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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q/A

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

7,557,241 shares of $0.001 par value
common stock outstanding as of August 13,
2003.

Page 1 of 16





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|                                      |                                                     |  |  |  |  |  |  | 
|------------------------------------- | --------------------------------------------------- |  |  |  |  |  |  | 
|PART IFINANCIAL INFORMATION         
|                                      | Item 1. Condensed Consolidated Financial Statements
|PART II  OTHER INFORMATION          
|                                      | Item 6. Exhibits And Reports On Form 8-K           
|SIGNATURES                           
|EX-31.1 CEO SECTION 302 CERTIFICATION
|EX-31.2 CFO SECTION 302 CERTIFICATION
|EX-32 SECTION 906 CERTIFICATIONS     



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This Amendment on Form 10-Q/A is being filed
to recalculate the Companys
earnings (loss) per common share for the quarter ended March 31, 2003. The
only item affected by this amendment is Part I, Item 1,
Financial Statements and Part II, Item 6. The only
changes reflected herein to amounts previously filed in the Companys Form
10-Q for the quarters ended March 31, 2002 and 2003 relate to the
recalculations discussed below. This filing should be read in conjunction with
the Companys Form 10-K/A for the year ended December 31, 2002.

As reported in the Companys Form 10-K/A for the year ended December 31, 2002,
the Company has revised its unaudited financial statements for the three months
ended March 31, 2002 and 2003 to reflect the impact of the cumulative dividend
and participation rights of the Companys Series B preferred stock on the
calculation of earnings (loss) for those periods. The cumulative dividend,
whether or not declared, has been reflected as a reduction in net income (loss)
to calculate net income (loss) available to common shareholders. In addition, the
participation right of the Series B preferred stock has been considered in the calculation
of basic earnings (loss) per share, if dilutive, using the if converted method
or the two class method, if more dilutive. The revision of earnings
(loss) per share for the periods indicated above had no effect on reported revenues,
gross profit, net income (loss) or cash balances in any of the periods. The effect
of the restatement of earnings (loss) per share is as follows:

|                                 |  |                    |       |                    |  |   |       |  
|-------------------------------- |  | ------------------ | ----- | ------------------ |  | - | ----- | -
|                                 |  | Three months ended |       | Three months ended
|                                 |  | March 31, 2002     |       | March 31, 2003    
|                                 |  |                    |       |                   
|Earnings
(loss) per common share |  |                    |       |                    |  |   |       |  
|Basic
 as reported              |  | $                  | (0.22 | )                  |  | $ | 0.05  |  
|Basic
 restated                 |  | $                  | (0.29 | )                  |  | $ | (0.01 | )
|Diluted
 as reported            |  | $                  | (0.22 | )                  |  | $ | 0.02  |  
|Diluted
 restated               |  | $                  | (0.29 | )                  |  | $ | (0.01 | )

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

|                             |                                                     |  |    |    |  | 
|---------------------------- | --------------------------------------------------- |  | -- | -- |  | 
|PART IFINANCIAL INFORMATION |                                                     |  | 3  |   
|                             | Item 1. Condensed Consolidated Financial Statements |  |    | 3  | 
|PART II  OTHER INFORMATION  |                                                     |  | 15 |   
|                             | Item 6. Exhibits And Reports On Form 8-K            |  |    | 15 | 
|Signatures                   |                                                     |  | 16 |   

2



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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 (Aggregate liquidation value: $24,560 in 2002, $25,000 in 2003) |                                            |   | 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)                 
|                                                     |  |                          |        | (restated)                   |       | (restated)
|(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   |  
|Preferred
stock dividends (restated)                 |  |                          | (440   | )                            |       |            | (440  | )
|                                                     |  |                          |        |                              |       |            |       |  
|Net
loss available to common stockholders (restated) |  | $                        | (1,952 | )                            |       | $          | (72   | )
|                                                     |  |                          |        |                              |       |            |       |  
|Loss
per common share, basic
and diluted (restated)  |  | $                        | (0.29  | )                            |       | $          | (0.01 | )
|Weighted
average common shares, basic and diluted    |  |                          | 6,771  |                              |       |            | 6,813 |  

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 COMMON SHARE

Basic income (loss) per common
share is computed by dividing net income (loss) available to common
stockholders for the period by the weighted average number of shares
of common stock outstanding. Diluted income per common share is
computed by dividing net income available to common stockholders 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 income (loss) per
common share excludes potential common shares if the effect is
antidilutive.

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Holders of Series B Preferred Stock
participate on an as-if converted basis in any common stock
dividends. As a result of the cumulative nature of the Series B
Dividends and the as-if converted feature (see Note 11), net income
(loss) is adjusted to reflect the effect of the Series B shares on
earnings per common share.

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 common share.

The following table sets forth the
computation of basic and dilutive net loss per common share
for the periods indicated:

|                                                        |  |                    |        |      |  |   |       |  
|------------------------------------------------------- |  | ------------------ | ------ | ---- |  | - | ----- | -
|                                                        |  | Three months ended
|                                                        |  | March 31,         
|                                                        |  |                   
|(In thousands, except per share)                        |  | 2002               |        | 2003
|                                                        |  |                    |        |     
|                                                        |  | (unaudited)       
|                                                        |  | (restated)        
|NUMERATOR:                                              |  |                    |        |      |  |   |       |  
|Net income (loss)                                       |  | $                  | (1,512 | )    |  | $ | 368   |  
|Preferred
stock dividends                               |  |                    | (440   | )    |  |   | (440  | )
|                                                        |  |                    |        |      |  |   |       |  
|Net
loss available to common stockholders               |  | $                  | (1,952 | )    |  | $ | (72   | )
|                                                        |  |                    |        |      |  |   |       |  
|DENOMINATOR:                                            |  |                    |        |      |  |   |       |  
|Weighted
average shares outstanding  basic and diluted |  |                    | 6,771  |      |  |   | 6,813 |  
|LOSS
PER COMMON SHARE  BASIC AND DILUTED               |  | $                  | (0.29  | )    |  | $ | (0.01 | )

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 periods ended March 31, 2002 and 2003:

|                            |  |      |        |      |  |  |        | 
|--------------------------- |  | ---- | ------ | ---- |  |  | ------ | 
|(In thousands)              |  | 2002 |        | 2003
|                            |  |      |        |     
|Stock options               |  |      | 737    |      |  |  | 12     | 
|Convertible preferred stock |  |      | 10,267 |      |  |  | 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)       
|                                                    |                                                                                 |      | (restated)        
|Net
loss available for common stockholders          |                                                                                 | $    | (1,952             | )      |   | $ | (72  | )   
|                                                    | Add: employee stock compensation expense
included in reported net income (loss) |      |                    |       |   |   |      |     |  
|                                                    | Less: FAS 123 pro-forma charges                                                 |      |                    | (3,094 | ) |   |      | (442 | )
|                                                    |                                                                                 |      |                    |        |   |   |      |     
|Adjusted
net loss available for common stockholders |                                                                                 | $    | (5,046             | )      |   | $ | (514 | )   
|                                                    |                                                                                 |      |                    |        |   |   |      |     

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|                                                 |                                         |   |                    |       |      |   |       |       |  
|------------------------------------------------ | --------------------------------------- | - | ------------------ | ----- | ---- | - | ----- | ----- | -
|                                                 |                                         |   | Three months ended
|                                                 |                                         |   | March 31,         
|                                                 |                                         |   |                   
|                                                 |                                         |   | 2002               |       | 2003
|                                                 |                                         |   |                    |       |     
|                                                 |                                         |   | (restated)        
|Basic
and diluted loss per common share:         |                                         |   |                    |       |      |   |       |      
|                                                 | Loss cumulative for common stockholders |   | $                  | (0.29 | )    |   | $     | (0.01 | )
|                                                 | Net effect of pro forma charges         |   |                    | (0.46 | )    |   |       | (0.06 | )
|                                                 |                                         |   |                    |       |      |   |       |      
|Adjusted
basic and diluted loss per common share |                                         | $ | (0.75              | )     |      | $ | (0.07 | )    
|                                                 |                                         |   |                    |       |      |   |       |      

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.

11. LIQUIDATION PREFERENCE AND PREFERRED STOCK DIVIDENDS

On September 26, 2001, Image Investor Portfolio, a separate series of Memphis
Angels, LLC (Image) and certain strategic investors completed the purchase of
1,115,080 shares of the Series B Preferred Stock for total consideration of
$22.3 million.

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

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

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

As of March 31, 2003, the Liquidation Preference was $25.0 million, which
includes the $2.7 million in accrued dividends in arrears on the Series B
Preferred Stock which have not been declared to be paid.

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12. RECALCULATION OF EARNINGS PER SHARE

As reported in our Form 10-K/A for the year ended December 31, 2002,
we have revised our unaudited financial statements for the three months
ended March 31, 2002 and 2003 to reflect the impact of the cumulative dividend
and participation rights of our Series B Preferred Stock on the
calculation of earnings (loss) per share for those periods. The cumulative dividend,
whether or not declared, has been reflected as a reduction in net income (loss)
to calculate net income (loss) available to common shareholders. In addition, the
participation right of the preferred stock has been considered in the calculation
of basic earnings (loss) per share, if dilutive, using the if converted method
or the two class method, if more dilutive. The revision of earnings
(loss) per share for the periods indicated above had no effect on reported revenues,
gross profit, net income (loss) or cash balances in any of the periods. The effect
of the restatement of earnings (loss) per share is as follows:

|                                 |  |                    |       |                    |  |   |       |  
|-------------------------------- |  | ------------------ | ----- | ------------------ |  | - | ----- | -
|                                 |  | Three months ended |       | Three months ended
|                                 |  | March 31, 2002     |       | March 31, 2003    
|                                 |  |                    |       |                   
|Earnings
(loss) per common share |  |                    |       |                    |  |   |       |  
|Basic
 as reported              |  | $                  | (0.22 | )                  |  | $ | 0.05  |  
|Basic
 restated                 |  | $                  | (0.29 | )                  |  | $ | (0.01 | )
|Diluted
 as reported            |  | $                  | (0.22 | )                  |  | $ | 0.02  |  
|Diluted
 restated               |  | $                  | (0.29 | )                  |  | $ | (0.01 | )

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PART II  OTHER INFORMATION




Item 6. Exhibits And Reports On Form 8-K

|                       |  |                                                                                                                       
|---------------------- |  | ----------------------------------------------------------------------------------------------------------------------
|a) Exhibits            |  |                                                                                                                       
|                       |  |                                                                                                                       
|Exhibit 31.1           |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|                       |  |                                                                                                                       
|Exhibit 31.2           |  | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                               
|                       |  |                                                                                                                       
|Exhibit 32             |  | 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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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: August 14, 2003 |  | INTERNET PICTURES CORPORATION
(Registrant)                                                        
|                     
|                      |  |                                                                                                   
|                     
|                      |  | /s/ Paul FarmerPaul Farmer
Authorized Officer
Chief Financial Officer and
Chief Accounting Officer

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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