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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


|                                     |  |                              
|------------------------------------ |  | -----------------------------
|For the quarter ended March 31,
2003 |  | Commission File No. 000-26363

Internet Pictures Corporation

(Exact name of registrant as specified in its charter)

|                                |  |                                     
|------------------------------- |  | ------------------------------------
|Delaware                        |  | 52-2213841                          
|(State or other jurisdiction of |  | (I.R.S. Employer Identification No.)
|incorporation or organization)  |  |                                     

3160 Crow Canyon Road
San Ramon, California 94583
(Address of principal executive offices, zip code)

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

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past
90 days.    Yes  x    No  o

Indicate by check mark whether the
registrant is an accelerated filer (as defined in Rule 12b-2 of
the Exchange
Act).
    Yes  o    No  x

6,812,955 shares of $0.001 par value common stock outstanding as of April 30,
2003.

Page 1 of 27





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TABLE OF CONTENTS



|                                             |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART IFINANCIAL INFORMATION                
|                                             | Item 1. Condensed Consolidated Financial Statements                                          
|                                             | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                             | Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                             | Item 4. CONTROLS AND PROCEDURES                                                              
|PART II  OTHER INFORMATION                 
|                                             | Item 1. Legal Proceedings                                                                    
|                                             | Item 2. Changes In Securities And Use Of Proceeds                                            
|                                             | Item 3. Defaults Upon Senior Securities                                                      
|                                             | Item 4. Submission Of Matters To A Vote Of Security Holders                                  
|                                             | Item 5. Other Information                                                                    
|                                             | Item 6. Exhibits And Reports On Form 8-K                                                     
|SIGNATURES                                  
|Ex-99.1 Section 906 Certification of the CEO
|Ex-99.2 Section 906 Certification of the CFO



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INTERNET PICTURES CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2003
INDEX

|                             |                                                                                               |  |    |    |  | 
|---------------------------- | --------------------------------------------------------------------------------------------- |  | -- | -- |  | 
|PART IFINANCIAL INFORMATION |                                                                                               |  | 3  |   
|                             | Item 1. Condensed Consolidated Financial Statements                                           |  |    | 3  | 
|                             | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations |  |    | 13 | 
|                             | Item 3. Quantitative and Qualitative Disclosures About Market Risk                            |  |    | 13 | 
|                             | Item 4. Controls and Procedures                                                               |  |    | 22 | 
|PART II  OTHER INFORMATION  |                                                                                               |  | 23 |   
|                             | Item 1. Legal Proceedings                                                                     |  |    | 23 | 
|                             | Item 2. Changes In Securities And Use Of Proceeds                                             |  |    | 23 | 
|                             | Item 3. Defaults Upon Senior Securities                                                       |  |    | 23 | 
|                             | Item 4. Submission Of Matters To A Vote Of Security Holders                                   |  |    | 23 | 
|                             | Item 5. Other Information                                                                     |  |    | 23 | 
|                             | Item 6. Exhibits And Reports On Form 8-K                                                      |  |    | 24 | 
|Signatures                   |                                                                                               |  | 25 |   
|Exhibit Index                |                                                                                               |  | 28 |   

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PART IFINANCIAL INFORMATION




Item 1. Condensed Consolidated Financial Statements

INTERNET PICTURES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS

|                                                          |                                            |   |              |        |             |   |          |        | 
|--------------------------------------------------------- | ------------------------------------------ | - | ------------ | ------ | ----------- | - | -------- | ------ | 
|                                                          |                                            |   | December 31, |        | March 31,  
|                                                          |                                            |   | 2002         |        | 2003       
|                                                          |                                            |   |              |        |            
|                                                          |                                            |   | (1)          |        | (unaudited)
|(In thousands)                                            |                                            |   |              |       
|ASSETS                                                    |                                            |   |              |        |             |   |          |       
|Cash and cash equivalents                                 |                                            | $ | 3,020        |        |             | $ | 4,729    |       
|Restricted cash and short term investments                |                                            |   | 2,972        |        |             |   | 1,400    |       
|Accounts receivable, net                                  |                                            |   | 3,535        |        |             |   | 2,195    |       
|Inventory, net                                            |                                            |   | 181          |        |             |   | 227      |       
|Prepaid expenses and other current assets                 |                                            |   | 984          |        |             |   | 1,250    |       
|                                                          |                                            |   |              |        |             |   |          |       
|                                                          | Total current assets                       |   |              | 10,692 |             |   |          | 9,801  | 
|Computer hardware, software and other, net                |                                            |   | 4,631        |        |             |   | 4,412    |       
|Other long term assets                                    |                                            |   | 70           |        |             |   | 31       |       
|Goodwill                                                  |                                            |   | 3,042        |        |             |   | 3,042    |       
|                                                          |                                            |   |              |        |             |   |          |       
|                                                          | Total assets                               |   | $            | 18,435 |             |   | $        | 17,286 | 
|                                                          |                                            |   |              |        |             |   |          |       
|LIABILITIES AND STOCKHOLDERS EQUITY CURRENT LIABILITIES: |                                            |   |              |        |             |   |          |       
|Accounts payable                                          |                                            | $ | 360          |        |             | $ | 996      |       
|Accrued liabilities                                       |                                            |   | 5,426        |        |             |   | 3,996    |       
|Deferred revenue                                          |                                            |   | 85           |        |             |   | 122      |       
|Current portion of obligations under capital leases       |                                            |   | 2,403        |        |             |   | 2,259    |       
|                                                          |                                            |   |              |        |             |   |          |       
|                                                          | Total current liabilities                  |   |              | 8,274  |             |   |          | 7,373  | 
|Obligations under capital leases, net of current portion  |                                            |   | 1,459        |        |             |   | 918      |       
|Other long term liabilities                               |                                            |   | 310          |        |             |   | 230      |       
|STOCKHOLDERS EQUITY:                                     |                                            |   |              |        |             |   |          |       
|Preferred stock                                           |                                            |   | 1            |        |             |   | 1        |       
|Common stock                                              |                                            |   | 65           |        |             |   | 65       |       
|Class B common stock                                      |                                            |   |             |        |             |   |         |       
|Additional paid-in capital                                |                                            |   | 513,937      |        |             |   | 513,937  |       
|Accumulated deficit                                       |                                            |   | (505,117     | )      |             |   | (504,749 | )     
|Accumulated other comprehensive loss                      |                                            |   | (494         | )      |             |   | (489     | )     
|                                                          |                                            |   |              |        |             |   |          |       
|                                                          | Total stockholders equity                 |   |              | 8,392  |             |   |          | 8,765  | 
|                                                          |                                            |   |              |        |             |   |          |       
|                                                          | Total liabilities and stockholders equity |   | $            | 18,435 |             |   | $        | 17,286 | 
|                                                          |                                            |   |              |        |             |   |          |       



---

|(1) |  | The December 31, 2002 balances were derived from the audited financial
statements.
|--- |  | ----------------------------------------------------------------------------------

See accompanying notes to the unaudited condensed consolidated financial
statements.

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INTERNET PICTURES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

|                                      |         |                          |        |                              |       |      |       |      |       | 
|------------------------------------- | ------- | ------------------------ | ------ | ---------------------------- | ----- | ---- | ----- | ---- | ----- | 
|                                      |         |                          |        | Three months ended March 31,
|                                      |         |                          |        |                             
|                                      |         |                          |        | 2002                         |       | 2003
|                                      |         |                          |        |                              |       |     
|                                      |         |                          |        | (unaudited)                 
|(In thousands, except per share data) |         |                          |        |                              |       |      |       |     
|Revenue:                              |         |                          |        |                              |       |      |       |     
|Transaction services                  |         | $                        | 3,575  |                              |       | $    | 5,602 |     
|Immersive still solutions             |         |                          | 1,219  |                              |       |      | 784   |     
|Immersive video solutions             |         |                          |       |                              |       |      | 5     |     
|                                      |         |                          |        |                              |       |      |       |     
|                                      |         | Total revenue            |        |                              | 4,794 |      |       |      | 6,391 | 
|                                      |         |                          |        |                              |       |      |       |     
|Cost of revenue:                      |         |                          |        |                              |       |      |       |     
|Transaction services                  |         |                          | 1,669  |                              |       |      | 1,782 |     
|Immersive still solutions             |         |                          | 455    |                              |       |      | 338   |     
|Immersive video solutions             |         |                          |       |                              |       |      | 4     |     
|                                      |         |                          |        |                              |       |      |       |     
|                                      |         | Total cost of revenue    |        |                              | 2,124 |      |       |      | 2,124 | 
|                                      |         |                          |        |                              |       |      |       |     
|                                      |         | Gross profit             |        |                              | 2,670 |      |       |      | 4,267 | 
|                                      |         |                          |        |                              |       |      |       |     
|Operating expenses:                   |         |                          |        |                              |       |      |       |     
|Sales and marketing                   |         |                          | 2,040  |                              |       |      | 1,761 |     
|Research and development              |         |                          | 1,281  |                              |       |      | 1,260 |     
|General and administrative            |         |                          | 904    |                              |       |      | 829   |     
|                                      |         |                          |        |                              |       |      |       |     
|                                      |         | Total operating expenses |        |                              | 4,225 |      |       |      | 3,850 | 
|                                      |         |                          |        |                              |       |      |       |     
|Income (loss) from operations         |         |                          | (1,555 | )                            |       |      | 417   |     
|Interest income (expense)             |         |                          | 38     |                              |       |      | (43   | )   
|Other                                 |         |                          | 5      |                              |       |      | (6    | )   
|                                      |         |                          |        |                              |       |      |       |     
|                                      |         | $                        |        |                              |       | $    |       |     
|Net income (loss)                     |         |                          | (1,512 | )                            |       |      | 368   |     
|                                      |         |                          |        |                              |       |      |       |     
|Net income (loss) per common share:   |         | $                        |        |                              |       | $    |       |     
|                                      | Basic   |                          |        | (0.22                        | )     |      |       | 0.05 |      
|                                      | Diluted |                          | $      | (0.22                        | )     |      | $     | 0.02 |      
|                                      |         |                          |        |                              |       |      |       |     

See accompanying notes to the unaudited condensed consolidated financial
statements.

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INTERNET PICTURES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                   |                                           |                                       |                                                     |      |                              |        |       |       |      |       |  
|-------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------- | --------------------------------------------------- | ---- | ---------------------------- | ------ | ----- | ----- | ---- | ----- | -
|                                                                                                   |                                           |                                       |                                                     |      | Three months ended March 31,
|                                                                                                   |                                           |                                       |                                                     |      |                             
|                                                                                                   |                                           |                                       |                                                     |      | 2002                         |        | 2003 
|                                                                                                   |                                           |                                       |                                                     |      |                              |        |      
|(In thousands)                                                                                     |                                           | (unaudited)                          
|Cash flows from operating activities:                                                              |                                           |                                       |                                                     |      |                              |        |       |      
|Net income (loss)                                                                                  |                                           | $                                     | (1,512                                              | )    |                              | $      | 368   |      
|Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities: |                                           |                                       |                                                     |      |                              |        |       |      
|Depreciation                                                                                       |                                           |                                       | 700                                                 |      |                              |        | 936   |      
|Provision for doubtful accounts receivable                                                         |                                           |                                       | (22                                                 | )    |                              |        | (2    | )    
|Non-cash compensation expense                                                                      |                                           |                                       | 53                                                  |      |                              |        |      |      
|Changes in operating assets and liabilities:                                                       |                                           |                                       |                                                     |      |                              |        |       |      
|                                                                                                   | Accounts receivable                       |                                       |                                                     | (328 | )                            |        |       | 1,342 |     
|                                                                                                   | Inventory                                 |                                       |                                                     | 80   |                              |        |       | (46   | )   
|                                                                                                   | Prepaid expenses and other current assets |                                       |                                                     | (460 | )                            |        |       | (266  | )   
|                                                                                                   | Other long term assets                    |                                       |                                                     |     |                              |        |       | 40    |     
|                                                                                                   | Accounts payable                          |                                       |                                                     | (916 | )                            |        |       | 228   |     
|                                                                                                   | Accrued expenses                          |                                       |                                                     | (154 | )                            |        |       | 61    |     
|                                                                                                   | Deferred revenue                          |                                       |                                                     | (561 | )                            |        |       | 38    |     
|                                                                                                   |                                           |                                       |                                                     |      |                              |        |       |      
|                                                                                                   |                                           |                                       | Net cash provided by (used in) operating activities |      |                              | (3,120 | )     |       |      | 2,699 |  
|Cash flow from investing activities:                                                               |                                           |                                       |                                                     |      |                              |        |       |      
|Purchases of computer hardware, software and other                                                 |                                           |                                       | (522                                                | )    |                              |        | (310  | )    
|                                                                                                   |                                           |                                       |                                                     |      |                              |        |       |      
|                                                                                                   |                                           |                                       | Net cash used in investing activities               |      |                              | (522   | )     |       |      | (310  | )
|                                                                                                   |                                           |                                       |                                                     |      |                              |        |       |      
|Cash flows from financing activities:                                                              |                                           |                                       |                                                     |      |                              |        |       |      
|Proceeds from exercise of stock options                                                            |                                           |                                       | 84                                                  |      |                              |        |      |      
|Repayments of capital lease obligations                                                            |                                           |                                       | (275                                                | )    |                              |        | (685  | )    
|Proceeds from notes receivable from stockholders                                                   |                                           |                                       | 179                                                 |      |                              |        |      |      
|                                                                                                   |                                           |                                       |                                                     |      |                              |        |       |      
|                                                                                                   |                                           | Net cash used in financing activities |                                                     |      | (12                          | )      |       |       | (685 | )    
|                                                                                                   |                                           |                                       |                                                     |      |                              |        |       |      
|Effect of exchange rate changes on cash                                                            |                                           |                                       | (49                                                 | )    |                              |        | 5     |      
|                                                                                                   |                                           |                                       |                                                     |      |                              |        |       |      
|Net increase (decrease) in cash and cash equivalents                                               |                                           |                                       | (3,703                                              | )    |                              |        | 1,709 |      
|Cash and cash equivalents, beginning of period                                                     |                                           |                                       | 11,103                                              |      |                              |        | 3,020 |      
|                                                                                                   |                                           |                                       |                                                     |      |                              |        |       |      
|Cash and cash equivalents, end of period                                                           |                                           | $                                     | 7,400                                               |      |                              | $      | 4,729 |      
|                                                                                                   |                                           |                                       |                                                     |      |                              |        |       |      

See accompanying notes to the unaudited condensed consolidated financial
statements

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NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS(Dollars in thousands, except per share data)
(Unaudited)

1.     UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited condensed 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), Inc. and PW Technology, Inc. The
consolidation of these entities will collectively be referred to as the Company
or iPIX. All significant intercompany balances and transactions have been
eliminated.

We have prepared these financial statements, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. The unaudited condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes
thereto included in our audited financial statements as of and for the year
ended December 31, 2002.

The information furnished reflects all adjustments which management believes
are necessary for a fair presentation of our financial position as of March 31,
2003 and the results of our operations and our cash flows for the three month
periods ended March 31, 2002 and 2003. All such adjustments are of a normal
recurring nature. The results of operations for the three month periods ended
March 31, 2002 and 2003 are not necessarily indicative of the results to be
expected for the respective full years.

2.     CASH EQUIVALENTS, RESTRICTED CASH AND SHORT TERM INVESTMENTS

We consider all highly liquid debt instruments with a 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. We determine the appropriate classification of investment
securities at the time of purchase and reevaluate such designation as of each
balance sheet date.

At March 31, 2003, we had $1,400 of investments with a remaining maturity of
three months that have been provided as collateral for certain capital lease
obligations and, accordingly, classified as restricted short term investments.
We will renew the investment for successive six month/one year periods until
the capital lease obligation restrictions are removed. At December 31, 2002,
restricted cash also included $1,372 related to accrued customer deposits which
were paid in full during the quarter ended March 31, 2003.

3.     INCOME (LOSS) PER SHARE

We compute net income (loss) per share in accordance with FAS No.128, Earnings
Per Share (FAS 128). Under the provisions of FAS 128, basic net income per
share is computed by dividing the net income for the period by the weighted
average number of shares of common

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stock outstanding. Under the provisions of FAS 128, diluted net income per
share is computed by dividing the net income for the period by the weighted
average number of shares of common stock outstanding, plus potential common
stock outstanding during the period. The calculation of basic and diluted net
loss per share excludes potential common shares if the effect is antidilutive.

Potential common shares are composed of incremental shares of common stock
issuable upon the conversion or exercise of potentially dilutive convertible
preferred stock, stock options and warrants. Stock options and warrants with
exercise prices above the average common stock closing price during the period
are not considered to be potentially dilutive in the calculation of income
(loss) per share. The following table sets forth the computation of basic and
dilutive net income (loss) per share for the periods indicated:

|                                              |  |                    |        |      |  |   |        | 
|--------------------------------------------- |  | ------------------ | ------ | ---- |  | - | ------ | 
|                                              |  | Three months ended
|                                              |  | March 31,         
|                                              |  |                   
|(In thousands, except per share)              |  | 2002               |        | 2003
|                                              |  |                    |        |     
|                                              |  | (unaudited)       
|NUMERATOR:                                    |  | $                  |        |      |  |   |        | 
|Net income (loss)                             |  |                    | (1,512 | )    |  | $ | 368    | 
|DENOMINATOR:                                  |  |                    |        |      |  |   |        | 
|Weighted average shares outstanding  Basic   |  |                    | 6,780  |      |  |   | 6,813  | 
|Weighted average potential stock options      |  |                    |       |      |  |   | 12     | 
|Weighted average potential warrants           |  |                    |       |      |  |   | 10,267 | 
|                                              |  |                    |        |      |  |   |        | 
|Weighted average shares outstanding  Diluted |  |                    | 6,780  |      |  |   | 17,092 | 
|                                              |  |                    |        |      |  |   |        | 
|INCOME (LOSS) PER SHARE:                      |  |                    |        |      |  |   |        | 
|Basic                                         |  | $                  | (0.22  | )    |  | $ | 0.05   | 
|Diluted                                       |  | $                  | (0.22  | )    |  | $ | 0.02   | 

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 three month period ended March 31, 2002 and 2003:

|                            |  |      |        |      |  |  |   | 
|--------------------------- |  | ---- | ------ | ---- |  |  | - | 
|(In thousands)              |  | 2002 |        | 2003
|                            |  |      |        |     
|Stock options               |  |      | 737    |      |  |  |  | 
|Convertible preferred stock |  |      | 10,267 |      |  |  |  | 
|Warrants                    |  |      | 1,381  |      |  |  |  | 

For the three month period ended March 31, 2003, our common stock had an
average share price of $1.07. As of March 31, 2003, the average exercise price
of the warrants to purchase common

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stock is $3.04 and the average exercise price of employee stock options is
$7.03. Not included in the table above are (i) 3,217,612 shares issuable
upon exercise of options and (ii) 2,438,824 shares issuable upon exercise of
warrants, each of which have an exercise price above the average share price
during the three month period ended March 31, 2003. Not included in the table
above are (i) 1,624,620 shares issuable upon exercise of options and (ii)
1,090,606 shares issuable upon exercise of warrants, each of which have an
exercise price above the average share price of $2.53 for the three month
period ended March 31, 2002.

4.     RESTRUCTURING AND OTHER

During the quarter ended March 31, 2003, the following payments were made
against the restructuring accrual:

|                          |                   |                   |            |                 |  |                  |   |                |  |   |     |     |            |   |     |     | 
|------------------------- | ----------------- | ----------------- | ---------- | --------------- |  | ---------------- | - | -------------- |  | - | --- | --- | ---------- | - | --- | --- | 
|                          |                   |                   | Balance at |                 |  |                  |   |                |  |   |     |     | Balance at
|(Unaudited, in thousands) |                   | December 31, 2002 |            | Expense in 2003 |  | Payments in 2003 |   | March 31, 2003
|                          |                   |                   |            |                 |  |                  |   |               
|Restructuring provisions: |                   |                   |            |                 |  |                  |   |                |  |   |     |     |            |   |     |    
|                          | Severance         |                   | $          | 500             |  |                  | $ |               |  |   | $   | 200 |            |   | $   | 300 | 
|                          | Lease obligations |                   |            | 549             |  |                  |   |               |  |   |     | 90  |            |   |     | 459 | 
|                          |                   |                   |            |                 |  |                  |   |                |  |   |     |     |            |   |     |    
|Total                     |                   | $                 | 1,049      |                 |  | $                |  |                |  | $ | 290 |     |            | $ | 759 |    
|                          |                   |                   |            |                 |  |                  |   |                |  |   |     |     |            |   |     |     | 

5.     STOCK-BASED COMPENSATION  FAIR VALUE DISCLOSURES

We comply with the disclosure provisions of Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 123 Accounting for
Stock-based Compensation (FAS 123). We have elected, however, to continue
accounting for stock-based compensation issued to employees using Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees (APB 25). Under APB 25, compensation expense is based on the
difference, if any, on the date of grant, between the fair value of our stock
and the 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 have been valued using the Black-Scholes model.

Pro forma information regarding our net income (loss) is required by FAS 123
and FAS 148 Accounting for Stock-Based Compensation, Transition and
Disclosure, and has been determined as if we had accounted for the stock
options under the fair value method of FAS 123.

The computations for pro-forma basic and diluted earnings per share for each
quarter follow:

|                                      |                                                                                 |      |                    |        |   |   |     |      |  
|------------------------------------- | ------------------------------------------------------------------------------- | ---- | ------------------ | ------ | - | - | --- | ---- | -
|                                      |                                                                                 |      | Three months ended
|                                      |                                                                                 |      | March 31,         
|                                      |                                                                                 |      |                   
|(In thousands, except per share data) |                                                                                 | 2002 |                    | 2003  
|                                      |                                                                                 |      |                    |       
|                                      |                                                                                 |      | (unaudited)       
|Net income (loss)                     |                                                                                 | $    | (1,512             | )      |   | $ | 368 |     
|                                      | Add: employee stock compensation expense
included in reported net income (loss) |      |                    |       |   |   |     |     |  
|                                      | Less: FAS 123 pro-forma charges                                                 |      |                    | (3,094 | ) |   |     | (442 | )
|                                      |                                                                                 |      |                    |        |   |   |     |     
|Adjusted net loss                     |                                                                                 | $    | (4,606             | )      |   | $ | (74 | )   
|                                      |                                                                                 |      |                    |        |   |   |     |     

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|                                            |                                 |   |                    |       |      |   |       |       |  
|------------------------------------------- | ------------------------------- | - | ------------------ | ----- | ---- | - | ----- | ----- | -
|                                            |                                 |   | Three months ended
|                                            |                                 |   | March 31,         
|                                            |                                 |   |                   
|                                            |                                 |   | 2002               |       | 2003
|                                            |                                 |   |                    |       |     
|Basic net income (loss) per common share:   |                                 |   |                    |       |      |   |       |      
|                                            | Net income (loss)               |   | $                  | (0.22 | )    |   | $     | 0.05  |  
|                                            | Net effect of pro-forma charges |   |                    | (0.46 | )    |   |       | (0.06 | )
|                                            |                                 |   |                    |       |      |   |       |      
|Adjusted basic net loss per common share    |                                 | $ | (0.68              | )     |      | $ | (0.01 | )    
|                                            |                                 |   |                    |       |      |   |       |      
|Diluted net income (loss) per common share: |                                 |   |                    |       |      |   |       |      
|                                            | Net income (loss)               |   | $                  | (0.22 | )    |   | $     | 0.02  |  
|                                            | Net effect of pro-forma charges |   |                    | (0.46 | )    |   |       | (0.03 | )
|                                            |                                 |   |                    |       |      |   |       |      
|Adjusted diluted net loss per common share  |                                 | $ | (0.68              | )     |      | $ | (0.01 | )    
|                                            |                                 |   |                    |       |      |   |       |      

Grants under the Employee Stock Purchase Plan (ESPP) have a look-back feature
and a 15% discount and accordingly under FAS 123 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 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 during the three month periods ending March 31:
expected lives of three to four years in 2002 and 2003; risk free interest rate
of 4.0% to 4.5% in 2002 and 3.5% to 4.0% in 2003; expected dividends of zero in
all periods; and volatility of 184% in 2002 and 115% in 2003.

6.     COMMITMENTS AND CONTINGENCIES

Commitments

The table below shows our contractual obligations as of March 31, 2003:

|                 |  |       |        |                   |  |                        |       |             |  |            |       |  |  |   |     |  |  |   |    | 
|---------------- |  | ----- | ------ | ----------------- |  | ---------------------- | ----- | ----------- |  | ---------- | ----- |  |  | - | --- |  |  | - | -- | 
|(In thousands)   |  |       |        |                   |  | Payments Due by Period
|                 |  |       |        |                   |  |                       
|                 |  | Total |        | Remainder of 2003 |  | 2004 & 2005            |       | 2006 & 2007 |  | After 2007
|                 |  |       |        |                   |  |                        |       |             |  |           
|Capital leases   |  | $     | 3,398  |                   |  | $                      | 1,889 |             |  | $          | 1,509 |  |  | $ |    |  |  | $ |   | 
|Operating leases |  |       | 7,000  |                   |  |                        | 2,404 |             |  |            | 3,761 |  |  |   | 771 |  |  |   | 64 | 
|                 |  |       |        |                   |  |                        |       |             |  |            |       |  |  |   |     |  |  |   |    | 
|Total            |  | $     | 10,398 |                   |  | $                      | 4,293 |             |  | $          | 5,270 |  |  | $ | 771 |  |  | $ | 64 | 
|                 |  |       |        |                   |  |                        |       |             |  |            |       |  |  |   |     |  |  |   |    | 

Contingencies

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

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Retirement System (CalSTRS). The Complaint is a class action lawsuit filed on
behalf of stockholders of Homestore which flows from alleged misstatements and
omissions made by Homestore and the other named defendants, which include us.
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 us and violate Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934. We 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 our motion
to dismiss, with prejudice. However, CalSTRS may appeal this dismissal in
accordance with the federal rules of procedure.

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

7.     SEGMENTS

We currently have three 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 revenues and gross profit. There are no
inter-segment revenues. We do not make allocations of corporate costs to the
individual segments and do not identify separate assets of the segments in
making decisions regarding the performance or the allocation of resources to
them.

Information about the reported segments is as follows:

|                 |                           |      |                    |       |  |   |       |       | 
|---------------- | ------------------------- | ---- | ------------------ | ----- |  | - | ----- | ----- | 
|                 |                           |      | Three months ended
|                 |                           |      | March 31,         
|                 |                           |      |                   
|(In thousands)   |                           | 2002 |                    | 2003 
|                 |                           |      |                    |      
|                 |                           |      | (unaudited)       
|Revenue:         |                           |      |                    |       |  |   |       |      
|                 | Transaction services      |      | $                  | 3,575 |  |   | $     | 5,602 | 
|                 | Immersive still solutions |      |                    | 1,219 |  |   |       | 784   | 
|                 | Immersive video solutions |      |                    |      |  |   |       | 5     | 
|                 |                           |      |                    |       |  |   |       |      
|Total            |                           | $    | 4,794              |       |  | $ | 6,391 |      
|                 |                           |      |                    |       |  |   |       |      
|Cost of revenue: |                           |      |                    |       |  |   |       |      
|                 | Transaction services      |      | $                  | 1,669 |  |   | $     | 1,782 | 
|                 | Immersive still solutions |      |                    | 455   |  |   |       | 338   | 
|                 | Immersive video solutions |      |                    |      |  |   |       | 4     | 
|                 |                           |      |                    |       |  |   |       |      
|Total            |                           | $    | 2,124              |       |  | $ | 2,124 |      
|                 |                           |      |                    |       |  |   |       |      

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8.     EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

In November 2002, the FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). 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 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002, while the disclosure requirements are
applicable in 2002. The adoption of FIN 45 did not have a material
impact on our results of operation or financial condition and did not
result in any additional liabilities as of March 31, 2003
associated with guarantees covered by this interpretation. In
addition to guarantees, we have entered into agreements indemnifying
certain parties with respect to our potential infringement of other
partys intellectual property. Due to the nature of the
indemnifications, our maximum exposure under these agreements cannot
be estimated. We have not recorded any amounts for those indemnities
because they are not probable or estimable at this time.

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. We do not believe that the
adoption of this standard will have a material effect on our 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 disclosure
requirements of FAS 148 are contained in Note 6. We will continue to apply the
provisions of APB 25 and disclose the fair value information on a pro-forma
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. We do not believe that
the adoption of this standard will have a material effect on our financial
position or results of operations.

9.     CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject us to a concentration of credit
risk consist of cash, cash equivalents, short term investments and accounts
receivable. Cash, cash equivalents and short term investments are deposited
with high quality financial institutions. Our accounts

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receivable are derived from revenue earned from customers located in the U.S.
and abroad. We perform ongoing credit evaluations of our customers financial
condition and we do not require collateral from our customers.

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

|          |  |                    |    |      |  |  |    |  
|--------- |  | ------------------ | -- | ---- |  |  | -- | -
|          |  | Three months ended
|          |  | March 31,         
|          |  |                   
|          |  | 2002               |    | 2003
|          |  |                    |    |     
|          |  | (unaudited)       
|Homestore |  |                    | 21 | %    |  |  | 4  | %
|eBay      |  |                    | 55 | %    |  |  | 84 | %

At March 31, 2003, Homestore and
eBay represented 0% and 80% of accounts receivable, respectively. All
amounts due from eBay as of March 31, 2003, were collected
during April 2003. At December 31, 2002, Homestore and eBay
represented 0% and 83% of accounts receivable, respectively. Our
principal agreements with Homestore and eBay, expire on June 30,
2003 and September 30, 2003, respectively. We are currently
negotiating the terms of an extension or amendment with Homestore and
can not give any assurances that any new agreement, extension of
similar agreement will be reached.

We are also discussing terms of our
future relationship with eBay. Under the discussed terms, we may
receive aggregate consideration of up to $15 million, and may no
longer receive any revenues from, or provide any services to, eBay
after September 30, 2003. We believe that transaction fees from
eBay will continue to increase as a percentage of revenue through
September 30, 2003 as more eBay customers utilize our service on
the eBay auction Web site. Although we may provide eBay with
assistance in transferring operating and program management
responsibilities after expiration of the current agreement, we can
not give any assurance that such an agreement will be reached. In
addition, if we experience significant changes in the terms of our
relationships with other current or prospective customers, delays in
payments from customers or the subsequent loss of another major
customer, it would have a material adverse effect on our business.

10.     RELATED PARTY TRANSACTIONS

During 2001, our CEO at that time, Mr. Phillips resigned as our chairman and
chief executive officer. Pursuant to a separation agreement, Mr. Phillips
received a severance payment in the amount of $1,300, in the following
increments: (i) $200 was paid on May 25, 2001; (ii) $200 was paid on September
1, 2001; (iii) $200 was paid on January 1, 2002; (iv) $200 was paid on June 1,
2002; (v) $200 was paid on January 2, 2003; (vi) $200 will be paid on or before
June 1, 2003 and (vii) $100 will be paid on or before September 1, 2003.

IPIX International

In the third quarter of 2002, we 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 its 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. We will also 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, we have the right to
terminate our agreements with Soroof.

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iPIX has a minority equity interest in iPIX-I, however, iPIX does not have the
ability to exercise significant influence over iPIX-I operations. We account
for our investment in iPIX-I on the cost basis. We did not make any capital
contributions to iPIX-I and we have no commitments to fund iPIX-I. We do have
the right, however, but not the obligation, to purchase iPIX-I from Soroof
after December 31, 2005 for consideration as defined in the agreement. During
the quarter ended March 31, 2003, we recognized $220 of revenue under these
agreements.

Transactions with eBay, Inc.

Pursuant to an agreement dated April 19, 2000, as amended, we provide to eBay,
Inc., which currently beneficially owns more than 10% of our common stock,
image management services to eBays online auction Web sites. Pursuant to that
agreement, we 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, we generated revenues of $2,626 and $5,350 for the
quarters ended March 31, 2002 and 2003, respectively. Under this agreement, we
were required to pay marketing fees to eBay of $16,000 over a two-year period.
As of September 26, 2001, we had paid $9,500 of the $16,000 commitment and we
agreed to extend the additional $6,500 of payments through September 2003. As
of March 31, 2003, we have $2,000 of the commitment remaining. In accordance
with EITF 01-09 Accounting for consideration given by a vendor to a customer
(including a reseller of the vendors products), $500 of these fees was offset
against revenue which amount represented the excess over the fair value of the
benefit received during the quarter ended March 31, 2003.

In 2001 and 2002, we sold to eBay, and eBay leased back to us, 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 iPIX. Pursuant to lease schedules
covering this equipment, we will pay eBay annual lease payments of
approximately $1,380, $779 and $106 in the duration of 2003, 2004 and 2005,
respectively. In the quarter ending March 31, 2003, we paid eBay $503 pursuant
to these lease schedules.




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

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

OVERVIEW

We are focused on three businesses:



|(1) |  | providing outsourced imaging services to facilitate online
transactions in the auction, classifieds and real estate markets
(Transaction Services);
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

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|(2) |  | providing immersive imaging solutions for the real estate,
travel and visual documentation markets (Immersive still
solutions); and
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | providing 180-degree and 360-degree video surveillance for the
security and observation markets (Immersive video solutions).       

Our Transaction Services products and
services include the capture, processing, management and distribution
of images and related data. Revenues from online auctions and
classifieds are primarily transaction based. Our transaction services
involve designing, building and managing an image management
infrastructure as well as leasing spaces from state-of-the-art
co-location facilities with access to telecommunications bandwidth.
Since these services are capital intensive, a high percentage of the
costs associated with transaction services are fixed and accordingly
the margins from transaction services are highly dependent upon
asset utilization. Substantially all of our recurring revenue is
derived from transaction fees generated by our Rimfire service. In
particular, eBay and Homestore are our largest Rimfire customers.
eBay represented approximately 60% of our total revenue and
approximately 82% of total Rimfire revenue for the year ended
December 31, 2002 and 84% of total revenue and 95% of total
Rimfire service revenue for the first quarter of 2003. Homestore
represented approximately 9% of total revenue and 20% of total
Rimfire service revenue for the first quarter of 2002, but less than
10% of total revenue and Rimfire revenue for the first quarter 2003.
We continue to diversify and add additional Transaction Services
customers and are currently targeting image management for
publications, online and off line classified advertising and other
business opportunities. If we fail to add significant customers in
this segment of our business, our results of operations could be
adversely affected.

We are currently negotiating terms to
restructure our business agreement with eBay, which expires by its
terms on September 30, 2003, subject to certain post-termination
obligations. These negotiations include eBay acquiring certain rights
to our Rimfire technology, our assistance in transferring operating
and program management responsibilities to it and other
considerations. We may receive up to $15 million in aggregate
consideration as a result of these negotiations.

The foregoing terms are preliminary,
still subject to negotiation and are not the subject of any
definitive agreement. No assurance can be given that we will reach an
agreement on terms acceptable to us, or at all. We may not expect to
receive any other revenue from, or provide any other services to,
eBay after September 30, 2003.

As a result, we expect that reaching a
new agreement with eBay, under the terms currently being discussed,
or the expiration of the current eBay agreement without modification,
or our failure to replace the revenue from the current eBay agreement
with other customers, could have a material adverse affect on our
on-going financial operating results.

Our principal agreement with Homestore
expires on June 30, 2003. We are currently in negotiations to
extend this agreement, but can not give any assurance that any new
agreement, extension or similar arrangement will be reached.
Significant changes in the terms, or the termination, of our
relationship with Homestore could have a material adverse affect on
our business.

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

We also provide professional services
to customers that request specific customizations or integrations of
our products and services. Providing professional services is labor
intensive, and our cost of sales for professional service tends to be
40% to 60% of revenues.

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CRITICAL ACCOUNTING POLICIES

Financial Reporting Release 60 issued by the Securities and Exchange Commission
(SEC) requires all registrants to discuss critical accounting policies or
methods used in the preparation of the financial statements. The notes to the
consolidated financial statements included in our Annual Report filed on Form
10-K include a summary of the significant accounting policies and methods used
in the preparation of our consolidated financial statements. Further, we have
made a number of estimates and assumptions that affect reported amounts of
assets, liabilities, revenues and expenses and actual results may differ from
those estimates. Those areas that require the greatest degree of management
judgment include revenue recognition, adequacy of the allowance for doubtful
accounts, goodwill and significant accruals.

We believe that full consideration has been given to all relevant circumstances
that we may be subject to, and our financial statements accurately reflect
managements best estimate of the results of operations, financial position and
cash flows for the periods presented. We believe the following represent our
critical accounting policies:

Revenue Recognition

We recognize revenue in accordance with SOP 97-2, Software Revenue
Recognition, and SAB 101, Revenue Recognition in Financial Statements.
Transaction revenues are recognized 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 we recognize
license revenue ratably over the life of the contract.

Product revenue is recognized upon shipment or delivery provided there are no
uncertainties surrounding product acceptance or significant vendor obligations,
persuasive evidence of an arrangement exists, the fees are fixed or
determinable and collection is reasonably assured.

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

Revenues from the sale of our virtual tour products are recognized upon
distribution to the Web site designated by the customer.

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 45, Long-Term Construction-Type
Contracts.

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Allowances for Doubtful Accounts

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

Goodwill

Under United States generally accepted accounting principles, we evaluate
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 our goodwill, we
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, we may be
required to record impairment charges for these assets. We believe that the
accounting estimate related to goodwill is a critical accounting estimate
because (1) it requires Company management to make assumptions about fair
values and (2) the impact of recognizing an impairment could be material to our
financial position, as well as our results of operations. Management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.
If we are unable to extend our agreement with eBay, we may incur a significant
impairment of our goodwill.

Significant Accruals, including Restructuring Charges and Sales Tax

We recorded restructuring charges associated with vacated facilities. The key
assumptions associated with these charges include the timing and amount of
sub-lease income. In addition, in establishing and providing for sales tax
accruals, we make judgments based on the actual tax laws and guidance. While
management believes that its judgments and interpretations regarding tax
liabilities are appropriate, significant differences in actual experience may
materially affect our future financial results.

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RESTRUCTURING ACTIONS

During the quarter ending March 31, 2003, the following payments were made
against our restructuring accrual:

|                          |                   |                   |            |                 |  |                  |   |                |  |   |     |     |            |   |     |     | 
|------------------------- | ----------------- | ----------------- | ---------- | --------------- |  | ---------------- | - | -------------- |  | - | --- | --- | ---------- | - | --- | --- | 
|                          |                   |                   | Balance at |                 |  |                  |   |                |  |   |     |     | Balance at
|(Unaudited, in thousands) |                   | December 31, 2002 |            | Expense in 2003 |  | Payments in 2003 |   | March 31, 2003
|                          |                   |                   |            |                 |  |                  |   |               
|Restructuring provisions: |                   |                   |            |                 |  |                  |   |                |  |   |     |     |            |   |     |    
|                          | Severance         |                   | $          | 500             |  |                  | $ |               |  |   | $   | 200 |            |   | $   | 300 | 
|                          | Lease obligations |                   |            | 549             |  |                  |   |               |  |   |     | 90  |            |   |     | 459 | 
|                          |                   |                   |            |                 |  |                  |   |                |  |   |     |     |            |   |     |    
|Total                     |                   | $                 | 1,049      |                 |  | $                |  |                |  | $ | 290 |     |            | $ | 759 |    
|                          |                   |                   |            |                 |  |                  |   |                |  |   |     |     |            |   |     |    

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, the percent
relationship to total revenues of select items in our statements of operations.

|                              |                          |                       |               |                           |      |                              |      |      |      |       |      |  
|----------------------------- | ------------------------ | --------------------- | ------------- | ------------------------- | ---- | ---------------------------- | ---- | ---- | ---- | ----- | ---- | -
|                              |                          |                       |               |                           |      | Three months ended March 31,
|                              |                          |                       |               |                           |      |                             
|                              |                          |                       |               |                           |      | 2002                         |      | 2003
|                              |                          |                       |               |                           |      |                              |      |     
|Revenue:                      |                          |                       |               |                           |      |                              |      |     
|                              |                          |                       |               | Transaction services      |      |                              | 74.6 | %    |      |       | 87.6 | %
|                              |                          |                       |               | Immersive still solutions |      |                              | 25.4 |      |      |       | 12.3 |  
|                              |                          |                       |               | Immersive video solutions |      |                              |     |      |      |       | 0.1  |  
|                              |                          |                       |               |                           |      |                              |      |     
|                              |                          |                       | Total revenue |                           |      | 100.0                        |      |      |      | 100.0 |     
|                              |                          |                       |               |                           |      |                              |      |     
|Cost of revenue:              |                          |                       |               |                           |      |                              |      |     
|                              |                          |                       |               | Transaction services      |      |                              | 34.8 |      |      |       | 27.9 |  
|                              |                          |                       |               | Immersive still solutions |      |                              | 9.5  |      |      |       | 5.3  |  
|                              |                          |                       |               | Immersive video solutions |      |                              |     |      |      |       | 0.1  |  
|                              |                          |                       |               |                           |      |                              |      |     
|                              |                          | Total cost of revenue |               |                           | 44.3 |                              |      |      | 33.3 |      
|                              |                          |                       |               |                           |      |                              |      |     
|                              |                          | Gross profit          |               |                           | 55.7 |                              |      |      | 66.7 |      
|                              |                          |                       |               |                           |      |                              |      |     
|Operating expenses:           |                          |                       |               |                           |      |                              |      |     
|Sales and marketing           |                          |                       | 42.5          |                           |      |                              | 27.5 |     
|Research and development      |                          |                       | 26.7          |                           |      |                              | 19.7 |     
|General and administrative    |                          |                       | 18.9          |                           |      |                              | 13.0 |     
|                              |                          |                       |               |                           |      |                              |      |     
|                              | Total operating expenses |                       |               | 88.1                      |      |                              |      | 60.2 |     
|                              |                          |                       |               |                           |      |                              |      |     
|Income (loss) from operations |                          |                       | (32.4         | )                         |      |                              | 6.5  |     
|Interest income (expense)     |                          |                       | 0.8           |                           |      |                              | (0.7 | )   
|Other                         |                          |                       | 0.1           |                           |      |                              | (0.1 | )   
|                              |                          |                       |               |                           |      |                              |      |     
|Net Income (loss)             |                          |                       | (31.5         | )%                        |      |                              | 5.7  | %   
|                              |                          |                       |               |                           |      |                              |      |     

17



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##### Table of Contents



Quarter Ended March 31, 2003 Compared to the Quarter Ended March 31, 2002

|                              |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |       |      |    |    |    |     |  
|----------------------------- | ------------------------ | --------------------- | -------------------- | ------------------------- | ----- | ------------------ | ----- | -------------- | ----- | ----- | ----- | ---- | ----- | ----- | ---- | -- | -- | -- | --- | -
|                              |                          |                       |                      |                           |       | Three months ended |       |                |       |       |       |      |       |      
|                              |                          |                       |                      |                           |       | March 31,          |       |                |       |       |       |      |       |      
|                              |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |      
|(Dollars in thousands)        |                          | 2002                  |                      | 2003                      |       | Difference         |       | Percent Change
|                              |                          |                       |                      |                           |       |                    |       |               
|                              |                          |                       |                      |                           |       | (Unaudited)       
|Revenue:                      |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |       |      |   
|                              |                          |                       | Transaction services |                           | $     | 3,575              |       |                | $     | 5,602 |       |      | $     | 2,027 |      |    |    | 57 | %  
|                              |                          |                       |                      | Immersive still solutions |       |                    | 1,219 |                |       |       | 784   |      |       |       | (435 | )  |    |    | (36 | )
|                              |                          |                       |                      | Immersive video solutions |       |                    |      |                |       |       | 5     |      |       |       | 5    |    |    |    | 100 |  
|                              |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |       |      |   
|                              |                          | Total revenue         |                      |                           | 4,794 |                    |       |                | 6,391 |       |       |      | 1,597 |       |      |    | 33 |   
|                              |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |       |      |   
|Cost of revenue:              |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |       |      |   
|                              |                          |                       | Transaction services |                           |       | 1,669              |       |                |       | 1,782 |       |      |       | 113   |      |    |    | 7  |    
|                              |                          |                       |                      | Immersive still solutions |       |                    | 455   |                |       |       | 338   |      |       |       | (117 | )  |    |    | (26 | )
|                              |                          |                       |                      | Immersive video solutions |       |                    |      |                |       |       | 4     |      |       |       | 4    |    |    |    | 100 |  
|                              |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |       |      |   
|                              |                          | Total cost of revenue |                      |                           | 2,124 |                    |       |                | 2,124 |       |       |      |      |       |      |    |   |   
|                              |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |       |      |   
|                              |                          | Gross profit          |                      |                           | 2,670 |                    |       |                | 4,267 |       |       |      | 1,597 |       |      |    | 60 |   
|                              |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |       |      |   
|Operating expenses:           |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |       |      |   
|Sales and marketing           |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |       |      |   
|Research and development      |                          |                       | 2,040                |                           |       |                    | 1,761 |                |       |       | (279  | )    |       |       | (14  | ) 
|General and administrative    |                          |                       | 1,281                |                           |       |                    | 1,260 |                |       |       | (21   | )    |       |       | (2   | ) 
|                              |                          |                       | 904                  |                           |       |                    | 829   |                |       |       | (75   | )    |       |       | (8   | ) 
|                              |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |       |      |   
|                              | Total operating expenses |                       |                      | 4,225                     |       |                    |       | 3,850          |       |       |       | (375 | )     |       |      | (9 | ) 
|                              |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |       |      |   
|Income (loss) from operations |                          |                       | (1,555               | )                         |       |                    | 417   |                |       |       | 1,972 |      |       |       | (127 | ) 
|Interest income (expense)     |                          |                       | 38                   |                           |       |                    | (43   | )              |       |       | (81   | )    |       |       | (188 | ) 
|Other                         |                          |                       | 5                    |                           |       |                    | (6    | )              |       |       | (11   | )    |       |       | (220 | ) 
|                              |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |       |      |   
|Net Income (loss)             |                          | $                     | (1,512               | )                         |       | $                  | 368   |                |       | $     | 1,880 |      |       |       | (124 | )%
|                              |                          |                       |                      |                           |       |                    |       |                |       |       |       |      |       |       |      |   

Revenue.Total revenue increased in the quarter ended March 31, 2003 over the
quarter ended March 31, 2002 due to increased volumes of images processed by
Rimfire ($2.0 million), primarily related to on-line auctions, partially offset
by lower sales volumes of primarily immersive kits and keys ($0.4 million).
During 2002, we reduced our sales and marketing efforts related to the sale of
immersive kits and keys, which resulted in lower revenues in order to increase
operating margins related to these products. A portion of this decrease is
attributable to our sale of our international immersive imaging operations.

18



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Cost of Revenue.Cost of revenue consists of our direct expenses associated
with the processing, hosting and distribution of digital content and the costs
of the digital camera and related components included in an iPIX kit. Cost of
revenue remained at substantially the same level, but as a percentage of total
revenues decreased to 33% in the quarter ended March 31, 2003 from 44% in the
quarter ended March 31, 2002. Cost of revenue as a percent of revenue
declined in 2003 primarily due to operational efficiencies and economies of
scale associated with the processing of transactions.

Sales and Marketing.Sales and marketing expenses consist primarily of salaries
for marketing, sales and business development personnel. Sales and marketing
expenses also include commissions and related benefits for sales personnel and
consultants, traditional advertising and promotional expenses. Sales and
marketing expenses decreased in the quarter ended March 31, 2003 over the
quarter ended March 31, 2002, primarily due to our decision to sell more of our
products and services through third parties and become less reliant upon a
worldwide direct sales force. As a result, we significantly decreased our sales
force and eliminated our field operations personnel.

Research and Development.Research and development expenses consist primarily
of personnel costs related to building and enhancing our digital media
infrastructure and immersive imaging technology. Research and development
expenses were essentially at the same levels in the quarter ended March 31,
2003 and the quarter ended March 31, 2002.

General and Administrative.General and administrative expenses consist
primarily of salaries and related benefits for administrative and executive
staff, fees for outside professional services, bad debt expenses and other
costs associated with being a public company. General and administrative
expenses were essentially at the same levels in the quarter ended March 31,
2003 and the quarter ended March 31, 2002. In the quarter ended March 31,
2002, $0.1 million was collected from previously reserved receivables and
recognized as a reduction in general and administrative expenses, this was
offset in the same quarter of 2003 primarily by a $0.1 million decrease in
personnel and related costs.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations through our registered public
offerings, the private placements of capital stock, a convertible debenture, a
convertible promissory note and warrant and option exercises. At March 31,
2003, we had $6.1 million of cash, restricted cash and short term investments,
of which $1.4 million was restricted.

Summary Consolidated Cash Flow Data

|                                                     |  |                    |        |      |  |   |       |  
|---------------------------------------------------- |  | ------------------ | ------ | ---- |  | - | ----- | -
|                                                     |  | Three months ended
|                                                     |  | March 31,         
|                                                     |  |                   
|(In thousands)                                       |  | 2002               |        | 2003
|                                                     |  |                    |        |     
|                                                     |  | (unaudited)       
|Net cash provided by (used in) operating
activities  |  | $                  | (3,120 | )    |  | $ | 2,699 |  
|Net cash used in investing activities                |  |                    | (522   | )    |  |   | (310  | )
|Net cash used in financing activities                |  |                    | (12    | )    |  |   | (685  | )
|Effect of exchange rate changes on cash              |  |                    | (49    | )    |  |   | 5     |  
|                                                     |  |                    |        |      |  |   |       |  
|Net increase (decrease) in cash and cash
equivalents |  |                    | (3,703 | )    |  |   | 1,709 |  
|Cash and cash equivalents, beginning of period       |  |                    | 11,103 |      |  |   | 3,020 |  
|                                                     |  |                    |        |      |  |   |       |  
|Cash and cash equivalents, end of period             |  | $                  | 7,400  |      |  | $ | 4,729 |  
|                                                     |  |                    |        |      |  |   |       |  

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The primary difference in cash from operating activities in the first quarter
of 2003 over the first quarter of 2002 was net income in 2003 of $0.4 million,
compared to a net loss of $1.5 million in 2002. Our net loss for the three
months ended March 31, 2002 included non-cash amortization of deferred revenues
of $0.6 million, whereas the three months ended March 31, 2003 included no
deferred revenues.

Also included in net cash provided by operating activities for the three months
ended March 31, 2003, were the following:



| |  |  | a decrease in restricted cash
and related accrued customer deposits
which were paid in full during the quarter ended March 31, 2003 ($1.6
million);                     
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a decrease in receivables due primarily to a late payment for
November 2002 services to on-line auction clients, which was collected
in January 2003 ($1.2 million); and
|
| |  |  | a decrease in accrued expenses primarily related to payments of
restructuring accruals from 2001 and payments of prior obligations under
extended terms ($1.5 million). 

Net cash used in investing activities in the first quarter of 2003 and 2002 was
primarily related to the acquisition of computer software and hardware. We do
not currently expect any significant acquisitions of computer hardware and
software throughout the remainder of 2003.

Net cash used in financing activities in the first quarter of 2003 and 2002 was
primarily related to the repayment of capital lease obligations.

The table below shows our contractual obligations as of March 31, 2003:

|                 |  |       |        |                   |  |                        |       |             |  |            |       |  |  |   |     |  |  |   |    | 
|---------------- |  | ----- | ------ | ----------------- |  | ---------------------- | ----- | ----------- |  | ---------- | ----- |  |  | - | --- |  |  | - | -- | 
|                 |  |       |        |                   |  | Payments Due by Period |       |             |  |           
|                 |  |       |        |                   |  |                       
|(In thousands)   |  | Total |        | Remainder of 2003 |  | 2004 & 2005            |       | 2006 & 2007 |  | After 2007
|                 |  |       |        |                   |  |                        |       |             |  |           
|Capital leases   |  | $     | 3,398  |                   |  | $                      | 1,889 |             |  | $          | 1,509 |  |  | $ |    |  |  | $ |   | 
|Operating leases |  |       | 7,000  |                   |  |                        | 2,404 |             |  |            | 3,761 |  |  |   | 771 |  |  |   | 64 | 
|                 |  |       |        |                   |  |                        |       |             |  |            |       |  |  |   |     |  |  |   |    | 
|Total            |  | $     | 10,398 |                   |  | $                      | 4,293 |             |  | $          | 5,270 |  |  | $ | 771 |  |  | $ | 64 | 
|                 |  |       |        |                   |  |                        |       |             |  |            |       |  |  |   |     |  |  |   |    | 

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Management believes we have sufficient cash resources to meet our funding needs for the next 12 months.
We finished the first quarter of 2003 with approximately $6.1 million in cash, cash equivalents, restricted
cash and short-term investments. Our use, or generation, of cash will be largely influenced by sales
to our major customers. Our principal agreement with Homestore expires on June 30, 2003. We are currently negotiating the terms
of an extension or amendment with Homestore and can not give any assurances that any new agreement,
extension or similar agreement will be reached.

As disclosed above, we are discussing terms of our future relationship with eBay. Under the discussed terms, we may
receive aggregate consideration of up to $15 million, and may no longer receive any revenues from, or provide any
services to, eBay after September 30, 2003. We believe that transaction fees from eBay will continue to increase as a
percentage of revenue through September 30, 2003 as more eBay
customers utilize our service on the eBay auction Web site. Although we may provide eBay with assistance in transferring operating
and program management responsibilities after expiration of the current agreement, we can not give any assurance
that such an agreement will be reached. In addition, if we experience significant changes in the terms of our relationships with other current
or prospective customers, delays in payments from customers or the subsequent loss of another major customer, it would
have a material adverse effect on our business.

Depending upon the definitive outcome of our negotiations with eBay, Homestore and other
customers, the timeliness of collection of our accounts receivable, our rate of growth and our ability to control or
affect reductions in costs, we may require additional equity or debt financing to meet future working capital
or capital expenditure needs for the next 12 months. There can be no assurance that such additional
financing will be available, that such financing can be obtained on terms satisfactory to us.

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the FASB issued FASB Interpretation No. 45 Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). 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 and indemnification obligations provided under
contract. The initial recognition and initial measurement provisions of FIN 45
are applicable on a prospective basis to guarantees issued or modified after
December 31, 2002, while the disclosure requirements are applicable in 2002.
The adoption of FIN 45 did not have a material impact on our results of
operation or financial condition and did not result in any additional
liabilities as of March 31, 2003 associated with guarantees covered by this
interpretation. In addition to guarantees, we have entered into agreements
indemnifying certain parties with respect to our potential infringement of other partys
intellectual property. Due to the nature of the indemnifications, our maximum
exposure under these agreements cannot be estimated. We have not recorded any
amounts for these indemnities because they are not probable or estimable at
this time.

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

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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. We do not believe that the adoption of this standard will have a material
effect on our 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. We will continue to apply the APB 25
provisions and will disclose the fair value information on a proforma basis.
The disclosure requirements of FAS 148 are contained in Note 6.

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. We do not believe that the adoption of this standard will have a
material effect on our financial position or results of operations.

INFLATION

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




Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2003, we had $6.1 million of cash, cash equivalents, restricted
cash and short-term investments. Our interest income is sensitive to changes in
the general level of United States interest rates, particularly since the
majority of our investments are in short-term instruments. Due to the nature of
our short-term investments, we concluded that we do not have material market
risk exposure.




Item 4. CONTROLS AND PROCEDURES

(a)  Evaluation of Disclosure Controls and Procedures. Our chief executive
officer and chief financial officer have evaluated the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in
Exchange Act Rule13a-14(c)) as of a date within 90 days of the filing date of
this quarterly report. Based on that evaluation, the chief executive officer
and chief financial officer have concluded that our disclosure controls and
procedures are effective to ensure that material information relating to the
Company and the our consolidated subsidiaries is

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made known to such officers by others within these entities, particularly
during the period this quarterly report was prepared, in order to allow timely
decisions regarding required disclosure.

(b)  Changes in Internal Controls. There have not been any significant changes
in our internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.

FORWARD-LOOKING STATEMENTS

This quarterly report contains statements about future events and expectations
which are characterized as forward-looking statements. Forward-looking
statements are based on our managements beliefs, assumptions and expectations
of our future economic performance, taking into account the information
currently available to them. These statements are not statements of historical
fact. Forward-looking statements involve risks and uncertainties that may
cause our actual results, performance or financial condition to be materially
different from the expectations of future results, performance or financial
condition we express or imply in any forward-looking statements. Factors that
could contribute to these differences include those discussed in Risk Factors
of our annual report on Form 10-K filed with the SEC on March 31, 2003.

The words believe, may, will, should, anticipate, estimate,
expect, intends, objective or similar words or the negatives of these
words are intended to identify forward-looking statements. We qualify any
forward-looking statements entirely by these cautionary factors.




PART II  OTHER INFORMATION




Item 1. Legal Proceedings

See Item 3, Legal Proceedings, in our annual report on Form 10-K for discussion
of litigation that has been dismissed against us but is subject to appeal.

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




Item 2. Changes In Securities And Use Of Proceeds

None.




Item 3. Defaults Upon Senior Securities

None.




Item 4. Submission Of Matters To A Vote Of Security Holders

None.




Item 5. Other Information

23



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##### Table of Contents



The Companys Audit Committee is currently comprised of Laban P. Jackson,
Jr., Thomas Garrott and Andrew Seamons. Mr. Seamons also serves as the
chairman of the Audit Committee. Messrs. Jackson and Garrott qualify as an
Independent Director under Rule 4200 of the NASD Rules. Due to Mr. Seamons
prior employment by Paradigm Holdings, LLC, an affiliate of the Company, Mr.
Seamons does not qualify as an Independent Director under Rule 4200 due to
his employment by Paradigm Holdings, LLC within the prior three year period.
However, as of July 2002, Mr. Seamons was no longer employed by Paradigm
Holdings, LLC. In addition, Mr. Seamons prior experience in financial matters
and understanding of accounting standards and financial statements provides him
with a sophisticated financial background to qualify as an audit committee
financial expert. For these reasons, the board of directors of the Company has
determined that it is in the best interests of the Company and its shareholders
to appoint Mr. Seamons to the Audit Committee.




Item 6. Exhibits And Reports On Form 8-K

|                       |  |                                                                                                                       
|---------------------- |  | ----------------------------------------------------------------------------------------------------------------------
|a) Exhibits            |  |                                                                                                                       
|                       |  |                                                                                                                       
|Exhibit 99.1           |  | Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|                       |  |                                                                                                                       
|Exhibit 99.2           |  | Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|                       |  |                                                                                                                       
|b) Reports On Form 8-K |  |                                                                                                                       
|                       |  |                                                                                                                       
|None                   |  |                                                                                                                       

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##### Table of Contents



INTERNET PICTURES CORPORATION




SIGNATURES

Pursuant to the requirements 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.

|                   |  |                                                                                                   
|------------------ |  | --------------------------------------------------------------------------------------------------
|DATE: May 13, 2003 |  | INTERNET PICTURES CORPORATION
(Registrant)                                                        
|                  
|                   |  |                                                                                                   
|                  
|                   |  | /s/ Paul FarmerPaul Farmer
Authorized Officer
Chief Financial Officer and
Chief Accounting Officer

25



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##### Table of Contents



302 CERTIFICATION

I, Donald Strickland, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Internet Pictures
Corporation;                                                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                      



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date May 13, 2003



/s/ Donald Strickland
Donald Strickland
Chief Executive Officer

26



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##### Table of Contents



302 CERTIFICATION

I, Paul Farmer, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-Q of Internet Pictures
Corporation;                                                                                                                                                                                                                                          
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;                   
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                                      



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |    |  | b) evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | c) |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                         



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material weaknesses
in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date May 13, 2003



/s Paul Farmer
Paul Farmer
Chief Financial Officer

27



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##### Table of Contents



INTERNET PICTURES CORPORATION

INDEX TO EXHIBITS FOR FORM 10-Q

FOR QUARTER ENDED MARCH 31, 2003

|             |  |                                                                                                                       
|------------ |  | ----------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO.  |  | EXHIBIT DESCRIPTION                                                                                                   
|             |  |                                                                                                                       
|Exhibit 99.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|             |  |                                                                                                                       
|Exhibit 99.2 |  | Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002