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

                                    FORM 10-Q

                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended March 31, 2004               Commission File No. 000-26363

                                IPIX 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]

15,695,106  shares of $0.001 par value common stock  outstanding as of April 16,
2004.




                                       1
<PAGE>

                                IPIX CORPORATION
                                    FORM 10-Q
                      FOR THE QUARTER ENDED MARCH 31, 2004
                                      INDEX


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

   Item 1. Condensed Consolidated Financial Statements (unaudited)........     3

   Item 2. Management's Discussion and Analysis of Financial Condition and
           Results of Operations..........................................    12

   Item 3. Quantitative and Qualitative Disclosures About Market Risk.....    17

   Item 4. Controls and Procedures........................................    17

PART II-- OTHER INFORMATION...............................................    18

   Item 1. Legal Proceedings..............................................    18

   Item 2. Changes In Securities And Use Of Proceeds......................    18

   Item 3. Defaults Upon Senior Securities................................    18

   Item 4. Submission Of Matters To A Vote Of Security Holders............    18

   Item 5. Other Information..............................................    18

   Item 6. Exhibits And Reports On Form 8-K...............................    19

Signatures................................................................    20

Exhibit Index.............................................................    21


                                       2
<PAGE>

PART I--FINANCIAL INFORMATION


Item 1.     Condensed Consolidated Financial Statements

                                IPIX CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<S>                                                                                                     <C>             <C>
                                                                                                        December 31,    March 31,
                                                                                                            2003          2004
                                                                                                        --------------------------
                                                                                                             (1)       (unaudited)
 (In thousands)

 ASSETS
 Cash and cash equivalents.........................................................................     $    10,241  $      6,981
 Restricted short term investments.................................................................           1,100         1,100
 Short term investments............................................................................             331           331
 Accounts receivable, net..........................................................................             261           364
 Inventory, net....................................................................................             398           503
 Prepaid expenses and other current assets.........................................................           1,523         1,760
                                                                                                        -----------  ------------
       Total current assets........................................................................          13,854        11,039
 Computer hardware, software and other, net........................................................           1,578         1,327
 Restricted cash and other long term assets........................................................             852           718
                                                                                                        -----------  ------------
       Total assets................................................................................     $    16,284  $     13,084
                                                                                                        ===========  ============
 LIABILITIES AND STOCKHOLDERS' EQUITY
 CURRENT LIABILITIES:
 Accounts payable..................................................................................     $       612  $        402
 Accrued liabilities...............................................................................           3,342         3,279
 Deferred revenue..................................................................................              76            69
 Current portion of obligations under capital leases...............................................             608           390
                                                                                                        -----------  ------------
       Total current liabilities...................................................................           4,638         4,140
 Other long term liabilities.......................................................................             181            70
                                                                                                        -----------  ------------
          Total liabilities........................................................................           4,819         4,210
                                                                                                        -----------  ------------
 STOCKHOLDERS' EQUITY:
 Preferred stock (Aggregate liquidation value: $23,716 in 2003 and $24,116 in 2004)................               1             1
 Common stock......................................................................................               9             9
 Class B common stock..............................................................................              --            --
 Additional paid-in capital........................................................................         515,186       515,805
 Accumulated deficit...............................................................................        (503,731)     (506,941)
                                                                                                        ------------ -------------
       Total stockholders' equity..................................................................          11,465         8,874
                                                                                                        -----------  ------------

       Total liabilities and stockholders' equity..................................................     $    16,284  $     13,084
                                                                                                        ===========  ============
</TABLE>

----------------------

(1) The December  31, 2003  balances  were  derived  from the audited  financial
    statements.

See  accompanying  notes  to  the  unaudited  condensed consolidated financial
statements.


                                       3
<PAGE>


                                IPIX CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S>                                                                                        <C>             <C>

                                                                                                Three months ended
                                                                                                     March 31,
                                                                                           -------------------------
                                                                                                2003            2004
                                                                                           --------------  ---------
                            (In thousands, except per share data)                                   (unaudited)

    Revenue:
    Ad Technologies..................................................                         $   5,602    $    246
    InfoMedia........................................................                               784         474
    Security.........................................................                                 5           2
                                                                                              ---------    --------
       Total revenue.................................................                             6,391         722
                                                                                              ---------    --------

    Cost of revenue:
    Ad Technologies..................................................                             1,782         678
    InfoMedia........................................................                               338         297
    Security.........................................................                                 4           1
                                                                                              ---------    --------
       Total cost of revenue.........................................                             2,124         976
                                                                                              ---------    --------

       Gross profit (loss)...........................................                             4,267        (254)
                                                                                              ---------    ---------

    Operating expenses:
    Sales and marketing..............................................                             1,761       1,342
    Research and development.........................................                             1,260         925
    General and administrative.......................................                               829         693
                                                                                              ---------    --------
       Total operating expenses......................................                             3,850       2,960
                                                                                              ---------    --------

    Income (loss) from operations....................................                               417      (3,214)
    Other............................................................                               (49)          4
                                                                                              ----------   --------

    Net income (loss)................................................                               368      (3,210)
    Preferred stock dividends........................................                              (440)       (400)
                                                                                              ---------    --------

    Net loss available to common stockholders........................                         $     (72)   $ (3,610)
                                                                                              =========    ========

    Loss per common share, basic and diluted ........................                         $   (0.01)   $  (0.41)
    Weighted average common shares, basic and diluted................                             6,813       8,901
</TABLE>

See  accompanying  notes  to  the  unaudited  condensed consolidated financial
statements.

                                       4
<PAGE>


                                IPIX CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

                                                                                                                Three months ended
                                                                                                                     March 31,
                                                                                                                ------------------
                                                                                                                  2003      2004
                                                                                                                -------- ----------
                                                     (In thousands)                                                 (unaudited)

Cash flows from operating activities:
Net income (loss)............................................................................................   $   368   $ (3,210)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation.................................................................................................       936        289
Provision for doubtful accounts receivable...................................................................        (2)        --
Changes in operating assets and liabilities:
   Accounts receivable.......................................................................................     1,342       (103)
   Inventory.................................................................................................       (46)      (203)
   Prepaid expenses and other current assets.................................................................      (266)       118
   Other long term assets....................................................................................        40        134
   Accounts payable..........................................................................................       228       (210)
   Accrued expenses..........................................................................................        61       (174)
   Deferred revenue..........................................................................................        38         (7)
                                                                                                              --------- -----------

         Net cash provided by (used in) operating activities.................................................     2,699     (3,366)
                                                                                                              --------- -----------

Cash flow from investing activities:
Purchases of computer hardware, software and other...........................................................      (310)       (38)
                                                                                                              --------- -----------
      Net cash used in investing activities..................................................................      (310)       (38)
                                                                                                              --------- -----------

Cash flows from financing activities:
Proceeds from issuance of common stock.......................................................................        --        362
Repayments of capital lease obligations......................................................................      (685)      (218)
                                                                                                              --------- -----------
      Net cash provided by (used in) financing activities....................................................      (685)       144
                                                                                                              --------- -----------

Effect of exchange rate changes on cash......................................................................         5         --
                                                                                                              --------- ----------

Net increase (decrease) in cash and cash equivalents.........................................................     1,709     (3,260)
Cash and cash equivalents, beginning of period...............................................................     3,020     10,241
                                                                                                              --------- ----------

Cash and cash equivalents, end of period.....................................................................   $ 4,729   $  6,981
                                                                                                              ========= ===========
</TABLE>

See accompanying notes to the unaudited condensed consolidated financial
statements


                                       5
<PAGE>

         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

IPIX   Corporation,    formerly   Internet   Pictures   Corporation,    provides
mission-critical  imaging  solutions  for commerce,  communication  and security
applications.  The Company's solutions create, process and manage a rich variety
of media including still images,  360-degree by 360-degree  immersive images and
video. In 2003, the Company's  business units moved from being  technology based
(Immersive Video Solutions,  Transaction Services and Immersive Still Solutions)
to being market based in order to better serve the needs of its  customers.  The
Company is now organized into three market focused business units:  Security, Ad
Technologies and InfoMedia,  respectively.  IPIX Security  provides security and
surveillance products and services for commercial and governmental customers. Ad
Technologies  focuses on the sale of complete solutions to customers who rely on
visual data to create  effective  directional  advertising such as publishers of
newspaper classifieds,  yellow page directories,  on-line auctions,  real estate
and  autos  classifieds.  InfoMedia  focuses  on the  sale  of  immersive  still
technology  licenses  for the on-line real estate,  travel and  hospitality  and
visual documentation markets.

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

The accompanying  unaudited condensed  consolidated financial statements include
the accounts of IPIX 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.   The  Company  has  ceased
operations in its Canadian and United Kingdom subsidiaries and is in the process
of liquidation of these two subsidiaries.

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, 2003.

The information furnished reflects all adjustments which management believes are
necessary for a fair presentation of our financial position as of March 31, 2004
and the results of our  operations  for the three month  period  ended March 31,
2003 and 2004 and our cash flows for the three month period ended March 31, 2003
and 2004. All such adjustments are of a normal recurring nature.  The results of
operations  for the three  month  period  ended  March 31, 2003 and 2004 are not
necessarily  indicative  of the results to be expected for the  respective  full
years.

2. GOING CONCERN CONSIDERATIONS

The  accompanying  financial  statements  have been presented in accordance with
generally  accepted  accounting  principles,  which assume the continuity of the
Company as a going  concern.  During the quarter ended March 31, 2004 and in the
prior fiscal years,  the Company has  experienced,  and continues to experience,
certain going concern issues related to cash flow and profitability.

During 2003, the Company  changed its  relationship  with its largest  customer,
eBay,  which  represented  87% of revenue for the year ended  December 31, 2003.
eBay licensed  technology  from the Company that had previously been used by the
Company to provide  eBay with  recurring  services.  After 2003,  the Company no
longer  provides  any services to eBay.  As a result,  the Company has a limited
operating history as it is operating in 2004 and upon which an evaluation of its
business  and  prospects  may be made.  In  addition,  the Company is subject to
generally  prevailing  economic conditions and, as such, the Company's operating
results in 2004 will be dependent upon its ability to provide  quality  products
and services,  the success of its customers and the appropriations  processes of
various commercial and governmental entities.

Management believes,  however, that the Company has sufficient cash resources to
meet its  funding  needs  through at least the next twelve  months.  The Company
finished  the first  quarter  of 2004 with  approximately  $9.0  million in cash
reserves  (cash and cash  equivalents of $6.98  million,  short-term  restricted
investments of $1.10  million,  long-term  restricted  cash of $0.63 million and
short-term  investments  of  $0.33  million)  and in  April  2004,  the  Company
generated approximately $8 million in cash from the sale of its common stock, as
further  described  in Note 14.  The  Company  has three  business  units all at


                                       6
<PAGE>

different stages in their  development.  Management  expects to continue to make
significant  investments in the development,  sale and marketing of new products
for the security market and in the image management business,  which may consume
some of the Company's cash reserves.

3. CASH, CASH EQUIVALENTS AND RESTRICTED SHORT TERM INVESTMENTS

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

At March 31, 2004, we had a $1.4 million short term investment  which matures on
June 19, 2004, $1.1 million of which has been provided as collateral for certain
capital lease obligations and, accordingly,  classified as restricted short term
investments.  We will renew the  investment  for  successive  short term periods
until the capital lease obligation restrictions are removed.

4. EQUITY

During the three months ended March 31, 2004, we issued 442,144 shares of common
stock upon exercise of stock options. The total proceeds to the Company from the
option  exercises  will be $0.6  million,  of which $0.3 million was recorded in
other current assets and received by us on April 1, 2004.

5. INCOME (LOSS) PER COMMON SHARE

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

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

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

                                                                              Three months ended
                                                                                   March 31,
                                                                           -----------------------
                      (In thousands, except per share)                        2003         2004
                                                                           -----------  ----------
                                                                                  (unaudited)
NUMERATOR:
Net income (loss)....................................................      $     368     $ (3,210)
Preferred stock dividends............................................           (440)        (400)
                                                                           -----------   ---------

Net loss available to common stockholders............................      $     (72)    $ (3,610)
                                                                           ===========   =========

DENOMINATOR:
   Weighted average shares outstanding-- Basic and diluted...........          6,813        8,901
                                                                           ===========   =========

LOSS PER COMMON SHARE, BASIC AND DILUTED.............................      $   (0.01)    $  (0.41)
                                                                           ===========   =========
</TABLE>

The following table sets forth potential  common shares that are not included in
the  diluted  net loss per common  share  calculation  because to do so would be
antidilutive  for the three  month  periods  ended  March 31, 2003 and 2004 as a
result of the net loss available to common shareholders:

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

                                 (Shares in thousands)                                    2003           2004
                                                                                      ------------   ------------

Stock options..........................................................................    12             888
Convertible preferred stock............................................................  10,267         10,970
Warrants...............................................................................    --             195
</TABLE>


                                       7
<PAGE>

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 during the period and  accordingly  excluded from diluted net earnings per
common share for the three month periods ended March 31, 2003 and 2004:

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

                      (Shares in thousands)

                                                                                    2003       2004
                                                                                 ---------  ---------

Average share price of common stock........................................      $   1.07   $   2.55
Stock options:
   Average exercise price of options.......................................      $   7.03   $  18.78
   Shares excluded.........................................................         3,218        887
Series B Warrants (exercise price $2.17)...................................         1,381         --
Series B Warrants (exercise price $4.34)...................................           921        921
Common Warrants (average exercise price $165.33)...........................           170        137
</TABLE>

6. RESTRUCTURING AND OTHER

During the three months ended March 31, 2004, $0.1 million of payments were made
against the  Company's  restructuring  accrual.  No  additions  were made to the
accrual during the quarter ended March 31, 2004. At March 31, 2004 the remaining
balance in the restructuring accrual was $0.3 million.

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
FAS 148 "Accounting for Stock-Based  Compensation,  Transition and  Disclosure",
and has been  determined  as if we had accounted for the stock options under the
fair value method of FAS 123.

The computations for pro forma basic and diluted loss per share follow:

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

                                                                              Three months ended
                                                                                   March 31,
                                                                            -----------------------
               (In thousands, except per share data)                           2003        2004
                                                                            ----------  -----------
                                                                                  (unaudited)
                                                                            -----------------------
Net loss available to common stockholders............................       $     (72)    $ (3,610)
   Less total stock-based employee compensation expense
    determined under fair value based methods for all awards.........
                                                                                 (442)        (287)
                                                                            ----------    ---------
Adjusted net loss available to common stockholders...................       $    (514)    $ (3,897)
                                                                            ==========    =========

Basic and diluted loss per common share:
   Net loss available to common stockholders before pro forma charges..     $   (0.01)     $ (0.41)
   Net effect of pro forma charges.....................................         (0.06)       (0.03)
                                                                            ----------    ---------
Adjusted net loss per common share available to common stockholders....     $   (0.07)     $ (0.44)
                                                                            ==========    =========
</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
<PAGE>

8. COMMITMENTS AND CONTINGENCIES

Commitments

The table below shows our contractual obligations as of March 31, 2004:

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

                            (In thousands)                                                 Payments Due by Period
                                                                        -----------------------------------------------------
                                                                                    Remainder
                                                                          Total      of 2004      2005       2006       2007
                                                                        --------   ------------  -------   --------   -------
Capital leases......................................................    $    396     $   396     $    --     $  --      $ --
Operating leases....................................................       2,360         757         768       771        64
                                                                        --------   ------------  -------   --------   -------
Total...............................................................    $  2,756     $ 1,153     $   768     $ 771      $ 64
                                                                        ========   ============  =======   ========   =======
</TABLE>

At March 31, 2004, the Company had $0.6 million of its cash deposits  restricted
as  collateral  on a letter of credit for certain  co-location  facility  leases
expiring in 2005 and,  accordingly,  classified as long term restricted cash; In
addition,  the  Company  has  prepaid  $0.7  million of its  obligations  to the
co-location facility.

Contingencies

On November 15, 2002, a First  Amended  Consolidated  Complaint for violation of
federal securities laws was filed against  Homestore.com,  Inc. ("Homestore") by
the California Teachers' Retirement System ("CalSTRS"). The Complaint is a class
action  lawsuit filed on behalf of  stockholders  of Homestore  which flows from
alleged  misstatements  and  omissions  made by  Homestore  and the other  named
defendants,  which include us. The Complaint alleges that during 2001, Homestore
and  IPIX  entered  into   fraudulent   reciprocal   transactions   intended  to
artificially  bolster and maintain  Homestore's and our respective stock prices.
The Complaint  alleges that Homestore's  public statements with respect to these
transactions  are attributable to us and violate Sections 10(b) and 20(a) of the
Securities  Exchange Act of 1934. We joined with other co-defendants and filed a
joint motion to dismiss, alleging that the Complaint fails to state a claim upon
which relief may be granted,  among other things.  On March 7, 2003,  the United
States District Court for the District of Central  California granted our motion
to  dismiss,  with  prejudice.  On  April  7,  2004,  the  California  Teachers'
Retirement  System  filed a notice of appeal  with the  United  States  Court of
Appeals for the Ninth  Circuit  appealing  the  dismissal  of the First  Amended
Consolidated  Complaint for violation of federal  securities  laws filed against
Homestore.com, Inc, us and the other named defendants.

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 other legal  proceedings the adverse outcome
of which,  individually  or in the  aggregate,  we believe could have a material
adverse effect on our business,  financial  condition,  results of operations or
cash flows.

Indemnification Provisions

During the ordinary course of business,  in certain limited  circumstances,  the
Company has included indemnification provisions within certain of its contracts.
Pursuant to these  agreements,  the Company will  indemnify,  hold  harmless and
agree to reimburse the indemnified  party for losses suffered or incurred by the
indemnified  party,  generally  parties  with which the Company  has  commercial
relations,  in connection with certain intellectual property infringement claims
by any third party with respect to the Company's products and services. To date,
the Company has not incurred any costs in connection  with such  indemnification
clauses.

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.


                                       9
<PAGE>
Information about the reported segments is as follows:

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

                                                                     Three months ended
                                                                          March 31,
                                                                  -------------------------
           (In thousands)                                              2003         2004
                                                                  ------------- -----------

Revenue:
   Ad Technologies.............................................      $  5,602    $    246
   InfoMedia...................................................           784         474
   Security....................................................             5           2
                                                                     --------    ---------
Total..........................................................      $  6,391    $    722
                                                                     ========    =========

Gross profit (loss):
   Ad Technologies.............................................      $  3,820    $   (432)
   InfoMedia...................................................           446         177
   Security....................................................             1           1
                                                                     --------    ---------
Total..........................................................      $  4,267    $   (254)
                                                                     ========    =========
</TABLE>

10. EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities  ("VIE"),  an  Interpretation of ARB No. 51" ("FIN 46") and in December
2003,  issued a revised  interpretation  (FIN  46-R).  FIN No.  46, as  revised,
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.  The provisions of FIN 46-R
are effective  immediately for all  arrangements  entered into after January 31,
2003.  For  arrangements  entered into prior to February 1, 2003, we adopted the
provisions  of FIN 46-R in the first  quarter of 2004.  The adoption of FIN 46-R
did not have a  significant  effect on our  financial  position  or  results  of
operations.

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
                                                                                    March 31,
                                                                              --------------------
                                                                                2003       2004
                                                                              --------   --------

Homestore...............................................................          4%          13%
General Dynamics........................................................          0%          13%
eBay....................................................................         84%           0%
</TABLE>

At March 31, 2004,  General  Dynamics and Homestore  represented  26% and 19% of
accounts receivable,  respectively.  At December 31, 2003, Homestore represented
22% of  accounts  receivable,  while eBay and General  Dynamics  were both 0% of
accounts receivable.

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

                                       10
<PAGE>

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 be  payable,  when and if  declared  by the Board,  upon
conversion or as an accretion to the Liquidation  Preference,  as defined below.
Accrued Series B Dividends may be paid in cash or common stock,  at the election
of the  Series B  Preferred  stockholder.  Holders of Series B  Preferred  Stock
participate on an as-if converted basis in any common stock dividends.

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

As of March  31,  2004,  1,003,830  shares of Series B  Preferred  Stock  remain
outstanding and the Liquidation Preference was $24.1 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. See Note 14.

13. RELATED PARTY TRANSACTIONS

Transactions with eBay, Inc.

Pursuant to an agreement dated April 19, 2000, as amended,  the Company provided
to eBay, Inc., which as last reported by eBay,  beneficially  owns more than 10%
of the  Company's  common stock,  image  management  services to eBay's  on-line
auction Web sites. Pursuant to that agreement, the Company issued eBay a warrant
to purchase  60,000  shares of common stock at an exercise  price of $203.80 per
share. The warrant expires on April 19, 2010. Under this agreement,  as amended,
the Company  generated  revenue of $5.4 million for the quarter  ended March 31,
2003. As announced in June 2003, the Company amended the then current commercial
agreement with eBay to include a one-time $8.0 million license fee from eBay for
IPIX Rimfire  technology and other services.  The Company no longer provides any
products or services to eBay.

During April 2000,  the Company  entered  into an  agreement  to provide  visual
content  services to eBay under which the Company was required to pay  marketing
fees to eBay of $16.0 million over a two-year period.  As of September 26, 2001,
the Company had paid $9.5 million of the $16.0 million  commitment and agreed to
extend the  additional  $6.5  million of payments  through  September  2003.  In
accordance  with EITF  01-09,  $0.5  million of these  fees was  offset  against
revenue which amount  represented  the excess over the fair value of the benefit
received during the quarter ended March 31, 2003.

In 2001 and 2002, the Company sold to eBay, and eBay leased back to the Company,
certain computer equipment utilized to provide image management services to eBay
and other customers. The purchase price for the equipment was approximately $5.3
million.  The  transactions  resulted in no gain or loss to the Company.  In the
quarter  ended March 31, 2003,  the Company paid $0.5 million  pursuant to these
lease agreements. In 2003, the Company returned the underlying equipment, with a
net carrying amount of $0.9 million, associated with these lease obligations and
eBay forgave the remaining balances due of $1.1 million.

14. SUBSEQUENT EVENTS

On April 5, 2004, the Company entered into a private stock purchase agreement to
sell  common  stock  to   institutional   investors   raising  net  proceeds  of
approximately $5 million.  The agreement includes additional  investment rights.
The proceeds are in exchange for 909,090  shares of the  Company's  unregistered
common stock and additional  investment  rights to purchase 888,180 shares.  The
shares were sold at $5.50 per share.  The additional  investment  rights have an
exercise  price of  $6.05  per  share.  The  additional  investment  rights  are
immediately  exercisable  and  expire  90  trading  days  after  a  registration
statement  relating to the resale of the shares has been  declared  effective by
the SEC. If exercised fully, the additional  investment rights would provide the
Company with  approximately  an additional $5.3 million in proceeds.  The common
stock and the  additional  rights to purchase  common  stock under this  private
transaction  have not been  registered  under  the  Securities  Act of 1933,  as
amended,  and  may  not be  offered  or  sold in the  United  States  without  a


                                       11
<PAGE>

registration statement or exemption from registration. The Company has agreed to
file a  registration  statement  relating  to the  resale  of  the  shares.  The
Company's  Current  Report on Form  8-K,  filed  with the SEC on April 7,  2004,
provides a description of this transaction and copies of the executed documents.

From April 1, 2004 through April 16, 2004, we issued  782,458  million shares of
common stock upon exercise of stock  options.  The total proceeds to the Company
from the option  exercises were $2.9 million,  plus $0.3 million from March 2004
exercises which was received by us on April 1, 2004.

On April  13,  2004,  certain  investors  converted  470,635  shares of Series B
Preferred  Stock into  4,333,371  shares of common stock in accordance  with the
conversion  terms of the preferred  stock. In conjunction with the conversion we
issued them 535,314  shares of common stock for  dividends  accrued  through the
date of  conversion  as required  under the terms of the  preferred  stock.  The
Company did not receive any proceeds from the conversions.

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 on Form 10-K.  Historical results and percentage  relationships set forth
in the statement of  operations,  including  trends which might appear,  are not
necessarily indicative of future operations.

OVERVIEW

Our Business

Over the past few years,  we have  restructured  the  Company  around our higher
gross margin  businesses.  We are now organized into three business units:  IPIX
Security, IPIX Ad Technologies and IPIX InfoMedia.

   o      IPIX Security provides security and surveillance products and services
          for commercial and governmental customers.

   o      IPIX Ad  Technologies  focuses on the sale of  complete  solutions  to
          customers  who rely on  visual  data to create  effective  directional
          advertising such as publishers of newspaper  classifieds,  yellow page
          directories, on-line auctions, real estate and autos classifieds.

   o      IPIX  InfoMedia  focuses  on the sale of  immersive  still  technology
          licenses  for the on-line  real  estate,  travel and  hospitality  and
          visual  documentation  markets.

Business Trends and Conditions

At the end of the first quarter of 2004,  our Security  business unit launched a
new family of Full-360  degree  camera  systems.  These new camera  systems will
generate  revenues from their sale primarily to distributors.  The cost of sales
for the sale of  camera  equipment  is  generally  expected  to be 40% to 60% of
related revenues.  We continue to develop  additional  products for the security
and surveillance market.

Substantially  all  of our  recurring  revenue  in the  past  was  derived  from
transaction fees generated by our Ad Technologies  business unit. In particular,
eBay represented  approximately 84% of total revenue for the quarter ended March
31, 2003.  We no longer  provide any products or services to eBay as of November
1, 2003. We continue to diversify and add additional Ad Technologies'  customers
and are currently  targeting  image  management  for  publications,  on-line and
in-print classified advertising and other business opportunities.

Our immersive technology used by the InfoMedia business unit primarily generates
revenues in two ways: licenses of software and the sale of camera equipment.  In
the past, we utilized "keys" to license our InfoMedia  technology to capture and
save a single  immersive  image.  With the launch of Interactive  Studios in the
first  quarter of 2004,  we now 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.  We sell our  immersive  products  and
services  primarily  into the real  estate,  travel and  hospitality  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 surveillance market.


                                       12
<PAGE>

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

CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance with accounting  principles  generally accepted in the United States.
The preparation of these financial  statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities,  revenues and
expenses,  and related  disclosure of contingent  assets and liabilities.  On an
on-going  basis,  we evaluate our estimates,  including those related to revenue
recognition,   uncollectible   receivables  and  other  long-lived   assets  and
contingencies.  We base our  estimates on historical  experience  and on various
other  assumptions that are believed to be reasonable  under the  circumstances,
the  results  of which form the basis for making  judgments  about the  carrying
values of assets  and  liabilities  that are not  readily  apparent  from  other
sources.  Actual  results  may  differ  from  these  estimates  under  different
assumptions or conditions.

We  believe  the  following  critical   accounting   policies  affect  our  more
significant  judgments and estimates used in the preparation of our consolidated
financial statements:  revenue recognition;  valuation allowances,  specifically
the  allowance  for  doubtful   accounts;   and  other  long-lived  assets;  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.

Management has discussed the development and selection of the following critical
accounting  policies,  estimates and assumptions with the Audit Committee of our
Board of Directors and the Audit  Committee has reviewed these  disclosures.  We
believe the following represent our critical accounting policies:

Revenue Recognition

We recognize revenue in accordance with SOP 97-2, "Software Revenue Recognition"
and Staff  Accounting  Bulletin  No.  104,  "Revenue  Recognition  in  Financial
Statements."  We derive  revenue from  product  sales and services we provide to
customers.  Product  revenue  includes  InfoMedia  hardware and  licenses,  IPIX
Security  hardware  and  licenses,  as well as Ad  Technology  license  revenue.
Service revenues are primarily from transactions  where a seller uses IPIX image
management products to enhance their on-line offering.

Product  revenue is recognized  upon shipment or delivery  provided there are no
uncertainties   surrounding  product  acceptance,   persuasive  evidence  of  an
arrangement exists,  there are no significant vendor  obligations,  the fees are
fixed or determinable and collection is reasonably assured. Initial license fees
are  recognized  when a  contract  exists,  the fee is  fixed  or  determinable,
software  delivery has occurred and  collection of the  receivable is reasonably
assured. If there are continuing  obligations,  then license fees are recognized
ratably over the life of the contract.

Transaction   hosting  revenues  are  recognized  ratably  as  transactions  are
performed provided there was persuasive evidence of an arrangement,  the fee was
fixed or determinable and collection of the resulting  receivable was reasonably
assured.  Revenues  generated from  professional  services are recognized as the
related  services are performed.  When such  professional  services are combined
with  on-going  transaction  services  or  are  deemed  to be  essential  to the
functionality  of the  delivered  software  product,  revenue  from  the  entire
arrangement is recognized  while the  transaction  services are performed,  on a
percentage  of  completion  method or not until the  contract  is  completed  in
accordance with SOP 81-1,  "Accounting for Performance of Construction-Type  and
Certain Production-Type Contracts," and ARB No. 45, "Long-Term Construction-Type
Contracts."  Reimbursements  received for  out-of-pocket  expenses  incurred are
characterized as revenue in the statement of operations.

Where  multiple  elements  exist  in an  arrangement,  the  arrangement  fee  is
allocated to the different elements based upon verifiable  objective evidence of
the fair value of the elements,  as governed under EITF 00-21, which is codified
in  SEC  Staff   Accounting   Bulletin  No.  104  "SAB  104."  Multiple  element
arrangements  primarily  involve an arrangement with  professional  services and
transaction  hosting.  Revenue is recognized  as each element is earned,  namely
upon completion of the services, provided that the fair value of the undelivered
element(s) has been  determined,  the delivered  element has stand-alone  value,
there is no right of return on  delivered  element(s),  and we are in control of
delivery of the undelivered element(s).

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

                                       13
<PAGE>

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

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

During the fourth  quarter of 2003,  certain  events,  including  the end of the
agreement  with  eBay,  led the  Company  to  perform  an  impairment  review of
goodwill.  The eBay agreement  ended in November 2003 and was the primary source
of cash flows for the technology associated with goodwill in the Ad Technologies
business unit. This review  indicated that goodwill was being carried at amounts
in excess of the fair value based on estimated  discounted  future cash flows of
the Ad  Technologies  business  unit.  As a result,  an  impairment  charge  was
recorded to expense in the year ended  December 31, 2003. No balance  remains in
goodwill.

Significant Accruals, including Restructuring Charges and Sales Tax

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

RESTRUCTURING ACTIONS

During the three months ended March 31, 2004, $0.1 million of payments were made
against the  Company's  restructuring  accrual.  No  additions  were made to the
accrual during the quarter ended March 31, 2004. At March 31, 2004 the remaining
balance in the restructuring accrual was $0.3 million.

RESULTS OF OPERATIONS

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

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

                                                                              Three months ended
                                                                                  March 31,
                                                                               2003          2004
                                                                              -------       -------
Revenue:
      Ad Technologies...................................................        87.6%        34.1%
      InfoMedia.........................................................        12.3         65.6
      Security..........................................................         0.1          0.3
                                                                              -------       -------
   Total revenue........................................................       100.0        100.0
                                                                              -------       -------
Cost of revenue:
      Ad Technologies...................................................        27.9         93.9
      InfoMedia.........................................................         5.3         41.1
      Security..........................................................         0.1          0.2
                                                                              -------      --------
   Total cost of revenue................................................        33.3        135.2
                                                                              -------       -------
   Gross profit.........................................................        66.7        (35.2)
                                                                              -------       -------
Operating expenses:
      Sales and marketing...............................................        27.6        185.9
      Research and development..........................................        19.7        128.1
      General and administrative........................................        13.0         96.0
                                                                              -------       -------
   Total operating expenses.............................................        60.3        410.0
                                                                              -------       -------
Income (loss) from operations...........................................         6.4       (445.2)
Other...................................................................        (0.7)         0.6
                                                                              -------      --------
Net income (loss).......................................................         5.7%      (444.6)%
                                                                              =======      ========
</TABLE>

                                       14
<PAGE>

Quarter Ended March 31, 2003 Compared to the Quarter Ended March 31, 2004

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

                                                                                   Three months ended
                                                                                        March 31,
                                                                                  -------------------
                                                                                                                   Percent
                             (Dollars in thousands)                                  2003      2004   Difference   Change
                                                                                  --------- --------- ----------  --------

Revenue:
      Ad Technologies..........................................................   $   5,602 $    246  $  (5,356)    (96)%
      InfoMedia................................................................         784      474       (310)    (40)
      Security.................................................................           5        2         (3)    (60)
                                                                                  --------- --------  ----------   -------
   Total revenue...............................................................       6,391      722     (5,669)    (89)
                                                                                  --------- --------  ----------   -------

Cost of revenue:
      Ad Technologies..........................................................       1,782      678     (1,104)    (62)
      InfoMedia................................................................         338      297        (41)    (12)
      Security.................................................................           4        1         (3)    (75)
                                                                                  --------- --------  ----------   -------
   Total cost of revenue.......................................................       2,124      976     (1,148)    (54)
                                                                                  --------- --------  ---------    ------
   Gross profit................................................................       4,267     (254)    (4,521)   (106)
                                                                                  --------- --------- ----------   -------

Operating expenses:
      Sales and marketing......................................................       1,761    1,342       (419)    (24)
      Research and development.................................................       1,260      925       (335)    (27)
      General and administrative...............................................         829      693       (136)    (16)
                                                                                  --------- --------  ---------    ------
   Total operating expenses....................................................       3,850    2,960       (890)    (23)
                                                                                  --------- --------  ---------    ------
Income (loss) from operations..................................................         417   (3,214)    (3,631)   (871)
Other..........................................................................         (49)       4         53     108
                                                                                  --------- --------  ---------    ------

Net Income (loss)..............................................................   $     368 $ (3,210) $  (3,578)   (972)%
                                                                                  ========= ========  =========    ======
</TABLE>

Revenue.
      Ad Technologies:  Decreased  in the quarter  ended March 31, 2004 over the
         quarter  ended  March  31,  2003 due to  decreased  volumes  of  images
         processed, primarily related to the change in relationship with eBay as
         of November 2003.
      InfoMedia:  During the first quarter of 2003,  InfoMedia  recognized  $0.3
         million  in  royalties  while in the  first  quarter  of 2004 the group
         recognized  virtually no royalty revenues.  In February 2004, InfoMedia
         launched  Interactive Studios to eventually replace the sale of one-use
         keys, which generated royalty income in 2003.
      Security:  At the end of the first quarter of 2004, the Security  business
         unit launched its new family of Full-360 degree security cameras. Prior
         to this launch,  the Security group had primarily  been  developing the
         products and testing them in field beta trials.

Cost of Revenue.
      Ad Technologies:   Cost  of  revenue   consists  of  our  direct  expenses
         associated  with the  processing,  hosting and  distribution of digital
         content. With the reduced volumes of images to process during the first
         quarter  of  2004  relative  to  the  first  quarter  of  2003,  the Ad
         Technologies  business unit decreased  depreciation expense by reducing
         the capital  committed to image processing ($0.6 million),  lowered its
         purchase  of  bandwidth  and  managed  care  services  from third party
         co-location  facilities  ($0.2  million)  and  reduced  the  number  of
         personnel and other expenses  incurred in the management of the network
         ($0.3 million).  Gross profit in the first quarter of 2004 was negative
         because of fixed costs  associated  with the running and  management of
         the network.
      InfoMedia:  Cost of revenues  consists of the costs of the digital  camera
         and related  components  included in an InfoMedia  kit. Cost of revenue
         declined in the first quarter of 2004  relative to 2003,  primarily due
         to fewer kit sales.  Cost of revenue as a percent of revenue  increased
         from 43% in the first  quarter  of 2003 to 63% in the first  quarter of
         2004  primarily  because  in  the  first  quarter  of  2003  the  group
         recognized  $0.3 million of royalties,  which have no cost of revenues,
         where as in  first  quarter  2004 the  group  recognized  virtually  no
         royalty revenues.  The remaining difference in cost of revenues between
         the  quarters  is related to  product  mix of the types of camera  kits
         sold.


                                       15
<PAGE>

Sales and Marketing.  Sales and marketing expenses consist primarily of salaries
for marketing,  sales and business  development  personnel.  Sales and marketing
expenses also include  commissions and related  benefits for sales personnel and
consultants,   traditional  advertising  and  promotional  expenses.  Sales  and
marketing  expenses  decreased  in the  quarter  ended  March 31,  2004 over the
quarter  ended March 31, 2003,  primarily due to the changed  relationship  with
eBay  ($0.5  million)  offset by an  increase  in growth of sales and  marketing
activities in our Security business unit ($0.1 million).

Research and Development. Research and development expenses consist primarily of
personnel   costs   related  to  building  and   enhancing   our  digital  media
infrastructure  and  immersive  imaging  technology.  Research  and  development
expenses  decreased in the quarter  ended March 31, 2004 over the quarter  ended
March 31, 2003,  due to the result of the changed  relationship  with eBay ($0.4
million), offset by an increase in growth of research and development of our new
family of Full-360 degree security cameras ($0.1 million).

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  decreased in the
quarter ended March 31, 2004 over the quarter  ended March 31, 2003,  due to the
decrease in personnel costs and outside professional services.

LIQUIDITY AND CAPITAL RESOURCES

Since inception,  we have financed our operations  through our registered public
offerings,  the private placements of capital stock, a convertible  debenture, a
convertible promissory note and warrant and option exercises. At March 31, 2004,
we had $9.0  million of cash,  restricted  cash and short term  investments,  of
which $1.7 million was restricted.
<TABLE>
<S>                                                                     <C>          <C>

                       Summary Consolidated Cash Flow Data
                                                                          Three months ended
                                                                               March 31,
                                                                        ----------------------
                         (In thousands)                                    2003         2004
                                                                        -----------  ---------

Net cash provided by (used in) operating activities...............      $   2,699     $ (3,366)
Net cash used in investing activities.............................           (310)         (38)
Net cash provided by (used in) financing activities...............           (685)         144
Effect of exchange rate changes on cash...........................              5           --
                                                                        ---------     --------
Net increase (decrease) in cash and cash equivalents..............          1,709       (3,260)
Cash and cash equivalents, beginning of period....................          3,020       10,241
                                                                        ---------     --------

Cash and cash equivalents, end of period..........................      $   4,729     $  6,981
                                                                        =========     ========
</TABLE>

Cash flows from operating  activities in the first quarter of 2004, reflects net
loss of $3.2 million, compared to a net income of $0.4 million the first quarter
of 2003.  Our net income for the three months ended March 31, 2003 included $0.9
million of non-cash depreciation  charges,  whereas the three months ended March
31, 2004  included  $0.3 million of such  charges.  During the first  quarter of
2003,  the  Company had  positive  net cash flows from  working  capital of $1.4
million, primarily as a result of accounts receivable collections in early 2003.
During  the  first  quarter  of 2004,  the  Company  invested  $0.5  million  in
additional working capital for its three business units.

Net cash used in investing  activities in the first quarter of 2004 and 2003 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 2004.

Net cash  provided  by  financing  activities  in the first  quarter of 2004 was
primarily  related  to $0.4  million  of  proceeds  from the  exercise  of stock
options, net of $0.2 million of payments made on capital lease obligations.  Net
cash used in  financing  activities  in the first  quarter  of 2003  related  to
payments on capital lease  obligations.  The capital lease payments in 2003 were
larger than in 2004 because in the fourth quarter of 2003, the Company  returned
equipment  under lease from eBay in exchange for the retirement of the remaining
obligations under the leases.

During the  quarter  ended  March 31, 2004 and in the prior  fiscal  years,  the
Company has  experienced,  and  continues to  experience,  certain going concern
issues related to cash flow and profitability. As discussed in Note 14, in April
2004, the Company has generated  approximately  $8 million in cash from the sale


                                       16
<PAGE>

of its common stock. In addition,  the Company believes that it will improve its
cash flow through the sale of new products launched in the first quarter of 2004
in the Security and InfoMedia business units.

During 2003, the Company  changed its  relationship  with its largest  customer,
eBay,  which  represented  87% of revenue for the year ended  December 31, 2003.
eBay licensed  technology  from the Company that had previously been used by the
Company to provide  eBay with  recurring  services.  After 2003,  the Company no
longer  provides  any services to eBay.  As a result,  the Company has a limited
operating history as it will operate in 2004 and upon which an evaluation of its
business  and  prospects  may be made.  In  addition,  the Company is subject to
generally  prevailing  economic conditions and, as such, the Company's operating
results in 2004 will be dependent upon its ability to provide  quality  products
and services,  the success of its customers and the appropriations  processes of
various commercial and governmental entities.

Management believes,  however, that the Company has sufficient cash resources to
meet its  funding  needs  through at least the next twelve  months.  The Company
finished  the first  quarter  of 2004 with  approximately  $9.0  million in cash
reserves  (cash and cash  equivalents of $6.98  million,  short-term  restricted
investments of $1.10  million,  long-term  restricted  cash of $0.63 million and
short-term  investments  of  $0.33  million)  and in  April  2004,  the  Company
generated approximately $8 million in cash from the sale of its common stock, as
further  described  in Note 14.  The  Company  has three  business  units all at
different stages in their  development.  Management  expects to continue to make
significant  investments in the development,  sale and marketing of new products
for the security market and in the image management business,  which may consume
some of the Company's cash reserves.

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 our
Security and image management products and will in the expansion of our Security
distribution   channel  and  the  offline  publications  and  online  classified
advertising businesses.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities  ("VIE"),  an  Interpretation of ARB No. 51" ("FIN 46") and in December
2003,  issued a revised  interpretation  (FIN  46-R).  FIN No.  46, as  revised,
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.  The provisions of FIN 46-R
are effective  immediately for all  arrangements  entered into after January 31,
2003.  For  arrangements  entered into prior to February 1, 2003, we adopted the
provisions  of FIN 46-R in the first  quarter of 2004.  The adoption of FIN 46-R
did not have a  significant  effect on our  financial  position  or  results  of
operations.

INFLATION

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of March 31, 2004, we had $9.0 million of cash, cash equivalents,  short-term
and long-term 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  end of the  period  covered  by this
quarterly  report.  Based on that  evaluation,  the chief executive  officer and
chief  financial  officer  have  concluded  that  our  disclosure  controls  and
procedures  are  effective to ensure that material  information  relating to the
Company  and our  consolidated  subsidiaries  is made known to such  officers by
others  within  these  entities,  particularly  during the period for which this
quarterly  report was  prepared,  in order to allow timely  decisions  regarding
required disclosure.


                                       17
<PAGE>

(b) Changes in Internal Controls. There have not been any significant changes in
our  internal  controls or in other  factors  during the period  covered by this
quarterly report that materially affected or are reasonably likely to materially
affect our internal controls over financial reporting.

                           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, 2004.

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.  On April 7,
2004, the California  Teachers'  Retirement System filed a notice of appeal with
the United States Court of Appeals for the Ninth Circuit appealing the dismissal
of the First Amended Consolidated  Complaint for violation of federal securities
laws filed against Homestore.com, Inc, us and the other named defendants.

Item 2. Changes In Securities And Use Of Proceeds

On April 5, 2004, pursuant to a Securities Purchase Agreement,  the Company sold
909,090  shares of common  stock and  additional  investment  rights to purchase
888,180 in a private unregistered offering to institutional  investors.  The per
share  offering  price was  $5.50,  and the  offering  raised  net  proceeds  of
approximately  $5 million.  The  additional  investment  rights have an exercise
price  of $6.05  per  share.  The  Company  has  agreed  to file a  registration
statement relating to the resale of the shares. The additional investment rights
are immediately  exercisable  and expire 90 trading days after the  registration
statement  relating to the resale of the shares has been  declared  effective by
the SEC. If exercised fully, the additional  investment rights would provide the
Company with approximately an additional $5.3 million in proceeds.  The offering
was conducted  pursuant to the exemption from  registration set forth in Section
4(2) of the Securities Act of 1933, as amended, and other applicable  exemptions
set forth in the Securities Act.


Item 3. Defaults Upon Senior Securities

    None.

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

     None.

Item 5. Other Information

    None.


                                       18
<PAGE>

Item 6. Exhibits And Reports On Form 8-K

Exhibits

Exhibit        Exhibit Description
Number         -------------------
-------

   4           Form of Additional  Investment Right dated as of April 4, 2004 by
               and between the Registrant and the Purchasers  thereto,  filed as
               Exhibit 4 to the  Company's  Current  Report on Form 8-K filed on
               April 7, 2004, is hereby incorporated herein by reference.

  10           Securities  Purchase  Agreement  dated as of April 4, 2004 by and
               between  the  Registrant  and the  Purchasers  thereto,  filed as
               Exhibit 10 to the Company's  Current  Report on Form 8-K filed on
               April 7, 2004, is hereby incorporated herein by reference.

 31.1          Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

 31.2          Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

 32            Section 1350 Certification of Chief Executive Officer and Chief
               Financial Officer



Reports On Form 8-K

The Company filed the following  Current  Reports on Form 8-K during the quarter
ended March 31, 2004:


         Date Filed                       Event Reported
         ----------                       --------------

February 10, 2004....    Item 5.  Resignation of Thomas M. Garrott as a Director
                         of the Registrant.

March 9, 2004........    Items 7 and 12. Earnings  release  regarding  financial
                         results for the quarter and year ended December
                          31, 2003.
March 18, 2004.......    Item 5.  Resignation of Greg Daily as a Director of
                         Registrant.


                                       19
<PAGE>


                                IPIX 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: April 19, 2004                IPIX CORPORATION
                                      (Registrant)


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


                                       20
<PAGE>


                                IPIX CORPORATION
                         INDEX TO EXHIBITS FOR FORM 10-Q
                        FOR QUARTER ENDED MARCH 31, 2004


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


              4              Form of  Additional  Investment  Right  dated as of
                             April 4, 2004  by and  between  the  Registrant and
                             the  Purchasers thereto,  filed as Exhibit 4 to the
                             Company's Current Report on Form 8-K filed on April
                             7, 2004,  is hereby  incorporated herein by
                             reference.

             10              Securities Purchase Agreement dated as of April 4,
                             2004 by and between the Registrant and the
                             Purchasers thereto, filed as Exhibit 10 to the
                             Company's Current Report on Form 8-K filed on
                             April 7, 2004, is hereby incorporated herein by
                             reference.

             31.1            Rule 13a-14(a)/15d-14(a) Certification of Chief
                             Executive Officer

             31.2            Rule 13a-14(a)/15d-14(a) Certification of Chief
                             Financial Officer

             32              Section 1350 Certification of Chief Executive
                             Officer and Chief Financial Officer


                                       21
<PAGE>

                                                                    Exhibit 31.1

        Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer

I,  Donald  Strickland,  the  President  and  Chief  Executive  Officer  of IPIX
Corporation, certify that:


1.    I have reviewed this quarterly report on Form 10-Q of IPIX 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


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


                                       22
<PAGE>

Date April 19, 2004


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



                                       23
<PAGE>
                                                                    Exhibit 31.2

        Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

I, Paul Farmer, Chief Financial Officer of IPIX Corporation, certify that:


1.    I have reviewed this quarterly report on Form 10-Q of IPIX 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


                                       24
<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 April 19, 2004
/s/ Paul Farmer
--------------------------
Paul Farmer
Chief Financial Officer




                                       25
<PAGE>

                           Section 1350 Certifications

                                   Exhibit 32

     In  connection  with  the  Quarterly  Report  of IPIX  Corporation  and its
wholly-owned  subsidiaries  (collectively,  the  "Company") on Form 10-Q for the
period  ending  March  31,  2004 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 operations of the
     Company.




/s/ Donald Strickland
------------------------
Donald Strickland
Chief Executive Officer
April 19, 2004



/s/ Paul Farmer
------------------------
Paul Farmer
Chief Financial Officer
April 19, 2004





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.


                                       26