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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K/A

(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, 2002

OR

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | 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
incorporation or organization |  | (IRS Employer
Identification No.)

3160 Crow Canyon Road, San Ramon, California 94853

---

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, $0.001 par value

---

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





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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 o

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.

x

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2)

Yes o   No x

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of June 28, 2002 was $13,268,972 (based on
the last sale price of $2.00).

The number of shares outstanding of the registrants common stock, $0.001 par
value, as of July 31, 2003 was 7,557,241. On August 22, 2001 our stockholders
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 Information Statement for the Annual Stockholders
Meeting to be held on or about May 6, 2003, to be filed with the Securities and
Exchange Commission pursuant to Regulation 14C under the Securities Exchange
Act of 1934, as amended, are incorporated by reference into Part III of this
report on Form 10-K. Such Information 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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TABLE OF CONTENTS



|                                                  |  |  |  |  |  |  |  | 
|------------------------------------------------- |  |  |  |  |  |  |  | 
|Introductory Note                                
|PART II                                          
|PART IV                                          
|SIGNATURES                                       
|EX-23.1  CONSENT OF PRICEWATERHOUSECOOPERS LLP   
|EX-31.1  SECTION 302 CERTIFICATION OF THE CEO    
|EX-31.2  SECTION 302 CERTIFICATION OF THE CFO    
|EX-32  SECTION 906 CERTIFICATION OF THE CEO & CFO



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Introductory Note

This Form 10-K/A of Internet Pictures Corporation (iPIX, we, us, our,
or the Company) is being filed for the purpose of amending Item 7, and
amending and restating Items 6, 8 and 15 of our Form 10-K filed March 31, 2003
to reflect the recalculation of our earnings (loss) per common share for the
year ended December 31, 2002 and for each of the quarterly periods in the year
then ended. Other than as expressly stated herein, the information in this Form
10-K/A does not reflect any subsequent information or events other than the
recalculation detailed below. The only changes to our previously filed Form
10-K relate to the recalculations discussed below.

The Company has revised its financial statements for the year ended December
31, 2002 and the quarter ended March 31, 2003 to reflect the impact of the
cumulative dividend and participation rights of the Companys convertible
preferred stock on the calculation of earnings (loss) per common share for the
year ended December 31, 2002 and the quarters ended March 31, June 30,
September 30 and December 31, 2002 and the quarter ended March 31, 2003. The
cumulative dividend, whether or not declared, has been reflected as a reduction
in net income (loss) to calculate net income (loss) available to common
shareholders. In addition, the participation right of the preferred stock has
been considered in the calculation of basic earnings (loss) per common share,
if dilutive, using the if converted method or the two class method, if more
dilutive. The revision of earnings (loss) per common share for the periods
indicated above had no effect on reported revenues, gross profit, net income
(loss) or cash balances in any of the periods. See Note 15 to the financial
statements for more discussion on this matter. The effect of the restatement
of earnings (loss) per common share is as follows:

|                                  |  |    |       |    |  |    |       |    |  |         |      |         |  |   |      |  |  |   |       |   |  |   |       |  
|--------------------------------- |  | -- | ----- | -- |  | -- | ----- | -- |  | ------- | ---- | ------- |  | - | ---- |  |  | - | ----- | - |  | - | ----- | -
|                                  |  |    | 2002 
|                                  |  |   
|                                  |  | Q1 |       | Q2 |  | Q3 |       | Q4 |  | FY 2002 |      | Q1 2003
|                                  |  |    |       |    |  |    |       |    |  |         |      |        
|Earnings (loss) per common
share: |  |    |       |    |  |    |       |    |  |         |      |         |  |   |      |  |  |   |       |   |  |   |       |  
|Basic  as reported               |  | $  | (0.22 | )  |  | $  | (0.10 | )  |  | $       | 0.08 |         |  | $ | 0.07 |  |  | $ | (0.17 | ) |  | $ | 0.05  |  
|Basic  restated                  |  | $  | (0.29 | )  |  | $  | (0.17 | )  |  | $       | 0.01 |         |  | $ | 0.00 |  |  | $ | (0.43 | ) |  | $ | (0.01 | )
|Diluted  as reported             |  | $  | (0.22 | )  |  | $  | (0.10 | )  |  | $       | 0.03 |         |  | $ | 0.03 |  |  | $ | (0.17 | ) |  | $ | 0.02  |  
|Diluted  restated                |  | $  | (0.29 | )  |  | $  | (0.17 | )  |  | $       | 0.01 |         |  | $ | 0.00 |  |  | $ | (0.43 | ) |  | $ | (0.01 | )




PART II

Item 6.Selected Financial Data

Selected Historical Financial Information

The statement of operations data presented below for the years ended December
31, 2000, 2001 and 2002 and the balance sheet data as of December 31, 2001 and
2002 have been derived from our audited consolidated financial statements that
are included elsewhere in this report. The statement of operations data for the
years ended December 31, 1998 and 1999 and the balance sheet data as of
December 31, 1998, 1999 and 2000 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.

1



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|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |        |            |        | 
|---------------------------------------------------- | ------------------------------------------ | -------- | ------------------------ | ----- | ------------------------------- | ------ | ------- | ------ | ------- | ------ | -------- | ------- | -------- | ------- | ------- | ------ | ------- | ------ | ------ | ------ | ---------- | ------ | 
|                                                     |                                            |          |                          |       | Fiscal Years Ended December 31,
|                                                     |                                            |          |                          |       |                                
|(In thousands, except per share data)                |                                            | 1998     |                          | 1999  |                                 | 2000   |         | 2001   |         | 2002  
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |       
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |        | (restated)
|Statement of Operations Data                         |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |       
|Revenues:                                            |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |       
|                                                     | Products                                   |          | $                        | 2,789 |                                 |        | $       | 12,523 |         |        | $        | 48,943  |          |         | $       | 14,758 |         |        | $      | 6,512  |           
|                                                     | Services                                   |          |                          | 329   |                                 |        |         |       |         |        |          | 4,730   |          |         |         | 14,148 |         |        |        | 15,901 |           
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |       
|                                                     |                                            |          | 3,118                    |       |                                 |        | 12,523  |        |         |        | 53,673   |         |          |         | 28,906  |        |         |        | 22,413 |       
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |       
|Cost of revenues:                                    |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |       
|                                                     | Products                                   |          |                          | 1,274 |                                 |        |         | 7,660  |         |        |          | 25,555  |          |         |         | 7,270  |         |        |        | 2,145  |           
|                                                     | Services                                   |          |                          | 241   |                                 |        |         |       |         |        |          | 2,516   |          |         |         | 4,991  |         |        |        | 6,583  |           
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |       
|                                                     |                                            |          | 1,515                    |       |                                 |        | 7,660   |        |         |        | 28,071   |         |          |         | 12,261  |        |         |        | 8,728  |       
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |       
|Gross profit                                         |                                            |          | 1,603                    |       |                                 |        | 4,863   |        |         |        | 25,602   |         |          |         | 16,645  |        |         |        | 13,685 |       
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |       
|Operating expenses:                                  |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |       
|                                                     | Sales and marketing                        |          |                          | 9,366 |                                 |        |         | 51,138 |         |        |          | 83,064  |          |         |         | 21,252 |         |        |        | 7,607  |           
|                                                     | Research and development                   |          |                          | 3,018 |                                 |        |         | 6,690  |         |        |          | 14,582  |          |         |         | 7,671  |         |        |        | 4,862  |           
|                                                     | General and administrative                 |          |                          | 4,385 |                                 |        |         | 19,499 |         |        |          | 22,850  |          |         |         | 15,816 |         |        |        | 2,933  |           
|                                                     | 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 |         |        |        | 687    |           
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |       
|                                                     |                                            |          | Total operating expenses |       |                                 | 16,769 |         |        |         | 77,327 |          |         |          | 373,856 |         |        |         | 60,482 |        |        |            | 16,089 | 
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |       
|Loss from operations                                 |                                            |          | (15,166                  | )     |                                 |        | (72,464 | )      |         |        | (348,254 | )       |          |         | (43,837 | )      |         |        | (2,404 | )     
|Interest expense                                     |                                            |          | (202                     | )     |                                 |        | (6,684  | )      |         |        | (436     | )       |          |         | (10,667 | )      |         |        | (183   | )     
|Interest income                                      |                                            |          | 276                      |       |                                 |        | 2,546   |        |         |        | 3,345    |         |          |         | 305     |        |         |        | 456    |       
|Patent infringement award                            |                                            |          |                         |       |                                 |        |        |        |         |        |         |         |          |         |        |        |         |        | 1,000  |       
|Other income (expense), net                          |                                            |          | 27                       |       |                                 |        | (1      | )      |         |        | (1,250   | )       |          |         | (380    | )      |         |        | (12    | )     
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |       
|Net loss before extraordinary gain `                 |                                            |          | (15,065                  | )     |                                 |        | (76,603 | )      |         |        | (346,595 | )       |          |         | (54,579 | )      |         |        | (1,143 | )     
|Extraordinary gain                                   |                                            |          |                         |       |                                 |        |        |        |         |        |         |         |          |         | 901     |        |         |        |       |       
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |       
|                                                     |                                            | Net loss |                          |       | (15,065                         | )      |         |        | (76,603 | )      |          |         | (346,595 | )       |         |        | (53,678 | )      |        |        | (1,143     | )     
|Preferred stock dividends (restated)                 |                                            |          |                         |       |                                 |        | (1,000  | )      |         |        |         |         |          |         |        |        |         |        | (1,784 | )     
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |       
|Net loss available to common stockholders (restated) |                                            | $        | (15,065                  | )     |                                 | $      | (77,603 | )      |         | $      | (346,595 | )       |          | $       | (53,678 | )      |         | $      | (2,927 | )     
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |        |           
|Loss per common share -
basic and diluted (restated) |                                            | $        | (12.22                   | )     |                                 | $      | (30.13  | )      |         | $      | (61.55   | )       |          | $       | (8.22   | )      |         | $      | (0.43  | )     
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |        |           
|Weighted average common shares -
basic and diluted   |                                            |          | 1,233                    |       |                                 |        | 2,576   |        |         |        | 5,631    |         |          |         | 6,534   |        |         |        | 6,794  |       
|                                                     |                                            |          |                          |       |                                 |        |         |        |         |        |          |         |          |         |         |        |         |        |        |        |           

|                                                                                                  |  |                    |       |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------------------------------------------------------- |  | ------------------ | ----- | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                                                                  |  | As of December 31,
|                                                                                                  |  |                   
|                                                                                                  |  | 1998               |       | 1999 |  | 2000 |        | 2001 |  | 2002
|                                                                                                  |  |                    |       |      |  |      |        |      |  |     
|                                                                                                  |  | (In thousands)    
|Balance Sheet Data:                                                                               |  |                    |       |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Cash, cash equivalents, restricted
cash, short-term investments and
securities available for sale |  | $                  | 1,494 |      |  | $    | 73,366 |      |  | $    | 11,035 |  |  | $ | 13,401 |  |  | $ | 5,992  | 
|Working capital (deficit)                                                                         |  |                    | (371  | )    |  |      | 58,617 |      |  |      | 1,174  |  |  |   | 3,506  |  |  |   | 2,418  | 
|Total assets                                                                                      |  |                    | 4,769 |      |  |      | 95,803 |      |  |      | 60,614 |  |  |   | 23,078 |  |  |   | 18,435 | 
|Long-term liabilities                                                                             |  |                    | 21    |      |  |      | 387    |      |  |      | 957    |  |  |   | 2,392  |  |  |   | 1,769  | 
|Total stockholders equity                                                                        |  |                    | 1,310 |      |  |      | 81,041 |      |  |      | 28,213 |  |  |   | 8,770  |  |  |   | 8,392  | 

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Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations

The following chart reflects the revised accounting presentation of earnings
per share based on the reasons set forth in the Introductory Note above.

|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        |            |        | 
|---------------------------------------------------- | ------------------------------------------ | ------------------------ | -------- | ------------------------------------- | ------- | ---- | ------- | ------ | ------ | - | ------ | ---------- | ------ | 
|                                                     |                                            |                          |          | Fiscal Years Ended December 31,      
|                                                     |                                            |                          |          |                                      
|                                                     |                                            |                          |          | 2000                                  |         | 2001 |         | 2002  
|                                                     |                                            |                          |          |                                       |         |      |         |       
|                                                     |                                            |                          |          | (In thousands, except per share data)
|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        | (restated)
|Statement of Operations Data:                        |                                            |                          |          |                                       |         |      |         |        |        |   |        |           
|Revenues:                                            |                                            |                          |          |                                       |         |      |         |        |        |   |        |           
|                                                     | Products                                   |                          | $        | 48,943                                |         |      | $       | 14,758 |        |   | $      | 6,512      |       
|                                                     | Services                                   |                          |          | 4,730                                 |         |      |         | 14,148 |        |   |        | 15,901     |       
|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        |           
|                                                     |                                            |                          | 53,673   |                                       |         |      | 28,906  |        |        |   | 22,413 |           
|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        |           
|Cost of revenues:                                    |                                            |                          |          |                                       |         |      |         |        |        |   |        |           
|                                                     | Products                                   |                          |          | 25,555                                |         |      |         | 7,270  |        |   |        | 2,145      |       
|                                                     | Services                                   |                          |          | 2,516                                 |         |      |         | 4,991  |        |   |        | 6,583      |       
|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        |           
|                                                     |                                            |                          | 28,071   |                                       |         |      | 12,261  |        |        |   | 8,728  |           
|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        |           
|Gross profit                                         |                                            |                          | 25,602   |                                       |         |      | 16,645  |        |        |   | 13,685 |           
|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        |           
|Operating expenses:                                  |                                            |                          |          |                                       |         |      |         |        |        |   |        |           
|                                                     | Sales and marketing                        |                          |          | 83,064                                |         |      |         | 21,252 |        |   |        | 7,607      |       
|                                                     | Research and development                   |                          |          | 14,582                                |         |      |         | 7,671  |        |   |        | 4,862      |       
|                                                     | General and administrative                 |                          |          | 22,850                                |         |      |         | 15,816 |        |   |        | 2,933      |       
|                                                     | 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 |        |   |        | 687        |       
|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        |           
|                                                     |                                            | Total operating expenses |          |                                       | 373,856 |      |         |        | 60,482 |   |        |            | 16,089 | 
|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        |           
|Loss from operations                                 |                                            |                          | (348,254 | )                                     |         |      | (43,837 | )      |        |   | (2,404 | )         
|Interest expense                                     |                                            |                          | (436     | )                                     |         |      | (10,667 | )      |        |   | (183   | )         
|Interest income                                      |                                            |                          | 3,345    |                                       |         |      | 305     |        |        |   | 456    |           
|Patent infringement award                            |                                            |                          |         |                                       |         |      |        |        |        |   | 1,000  |           
|Other expense                                        |                                            |                          | (1,250   | )                                     |         |      | (380    | )      |        |   | (12    | )         
|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        |           
|Net loss before extraordinary gain                   |                                            |                          | (346,595 | )                                     |         |      | (54,579 | )      |        |   | (1,143 | )         
|Extraordinary gain                                   |                                            |                          |         |                                       |         |      | 901     |        |        |   |       |           
|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        |           
|Net loss                                             |                                            |                          | (346,595 | )                                     |         |      | (53,678 | )      |        |   | (1,143 | )         
|Preferred stock dividends (restated)                 |                                            |                          |         |                                       |         |      |        |        |        |   | (1,784 | )         
|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        |           
|Net loss available to common stockholders (restated) |                                            | $                        | (346,595 | )                                     |         | $    | (53,678 | )      |        | $ | (2,927 | )         
|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        |            |       
|Loss per common share  basic and diluted (restated) |                                            | $                        | (61.55   | )                                     |         | $    | (8.22   | )      |        | $ | (0.43  | )         
|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        |            |       
|Weighted average common shares  basic and diluted   |                                            |                          | 5,631    |                                       |         |      | 6,534   |        |        |   | 6,794  |           
|                                                     |                                            |                          |          |                                       |         |      |         |        |        |   |        |            |       

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Item 8.Financial Statements and Supplementary Data.

The consolidated financial statements and financial statement schedule of the
Company, together with the reports thereon of PricewaterhouseCoopers, LLP,
independent accountants, are set forth on the pages indicated in item 15 (a)
below of this Annual Report on Form 10-K/A.

This Form 10-K/A 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.




PART IV

Item 15.Exhibits, Financial Statement Schedules and Reports on form 8-K.

(a)

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

|                                                                                                                          |  |      |     | 
|------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                          |  | Page
|                                                                                                                          |  |     
|Internet Pictures Corporation Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 2001 and 2002 |  |      | F-2 | 
|Consolidated Statements of Operations for the years ended December 31, 2000, 2001
and 2002                                |  |      | F-3 | 
|Consolidated Statements of Changes in Stockholders Equity
for the years ended December 31, 2000, 2001 and 2002           |  |      | F-4 | 
|Consolidated Statements of Cash Flows for the years ended December 31,
2000, 2001 and 2002                                |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                                                |  |      | F-7 | 

(2) Except as provided below, all schedules have been omitted because they
are not required or because the required information is contained in the
financial statements or notes thereto.

Report Of Independent Accountants On
Financial Statement Schedule

To the Board of Directors and Stockholders of
Internet Pictures Corporation:

Our audits of the consolidated financial statements referred to in our report
dated March 27, 2003, except for Note 15 which is as of August 13, 2003,
appearing in this Annual Report on Form 10-K/A also included an audit of the
financial statement schedule listed in Item 15 (a)(2) of this Form 10-K/A. In
our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP

San Jose, California
March 27, 2003



VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS 2000, 2001 AND 2002

AdditionsBalance
    
    (deductions)
    
    Write-offs
    
    Balance atBeginning
    
    Charged to
    
    and
    
    End ofDescription
    
    of Period
    
    Expense
    
    Deductions
    
    Period2000Allowance for Doubtful
Accounts
    
    $
    198
    
    
    $
    4,419
    
    
    $
    
    
    
    $
    4,617Valuation Allowance on
Deferred Tax Assets
    
    
    (30,737
    )
    
    
    
    
    
    
    (65,114
    )
    
    
    (95,851
    )Provision for Excess and
Obsolete Inventory
    
    
    55
    
    
    
    145
    
    
    
    3
    
    
    
    2032001Allowance for Doubtful
Accounts
    
    
    4,617
    
    
    
    4,421
    
    
    
    (6,867
    )
    
    
    2,171Valuation Allowance on
Deferred Tax Assets
    
    
    (95,851
    )
    
    
    
    
    
    
    82,180
    
    
    
    (13,671
    )Provision for Excess and
Obsolete Inventory
    
    
    203
    
    
    
    276
    
    
    
    14
    
    
    
    4932002Allowance for Doubtful
Accounts
    
    
    2,171
    
    
    
    (279
    )
    
    
    (1,684
    )
    
    
    208Valuation Allowance on
Deferred Tax Assets
    
    
    (13,671
    )
    
    
    
    
    
    
    (7,051
    )
    
    
    (20,722
    )Provision for Excess and
Obsolete Inventory
    
    
    493
    
    
    
    
    
    
    
    (333
    )
    
    
    160




|(b) |  | Reports on Form 8-K.
|--- |  | --------------------

The Company filed no reports on Form 8-K during the quarter ended December
31, 2002.



4



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##### Table of Contents



(c)  Exhibits



| |                                                                        
| | -----------------------------------------------------------------------
| | The following exhibits are filed herewith or incorporated by reference:

|        |  |                                                                                                                                                                                                                                                            
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                            
|Number  |  | Description                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                            
|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*   |  | 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).                                                   
|        |  |                                                                                                                                                                                                                                                            
|10.2*   |  | 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).                                                         
|        |  |                                                                                                                                                                                                                                                            
|10.3*   |  | Employment Agreement dated July 1, 2001 between Internet Pictures
Corporation and Sarah Pate (incorporated herein by reference to Form
10-K as filed with the Commission on March 31, 2003).                                                               

5



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##### Table of Contents



|        |  |                                                                                                                                                                                                                      
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                      
|Number  |  | Description                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                      
|10.4*   |  | Employment Agreement dated May 31, 2001 between Internet Pictures
Corporation and Matthew S. Heiter (incorporated herein by reference to
Form 10-K as filed with the Commission on March 29, 2002)                   
|        |  |                                                                                                                                                                                                                      
|10.5    |  | 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).                                       
|        |  |                                                                                                                                                                                                                      
|10.6    |  | 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))                                                        
|        |  |                                                                                                                                                                                                                      
|10.7    |  | 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)).                                   
|        |  |                                                                                                                                                                                                                      
|10.8    |  | 1999 Employee Stock Purchase Plan (incorporated herein by reference to
Form S-4 as declared effective on December 16, 1999 (File No. 91139)                                                                          
|        |  |                                                                                                                                                                                                                      
|10.9    |  | 2000 Equity Incentive Plan (incorporated herein by reference to Form
S-8 as declared effective on June 27, 2000 (File No. 333-40160).                                                                                
|        |  |                                                                                                                                                                                                                      
|10.10   |  | 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))                                                        
|        |  |                                                                                                                                                                                                                      
|10.11   |  | 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))                                                        
|        |  |                                                                                                                                                                                                                      
|10.12   |  | 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))                                                        
|        |  |                                                                                                                                                                                                                      
|10.13   |  | 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)).        
|        |  |                                                                                                                                                                                                                      
|10.14   |  | 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).
|        |  |                                                                                                                                                                                                                      
|10.15** |  | 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).      
|        |  |                                                                                                                                                                                                                      
|10.16** |  | 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).                     
|        |  |                                                                                                                                                                                                                      
|10.17   |  | 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).                       

6



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|        |  |                                                                                                                                                                                                   
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                   
|Number  |  | Description                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                   
|10.18   |  | 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).
|        |  |                                                                                                                                                                                                   
|10.19   |  | Purchase Agreement between Internet Pictures Corporation and eBay Inc.
dated December 1, 2001(incorporated herein by reference to Form 10-K
filed with the Commission on March 29, 2002).         
|        |  |                                                                                                                                                                                                   
|10.20   |  | Purchase Agreement No. 3 between the Company and eBay Inc. dated May
31, 2002 (incorporated herein by reference to Form 10-Q filed with
the Commission on August 13, 2002).                       
|        |  |                                                                                                                                                                                                   
|21.1    |  | Subsidiaries of the Registrant. (incorporated herein by reference to
Form 10-K filed with the Commission on March 31, 2003)                                                                       
|        |  |                                                                                                                                                                                                   
|23.1#   |  | Consent of PricewaterhouseCoopers LLP                                                                                                                                                             
|        |  |                                                                                                                                                                                                   
|24.1    |  | Power of Attorney (incorporated herein by reference to Form 10-k filed
with the Commission on March 31, 2002)                                                                                     
|        |  |                                                                                                                                                                                                   
|31.1#   |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                           
|        |  |                                                                                                                                                                                                   
|31.2#   |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                           
|        |  |                                                                                                                                                                                                   
|32#     |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002                                                                            



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

7



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##### Table of Contents






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:                           |  | *                                                         
|                                   |  |                               |  |                                                           
|                                   |  |                               |  | Donald W. Strickland
President and Chief Executive Officer
|                                   |  |                               |  |                                                           
|                                   |  | Date: August 14, 2003        
|* By Paul Farmer,
Attorney-in-Fact |  |                               |  |                                                           
|                                   |  |                               |  |                                                           
|/s/ Paul Farmer                    |  |                               |  |                                                           
|                                   |  |                               |  |                                                           
|Paul Farmer,
Attorney-in-Fact      |  |                               |  |                                                           

8



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##### Table of Contents



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.

|                                                 |  |                                                    |  |                
|------------------------------------------------ |  | -------------------------------------------------- |  | ---------------
|Signature                                        |  | Title                                              |  | Date           
|                                                 |  |                                                    |  |                
|/s/            *Donald W. Strickland             |  | President, Chief Executive Officer and
Director    |  | August 14, 2003
|                                                
|/s/ Paul FarmerPaul A. Farmer                    |  | Chief Financial Officer (Chief
Accounting Officer) |  | August 14, 2003
|                                                
|/s/                      *David M. Wilds         |  | Chairman of the Board of Directors                 |  | August 14, 2003
|                                                
|/s/                      *Gregory S. Daily       |  | Director                                           |  | August 14, 2003
|                                                
|Michael D. Easterly                              |  | Director                                           |  |                
|                                                
|/s/                         *Thomas M. Garrott   |  | Director                                           |  | August 14, 2003
|                                                
|/s/                       *Laban P. Jackson, Jr. |  | Director                                           |  | August 14, 2003
|                                                
|/s/                       *Andrew P. Seamons     |  | Director                                           |  | August 14, 2003
|                                                
|*By Paul Farmer,
Attorney-in-Fact                |  |                                                    |  |                
|                                                
|/s/ Paul FarmerPaul Farmer,
Attorney-in-Fact     |  |                                                    |  |                

9



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##### Table of Contents



REPORT OF INDEPENDENT ACCOUNTANTS

To 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, of 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, 2001 and 2002 and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2002, 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 statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

As discussed in Note 15, the Company has revised its 2002 financial statements
to reflect the impact of the cumulative dividend and participation rights of
its preferred stock in the calculation of earnings (loss) per share.

As discussed in Note 5 to the consolidated financial statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill in
accordance with Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets.

/s/ PricewaterhouseCoopers LLP

San Jose, California

March 27, 2003, except for
Note 15 which is as of
August 13, 2003

F-1



---



##### Table of Contents



INTERNET PICTURES CORPORATION
CONSOLIDATED BALANCE SHEETS

|                                                                                               |                                                                               |   |                              |        |      |   |          |        | 
|---------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | - | ---------------------------- | ------ | ---- | - | -------- | ------ | 
|                                                                                               |                                                                               |   | DECEMBER 31,                
|                                                                                               |                                                                               |   |                             
|                                                                                               |                                                                               |   | 2001                         |        | 2002
|                                                                                               |                                                                               |   |                              |        |     
|                                                                                               |                                                                               |   | (In thousands, except       
|                                                                                               |                                                                               |   | share and per share amounts)
|ASSETS                                                                                         |                                                                               |   |                              |        |      |   |          |       
|CURRENT ASSETS:                                                                                |                                                                               |   |                              |        |      |   |          |       
|Cash and cash equivalents                                                                      |                                                                               | $ | 11,103                       |        |      | $ | 3,020    |       
|Restricted cash and short-term investments                                                     |                                                                               |   | 2,298                        |        |      |   | 2,972    |       
|Accounts receivable, net of allowance for doubtful accounts of
$2,171 in 2001 and $208 in 2002 |                                                                               |   | 921                          |        |      |   | 3,535    |       
|Inventory, net of reserve for obsolescence of $493 in 2001 and
$160 in 2002                    |                                                                               |   | 219                          |        |      |   | 181      |       
|Prepaid expenses and other current assets                                                      |                                                                               |   | 881                          |        |      |   | 984      |       
|                                                                                               |                                                                               |   |                              |        |      |   |          |       
|                                                                                               | Total current assets                                                          |   |                              | 15,422 |      |   |          | 10,692 | 
|Computer hardware, software and other, net                                                     |                                                                               |   | 4,614                        |        |      |   | 4,631    |       
|Other assets                                                                                   |                                                                               |   |                             |        |      |   | 70       |       
|Goodwill                                                                                       |                                                                               |   | 3,042                        |        |      |   | 3,042    |       
|                                                                                               |                                                                               |   |                              |        |      |   |          |       
|                                                                                               | Total assets                                                                  |   | $                            | 23,078 |      |   | $        | 18,435 | 
|                                                                                               |                                                                               |   |                              |        |      |   |          |       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                           |                                                                               |   |                              |        |      |   |          |       
|CURRENT LIABILITIES:                                                                           |                                                                               |   |                              |        |      |   |          |       
|Accounts payable                                                                               |                                                                               | $ | 1,500                        |        |      | $ | 360      |       
|Accrued liabilities                                                                            |                                                                               |   | 7,557                        |        |      |   | 5,426    |       
|Deferred revenue                                                                               |                                                                               |   | 1,592                        |        |      |   | 85       |       
|Current portion of obligations under capital leases                                            |                                                                               |   | 1,267                        |        |      |   | 2,403    |       
|                                                                                               |                                                                               |   |                              |        |      |   |          |       
|                                                                                               | Total current liabilities                                                     |   |                              | 11,916 |      |   |          | 8,274  | 
|                                                                                               |                                                                               |   |                              |        |      |   |          |       
|Obligations under capital leases, net of current portion                                       |                                                                               |   | 1,277                        |        |      |   | 1,459    |       
|                                                                                               |                                                                               |   |                              |        |      |   |          |       
|Other non-current liabilities                                                                  |                                                                               |   | 1,115                        |        |      |   | 310      |       
|                                                                                               |                                                                               |   |                              |        |      |   |          |       
|Commitments and contingencies (Note 12)                                                        |                                                                               |   |                              |        |      |   |          |       
|STOCKHOLDERS EQUITY:                                                                          |                                                                               |   |                              |        |      |   |          |       
|Preferred stock, $0.001 par value:                                                             |                                                                               |   | 1                            |        |      |   | 1        |       
|                                                                                               | Authorized: 5,001,100 shares in 2001 and 2002                                 |   |                              |        |      |   |          |        | 
|                                                                                               | Issued and outstanding: 1,115,080 shares in 2001 and 2002                     |   |                              |        |      |   |          |        | 
|                                                                                               | (Aggregate liquidation value: $22,775 in 2001,
$24,560 in 2002)               |   |                              |        |      |   |          |        | 
|Common stock, $0.001 par value:                                                                |                                                                               |   | 65                           |        |      |   | 65       |       
|                                                                                               | Authorized: 150,000,000 in 2001 and 50,000,000 in 2002                        |   |                              |        |      |   |          |        | 
|                                                                                               | Issued and outstanding: 6,729,869 shares in 2001 and 6,795,007 shares in 2002 |   |                              |        |      |   |          |        | 
|Class B common stock, $0.0001 par value:                                                       |                                                                               |   |                             |        |      |   |         |       
|                                                                                               | Authorized: 7,421,536 shares in 2001 and 2002                                 |   |                              |        |      |   |          |        | 
|                                                                                               | Issued and outstanding: 17,948 shares in 2001 and 2002                        |   |                              |        |      |   |          |        | 
|Additional paid-in capital                                                                     |                                                                               |   | 513,468                      |        |      |   | 513,937  |       
|Note receivable from stockholder                                                               |                                                                               |   | (179                         | )      |      |   |         |       
|Unearned stock-based compensation                                                              |                                                                               |   | (142                         | )      |      |   |         |       
|Accumulated deficit                                                                            |                                                                               |   | (503,974                     | )      |      |   | (505,117 | )     
|Accumulated other comprehensive loss                                                           |                                                                               |   | (469                         | )      |      |   | (494     | )     
|                                                                                               |                                                                               |   |                              |        |      |   |          |       
|                                                                                               | Total stockholders equity                                                    |   |                              | 8,770  |      |   |          | 8,392  | 
|                                                                                               |                                                                               |   |                              |        |      |   |          |       
|                                                                                               | Total liabilities and stockholders equity                                    |   | $                            | 23,078 |      |   | $        | 18,435 | 
|                                                                                               |                                                                               |   |                              |        |      |   |          |       

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

F-2



---



##### Table of Contents



INTERNET PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                     |  |                                          |          |      |  |      |         |   |  |            |        |  
|---------------------------------------------------- |  | ---------------------------------------- | -------- | ---- |  | ---- | ------- | - |  | ---------- | ------ | -
|                                                     |  | YEARS ENDED DECEMBER 31,                
|                                                     |  |                                         
|                                                     |  | 2000                                     |          | 2001 |  | 2002
|                                                     |  |                                          |          |      |  |     
|                                                     |  |                                          |          |      |  |      |         |   |  | (restated)
|                                                     |  | (In thousands, except per share amounts)
|REVENUES:                                            |  |                                          |          |      |  |      |         |   |  |            |        |  
|Products                                             |  | $                                        | 48,943   |      |  | $    | 14,758  |   |  | $          | 6,512  |  
|Services                                             |  |                                          | 4,730    |      |  |      | 14,148  |   |  |            | 15,901 |  
|                                                     |  |                                          |          |      |  |      |         |   |  |            |        |  
|                                                     |  |                                          | 53,673   |      |  |      | 28,906  |   |  |            | 22,413 |  
|                                                     |  |                                          |          |      |  |      |         |   |  |            |        |  
|COST OF REVENUES:                                    |  |                                          |          |      |  |      |         |   |  |            |        |  
|Products                                             |  |                                          | 25,555   |      |  |      | 7,270   |   |  |            | 2,145  |  
|Services                                             |  |                                          | 2,516    |      |  |      | 4,991   |   |  |            | 6,583  |  
|                                                     |  |                                          |          |      |  |      |         |   |  |            |        |  
|                                                     |  |                                          | 28,071   |      |  |      | 12,261  |   |  |            | 8,728  |  
|                                                     |  |                                          |          |      |  |      |         |   |  |            |        |  
|Gross profit                                         |  |                                          | 25,602   |      |  |      | 16,645  |   |  |            | 13,685 |  
|                                                     |  |                                          |          |      |  |      |         |   |  |            |        |  
|OPERATING EXPENSES:                                  |  |                                          |          |      |  |      |         |   |  |            |        |  
|Sales and marketing                                  |  |                                          | 83,064   |      |  |      | 21,252  |   |  |            | 7,607  |  
|Research and development                             |  |                                          | 14,582   |      |  |      | 7,671   |   |  |            | 4,862  |  
|General and administrative                           |  |                                          | 22,850   |      |  |      | 15,816  |   |  |            | 2,933  |  
|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  |   |  |            | 687    |  
|                                                     |  |                                          |          |      |  |      |         |   |  |            |        |  
|Total operating expenses                             |  |                                          | 373,856  |      |  |      | 60,482  |   |  |            | 16,089 |  
|                                                     |  |                                          |          |      |  |      |         |   |  |            |        |  
|Loss from operations                                 |  |                                          | (348,254 | )    |  |      | (43,837 | ) |  |            | (2,404 | )
|OTHER INCOME (EXPENSE):                              |  |                                          |          |      |  |      |         |   |  |            |        |  
|Interest expense                                     |  |                                          | (436     | )    |  |      | (10,667 | ) |  |            | (183   | )
|Interest income                                      |  |                                          | 3,345    |      |  |      | 305     |   |  |            | 456    |  
|Patent infringement award                            |  |                                          |         |      |  |      |        |   |  |            | 1,000  |  
|Other                                                |  |                                          | (1,250   | )    |  |      | (380    | ) |  |            | (12    | )
|                                                     |  |                                          |          |      |  |      |         |   |  |            |        |  
|Net loss before extraordinary gain                   |  |                                          | (346,595 | )    |  |      | (54,579 | ) |  |            | (1,143 | )
|Extraordinary gain                                   |  |                                          |         |      |  |      | 901     |   |  |            |       |  
|                                                     |  |                                          |          |      |  |      |         |   |  |            |        |  
|Net loss                                             |  |                                          | (346,595 | )    |  |      | (53,678 | ) |  |            | (1,143 | )
|Preferred stock dividends (restated)                 |  |                                          |         |      |  |      |        |   |  |            | (1,784 | )
|                                                     |  |                                          |          |      |  |      |         |   |  |            |        |  
|Net loss available to common stockholders (restated) |  | $                                        | (346,595 | )    |  | $    | (53,678 | ) |  | $          | (2,927 | )
|                                                     |  |                                          |          |      |  |      |         |   |  |            |        |  
|Loss per common share  basic and diluted (restated) |  | $                                        | (61.55   | )    |  | $    | (8.22   | ) |  | $          | (0.43  | )
|                                                     |  |                                          |          |      |  |      |         |   |  |            |        |  
|Shares used  basic and diluted                      |  |                                          | 5,631    |      |  |      | 6,534   |   |  |            | 6,794  |  
|                                                     |  |                                          |          |      |  |      |         |   |  |            |        |  

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

F-3



---



##### Table of Contents



INTERNET PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE PERIOD FROM JANUARY 1, 2000 TO DECEMBER 31, 2002
(In thousands, except share amounts)

|                                                     |  |              |          |        |  |        |    |              |  |         |           |  |  |   |    |            |  |   |         |  
|---------------------------------------------------- |  | ------------ | -------- | ------ |  | ------ | -- | ------------ |  | ------- | --------- |  |  | - | -- | ---------- |  | - | ------- | -
|                                                     |  | Class B      |          |        |  |        |    |              |  |         |           |  |  |   |    | Additional
|                                                     |  | Common Stock |          |        |  |        |    | Common Stock |  | Paid-in
|                                                     |  | Number       |          | Amount |  | Number |    | Amount       |  | Capital
|                                                     |  |              |          |        |  |        |    |              |  |        
|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 employee stock purchase plan       |  |              |         |        |  |        |   |              |  |         | 49,539    |  |  |   |   |            |  |   | 1,387   |  
|Stock issued from option exchange program            |  |              |         |        |  |        |   |              |  |         | 245,181   |  |  |   | 3  |            |  |   | 3,197   |  
|Notes receivable from stockholders                   |  |              |         |        |  |        |   |              |  |         |          |  |  |   |   |            |  |   |        |  
|Repayment of notes from stockholders                 |  |              |         |        |  |        |   |              |  |         |          |  |  |   |   |            |  |   |        |  
|Unearned stock-based compensation                    |  |              |         |        |  |        |   |              |  |         |          |  |  |   |   |            |  |   | 2,333   |  
|Amortization of unearned stock-based compensation    |  |              |         |        |  |        |   |              |  |         |          |  |  |   |   |            |  |   |        |  
|Net loss                                             |  |              |         |        |  |        |   |              |  |         |          |  |  |   |   |            |  |   |        |  
|Other comprehensive income                           |  |              |         |        |  |        |   |              |  |         |          |  |  |   |   |            |  |   |        |  
|                                                     |  |              |          |        |  |        |    |              |  |         |           |  |  |   |    |            |  |   |         |  
|Balances, December 31, 2000                          |  |              | 404,173  |        |  | $      |   |              |  |         | 5,946,402 |  |  | $ | 59 |            |  | $ | 484,098 |  
|                                                     |  |              |          |        |  |        |    |              |  |         |           |  |  |   |    |            |  |   |         |  

|                                                     |  |              |        |              |  |               |        |             |  |       |    |  |  |   |          |   |  |   |          |  
|---------------------------------------------------- |  | ------------ | ------ | ------------ |  | ------------- | ------ | ----------- |  | ----- | -- |  |  | - | -------- | - |  | - | -------- | -
|                                                     |  | Notes        |        |              |  |               |        | Accumulated |  |       |    |  |  |   |          |  
|                                                     |  | Receivable   |        | Unearned     |  | Other         |        |             |  |       |    |  |  |  
|                                                     |  | From         |        | Stock-Based  |  | Comprehensive |        | Accumulated |  |       |    | 
|                                                     |  | Stockholders |        | Compensation |  | Income        |        | Deficit     |  | Total
|                                                     |  |              |        |              |  |               |        |             |  |      
|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 employee stock purchase plan       |  |              |       |              |  |               |       |             |  |       |   |  |  |   |         |   |  |   | 1,387    |  
|Stock issued from option exchange program            |  |              |       |              |  |               | (3,200 | )           |  |       |   |  |  |   |         |   |  |   |         |  
|Notes receivable from stockholders                   |  |              | (2,349 | )            |  |               |       |             |  |       |   |  |  |   |         |   |  |   | (2,349   | )
|Repayment of notes from stockholders                 |  |              | 181    |              |  |               |       |             |  |       |   |  |  |   |         |   |  |   | 181      |  
|Unearned stock-based compensation                    |  |              |       |              |  |               | (2,333 | )           |  |       |   |  |  |   |         |   |  |   |         |  
|Amortization of unearned 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   |  
|                                                     |  |              |        |              |  |               |        |             |  |       |    |  |  |   |          |   |  |   |          |  

|                                                  |  |              |          |        |  |        |   |                 |  |              |           |        |  |         |   |         |  |  |           |  |  |   |    |            |  |   |         |  
|------------------------------------------------- |  | ------------ | -------- | ------ |  | ------ | - | --------------- |  | ------------ | --------- | ------ |  | ------- | - | ------- |  |  | --------- |  |  | - | -- | ---------- |  | - | ------- | -
|                                                  |  | Class B      |          |        |  |        |   |                 |  |              |           |        |  |         |   |         |  |  |           |  |  |   |    | Additional
|                                                  |  | Common Stock |          |        |  |        |   | Preferred Stock |  | Common Stock |           |        |  |         |   | Paid-in
|                                                  |  | Number       |          | Amount |  | Number |   | Amount          |  | Number       |           | Amount |  | Capital
|                                                  |  |              |          |        |  |        |   |                 |  |              |           |        |  |        
|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 employee stock purchase plan    |  |              |         |        |  |        |  |                 |  |              |          |        |  |         |  |         |  |  | 31,581    |  |  |   |   |            |  |   | 86      |  
|Stock issued from option exchange program         |  |              |         |        |  |        |  |                 |  |              |          |        |  |         |  |         |  |  | 137,684   |  |  |   | 1  |            |  |   | 968     |  
|Notes receivable from stockholders                |  |              |         |        |  |        |  |                 |  |              |          |        |  |         |  |         |  |  |          |  |  |   |   |            |  |   |        |  
|Unearned stock-based compensation                 |  |              |         |        |  |        |  |                 |  |              |          |        |  |         |  |         |  |  |          |  |  |   |   |            |  |   | 310     |  
|Sale of convertible debt and preferred stock      |  |              |         |        |  |        |  |                 |  |              | 1,115,080 |        |  |         | 1 |         |  |  |          |  |  |   |   |            |  |   | 30,962  |  
|Amortization of unearned stock-based compensation |  |              |         |        |  |        |  |                 |  |              |          |        |  |         |  |         |  |  |          |  |  |   |   |            |  |   |        |  
|Dividend to stockholder                           |  |              |         |        |  |        |  |                 |  |              |          |        |  |         |  |         |  |  | 190,000   |  |  |   | 2  |            |  |   | (2,981  | )
|Conversion of Class B common stock                |  |              | (386,225 | )      |  |        |  |                 |  |              |          |        |  |         |  |         |  |  | 386,225   |  |  |   | 3  |            |  |   | (3      | )
|Net loss                                          |  |              |         |        |  |        |  |                 |  |              |          |        |  |         |  |         |  |  |          |  |  |   |   |            |  |   |        |  
|Other comprehensive loss                          |  |              |         |        |  |        |  |                 |  |              |          |        |  |         |  |         |  |  |          |  |  |   |   |            |  |   |        |  
|                                                  |  |              |          |        |  |        |   |                 |  |              |           |        |  |         |   |         |  |  |           |  |  |   |    |            |  |   |         |  
|Balances, December 31, 2001                       |  |              | 17,948   |        |  | $      |  |                 |  |              | 1,115,080 |        |  | $       | 1 |         |  |  | 6,729,869 |  |  | $ | 65 |            |  | $ | 513,468 |  
|                                                  |  |              |          |        |  |        |   |                 |  |              |           |        |  |         |   |         |  |  |           |  |  |   |    |            |  |   |         |  

|                                                  |  |              |        |              |  |               |        |             |  |       |      |   |  |   |          |   |  |   |         |  
|------------------------------------------------- |  | ------------ | ------ | ------------ |  | ------------- | ------ | ----------- |  | ----- | ---- | - |  | - | -------- | - |  | - | ------- | -
|                                                  |  | Notes        |        |              |  |               |        | Accumulated |  |       |      |   |  |   |          |  
|                                                  |  | Receivable   |        | Unearned     |  | Other         |        |             |  |       |      |   |  |  
|                                                  |  | From         |        | Stock-Based  |  | Comprehensive |        | Accumulated |  |       |      |  
|                                                  |  | Stockholders |        | Compensation |  | Income (Loss) |        | Deficit     |  | Total
|                                                  |  |              |        |              |  |               |        |             |  |      
|Balances, December 31, 2000                       |  | $            | (2,349 | )            |  | $             | (3,361 | )           |  | $     | 62   |   |  | $ | (450,296 | ) |  | $ | 28,213  |  
|Stock issued on exercise of stock options         |  |              |       |              |  |               |       |             |  |       |     |   |  |   |         |   |  |   | 28      |  
|Stock issued from employee stock purchase plan    |  |              |       |              |  |               |       |             |  |       |     |   |  |   |         |   |  |   | 86      |  
|Stock issued from option exchange program         |  |              |       |              |  |               | (970   | )           |  |       |     |   |  |   |         |   |  |   |        |  
|Notes receivable from stockholders                |  |              | 2,170  |              |  |               |       |             |  |       |     |   |  |   |         |   |  |   | 2,170   |  
|Unearned stock-based compensation                 |  |              |       |              |  |               | (310   | )           |  |       |     |   |  |   |         |   |  |   |        |  
|Sale of convertible debt and preferred stock      |  |              |       |              |  |               |       |             |  |       |     |   |  |   |         |   |  |   | 30,962  |  
|Amortization of unearned stock-based compensation |  |              |       |              |  |               | 4,499  |             |  |       |     |   |  |   |         |   |  |   | 4,499   |  
|Dividend to stockholder                           |  |              |       |              |  |               |       |             |  |       |     |   |  |   |         |   |  |   | (2,979  | )
|Conversion of Class B common stock                |  |              |       |              |  |               |       |             |  |       |     |   |  |   |         |   |  |   |        |  
|Net loss                                          |  |              |       |              |  |               |       |             |  |       |     |   |  |   | (53,678  | ) |  |   | (53,678 | )
|Other comprehensive loss                          |  |              |       |              |  |               |       |             |  |       | (531 | ) |  |   |         |   |  |   | (531    | )
|                                                  |  |              |        |              |  |               |        |             |  |       |      |   |  |   |          |   |  |   |         |  
|Balances, December 31, 2001                       |  | $            | (179   | )            |  | $             | (142   | )           |  | $     | (469 | ) |  | $ | (503,974 | ) |  | $ | 8,770   |  
|                                                  |  |              |        |              |  |               |        |             |  |       |      |   |  |   |          |   |  |   |         |  

F-4



---



##### Table of Contents



|                                                  |  |              |        |        |  |        |   |                 |  |              |           |         |  |         |   |  |  |  |           |  |  |   |    |            |  |   |         | 
|------------------------------------------------- |  | ------------ | ------ | ------ |  | ------ | - | --------------- |  | ------------ | --------- | ------- |  | ------- | - |  |  |  | --------- |  |  | - | -- | ---------- |  | - | ------- | 
|                                                  |  | Class B      |        |        |  |        |   |                 |  |              |           |         |  |         |   |  |  |  |           |  |  |   |    | Additional
|                                                  |  | Common Stock |        |        |  |        |   | Preferred Stock |  | Common Stock |           | Paid-in
|                                                  |  | Number       |        | Amount |  | Number |   | Amount          |  | Number       |           | Amount  |  | Capital
|                                                  |  |              |        |        |  |        |   |                 |  |              |           |         |  |        
|Balances, December 31, 2001                       |  |              | 17,948 |        |  | $      |  |                 |  |              | 1,115,080 |         |  | $       | 1 |  |  |  | 6,729,869 |  |  | $ | 65 |            |  | $ | 513,468 | 
|Stock issued on exercise of stock options         |  |              |        |        |  |        |  |                 |  |              |          |         |  |         |  |  |  |  | 32,500    |  |  |   |   |            |  |   | 84      | 
|Stock issued from employee stock purchase plan    |  |              |       |        |  |        |  |                 |  |              |          |         |  |         |  |  |  |  | 32,638    |  |  |   |   |            |  |   | 47      | 
|Note receivable from stockholder                  |  |              |       |        |  |        |  |                 |  |              |          |         |  |         |  |  |  |  |          |  |  |   |   |            |  |   |        | 
|Unearned stock-based compensation                 |  |              |       |        |  |        |  |                 |  |              |          |         |  |         |  |  |  |  |          |  |  |   |   |            |  |   | 29      | 
|Reversal of accrued stock issuance costs          |  |              |       |        |  |        |  |                 |  |              |          |         |  |         |  |  |  |  |          |  |  |   |   |            |  |   | 309     | 
|Amortization of unearned stock-based compensation |  |              |       |        |  |        |  |                 |  |              |          |         |  |         |  |  |  |  |          |  |  |   |   |            |  |   |        | 
|Net loss                                          |  |              |       |        |  |        |  |                 |  |              |          |         |  |         |  |  |  |  |          |  |  |   |   |            |  |   |        | 
|Foreign currency translation                      |  |              |       |        |  |        |  |                 |  |              |          |         |  |         |  |  |  |  |          |  |  |   |   |            |  |   |        | 
|                                                  |  |              |        |        |  |        |   |                 |  |              |           |         |  |         |   |  |  |  |           |  |  |   |    |            |  |   |         | 
|Balances, December 31, 2002                       |  |              | 17,948 |        |  | $      |  |                 |  |              | 1,115,080 |         |  | $       | 1 |  |  |  | 6,795,007 |  |  | $ | 65 |            |  | $ | 513,937 | 
|                                                  |  |              |        |        |  |        |   |                 |  |              |           |         |  |         |   |  |  |  |           |  |  |   |    |            |  |   |         | 

|                                                  |  |             |      |              |  |               |      |             |  |       |      |   |  |   |          |   |  |   |        |  
|------------------------------------------------- |  | ----------- | ---- | ------------ |  | ------------- | ---- | ----------- |  | ----- | ---- | - |  | - | -------- | - |  | - | ------ | -
|                                                  |  | Note        |      |              |  |               |      | Accumulated |  |       |      |   |  |   |          |  
|                                                  |  | Receivable  |      | Unearned     |  | Other         |      |             |  |       |      |   |  |  
|                                                  |  | From        |      | Stock-Based  |  | Comprehensive |      | Accumulated |  |       |      |  
|                                                  |  | Stockholder |      | Compensation |  | Loss          |      | Deficit     |  | Total
|                                                  |  |             |      |              |  |               |      |             |  |      
|Balances, December 31, 2001                       |  | $           | (179 | )            |  | $             | (142 | )           |  | $     | (469 | ) |  | $ | (503,974 | ) |  | $ | 8,770  |  
|Stock issued on exercise of stock options         |  |             |     |              |  |               |     |             |  |       |     |   |  |   |         |   |  |   | 84     |  
|Stock issued from employee stock purchase plan    |  |             |     |              |  |               |     |             |  |       |     |   |  |   |         |   |  |   | 47     |  
|Note receivable from stockholder                  |  |             | 179  |              |  |               |     |             |  |       |     |   |  |   |         |   |  |   | 179    |  
|Unearned stock-based compensation                 |  |             |     |              |  |               | (29  | )           |  |       |     |   |  |   |         |   |  |   |       |  
|Reversal of accrued stock issuance costs          |  |             |     |              |  |               |     |             |  |       |     |   |  |   |         |   |  |   | 309    |  
|Amortization of unearned stock-based compensation |  |             |     |              |  |               | 171  |             |  |       |     |   |  |   |         |   |  |   | 171    |  
|Net loss                                          |  |             |     |              |  |               |     |             |  |       |     |   |  |   | (1,143   | ) |  |   | (1,143 | )
|Foreign currency translation                      |  |             |     |              |  |               |     |             |  |       | (25  | ) |  |   |         |   |  |   | (25    | )
|                                                  |  |             |      |              |  |               |      |             |  |       |      |   |  |   |          |   |  |   |        |  
|Balances, December 31, 2002                       |  | $           |     |              |  | $             |     |             |  | $     | (494 | ) |  | $ | (505,117 | ) |  | $ | 8,392  |  
|                                                  |  |             |      |              |  |               |      |             |  |       |      |   |  |   |          |   |  |   |        |  

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

F-5



---



##### Table of Contents



INTERNET PICTURES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                            |                                                                           |   |                          |         |      |   |                |         |   |   |        |        |  
|------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | - | ------------------------ | ------- | ---- | - | -------------- | ------- | - | - | ------ | ------ | -
|                                                                                            |                                                                           |   | YEARS ENDED DECEMBER 31,
|                                                                                            |                                                                           |   |                         
|                                                                                            |                                                                           |   | 2000                     |         | 2001 |   | 2002          
|                                                                                            |                                                                           |   |                          |         |      |   |               
|                                                                                            |                                                                           |   |                          |         |      |   | (In thousands) |         |   |   |       
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                       |                                                                           |   |                          |         |      |   |                |         |   |   |        |       
|Net loss                                                                                    |                                                                           | $ | (346,595                 | )       |      | $ | (53,678        | )       |   | $ | (1,143 | )     
|Adjustments to reconcile net loss to net cash used in operating activities:                 |                                                                           |   |                          |         |      |   |                |         |   |   |        |       
|                                                                                            | Depreciation and amortization                                             |   |                          | 63,047  |      |   |                | 3,477   |   |   |        | 3,400  |  
|                                                                                            | Impairment and amortization of intangibles                                |   |                          | 176,831 |      |   |                | 2,434   |   |   |        |       |  
|                                                                                            | Provision for doubtful accounts receivable                                |   |                          | 4,419   |      |   |                | 4,421   |   |   |        | (279   | )
|                                                                                            | Provision for inventory obsolescence                                      |   |                          | 145     |      |   |                | 276     |   |   |        |       |  
|                                                                                            | Amortization of discounts on securities available-for-sale                |   |                          | 141     |      |   |                |        |   |   |        |       |  
|                                                                                            | Interest charge for amortization of discount on convertible debt          |   |                          |        |      |   |                | 10,000  |   |   |        |       |  
|                                                                                            | Non-cash compensation expense related to issuance of options and warrants |   |                          | 5,127   |      |   |                | 4,499   |   |   |        | 171    |  
|                                                                                            | Forgiveness of debt                                                       |   |                          |        |      |   |                | 2,193   |   |   |        |       |  
|                                                                                            | Impairment loss                                                           |   |                          |        |      |   |                | 1,122   |   |   |        |       |  
|                                                                                            | Loss on disposal of equipment                                             |   |                          |        |      |   |                | 1,655   |   |   |        |       |  
|                                                                                            | Extraordinary gain                                                        |   |                          |        |      |   |                | (901    | ) |   |        |       |  
|Changes in operating assets and liabilities:                                                |                                                                           |   |                          |         |      |   |                |         |   |   |        |       
|                                                                                            | Accounts receivable                                                       |   |                          | (13,731 | )    |   |                | 1,546   |   |   |        | (2,335 | )
|                                                                                            | Inventory                                                                 |   |                          | (147    | )    |   |                | 566     |   |   |        | 38     |  
|                                                                                            | Prepaid expenses and other current assets                                 |   |                          | 804     |      |   |                | 904     |   |   |        | (103   | )
|                                                                                            | Other long-term assets                                                    |   |                          | 64      |      |   |                | 1,199   |   |   |        | (70    | )
|                                                                                            | Accounts payable                                                          |   |                          | (2,219  | )    |   |                | (2,697  | ) |   |        | (1,140 | )
|                                                                                            | Accrued liabilities                                                       |   |                          | 8,818   |      |   |                | (3,825  | ) |   |        | (1,723 | )
|                                                                                            | Deferred revenue                                                          |   |                          | 3,402   |      |   |                | 158     |   |   |        | (1,507 | )
|                                                                                            |                                                                           |   |                          |         |      |   |                |         |   |   |        |       
|                                                                                            | Net cash used in operating activities                                     |   |                          | (99,894 | )    |   |                | (26,651 | ) |   |        | (4,691 | )
|                                                                                            |                                                                           |   |                          |         |      |   |                |         |   |   |        |       
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                       |                                                                           |   |                          |         |      |   |                |         |   |   |        |       
|Purchases of computer hardware, software and other                                          |                                                                           |   | (13,745                  | )       |      |   | (1,440         | )       |   |   | (3,508 | )     
|Proceeds from sale of assets                                                                |                                                                           |   |                         |         |      |   | 8,666          |         |   |   |       |       
|Acquisitions, net of cash received                                                          |                                                                           |   | (8,290                   | )       |      |   |               |         |   |   |       |       
|Purchases of securities available-for-sale and short-term investments                       |                                                                           |   | (44,766                  | )       |      |   |               |         |   |   | (1,400 | )     
|Maturities of securities available-for-sale                                                 |                                                                           |   | 93,369                   |         |      |   | 6,000          |         |   |   |       |       
|Note receivable from stockholder                                                            |                                                                           |   | (2,000                   | )       |      |   |               |         |   |   |       |       
|Other                                                                                       |                                                                           |   | 32                       |         |      |   |               |         |   |   |       |       
|                                                                                            |                                                                           |   |                          |         |      |   |                |         |   |   |        |       
|                                                                                            | Net cash provided by (used in) investing activities                       |   |                          | 24,600  |      |   |                | 13,226  |   |   |        | (4,908 | )
|                                                                                            |                                                                           |   |                          |         |      |   |                |         |   |   |        |       
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                       |                                                                           |   |                          |         |      |   |                |         |   |   |        |       
|Net proceeds from issuance of common stock                                                  |                                                                           |   | 70,161                   |         |      |   | 86             |         |   |   | 47     |       
|Net proceeds from issuance of convertible debt and exercise of warrants for
preferred stock |                                                                           |   |                         |         |      |   | 20,666         |         |   |   |       |       
|Proceeds from exercise of stock options and warrants                                        |                                                                           |   | 2,117                    |         |      |   | 28             |         |   |   | 84     |       
|Proceeds from sale/leaseback                                                                |                                                                           |   |                         |         |      |   | 2,840          |         |   |   | 3,870  |       
|Repayments of capital lease obligations and notes payable                                   |                                                                           |   | (10,623                  | )       |      |   | (2,762         | )       |   |   | (2,460 | )     
|Distribution to stockholders                                                                |                                                                           |   |                         |         |      |   | (839           | )       |   |   |       |       
|                                                                                            |                                                                           |   |                          |         |      |   |                |         |   |   |        |       
|                                                                                            | Net cash provided by financing activities                                 |   |                          | 61,655  |      |   |                | 20,019  |   |   |        | 1,541  |  
|                                                                                            |                                                                           |   |                          |         |      |   |                |         |   |   |        |       
|Effect of exchange rate changes on cash                                                     |                                                                           |   | 334                      |         |      |   | (813           | )       |   |   | (25    | )     
|                                                                                            |                                                                           |   |                          |         |      |   |                |         |   |   |        |       
|Net increase (decrease) in cash and cash equivalents                                        |                                                                           |   | (13,305                  | )       |      |   | 5,781          |         |   |   | (8,083 | )     
|Cash and cash equivalents, beginning of year                                                |                                                                           |   | 18,627                   |         |      |   | 5,322          |         |   |   | 11,103 |       
|                                                                                            |                                                                           |   |                          |         |      |   |                |         |   |   |        |       
|Cash and cash equivalents, end of year                                                      |                                                                           | $ | 5,322                    |         |      | $ | 11,103         |         |   | $ | 3,020  |       
|                                                                                            |                                                                           |   |                          |         |      |   |                |         |   |   |        |       

SUPPLEMENTAL DATA

|                          |                                                                         |  |                          |       |      |  |      |       |  |  |   |     | 
|------------------------- | ----------------------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | --- | 
|                          |                                                                         |  | YEARS ENDED DECEMBER 31,
|                          |                                                                         |  |                         
|                          |                                                                         |  | 2000                     |       | 2001 |  | 2002
|                          |                                                                         |  |                          |       |      |  |     
|Supplemental disclosures: |                                                                         |  |                          |       |      |  |      |       |  |  |   |    
|                          | Unearned stock-based compensation related to stock options and warrants |  | $                        | 5,533 |      |  | $    | 1,280 |  |  | $ | 29  | 
|                          | Interest paid                                                           |  |                          | 407   |      |  |      | 667   |  |  |   | 183 | 
|                          | Conversion of accrued interest into Series B preferred stock            |  |                          |      |      |  |      | 277   |  |  |   |    | 

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

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

1. NATURE OF OPERATIONS

Internet Pictures Corporation (iPIX or Company) provides mission-critical
imaging solutions for commerce, communication and security applications. The
Companys solutions create, process and manage a rich variety of media
including still images, 360-degree by 360-degree immersive images, video, text
and audio.

IPIXs extensive intellectual property covers patents for immersive imaging,
video and surveillance applications.

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 and have not been material for any periods presented.

POOLING OF INTERESTS. Interactive and iPIX received stockholder 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.

CASH, CASH EQUIVALENTS, RESTRICTED CASH AND SHORT-TERM INVESTMENTS. 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 re-evaluates such designation as of each balance sheet
date. Available-for-sale securities are carried at fair value with the
resulting unrealized gains and losses reported as a component of accumulated
other comprehensive income(loss). At December 31, 2002, the Company had $1,400
of investments with a remaining maturity of six months that have been provided
as collateral for certain capital lease obligations and, accordingly,
classified as restricted. The remaining balance of restricted cash relates
primarily to certain customer deposits.

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. The cost of securities sold is based on the specific
identification method. There have been no such transactions in the year ended
December 31, 2002.

Interest income includes interest, amortization of purchase premiums and

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discounts and realized gains and losses on sales of securities. A realized loss
of $282 was recognized in 2001, while in 2000, a $1,250 other expense was
recognized primarily because of the write down of various investments.

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

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

|          |  |                          |    |      |  |  |    |  
|--------- |  | ------------------------ | -- | ---- |  |  | -- | -
|          |  | Years ended December 31,
|          |  |                         
|          |  | 2001                     |    | 2002
|          |  |                          |    |     
|Homestore |  |                          | 23 | %    |  |  | 16 | %
|eBay      |  |                          | 21 | %    |  |  | 60 | %

At December 31, 2002, Homestore and eBay represented 0% and 83% of accounts
receivable, respectively. All amounts due from eBay as of December 31, 2002,
were collected in full during January 2003. The Companys principal agreements
with Homestore and eBay, expire on June 30, 2003 and September 30, 2003,
respectively. These agreements are subject to extension, amendment and
re-negotiation from time to time. During the year ended December 31, 2000, no
customer equaled more than 10% of the Companys revenue and as of December 31,
2001 no customer accounted for more than 10% of the Companys accounts
receivable.

Depending upon the outcome of the negotiations noted above, the timeliness of
collection of accounts receivable, the Companys rate of growth and ability to
controls costs may require additional equity or debt financing to meet future
working capital or capital expenditure needs. There can be no assurance that
such additional financing will be available, or if available that such
financing can be obtained on terms satisfactory to the Company.

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 actual 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, maintenance
and rent, which will be reflected as an expense during the period benefited.

COMPUTER HARDWARE, SOFTWARE AND OTHER. Computer hardware and software are
recorded at cost and are depreciated primarily using the straight-line method
over estimated useful lives, which range from two to three years. Furniture and
fixtures are depreciated over the estimated useful life, which range from two
to ten years. Leasehold improvements are amortized over the term of the lease
or estimated useful life, which ranges from one to five years. 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,
computer hardware and software 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 5).

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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 or determinable and collection of the resulting
receivable was reasonably assured. Initial license fees are recognized when a
contract exists, the fee is fixed or determinable, software delivery has
occurred and collection of the receivable is reasonably assured. 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, persuasive evidence of an
arrangement exists, there are no significant vendor obligations, the fees are
fixed or determinable and collection is reasonably assured.

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. In February 2002, the Emerging Issues Task Force
(EITF) issued EITF 00-14, Income Statement Characterization of
Reimbursements Received for Out-of-Pocket Expenses Incurred"(EITF-00-14),
which is effective for financial statements beginning after December 31, 2001.
EITF 00-14 requires that reimbursements received for out-of-pocket expenses
incurred, generally, be characterized as revenue in the statement of
operations. The Company adopted EITF 00-14 in the quarter ended March 31, 2002.
The adoption of EITF 00-14 did not have a material effect on reported results
of operations, financial position or cash flows.

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.

Payments received in advance are initially recorded as deferred revenue and
recognized ratably as obligations are fulfilled.

FAIR VALUE OF FINANCIAL INSTRUMENTS. Carrying amounts of the Companys
financial instruments including short-term investments, accounts receivable,
accounts payable, accrued liabilities approximate fair value due to their short
maturities. Obligations under capital leases are recorded at discounted value
of the future lease payments.

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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 and 2002. The Company recorded barter revenues of
$3,060 in 2000 which represented 6% of total revenues for 2000. Sales and
marketing expense arising from these barter transactions is recognized when the
advertising takes place, which occurred in 2000.

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

ADVERTISING EXPENSES. All advertising expenditures are expensed as incurred.
Advertising expenses for 2000, 2001 and 2002, were $24,186, $4,130 and $2,017,
respectively.

STOCK-BASED COMPENSATION. The Company has adopted the disclosure provisions of
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 123. Accounting for Stock-based
Compensation (FAS 133). 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 123 have been presented (See Note 10). 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 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.

Pro forma information regarding net loss is required by FAS 123 and FAS 148,
and has been determined as if the Company had accounted for its stock options
under the fair value method of FAS 123. The computations for pro forma basic
and diluted earnings per share for each year follow:

|                                                         |                                                                        |      |                          |         |   |      |         |         |   |   |            |        |  
|-------------------------------------------------------- | ---------------------------------------------------------------------- | ---- | ------------------------ | ------- | - | ---- | ------- | ------- | - | - | ---------- | ------ | -
|                                                         |                                                                        |      | Years Ended December 31,
|                                                         |                                                                        |      |                         
|(In thousands, except per share)                         |                                                                        | 2000 |                          | 2001    |   | 2002
|                                                         |                                                                        |      |                          |         |   |     
|                                                         |                                                                        |      |                          |         |   |      |         |         |   |   | (restated)
|Net loss available for common, before
extraordinary gain |                                                                        | $    | (346,595                 | )       |   | $    | (54,579 | )       |   | $ | (2,927     | )     
|                                                         | Extraordinary gain                                                     |      |                          |        |   |      |         | 901     |   |   |            |       |  
|                                                         |                                                                        |      |                          |         |   |      |         |         |   |   |            |       
|Net loss available for common                            |                                                                        |      | (346,595                 | )       |   |      | (53,678 | )       |   |   | (2,927     | )     
|                                                         | Add: employee stock compensation
expense
included in reported net loss |      |                          | 4,569   |   |      |         | 3,213   |   |   |            |       |  
|                                                         | Less: FAS 123 pro forma charges                                        |      |                          | (26,509 | ) |      |         | (11,503 | ) |   |            | (5,742 | )
|                                                         |                                                                        |      |                          |         |   |      |         |         |   |   |            |       
|Adjusted net loss available for common                   |                                                                        | $    | (368,535                 | )       |   | $    | (61,968 | )       |   | $ | (8,669     | )     
|                                                         |                                                                        |      |                          |         |   |      |         |         |   |   |            |       
|Basic and diluted loss
per common share:                 |                                                                        |      |                          |         |   |      |         |         |   |   |            |       
|Loss per common share before
extraordinary gain          |                                                                        | $    | (61.55                   | )       |   | $    | (8.36   | )       |   | $ | (0.43      | )     
|                                                         | Extraordinary gain                                                     |      |                          |        |   |      |         | 0.14    |   |   |            |       |  
|                                                         |                                                                        |      |                          |         |   |      |         |         |   |   |            |       
|Loss per common share before
pro forma
charges           |                                                                        |      | (61.55                   | )       |   |      | (8.22   | )       |   |   | (0.43      | )     
|                                                         | Net effect of pro forma charges                                        |      |                          | (3.90   | ) |      |         | (1.27   | ) |   |            | (0.85  | )
|                                                         |                                                                        |      |                          |         |   |      |         |         |   |   |            |       
|Adjusted basic and diluted loss per common
share         |                                                                        | $    | (65.45                   | )       |   | $    | (9.49   | )       |   | $ | (1.28      | )     
|                                                         |                                                                        |      |                          |         |   |      |         |         |   |   |            |       

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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.

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, restructuring changes, sales taxes and
the carrying value of goodwill.

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, 2000, 2001
and 2002. In addition, for fiscal years 2001 and 2002, segment reporting
includes the Companys primary business units: Transaction Services and
Immersive Solutions.

NET LOSS PER SHARE. The Company computes net loss per common share in
accordance with FAS No. 128, Earnings Per Share.
Basic income (loss) per share is computed by dividing net income
(loss) available to common stockholders for the period by the
weighted average number of shares of common stock outstanding. Net
income (loss) available to common stockholders is calculated as the
net income (loss) less cumulative preferred stock dividends for the
period. If dilutive, the participation right of the preferred stock
is reflected in the calculation of basic income (loss) per share
using the if-converted method or the two class method if
more dilutive. Diluted income (loss) per common share is computed by
dividing net income (loss) for the period by the weighted average
number of shares of common stock outstanding plus, if dilutive,
potential common stock outstanding during the period. 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 the computation of basic and diluted loss per
common share for the years indicated:

|                                                                |  |      |          |      |  |      |         |   |  |            |        |  
|--------------------------------------------------------------- |  | ---- | -------- | ---- |  | ---- | ------- | - |  | ---------- | ------ | -
|(In thousands, except
per share amounts)                        |  | 2000 |          | 2001 |  | 2002
|                                                                |  |      |          |      |  |     
|                                                                |  |      |          |      |  |      |         |   |  | (restated)
|NUMERATOR:                                                      |  |      |          |      |  |      |         |   |  |            |        |  
|Net loss before extraordinary gain                              |  | $    | (346,595 | )    |  | $    | (54,579 | ) |  | $          | (1,143 | )
|Preferred
stock dividends                                       |  |      |         |      |  |      |        |   |  |            | (1,784 | )
|                                                                |  |      |          |      |  |      |         |   |  |            |        |  
|Loss before extraordinary gain available
to common stockholders |  |      | (346,595 | )    |  |      | (54,579 | ) |  |            | (2,927 | )
|Extraordinary gain                                              |  |      |         |      |  |      | 901     |   |  |            |       |  
|                                                                |  |      |          |      |  |      |         |   |  |            |        |  
|Net loss available to common stockholders                       |  | $    | (346,595 | )    |  | $    | (53,678 | ) |  | $          | (2,927 | )
|                                                                |  |      |          |      |  |      |         |   |  |            |        |  
|DENOMINATOR:                                                    |  |      |          |      |  |      |         |   |  |            |        |  
|Shares used  Basic and diluted                                 |  |      | 5,631    |      |  |      | 6,534   |   |  |            | 6,794  |  
|                                                                |  |      |          |      |  |      |         |   |  |            |        |  
|LOSS PER COMMON SHARE, BASIC AND DILUTED                        |  | $    | (61.55   | )    |  | $    | (8.22   | ) |  | $          | (0.43  | )
|                                                                |  |      |          |      |  |      |         |   |  |            |        |  

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

|                                                    |  |                          |         |      |  |      |           |  |  |  |            | 
|--------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | --------- |  |  |  | ---------- | 
|                                                    |  | YEARS ENDED DECEMBER 31,
|                                                    |  |                         
|                                                    |  | 2000                     |         | 2001 |  | 2002
|                                                    |  |                          |         |      |  |     
|Weighted average effect of potential common shares: |  |                          |         |      |  |      |           |  |  |  |            | 
|Series B Preferred Stock                            |  |                          |        |      |  |      | 2,700,387 |  |  |  | 10,267,096 | 
|Employee stock options                              |  |                          | 255,300 |      |  |      | 539,983   |  |  |  | 195,866    | 
|Warrants to purchase common stock                   |  |                          | 151,748 |      |  |      |          |  |  |  |           | 
|Warrants to purchase Series B preferred stock       |  |                          |        |      |  |      | 2,051,902 |  |  |  |           | 
|Convertible debenture                               |  |                          |        |      |  |      | 1,702,756 |  |  |  |           | 
|                                                    |  |                          |         |      |  |      |           |  |  |  |            | 
|                                                    |  |                          | 407,048 |      |  |      | 6,995,028 |  |  |  | 10,462,962 | 
|                                                    |  |                          |         |      |  |      |           |  |  |  |            | 

In 2002, the Companys common stock had an average share price of $1.77. The
average strike price of the warrants to purchase common stock is $3.04 and the
average strike price of employee stock options is $9.86. Not included in the
table above are (i) 1,935,852 shares issuable upon exercise of options and (ii)
2,438,824 shares issuable upon exercise of warrants, all of which have a strike
price above the average share price during 2002.

COMPREHENSIVE INCOME (LOSS). The Company follows FAS No. 130, Reporting
Comprehensive Income (FAS 130), which establishes requirements for reporting
and displaying the comprehensive income (loss) and its components. FAS 130
requires net unrealized gains or losses on the Companys available-for-sale
securities and foreign currency translation adjustments to be reported as
accumulated other comprehensive income (loss).

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

|                                            |  |                          |          |      |  |      |         |   |  |   |        |  
|------------------------------------------- |  | ------------------------ | -------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                            |  | Years Ended December 31,
|                                            |  |                         
|                                            |  | 2000                     |          | 2001 |  | 2002
|                                            |  |                          |          |      |  |     
|Net loss                                    |  | $                        | (346,595 | )    |  | $    | (53,678 | ) |  | $ | (1,143 | )
|Foreign currency translation adjustment     |  |                          | 334      |      |  |      | (813    | ) |  |   | (25    | )
|Fair market value adjustment of investments |  |                          | (282     | )    |  |      | 282     |   |  |   |       |  
|                                            |  |                          |          |      |  |      |         |   |  |   |        |  
|                                            |  | $                        | (346,543 | )    |  | $    | (54,209 | ) |  | $ | (1,168 | )
|                                            |  |                          |          |      |  |      |         |   |  |   |        |  

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2002, the FASB issued FAS 146, Accounting for Exit or Disposal
Activities (FAS 146). FAS 146 addresses significant issues regarding the
recognition, measurement, and reporting of costs that are associated with exit
and disposal activities, including restructuring activities that are currently
accounted for under EITF 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring). The scope of FAS 146 also includes costs
related to terminating a contract that is not a capital lease and termination
benefits that employees who are involuntarily terminated receive under the
terms of a one-time benefit arrangement that is not an ongoing benefit
arrangement or an individual deferred-compensation contract. FAS 146 will be
effective for exit or disposal activities that are initiated after December 31,
2002 and early application is encouraged. The Company will adopt FAS 146
during the quarter ended March 31, 2003. The effect on adoption of FAS 146
will change on a prospective basis the timing of when restructuring charges are
recorded from a commitment date approach to when the liability is incurred.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a
liability be recorded in the guarantors balance sheet upon issuance of a
guarantee. In addition, FIN 45 requires disclosures about the guarantees that
an entity has issued, including a reconciliation of changes in the entitys
product warranty liabilities. The initial recognition and initial measurement
provisions of FIN No. 45 are

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applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, while the
disclosure requirements are applicable in 2002. The
Company is complying with the disclosure requirements of
FIN No. 45 for the year ending December 31, 2002 and is evaluating the effect
the other requirements may have on its financial statements.

In November 2002, the EITF reached consensus on Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables (EITF 00-21). EITF 00-21 provides
guidance on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use assets. The
provisions of EITF 00-21 will apply to revenue arrangements entered into in
fiscal periods beginning after June 15, 2003. The Company does not believe that
the adoption of this standard will have a material effect on its financial
position or results of operations.

In December 2002, the FASB issued FAS No. 148, Accounting for Stock-Based
Compensation, Transition and Disclosure (FAS 148). FAS 148 provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. FAS 148 also
requires that disclosures of the pro forma effect of using the fair value
method of accounting for stock-based employee compensation be displayed more
prominently and in a tabular format. Additionally, FAS 148 requires disclosure
of the pro forma effect in interim financial statements. The transition and
annual disclosure requirements of FAS 148 are effective for fiscal years ending
after December 15, 2002, and these disclosures are contained in Note 10. The
interim disclosure requirements are effective for interim periods commencing
after December 15, 2002. The Company will continue to apply the APB 25
provisions and will disclose the fair value information on a proforma basis.

In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51 (FIN 46). FIN 46 requires
certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective
immediately for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. The Company does not
believe that the adoption of this standard will have a material effect on its
financial position or results of operations.

RECLASSIFICATIONS

Certain amounts reported in the previous period have been reclassified to
conform to the current period presentation. The reclassifications did not
affect the previously reported total revenue, operating loss, net loss, total
current assets, total assets or stockholders equity.

3. MERGER COSTS

The Company recorded a charge of $15,175 in 2000 operating expenses for costs
incurred related to a merger (See Note 2). These merger costs consisted
primarily of investment banking fees and costs of attorneys, accountants and
other directly related external costs.

4. RESTRUCTURING AND OTHER

Restructuring during 2000, 2001 and 2002, the Company recorded as a separate
line item in its statements of operations restructuring charges which consist
primarily 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.

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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.

Included in the 2001 charges is a $1,462 impairment charge related to the write
off of the unamortized portion of our directors and officers insurance
policy. The Company was required to obtain a new policy due to the change in
control related to our 2001 financing.

During the third quarter of 2002, the Company recorded a restructuring charge
of $687 consisting of expenses associated primarily with a negotiated buy-out
of certain lease obligations for previously vacated offices. In November 2002,
the Company paid approximately $1,250 related to the buy-out. As of December
31, 2002, $1,049 remained in these restructuring accruals, primarily associated
with abandoned re-negotiated lease obligations and long term severance
agreements.

The activity in the current and long-term restructuring accruals for the years
ended December 31, are as follows:

|                           |  |         |       |            |  |           |        |            |  |            |       |          |  |            |        |            |  |              |         |   |  |           |       |            |  |   |     |  |  |   |        |   |  |   |       | 
|-------------------------- |  | ------- | ----- | ---------- |  | --------- | ------ | ---------- |  | ---------- | ----- | -------- |  | ---------- | ------ | ---------- |  | ------------ | ------- | - |  | --------- | ----- | ---------- |  | - | --- |  |  | - | ------ | - |  | - | ----- | 
|                           |  |         |       |            |  | Payments/ |        | Balance at |  |            |       |          |  | Payments/  |        | Balance at |  |              |         |   |  | Payments/ |       | Balance at
|                           |  | Initial |       | Write-offs |  | December  |        | Expense    |  | Write-offs |       | December |  | Expense in |        | Write-offs |  | December 31,
|                           |  | Expense |       | in 2000    |  | 31, 2000  |        | in 2001    |  | in 2001    |       | 31, 2001 |  | 2002       |        | in 2002    |  | 2002        
|                           |  |         |       |            |  |           |        |            |  |            |       |          |  |            |        |            |  |             
|Restructuring              |  |         |       |            |  |           |        |            |  |            |       |          |  |            |        |            |  |              |         |   |  |           |       |            |  |   |     |  |  |   |        |   |  |   |       | 
|Provisions:                |  |         |       |            |  |           |        |            |  |            |       |          |  |            |        |            |  |              |         |   |  |           |       |            |  |   |     |  |  |   |        |   |  |   |       | 
|Severance                  |  | $       | 1,584 |            |  | $         | (994   | )          |  | $          | 590   |          |  | $          | 4,537  |            |  | $            | (4,027  | ) |  | $         | 1,100 |            |  | $ |    |  |  | $ | (600   | ) |  | $ | 500   | 
|Employee debt
forgiveness  |  |         |      |            |  |           |       |            |  |            |      |          |  |            | 2,163  |            |  |              | (2,163  | ) |  |           |      |            |  |   |    |  |  |   |       |   |  |   |      | 
|Write-offs and
impairments |  |         | 692   |            |  |           | (597   | )          |  |            | 95    |          |  |            | 1,959  |            |  |              | (2,054  | ) |  |           |      |            |  |   |    |  |  |   |       |   |  |   |      | 
|Lease obligations          |  |         | 1,681 |            |  |           | (337   | )          |  |            | 1,344 |          |  |            | 3,006  |            |  |              | (2,897  | ) |  |           | 1,453 |            |  |   | 687 |  |  |   | (1,591 | ) |  |   | 549   | 
|Other                      |  |         | 204   |            |  |           | (173   | )          |  |            | 31    |          |  |            |       |            |  |              | (31     | ) |  |           |      |            |  |   |    |  |  |   |       |   |  |   |      | 
|                           |  |         |       |            |  |           |        |            |  |            |       |          |  |            |        |            |  |              |         |   |  |           |       |            |  |   |     |  |  |   |        |   |  |   |       | 
|Total                      |  | $       | 4,161 |            |  | $         | (2,101 | )          |  | $          | 2,060 |          |  | $          | 11,665 |            |  | $            | (11,172 | ) |  | $         | 2,553 |            |  | $ | 687 |  |  | $ | (2,191 | ) |  | $ | 1,049 | 
|                           |  |         |       |            |  |           |        |            |  |            |       |          |  |            |        |            |  |              |         |   |  |           |       |            |  |   |     |  |  |   |        |   |  |   |       | 

LOSS ON DISPOSAL OF ASSETS

A subsidiary of Homestore 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 purchased
certain computers, furniture, fixtures and equipment and certain sales
contracts with residential real estate brokers and agents. The Company used
these assets in its operations providing virtual tours of residential real
estate properties. As part of the acquisition, Homestores subsidiary hired
certain sales force and customer service personnel. 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, $4,391, was paid
to the Company. The Company also granted Homestores subsidiary an exclusive
domestic license of certain of its virtual tour technology for the residential
real estate market. In the first quarter of 2001, the Company recorded an
extraordinary gain of $901 from the cash received from the January 12, 2001
agreement, resulting in the disposal of assets used to provide tours of
residential real estate properties that were related to the 2000 pooling of
Interactive Pictures Corporation and bamboo.com.

The $1,655 loss on the 2001 sale of the remaining residential real estate
related assets that were unrelated to the pooling of Interactive Pictures
Corporation and bamboo.com was included in loss on the disposal of assets in
the accompanying statement of operations.

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5. BALANCE SHEET ACCOUNTS

COMPUTER HARDWARE, SOFTWARE AND OTHER:

The components of computer hardware, software and other as of December 31, are
as follows:

|                                           |  |      |       |      |  |   |        | 
|------------------------------------------ |  | ---- | ----- | ---- |  | - | ------ | 
|                                           |  | 2001 |       | 2002
|                                           |  |      |       |     
|Computer hardware and software             |  | $    | 7,265 |      |  | $ | 9,729  | 
|Fixtures and leasehold improvements        |  |      | 317   |      |  |   | 317    | 
|                                           |  |      |       |      |  |   |        | 
|                                           |  |      | 7,582 |      |  |   | 10,046 | 
|Accumulated depreciation and amortization  |  |      | 2,968 |      |  |   | 5,415  | 
|                                           |  |      |       |      |  |   |        | 
|Computer hardware, software and other, net |  | $    | 4,614 |      |  | $ | 4,631  | 
|                                           |  |      |       |      |  |   |        | 

Computer hardware, software and other includes $2,799 and $6,220 of assets held
under capital lease and related accumulated amortization of $274 and $2,337 at
December 31, 2001 and 2002, respectively.

GOODWILL AND OTHER INTANGIBLES:

Prior to the Companys adoption of FAS 142, the Company periodically reviewed
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 determined 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 the Company 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 in the year
ended December 31, 2000.

As of December 31, 2002, our consolidated balance sheet included $3,042 of
goodwill. The Company adopted the provisions of FAS 142 Goodwill and Other
Intangibles (FAS 142). Under FAS 142, the Company no longer amortizes
goodwill but rather evaluates goodwill for impairment on an annual basis and
on an interim basis if events or changes in circumstances between annual
impairment tests indicate that the asset might be impaired. In assessing the
recoverability of goodwill, the Company must make assumptions regarding
estimated future cash flows and other factors to determine the fair value of
the goodwill. These estimates include forecasted revenues and operating
expenses, which are inherently difficult to predict. If these estimates or
their related assumptions change in the future, the Company may be required to
record impairment charges for these assets. The Companys assumptions about
fair values require significant judgment because broad economic factors,
industry factors and technology considerations can result in variable and
volatile fair values. The Company completed impairment analyses on goodwill
in the fourth quarter of 2002. These tests were performed internally. As of
December 31, 2002, no impairment existed.

A reconciliation of reported net loss and net loss per common share as if FAS
142 had been in effect for 2000 and 2001 is presented as follows:

|                                                        |                       |      |                          |        |  |      |         |       |  |   |            |   | 
|------------------------------------------------------- | --------------------- | ---- | ------------------------ | ------ |  | ---- | ------- | ----- |  | - | ---------- | - | 
|                                                        |                       |      | Years Ended December 31,
|                                                        |                       |      |                         
|(In thousands, except per share)                        |                       | 2000 |                          | 2001   |  | 2002
|                                                        |                       |      |                          |        |  |     
|                                                        |                       |      |                          |        |  |      |         |       |  |   | (restated)
|Net loss available for common before
extraordinary gain |                       | $    | (346,595                 | )      |  | $    | (54,579 | )     |  | $ | (2,927     | )
|                                                        | Extraordinary gain    |      |                          |       |  |      |         | 901   |  |   |            |  | 
|                                                        |                       |      |                          |        |  |      |         |       |  |   |            |  
|Net loss available for common                           |                       |      | (346,595                 | )      |  |      | (53,678 | )     |  |   | (2,927     | )
|                                                        | Goodwill amortization |      |                          | 57,193 |  |      |         | 2,433 |  |   |            |  | 
|                                                        |                       |      |                          |        |  |      |         |       |  |   |            |  
|Adjusted net loss available for common                  |                       | $    | (289,402                 | )      |  | $    | (51,245 | )     |  | $ | (2,927     | )
|                                                        |                       |      |                          |        |  |      |         |       |  |   |            |  

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|                                                   |                       |      |                          |      |  |      |       |      |  |   |            |   | 
|-------------------------------------------------- | --------------------- | ---- | ------------------------ | ---- |  | ---- | ----- | ---- |  | - | ---------- | - | 
|                                                   |                       |      | Years Ended December 31,
|                                                   |                       |      |                         
|(In thousands, except per share)                   |                       | 2000 |                          | 2001 |  | 2002
|                                                   |                       |      |                          |      |  |     
|                                                   |                       |      |                          |      |  |      |       |      |  |   | (restated)
|Basic and diluted loss per common share:           |                       |      |                          |      |  |      |       |      |  |   |            |  
|Loss available to common before
extraordinary gain |                       | $    | (61.55                   | )    |  | $    | (8.36 | )    |  | $ | (0.43      | )
|                                                   | Extraordinary gain    |      |                          |     |  |      |       | 0.14 |  |   |            |  | 
|                                                   |                       |      |                          |      |  |      |       |      |  |   |            |  
|Loss available to common                           |                       |      | (61.55                   | )    |  |      | (8.22 | )    |  |   | (0.43      | )
|                                                   | Goodwill amortization |      |                          | 8.76 |  |      |       | 0.38 |  |   |            |  | 
|                                                   |                       |      |                          |      |  |      |       |      |  |   |            |  
|Adjusted basic and diluted loss per common
share   |                       | $    | (52.79                   | )    |  | $    | (7.84 | )    |  | $ | (0.43      | )
|                                                   |                       |      |                          |      |  |      |       |      |  |   |            |  

ACCRUED LIABILITIES:

The following table summarizes accrued liabilities as of December 31:

|                                        |  |      |       |      |  |   |       | 
|--------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                        |  | 2001 |       | 2002
|                                        |  |      |       |     
|Accrued liabilities  trade             |  | $    | 1,208 |      |  | $ | 495   | 
|Accrued salaries and benefits           |  |      | 993   |      |  |   | 210   | 
|Accrued legal fees                      |  |      | 276   |      |  |   | 31    | 
|Accrued vacation                        |  |      | 485   |      |  |   | 356   | 
|Accrued restructuring (current portion) |  |      | 1,438 |      |  |   | 739   | 
|Customer Deposits                       |  |      | 1,698 |      |  |   | 1,372 | 
|Other liabilities                       |  |      | 1,459 |      |  |   | 2,223 | 
|                                        |  |      |       |      |  |   |       | 
|                                        |  | $    | 7,557 |      |  | $ | 5,426 | 
|                                        |  |      |       |      |  |   |       | 

6. INCOME TAXES

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

|                             |                                        |  |       |        |      |  |       |        |  
|---------------------------- | -------------------------------------- |  | ----- | ------ | ---- |  | ----- | ------ | -
|                             |                                        |  | 2001  |        | 2002
|                             |                                        |  |       |        |     
|Deferred tax assets current: |                                        |  |       |        |      |  |       |       
|                             | Financial reserves                     |  | $     | 848    |      |  | $     | 141    |  
|                             | Stock-based compensation               |  |       | 107    |      |  |       |       |  
|                             | Accrued expenses and deferred revenues |  |       | 2,725  |      |  |       | 1,590  |  
|                             | Other                                  |  |       | 57     |      |  |       | 36     |  
|                             |                                        |  |       |        |      |  |       |       
|                             |                                        |  | 3,737 |        |      |  | 1,767 |       
|                             | Valuation allowance                    |  |       | (3,737 | )    |  |       | (1,767 | )
|                             |                                        |  |       |        |      |  |       |       
|                             | Net current deferred tax assets        |  | $     |       |      |  | $     |       |  
|                             |                                        |  |       |        |      |  |       |       

|                                           |                                                 |  |       |        |      |  |        |         |  
|------------------------------------------ | ----------------------------------------------- |  | ----- | ------ | ---- |  | ------ | ------- | -
|                                           |                                                 |  | 2001  |        | 2002
|                                           |                                                 |  |       |        |     
|Deferred tax assets(liabilities)long-term: |                                                 |  |       |        |      |  |        |        
|                                           | Net operating loss carryforwards                |  | $     | 9,756  |      |  | $      | 11,733  |  
|                                           | Capitalized research and development            |  |       |       |      |  |        | 6,908   |  
|                                           | Other                                           |  |       | 360    |      |  |        | 210     |  
|                                           | Depreciation                                    |  |       | (182   | )    |  |        | 104     |  
|                                           |                                                 |  |       |        |      |  |        |        
|                                           |                                                 |  | 9,934 |        |      |  | 18,955 |        
|                                           | Valuation Allowance                             |  |       | (9,934 | )    |  |        | (18,955 | )
|                                           |                                                 |  |       |        |      |  |        |        
|                                           | Net long-term deferred tax assets (liabilities) |  | $     |       |      |  | $      |        |  
|                                           |                                                 |  |       |        |      |  |        |        

At December 31, 2002, the Company has approximately $31,000 and $29,000 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

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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 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 2000, 2001 and 2002 income tax provision differs from that
obtained by using the U.S. statutory rate of 34% due to the following:

|                                                                     |  |                          |          |      |  |      |         |   |  |   |      |  
|-------------------------------------------------------------------- |  | ------------------------ | -------- | ---- |  | ---- | ------- | - |  | - | ---- | -
|                                                                     |  | Years Ended December 31,
|                                                                     |  |                         
|                                                                     |  | 2000                     |          | 2001 |  | 2002
|                                                                     |  |                          |          |      |  |     
|Computed expected tax benefit                                      |  | $                        | (129,865 | )    |  | $    | (18,251 | ) |  | $ | (389 | )
|State income taxes, net of U.S. federal benefits                     |  |                          | (16,174  | )    |  |      | (2,267  | ) |  |   | (48  | )
|Valuation allowance changes affecting the
provision for income taxes |  |                          | 65,114   |      |  |      | 17,857  |   |  |   | 359  |  
|Warrant expense                                                      |  |                          |         |      |  |      | 1,706   |   |  |   | 66   |  
|Permanent differences                                                |  |                          | 80,925   |      |  |      | 955     |   |  |   | 12   |  
|                                                                     |  |                          |          |      |  |      |         |   |  |   |      |  
|                                                                     |  | $                        |         |      |  | $    |        |   |  | $ |     |  
|                                                                     |  |                          |          |      |  |      |         |   |  |   |      |  

7. CONVERTIBLE 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 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 third quarter of 2001, the $10,000 note and the Tranche B warrants were
converted to preferred stock and accordingly in 2001 the Company recorded
$10,000 as interest expense related to the accretion of the convertible
promissory note to its face value.

8. iPIX INTERNATIONAL

In the third quarter of 2002, the Company entered into license, distribution
and trademark agreements with Soroof International, a Saudi Arabia-based
corporation (Soroof). Under the agreements, Soroof will be the exclusive
distributor for iPIX immersive still products, including the iPIX GPS Mapping
System, outside of North America and Asia through Soroofs newly established
entity, iPIX International (iPIX-I). The agreement, effective July 1, 2002,
expires December 31, 2007, unless renewed. iPIX-I has an exclusive license to
develop integrated solutions for markets including real estate, travel and
tourism and other markets in which online marketing is critical. The Company
will provide certain hosting services during the term of the agreements. Soroof
has committed to certain minimum quarterly royalties during the term of the
agreement. Should these minimum royalties not be met, the Company has the right
to terminate the agreements with Soroof.

iPIX has a minority equity interest in iPIX-I, however, iPIX does not have the
ability to exercise significant influence over iPIX-I operations. The Company
accounts for the investment in iPIX-I on the cost basis, not as a variable
interest entity under FIN 46. The Company did not make any capital
contributions to iPIX-I and has no commitments to fund iPIX-I. The Company
does have the right, however,

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but not the obligation, to purchase iPIX-I from Soroof after December 31, 2005
for consideration as defined in the agreements. During the six months ended
December 31, 2002, the Company recognized $631 of revenue under these
agreements.

9. STOCKHOLDERS EQUITY

General

On May 28, 2002 at the annual stockholders meeting, the authorized number of
shares of common stock was reduced to 50,000,000 from 150,000,000. The
Companys amended and restated certificate of incorporation authorizes the
issuance of up to 50,000,000 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 designated 1,100 shares of
Series C redeemable preferred stock and designated 3,000,000 shares of Series B
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, 2002.

Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders, 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 may at any time convert Class B shares into Class A common stock, are not
entitled to dividends and are not entitled to receive any assets of the
corporation upon dissolution or liquidation.

Common Stock

On August 22, 2001 the stockholders 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

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 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, 2002, 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

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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 13).

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. Holders of Series B Preferred, in preference to
holders of any other series of Preferred Stock and in preference to the holders
of Common Stock (collectively, Junior Securities), shall be entitled to
receive, when and if declared by the Board, but only out of funds that are
legally available, cash dividends at the rate of eight percent (8%) of $20 (or
$40 for Warrant 2 shares) per annum on each outstanding share of Series B
Preferred (Series B Dividends). The Series B Dividends are cumulative,
accrue daily and shall by payable, when and if declared by the Board, upon
conversion or as an accretion to the Liquidation Preference, as defined below.
Accrued Series B Dividends may be paid in cash or common stock, at the election
of the Series B Preferred stockholder. Holders of Series B Preferred Stock
participate on an as-if converted basis in any common stock dividends.

Upon any liquidation event, before any distribution or payment shall be made to
the holders of any junior securities, the holders of Series B Preferred shall
be entitled to be paid out of the assets of the Company legally available for
distribution, or the consideration received in such transaction, an amount per
share of Series B Preferred equal to the $20 (or $40 for Warrant 2 shares) plus
all accrued and unpaid Series B Dividends for each share of Series B Preferred
held by them (the Liquidation Preference). If, upon any such Liquidation
Event, the assets of the Company (or the consideration received in such
transaction) shall be insufficient to make payment in full to all holders of
Series B Preferred of the Liquidation Preference, then such assets (or
consideration) shall be distributed among the holders of Series B Preferred at
the time outstanding, ratably in proportion to the full amounts to which they
would otherwise be respectively entitled.

10. 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 6,326,842 shares of common stock. As of December 31,
2002, 2,854,287 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, 2002, 245,752 options 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 the
2000 Plan. The remaining options not granted under the 2000 Plan were
transferred to the 2001 Plan.

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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. The 1998 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 1998 Plan. As of December 31, 2002, 38,941 options are outstanding
under the 1998 Plan. Each option under the 1998 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 the 1998 Plan. The remaining options not granted under the 1998
Plan were transferred to the 2000 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, 2002, 48,864 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
the 1997 Plan. The remaining options not granted under the 1997 Plan were
transferred to the 2000 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 Options 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 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 Plan and 1997 Options 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,
2002, 32,035 options are outstanding under these plans. The options granted
under these 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 Plan and 1997
Options Plan. No further options or restricted stock awards will be granted
under the 1994, 1996 and 1997 Options Plans.

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A summary of the Companys stock option activity under all plans is as follows:

|                                  |  |        |            |        |  |             |        |             |  |         |        |          |  |          |           |  |  |   |       | 
|--------------------------------- |  | ------ | ---------- | ------ |  | ----------- | ------ | ----------- |  | ------- | ------ | -------- |  | -------- | --------- |  |  | - | ----- | 
|                                  |  |        |            |        |  | WEIGHTED    |        | WEIGHTED    |  |         |        |          |  | WEIGHTED
|                                  |  |        |            |        |  | AVERAGE     |        | AVERAGE     |  | STOCK   |        | AVERAGE 
|                                  |  |        |            |        |  | OF EXERCISE |        | GRANT DATE  |  | OPTIONS |        | EXERCISE
|                                  |  | SHARES |            | PRICES |  | FAIR VALUE  |        | EXERCISABLE |  | PRICE  
|                                  |  |        |            |        |  |             |        |             |  |        
|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 | 
|                                  |  |        |            |        |  |             |        |             |  |         |        |          |  |          |           |  |  |   |       | 
|Options granted                   |  |        | 260,000    |        |  |             | 1.86   |             |  |         | 2.06   |          |  |          |           |  |  |   |       | 
|Options exercised                 |  |        | (32,500    | )      |  |             | 2.60   |             |  |         |        |          |  |          |           |  |  |   |       | 
|Options forfeited or expired      |  |        | (1,107,967 | )      |  |             | 13.22  |             |  |         |        |          |  |          |           |  |  |   |       | 
|                                  |  |        |            |        |  |             |        |             |  |         |        |          |  |          |           |  |  |   |       | 
|Under option at December 31, 2002 |  |        | 3,219,879  |        |  |             |        |             |  |         |        |          |  |          | 2,461,247 |  |  |   | 12.05 | 
|                                  |  |        |            |        |  |             |        |             |  |         |        |          |  |          |           |  |  |   |       | 

The following table summarizes information about stock options at December 31,
2002:

|               |  |                     |           |                     |  |                  |      |             |  |                  |        |  |  |  |           |  |  |   |        | 
|-------------- |  | ------------------- | --------- | ------------------- |  | ---------------- | ---- | ----------- |  | ---------------- | ------ |  |  |  | --------- |  |  | - | ------ | 
|               |  | OPTIONS OUTSTANDING |           | OPTIONS EXERCISABLE
|               |  |                     |           |                    
|               |  |                     |           |                     |  | WEIGHTED-AVERAGE |      |             |  |                  |        |  |  |  |           |  |  |  
|RANGE OF       |  | NUMBER              |           | REMAINING           |  | WEIGHTED-AVERAGE |      | NUMBER      |  | WEIGHTED-AVERAGE
|EXERCISE PRICE |  | OUTSTANDING         |           | CONTRACTUAL LIFE    |  | EXERCISE PRICE   |      | EXERCISABLE |  | EXERCISE PRICE  
|               |  |                     |           |                     |  |                  |      |             |  |                 
|$1.10-1.99     |  |                     | 1,132,042 |                     |  |                  | 8.81 |             |  | $                | 1.49   |  |  |  | 697,440   |  |  | $ | 1.50   | 
|$2.00-3.99     |  |                     | 1,722,292 |                     |  |                  | 8.73 |             |  | $                | 2.45   |  |  |  | 1,405,923 |  |  | $ | 2.42   | 
|$4.00-9.99     |  |                     | 203,299   |                     |  |                  | 2.44 |             |  | $                | 8.49   |  |  |  | 202,580   |  |  | $ | 8.49   | 
|$10.00-300.00  |  |                     | 162,246   |                     |  |                  | 6.70 |             |  | $                | 148.76 |  |  |  | 155,304   |  |  | $ | 151.22 | 
|Total          |  |                     | 3,219,879 |                     |  |                  | 8.26 |             |  | $                | 9.86   |  |  |  | 2,461,247 |  |  | $ | 12.05  | 

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, 2002, 585,000 shares were reserved under the Purchase Plan.
As of
December 31, 2002, 111,925 shares had been issued and 473,075 shares were
available for issuance under the Purchase Plan.

Stock-Based Compensation

Stock based compensation charges are made up of the following:

|                           |  |                          |       |      |  |      |       |  |  |   |     | 
|-------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | - | --- | 
|                           |  | Years ended December 31,
|                           |  |                         
|                           |  | 2000                     |       | 2001 |  | 2002
|                           |  |                          |       |      |  |     
|Stock options              |  | $                        | 757   |      |  | $    | 2,385 |  |  | $ |    | 
|Stock and restricted stock |  |                          | 3,812 |      |  |      | 828   |  |  |   |    | 
|Warrants                   |  |                          | 558   |      |  |      | 1,286 |  |  |   | 171 | 
|                           |  |                          |       |      |  |      |       |  |  |   |     | 
|Total                      |  | $                        | 5,127 |      |  | $    | 4,499 |  |  | $ | 171 | 
|                           |  |                          |       |      |  |      |       |  |  |   |     | 

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In connection with certain stock options granted to consultants or to employees
(with below market price exercise prices), the Company recorded unearned
stock-based compensation, which was amortized over the vesting periods of the
related options, generally two to three years. In connection with certain
restricted stock awards to employees, the Company recorded unearned stock-based
compensation for the value of the restricted awards, which was amortized over
the vesting periods of the awards, generally less than a year. The Company has
from time to time issued to customers warrants to purchase equity securities.
The value of these warrants was estimated using the Black-Scholes
option-pricing model and recorded as stock-based compensation over the vesting
period of the warrants, generally two to three years (See Note 13).

Fair Value Disclosure

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 FAS 123 and
FAS 148, and has been determined as if the Company had accounted for its stock
options under the fair value method of FAS 123. The computations for
pro forma
basic and diluted earnings per share for each year follow:

|                                                       |                                                                        |      |                          |         |   |      |         |         |   |   |            |        |  
|------------------------------------------------------ | ---------------------------------------------------------------------- | ---- | ------------------------ | ------- | - | ---- | ------- | ------- | - | - | ---------- | ------ | -
|                                                       |                                                                        |      | Years Ended December 31,
|                                                       |                                                                        |      |                         
|(In thousands, except per share)                       |                                                                        | 2000 |                          | 2001    |   | 2002
|                                                       |                                                                        |      |                          |         |   |     
|                                                       |                                                                        |      |                          |         |   |      |         |         |   |   | (restated)
|Net loss available to common before
extraordinary gain |                                                                        | $    | (346,595                 | )       |   | $    | (54,579 | )       |   | $ | (2,927     | )     
|                                                       | Extraordinary gain                                                     |      |                          |        |   |      |         | 901     |   |   |            |       |  
|                                                       |                                                                        |      |                          |         |   |      |         |         |   |   |            |       
|Net loss available to common                           |                                                                        |      | (346,595                 | )       |   |      | (53,678 | )       |   |   | (2,927     | )     
|                                                       | Add: employee stock compensation
expense
included in reported net loss |      |                          | 4,569   |   |      |         | 3,213   |   |   |            |       |  
|                                                       | Less: FAS 123 pro forma charges                                        |      |                          | (26,509 | ) |      |         | (11,503 | ) |   |            | (5,742 | )
|                                                       |                                                                        |      |                          |         |   |      |         |         |   |   |            |       
|Adjusted net loss available to common                  |                                                                        | $    | (368,535                 | )       |   | $    | (61,968 | )       |   | $ | (8,669     | )     
|                                                       |                                                                        |      |                          |         |   |      |         |         |   |   |            |       
|Basic and diluted loss per common share:               |                                                                        |      |                          |         |   |      |         |         |   |   |            |       
|Loss per common share before
extraordinary gain        |                                                                        | $    | (61.55                   | )       |   | $    | (8.36   | )       |   | $ | (0.43      | )     
|                                                       | Extraordinary gain                                                     |      |                          |        |   |      |         | 0.14    |   |   |            |       |  
|                                                       |                                                                        |      |                          |         |   |      |         |         |   |   |            |       
|Loss per common share before
pro forma charges         |                                                                        | $    | (61.55                   | )       |   |      | (8.22   | )       |   |   | (0.43      | )     
|                                                       | Net effect of pro forma charges                                        |      |                          | (3.90   | ) |      |         | (1.27   | ) |   |            | (0.85  | )
|                                                       |                                                                        |      |                          |         |   |      |         |         |   |   |            |       
|Adjusted basic and diluted loss per
common share       |                                                                        | $    | (65.45                   | )       |   | $    | (9.49   | )       |   | $ | (1.28      | )     
|                                                       |                                                                        |      |                          |         |   |      |         |         |   |   |            |       

Under FAS 123, grants under the Employee Stock Purchase Plan (ESPP)have a
look-back feature and a 15% discount and accordingly would have had
compensation expense calculated as a result. The fair value disclosure
associated with the ESPP grants is included in the fair value pro forma
information above.

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 6.0% to 6.8% in 2000, 4.7% to 5.4% in
2000 and 4.0% to 4.5% in 2002; expected dividends of zero in 2000, 2001 and
2002; and volatility of 83% to 113% in 2000, 69% to 192% in 2001 and 92% to
117% in 2002.

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 2000 and 2001 the Company matched sixty-five cents per dollar up
to 6.15% of the employees annual salary. The Company made contributions, net
of forfeitures, of $500, $117 and $0 in 2000, 2001 and 2002, respectively.

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11. 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.

Starting 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 has not generated full
service virtual tour revenues since the quarter ended September 30, 2001 and
does not expect to generate material future revenues from the sale of full
service virtual real estate tours in the U.S. residential real estate markets.

Of the $28,906 of revenues for 2001, $21,356 was not related to full service
virtual tours. Of the $16,645 of gross profit for 2001, $12,697 was not related
to full service virtual tours. Information about the new 2001 reported segments
is as follows:

|                         |  |             |        |           |  |       |       |  |  |   |        | 
|------------------------ |  | ----------- | ------ | --------- |  | ----- | ----- |  |  | - | ------ | 
|                         |  | TRANSACTION |        | IMMERSIVE |  |       |       | 
|                         |  | SERVICES    |        | SOLUTIONS |  | TOTAL
|                         |  |             |        |           |  |      
|YEARS ENDED DECEMBER 31: |  |             |        |           |  |       |       |  |  |   |        | 
|2002                     |  |             |        |           |  |       |       |  |  |   |        | 
|Revenues                 |  | $           | 16,242 |           |  | $     | 6,171 |  |  | $ | 22,413 | 
|Gross profit             |  |             | 9,414  |           |  |       | 4,271 |  |  |   | 13,685 | 
|2001                     |  |             |        |           |  |       |       |  |  |   |        | 
|Revenues                 |  | $           | 13,320 |           |  | $     | 8,036 |  |  | $ | 21,356 | 
|Gross profit             |  |             | 7,436  |           |  |       | 5,261 |  |  |   | 12,697 | 

Information about prior reported segments is as follows:

|                        |  |          |        |          |  |       |        |  |  |   |        | 
|----------------------- |  | -------- | ------ | -------- |  | ----- | ------ |  |  | - | ------ | 
|                        |  | PRODUCTS |        | SERVICES |  | TOTAL
|                        |  |          |        |          |  |      
|YEARS ENDED DECEMBER 31 |  |          |        |          |  |       |        |  |  |   |        | 
|2002                    |  |          |        |          |  |       |        |  |  |   |        | 
|Revenues                |  | $        | 6,512  |          |  | $     | 15,901 |  |  | $ | 22,413 | 
|Gross profit            |  |          | 4,367  |          |  |       | 9,318  |  |  |   | 13,685 | 
|2001                    |  |          |        |          |  |       |        |  |  |   |        | 
|Revenues                |  | $        | 14,758 |          |  | $     | 14,148 |  |  | $ | 28,906 | 
|Gross profit            |  |          | 7,488  |          |  |       | 9,157  |  |  |   | 16,645 | 
|2000                    |  |          |        |          |  |       |        |  |  |   |        | 
|Revenues                |  | $        | 48,943 |          |  | $     | 4,730  |  |  | $ | 53,673 | 
|Gross profit            |  |          | 23,388 |          |  |       | 2,214  |  |  |   | 25,602 | 

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

|          |                         |   |                          |        |      |   |        |        |  |   |        |        | 
|--------- | ----------------------- | - | ------------------------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|          |                         |   | YEARS ENDED DECEMBER 31,
|          |                         |   |                         
|          |                         |   | 2000                     |        | 2001 |   | 2002  
|          |                         |   |                          |        |      |   |       
|REVENUES: |                         |   |                          |        |      |   |        |        |  |   |        |       
|          | United States           |   | $                        | 45,535 |      |   | $      | 24,683 |  |   | $      | 19,962 | 
|          | Canada                  |   |                          | 1,608  |      |   |        | 369    |  |   |        |       | 
|          | Japan                   |   |                          | 390    |      |   |        |       |  |   |        | 577    | 
|          | Europe                  |   |                          | 4,630  |      |   |        | 2,802  |  |   |        | 904    | 
|          | Other foreign
countries |   |                          | 1,510  |      |   |        | 1,052  |  |   |        | 970    | 
|          |                         |   |                          |        |      |   |        |        |  |   |        |       
|          |                         | $ | 53,673                   |        |      | $ | 28,906 |        |  | $ | 22,413 |       
|          |                         |   |                          |        |      |   |        |        |  |   |        |       

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|                   |               |   |                    |        |      |   |       |       |  |   |       |       | 
|------------------ | ------------- | - | ------------------ | ------ | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                   |               |   | AS OF DECEMBER 31,
|                   |               |   |                   
|                   |               |   | 2000               |        | 2001 |   | 2002 
|                   |               |   |                    |        |      |   |      
|LONG-LIVED ASSETS: |               |   |                    |        |      |   |       |       |  |   |       |      
|                   | Foreign       |   | $                  | 3,285  |      |   | $     | 83    |  |   | $     |      | 
|                   | United States |   |                    | 17,680 |      |   |       | 4,531 |  |   |       | 4,631 | 
|                   |               |   |                    |        |      |   |       |       |  |   |       |      
|                   |               | $ | 20,965             |        |      | $ | 4,614 |       |  | $ | 4,631 |      
|                   |               |   |                    |        |      |   |       |       |  |   |       |      

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

12. COMMITMENTS AND CONTINGENCIES

COMMITMENTS

During April 2000, the Company entered into an agreement to provide visual
content services under which the Company is required to pay marketing fees to a
related party of $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 14).

In 2001 and 2002, the Company sold certain assets totaling $2,840 and $2,494,
respectively, to a stockholder and agreed to leaseback those assets over a
three-year period. In order to sell the assets to the stockholder during the
third quarter 2001, the Company paid off the remaining payments under an
existing capital lease of the assets from a third party. During the quarter
ended September 30, 2002, the Company sold certain assets totaling $1,376 to an
unaffiliated leasing company and agreed to leaseback those assets over a
thirty-month period. The net book value and the fair value of the assets sold
in these sale/leaseback transactions equaled the sale price, resulting in no
gain or loss on the sale of the assets. The leases are accounted for as capital
leases in accordance with FAS 13, Accounting for Leases.

At December 31, 2002, the future minimum payments under these and other capital
lease agreements are as follows:

|                                           |  |   |       | 
|------------------------------------------ |  | - | ----- | 
|2003                                       |  | $ | 2,582 | 
|2004                                       |  |   | 1,402 | 
|2005                                       |  |   | 106   | 
|                                           |  |   |       | 
|Minimum lease payments                     |  |   | 4,090 | 
|Less: amount representing interest         |  |   | 228   | 
|                                           |  |   |       | 
|Principal amount of minimum lease payments |  |   | 3,862 | 
|Less: current portion                      |  |   | 2,403 | 
|                                           |  |   |       | 
|Long-term portion                          |  | $ | 1,459 | 
|                                           |  |   |       | 

The Company leases certain office space, co-location space and equipment under
noncancelable operating leases.

Future minimum lease payments under these and other operating leases are as
follows:

|     |  |   |      
|---- |  | - | -----
|2003 |  | $ | 3,189
|2004 |  |   | 2,738
|2005 |  |   | 1,024
|2006 |  |   | 771  
|2007 |  |   | 64   

Rental expense for operating leases was $4,579, $2,921 and $2,638 for 2000,
2001
and 2002, respectively.

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CONTINGENCIES

On October 28, 1998, Minds-Eye-View, Inc. (Minds-Eye) and Mr. Ford Oxaal
(Oxaal) filed a lawsuit against the Company 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 court removed this action to
arbitration upon our motion, and the Company cross-claimed alleging various
affirmative claims, including trade secret theft. Minds-Eye and 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 proceeded with the
arbitration in Knoxville, Tennessee. The arbitration was stayed pending
resolution of the following lawsuit.

On May 20, 1999, Oxaal filed a lawsuit against the Company and certain of the
Companys customers in the same court alleging that our technology infringes
upon a patent claim for 360 degree spherical visual technology held by him.
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 was issued on December 5,
2000. This patent encompasses a method of seamlessly combining at least two
images into a spherical image.

On June 11, 2002, the Company reached an out of court settlement with Oxaal and
Minds-Eye. As a result of the settlement, each of the lawsuits and the
arbitration proceeding described above were dismissed and mutual releases have
been executed. Pursuant to the settlement agreement, neither party admitted
liability or any wrongdoing. The Company was granted a non-exclusive license
under patents and pending patents conceived by Oxaal or in which Oxaal has an
interest. The license rights inure to the benefit of the Companys customers
with respect to their purchases from the Company and also inure to the benefit
of the Companys business partners with respect to their business relations
with iPIX. The Company included the cost of the license in computer hardware,
software and other on the accompanying balance sheet. The Company does not
believe that the cost of the license in the current period or the future, will
have a material effect on its financial condition, results of operations or
cash flows.

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 the Company 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 was sought. In December, 2002, the Company settled this case
pursuant to a settlement agreement in which neither party admitted liability or
any wrongdoing. The settlement did not have a material effect on the Companys
financial condition, results of operations or cash flows.

During the quarter ending September 30, 2002, the Company received
approximately $1,400 in cash from a previously disclosed favorable jury verdict
against Infinite Pictures that found the defendants liable for infringement of
our patents under the doctrine of equivalents and awarding us $1,000 in
damages, plus approximately $400 in interest and court costs. The defendants
filed for a writ of certiorari with the United States Supreme Court in an
effort to reverse the lower courts findings in our favor. The Supreme Court
refused to grant the writ, which exhausted the legal remedies for disputing the
award. Accordingly, the Company recorded the $1,000 in damages as patent
infringement award, along with the $400 in interest and court costs, in the
quarter ended September 30, 2002.

On November 15, 2002, a First Amended Consolidated Complaint for violation of
federal securities laws was filed against Homestore.com, Inc. (Homestore) by
the California Teachers Retirement System (CalSTRS). The Complaint is a
class action lawsuit filed on behalf of stockholders of Homestore.com which
flows from alleged misstatements and omissions made by Homestore and the other
named defendants, which include the Company. The Complaint alleges that during
2001, Homestore and iPIX entered into fraudulent reciprocal transactions
intended to artificially bolster and maintain Homestores and our respective
stock prices. The Complaint alleges that Homestores public statements with
respect to these transactions are attributable to

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the Company and violate Sections 10(b) and 20(a) of the Securities Exchange Act
of 1934. The Company joined with other co-defendants and filed a joint motion
to dismiss, alleging that the Complaint fails to state a claim upon which
relief may be granted, among other things. On March 7, 2003, the United States
District Court for the District of Central California granted the Companys
motion to dismiss, with prejudice. However, CalSTRS may appeal this dismissal
in accordance with the federal rules of procedure.

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 the Companys business, financial condition,
results of operations or cash flows.

13. WARRANTS

The Company has from time to time issued warrants to purchase equity
securities.

The following tables summarize warrants outstanding at December 31, 2002:

Common Stock

|          |  |            |            |        |        |       |         |          |        |           |        | 
|--------- |  | ---------- | ---------- | ------ | ------ | ----- | ------- | -------- | ------ | --------- | ------ | 
|Grant     |  | Expiration |            |        |        |       |         | Exercise
|Date      |  | Date       |            | Shares |        | Price
|          |  |            |            |        |        |      
|4/19/2000 |  |            | 10/18/2004 |        |        |       | 60,000  |          |        | $         | 203.80 | 
|5/26/2000 |  |            | 2/25/2005  |        |        |       | 20,000  |          |        | $         | 120.60 | 
|5/26/2000 |  |            | 2/25/2005  |        |        |       | 20,000  |          |        | $         | 120.60 | 
|1/6/2000  |  |            | 1/5/2009   |        |        |       | 20,000  |          |        | $         | 154.70 | 
|          |  |            |            |        |        |       |         |          |        | $40.00 to
|2000      |  | Various    |            |        | 16,949 |       |         | $        | 176.60 |          
|          |  |            |            |        |        |       |         |          |        |           |        | 
|          |  |            |            |        |        |       | 136,949 |          |        |           |        | 
|          |  |            |            |        |        |       |         |          |        |           |        | 

|                            |  |          |           |            |  |        |           |       |  |          |           |  |  |   |       | 
|--------------------------- |  | -------- | --------- | ---------- |  | ------ | --------- | ----- |  | -------- | --------- |  |  | - | ----- | 
|                            |  | Date     |           | Expiration |  |        |           |       |  | Exercise
|Series B Preferred Stock    |  | of Grant |           | Date       |  | Shares |           | Price
|                            |  |          |           |            |  |        |           |      
|Warrant 1                   |  |          | 5/14/2001 |            |  |        | 5/14/2006 |       |  |          | 150,000   |  |  | $ | 20.00 | 
|Warrant 2                   |  |          | 5/14/2001 |            |  |        | 5/14/2006 |       |  |          | 100,000   |  |  | $ | 40.00 | 
|Equivalent to common shares |  |          | 9.21      |            |  |        |           |       |  |          |           |  |  |   |       | 
|Warrant 1                   |  |          |           |            |  |        |           |       |  |          | 1,381,125 |  |  | $ | 2.17  | 
|Warrant 2                   |  |          |           |            |  |        |           |       |  |          | 920,750   |  |  | $ | 4.34  | 
|                            |  |          |           |            |  |        |           |       |  |          |           |  |  |   |       | 
|Total                       |  |          |           |            |  |        |           |       |  |          | 2,301,875 |  |  |   |       | 
|                            |  |          |           |            |  |        |           |       |  |          |           |  |  |   |       | 

14. RELATED PARTY TRANSACTIONS

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

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##### Table of Contents



related to this forgiveness is included in restructuring expense for the year
ended December 31, 2001. As guarantee to pay the related severance agreement,
the Company provided a letter of credit to the employee. The letter of credit
had related balances of $600 and $200 as of December 31, 2001 and 2002.

In September 1996, PictureWorks President, currently the Companys CEO,
exercised his right under his employment agreement to purchase 39,339 shares of
iPIX common stock in exchange for a full recourse promissory note issued to the
Company in the amount of $126. Interest accrued 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 in 2002 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, $6,048 and $13,368 for the years ended December 31, 2000, 2001 and 2002,
respectively.

During April 2000, the Company entered into an agreement to provide visual
content services to eBay under which the Company is required to pay marketing
fees to eBay of $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. As of December 31, 2002,
the Company has $3,000 of the commitment remaining. In accordance with EITF
01-09, $1,000 of these fees was offset against revenue which amount represented
the excess over the fair value of the benefit received during the year ended
December 31, 2002.

In 2001 and 2002, 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 $5,334. The transactions resulted in no gain or loss to the
Company. Pursuant to lease schedules covering this equipment, the Company will
pay eBay annual lease payments of approximately $1,897, $779 and $106 in 2003,
2004 and 2005, respectively. In 2001 and 2002, the Company paid eBay $194 and
$2,373, respectively, pursuant to these lease schedules.

15. RECALCULATION OF EARNINGS PER SHARE

The Company has revised its 2002 financial statements to reflect the impact of
the cumulative dividend and participation rights of the Companys convertible
preferred stock on the calculation of earnings (loss) per share for the year
ended December 31, 2002 and the quarters ended March 31, June 30,
September 30 and December 31, 2002. The cumulative dividend, whether or not
declared, has been reflected as a reduction in net income (loss) to calculate
net income (loss) available to common shareholders. In addition, the
participation right of the preferred stock has been considered in the
calculation of basic earnings (loss) per share, if dilutive, using the if
converted method or the two class method, if more dilutive. The revision of
earnings (loss) per share for the periods indicated above had no effect on
reported revenues, gross profit, net income (loss) or cash balances in any of
the periods.

F-27



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##### Table of Contents



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

|                  |                                                                        |  |       |          |          |  |               |         |              |  |             |         |   |  |   |         |   |  |   |          |  
|----------------- | ---------------------------------------------------------------------- |  | ----- | -------- | -------- |  | ------------- | ------- | ------------ |  | ----------- | ------- | - |  | - | ------- | - |  | - | -------- | -
|                  |                                                                        |  |       |          |          |  | QUARTER ENDED
|                  |                                                                        |  |       |          |          |  |              
|                  |                                                                        |  | TOTAL |          | MARCH 31 |  | JUNE 30       |         | SEPTEMBER 30 |  | DECEMBER 31
|                  |                                                                        |  |       |          |          |  |               |         |              |  |            
|Fiscal Year 2002: |                                                                        |  |       |          |          |  |               |         |              |  |             |         |   |  |   |         |   |  |   |         
|                  | Revenue                                                                |  | $     | 22,413   |          |  | $             | 4,794   |              |  | $           | 5,761   |   |  | $ | 5,995   |   |  | $ | 5,863    |  
|                  | Gross profit                                                           |  | $     | 13,685   |          |  | $             | 2,670   |              |  | $           | 3,575   |   |  | $ | 3,696   |   |  | $ | 3,744    |  
|                  | Net income (loss)                                                      |  | $     | (1,143   | )        |  | $             | (1,512  | )            |  | $           | (692    | ) |  | $ | 575     |   |  | $ | 486      |  
|                  | Net income (loss) available to common
stockholders (restated) (2)      |  | $     | (2,927   | )        |  | $             | (1,952  | )            |  | $           | (1,136  | ) |  | $ | 125     |   |  | $ | 36       |  
|                  | Earnings (loss) per common share, basic (as reported) (1)              |  | $     | (0.17    | )        |  | $             | (0.22   | )            |  | $           | (0.10   | ) |  | $ | 0.08    |   |  | $ | 0.07     |  
|                  | Earnings
(loss) per common share, diluted (as reported) (1)            |  | $     | (0.17    | )        |  | $             | (0.22   | )            |  | $           | (0.10   | ) |  | $ | 0.03    |   |  | $ | 0.03     |  
|                  | Earnings (loss) per common share, basic and
diluted (restated) (1) (2) |  | $     | (0.43    | )        |  | $             | (0.29   | )            |  | $           | (0.17   | ) |  | $ | 0.01    |   |  | $ | 0.00     |  
|Fiscal Year 2001: |                                                                        |  |       |          |          |  |               |         |              |  |             |         |   |  |   |         |   |  |   |         
|                  | Revenue                                                                |  | $     | 28,906   |          |  | $             | 9,523   |              |  | $           | 7,963   |   |  | $ | 6,576   |   |  | $ | 4,844    |  
|                  | Gross profit                                                           |  | $     | 16,645   |          |  | $             | 4,689   |              |  | $           | 4,526   |   |  | $ | 4,185   |   |  | $ | 3,245    |  
|                  | Extraordinary Gain                                                     |  | $     | 901      |          |  | $             |        |              |  | $           |        |   |  | $ |        |   |  | $ | 901      |  
|                  | Net loss                                                               |  | $     | (53,678  | )        |  | $             | (17,108 | )            |  | $           | (19,615 | ) |  | $ | (14,546 | ) |  | $ | (2,409   | )
|                  | Loss per common 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                                                           |  | $     | 25,602   |          |  | $             | 3,437   |              |  | $           | 7,466   |   |  | $ | 9,073   |   |  | $ | 5,626    |  
|                  | Net loss                                                               |  | $     | (346,595 | )        |  | $             | (36,890 | )            |  | $           | (47,934 | ) |  | $ | (37,712 | ) |  | $ | (224,059 | )
|                  | Loss per common share, basic and diluted (1)                           |  | $     | (61.55   | )        |  | $             | (7.91   | )            |  | $           | (8.45   | ) |  | $ | (6.24   | ) |  | $ | (36.63   | )



---

|(1) |  | The sum of the quarterly earnings(loss) per share amounts may differ from
annual loss 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.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The following table sets forth the components of basic and diluted earnings
(loss) per share for the periods indicated:                                                                                                                                

|                                                                                   |  |                      |        |      |  |           |        |          |  |   |        |   |  |   |        |  
|---------------------------------------------------------------------------------- |  | -------------------- | ------ | ---- |  | --------- | ------ | -------- |  | - | ------ | - |  | - | ------ | -
|                                                                                   |  | QUARTER
ENDED  2002
|                                                                                   |  |                     
|(In thousands, except per share)                                                   |  | MARCH                |        | JUNE |  | SEPTEMBER |        | DECEMBER
|                                                                                   |  | 31,                  |        | 30,  |  | 30,       |        | 31,     
|                                                                                   |  |                      |        |      |  |           |        |         
|NUMERATOR:                                                                         |  |                      |        |      |  |           |        |          |  |   |        |   |  |   |        |  
|Net income(loss)                                                                   |  | $                    | (1,512 | )    |  | $         | (692   | )        |  | $ | 575    |   |  | $ | 486    |  
|Cumulative preferred stock dividend                                                |  |                      | (440   | )    |  |           | (444   | )        |  |   | (450   | ) |  |   | (450   | )
|                                                                                   |  |                      |        |      |  |           |        |          |  |   |        |   |  |   |        |  
|Net income(loss) available to
common stockholders                                  |  | $                    | (1,952 | )    |  | $         | (1,136 | )        |  | $ | 125    |   |  | $ | 36     |  
|                                                                                   |  |                      |        |      |  |           |        |          |  |   |        |   |  |   |        |  
|DENOMINATOR:                                                                       |  |                      |        |      |  |           |        |          |  |   |        |   |  |   |        |  
|Weighted average common shares                                                     |  |                      | 6,771  |      |  |           | 6,792  |          |  |   | 6,798  |   |  |   | 6,808  |  
|Common shares issuable on
conversion of participating
preferred stock, if dilutive |  |                      |       |      |  |           |       |          |  |   | 10,267 |   |  |   | 10,267 |  
|                                                                                   |  |                      |        |      |  |           |        |          |  |   |        |   |  |   |        |  
|Shares used                                                                        |  |                      | 6,771  |      |  |           | 6,792  |          |  |   | 17,065 |   |  |   | 17,075 |  
|                                                                                   |  |                      |        |      |  |           |        |          |  |   |        |   |  |   |        |  

F-28