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 September 30, 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 [ ]

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

7,701,074 shares of $0.001 par value common stock  outstanding as of October 31,
2003.

                                       1
<PAGE>

                          INTERNET PICTURES CORPORATION
                                    FORM 10-Q
                    FOR THE QUARTER ENDED SEPTEMBER 30, 2003
                                      INDEX


  PART I-- FINANCIAL INFORMATION.........................................     3

     Item 1. Condensed Consolidated Financial Statements.................     4

     Item 2. Management's Discussion and Analysis of Financial Condition
             and Results of Operations...................................    14

     Item 3. Quantitative and Qualitative Disclosures About Market Risk..    22

     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............................    23

  Signatures.............................................................    24

  Exhibit Index..........................................................    25

                                       2
<PAGE>

PART I--FINANCIAL INFORMATION

Recalculation of Earnings Per Share

This Form 10-Q of Internet Pictures  Corporation  ("iPIX," "we," "us," "our," or
the  "Company")  reflects  the Form 10-K/A  filed August 14, 2003 to reflect the
recalculation  of our  earnings  (loss)  per  common  share  for the year  ended
December 31, 2002 and for each of the quarterly  periods in the year then ended.
Other than as expressly stated herein, the information prior to April 1, 2003 in
this Form 10-Q does not reflect any subsequent  information or events other than
the recalculation detailed below.

The Company has revised its  unaudited  financial  statements  for the three and
nine months  ended  September  30, 2002 to reflect the impact of the  cumulative
dividend and participation rights of the Company's  convertible  preferred stock
on the  calculation of earnings  (loss) per common share for 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 common share, if
dilutive,  using  the if  converted  method  or the two  class  method,  if more
dilutive.  The  revision  of  earnings  (loss) per common  share for the periods
indicated  above had no effect on reported  revenues,  gross profit,  net income
(loss) or cash balances in any of the periods.  The effect of the restatement of
earnings (loss) per common share is as follows:

<TABLE>
<S>                                     <C>                  <C>

                                           Three months         Nine months
                                              ended                ended
                                        September 30, 2002   September 30, 2002
                                        ------------------   ------------------

Earnings (loss) per common share:
Basic-- as reported........................   $   0.08            $ (0.24)
Basic-- restated...........................   $   0.01            $ (0.44)
Diluted-- as reported......................   $   0.03            $ (0.24)
Diluted-- restated.........................   $   0.01            $ (0.44)
</TABLE>


                                       3
<PAGE>

Item 1.     Condensed Consolidated Financial Statements

                          INTERNET PICTURES CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<S>                                                                                                     <C>           <C>

                                                                                                        December 31,  September 30,
                                                                                                            2002          2003
                                                                                                        ------------  -------------
                                                                                                             (1)       (unaudited)
 (In thousands)

 ASSETS
 Cash and cash equivalents.........................................................................     $     3,020   $     8,836
 Restricted cash and short term investments........................................................           2,972         1,400
 Accounts receivable, net..........................................................................           3,535         2,263
 Inventory, net....................................................................................             181           207
 Prepaid expenses and other current assets.........................................................             984         2,083
                                                                                                        ------------  -----------
       Total current assets........................................................................          10,692        14,789
 Computer hardware, software and other, net........................................................           4,631         2,789
 Other long term assets............................................................................              70            11
 Goodwill..........................................................................................           3,042         3,042
                                                                                                        ------------  -----------
       Total assets................................................................................     $    18,435   $    20,631
                                                                                                        ============  ===========

 LIABILITIES AND STOCKHOLDERS' EQUITY
 CURRENT LIABILITIES:
 Accounts payable..................................................................................     $       360   $       907
 Accrued liabilities...............................................................................           5,426         3,936
 Deferred revenue..................................................................................              85         3,066
 Current portion of obligations under capital leases...............................................           2,403         1,856
                                                                                                        ------------  -----------
       Total current liabilities...................................................................           8,274         9,765
 Obligations under capital leases, net of current portion..........................................           1,459           112
 Other long term liabilities.......................................................................             310            84
                                                                                                        ------------  -----------
          Total liabilities........................................................................          10,043         9,961
                                                                                                        ------------  -----------

 Commitments and contingencies (Note 8)

 STOCKHOLDERS' EQUITY:
 Preferred stock (Aggregate liquidation value: $24,560 in 2002, $25,633 in 2003)...................               1             1
 Common stock......................................................................................              65            66
 Class B common stock..............................................................................              --            --
 Additional paid-in capital........................................................................         513,937       515,354
 Accumulated deficit...............................................................................        (505,117)     (504,260)
 Accumulated other comprehensive loss..............................................................            (494)         (491)
                                                                                                        ------------   -----------
       Total stockholders' equity..................................................................           8,392        10,670
                                                                                                        ------------   -----------

       Total liabilities and stockholders' equity..................................................     $    18,435   $    20,631
                                                                                                        ============  ============
</TABLE>

______________________

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


See  accompanying  notes  to  the  unaudited  condensed  consolidated  financial
statements.


                                       4
<PAGE>

                          INTERNET PICTURES CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<S>                                                                       <C>           <C>           <C>           <C>

                                                                            Three months ended            Nine months ended
                                                                               September 30,                September 30,
                                                                          ----------------------      -------------------------
                                                                              2002        2003            2002          2003
                                                                          -----------   ---------     -----------   -----------
                                                                                 (unaudited)                  (unaudited)
                   (In thousands, except per share data)                  (restated)                  (restated)

    Revenue:
    Transaction services.............................................     $   4,242     $  5,811      $   11,619    $   17,471
    Immersive still solutions........................................         1,753          666           4,931         1,858
    Immersive video solutions........................................            --          146              --           237
                                                                          ----------    --------      ----------    ----------
       Total revenue.................................................         5,995        6,623          16,550        19,566
                                                                          ----------    --------      ----------    ----------

    Cost of revenue:
    Transaction services.............................................         1,738        1,876           5,238         5,426
    Immersive still solutions........................................           561          400           1,372         1,025
    Immersive video solutions........................................            --           75              --           161
                                                                          ----------    --------      ----------    ----------
       Total cost of revenue.........................................         2,299        2,351           6,610         6,612
                                                                          ----------    --------      ----------    ----------

       Gross profit..................................................         3,696        4,272           9,940        12,954
                                                                          ----------    --------      ----------    ----------

    Operating expenses:
    Sales and marketing..............................................         1,881        1,899           6,074         5,704
    Research and development.........................................         1,175        1,198           3,686         3,626
    General and administrative.......................................           621        1,001           2,418         2,664
    Restructuring ...................................................           687           --             687            --
                                                                          ----------    --------      ----------     ---------
       Total operating expenses......................................         4,364        4,098          12,865        11,994
                                                                          ----------    --------      ----------     ---------

    Income (loss) from operations....................................          (668)         174          (2,925)          960
    Patent infringement award .......................................         1,000           --           1,000            --
    Interest income (expense) and other..............................           244          (20)            297          (103)
                                                                          ----------    ---------     -----------    ----------

    Net income (loss)................................................           576          154          (1,628)          857
    Preferred stock dividends (restated for 2002)....................          (451)        (454)         (1,335)       (1,345)
    Participation of preferred stock (restated for 2002).............           (75)          --              --            --
                                                                          ----------    ---------     -----------    ----------

    Net income (loss) available to common stockholders
       (restated for 2002)...........................................    $       50     $   (300)     $   (2,963)   $     (488)
                                                                         ===========    =========     ===========   ===========
    Income (loss) per common share, basic and diluted
       (restated for 2002)...........................................    $     0.01     $  (0.04)     $    (0.44)   $    (0.07)
    Weighted average common shares, basic............................         6,798        7,613           6,789         7,147
    Weighted average common shares, diluted..........................         6,798        7,613           6,789         7,147

</TABLE>

See  accompanying  notes  to  the  unaudited  condensed  consolidated  financial
statements.

                                       5
<PAGE>

                          INTERNET PICTURES CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<S>                                                                                                             <C>            <C>

                                                                                                             Nine months ended
                                                                                                               September 30,
                                                                                                           ---------------------
                                                                                                               2002      2003
                                                                                                           -----------  --------
                                                     (In thousands)                                              (unaudited)

Cash flows from operating activities:
Net income (loss).......................................................................................   $   (1,628)  $    857
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation............................................................................................        2,469      2,725
Provision for doubtful accounts receivable..............................................................         (269)         8
Non-cash compensation expense...........................................................................          120         --
Changes in operating assets and liabilities:
   Accounts receivable..................................................................................         (800)     1,264
   Inventory............................................................................................           95        (26)
   Prepaid expenses and other current assets............................................................         (169)    (1,099)
   Other long term assets...............................................................................         (110)        59
   Accounts payable.....................................................................................         (363)       547
   Accrued expenses.....................................................................................         (555)      (144)
   Deferred revenue.....................................................................................       (1,558)     2,981
                                                                                                            ----------  ---------

         Net cash provided by (used in) operating activities............................................       (2,768)     7,172
                                                                                                            ----------  ---------

Cash flow from investing activities:
Purchases of computer hardware, software and other......................................................       (3,258)      (883)
Purchase of short term investments......................................................................       (1,400)        --
                                                                                                            ----------  ---------

      Net cash used in investing activities.............................................................       (4,658)      (883)
                                                                                                            ----------  ---------

Cash flows from financing activities:
Proceeds from issuance of common stock..................................................................          115      1,432
Dividends paid in connection with Series B Preferred Stock conversions..................................           --        (14)
Proceeds from obligations under capital lease...........................................................        3,870         --
Repayments of capital lease obligations.................................................................       (1,458)    (1,894)
Proceeds from notes receivable from stockholders........................................................          179         --
                                                                                                            ----------  ---------

Net cash provided by (used in) financing activities.....................................................        2,706       (476)
                                                                                                            ----------  ---------

Effect of exchange rate changes on cash.................................................................          (33)         3
                                                                                                            ----------  ---------

Net increase (decrease) in cash and cash equivalents....................................................       (4,753)     5,816
Cash and cash equivalents, beginning of period..........................................................       11,103      3,020
                                                                                                            ----------  ---------

Cash and cash equivalents, end of period................................................................   $    6,350   $  8,836
                                                                                                           ===========  =========

</TABLE>

See  accompanying  notes  to  the  unaudited  condensed  consolidated  financial
statements

                                       6
<PAGE>



         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


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 September 30,
2003 and the  results of our  operations  for the three and nine  month  periods
ended  September 30, 2002 and 2003 and our cash flows for the nine month periods
ended  September  30,  2002  and  2003.  All  such  adjustments  are of a normal
recurring nature. The results of operations for the three and nine month periods
ended September 30, 2002 and 2003 are not necessarily  indicative of the results
to be expected for the respective full years.

2. AGREEMENT WITH eBAY

On June 27,  2003,  we  signed an  amended  license  agreement  with  eBay.  The
following  is a summary  of the  provisions  of  Amendment  No. 3 to the  Visual
Content Services Agreement between iPIX and eBay. Amendment No. 3 should be read
together  with the Visual  Content  Services  Agreement  dated  April 19,  2000,
Amendment No. 1 and Amendment No. 2 to the Visual  Content  Services  Agreement,
all of which were filed as Exhibits to our Form 10-Q filed on October 31,  2001.
A copy of  Amendment  No. 3 is filed as an exhibit to our Form 8-K filed on June
27, 2003.

Our Visual  Content  Services  Agreement  with eBay was  extended to October 31,
2003.  Under the terms of  Amendment  No. 3, eBay will pay us $8.0  million  and
other  consideration  based on certain service and licensing  options granted to
eBay  for  a  perpetual,  non-exclusive  license  to  the  our  Rimfire  Imaging
technology.  eBay paid us $3.0  million in the quarter  ended June 30, 2003 upon
the execution of Amendment  No. 3, as required.  The $3.0 million is included in
deferred  revenue at September 30, 2003 because certain  obligations  associated
with  the  license  and  services  agreed  to in  Amendment  No.  3 had not been
delivered at that date. The remaining $5.0 million due under Amendment No. 3 was
collected in October 2003 and  substantially  all remaining service delivery and
other  obligations  were  completed in October  2003.  We no longer  provide any
products or services to eBay as of November 1, 2003.

eBay is the largest customer of the technology  represented by our goodwill. Due
to Amendment  No. 3 of our  agreement  with eBay,  we  preformed  an  impairment
analysis of goodwill at September  30, 2003 and no  impairment  existed.  In the
quarter  ending  December 31, 2003, we collected the final amounts due under the
amended agreement with eBay and we may have incurred a significant impairment of
our goodwill.  Also in the quarter  ending  December 31, 2003,  eBay  terminated
certain  leases  under  which we  leased  computer  equipment  from  eBay and we
returned the equipment to eBay.

Transaction  fees  from eBay have  been a  significant  percentage  of our total
revenue through  September 30, 2003. eBay requested us to extend our services to
October 31, 2003. As a result,  other than completing the final deliveries under
Amendment  No. 3 in October  2003,  we do not expect to provide any  services to
eBay after October 31, 2003,  which will have a material  adverse  effect on our
business, financial position, results of operations and cash flows.

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 may have a
material  adverse  effect  on  our  business,  financial  position,  results  of
operations or cash flows.


                                       7
<PAGE>

3. CASH EQUIVALENTS, RESTRICTED CASH AND SHORT TERM INVESTMENTS

We consider  all highly  liquid debt  instruments  with an original or remaining
maturity at date of purchase of three months or less to be cash equivalents.

At September 30, 2003, we had a $1.4 million short term investment which matures
on June 19, 2004 and has been provided as collateral  for certain  capital lease
obligations  and,  accordingly,  classified  as  restricted  cash and short term
investments.  We will renew the  investment  for  successive  short term periods
until the capital lease  obligation  restrictions  are removed.  At December 31,
2002,  restricted  cash also included $1.4 million  related to accrued  customer
deposits which were paid in full during the quarter ended March 31, 2003.

4. EQUITY

During the nine months ended  September  30, 2003, we issued  752,178  shares of
common stock upon exercise of stock options and 12,767 shares under our employee
stock  purchase  program.  The total  proceeds  from the  option  exercises  and
employee stock purchases were $1.4 million.

In June and July 2003, certain investors converted Series B Preferred Stock into
103,583 shares of common stock in accordance  with the  conversion  terms of the
Series B Preferred Stock. In conjunction  with the conversion,  we paid them $14
thousand of cash and 4,416 shares of common stock (with a value of $18 thousand)
in  dividends  accrued  through the date of  conversion  as  required  under the
conversion terms of the Series B Preferred Stock. We do not receive any proceeds
upon the conversion of Series B Preferred Stock.

5. INCOME (LOSS) PER COMMON SHARE

Recalculation of Income (loss) per Common Share

We have revised our unaudited financial statements for the three and nine months
ended  September 30, 2002 to reflect the impact of the  cumulative  dividend and
participation  rights of the  convertible  preferred stock on the calculation of
earnings  (loss) per common 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 common share, if dilutive, using the if
converted  method or the two class  method,  if more  dilutive.  The revision of
earnings  (loss) per common share for the periods  indicated above had no effect
on reported revenues, gross profit, net income (loss) or cash balances in any of
the periods.  The effect of the  restatement of earnings (loss) per common share
is as follows:

<TABLE>
<S>                                                              <C>                 <C>

                                                                 Three months ended  Nine months ended
                                                                 September 30, 2002  September 30, 2002
                                                                 ------------------  ------------------

Earnings (loss) per common share:
Basic-- as reported..............................................    $  0.08             $ (0.24)
Basic-- restated.................................................    $  0.01             $ (0.44)
Diluted-- as reported............................................    $  0.03             $ (0.24)
Diluted-- restated...............................................    $  0.01             $ (0.44)
</TABLE>

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.  Net income  (loss)  available to common
stockholders  is calculated as the net income (loss) less  cumulative  preferred
stock  dividends for the period.  If dilutive,  the  participation  right of the
preferred stock is reflected in the calculation of basic income (loss) per share
using the if converted method or the two class method, if more dilutive. Diluted
income  (loss)  per common  share is  computed  by  dividing  net income  (loss)
available to common  stockholders  for the period by the weighted average number
of shares of common stock outstanding plus, if dilutive,  potential common stock
outstanding during the period.


                                       8
<PAGE>

The  following  table sets forth the  computation  of basic and dilutive  income
(loss) per common share for the periods indicated (restated for 2002):

<TABLE>
<S>                                                                        <C>           <C>         <C>          <C>
                                                                              Three months ended         Nine months ended
                                                                                 September 30,             September 30,
                                                                           -----------------------   -----------------------
                      (In thousands, except per share)                         2002         2003         2002        2003
                                                                           ----------    ---------   -----------  ----------
                                                                                 (unaudited)                (unaudited)
NUMERATOR:
Net income (loss)....................................................      $    576      $    154    $  (1,628)   $    857
Preferred stock dividends............................................          (451)         (454)      (1,335)     (1,345)

Participation of preferred stock.....................................          ( 75)           --           --          --
                                                                           ---------     ---------   ----------   ---------

Net income (loss) available to common stockholders...................      $     50      $   (300)   $  (2,963)   $   (488)
                                                                           =========     =========   ==========   =========

DENOMINATOR:
   Weighted average shares outstanding-- Basic and diluted...........         6,798         7,613        6,789       7,147
                                                                           =========     =========   ==========   =========
INCOME (LOSS) PER COMMON SHARE,
BASIC AND DILUTED....................................................      $   0.01      $  (0.04)   $   (0.44)   $  (0.07)
                                                                           =========     =========   ==========   =========
</TABLE>
The following table sets forth potential  common shares that are not included in
the  diluted net income  (loss) per common  share  calculation  because to do so
would be antidilutive for the three and nine month periods:

<TABLE>
<S>                                                                               <C>       <C>          <C>      <C>
                             (Shares in thousands)                                Three months ended     Nine months ended
                                                                                     September 30,         September 30,
                                                                                  ------------------     -----------------
                                                                                   2002       2003        2002      2003
                                                                                  -------   --------     -------  --------

Stock options....................................................................      --     1,573         305       936
Convertible preferred stock......................................................  11,221    11,002      11,221    11,002
Warrants.........................................................................      --       492          --       282


</TABLE>

Not included in the table above,  were the following  rights to purchase  common
stock where the average exercise price was greater than the average common share
price and  accordingly  excluded from diluted net income (loss) per common share
for the three and nine month periods:

<TABLE>
<S>                                                                              <C>        <C>        <C>         <C>
                      (Shares in thousands)                                       Three months ended     Nine months ended
                                                                                     September 30,         September 30,
                                                                                 --------------------  ---------------------
                                                                                   2002       2003       2002        2003
                                                                                 ---------  ---------  ---------   ---------
Average share price of common stock........................................      $   1.38   $   3.39   $   1.96    $   2.43
Stock options:
   Average exercise price of options.......................................      $  10.53   $  55.68   $  15.34    $  21.55
   Shares excluded.........................................................         3,550        316      2,316         892
Series B Warrants (exercise price $2.17)...................................         1,381         --      1,381          --
Series B Warrants (exercise price $4.34)...................................           921        921        921         921
Common Warrants (average exercise price $165.33)...........................           170        137        170         137
</TABLE>

6. RESTRUCTURING AND OTHER

During the nine months ended  September 30, 2003,  the  following  payments were
made against the restructuring accrual:

<TABLE>
<S>                                                                       <C>           <C>         <C>         <C>    <C>    <C>

                                                                           Balance at                            Balance at
                                                                          December 31,  Expense in  Payments in September 30,
         (In thousands)                                                       2002         2003        2003         2003
                                                                          ------------  ----------  ----------- -------------
Restructuring provisions:
  Severance...........................................................      $    500        $--       $  500      $   --
  Lease obligations...................................................           549         --          231         318
                                                                            --------        ---       ------      ------
Total.................................................................      $  1,049        $--       $  731      $  318
                                                                            ========        ===       ======      ======
</TABLE>
                                       9
<PAGE>

7. 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
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 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 loss per share follow (restated
for 2002):

<TABLE>
<S>                                                                        <C>            <C>          <C>            <C>
                                                                              Three months ended           Nine months ended
                                                                                 September 30,               September 30,
                                                                           ------------------------    ------------------------
               (In thousands, except per share data)                           2002         2003           2002          2003
                                                                           ------------   ---------    ------------   ---------
                                                                                  (unaudited)                 (unaudited)
                                                                           ------------------------    ------------------------
Net income (loss) available for common stockholders..................      $      50      $   (300)    $   (2,963)    $   (488)
   Add: employee stock compensation expense
      included in reported net income (loss).........................             29            --            120           --
   Less: FAS 123 pro forma charges...................................           (747)         (347)        (5,067)      (1,213)
                                                                           ----------     ---------    -----------    ---------
Adjusted net loss available for common stockholders..................      $    (668)     $   (647)    $   (7,910)    $ (1,701)
                                                                           ==========     =========    ===========    =========

                                                                              Three months ended           Nine months ended
                                                                                 September 30,               September 30,
                                                                           ------------------------    ------------------------
                                                                               2002         2003           2002          2003
                                                                           ----------     ---------    -----------   ----------
                                                                           (restated)                  (restated)
Basic and diluted income (loss) per common share:
   Income (loss) available for common stockholders.....................     $    0.01     $ (0.04)     $   (0.44)    $   (0.07)
   Net effect of pro forma charges.....................................         (0.11)      (0.04)         (0.72)        (0.17)
                                                                            ----------    ---------    -----------   ----------
Adjusted loss per common share.........................................     $   (0.10)    $ (0.08)     $   (1.16)    $   (0.24)
                                                                            ==========    =========    ===========   ==========
</TABLE>
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.

8. COMMITMENTS AND CONTINGENCIES

Commitments

The table below shows our contractual obligations as of September 30, 2003:

<TABLE>
<S>                                                                     <C>          <C>         <C>         <C>     <C>
                            (In thousands)                                               Payments Due by Period
                                                                        -------------------------------------------------------
                                                                                    Remainder     2004 &     2006 &
                                                                          Total      of 2003      2005       2007    After 2007
                                                                        --------    ---------    -------     ------  ----------
Capital leases......................................................    $  1,968     $ 1,360     $   608     $  --      $ --
Operating leases....................................................       5,908         809       4,264       771        64
                                                                        --------     -------     -------     ------     -----
Total...............................................................    $  7,876     $ 2,169     $ 4,872     $ 771      $ 64
                                                                        ========     =======     =======     =====      =====
</TABLE>
Contingencies

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.

                                       10
<PAGE>

9. 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:

<TABLE>
<S>                                                                  <C>           <C>          <C>           <C>

                                                                        Three months ended          Nine months ended
                                                                           September 30,              September 30,
                                                                     -----------------------    ------------------------
           (In thousands)                                               2002          2003         2002          2003
                                                                     ----------    ---------    ----------    ----------

Revenue:
   Transaction services........................................      $  4,242      $  5,811     $  11,619     $  17,471
   Immersive still solutions...................................         1,753           666         4,931         1,858
   Immersive video solutions...................................            --           146            --           237
                                                                     ----------    ---------    ----------    ----------
Total..........................................................      $  5,995      $  6,623     $  16,550     $  19,566
                                                                     ==========    =========    ==========    ==========

Cost of revenue:
   Transaction services........................................      $  1,738      $  1,876     $   5,238     $   5,426
   Immersive still solutions...................................           561           400         1,372         1,025
   Immersive video solutions...................................            --            75            --           161
                                                                     ----------    ---------    ----------    ----------
Total..........................................................      $  2,299      $  2,351     $   6,610     $   6,612
                                                                     ==========    =========    ==========    ==========
</TABLE>


10. EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

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 apply to revenue  arrangements  entered into in fiscal
periods  beginning  after June 15, 2003. We adopted this standard in the quarter
ended  September 30, 2003 and the adoption did not have a material effect on our
financial statements.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities  ("VIE"),  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 for VIEs
created after  February 1, 2003 and is effective for all other VIEs in the first
reporting  period ending after  December 31, 2003. The adoption of FIN 46 is not
expected to have a significant  effect on our  financial  position or results of
operations.

In May 2003,  the FASB issued FAS No.  150,  "Accounting  For Certain  Financial
Instruments  with  Characteristics  of both Liabilities and Equity" ("FAS 150").
FAS 150 establishes  standards for how an issuer classifies and measures certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some  circumstances).  Many of those  instruments
were  previously  classified  as  equity.  FAS 150 is  effective  for  financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the first interim period  beginning after June 15,
2003.  In  October  2003,  FASB  delayed  the  implementation  of FAS 150.  When
effective,  it is to be  implemented  by reporting  the  cumulative  effect of a
change in an accounting  principle for financial  instruments created before the
issuance  date of FAS 150 and still  existing  at the  beginning  of the interim
period of adoption.  Restatement is not  permitted.  While the effective date of
certain  elements of FAS 150 has been  deferred,  the adoption of FAS 150,  when
finalized,  is not expected to have a material impact on our financial position,
results of operations or cash flows.


                                       11
<PAGE>




11. 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  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:

<TABLE>
<S>                                                                            <C>                       <C>

                                                                               Three months ended        Nine months ended
                                                                                  September 30,            September 30,
                                                                               ------------------        -----------------
                                                                                2002        2003          2002       2003
                                                                               ------      ------        ------     ------

Homestore...............................................................         16%          3%          20%          3%
eBay....................................................................         57%         84%          54%         85%
</TABLE>


At September  30, 2003,  Homestore and eBay  represented  6% and 79% of accounts
receivable,  respectively.  All  amounts  due  from  Homestore  and  eBay  as of
September 30, 2003,  were  collected  during October 2003. At December 31, 2002,
Homestore and eBay represented 0% and 83% of accounts receivable, respectively.

12. 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.  As of  September  30,  2003,  1,103,830  shares of the Series B
Preferred stock remain outstanding.

Each share of 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 September 30, 2003, the  Liquidation  Preference was $25.6 million,  which
includes  the $3.6  million  in  accrued  dividends  in  arrears on the Series B
Preferred  Stock which have not been declared to be paid. In June and July 2003,
certain  investors  converted  Series B Preferred  Stock into 103,583  shares of
common stock in accordance  with the conversion  terms of the Series B Preferred
Stock. In conjunction with the conversion, we paid them $14 thousand of cash and
4,416 shares of common stock (with a value of $18 thousand) in dividends accrued
through the date of conversion  as required  under the  conversion  terms of the
Series B Preferred Stock.


                                       12
<PAGE>



13. RELATED PARTY TRANSACTIONS

During  2001,  our CEO at that  time,  Mr.  James M.  Phillips  resigned  as our
chairman and chief executive officer.  Pursuant to a separation  agreement,  Mr.
Phillips  received a  severance  payment in the amount of $1.3  million,  in the
following  increments:  (i) $0.2  million  was paid on May 25,  2001;  (ii) $0.2
million was paid on September 1, 2001; (iii) $0.2 million was paid on January 1,
2002;  (iv) $0.2 million was paid on June 1, 2002;  (v) $0.2 million was paid on
January  2,  2003;  (vi) $0.2  million  was paid on June 2, 2003 and (vii)  $0.1
million was paid on August 29, 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 is 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.

We have a  minority  equity  interest  in  iPIX-I,  however,  we do 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  agreements.  During the
three months ended September 30, 2003, we held  discussions with Soroof relating
to  the  terms  of  these  agreements.  These  discussions  are  continuing.  We
recognized  $41  thousand  of  revenue  from  iPIX-I in the three  months  ended
September  30,  2003.  During the nine  months  ended  September  30,  2003,  we
recognized $0.3 million of revenue from iPIX-I. During the three months and nine
months ended  September  30, 2002,  we  recognized  $0.4 million of revenue from
Soroof.

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 (5%
fully diluted),  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 $9.0 million
and  $16.6  million  for the nine  months  ended  September  30,  2002 and 2003,
respectively.  We  generated  revenues of $3.4  million and $5.6 million for the
three  months  ended  September  30,  2002 and 2003,  respectively.  Under  this
agreement,  we were required to pay marketing fees to eBay of $16.0 million over
a two-year  period.  As of September  26, 2001,  we had paid $9.5 million of the
$16.0 million  commitment and we agreed to extend the additional $6.5 million of
payments  through  September  2003. As of September 30, 2003, the commitment has
been paid in full. In accordance with EITF 01-09  "Accounting for  consideration
given  by a  vendor  to  a  customer  (including  a  reseller  of  the  vendor's
products),"  $0.5  million  of these fees were  offset  against  each  quarter's
revenue,  which  represented  the  excess  over  the fair  value of the  benefit
received,  during  each of the three  quarters  in the nine month  period  ended
September 30, 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 $5.3 million.
The  transactions  resulted  in no  gain  or loss to  iPIX.  Pursuant  to  lease
schedules covering this equipment, we would have paid eBay annual lease payments
of approximately $0.3 million,  $0.8 million and $0.1 million in the duration of
2003, 2004 and 2005, respectively.  In the nine months ended September 30, 2003,
we paid  eBay  $1.5  million  pursuant  to  these  lease  schedules.  As part of
Amendment  No. 3 to our  agreement  with  eBay,  eBay  agreed  to  exchange  the
equipment  underlying  these  leases as final  payment  after we  satisfactorily
perform  certain  transition  services,  which  occurred in October  2003.  Such
transactions  will be reflected in the financial  statements for the quarter and
year ending December 31, 2003.

                                       13
<PAGE>




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 and Form  10-K/A.  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 providing:

       (1)    outsourced  imaging services to facilitate online  transactions in
              the auction,  classifieds  and real estate  markets  ("Transaction
              Services");

       (2)    immersive  still imaging and movie  solutions for the real estate,
              travel  and  visual   documentation   markets   ("Immersive  still
              solutions"); and

       (3)    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.  Historically,  our
transaction  services  involved  designing,   building  and  managing  an  image
management  infrastructure as well as leasing space from co-location  facilities
with access to telecommunications  bandwidth. During the quarter ending December
31, 2003, we are transitioning our transaction services to managed care services
from state-of-the-art  co-location  facilities with access to telecommunications
bandwidth.   Payments  for  managed  care  services  are  primarily   fixed  and
accordingly the margins from transaction  services will be highly dependent upon
our level of utilization of the services purchased.

Substantially  all of our  recurring  revenue has been derived from  transaction
fees generated by our Rimfire service. In particular, eBay and Homestore are our
largest  Rimfire  customers.  eBay  represented  approximately  85% of our total
revenue and  approximately  95% of Rimfire  services revenue for the nine months
ended  September  30, 2003 and 84% of total  revenue and 96% of Rimfire  service
revenue for the third quarter of 2003. eBay represented approximately 54% of our
total  revenue for the nine  months  ended  September  30, 2002 and 57% of total
revenue for the third quarter of 2002. Homestore  represented  approximately 19%
of total revenue and 17% of Rimfire service revenue for the first nine months of
2002 and 16% of total revenue and 16% of Rimfire  service  revenue for the three
months ended  September 30, 2002, but less than 10% of total revenue and Rimfire
service revenue for the three months and nine months ended September 30, 2003.

On June 27, 2003, we signed an amended  license  agreement with eBay.  Under the
terms of Amendment No. 3, eBay will pay us $8.0 million and other  consideration
based on certain service and licensing  options granted to eBay for a perpetual,
non-exclusive  license to the our Rimfire Imaging technology.  eBay paid us $3.0
million in the quarter  ended June 30, 2003 upon the  execution of Amendment No.
3, as required.  The $3.0  million is included in deferred  revenue at September
30, 2003 because  certain  obligations  associated with the license and services
agreed to in the amendment had not been delivered at that date.  eBay elected to
extend the Visual Content  Serives  Agreement to October 31, 2003. The remaining
$5.0  million  due under  Amendment  No. 3 was  collected  in  October  2003 and
substantially   all  remaining  service  delivery  and  other  obligations  were
completed in October 2003.

Transaction  fees  from eBay have  been a  significant  percentage  of our total
revenue  through  September 30, 2003.  eBay  requested us to extend our services
through October 31, 2003. As a result,  other than completing  substantially all
of the final  deliveries under Amendment No. 3 in October 2003, we do not expect
to provide  any  services  to eBay after  October  31,  2003,  which will have a
material  adverse  effect  on  our  business,  financial  position,  results  of
operations  and  cash  flows.  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 and increase revenues in
this segment of our business,  our results of operations and cash flows could be
adversely affected.

                                       14
<PAGE>

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.
If we fail to add significant  customers and increase revenues in these segments
of our  business,  our results of  operations  and cash flows could be adversely
affected. In addition, if our third-party suppliers are not able to deliver high
quality components to us in a timely manner, our business, results of operations
and cash flows could be adversely affected.

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 is 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"). iPIX-I represented approximately 18% and 6% of Immersive revenue for
the third  quarter of 2002 and 2003,  respectively,  and 7% and 14% of Immersive
stills  revenue  for  the  nine  months  ended  September  30,  2002  and  2003,
respectively.  Homestore  represented  approximately  16% and  19% of  Immersive
stills revenue for the third quarter of 2002 and 2003, respectively, and 23% and
20% of Immersive stills revenue for the nine months ended September 30, 2002 and
2003, respectively.

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 and Form 10-K/A 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. As there are significant continuing  undelivered  obligations under the
Amendment  No. 3 to the Visual  Content  Services  Agreement  with eBay, we have
deferred all license  revenue  under the  amendment at June 30 and September 30,
2003.

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  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."

                                       15
<PAGE>

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 it
requires us to make assumptions  about fair values and the impact of recognizing
an  impairment  could be  material  to our  financial  position,  as well as our
results of operations.  Our  assumptions  about fair values require  significant
judgment  because  broad  economic  factors,  industry  factors  and  technology
considerations  can result in variable  and volatile  fair  values.  On June 27,
2003, our agreement with eBay was amended.  eBay is the largest  customer of the
technology  represented by our goodwill. Due to Amendment No. 3 of our agreement
with eBay, we preformed an impairment analysis of goodwill at September 30, 2003
and no impairment existed. In the quarter ending December 31, 2003, we collected
the  final  amounts  due  under  the  amended  agreement  with eBay and may have
incurred a significant  impairment of our goodwill.  Our goodwill impairment may
be  reflected  in our  financial  statements  for the  quarter  and year  ending
December 31, 2003.

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.

RESTRUCTURING ACTIONS

During the nine months ended  September 30, 2003,  the  following  payments were
made against our restructuring accrual:

<TABLE>
<S>                                                                     <C>          <C>         <C>         <C>

                                                                         Balance at                           Balance at
                                                                        December 31, Expense in  Payments in September 30,
         (In thousands)                                                     2002        2003        2003         2003
                                                                        ------------ ----------  ----------- -------------

Restructuring provisions:
   Severance..........................................................   $     500     $  --        $  500      $   --
   Lease obligations..................................................         549        --           231         318
                                                                         ---------     ------       -------     -------
Total.................................................................   $   1,049     $  --        $  731      $  318
                                                                         =========     ======       =======     =======
</TABLE>

                                       16
<PAGE>

RESULTS OF OPERATIONS

The following  presents,  for the periods indicated the percent  relationship to
total revenues of items in our statements of operations.
<TABLE>
<S>                                                                           <C>           <C>        <C>          <C>
                                                                              Three months ended        Nine months ended
                                                                                 September 30,            September 30,
                                                                                2002        2003         2002        2003
                                                                              -------      ------       ------      ------
Revenue:
      Transaction services..............................................        70.7%        87.7%       70.2%       89.3%
      Immersive still solutions.........................................        29.3         10.1        29.8         9.5
      Immersive video solutions.........................................          --          2.2          --         1.2
                                                                               ------       ------      ------      ------
   Total revenue........................................................       100.0        100.0       100.0       100.0
                                                                               ------       ------      ------      ------

Cost of revenue:
      Transaction services..............................................        29.0         28.3        31.6        27.7
      Immersive still solutions.........................................         9.3          6.1         8.3         5.3
      Immersive video solutions.........................................          --          1.1          --         0.8
                                                                                ----         ----        ----        ----
   Total cost of revenue................................................        38.3         35.5        39.9        33.8
                                                                                ----         ----        ----        ----
   Gross profit.........................................................        61.7         64.5        60.1        66.2
                                                                                ----         ----        ----        ----

Operating expenses:
      Sales and marketing...............................................        31.4         28.7        36.7        29.2
      Research and development..........................................        19.6         18.1        22.3        18.5
      General and administrative........................................        10.4         15.1        14.6        13.6
      Restructuring.....................................................        11.5           --         4.1          --
                                                                                ----         ----        ----        ----
   Total operating expenses.............................................        72.9         61.9        77.7        61.3
                                                                                ----         ----        ----        ----

Income (loss) from operations...........................................       (11.2)         2.6       (17.6)        4.9
Interest income (expense) and other.....................................        20.8         (0.3)        7.8        (0.5)
                                                                               ------        -----      -------      -----
Net income .............................................................         9.6%         2.3%       (9.8)%       4.4%
                                                                               ======        =====      =======      =====

Quarter Ended September 30, 2002 Compared to the Quarter Ended September 30, 2003

                                                                                   Three months ended
                                                                                      September 30,
                                                                                  --------------------
                                                                                                                   Percent
                             (Dollars in thousands)                                  2002      2003   Difference   Change
                                                                                  --------- --------  ----------   -------
Revenue:
      Transaction services.....................................................   $   4,242 $  5,811  $   1,569      37%
      Immersive still solutions................................................       1,753      666     (1,087)    (62)
      Immersive video solutions................................................          --      146        146     100
                                                                                  --------- --------  ----------
   Total revenue...............................................................       5,995    6,623        628      10
                                                                                  --------- --------  ----------
Cost of revenue:
      Transaction services.....................................................       1,738    1,876        138       8
      Immersive still solutions................................................         561      400       (161)    (29)
      Immersive video solutions................................................          --       75         75     100
                                                                                  --------- --------  ----------
   Total cost of revenue.......................................................       2,299    2,351        (52)     (2)
                                                                                  --------- --------  ----------
   Gross profit................................................................       3,696    4,272        576      16
                                                                                  --------- --------  ----------
Operating expenses:
      Sales and marketing......................................................       1,881    1,899         18       1
      Research and development.................................................       1,175    1,198         23       2
      General and administrative...............................................         621    1,001        380      61
      Restructuring............................................................         687       --       (687)   (100)
                                                                                  --------- --------  ----------
   Total operating expenses....................................................       4,364    4,098       (266)     (6)
                                                                                  --------- --------  ----------
Income (loss) from operations..................................................        (668)     174        842     126
Patent infringement award......................................................       1,000       --     (1,000)   (100)
Interest income (expense) and other............................................         244      (20)      (264)   (108)
                                                                                  --------- --------  ----------

Net income.....................................................................   $     576 $    154  $    (422)    (73)%
                                                                                  ========= ========  ==========
</TABLE>
                                       17
<PAGE>

Revenue. Total revenue increased $0.6 million in the quarter ended September 30,
2003 over the  quarter  ended  September  30, 2002 due to  increased  volumes of
images  processed  by  Rimfire  ($1.6  million),  primarily  related  to on-line
auctions,  partially  offset by lower sales volumes of primarily  immersive keys
and kits ($1.1 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 to iPIX-I in the third  quarter of 2002. In addition,  in the quarter
ended  September  30, 2003,  we had $0.1 million of sales from our new immersive
video products.

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 dollar level,  but as a percentage of total
revenues  decreased to 36% in the quarter  ended  September 30, 2003 from 38% in
the quarter ended  September  30, 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  remained  at  substantially  the same  dollar  level in the
quarter ended  September 30, 2003 and the quarter ended  September 30, 2002, but
as a  percentage  of  total  revenues  decreased  to 29% in  the  quarter  ended
September 30, 2003 from 31% in the quarter ended  September 30, 2002.  Sales and
marketing  expenses as a percent of revenue  declined in 2003  primarily  due to
operational  efficiencies  and the growth in transaction  revenues from existing
customers.

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  dollar  levels  in the  quarter  ended
September 30, 2003 and the quarter ended September 30, 2002, but as a percentage
of total revenues  decreased to 18% in the quarter ended September 30, 2003 from
20% in the quarter ended September 30, 2002.  Research and development  expenses
as  a  percent  of  revenue  declined  in  2003  primarily  due  to  operational
efficiencies and cost controls.

General  and  Administrative.   General  and  administrative   expenses  consist
primarily of salaries  and related  benefits for  administrative  and  executive
staff,  fees for outside  professional  services and other costs associated with
being a public company.  General and  administrative  expenses were $0.4 million
more in the quarter ended  September  30, 2003 over the quarter ended  September
30, 2002  primarily  because in 2002 we collected  $0.3 million from  previously
reserved receivables and $0.1 million in court costs were refunded to us as part
of the  conclusion of legal  actions in the third  quarter of 2002.  When taking
into account  these two  reductions  to general and  administrative  expenses in
2002,  the other  expenses  in this area were  substantially  at the same dollar
level in both years.

Restructuring.  Restructuring  expenses in the quarter ended  September 30, 2002
consisted  primarily of termination  payments for abandoned  office  facilities.
There were no restructuring expenses in 2003.

Patent  infringement  award.  Patent  infringement  award of $1.0 million in the
quarter  ended  September  30, 2002,  is due to the  collection  of a previously
awarded  court  judgment  for which  all legal  remedies  for  appeal  have been
exhausted.

Interest Income (Expense). Interest income generally consists of interest earned
on cash and investments. Interest expense generally consists of interest charges
from  capitalized  lease  obligations.  Interest expense was $20 thousand in the
quarter ended September 30, 2003, compared to interest income of $0.2 million in
the quarter  ended  September  30, 2002.  The  difference  was  primarily due to
interest earned on the patent infringement award.


                                       18
<PAGE>

<TABLE>
<S>                                                                         <C>          <C>         <C>           <C>

Nine Months Ended September 30, 2002 Compared to the Nine Months Ended September 30, 2003

                                                                               Nine months ended
                                                                                 September 30,
                                                                            ---------------------                  Percent
                         (Dollars in thousands)                                2002         2003     Difference    Change
                                                                            ----------   --------    ----------    -------

Revenue:
         Transaction services..........................................     $  11,619    $  17,471   $   5,852         50%
         Immersive still solutions.....................................         4,931        1,858      (3,073)       (62)
         Immersive video solutions.....................................            --          237         237        100
                                                                            ---------    ---------   ----------
      Total revenue....................................................        16,550       19,566       3,016         18
                                                                            ---------    ---------   ----------

Cost of revenue:
         Transaction services..........................................         5,238        5,426         188          4
         Immersive still solutions.....................................         1,372        1,025        (347)       (25)
         Immersive video solutions.....................................            --          161         161        100
                                                                            ---------    ---------   ----------
      Total cost of revenue............................................         6,610        6,612           2         (0)
                                                                            ---------    ---------   ----------
      Gross profit.....................................................         9,940       12,954       3,014         30
                                                                            ---------    ---------   ----------

Operating expenses:
   Sales and marketing.................................................         6,074        5,704        (370)        (6)
   Research and development............................................         3,686        3,626         (60)        (2)
   General and administrative..........................................         2,418        2,664         246         10
   Restructuring.......................................................           687           --        (687)      (100)
                                                                            ---------    ---------   ----------

      Total operating expenses.........................................        12,865       11,994        (871)        (7)
                                                                            ---------    ---------   ----------

Income (loss) from operations..........................................        (2,925)         960       3,885        133
Patent infringement award..............................................         1,000           --      (1,000)      (100)
Interest income (expense) and other....................................           297         (103)       (400)      (135)
                                                                            ---------    ---------   ----------

Net Income (loss)......................................................     $  (1,628)   $     857   $   2,485        153%
                                                                            =========    =========   ==========
</TABLE>


Revenue. Total revenue increased $3.0 million in the nine months ended September
30, 2003 over the nine months ended September 30, 2002 due to increased  volumes
of images  processed by Rimfire  ($5.9  million),  primarily  related to on-line
auctions,  partially  offset by lower sales volumes of primarily  immersive keys
and kits ($3.1 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  to iPIX-I in the third  quarter of 2002.  In  addition,  in the nine
months  ended  September  30,  2003,  we had $0.2  million of sales from our new
immersive video products.

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 dollar level,  but as a percentage of total
revenues  decreased to 34% in the nine months ended  September 30, 2003 from 40%
in the nine months ended  September  30,  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 $0.4 million in the nine months ended September 30,
2003  over the nine  months  ended  September  30,  2002,  primarily  due to our
decision to shift resources from international  sales personnel costs in 2002 to
more domestic sales personnel in 2003. As a percentage of total revenues,  sales
and marketing  expenses  decreased to 29% in the nine months ended September 30,
2003 from 37% in the nine months ended  September 30, 2002.  Sales and marketing
expenses  as a percent  of revenue  declined  in 2003  primarily  due to reduced
spending,  operational  efficiencies and the growth in transaction revenues from
existing customers.

                                       19
<PAGE>

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 dollar  levels in the nine months ended
September  30, 2003 and the nine  months  ended  September  30,  2002,  but as a
percentage of total revenues decreased to 19% in the nine months ended September
30, 2003 from 22% in the nine months  ended  September  30,  2002.  Research and
development  expenses as a percent of revenue  declined in 2003 primarily due to
operational efficiencies and cost controls.

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
$0.2  million  more in the nine months  ended  September  30, 2003 over the nine
months ended  September 30, 2002.  In the nine months ended  September 30, 2002,
$0.3 million was collected from previously reserved receivables and $0.1 million
was collected as a refund of previously paid court costs. These collections were
recognized  as  reductions  in general and  administrative  expenses in the nine
months ended September 30, 2002.  These reductions were offset in 2003 by a $0.2
million increase in personnel and related costs.

Restructuring.  Restructuring  expenses in the nine months ended  September  30,
2002  consisted   primarily  of  termination   payments  for  abandoned   office
facilities. There were no restructuring expenses in 2003.

Patent infringement award. Patent infringement award of $1.0 million in the nine
months  ended  September  30,  2002,  is due to the  collection  of a previously
awarded  court  judgment  for which  all legal  remedies  for  appeal  have been
exhausted.

Interest Income (Expense). Interest income generally consists of interest earned
on cash and investments. Interest expense generally consists of interest charges
from  capitalized  lease  obligations.  Interest expense was $0.1 million in the
nine months  ended  September  30,  2003,  compared  to interest  income of $0.3
million in the quarter ended  September 30, 2002.  The  difference was primarily
due to interest earned on the patent infringement award.

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 September 30,
2003, we had $10.2 million of cash, cash equivalents and short term investments,
of which $1.4 million was restricted.

                       Summary Consolidated Cash Flow Data
<TABLE>
<S>                                                                     <C>           <C>          <C>            <C>

                                                                          Three months ended           Nine months ended
                                                                             September 30,               September 30,
                                                                        ----------------------     -------------------------
                         (In thousands)                                   2002          2003          2002          2003
                                                                        ----------    --------     -----------    ----------

Net cash provided by (used in) operating activities...............      $   1,106     $    417     $   (2,768)    $  7,172
Net cash used in investing activities.............................            (84)         (75)        (4,658)        (883)
Net cash provided by (used in) financing activities...............            681         (185)         2,706         (476)
Effect of exchange rate changes on cash...........................            (12)          (1)           (33)           3
                                                                        ----------    --------     -----------    ----------

Net increase (decrease) in cash and cash equivalents..............          1,691          156         (4,753)       5,816
Cash and cash equivalents, beginning of period....................          4,659        8,680         11,103        3,020
                                                                        ----------    --------     -----------    ----------

Cash and cash equivalents, end of period..........................      $   6,350     $  8,836     $    6,350     $  8,836
                                                                        ==========    ========     ===========    ==========
</TABLE>


Cash flows from operating activities in the third quarter of 2002, reflects $1.4
million from the patent  infringement award. After excluding the award proceeds,
cash flow from  operations  improved  $0.7 million in the third  quarter of 2003
over 2002 primarily as a result of a $0.6 million increase in revenues.

Net cash used in investing  activities in the third 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.

                                       20
<PAGE>
Net cash  provided  by  financing  activities  in the third  quarter of 2003 was
primarily related to $0.6 million of payments made on capital lease obligations,
net of $0.4  million of proceeds  from the exercise of stock  options.  Net cash
provided by  financing  activities  in the third  quarter of 2002 was  primarily
related to proceeds from new capital lease obligations.

Cash flows from  operating  activities  increased $9.9 million in the first nine
months of 2003 compared to the same period in 2002. The primary  reasons for the
improvement were the following:

o         In 2003,  our net income was $0.9  million,  compared to a net loss of
          $1.6 million the first nine months of 2002 (a $2.5 million increase).

o         Our net loss for the nine months  ended  September  30, 2002  included
          non-cash  amortization of deferred  revenues of $1.6 million,  whereas
          net income for the nine months ended  September  30, 2003  included no
          material  amortization  of deferred  revenues,  but does  include $3.0
          million of deferred  revenue  collected  in June 2003 (a $4.6  million
          increase).

o         During  the first  nine  months of 2002,  receivables  increased  $0.8
          million,  while in the same period of 2003, receivables decreased $1.3
          million.  The decrease in 2003 was primarily  related to the timing of
          collections in early 2003 (a $2.1 million increase).

Net cash used in investing  activities in the first nine months of 2003 and 2002
was primarily  related to the acquisition of computer  software and hardware and
the purchase of short-term  investments of $1.4 million in the first nine months
of 2002.

Net cash  used in  financing  activities  in the first  nine  months of 2003 was
primarily related to $1.9 million of payments made on capital lease obligations,
net of $1.4  million of proceeds  from the exercise of stock  options.  Net cash
provided by financing  activities in the first nine months of 2002 was primarily
related to proceeds from new capital lease obligations.

The table below shows our contractual obligations as of September 30, 2003:

<TABLE>
<S>                                                                          <C>       <C>       <C>       <C>       <C>
                               (In thousands)                                              Payments Due by Period
                                                                             ----------------------------------------------
                                                                                      Remainder  2004 &   2006 &
                                                                               Total   of 2003    2005     2007  After 2007
                                                                             -------  ---------  -------  ------ ----------
Capital leases...........................................................    $1,968    $ 1,360   $   608   $  --     $ --
Operating leases.........................................................     5,908        809     4,264     771       64
                                                                             ------    -------   -------   -----     ----
Total....................................................................    $7,876    $ 2,169   $ 4,872   $ 771     $ 64
                                                                             ======    =======   =======   =====     ====
</TABLE>

On June 27, 2003, we signed an amended  license  agreement with eBay. Our Visual
Content  Services  Agreement  with eBay expired on October 31,  2003.  Under the
terms of Amendment No. 3, eBay will pay us $8.0 million and other  consideration
based on certain service and licensing  options granted to eBay for a perpetual,
non-exclusive  license to the our Rimfire Imaging technology.  eBay paid us $3.0
million in the quarter  ended June 30, 2003 upon the  execution of Amendment No.
3, as required.  The $3.0  million is included in deferred  revenue at September
30, 2003 because  certain  obligations  associated with the license and services
agreed to in the  amendment had not been  delivered at that date.  The remaining
$5.0  million  due under  Amendment  No. 3 was  collected  in  October  2003 and
substantially   all  remaining  service  delivery  and  other  obligations  were
completed in October 2003.

Transaction  fees  from eBay have  been a  significant  percentage  of our total
revenue  through  September  30, 2003.  eBay has not  requested us to extend our
services  after October 31, 2003. As a result,  other than  completing the final
deliveries  under  Amendment  No. 3 in October 2003, we do not expect to provide
any services to eBay after October 31, 2003,  which will have a material adverse
effect on our  business,  financial  position,  results of  operations  and cash
flows.

We finished the third quarter of 2003 with approximately  $10.2 million in cash,
cash equivalents and short-term investments of which $1.4 million was restricted
cash.  Our use, or  generation,  of cash will be largely  influenced by revenues
from our major  customers.  Depending  upon our growth in revenues  from new and
existing  customers and our ability to control or affect reductions in costs, we
are not expecting  to, but 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 or if
available, that such financing can be obtained on terms satisfactory to us.

                                       21
<PAGE>

Management's  focus is to manage our cash  requirements and focus our operations
on revenue  generation and controlled  spending.  Our long-term strategy remains
unchanged.  We will continue to invest in research and  development  for Rimfire
and our immersive video products and will invest in the expansion of the offline
publications and online classified advertising businesses and in the development
of new security and observation products and services.

RECENT ACCOUNTING PRONOUNCEMENTS

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 apply to revenue  arrangements  entered into in fiscal
periods  beginning  after June 15, 2003. We adopted this standard in the quarter
ended  September 30, 2003 and the adoption did not have a material effect on our
financial statements.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities  ("VIE"),  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 for VIEs
created after  February 1, 2003 and is effective for all other VIEs in the first
reporting  period ending after  December 31, 2003. The adoption of FIN 46 is not
expected to have a significant  effect on our  financial  position or results of
operations.

In May 2003,  the FASB issued FAS No.  150,  "Accounting  For Certain  Financial
Instruments  with  Characteristics  of both Liabilities and Equity" ("FAS 150").
FAS 150 establishes  standards for how an issuer classifies and measures certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some  circumstances).  Many of those  instruments
were  previously  classified  as  equity.  FAS 150 is  effective  for  financial
instruments  entered  into or modified  after May 31,  2003,  and  otherwise  is
effective at the beginning of the first interim period  beginning after June 15,
2003.  In  October  2003,  FASB  delayed  the  implementation  of FAS 150.  When
effective,  it is to be  implemented  by reporting  the  cumulative  effect of a
change in an accounting  principle for financial  instruments created before the
issuance  date of FAS 150 and still  existing  at the  beginning  of the interim
period of adoption.  Restatement is not  permitted.  While the effective date of
certain  elements of FAS 150 has been  deferred,  the adoption of FAS 150,  when
finalized,  is not expected to have a material impact on our financial position,
results of operations or cash flows.

INFLATION

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of  September  30,  2003,  we had $10.2  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 Rule  13a-14(c)) as of the date covered by this  quarterly  report.
Based on that  evaluation,  the chief  executive  officer  and  chief  financial
officer have concluded as of the date covered by this quarterly  report that our
disclosure  controls  and  procedures  are  effective  to ensure  that  material
information  relating to the Company and our  consolidated  subsidiaries is 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 during the period covered by this report.


                                       22
<PAGE>

                           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.

In June 2003, we filed a lawsuit against Ford Oxaal and Minds-Eye-View,  Inc. in
the United States District Court for the Eastern District of Tennessee  alleging
patent  infringement  of  certain  patents  and  other  causes  of  action.  The
defendants in the lawsuit have filed counterclaims  against the Company in their
response to our action.  The  litigation is in the pre trial motion stage at the
current time.

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

    None.

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 18 U.S.C.  Section  1350, as adopted
                    pursuant to section 906 of the Sarbanes-Oxley Act of 2002


                                       23
<PAGE>

b) Reports On Form 8-K

A Form 8-K was filed on August 14, 2003, under Item 12, furnishing the Company's
press release for the Company's second quarter 2003 financial results.



                          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: November 13, 2003             INTERNET PICTURES CORPORATION
                                    (Registrant)


                                    /s/ Paul Farmer
                                    ----------------------------
                                    Paul Farmer
                                    Authorized Officer
                                    Chief Financial Officer and
                                    Chief Accounting Officer


                                       24
<PAGE>

                          INTERNET PICTURES CORPORATION
                         INDEX TO EXHIBITS FOR FORM 10-Q
                      FOR QUARTER ENDED SEPTEMBER 30, 2003


               EXHIBIT NO.         EXHIBIT DESCRIPTION
               -----------         -------------------





               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 18 U.S.C. Section
                                   1350, as adopted pursuant to section 906 of
                                   the Sarbanes-Oxley Act of 2002



                                       25
<PAGE>

                                                                   Exhibit 31.1
                          INTERNET PICTURES CORPORATION
                           SECTION 302 CERTIFICATIONS
                               (QUARTERLY REPORT)
                                 CERTIFICATIONS

I, Donald  Strickland,  the  President and Chief  Executive  Officer of Internet
Pictures Corporation, 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  officers and I are  responsible  for
      establishing  and  maintaining  disclosure  controls  and  procedures  (as
      defined in Exchange Act Rules  13a-15(e) and 15d-15(e)) for the registrant
      and we have:


      a)   designed  such  disclosure  controls and  procedures,  or caused such
           disclosure   controls  and   procedures  to  be  designed  under  our
           supervision,  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 report is being prepared;


      b)   evaluated the effectiveness of the registrant's  disclosure  controls
           and procedures and presented in this quarterly report our conclusions
           about the effectiveness of the disclosure controls and procedures, as
           of the  end of the  period  covered  by  this  report  based  on such
           evaluation; and


      c)   disclosed  in this  report  any change in the  registrant's  internal
           control  over   financial   reporting   that   occurred   during  the
           registrant's  most recent  fiscal  quarter (the  registrant's  fourth
           fiscal  quarter in the case of an annual  report) that has materially
           affected,   or  is  reasonably  likely  to  materially   affect,  the
           registrant's internal control over financial reporting; and


5.    The registrant's other certifying officers and I have disclosed,  based on
      our most recent  evaluation of internal control over financial  reporting,
      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
           control  over  financial  reporting  which are  reasonably  likely to
           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

                                       26
<PAGE>

      b)   any fraud, whether or not material, that involves management or other
           employees who have a significant  role in the  registrant's  internal
           controls.




Date November 13, 2003


/s/ Donald Strickland
------------------------------
Donald Strickland
President and Chief Executive Officer



                                       27
<PAGE>

                                                                   Exhibit 31.2

                          INTERNET PICTURES CORPORATION
                           SECTION 302 CERTIFICATIONS
                               (QUARTERLY REPORT)
                                 CERTIFICATIONS

I, Paul  Farmer,  Chief  Financial  Officer of  Internet  Pictures  Corporation,
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  officers and I are  responsible  for
      establishing  and  maintaining  disclosure  controls  and  procedures  (as
      defined in Exchange Act Rules  13a-15(e) and 15d-15(e)) for the registrant
      and we have:


      a)   designed  such  disclosure  controls and  procedures,  or caused such
           disclosure   controls  and   procedures  to  be  designed  under  our
           supervision,  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 report is being prepared;


      b)   evaluated the effectiveness of the registrant's  disclosure  controls
           and procedures and presented in this quarterly report our conclusions
           about the effectiveness of the disclosure controls and procedures, as
           of the  end of the  period  covered  by  this  report  based  on such
           evaluation; and


      c)   disclosed  in this  report  any change in the  registrant's  internal
           control  over   financial   reporting   that   occurred   during  the
           registrant's  most recent  fiscal  quarter (the  registrant's  fourth
           fiscal  quarter in the case of an annual  report) that has materially
           affected,   or  is  reasonably  likely  to  materially   affect,  the
           registrant's internal control over financial reporting; and


5.    The registrant's other certifying officers and I have disclosed,  based on
      our most recent  evaluation of internal control over financial  reporting,
      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
           control  over  financial  reporting  which are  reasonably  likely to
           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


                                       28
<PAGE>

      b)   any fraud, whether or not material, that involves management or other
           employees who have a significant  role in the  registrant's  internal
           controls.





Date November 13, 2003
/s/ Paul Farmer
--------------------------
Paul Farmer
Chief Financial Officer


                                       29
<PAGE>

                                   Exhibit 32

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly  Report of Internet  Pictures  Corporation
(collectively,  the "Company") on Form 10-Q for the period ending  September 30,
2003 as filed with the  Securities  and Exchange  Commission  on the date hereof
(the  "Report"),  we, Donald  Strickland  and Paul Farmer,  the Chief  Executive
Officer and Chief  Financial  Officer,  respectively,  of the Company,  certify,
pursuant  to 18  U.S.C.  ss.  1350,  as  adopted  pursuant  to  ss.  906  of the
Sarbanes-Oxley Act of 2002, that:


     (1) The Report fully  complies with the  requirements  of section 13(a) or
         15(d) of the Securities Exchange Act of 1934; and


     (2) The  information  contained  in the  Report  fairly  presents,  in all
         material respects,  the financial condition and results of operation of
         the Company.




/s/ Donald Strickland
--------------------------
Donald Strickland
Chief Executive Officer
November 13, 2003



/s/ Paul Farmer
---------------------------
Paul Farmer
Chief Financial Officer
November 13, 2003



A signed  original of this  written  statement  required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.


                                       30