehold improvements and $2,163 for
forgiveness of debt were written off against the restructuring accrual during
2001. No adjustments to the accrual were made in 2000 or 2001.

On January 12, 2001, a subsidiary of Homestore.com purchased certain assets from
the Company pursuant to the terms of an acquisition agreement dated January 12,
2001. Under the terms of the acquisition agreement, the subsidiary of
Homestore.com purchased certain computers, furniture, fixtures and equipment
with a recorded book value of $255. The subsidiary of Homestore.com also assumed
certain obligations for undelivered tours under certain sales contracts with
residential real estate brokers and agents. The accounts receivable and deferred
revenue recorded by iPIX associated with such tours was $7,454. The Company used
these assets in our operations involving providing virtual tours of residential
real estate properties. As part of the acquisition, Homestore.com's subsidiary
hired certain sales force and customer service personnel and sub-let office
space from the Company. The purchase price for these assets was $12,000 in cash
of which $155 was paid directly to a lessor for certain capital lease
obligations, $7,454 was deposited into control accounts for deferred revenue
obligations and the remainder was paid to the Company. The Company also granted
Homestore.com's subsidiary an exclusive license for certain of IPIX's virtual
tour technology for the domestic residential real estate market. The assets were
related to the pooling of Interactive Pictures Corporation and bamboo.com and
accordingly the gain on the sale of these assets was recorded as an
extraordinary gain in 2001.

6.  BALANCE SHEET ACCOUNTS

PROPERTY AND EQUIPMENT:

The components of property and equipment as of December 31, 2000 and 2001, are
as follows:

<TABLE>
<CAPTION>
                                                                                 2000               2001
                                                                             -----------        -----------

<S>                                                                          <C>                <C>
Furniture and equipment ....................................                 $    26,798        $     7,461
Leasehold improvements .....................................                       1,542                121
                                                                             -----------        -----------
                                                                                  28,340              7,582
Accumulated depreciation and amortization ..................                       7,375              2,968
                                                                             -----------        -----------
Property and equipment, net ................................                 $    20,965        $     4,614
                                                                             ===========        ===========
</TABLE>


                                     F-14
<PAGE>


Property and equipment includes $3,469 and $2,799 of assets held under capital
lease and related accumulated amortization of $844 and $274 at December 31,
2000 and 2001, respectively.

ACCRUED LIABILITIES:

The following table summarizes accrued liabilities as of December 31, 2000 and
2001:

<TABLE>
<CAPTION>
                                                                           2000              2001
                                                                         ---------         ---------

<S>                                                                      <C>               <C>
Accrued liabilities - trade ................................             $   1,284         $   1,208
Accrued salaries and benefits ..............................                 1,352               993
Employee share purchase plan ...............................                 1,047                26
Accrued legal fees .........................................                 1,688               276
Accrued vacation ...........................................                 1,355               485
Accrued advertising ........................................                 3,904                --
Accrued restructuring ......................................                 1,928             1,438
Other liabilities ..........................................                 4,124             3,131
                                                                         ---------         ---------
                                                                         $  16,682         $   7,557
                                                                         =========         =========
</TABLE>

7. INCOME TAXES

The components of the Company's net deferred tax assets (liabilities) as of
December 31, 2000 and 2001, are as follows:

<TABLE>
<CAPTION>
                                                                        2000            2001
                                                                      --------        --------
<S>                                                                   <C>             <C>
Deferred tax assets(liabilities)current:
   Financial reserves                                                 $  4,561        $    848
   Stock-based compensation                                                280             107
   Accrued expenses and deferred revenues                                4,792           2,725
   Other                                                                     8              57
                                                                      --------        --------
                                                                         9,641           3,737
   Valuation allowance                                                  (9,641)         (3,737)
                                                                      --------        --------
   Net current deferred tax assets(liabilities)                       $    --         $     --
                                                                      ========        ========

Deferred tax assets(liabilities)long-term:
   Foreign net operating loss carryforwards                           $  1,087        $     --
   Net operating loss carryforwards                                     85,158           9,756
   Research and development credits                                         45              --
   Intangible assets                                                       175             360
   Depreciation                                                           (255)           (182)
                                                                      --------        --------
                                                                        86,210           9,934
   Valuation Allowance                                                 (86,210)         (9,934)
                                                                      --------        --------
   Net long-term deferred tax assets(liabilities)                     $     --        $     --
                                                                      ========        ========
</TABLE>

At December 31, 2001, the Company has approximately $223,445 and $99,000 of
federal and state, respectively, net operating loss carryforwards, which it may
use to offset future taxable income as described below. The net operating loss
carryforwards, if not utilized, will begin to expire in 2009. To the extent
that net operating loss carryforwards, when realized, relate to stock option
deductions, the resulting benefits will be credited to stockholders' equity.

Internal Revenue Code Section 382 stipulates an annual limitation on the amount
of Federal net operating losses incurred prior to a change in ownership, which
can be utilized to offset the Company's future taxable income. An ownership
change occurred as a result of the conversion of debt and exercise of warrants
into preferred stock on September 26, 2001. The Section 382 limitation has
significantly limited the amount of net operating losses the Company can use in
future years. Accordingly, the Company has included in its deferred tax assets
only the amount of net operating losses that are available after the Section
382 limit. The deferred tax asset and the valuation allowance have each been
reduced by $100,037 to reflect this limitation.


                                     F-15
<PAGE>


The Company has recorded a full valuation allowance against its deferred tax
assets because it believes it is more likely than not that sufficient taxable
income will not be realized during the carryforward period to utilize the
deferred tax asset. Realization of the future tax benefits related to the
deferred tax assets is dependent upon many factors, including the Company's
ability to generate taxable income in the respective tax jurisdiction within
the loss carryforward periods.

The Company's 1999, 2000 and 2001 income tax provision differs from that
obtained by using the U.S. statutory rate of 34% due to the following:


<TABLE>
<CAPTION>
                                                          1999               2000                 2001
                                                         ------             ------               ------

<S>                                                   <C>                <C>                 <C>
Computed "expected" tax benefit                       $  (26,045)        $ (129,865)         $  (18,251)
State income taxes, net of U.S. federal benefits            (949)           (16,174)             (2,267)
Valuation allowance changes affecting the
  provision for income taxes                              19,613             65,114              17,857
Permanent differences                                      7,381             80,925               2,661
                                                      ----------         ----------          ----------
                                                      $       --         $       --          $       --
                                                      ==========         ==========          ==========
</TABLE>

8. DEBT

On May 14, 2001, the Company entered into a definitive agreement with Image
Investor Portfolio, a separate series of Memphis Angels, LLC (Image) for an
investment by Image in the Company. Pursuant to the terms of a securities
purchase agreement between the Company and Image dated as of May 14, 2001,
Image purchased the Company's $10,000 convertible senior secured note (the
Note) and received Tranche A and Tranche B warrants to purchase up to $20,000
of the Company's Series B Preferred Stock.

The warrants were issued in conjunction with the convertible promissory note,
and accordingly, based on APB 14, "Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants" and EITF 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features", the entire proceeds from the
convertible promissory note, $10,000, were allocated to the warrants and the
beneficial conversion feature based on a calculation using the Black-Scholes
model. During the second quarter of 2001, the Company recorded $805 as interest
expense related to the accretion of the convertible promissory note to its face
value over the fifteen month period on the Note. During the third quarter of
2001, the $10,000 Note and the Tranche B warrants were converted to preferred
stock and accordingly the Company recorded $9,195 as interest expense related
to the accretion of the convertible promissory note to its face value.

At December 31, 2001, there are two Tranche A warrants (Warrant 1 and Warrant
2), issued to Paradigm Capital Partners and Memphis Angels, LLC, which are
outstanding. Warrant 1 entitles the holder to purchase 150,000 shares of Series
B Preferred Stock at $20 per share and is exercisable at any time before the
expiration date of May 14, 2006. Warrant 2 entitles the holder to purchase
100,000 shares of Series B Preferred Stock at $40 per share and is exercisable
at any time before the expiration date of May 14, 2006. See Note 9 for the
features of the Series B Preferred Stock conversion to common stock.

9. STOCKHOLDERS' EQUITY

General

The Company's amended and restated certificate of incorporation authorizes the
issuance of up to 150,000,000 shares of common stock, par value $0.001 per
share, 7,421,536 shares of Class B common stock, par value $0.0001 per share
and 5,001,100 shares of preferred stock, par value $0.001 per share. The board
of directors is authorized, without stockholder approval, to issue up to an
aggregate of 5,001,100 shares of preferred stock, $0.001 par value per share,
in one or more series. Included in this amount are 1,100 shares of Series C
redeemable preferred stock. Each series of preferred stock may have the rights
and preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences that the board of directors
determines. There were 1,115,080 shares of Series B preferred stock outstanding
at December 31, 2001.


                                     F-16
<PAGE>


Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the shareholders, and there are no cumulative
voting rights. Holders of common stock may receive dividends after all
dividends that are owed have been paid to holders of preferred stock.

Each holder of Class B common stock is entitled to one vote for each share on
all matters to be voted upon by the stockholders and, except as required by law,
shall have voting rights and powers equal to the voting rights and powers of the
common stock. There are no cumulative voting rights. Holders of Class B common
stock are not entitled to dividends and are not entitled to receive any assets
of the corporation upon dissolution or liquidation. Under the terms of a pairing
agreement with the Canadian subsidiary, bamboo.com Canada, Inc., ("bamboo
Canada") holders of Class B common stock must also hold an equal number of
shares of Series C preferred stock of bamboo Canada. These holders may elect at
any time and for no cost to convert their bamboo Canada Series C preferred stock
into shares of common stock. Upon such a conversion, the Company is required to
redeem the Class B common stock for $0.0001 per share.

Common Stock

In fiscal 1999, the Company recorded unearned stock-based compensation for
restricted common stock granted to service providers of $1,270 including the
effect of the accelerated vesting on the effective date of the Company's
initial public offering.

On July 19, 1999, the Company's board of directors authorized a authorized a
2.8:1 forward common stock split, which was effected prior to the closing of
the public offering on August 25,1999.

In August 1999, the Company completed an initial public offering. Proceeds of
the offering, net of underwriting discount and other direct costs of the
offering, were $87,637. On September 7, 1999, under the terms of the
underwriting agreement covering the initial public offering ("IPO"), the
underwriters exercised their over allotment for shares of our common stock.
Proceeds received, net of underwriting discount, from exercise of the over
allotment option were $2,448. In connection with the initial public offering,
all outstanding preferred stock converted one-for-one into common stock and all
outstanding warrants were exercised.

In May 2000, the Company raised net proceeds of $67,500 from a follow-on
offering of 600,000 shares of common stock.

On August 22, 2001 the shareholders approved a ten-for-one reverse stock split
of all outstanding $0.001 par value common stock and $0.0001 Class B common
stock.

The effect of these stock splits has been retroactively reflected throughout
the financial statements.
Preferred Stock

In February 1999, the Company issued shares of common stock on exercise of
stock purchase rights granted in exchange for services under restricted
purchase agreements. In accordance with the term of the grant, the repurchase
provision expired on the effective date of the Company IPO.

During January and March 1999, the Company issued shares of Series D preferred
stock for gross proceeds of $24,000. In connection with the Series D issuance,
warrants to purchase preferred stock and common stock were issued.

In March 1999, the Company issued Series B preferred stock for total cash
proceeds of $10,687 and for conversion of notes payable and settlement of
accrued interest of $1,808.

In May 1999, the Company issued additional Series B convertible preferred stock
for total cash proceeds of $1,000. In connection with this issuance, the
Company recorded a charge of $1,000 representing a beneficial conversion
feature limited to the proceeds received.


                                     F-17
<PAGE>


In June 1999, the Company entered into an agreement to sell shares of its
Series C mandatorily redeemable preferred stock and shares of its common stock
for total gross proceeds of $11,000. The $11,000 of proceeds from issuance was
allocated to the Series C mandatorily redeemable preferred stock and the common
stock based on their relative fair values. Accordingly, $4,394 was allocated to
the Series C redeemable preferred stock and $6,606 was allocated to the common
stock. Upon completion of the initial public offering in August 1999, the
Company repaid the $11,000. As a result, the Company recognized the entire
discount of $6,606 as an interest charge in the year ended December 31,1999.

In June 1999, the NASD informed the Company that it would consider a portion of
the redeemable convertible preferred stock and redeemable common stock to be
underwriting compensation received in connection with the proposed initial
public offering in excess of the amounts allowable under the NASD's Conduct
Rules. In order to comply with the NASD's Conduct Rules, the Company
repurchased shares of stock, including shares representing the redeemable
convertible preferred stock and the redeemable common stock, for $3,730.

On May 14, 2001, the Company entered into a definitive agreement with Image
Investor Portfolio, a separate series of Memphis Angels, LLC (Image) for an
investment by Image in the Company. Pursuant to the terms of a securities
purchase agreement between the Company and Image dated as of May 14, 2001,
Image purchased the Company's $10,000 convertible senior secured note (the
Note) and received Tranche A and Tranche B warrants to purchase up to $20,000
of the Company's Series B Preferred Stock.

On September 26, 2001, the Company, Image and strategic investors completed the
Tranche B stage of the investment. At this time, the Company issued 1,115,080
shares of the Company's Series B Preferred Stock for total consideration of
$22,302, represented by the conversion of the $10,000 Note, the conversion of
$277 of interest on the Note and $12,025 in cash through the exercise of
Tranche B warrants. The remainder of the Tranche B warrants expired. The
Company recorded a charge of $1,636 to additional paid in capital for costs
incurred related to the Tranche A and Tranche B financings. These costs
consisted primarily of costs of attorneys, accountants and other directly
related external costs.

At December 31, 2001, there are two Tranche A warrants (Warrant 1 and Warrant
2), issued to Paradigm Capital Partners and Memphis Angels, LLC, which are
outstanding. Warrant 1 entitles the holder to purchase 150,000 shares of Series
B Preferred Stock at $20 per share and is exercisable at any time before the
expiration date of May 14, 2006. Warrant 2 entitles the holder to purchase
100,000 shares of Series B Preferred Stock at $40 per share and is exercisable
at any time before the expiration date of May 14, 2006.

Each share of the Series B Preferred Stock is convertible into approximately
9.2 shares of the Company's common stock and is entitled to vote on matters
submitted to holders of common stock on an as-converted basis. However, at any
time that the holders of the Series B Preferred Stock hold more than 50% of the
voting stock of the Company, a voluntary liquidation, dissolution or winding up
of the Company must be approved by at least five of the seven members of the
Company's board of directors.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair values of financial instruments have been estimated using data which the
Company considers the best available. The following estimation methodologies
were used:

CASH AND CASH EQUIVALENTS. Cash and cash equivalents are reflected at carrying
value, which is considered fair value due to the short-term nature of these
instruments.

ACCOUNTS RECEIVABLE. Accounts receivable consists primarily of trade
receivables. The Company has estimated their fair value to be the carrying
value.


                                     F-18
<PAGE>


SECURITIES AVAILABLE-FOR-SALE. The estimated fair value of securities
available-for-sale is based on the quoted market prices for those or similar
investments. Amortized costs approximate fair value.

11. EMPLOYEE STOCK AND BENEFIT PLANS

2001 Equity Compensation Plan.

In 2001, the Company authorized the 2001 Equity Compensation Plan (the "2001
Plan"). The 2001 Plan authorizes the granting of options and restricted stock
awards to acquire up to 6,000,000 shares of common stock. As of December 31,
2001, 3,649,050 options are outstanding under the 2001 Plan. The exercise price
of all options granted is the fair value of the Company's common stock at the
date of grant. The options generally vest over a one to three-year period and
expire ten years from the grant date.

2000 Equity Compensation Plan.

In January 2000, the Company authorized the 2000 Equity Compensation Plan (the
"2000 Plan"). The 2000 Plan authorizes the granting of options and restricted
stock awards to acquire up to 350,000 shares of common stock. As of December
31, 2001, 281,218 options and 50 restricted stock awards are outstanding under
the 2000 Plan. The exercise price of all options granted is the fair value of
the Company's common stock at the date of grant. The options generally vest
over a two-year period and expire ten years from the grant date. No further
options will be granted under this plan. Remaining options not granted under
this plan were transferred to the 2001 Equity Compensation Plan.

1998 Employee, Director and Consultant Stock Option Plan

During 1998, the Company authorized an Employee, Director and Consultant Stock
Option Plan for a total of 238,000 common shares. This plan became effective on
January 1,1999 once the Company was reorganized. During 1999 and 2000, an
additional 579,939 and 112,403, respectively, common shares were authorized
under the Plan. As of December 31, 2001, 60,005 options are outstanding under
the Employee, Director and Consultant Stock Option Plan. Each option under the
incentive plan allows for the purchase of common stock and expires not later
than five or ten years from the date of grant, depending on the ownership of
the option participants. The vesting terms of the stock options will be
determined on each grant date and are generally two or three years; however,
the amount of options that can be exercised per participant in any calendar
year will be restricted to an aggregate fair market value of $100 of the
underlying common stock. No further options will be granted under this plan.
Remaining options not granted under this plan were transferred to the 2000
Equity Compensation Plan.

1997 Equity Compensation Plan

The Company authorized the 1997 Equity Compensation Plan, under which 410,503
shares of common stock are authorized and reserved for issuance to selected
employees, officers, directors, consultants and advisors. The Company reserved
a sufficient number of shares of common stock for issuance pursuant to the
authorized options. As of December 31, 2001, 75,515 options are outstanding
under the 1997 plan. In addition, the Company granted certain options to
purchase shares of common stock to employees not under the 1997 plan; these
options were primarily granted prior to the authorization of the 1997 plan. The
exercise price of all options granted is the fair value of the Company's common
stock at the date of grant as estimated by common stock and convertible
preferred stock transactions with third parties at or near grant dates. The
options generally vest over one to three-year periods and expire five years
after the respective vesting dates. No further options will be granted under
this plan. Remaining options not granted under this plan were transferred to
the 2000 Equity Compensation Plan.

Other Stock Option Plans

The 1994 Stock Option Plan (the "1994 Plan"), the 1996 Stock Option Plan (the
"1996 Plan") and the 1997 Stock Option Plan (the "1997 Plan") were originally
adopted by PictureWorks, Inc., a wholly-owned subsidiary of iPIX, in November
1994, May 1996 and November 1996, respectively. Under the 1994 Plan, eligible


                                     F-19
<PAGE>


employees, directors and consultants could receive options to purchase shares
of the Company's common stock at a price not less than 100% and 50% of the fair
value on the date of the grant for incentive stock options and nonqualified
stock options, respectively. Under the 1996 and 1997 Plans, eligible employees,
directors and consultants who owned less than 10% of all voting classes of
stock could receive options to purchase shares of our common stock at a price
not less than 110% and 85% of fair value on the date of grant of incentive
stock options and nonqualified stock options, respectively. Employees owning
greater than 10% of all voting classes of stock could receive options to
purchase shares at a price not less than 110% of the fair market value for both
incentive and nonqualified stock options. As of December 31, 2001, 34,558
options are outstanding under these plans. The options granted under the Plans
are exercisable over a maximum term of ten years from the date of grant and
generally vest in various installments over a five-year period under the 1994
Plan and a four-year period under the 1996 and 1997 Plans. No further options
or restricted stock awards will be granted under the 1994, 1996 and 1997 Plans.

A summary of the Company's stock option activity is as follows:

<TABLE>
<CAPTION>
                                                         WEIGHTED      WEIGHTED                    WEIGHTED
                                                          AVERAGE       AVERAGE        STOCK       AVERAGE
                                                        OF EXERCISE   GRANT DATE      OPTIONS      EXERCISE
                                           SHARES         PRICES      FAIR VALUE    EXERCISABLE      PRICE
                                        -----------     -----------   ----------    -----------    -------

<S>                                      <C>             <C>           <C>            <C>            <C>
Under option at December 31,
  1998................................     249,944                                    114,338        $18.00
Options granted ......................     949,032       $ 36.40
Options exercised ....................    (220,502)         3.40
Options forfeited or expired .........     (25,692)        49.20
Stock purchase rights granted.........      12,040          1.80
Stock purchase rights
exercised.............................     (12,040)         1.80
                                         ---------
Under option at December 31,
  1999................................     952,782                                    457,924         20.30
                                         =========

Options granted ......................     878,992        223.80       143.10
Options exercised ....................    (433,266)         4.90
Options forfeited or expired .........    (697,299)       175.80
Options through acquisitions..........      73,400         36.80
                                         ---------
Under option at December 31,
  2000................................     774,609                                    287,520         68.40
                                         =========

Options granted ......................   4,227,100          2.43         1.90
Options exercised ....................     (37,977)         1.77
Options forfeited or expired .........    (589,425)        42.30
Options cancelled ....................    (273,961)       147.74
                                         ---------
Under option at December 31,
  2001................................   4,100,346                                    969,056         11.22
                                         =========
</TABLE>

The following table summarizes information about stock options at December 31,
2001:

<TABLE>
<CAPTION>
                                                                            OPTIONS EXERCISABLE
                                 OPTIONS OUTSTANDING                    -----------------------------
                   ------------------------------------------------       NUMBER
                     NUMBER      WEIGHTED-AVERAGE                      EXERCISABLE
   RANGE OF        OUTSTANDING       REMAINING      WEIGHTED-AVERAGE       AT         WEIGHTED-AVERAGE
EXERCISE PRICE     AT 12/31/01   CONTRACTUAL LIFE    EXERCISE PRICE     12/31/01       EXERCISE PRICE
--------------     -----------   ----------------   ----------------   -----------    ----------------
<S>                <C>           <C>                <C>                <C>            <C>
    $1.42-3.50       3,649,097         9.62                  $2.10       652,547             $2.18
   $3.51-10.00         214,099         3.76                  $8.36       142,249             $8.29
  $10.01-30.00          23,980         5.57                 $16.21        19,635            $15.44
 $30.01-388.13         213,170         8.01                $169.73       154,625           $172.69
</TABLE>


                                     F-20
<PAGE>


Stock-Based Compensation Related to Options

In connection with certain stock options granted to employees during the year
ended December 31, 1999, the Company recorded unearned stock-based compensation
totaling $16,750, which is being amortized over the vesting periods of the
related options which are generally two to three years. Amortization of this
stock-based compensation recognized during the years ended December 31, 1999,
2000 and 2001 totaled $13,795, $2,110 and $4,064, respectively.

In accordance with the terms of the original option grants, upon completion of
the initial public offering, options to purchase 192,141 shares of common stock
became fully vested. As a result, additional compensation expense of $2,622 was
recorded in the year ended December 31, 1999.

Options to acquire 71,555 shares of common stock under the 1998 Employee,
Director and Consultant Stock Option Plan, were issued to non-employees during
the year ended December 31, 1999. The fair value of the common stock options
was determined to be $5,610 for 1999 using the Black-Scholes pricing model.
Stock-based compensation related to stock options granted to non-employees was
recognized as earned.

For all other option grants, because the exercise price of the stock options
equaled the deemed fair value of the underlying stock on the date of the grant,
no compensation cost has been recognized in the accompanying financial
statements. Pro forma information regarding net loss is required by Statement
123, and has been determined as if the Company had accounted for its stock
options under the fair value method of Statement 123. The Company has
determined that the difference between historical results and such pro forma
information would have been to increase the net loss by $1,541, $26,509 and
$11,503 in 1999, 2000 and 2001, respectively, and to increase the net loss per
share to $(30.70), $(66.30) and $(9.98) in 1999, 2000 and 2001, respectively.

The minimum fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: expected lives of three to four years in 1999, 2000
and 2001; risk free interest rate of 5.0% to 6.0% in 1999, 6.0% to 6.8% in 2000
and 4.7% to 5.4% in 2001; expected dividends of zero in 1999, 2000 and 2001; and
volatility of 55% to 68% in 1999, 83% to 113% in 2000 and 69% to 192% in 2001.

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (the "Purchase Plan"). Under
the Purchase Plan, employees meeting certain specific employment qualifications
are eligible to participate and can purchase shares of common stock
semi-annually through payroll deductions at the lower of 85% of the fair market
value of the stock on the enrollment date or the fair market value of the stock
at the end of the offering period. The purchase plan permits eligible employees
to purchase common stock through payroll deductions for up to 15% of qualified
compensation. As of December 31, 2001, 445,000 shares were reserved under the
plan. As of December 31, 2001, 79,287 shares had been issued and 365,713 shares
were available for issuance under the purchase plan.

401(k) Plan

The Company has a 401(k) profit sharing plan, which is available to all
full-time employees after six months of service and those part-time employees
who have completed one thousand hours of employment during twelve consecutive
months. During 1999, 2000 and 2001 we matched sixty-five cents per dollar up to
6.15% of the employee's annual salary. The Company made contributions, net of
forfeitures, of $201, $500 and $117 in 1999, 2000 and 2001, respectively.


                                     F-21
<PAGE>


12.      SEGMENT INFORMATION

The Company has two reportable segments. The accounting policies of the segments
are the same as those of the Company. Management evaluates the performance of
the segments and allocates resources to them based on evaluations of the
segment's gross profit. There are no inter-segment revenues. The Company does
not make allocations of corporate costs to the individual segments and does not
identify separate assets of the segments in making decisions regarding
performance or allocation of resources to them.

In fiscal year 2001, the Company organized into two primary business units:
Transaction Services and Immersive Solutions. In addition, as part of the sale
of assets to Homestore.com during the first quarter of 2001, the Company no
longer directly sells full service virtual real estate tours or iPIX keys to
customers in the U.S. residential real estate market. During 2001, the Company
generated $7,550 of revenue, with a gross profit of $3,948, related to full
service virtual real estate tours. The Company expects to generate minimal
future revenues from the sale of full service virtual real estate tours in the
U.S. residential markets.

Of the $28,906 of revenues for 2001, $21,356 was not related to full service
virtual tours. Of the $16,740 of gross profit for 2001, $12,792 was not related
to full service virtual tours. Information about the new 2001 reported segments
is as follows:

<TABLE>
<CAPTION>
                                                 TRANSACTION   IMMERSIVE
                                                  SERVICES     SOLUTIONS      TOTAL
                                                 -----------   ---------      -----
                  <S>                            <C>           <C>            <C>
                  YEARS ENDED DECEMBER 31:
                  2001
                  Revenues ...............        $14,036        $7,320        $21,356

                  Gross profit ...........          8,549         4,243         12,792
</TABLE>

Information about prior reported segments is as follows:

<TABLE>
<CAPTION>
                                                  PRODUCTS     SERVICES        TOTAL
                                                  --------     --------        -----
                  <S>                             <C>          <C>             <C>
                  YEARS ENDED DECEMBER 31:
                  1999
                  Revenues ...............        $12,523       $    --        $12,523

                  Gross profit ...........          5,261            --          5,261

                  2000
                  Revenues ...............        $48,943       $ 4,700        $53,673

                  Gross profit ...........         23,501         2,266         25,767

                  2001
                  Revenues ...............        $14,758       $14,148        $28,906

                  Gross profit ...........          7,553         9,187         16,740
</TABLE>

Revenue and long-lived asset information by geographic area is as follows:

<TABLE>
<CAPTION>
                                                    YEARS ENDED DECEMBER 31,
                                              --------------------------------
                                               1999         2000         2001
                                              ------       ------       ------
                  <S>                        <C>          <C>          <C>
                  REVENUES:
                  United States ..........   $10,092      $45,535      $24,683
                  Canada .................       249        1,608          369
                  Japan ..................       135          390           --
                  Europe .................     1,131        4,630        2,802
                  Other foreign
                    countries ............       916        1,510        1,052
                                             -------      -------      -------
                                             $12,523      $53,673      $28,906
                                             =======      =======      =======
</TABLE>


                                      F-22
<PAGE>

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                                  ------------------------------------
                                                   1999           2000           2001
                                                  -------        ------        -------
<S>                                               <C>            <C>           <C>
LONG-LIVED ASSETS:

                  Foreign ................        $ 2,626        $ 3,285       $    83
                  United States ..........          6,509         17,680         4,531
                                                  -------        -------       -------
                                                  $ 9,135        $20,965       $ 4,614
                                                  =======        =======       =======
</TABLE>

Foreign revenues include all sales made to customers outside the United States,
including those generated by our United Kingdom and Canadian subsidiaries.

13.      COMMITMENTS AND CONTINGENCIES

During April 2000, the Company entered into an agreement to provide visual
content services under which the Company is required to pay $16,000 over a
two-year period. As of September 26, 2001, the Company had paid $9,500 of the
$16,000 commitment and has agreed to extend the additional $6,500 of payments
through September 2003 (see Note 15).

During 2001, the Company sold certain assets totaling approximately $2,900 to a
stockholder and agreed to leaseback those assets over three-year periods from
that stockholder. The net book value and the fair value of the assets sold
equaled the sale price, resulting in no gain or loss on the sales. The monthly
lease payments to the stockholder are $111 in years one and two and $24 in year
three. The lease is accounted for as a capital lease in accordance with FAS No.
13, "Accounting for Leases". During 2000 and 2001, the Company leased from
unrelated parties various equipment, office furniture and other equipment
including computer hardware and software under capital lease arrangements.
During September 2001 this lease was paid off.

At December 31, 2001, the future minimum payments under these and other capital
lease agreements are as follows:

<TABLE>
<S>                                                                              <C>
2002............................................................................ $1,342
2003............................................................................  1,077
2004............................................................................    223
                                                                                 ------
Minimum lease payments..........................................................  2,642
Less: amount representing interest..............................................    114
                                                                                 ------
Principal amount of minimum lease payments......................................  2,528
Less: current portion...........................................................  1,251
                                                                                 ------
Long-term portion                                                                $1,277
                                                                                 ======
</TABLE>

The Company leases certain office space under noncancelable operating leases.
Future minimum lease payments are as follows:

<TABLE>
<S>                                                                         <C>
2002........................................................................$1,683
2003.........................................................................1,008
2004.........................................................................1,023
2005.........................................................................1,045
2006.........................................................................1,075
</TABLE>

Rental expense for operating leases was $1,669, $3,882 and $1,523 for 1999, 2000
and 2001, respectively.

On October 28, 1998, Minds-Eye-View, Inc. and Mr. Ford Oxaal filed a lawsuit
against us in the United States District Court for the Northern District of New
York. Minds-Eye alleged in its lawsuit that the Company breached a duty of
confidence to them, made misrepresentations and misappropriated trade secrets.
The plaintiffs alleged that the Company's technology wrongfully incorporated
trade secrets and other know-how gained from them in breach of various duties.
The court removed this action to


                                      F-23
<PAGE>

arbitration upon the Company's motion, and the Company cross-claimed alleging
various affirmative claims, including trade secret theft. Minds-Eye and Mr.
Oxaal filed a motion to dismiss the suit, and the court dismissed the lawsuit on
May 19, 1999. Although the lawsuit was dismissed, the Company intends to proceed
with the arbitration in Knoxville, Tennessee. The arbitration has been stayed
pending resolution of the following lawsuit.

On May 20, 1999, Mr. Oxaal filed a lawsuit against the Company and certain of
the Company's customers in the same court alleging that the Company's technology
infringes upon a patent claim for 360 degree spherical visual technology held by
him. Mr. Oxaal claims that this alleged infringement is deliberate and willful
and is seeking treble damages against the Company in an unspecified amount plus
interest, an accounting by the Company, costs and attorney's fees, in addition
to a permanent injunction prohibiting the alleged infringement of his patent by
us. Mr. Oxaal filed an additional complaint on December 5, 2000 in the United
States District Court for the Northern District of New York, naming the Company
as the sole defendant. The complaint states a single claim for relief, alleging
infringement of U.S. Patent No. 6,157,385, which issued on December 5, 2000.
This patent encompasses a method of seamlessly combining at least two images
into a spherical image.

The Company has asserted defenses to Mr. Oxaal's claims as the Company believes
the Company did not infringe any valid claims of his patents. The Company
believes that Mr. Oxaal's claims are without merit, and the Company intends to
vigorously defend against his claims. However, if Mr. Oxaal were to prevail in
either of these lawsuits, the Company's financial condition, results of
operations and cash flows could be materially adversely affected.

On May 10, 2001, Stanley Fry, Woodhaven Venture Partners, L.P., Cyrus Greg,
Patrick Oliver and related entities, all of whom are former stockholders of
PictureWorks Technology, Inc. (which we acquired in April 2000) filed a lawsuit
in the Delaware Chancery Court alleging causes of action for failure to timely
issue stock certificates and breach of contract. An unspecified amount of
damages is sought. Discovery proceedings in the case are on-going. The Company
believes that the plaintiffs' claims are without merit, and the Company intends
to vigorously defend against these claims. If the plaintiffs were to prevail in
their action, however, the Company's financial condition, result of operations
in cash flows could be materially adversely affected.

The Company is not currently a party to any other legal proceedings the adverse
outcome of which, individually or in the aggregate, the Company believes could
have a material adverse effect on our business, financial condition or results
of operations.

14.      WARRANTS

On January 6, 2000, the Company issued warrants to purchase a total of 20,000
shares of common stock at an exercise price of $154.70. The warrants vest as
follows: 10,000 six months after the incorporation of immoeuro B.V., 5,000 on
September 30, 2000 and 5,000 on December 31, 2000. The fair value of warrants
was calculated to be $2,700, which was recognized as expense over the two-year
term of the related agreement. The non-cash charges for these warrants totaled
$98 and $244 during 2000 and 2001, respectively.

On April 17, 2000, the Company granted a warrant to purchase 340 shares of
common stock at an exercise price of $40.00. The warrant is fully vested and
exercisable. The fair value of warrants was calculated to be $96, which was
recognized as expense over the 15-month term of the related agreement. The
non-cash charges for the warrant totaled $48 and $0 during 2000 and 2001,
respectively.

On April 19, 2000, the Company issued a warrant to purchase 60,000 shares of
common stock at an exercise price of $203.80. The warrant vests and becomes
exercisable at a rate of 6,667 at the end of each of the following nine
quarters. The fair value of the warrant was calculated to be $9,700, which is
being recognized as expense over the 3.5-year term of the related agreement. The
non-cash charges for the warrant totaled $146 and $78 during 2000 and 2001,
respectively.


                                      F-24
<PAGE>

On May 26, 2000, the Company issued a warrant to purchase 20,000 shares of
common stock at an exercise price of $120.60. The warrant vests as follows:
2,500 on June 30, 2000, 2,500 on September 30, 2000, 2,500 on December 31, 2000,
2,500 on March 31, 2001 and 10,000 on the date the warrant holder is a publicly
traded company. The fair value of the warrant was calculated to be $1,500, which
was recognized as expense over the 25-month term of the related agreement. The
non-cash charges for the warrant totaled $94 and $56 during 2000 and 2001,
respectively.

On May 26, 2000, the Company issued a warrant to purchase 20,000 shares of
common stock at an exercise price of $120.60. The warrant vests as follows:
5,000 on June 30, 2000, 5,000 on September 30, 2000, 5,000 on December 31, 2000
and 5,000 on March 31, 2001. The fair value of the warrant was calculated to be
$1,500, which was recognized as expense over the 11-month term of the related
agreement. The non-cash charges for the warrant totaled $172 and $55 during 2000
and 2001, respectively.

The unvested shares subject to these warrants were revalued at each reporting
date and the revised fair value was expensed upon the vesting of the remaining
shares. As a result, the charges associated with these warrants was and is
subject to substantial increase or decrease based on future changes in the fair
value of the underlying common stock.

At December 31, 2001, there are two Tranche A warrants (Warrant 1 and Warrant
2), issued to Paradigm Capital Partners and Memphis Angels, LLC, which are
outstanding. Warrant 1 entitles the holder to purchase 150,000 shares of Series
B Preferred Stock at $20 per share and is exercisable at any time before the
expiration date of May 14, 2006. Warrant 2 entitles the holder to purchase
100,000 shares of Series B Preferred Stock at $40 per share and is exercisable
at any time before the expiration date of May 14, 2006.

15.      RELATED PARTY TRANSACTIONS

In October 1999, the Company issued shares of common stock to an executive
officer in exchange for a note receivable. The note was repaid during 2000.

During 2000, the Company's CEO at that time obtained a $2,000 loan under a line
of credit made available through his employment agreement dated February 22,
2000. Interest accrued at a rate of 9.5% during 2000 and 5.0% during 2001. The
loan is collateralized by the Company stock owned by the CEO and the stock
options granted pursuant to his employment agreement. At December 21, 2000, the
$2,000 principal amount plus $130 of accrued interest was reflected as contra
equity in the accompanying balance sheet. As part of a separation agreement, the
line of credit was forgiven, along with accrued interest of $163 in May 2001.
Compensation expense related to this forgiveness is included in restructuring
expense for the year ended December 31, 2001.

In September 1996, PictureWorks' President, currently our CEO, exercised his
right under his employment agreement to purchase 39,339 shares of our common
stock in exchange for a full recourse promissory note issued to the Company in
the amount of $126. Interest accrues semiannually at a 6.74% annual rate. The
principal amount of $126 plus accrued interest of $41 and $52 are reflected as
contra equity in the accompanying balance sheet on December 31, 2000 and 2001,
respectively. The note and accrued interest were forgiven. Compensation expense
totaling $178 was recorded for the forgiveness of the principal and accrued
interest.

Transactions with eBay, Inc.

Pursuant to an agreement dated April 19, 2000, as amended, the Company provides
to eBay, Inc., which beneficially owns more than 10% of the Company's common
stock, image management services to eBay's online auction Web sites. Pursuant to
that agreement, the Company issued eBay a warrant to purchase 60,000 shares of
common stock at an exercise price of $203.80 per share. The warrant expires on
April 19, 2010. Under this agreement, the Company generated revenue of $212 and
$6,048 for the years ended December 31, 2000 and 2001, respectively.


                                      F-25
<PAGE>

In September 2001, the Company sold to eBay, and eBay leased back to the
Company, certain computer equipment utilized to provide image management
services to eBay and other customers. The purchase price for the equipment was
approximately $2,300. The transaction resulted in no gain or loss to the
Company. Pursuant to a lease schedule covering this equipment, the Company pays
eBay monthly lease payments of approximately $90 in years 1 and 2 and
approximately $19 in year 3. In 2001, the Company paid eBay $194 of rent
pursuant to this lease schedule.

In December 2001, the Company sold to eBay, and eBay leased back to the Company,
additional computer equipment utilized to provide image management services. The
purchase price for the equipment was approximately $540. The transaction
resulted in no gain or loss to the Company. Pursuant to a lease schedule
covering this equipment, the Company pays eBay monthly lease payments of
approximately $21 in years 1 and 2 and approximately $5 in year 3. In 2001, the
Company paid eBay $20 of rent pursuant to this lease schedule.

Other Transactions

In September 2001, in connection with the closing of the sale of the Series B
Preferred Stock, the Company paid Legacy Securities, Inc. an investment advisory
fee of $200. Mr. Michael Easterly, a director of the Company, is the
principal officer and controlling stockholder of Legacy Securities.

In September 2001, Image Investors converted $10,000 of convertible senior
secured notes into 500,000 shares of the Company's Series B Preferred Stock. In
addition, Image Investors converted $277 of interest into 13,831 shares of
Series B Preferred Stock and purchased an additional 115,000 shares of Series B
Preferred Stock for a purchase price of $2,300. In connection with its
investment in the Company, Image Investors holds warrants to purchase (i)
150,000 shares of Series B Preferred Stock at a purchase price of $20 per share
and (ii) 100,000 shares of Series B Preferred Stock at a purchase price of $40
per share. The warrants expire on May 14, 2006.

SUPPLEMENTAL DATA

<TABLE>
<CAPTION>
                                                                                                   YEARS ENDED DECEMBER 31,
                                                                                               -----------------------------
                                                                                               1999         2000        2001
<S>   <C>                                                                                   <C>           <C>         <C>
Supplemental disclosures:
     Unearned stock-based compensation related to stock option grants and warrants          $16,750       $5,127      $4,499

     Property and equipment acquired under capital leases                                       502        2,744       2,798

     Conversion of notes payable to Series B convertible preferred stock                      1,800           --          --

     Beneficial conversion related to issuance of Series B convertible preferred stock        1,000           --          --

     Exercise of common stock options and warrants in exchange for note receivable              127           --          --

     Interest paid                                                                               66          407         667

     Issuance of common stock for services                                                    1,270           --          --

     Issuance of options for common stock for services                                        5,610           --          --

     Conversion of debenture into Series C preferred stock                                    1,000           --          --

     Conversion of accrued interest into Series B preferred stock                                --           --         277

     Issuance of common stock for portion of placement fee in connection with
        issuance of Series D preferred stock                                                    786           --          --

     Issuance of common stock for advertising alliance fee                                    1,000           --          --
</TABLE>


                                      F-26
<PAGE>

QUARTERLY INFORMATION
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                            QUARTER ENDED
                                                                     -------------------------------------------------------------
                                                     TOTAL            MARCH 31          JUNE 30      SEPTEMBER 30      DECEMBER 31
                                                    ---------        ----------        ---------     ------------      -----------
<S>                                                 <C>               <C>              <C>              <C>              <C>
Fiscal Year 2001:
   Revenue                                          $  28,905         $  9,523         $  7,963         $  6,576         $   4,844
   Gross profit                                     $  16,740         $  4,778         $  4,541         $  4,176         $   3,245
   Net loss                                         $ (53,678)        $(17,108)        $(19,615)        $(14,546)        $  (2,409)
   Net loss per share, basic and diluted (1)        $   (8.22)        $  (2.69)        $  (3.00)        $  (2.19)        $   (0.36)
Fiscal Year 2000:
   Revenue                                          $  53,673         $  8,283         $ 15,489         $ 17,218         $  12,683
   Gross profit                                     $  25,767         $  3,517         $  7,471         $  9,078         $   5,701
   Net loss                                         $(346,595)        $(36,890)        $(47,934)        $(37,712)        $(224,059)
   Net loss per share, basic and diluted (1)        $  (61.56)        $  (7.91)        $  (8.45)        $  (6.24)        $  (36.63)
Fiscal Year 1999:
   Revenue                                          $  12,523         $  1,318         $  2,224         $  3,663         $   5,318
   Gross profit                                     $   5,261         $    657         $    949         $  1,453         $   2,202
   Net loss                                         $ (77,603)        $ (9,731)        $(16,298)        $(28,181)        $ (23,393)
   Net loss per share, basic and diluted (1)        $  (30.13)        $ (11.50)        $ (11.72)        $ (10.81)        $   (5.23)
</TABLE>

(1) The sum of the quarterly earnings per share amounts may differ from annual
earnings per share because of the differences in the weighted average number of
common shares and dilutive potential shares used in the quarterly and annual
computations.


                                      F-27