INTERNET PICTURES CORP, S-1/A, 2000-05-03

INTERNET PICTURES CORP
S-1/A, 2000-05-03
BUSINESS SERVICES, NEC

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 3, 2000

REGISTRATION NO. 333-32680
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

AMENDMENT NO. 3

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------

INTERNET PICTURES CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 7379 52-2213841
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

1009 COMMERCE PARK DRIVE
OAK RIDGE, TN 37830
(865) 482-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
JAMES M. PHILLIPS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
INTERNET PICTURES CORPORATION
1009 COMMERCE PARK DRIVE
OAK RIDGE, TN 37830
(865) 482-3000
(Name and address, including zip code, and telephone number, including area
code, agent for service)
COPIES TO:

<TABLE>
<S> <C> <C>
J. PORTER DURHAM, JR. MATTHEW S. HEITER GERALD S. TANENBAUM
ROGER D. BAILEY EXECUTIVE VICE PRESIDENT AND CAHILL GORDON & REINDEL
JOSEPH E. DUDEK GENERAL COUNSEL 80 PINE STREET
BAKER, DONELSON, BEARMAN & INTERNET PICTURES CORPORATION NEW YORK, NY 10005
CALDWELL 1009 COMMERCE PARK DRIVE TELEPHONE (212) 701-3000
1800 REPUBLIC CENTRE OAK RIDGE, TN 37830 FACSIMILE (212) 269-5420
633 CHESTNUT STREET TELEPHONE (865) 482-3000
CHATTANOOGA, TN 37450 FACSIMILE (865) 482-6755
TELEPHONE (423) 756-2010
FACSIMILE (423) 756-3477
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

PROSPECTUS

SUBJECT TO COMPLETION

DATED MAY 3, 2000

5,000,000 Shares

Internet Pictures (TM) (LOGO) Visual Content Solutions for the Internet

Common Stock

Internet Pictures Corporation is offering 5,000,000 shares of its common stock.

Our common stock is listed on the Nasdaq National Market under the symbol IPIX.
On May 2, 2000, the reported last sale price of our common stock was $15.00 per
share.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 7.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PROCEEDS
TO INTERNET
PRICE TO UNDERWRITING PICTURES
PUBLIC DISCOUNT CORPORATION
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
Total $ $ $
</TABLE>

We have granted the underwriters a 30-day option to purchase up to an additional
750,000 shares of common stock to cover over-allotments.

J.P. MORGAN & CO.
CHASE H&Q
ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES

, 2000
<PAGE> 3

We have not authorized anyone to give you any information that differs from the
information in this prospectus. If you receive any different information, you
should not rely on it. We are offering to sell, and seeking offers to buy,
shares of our common stock only in jurisdictions where offers and sales are
permitted.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 7
Forward-looking Statements.......... 14
Use of Proceeds..................... 14
Price Range of Common Stock......... 14
Dividend Policy..................... 15
Capitalization...................... 16
Dilution............................ 17
Selected Historical Financial
Information....................... 18
Unaudited Pro Forma Combined
Financial Statements.............. 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 22
</TABLE>

<TABLE>
<CAPTION>
PAGE
<S> <C>
Business............................ 31
Management.......................... 43
Principal Stockholders.............. 53
Related Party Transactions.......... 55
Description of Capital Stock........ 56
Underwriting........................ 59
Legal Matters....................... 61
Experts............................. 61
Available Information............... 61
Index to Consolidated Financial
Statements........................ F-1
</TABLE>

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

We own or have rights to various trademarks, service marks and trade names used
in our business. These include the iPIX(TM) logo, iPIX(TM), Internet
Pictures(TM), the IPIX(TM) logo, IPIX(TM), GET THE WHOLE PICTURE(TM), iPIX On
Location(TM), iPIX Teleporter(TM), iPIX LOCATION ON DEMAND-WEBCAM(TM),
OMNIVIEW(TM), THE VIRTUAL EYE(TM), V360(TM), iPIX: THE EYES OF THE INTERNET(TM),
iPIX WEBCAM: THE EYES OF THE INTERNET(TM), INTERACTV(TM), STEP INSIDE THE
PICTURE(TM), the bamboo.com(TM) logo, BAMBOO.COM(TM), VIEWALWAYS(TM) BAMBOO(TM)
the PictureWorks Logo,(TM) PictureWorks(TM) and Rimfire(TM). This prospectus
also includes trademarks, service marks and trade names of other companies.

i
<PAGE> 4

PROSPECTUS SUMMARY

This summary highlights the information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information that
you should consider before investing in the common stock. To understand this
offering fully, you should read the entire prospectus carefully, including the
risk factors and the financial statements and notes.

We use the term "we," "the company," or "iPIX" to refer to Internet Pictures
Corporation, a corporation organized under Delaware law created by the merger of
Interactive Pictures Corporation and bamboo.com, Inc. We refer to Interactive
Pictures Corporation as "Interactive Pictures" and to bamboo.com, Inc. as
"bamboo.com."

INTERNET PICTURES CORPORATION

OVERVIEW

iPIX is a leading Internet infrastructure company that provides visual content
and other digital media solutions to facilitate commerce, communication and
entertainment. We offer both businesses and consumers complete end-to-end
solutions that include the capture, processing, hosting and distribution of
visual content and other digital media for the Internet. Our infrastructure
enables us to deliver digital media content to web sites accessed from a variety
of platforms, including personal computers, interactive televisions and wireless
devices. Our solutions help businesses increase the relevance and enjoyment of
users' web site visits, resulting in increased traffic and repeat usage. This,
in turn, provides our customers with increased e-commerce and advertising
revenue opportunities without requiring significant investment in digital media
infrastructure. We have targeted the following global vertical markets: real
estate, travel and hospitality, automotive, e-retail, electronic publishing,
education and entertainment. Our customers include Carnival Cruise Lines,
Cendant, Century 21, CNN, Coldwell Banker, Discovery.com, Disney, ERA, General
Motors, Hilton Hotels, Intel, Microsoft, Prudential Real Estate, RE/MAX,
Rent.Net, Swissotel, The Washington Post, Ticketmaster Online-Citysearch and
Warner Brothers.

MARKET OPPORTUNITY

International Data Corporation, or IDC, estimates e-commerce revenues will grow
from approximately $130 billion worldwide in 1999 to $1.6 trillion worldwide by
2003. Additionally, IDC estimates the number of URLs on the web will grow from
2.2 billion in 1999 to 4.3 billion in 2000. To remain competitive, businesses
must devote significant time and resources to attract and retain web site
traffic and generate e-commerce transactions. In order to fulfill these
objectives, companies are seeking more compelling visual content and other
digital media to significantly enhance the quality of their online presence.
Technological innovations, such as immersive images, web cams and streaming
video, offer businesses the opportunity to provide visual content and other
digital media of a more realistic and interactive nature. Businesses are seeking
to take advantage of these innovations without having to incur the expense of
creating and maintaining their own digital media infrastructure.

THE IPIX SOLUTION

Our end-to-end solutions include the capture, processing, hosting and
distribution of visual content and other digital media for the Internet. Our
solutions are designed for many types of digital content, including still
images, immersive images, slide shows, video, animation and audio. Utilizing an
extensive network of photographers, we offer our content capture services in
over 90 of the top 100 metropolitan areas across the United States and Canada.
We have a patented technology for the capture and processing of immersive images
utilizing a standard digital camera fitted with a fisheye lens. An iPIX
immersive image is a 360 degrees by 360 degrees image that users can easily
navigate on a computer screen by moving a cursor inside the image.
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<PAGE> 5

We have recently introduced iPIX Movies, our new offering which combines the
interactivity of our immersive images with full-motion video. Using our scalable
hosting and distribution infrastructure with ViewAlways technology, we enable
high speed delivery of digital media content over the Internet to multiple user
platforms, including personal computers and wireless devices. We believe that
our visual content and other digital media solutions provide businesses with
more compelling content for attracting and retaining web site visitors and
increasing e-commerce opportunities.

OUR BUSINESS STRATEGY

The key elements of our strategy are as follows:

- Enhance our leadership position in visual content and digital media
solutions;

- Leverage our end-to-end solutions to generate multiple revenue sources;

- Expand our visual content infrastructure with new offerings;

- Expand strategic relationships; and

- Expand internationally.

RECENT DEVELOPMENTS

Merger of Interactive Pictures and bamboo.com

We are the result of the merger of Interactive Pictures and bamboo.com that
occurred on January 19, 2000. Interactive Pictures was founded in 1986 at the
Oak Ridge National Laboratory in Tennessee to develop remote robotic systems for
the United States Department of Defense, the Department of Energy, NASA and
other government departments. bamboo.com was founded in 1995 in Toronto, Canada
to provide virtual tours for online residential real estate listings.

Acquisition of PictureWorks

On March 31, 2000, we acquired all of the capital stock of PictureWorks
Technology, Inc. We believe that this acquisition will extend our visual content
infrastructure and enable us to provide solutions to customers who depend on
user-submitted content, including e-commerce web sites, community web sites and
Internet portals. PictureWorks' Rimfire technology enables end-users to post a
variety of media -- including still photos, audio and video -- to the web by
simply pointing a cursor at the desired media and dragging it to a Rimfire
supported web site.

On April 18, 2000, we issued a press release that contained unaudited financial
information for the first quarter ended March 31, 2000. Revenues for the quarter
ended March 31, 2000 were $8.3 million, compared to $1.3 million for the similar
period in 1999, and $5.3 million in the fourth quarter of 1999. Net loss for the
first quarter, excluding merger expenses and non-cash charges related to
stock-based compensation, was $18.9 million or $0.41 per share compared to a net
loss of $6.2 million or $0.73 per share in the first quarter of 1999. We
provided our results on a supplemental pooled basis to reflect the merger of
Interactive Pictures and bamboo.com.

Other recent developments include:

- Starwood Resorts and Hotels selected the iPIX infrastructure to showcase
across the Internet its travel destinations around the world. As part of
the agreement, we will capture, process, host and distribute the rich
media content to Starwood's web site and to leading travel portals.

- We signed a technology partnership agreement with POP.com to develop
interactive movie content for the Internet. POP.com, an independent
digital entertainment company founded by Brian Grazer, Ron Howard, Steven
Spielberg, Jeffrey Katzenberg, David Geffen and Paul G. Allen, will use
iPIX images and iPIX Movies technology to produce original Internet
entertainment.
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<PAGE> 6

- We signed a content development and licensing agreement with America
Online that will enable AOL 5.0+ subscribers to view enhanced,
interactive visual content developed by us. AOL has selected iPIX visual
content to power its e-commerce initiatives in the travel section of AOL.
Consumers can visit popular tourist destinations with iPIX before booking
their travel on AOL.

- We announced a series of agreements with the leading real estate
companies in North America including Coldwell Banker, ERA, Prudential and
RE/MAX. These agreements include commitments to purchase over 100,000
virtual tours.

- Several of the leading auto sites in the emerging online auto market,
including Excite@Home, CarOrder.com, Autoweb.com, AutoVantage.com and
AutoNation.com announced agreements to use our technology to allow
consumers to view the interior of new and used cars online to drive site
traffic and transaction velocity.

- We extended our visual content infrastructure through partnerships with
Akamai, Exodus and Savvis to provide enhanced performance, reliability
and scalability of visual content distribution.

- On April 20, 2000, we announced a multi-year exclusive agreement to
develop and implement powerful and easy to use imaging solutions for
eBay's community of over 10 million registered users. We will collaborate
with eBay to offer eBay users an integrated solution to allow sellers to
quickly and easily include high-quality digital media in their listings.
We will design our imaging infrastructure to make it easy for eBay users
to submit and view images.

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
-------------------
THREE MONTHS ENDED
MARCH 31,
-------------------
1999 2000
In thousands, except per share amounts ------- --------
<S> <C> <C>
Revenues.................................................... $ 1,318 $ 8,283
Cost of revenues............................................ 661 4,766
------- --------
Gross profit................................................ 657 3,517
------- --------
Operating expenses:
Sales and marketing....................................... 4,058 15,507
Research and development.................................. 792 2,365
General and administrative................................ 2,013 5,478
Stock-based compensation.................................. 3,563 2,774
Merger expenses........................................... -- 15,175
------- --------
Total operating expenses............................... 10,426 41,299
------- --------
Loss from operations........................................ (9,769) (37,782)
Interest and other income, net.............................. 38 892
------- --------
Net loss.................................................... $(9,731) $(36,890)
======= ========
Basic and diluted net loss per common share................. $ (1.15) $ (0.79)
======= ========
Shares used to calculate net loss per share................. 8,464 46,645
======= ========
Net loss, excluding merger expenses and non-cash charges
related to stock-based compensation....................... $(6,168) $(18,941)
======= ========
Basic and diluted net loss per common share, excluding
merger expenses and non-cash charges related to
stock-based compensation.................................. $ (0.73) $ (0.41)
======= ========
</TABLE>

3
<PAGE> 7

OUR ADDRESS

We are a corporation organized under the laws of Delaware. Our headquarters are
located at 1009 Commerce Park Drive, Oak Ridge, TN 37830, with co-headquarters
at 124 University Avenue, Palo Alto, CA 94301. Our telephone number is
865-482-3000. We can be found on the Internet at www.ipix.com. Information
contained on our web site does not constitute part of this prospectus.
4
<PAGE> 8

THE OFFERING

COMMON STOCK OFFERED BY IPIX.... 5,000,000 shares

COMMON STOCK OUTSTANDING AFTER
THE OFFERING.................... 57,521,512 shares

USE OF PROCEEDS................. We intend to use the net proceeds we receive
from this offering for sales and marketing
activities, including international
expansion, to advance the development of new
visual content solutions, for working capital
and general corporate purposes and to repay
indebtedness.

NASDAQ NATIONAL MARKET SYMBOL... IPIX

DIVIDEND POLICY................. We do not anticipate paying any cash
dividends any time in the foreseeable future.

Unless otherwise indicated, the share information in this prospectus is stated
as of March 31, 2000 and:

- excludes up to 750,000 shares that may be issued and sold by us to the
underwriters pursuant to their rights to purchase shares to cover
over-allotments;

- includes 6,894,692 shares of our outstanding Class B common stock;

- excludes 10,514,883 shares of common stock issuable upon the exercise
of outstanding stock options granted under our 1997 equity
compensation plan, our amended and restated 1998 employee, director
and consultant stock plan and our 1999 employee stock purchase plan,
of which options to purchase 3,339,761 shares are currently
exercisable;

- excludes 2,519,307 shares of common stock reserved for future grant or
award under our stock option and stock purchase plans;

- excludes 501,944 shares of common stock issuable upon the exercise of
warrants and 733,097 shares of common stock issuable upon the exercise
of stock options assumed upon the acquisition of PictureWorks;

- excludes 200,000 shares of common stock issuable upon the exercise of
outstanding warrants; and

- includes 4,644,334 shares of common stock issued upon the acquisition
of PictureWorks.
5
<PAGE> 9

SUMMARY FINANCIAL INFORMATION

The following table summarizes the historical financial data of our business and
supplemental pooled financial data reflecting the merger of Interactive Pictures
and bamboo.com in January 2000 in a merger accounted for using the pooling of
interests method of accounting. You should read this information with the
discussion in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and notes to those
statements included elsewhere in this prospectus.

<TABLE>
<CAPTION>
-------------------------------------------------
SUPPLEMENTAL
POOLED
FISCAL YEARS ENDED DECEMBER 31, YEAR ENDED
-------------------------------- DECEMBER 31,
1997 1998 1999 1999
In thousands, except per share amounts ------- -------- --------- -------------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............................................ $ 46 $ 77 $ 3,756 $ 12,523
Cost of revenues.................................... 15 67 2,880 7,262
------ ------- -------- --------
Gross profit........................................ 31 10 876 5,261
Operating expenses:
Sales and marketing............................... 10 300 18,044 37,785
Research and development.......................... 42 110 1,366 5,359
General and administrative........................ 122 278 8,007 13,906
Stock-based compensation.......................... -- 1,162 20,079 20,675
------ ------- -------- --------
Total operating expenses................... 174 1,850 47,496 77,725
------ ------- -------- --------
Loss from operations................................ (143) (1,840) (46,620) (72,464)
Interest expense.................................... -- -- (6,672) (6,684)
Other income (expense), net......................... -- -- 647 2,545
------ ------- -------- --------
Net loss............................................ (143) (1,840) (52,645) (76,603)
Beneficial conversion feature of Series B
convertible preferred stock....................... -- -- (1,000) (1,000)
------ ------- -------- --------
Net loss attributable to common stockholders........ $ (143) $(1,840) $(53,645) $(77,603)
====== ======= ======== ========
Net loss per common share -- basic and diluted...... $(0.05) $ (0.31) $ (4.13) $ (3.01)
====== ======= ======== ========
Weighted average common shares -- basic and
diluted........................................... 2,819 5,953 12,990 25,757
====== ======= ======== ========
</TABLE>

The following table presents a summary of our balance sheet at December 31,
1999:

- on a supplemental pooled basis after giving effect to the merger of
Interactive Pictures and bamboo.com accounted for as a pooling of
interests;

- on a combined basis after giving effect to our acquisition of
PictureWorks; and

- on a supplemental pooled pro forma as adjusted basis after giving effect
to the sale of 5,000,000 shares of common stock by us in this offering
assuming a public offering price of $15.00 per share after deducting the
underwriting discount and estimated offering expenses and reflecting the
repayment of the borrowings outstanding at December 31, 1999 under the
bank line of credit and notes payable of $1,780 and $2,700, respectively.

<TABLE>
<CAPTION>
----------------------------------------
AS OF DECEMBER 31, 1999
----------------------------------------
PRO FORMA
SUPPLEMENTAL COMBINED AS ADJUSTED
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
In thousands
BALANCE SHEET DATA:
Cash, cash equivalents and securities available-for-sale.... $73,366 $ 73,464 $139,384
Working capital............................................. 58,617 57,603 123,523
Total assets................................................ 95,803 313,714 379,634
Long-term liabilities....................................... 387 4,867 387
Total stockholders' equity.................................. 81,041 293,148 363,548
</TABLE>

6
<PAGE> 10

RISK FACTORS

You should carefully consider the risks and uncertainties described below and
all other information contained in this prospectus before deciding to purchase
shares of our common stock.

RISKS RELATING TO OUR BUSINESS, FINANCES AND OPERATIONS

OUR FUTURE PROFITABILITY IS UNCERTAIN BECAUSE WE HAVE A LIMITED OPERATING
HISTORY

As a result of our limited operating history, we have limited meaningful
historical financial data upon which to base planned operating expenses. Thus,
our expense levels are based in part on our expectations of future revenues. We
cannot assure you that we will be able to accurately predict our revenues,
particularly in light of our limited operating history as a combined company. In
addition, our prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in an early stage of
development, particularly companies like ours that operate in new and rapidly
evolving industries.

OUR QUARTERLY RESULTS MAY FLUCTUATE, WHICH COULD CAUSE THE PRICE OF OUR COMMON
STOCK TO DROP

We believe that our quarterly operating results could vary significantly in the
future and that quarter-to-quarter comparisons should not be relied upon as
indications of future performance. In some future quarterly periods the
operating results may fall below the expectations of securities analysts and
investors, which could significantly harm or depress the trading price of our
common stock. Among the factors which could significantly affect our future
performance are:

- the uncertainty of market acceptance of our products or services;

- the introduction of new or enhanced products and services, or changes in
pricing policies by us or our competitors;

- cyclical economic swings in the real estate market that are caused by
various factors, including changes in interest rates, changes in economic
conditions and seasonal changes in geographic regions;

- the rate at which we can recruit, train and integrate employees;

- our ability to manage multiple relationships among various customers and
strategic partners;

- our ability to expand sales, marketing and customer service operations;

- our ability to maintain our research and development activities; and

- economic conditions specific to the Internet or all or a portion of the
technology sector.

WE HAVE INCURRED SUBSTANTIAL LOSSES AND OUR EXPENSES CONTINUE TO INCREASE; THUS
WE MAY NEVER BECOME PROFITABLE

We have incurred substantial net losses and experienced negative cash flow, and
we expect our operating losses and negative cash flow to continue. Although our
revenues have increased over the past years, we may not be able to sustain
future revenue growth. In addition, our expenses continue to increase as we
expand our sales and marketing efforts, increase the number of employees and
invest in an expansion of services and product development. Further, as of
December 31, 1999, on a supplemental pooled consolidated basis, we had an
accumulated deficit of $103.7 million. Accordingly, we cannot offer any
assurances that revenues will ever exceed expenses or that we will become
profitable.

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<PAGE> 11

WE MAY BE UNABLE TO COMBINE THE BUSINESS AND OPERATIONS OF INTERACTIVE PICTURES
AND BAMBOO.COM SUCCESSFULLY OR ACHIEVE THE ANTICIPATED BENEFITS OF THE MERGER

The merger of Interactive Pictures and bamboo.com, which was completed in
January 2000, requires us to integrate the businesses and operations of two
different companies into a single company. We may not be able to successfully
integrate the operations, products, services, personnel and customers of the two
constituent companies into our combined enterprise. Additionally, we may fail to
achieve the anticipated benefits from the merger, including marketing, product
development, distribution and other operational efficiencies.

The integration process may further strain our existing financial and managerial
controls and reporting systems and procedures. This may result in the diversion
of management and financial resources from our core business objectives. In
addition, we are not experienced in managing significant facilities or
operations in geographically distant areas. Finally, we cannot be certain that
we will be able to retain the key employees from either company.

OUR ATTEMPTS TO EXPAND THROUGH BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES MAY
NOT BE SUCCESSFUL AND MAY HARM OUR OPERATIONAL EFFICIENCY, FINANCIAL PERFORMANCE
AND RELATIONSHIPS WITH EMPLOYEES AND THIRD PARTIES

We plan to continue to expand our operations and market presence by entering
into business combinations, investments, joint ventures or other strategic
alliances with Internet companies, digital camera manufacturers or other
companies both in the United States and internationally. For example, we
completed the acquisition of all of the capital stock of PictureWorks on March
31, 2000. Our ability to expand may be limited due to the many financial and
operational risks accompanying these transactions. For example:

- we may have difficulty assimilating the operations, technology and
personnel of the acquired companies;

- our business may be disrupted by the allocation of resources to
consummate these transactions;

- we may experience difficulty retaining key technical and managerial
personnel from acquired companies;

- we may experience one-time in-process research and development charges
and ongoing expenses associated with amortization of goodwill and other
purchased intangible assets;

- you may experience further dilution if we issue equity to fund these
transactions;

- acquired businesses may initially be unprofitable, causing additional
operating losses and increased expenses; and

- our relationships with existing employees, customers and business
partners may be weakened or terminated as a result of these transactions.

OUR FUTURE SUCCESS IS DEPENDENT UPON KEY DISTRIBUTION AFFILIATES

The ability to broadly distribute digital media content over the Internet,
especially online immersive tours of real estate, is vital to our business. Our
online tours can currently be viewed through the web sites of our distribution
affiliates, which include real estate destination sites such as HomeSeekers.com,
Microsoft HomeAdvisor and Realtor.com. Through agreements between our affiliates
and third parties, our online tours may also be viewed on AOL, Excite@Home
Network, GO Network/Infoseek, MSN, and Yahoo! We must continue to have access to
these sites and maintain existing relationships in order to maintain a
competitive advantage for our business. If we lose any of our distribution
affiliates or if any of our

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<PAGE> 12

distribution affiliates loses its relationship with any major Internet portal,
it could have a material adverse effect on our business.

WE DEPEND UPON THIRD-PARTY RELATIONSHIPS FOR ASSISTANCE IN MARKETING AND HOSTING
DIGITAL MEDIA CONTENT

The success of our business in the real estate market depends on establishing
and maintaining commercial relationships with traditional real estate brokerage
companies, multiple listing services and technology providers. We expect to
continue to encounter competition for these relationships with real estate
brokerage companies.

We depend upon a third party Internet service provider to host and maintain our
production servers for all of our digital media content. As part of our
end-to-end solutions, our servers host digital media content for some of our
customers. The performance of our web hosting facility systems is critical to
our business and reputation. Any system failure, including network, software or
hardware failure, that causes an interruption in the delivery of digital media
content or a decrease in responsiveness of web site service could result in
reduced revenue, and could be harmful to our reputation and brand. Our Internet
service provider does not guarantee that its Internet access will be
uninterrupted, error free or secure. Any disruption or decreased response time
in Internet access by our provider could significantly harm our business.
Further, our insurance may not adequately compensate us for any losses that may
occur due to any failures in the system or interruptions in the service.

IF OUR OFFERINGS ARE NOT ACCEPTED BY THE BUSINESS AND CONSUMER MARKETS, OUR
FUTURE GROWTH WOULD BE LIMITED

We currently sell the overwhelming majority of our offerings to the business
market. We are dependent upon the continued and expanded use of our offerings by
the business market and the acceptance of our offerings by individual consumers.
We have only made limited sales to individual consumers and cannot assure that
they will be willing to purchase and use our offerings. Thus, both the timing
and growth of market acceptance for our offerings are subject to a high level of
uncertainty. Acceptance of our offerings is highly dependent on a number of
factors, including:

- the availability, quality and price of competing products and services;

- the development of technologies that will facilitate the use of our
offerings by businesses and consumers;

- the ease-of-use and performance of our offerings; and

- the success of our marketing efforts.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, AND THESE RIGHTS
MAY BE CHALLENGED BY OTHERS, WHICH COULD SUBJECT US TO SIGNIFICANT LIABILITY FOR
DAMAGES AND INVALIDATION OF OUR INTELLECTUAL PROPERTY RIGHTS

We rely on a combination of patent, trademark and trade secret laws,
non-disclosure agreements and other contractual provisions to protect our
intellectual property rights. Our success is heavily dependent upon our ability
to enforce and protect these rights, and we cannot assure you that we will be
successful in protecting these rights. Also, our patents, service marks or
trademarks may be challenged and invalidated or circumvented. In addition, we
are exposed to infringement of our intellectual property in foreign markets
because our intellectual property is protected under United States laws that may
not extend to foreign uses.

We have been involved in litigation relating to the protection of intellectual
property rights and could be involved in future litigation as third parties
develop products that we believe infringe on our patents and

9
<PAGE> 13

other intellectual property rights. We have experienced attempts to
misappropriate our technology, and we expect those attempts may continue. We are
currently involved in litigation in which our rights to technology have been
challenged. A determination against us in this lawsuit would have a material
adverse effect on our business.

OUR MARKET IS HIGHLY COMPETITIVE, AND OUR BUSINESS MAY FAIL IF WE ARE UNABLE TO
COMPETE SUCCESSFULLY

The market for visual content and other digital media solutions is new and
rapidly evolving. We currently compete with other providers of immersive imaging
technology, including Be Here Corp. and MGI Software. Each of these companies
develops and markets imaging products and services that provide a panoramic
image experience.

We cannot assure you that others will not develop technologies that are similar
or superior to our technologies, duplicate our technologies or design around our
patents. To compete effectively, we must:

- introduce new versions of, and enhancements to, our products and
services;

- price our products and services at appropriate and competitive levels;
and

- provide strong marketing support to promote our products and services.

Some of our competitors have greater financial, marketing, distribution and
technical resources than we do. In addition, we compete with other companies in
the traditional two-dimensional photography industry. Traditional photographs
have significant and established customer acceptance. Our success will be
dependent on our ability to compete with companies offering similar immersive
imaging products and with companies in the traditional photography industry. If
we are unable to compete effectively, our business may fail.

WE HAVE EXPERIENCED, AND ANTICIPATE THAT WE WILL CONTINUE TO EXPERIENCE, RAPID
GROWTH, WHICH PLACES SIGNIFICANT STRAIN ON OUR MANAGEMENT SYSTEMS AND RESOURCES

Over the last 12 months, our employee base has grown significantly, and we
expect that the number of our employees will continue to increase in the future.
This growth has placed, and is expected to continue to place, a significant
strain on our management and resources. To manage the expected growth of
operations and personnel, we must continue to improve or replace existing
operational, accounting and information systems, procedures and controls. In
connection with the audit of bamboo.com for the fiscal year ended December 31,
1999, our independent accountants identified a reportable condition in
bamboo.com's internal controls with respect to the reconciliation of deferred
revenues. While management instituted action to correct the condition prior to
the completion of the audit, failure by the integrated company to maintain
strong internal controls in the future would harm our business. In addition, we
need to rapidly expand, train, integrate and manage our employees, particularly
those in our technical, accounting, financial and sales and marketing
organizations. We cannot assure you that we will be able to manage our growth
successfully, and our failure to do so could cause our business to fail.

WE ARE RELIANT ON OUR CUSTOMERS' AWARENESS OF OUR BRAND AND MAY HAVE TO EXPEND
SIGNIFICANT RESOURCES TO MAINTAIN OR ACCOMPLISH OUR BRAND AWARENESS

We believe that establishing and maintaining our brand of visual content
solution is important to our efforts to increase our customer base. We intend to
make significant expenditures to create and maintain distinct brand awareness
through traditional media advertising campaigns such as print, billboards and
television and by increasing sales and marketing activities. If customers do not
perceive our existing products and services to be of high quality or if we
introduce new products and services or enter into new business ventures that are
not favorably received or ultimately successful, the value of our brand could be
diluted, which could adversely affect the attractiveness of our products and
services. If we fail to increase

10
<PAGE> 14

our revenue as a result of our branding efforts or fail to promote our brand
successfully, or if we incur excessive expenses in an attempt to promote and
maintain our brand without a corresponding increase in sales, our business could
be harmed.

IF OUR VISUAL CONTENT SOLUTIONS AND IMMERSIVE IMAGES FOR E-COMMERCE DO NOT
ACHIEVE WIDESPREAD MARKET ACCEPTANCE, OUR BUSINESS WILL NOT GROW

Our success will depend in large part on widespread market acceptance of
immersive imaging for e-commerce and of online tours to display real estate
properties. If the online market for these products develops more slowly than
expected, or if our visual content solutions do not achieve widespread market
acceptance, our business will grow more slowly than expected.

Our future growth, if any, will depend on the following critical factors:

- the growth of the Internet as a tool used in the process of buying and
selling products marketed with the help of immersive imaging,
particularly residential real estate;

- our ability to successfully and cost-effectively market our visual
content products and services to a sufficiently large number of web
sites, including real estate portals, e-commerce web sites and new media
sites; and

- our ability to consistently deliver high quality products and fast and
convenient service at competitive prices.

A SIGNIFICANT AMOUNT OF OUR SALES COMES FROM A FEW VERTICAL MARKETS, INCLUDING
THE REAL ESTATE MARKET

Currently, a significant portion of our revenue is derived from businesses in
the real estate and e-commerce vertical markets. For example, in 1999, 47.0% of
our combined revenues were related to the real estate industry. Our inability to
continue to sell to customers in these vertical markets could result in a
significant reduction in our total revenues and negatively affect our ability to
become profitable. The volume of sales that we generate from customers within
these and other vertical markets is likely to vary from year to year.

IF WE LOSE KEY MEMBERS OF OUR PERSONNEL, OUR FUTURE SUCCESS COULD BE LIMITED

Our future success depends on our ability to attract and retain key management,
scientific, technical and other personnel. In addition, we must recruit
additional qualified management, scientific, technical, marketing and sales and
support personnel for our operations. Competition for this type of personnel is
intense, and there can be no assurances that we will be successful in attracting
or retaining personnel. In addition, some members of our management team are not
bound by non-compete agreements if they are no longer employed by us. The loss
of the services of one or more members of our management group or other key
employees or the inability to hire additional qualified personnel will limit our
ability to grow our business.

OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO ADAPT TO TECHNOLOGICAL CHANGES, AND
IF WE FAIL TO ADAPT TO TECHNOLOGICAL CHANGES, OUR OFFERINGS MAY BECOME OBSOLETE

We compete in a market characterized by rapidly changing technology, evolving
industry standards, frequent new service and product announcements,
introductions and enhancements and changing customer demands. These market
characteristics are intensified by the emerging nature of the Internet and the
multitude of companies offering Internet-based products and services. Thus, our
success depends on our ability to adapt to rapidly changing technologies, to
adapt our offerings to evolving industry standards and to continually improve
the performance, features and reliability of our offerings in response to
competitive products and shifting demands of the marketplace. In addition,
widespread changes in Internet, networking

11
<PAGE> 15

or telecommunications technologies or other technological alterations could
require substantial expenditures to modify our products, services or
infrastructure. Failure to adapt to new technology in any of these areas could
have a material adverse effect on our business, results of operations and
financial condition.

WE MAY NOT BE SUCCESSFUL IN EXPANDING OUR VISUAL CONTENT SOLUTIONS INTO
INTERNATIONAL MARKETS

A part of our long-term strategy is to expand into international markets. The
success of any additional foreign operations will be substantially dependent
upon our entering and succeeding in those markets. We may experience difficulty
in managing international operations as a result of competition, technical
problems, distance, language or cultural differences.

As we expand our international efforts, we will be subject to a number of risks,
including the following:

- failure of foreign countries to rapidly adopt the Internet and digital
imaging;

- unexpected changes in regulatory requirements, especially regarding the
Internet;

- slower payment and collection of accounts receivable than in our domestic
market; and

- political and economic instability.

We can not assure you that we will be able to successfully market our products
in foreign markets.

WE ARE SUSCEPTIBLE TO BREACHES OF ONLINE COMMERCE SECURITY

A party able to circumvent our security measures could misappropriate
proprietary database information or cause interruptions in operations. As a
result, we may need to expend significant capital and other resources to protect
against security breaches or to alleviate problems caused by security breaches.
This additional expense could harm our business, financial condition and results
of operation.

WE MAY ENTER INTO BARTER TRANSACTIONS THAT DO NOT GENERATE CASH REVENUE

Barter revenues come from our exchange of our products and services with third
parties, primarily for advertising rather than cash. Although revenues from
barter transactions accounted for approximately 2.0% of our combined revenues in
the fiscal year ended December 31, 1999, our use of barter transactions may
increase in future periods. Barter transactions do not generate any cash for us.
In addition, we determine the value of barter revenues based on historical
experience. If our assumptions are wrong, we might have to reduce the amounts of
barter revenues recognized, which could harm our stock price.

RISKS RELATING TO THE OFFERING

OUR MANAGEMENT HAS BROAD DISCRETION AS TO THE USE OF THE PROCEEDS FROM THIS
OFFERING

As of the date of this prospectus, we cannot specify with certainty the
particular uses for a majority of the net proceeds we will receive from this
offering. Our management will have broad discretion in the application of the
net proceeds. If our management fails to apply these funds effectively, we may
not be successful in expanding our efforts to grow our business and revenues and
the price of our common stock could decline.

WE MAY REQUIRE ADDITIONAL FUNDING WHICH MAY NOT BE AVAILABLE ON FAVORABLE TERMS
OR AT ALL

Although we believe that the net proceeds of this offering, combined with our
cash balances, cash equivalents, maturities of our securities available-for-sale
and cash generated from operations, will be adequate to fund our operations for
at least the next 12 months, these sources may prove to be inadequate. We may
need additional funds in the future to support our working capital requirements
or for other purposes and we may seek to raise additional funds through public
or private equity financing, bank debt

12
<PAGE> 16

financing or from other sources. Adequate funds may not be available when needed
or may not be available on favorable terms. If we raise additional funds by
issuing equity securities, existing stockholders may be diluted. If funding is
insufficient at any time in the future, we may not be able to develop or enhance
our products or services, take advantage of business opportunities or respond to
competitive pressures, any of which could harm our business. Our future capital
requirements depend upon many factors, including the following:

- the occurrence, timing, size and success of future acquisitions;

- the cost of transitioning customers to our brand or building brand
awareness;

- the extent to which we develop and upgrade our technology;

- the rate at which we expand our operations both domestically and
internationally; and

- the response of competitors to our product and service offerings.

OUR CERTIFICATE OF INCORPORATION AND BYLAWS CONTAIN ANTI-TAKEOVER PROVISIONS
THAT MAY MAKE IT MORE DIFFICULT OR EXPENSIVE TO ACQUIRE US IN THE FUTURE, WHICH
COULD NEGATIVELY AFFECT OUR STOCK PRICE

Our amended and restated certificate of incorporation and amended and restated
bylaws and applicable provisions of Delaware law contain several provisions that
may make it more difficult for a third party to acquire control of us without
the approval of our board of directors. The provisions of our certificate and
bylaws and the Delaware General Corporation Law may make it more difficult or
expensive for a third party to acquire a majority of our outstanding voting
common stock or delay, prevent or deter a merger, acquisition, tender offer or
proxy contest, which may negatively effect our stock price.

YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR
INVESTMENT

Investors purchasing shares of common stock in this offering will incur
immediate and substantial dilution in the amount of $12.33 per share, based on
an assumed public offering price of $15.00 per share. In the event that we issue
additional common stock in the future, including shares that may be issued as
consideration for acquisitions or upon exercise of options and other rights
granted under our employee benefit plans, purchasers of common stock in this
offering may experience further dilution.

A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK COULD BE SOLD INTO THE PUBLIC
MARKET SOON AFTER THIS OFFERING, WHICH COULD DEPRESS OUR STOCK PRICE

Sales of significant amounts of our common stock in the public market after this
offering or the perception that these sales will occur could materially
adversely affect the market price of the common stock or our future ability to
raise capital through an offering of our equity securities.

Upon the completion of this offering, we will have outstanding 57,521,512 shares
of common stock, based on the number of shares of common stock outstanding as of
March 31, 2000 and assuming no exercise of the underwriters' overallotment
option and no exercise of outstanding options or warrants. Of these shares, the
16,836,801 shares issued in bamboo.com's initial public offering, the
consummation of the merger of Interactive Pictures and bamboo.com and the
5,000,000 shares sold by us in this offering will be freely tradable without
restriction, and 817,824 shares will be freely tradeable under Rule 144(k) under
the Securities Act, unless any of those shares are purchased by an existing
affiliate of Internet Pictures as that term is defined in Rule 144 under the
Securities Act. The remaining 34,866,887 shares of common stock, including
4,644,334 shares issued to former stockholders of PictureWorks, are restricted
securities in that they may be sold only if registered or if they qualify for an
exemption from registration under the Securities Act, Rule 144 or Rule 701 as
promulgated under the Securities Act. In addition, holders of 20,725,878 shares
of common stock have agreed in connection with this offering not to sell or
otherwise dispose of those shares for a period of 90 days following the date of
this offering without the prior written consent of J.P. Morgan Securities Inc.

13
<PAGE> 17

FORWARD-LOOKING STATEMENTS

This prospectus contains statements about future events and expectations which
are characterized as forward-looking statements. Forward-looking statements are
based upon 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 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" and other sections of this
prospectus.

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.

USE OF PROCEEDS

Our net proceeds will be approximately $70.4 million from the sale of shares of
common stock by us in this offering, or approximately $81.1 million if the
underwriters' over-allotment option is exercised in full, assuming a public
offering price of $15.00 per share and after deducting underwriting discounts
and estimated expenses payable by us.

We intend to use approximately $10.0 million of the net proceeds of the offering
to pay off indebtedness that we assumed upon the acquisition of PictureWorks of
which $4.5 million was outstanding at December 31, 1999, approximately $2.0
million in connection with other acquisitions and the balance used to expand our
sales and marketing activities, including international expansion, advance the
development of new visual content solutions, such as iPIX Movies and iPIX
Webcam, and for working capital and general corporate purposes. We may also
apply a portion of the net proceeds of the offering to acquire businesses,
products and technologies that are complementary to ours. Except as described
above, we have no present commitments to enter into any of these types of
transactions. The net proceeds will be invested in government securities and
other short-term, investment-grade, interest-bearing instruments until we use
them in our business.

The above discussion represents our best estimate of the allocation of the net
proceeds of this offering based on our current plans. Actual expenditures may
vary substantially from these estimates and we may find it necessary or
advisable to reallocate the net proceeds within the above-described categories
or to use portions for other purposes.

PRICE RANGE OF COMMON STOCK

The price ranges shown below reflect the price of common stock of bamboo.com
prior to the merger with Interactive Pictures which was completed on January 19,
2000. The price range after January 19, 2000 reflects the price of common stock
of Internet Pictures.

<TABLE>
<CAPTION>
------------------
HIGH LOW
------- -------
<S> <C> <C>
Quarter ended September 30, 1999 (from August 25, 1999)..... $25.375 $17.250
Quarter ended December 31, 1999............................. 19.500 13.438
Period from January 1, through May 2, 2000.................. 46.250 15.000
------- -------
</TABLE>

The closing sale price of the common stock as reported on the Nasdaq National
Market on May 2, 2000 was $15.00 per share.

14
<PAGE> 18

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock and do
not intend to pay any cash dividends on our common stock for the foreseeable
future. Future dividends, if any, will be determined by the board of directors.
We may incur indebtedness in the future which may prohibit or effectively
restrict the payment of dividends.

15
<PAGE> 19

CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1999:

- on a supplemental pooled consolidated basis after giving effect to the
merger of Interactive Pictures and bamboo.com accounted for as a pooling
of interests;

- on a combined basis after giving effect to our acquisition of
PictureWorks and the issuance of 4,644,334 shares of common stock in
connection with that acquisition; and

- on a supplemental combined pro forma as adjusted basis after giving
effect to the sale of 5,000,000 shares of common stock by us in this
offering, assuming a public offering price of $15.00 per share, deducting
the underwriting discounts and estimated offering expenses and the
application of the resulting net proceeds towards the repayment of
borrowings under a bank line of credit and notes payable of $4.5 million
outstanding as of December 31, 1999.

You should read this table in conjunction with our financial statements and the
related notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
-------------------------------------
AS OF DECEMBER 31, 1999
-------------------------------------
PRO FORMA
SUPPLEMENTAL COMBINED AS ADJUSTED
In thousands, except per share amounts ------------ -------- -----------
<S> <C> <C> <C>
LONG-TERM OBLIGATIONS:
Promissory notes and obligations under capital leases..... $ 387 $ 387 $ 387
Borrowings under bank line of credit agreement............ -- 1,780 --
Other notes payable....................................... -- 2,700 --
--------- -------- --------
Total long-term obligations............................ $ 387 $ 4,867 $ 387
--------- -------- --------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value, 5,001,100 shares
authorized and no shares issued or outstanding
(supplemental, combined and pro forma as adjusted)..... -- -- --
Common stock, $0.001 par value 150,000,000 shares
authorized; 38,231,581 shares issued and outstanding,
supplemental; 42,875,915 shares issued and outstanding,
combined; 47,875,915 shares issued and outstanding, pro
forma as adjusted...................................... 38 43 48
Class B common stock, par value $0.0001; 7,421,536 shares
authorized; 7,012,736 issued and outstanding,
supplemental, combined and pro forma as adjusted....... 1 1 1
Additional paid-in capital.................................. 187,829 400,057 470,452
Unearned stock-based compensation........................... (2,955) (2,955) (2,955)
Notes receivable from stockholders.......................... (181) (307) (307)
Accumulated deficit......................................... (103,701) (103,701) (103,701)
Accumulated other comprehensive income (loss)............... 10 10 10
--------- -------- --------
Total stockholders' equity............................. 81,041 293,148 363,548
--------- -------- --------
TOTAL CAPITALIZATION................................... $ 81,428 298,015 363,935
========= ======== ========
</TABLE>

The table above excludes, as of December 31, 1999, 9,527,819 shares of common
stock issuable upon exercise of outstanding stock options, of which 4,579,244
shares were currently exercisable, and an additional 2,786,159 shares of common
stock reserved for future grant or award under our stock option and stock
purchase plans. The table does not reflect a class of our preferred stock that
is authorized under our certificate of incorporation but currently has no shares
outstanding.

16
<PAGE> 20

DILUTION

Our pro forma combined net tangible book value as of December 31, 1999 was
$75,901,000, or $1.52 per share of common stock, and reflects the merger of
Interactive Pictures and bamboo.com and the assumed issuance of 4,644,334 shares
in our acquisition of PictureWorks. Net tangible book value per share is
determined by dividing our net tangible book value, which is total tangible
assets less total liabilities, by the total number of shares of common stock
outstanding after giving effect to the transactions described in the previous
sentence. After giving effect to the sale of 5,000,000 shares of common stock
offered by us, and after deducting estimated underwriting discounts and offering
expenses, our adjusted pro forma combined net tangible book value as of December
31, 1999 would have been $146,301,000, or $2.67 per share. This represents an
immediate increase in the net tangible book value of $1.15 per share to existing
stockholders and an immediate dilution of $12.33 per share to new investors. The
following table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
--------------
Assumed public offering price per share..................... $15.00
Pro forma combined net tangible book value per share as of
December 31, 1999...................................... $1.52
Increase to present stockholders attributable to new
investors.............................................. $1.15
-----
Adjusted pro forma combined net tangible book value per
share after this offering................................. $ 2.67
------
Dilution per share to new investors......................... $12.33
======
</TABLE>

17
<PAGE> 21

SELECTED HISTORICAL FINANCIAL INFORMATION

The statement of operations data presented below for the years ended December
31, 1997, 1998 and 1999 and the balance sheet data as of December 31, 1998 and
1999, have been derived from our consolidated financial statements audited by
PricewaterhouseCoopers LLP, independent accountants, that are included elsewhere
in this prospectus. The statement of operations data for the years ended
December 31, 1996 and the balance sheet data as of December 31, 1996 and 1997
are derived from audited consolidated financial statements that are not included
in this prospectus. You should read the data presented below together with our
consolidated financial statements and related notes to those statements and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in this prospectus.

<TABLE>
<CAPTION>
-------------------------------------
FISCAL YEARS ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998 1999
In thousands, except per share amounts ------- ------ ------- --------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues............................................... $ -- $ 46 $ 77 $ 3,756
Cost of revenues....................................... -- 15 67 2,880
------- ------ ------- --------
Gross profit........................................... -- 31 10 876
Operating expenses:
Sales and marketing.................................. 4 10 300 18,044
Research and development............................. 24 42 110 1,366
General and administrative........................... 62 122 278 8,007
Stock-based compensation............................. -- -- 1,162 20,079
------- ------ ------- --------
Total operating expenses..................... 90 174 1,850 47,496
------- ------ ------- --------
Loss from operations................................... (90) (143) (1,840) (46,620)
Interest expense....................................... -- -- -- (6,672)
Other income (expense), net............................ -- -- -- 647
------- ------ ------- --------
Net loss............................................... (90) (143) (1,840) (52,645)
Dividend relative to beneficial conversion feature of
Series B convertible preferred stock................. -- -- -- (1,000)
------- ------ ------- --------
Net loss attributable to common stockholders........... $ (90) $ (143) $(1,840) $(53,645)
======= ====== ======= ========
Net loss per common share -- basic and diluted......... $ (0.04) $(0.05) $ (0.31) $ (4.13)
======= ====== ======= ========
Weighted average common shares -- basic and diluted.... 2,284 2,819 5,953 12,990
</TABLE>

<TABLE>
<CAPTION>
----------------------------
AS OF DECEMBER 31,
----------------------------
1996 1997 1998 1999
---- ---- ---- -------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and securities available-for-sale.... $131 $ 4 $430 $15,832
Working capital (deficit)................................... 37 (86) 265 8,723
Total assets................................................ 150 25 780 25,360
Long-term liabilities....................................... -- -- -- 373
Total stockholders' equity (deficit)........................ 56 (72) 517 15,056
</TABLE>

18
<PAGE> 22

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The unaudited pro forma combined balance sheet as of December 31, 1999 and the
unaudited pro forma combined statement of operations for the year ended December
31, 1999 combine the supplemental pooled consolidated balance sheet and
supplemental pooled consolidated statements of operations of Internet Pictures
and the historical balance sheets and historical statement of operations of
PictureWorks as if the acquisition of PictureWorks had been completed on
December 31, 1999 for purposes of the presentation of the unaudited pro forma
combined balance sheet and as of January 1, 1999 for purposes of the
presentation of the unaudited pro forma combined statement of operations.

We acquired all of the outstanding common stock of PictureWorks on March 31,
2000 in exchange for the issuance of 4,644,334 shares of our common stock. In
addition, we assumed all the outstanding vested and unvested options and
warrants of PictureWorks. The acquisition will be accounted for using the
purchase method of accounting. The unaudited pro forma combined financial
statements should be read together with the supplemental pooled consolidated
financial statements including the notes to those statements of Internet
Pictures and the historical financial statements of PictureWorks and
Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing elsewhere in this prospectus.

The pro forma adjustments reflecting the consummation of the PictureWorks
acquisition are based on the purchase method of accounting, available financial
information and estimates and assumptions set forth in the notes to the
unaudited pro forma combined financial statements. The unaudited pro forma
combined financial statements reflect our best estimates; however, the final
purchase price allocation and the actual financial position and results of
operations may differ significantly from the pro forma amounts reflected herein
due to various factors, including, without limitation, access to additional
financial information and changes in value including the addition of a charge
for in-process research and development. The pro forma adjustments do not
reflect any operating efficiencies or cost savings that may be achieved by the
combined businesses of Internet Pictures and PictureWorks.

The unaudited pro forma combined financial statements as of and for the year
ended December 31, 1999 do not purport to represent what the actual financial
condition or results of operations of the combined businesses would have been if
the acquisition of PictureWorks had occurred on the dates indicated in these pro
forma combined financial statements nor does this information purport to project
our results for any future period.

19
<PAGE> 23

UNAUDITED PRO FORMA COMBINED CONSOLIDATED

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
----------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31, 1999
----------------------------------------------------------------------------
INTERNET PICTURES
SUPPLEMENTAL PRO FORMA PRO FORMA
POOLED PICTUREWORKS COMBINED ADJUSTMENTS COMBINED
----------------- -------------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
In thousands, except per
share amounts
Revenues.................... $ 12,523 $ 3,823 $ 16,346 $ -- $ 16,346
Cost of revenues............ 7,262 1,429 8,691 -- 8,691
-------- -------- -------- -------- ---------
Gross profit................ 5,261 2,394 7,655 -- 7,655
-------- -------- -------- -------- ---------
Operating expenses:
Sales and marketing....... 37,785 1,986 39,771 -- 39,771
Research and
development............ 5,359 2,654 8,013 -- 8,013
General and
administrative......... 13,906 1,334 15,240 -- 15,240
Stock-based
compensation........... 20,675 756 21,431 -- 21,431
Amortization of
goodwill............... -- 574 574 (574)(a) --
72,416(a) 72,416
-------- -------- -------- -------- ---------
Total operating
expenses............. 77,725 7,304 85,029 71,842 156,871
-------- -------- -------- -------- ---------
Loss from operations........ (72,464) (4,910) (77,374) (71,842) (149,216)
Interest expense............ (6,684) (290) (6,974) -- (6,974)
Other income (expense),
net....................... 2,545 10 2,555 -- 2,555
-------- -------- -------- -------- ---------
Loss before income taxes.... (76,603) (5,190) (81,793) (71,842) (153,635)
Provision for income
taxes..................... -- 184 184 -- 184
-------- -------- -------- -------- ---------
Net loss.................... (76,603) (5,374) (81,977) (71,842) (153,819)
Dividend relative to
beneficial conversion
feature of Series B
convertible preferred
stock..................... (1,000) -- (1,000) -- (1,000)
Accretion of mandatorily
redeemable preferred
stock..................... -- (3,394) (3,394) -- (3,394)
-------- -------- -------- -------- ---------
Net loss attributable to
common stockholders....... $(77,603) $ (8,768) $(86,371) $(71,842) (157,213)
======== ======== ======== ======== =========
Net loss per common share --
basic and diluted......... $ (3.01) $ (1.77) $ (5.20)
======== ======== =========
Weighted average common
shares -- basic and
diluted................... 25,757 4,949 30,401
======== ======== =========
</TABLE>

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

(a) Reflects the elimination of PictureWorks historical amortization of
goodwill and the amortization of goodwill and intangible assets recorded
in the PictureWorks acquisition using a three year life.

20
<PAGE> 24

UNAUDITED PRO FORMA COMBINED CONSOLIDATED

BALANCE SHEET

<TABLE>
<CAPTION>
---------------------------------------------------------------------------
AS OF DECEMBER 31, 1999
---------------------------------------------------------------------------
INTERNET PICTURES
SUPPLEMENTAL PRO FORMA PRO FORMA
POOLED PICTUREWORKS COMBINED ADJUSTMENTS COMBINED
----------------- ------------- ----------- ----------- -----------
IN THOUSANDS (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............ $ 18,627 $ 98 $ 18,725 $ -- $ 18,725
Securities available-for-sale........ 42,739 -- 42,739 -- 42,739
Accounts receivable, net............. 3,356 94 3,450 -- 3,450
Inventory, net....................... 1,059 -- 1,059 -- 1,059
Prepaids and other current assets.... 7,211 118 7,329 -- 7,329
--------- -------- --------- ----------- ---------
Total current assets............... 72,992 310 73,302 -- 73,302
Long-term securities
available-for-sale................... 12,000 -- 12,000 -- 12,000
Property and equipment, net............ 9,135 354 9,489 -- 9,489
Other assets........................... 1,676 -- 1,676 -- 1,676
Goodwill and other intangibles......... -- 3,252 3,252 (3,252)(b) 217,247
217,247 (a)
--------- -------- --------- ----------- ---------
Total assets....................... $ 95,803 $ 3,916 $ 99,719 $ 213,995 $ 313,714
========= ======== ========= =========== =========

Current liabilities:
Note payable to related party........ $ -- $ 200 $ 200 $ -- $ 200
Accounts payable..................... 2,711 408 3,119 -- 3,119
Accrued liabilities.................. 6,203 533 6,736 -- 6,736
Deferred revenue..................... 5,262 183 5,445 -- 5,445
Current portion of promissory note
and obligations under capital
lease.............................. 199 -- 199 -- 199
--------- -------- --------- ----------- ---------
Total current liabilities.......... 14,375 1,324 15,699 -- 15,699
Long-term liabilities:
Long-term portion of promissory note
and obligations under capital
lease.............................. 387 -- 387 -- 387
Borrowings under bank line of credit
agreement.......................... -- 1,780 1,780 -- 1,780
Other notes payable.................. -- 2,700 2,700 -- 2,700
--------- -------- --------- ----------- ---------
Total long-term liabilities........ 387 4,480 4,867 -- 4,867
--------- -------- --------- ----------- ---------
Mandatorily redeemable preferred
stock................................ -- 17,807 17,807 (17,807)(c) --
Stockholders' equity (deficit):
Common stock......................... 38 5 43 (5)(c) 43
5 (a)
Class B common stock................. 1 -- 1 -- 1
Additional paid-in capital........... 187,829 1,391 189,220 (1,391)(c) 400,057
212,228 (a)
Deferred stock-based compensation.... (2,955) (3,574) (6,529) 3,574 (c) (2,955)
Notes receivable from stockholders... (181) (126) (307) -- (307)
Accumulated deficit.................. (103,701) (17,391) (121,092) 17,391 (c) (103,701)
Accumulated other comprehensive
income............................. 10 -- 10 -- 10
--------- -------- --------- ----------- ---------
Total stockholders' equity
(deficit)........................ 81,041 (19,695) 61,346 231,802 293,148
--------- -------- --------- ----------- ---------
Total liabilities and stockholders'
equity (deficit)................. $ 95,803 $ 3,916 $ 99,719 $ 213,995 $ 313,714
========= ======== ========= =========== =========
</TABLE>

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

(a)Reflects the issuance of 4,644,334 shares of our common stock with an
aggregate value of $173,000 and issuance of approximately 733,000 options to
purchase our common stock and warrants to purchase 502,000 shares of common
stock in connection with the assumption of stock options and warrants of
PictureWorks. The fair value of the options and warrants assumed has been
estimated using the Black-Scholes model. The following is a calculation of
the goodwill and other intangibles recorded in the PictureWorks' acquisition.

<TABLE>
<S> <C>
Market value of shares issued............................... $173,000
Fair value of options and warrants assumed.................. 39,233
Net liabilities assumed..................................... 5,014
--------
$217,247
</TABLE>

(b)Reflects the elimination of PictureWorks' existing goodwill.

(c)Reflects the conversion of PictureWorks' mandatorily redeemable preferred
stock into common stock, and the elimination of stockholders' equity balances
as this acquisition is being accounted for using the purchase method of
accounting.

21
<PAGE> 25

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We are the result of the merger of Interactive Pictures and bamboo.com on
January 19, 2000. Interactive Pictures was founded in 1986 at the Oak Ridge
National Laboratory in Tennessee to develop remote robotic systems for the
United States Department of Defense, the Department of Energy, NASA and other
governmental agencies. bamboo.com was founded in 1995 in Toronto, Canada to
provide virtual tours of online residential real estate listings.

Since the completion of our merger, we have continued to establish new vertical
markets for our solutions by positioning ourselves to take advantage of the
demand for compelling digital media content on web sites. We have targeted the
following global vertical markets: real estate, travel and hospitality,
automotive, e-retail, electronic publishing, education and entertainment.

We generate revenues principally from our sale of digital media content as well
as iPIX keys and iPIX kits. Revenues from the sale of real estate immersive
images are recognized at the time an image is distributed to web sites selected
by the customer. Sales of iPIX kits and iPIX keys are recognized upon delivery
to the customer. We calculate a provision for returns based on historical
experience and make appropriate reserves at the time revenues are recognized. To
date, returns have been insignificant. We intend to provide end-to-end solutions
to customers who request digital media content to be hosted and distributed to
the Internet for extended time periods. Revenues generated from the delivery of
digital media content would be recognized net of the fair value of the hosting
services. Revenues associated with the hosting services would be recognized
ratably over the extended hosting and distribution term. Research and
development services revenues were historically generated under research and
development arrangements for others. We have de-emphasized these activities, and
have not engaged in any of those types of arrangements since 1998.

RECENT DEVELOPMENTS

On March 31, 2000, we acquired all of the capital stock of PictureWorks. We
issued 4,644,334 shares to the current stockholders of PictureWorks, based on
the average price of our common stock for the ten days ending the second
business day prior to that day. We will account for the transaction under the
purchase method of accounting.

PictureWorks' Rimfire technology is an infrastructure solution that enables end
users to easily publish digital media such as video, audio, photographs and
other images on the Internet. Users can easily deliver content to a web site by
using their cursor to select the desired media and dragging that media to a
Rimfire supported web site. Rimfire automatically replicates the image or other
digital media content, stores the media on our web servers and appropriately
formats the media file for distribution to the target web site.

22
<PAGE> 26

We believe our acquisition of PictureWorks will extend our digital media content
infrastructure and enable us to provide our solutions to a broader range of
customers that depend on user-submitted content including e-commerce web sites,
community web sites and Internet portals.

SUPPLEMENTAL POOLED RESULTS OF OPERATIONS

The following tables and the related period-to-period comparisons shown below
set forth our supplemental pooled consolidated results of operations. These
pooled results are not necessarily indicative of results to be expected for any
future period. These tables and the related period-to-period comparisons shown
below should be read together with the supplemental pooled consolidated
financial statements appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
-------------------------------
FISCAL YEARS ENDED
DECEMBER 31,
-------------------------------
1997 1998 1999
In thousands, except per share amounts ------- -------- --------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues
Products............................................... $ 2,174 $ 2,789 $ 12,523
Research and development services...................... 318 329 --
------- -------- --------
2,492 3,118 12,523
Cost of revenues
Products............................................... 461 1,274 7,262
Research and development services...................... 316 241 --
------- -------- --------
777 1,515 7,262
------- -------- --------
Gross profit............................................. 1,715 1,603 5,261
------- -------- --------
Operating expenses
Sales and marketing.................................... 2,839 8,783 37,785
Research and development............................... 1,213 2,885 5,359
General and administrative............................. 2,720 3,939 13,906
Amortization of product development and patent costs... 858 -- --
Stock-based compensation............................... -- 1,162 20,675
------- -------- --------
Total operating expenses.......................... 7,630 16,769 77,725
------- -------- --------
Loss from operations..................................... (5,915) (15,166) (72,464)
Interest expense......................................... (42) (202) (6,684)
Other income (expense), net.............................. 236 303 2,545
------- -------- --------
Net loss................................................. (5,721) (15,065) (76,603)
Dividend relative to beneficial conversion feature of
Series B convertible preferred stock................... -- -- (1,000)
------- -------- --------
Net loss attributable to common stockholders............. $(5,721) $(15,065) $(77,603)
======= ======== ========
Net loss per common share -- basic and diluted........... $ (0.50) $ (1.22) $ (3.01)
======= ======== ========
Weighted average common shares -- basic and diluted...... 11,425 12,334 25,757
======= ======== ========
</TABLE>

23
<PAGE> 27

<TABLE>
<CAPTION>
---------------------------------
FISCAL YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues
Products.................................................. 87.2% 89.4% 100.0%
Research and development services......................... 12.8 10.6 --
------ ------ ------
100.0 100.0 100.0
Cost of revenues
Products.................................................. 18.5 40.9 58.0
Research and development services......................... 12.7 7.7 --
------ ------ ------
31.2 48.6 58.0
------ ------ ------
Gross profit................................................ 68.8 51.4 42.0
------ ------ ------
Operating expenses:
Sales and marketing....................................... 114.0 281.7 301.7
Research and development.................................. 48.7 92.5 42.8
General and administrative................................ 109.2 126.3 111.0
Amortization of product development and patent costs...... 34.4 -- --
Stock-based compensation.................................. -- 37.3 165.1
------ ------ ------
Total operating expenses.......................... 306.3 537.8 620.6
------ ------ ------
Loss from operations........................................ (237.5) (486.4) (578.6)
Interest expense............................................ (1.7) (6.5) (53.4)
Other income (expense), net................................. 9.5 9.7 20.3
------ ------ ------
Net loss.................................................... (229.7) (483.2) (611.7)
Dividend relative to beneficial conversion feature of Series
B convertible preferred stock............................. -- -- (8.0)
------ ------ ------
Net loss attributable to common stockholders................ (229.7)% (483.2)% (619.7)%
====== ====== ======
</TABLE>

Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998

Revenues. Total revenues increased to $12,523,000 in 1999, compared to
$3,118,000 in 1998, an increase of $9,405,000. Product revenues increased to
$12,523,000 in 1999, compared to $2,789,000 in 1998, an increase of $9,734,000.
This increase was due primarily to an increase of $4,820,000 in sales of virtual
tours and an increase of $4,779,000 in sales of iPIX kits and iPIX keys,
primarily to e-commerce and real estate customers. We did not have research and
development services revenues in 1999, compared to $329,000 in 1998.

Cost of Revenues. Cost of revenues consists of our direct expenses associated
with the capture, processing, hosting and distribution of virtual tours and the
costs of the digital camera and related components included in an iPIX kit. In
addition, cost of revenues include transaction fees paid to affiliates who
display our virtual tours on their web sites and fees paid to resellers of our
virtual tours. Cost of product revenues increased to $7,262,000 in 1999,
compared to $1,274,000 in 1998, an increase of $5,988,000. This increase was the
result of the sale of a higher volume of virtual tours, the expansion of our
processing and hosting capacity and the cost of iPIX kits. We did not incur any
cost of research and development services revenue in 1999 compared to $241,000
in 1998.

24
<PAGE> 28

Sales and Marketing. Sales and marketing expenses consist primarily of salaries
for marketing, sales, business development and field operations personnel. Sales
and marketing expenses also include commissions and related benefits for sales
personnel and consultants, traditional advertising and promotional expenses,
trademark licensing and technology access and sponsorship fees paid to
affiliates in order to facilitate availability of our tours on their web sites.
Sales and marketing expenses increased to $37,785,000 in 1999, compared to
$8,783,000 in 1998, an increase of $29,002,000. This increase is due primarily
to a significant increase in our sales force, increased costs relating to
technology access and sponsorship fees and increased advertising and branding
expenses.

Research and Development. Research and development expenses consist primarily
of personnel costs and fees paid to third party developers. Research and
development expenses increased to $5,359,000 in 1999, compared to $2,885,000 in
1998, an increase of $2,474,000. This increase was due primarily to increased
staffing associated with expanding our research and development efforts to build
and enhance our digital media infrastructure.

General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related benefits for administrative and
executive staff, fees for professional services and general office and occupancy
expenses. General and administrative expenses increased to $13,906,000 in 1999,
compared to $3,939,000 in 1998, an increase of $9,967,000. This increase was due
primarily to an increase in personnel and related costs, professional services
expenses and expansion of our leased facilities.

Stock-based Compensation. Stock-based compensation expense consists of the
amortization of deferred compensation related to stock options granted to
employees and others prior to our initial public offering with an exercise price
below the deemed fair market value of our common stock on the date of grant. The
related compensation is amortized over the vesting period of the options.
Stock-based compensation expense increased to $20,675,000 in 1999, compared to
$1,162,000 in 1998.

Interest Expense. In June 1999, we entered into an agreement to sell 1,100
shares of our Series C mandatorily redeemable preferred stock and 1,250,830
shares of our common stock for total gross proceeds of $11,000,000. The
$11,000,000 of proceeds was allocated $4,394,000 to the Series C mandatorily
redeemable preferred stock and $6,606,000 to the common stock, based on their
relative fair values. The shares of the Series C mandatorily redeemable
preferred stock were redeemed in accordance with their original terms after
completion of our initial public offering by payment of their face value of
$11,000,000. Consequently we recorded interest expense of $6,606,000, which
represented primarily the original discount on the Series C mandatorily
redeemable preferred stock.

Other Income (Expense). Other income (expense) consists primarily of interest
earned on cash and investments. Other income (expense) increased to $2,545,000
in 1999, compared to $303,000 in 1998. This increase was due primarily to
relatively higher average cash and investment balances in 1999 reflecting the
receipt of proceeds from our equity offerings.

Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997

Revenues. Total revenues increased to $3,118,000 in 1998, compared to
$2,492,000 in 1997, an increase of $626,000 or 25.1%. Product revenues increased
to $2,789,000 in 1998, compared to $2,174,000 in 1997, an increase of $615,000
or 28.3%. The increase in total revenues was due primarily to an increase in the
sale of iPIX keys, iPIX kits and virtual tours to an expanded base of e-commerce
customers. Service revenues remained essentially unchanged, increasing to
$329,000 in 1998, from $318,000 in 1997.

Cost of Revenues. Cost of product revenues increased to $1,274,000 in 1998,
compared to $461,000 in 1997, an increase of $813,000, or 176.4%. This increase
was due primarily to the costs associated with the increased sales of iPIX kits,
costs of virtual tours and the expansion of our processing and hosting capacity.
Cost of product revenues for 1998 also included a write-down of obsolete product
inventory in

25
<PAGE> 29

the amount of $220,000. Cost of research and development services revenues
decreased to $241,000 in 1998 compared to $316,000 in 1997. This decrease was
due primarily to a 1997 contract for which project costs exceeded associated
revenue.

Sales and Marketing. Sales and marketing expenses increased to $8,783,000 in
1998, compared to $2,839,000 in 1997, an increase of $5,944,000. This growth
principally reflected an increase in salary and related expenses directly
attributable to the establishment of a direct sales force and an increase in
advertising and public relations expense.

Research and Development. Research and development expenses increased to
$2,885,000 in 1998, compared to $1,213,000 in 1997, an increase of $1,672,000,
or 137.8%. This increase was primarily due to increased staffing and associated
costs relating to the introduction of Java based applications in support of the
continued development of our digital content infrastructure.

General and Administrative Expenses. General and administrative expenses
increased to $3,939,000 in 1998, compared to $2,720,000 in 1997, an increase of
$1,219,000, or 44.8%. This increase was primarily due to legal fees associated
with litigation relating to protecting the iPIX patents and an increase in
salaries and other expenses as a result of increased staffing levels necessary
to support our expanding operations.

Amortization of Product Development and Patent Costs. During 1997, we revised
the estimated economic lives of capitalized product development costs from five
years to one year and patent costs from seven years to three years. This change
resulted in additional amortization expense of $858,000 in 1997. In 1998,
product development and patent costs were insignificant, and therefore, we did
not capitalize those costs.

Stock-based Compensation. Stock compensation expense consists of the
amortization of deferred compensation related to stock options granted with an
exercise price below the deemed fair market value of our common stock on the
date of grant. Stock compensation expense was $1,162,000 in 1998. There was no
stock compensation expense in 1997.

Interest Expense. Interest expense increased to $202,000 in 1998, compared to
$42,000 in 1997, an increase of $160,000. This increase was primarily due to
increased interest incurred on indebtedness issued in the fourth quarter of
1997.

Other Income (Expense). Other income (expense) in 1998 was $303,000, compared
to $236,000 in 1997, an increase of $67,000 or 28.4%. This increase was
primarily due to increased earnings on our cash investments.

26
<PAGE> 30

HISTORICAL RESULTS OF OPERATIONS OF BAMBOO.COM

The following tables and the related period-to-period comparisons shown below
set forth the historical results of operations of bamboo.com, the predecessor to
the combined company, for the periods presented. These historical results, which
do not include the historical results of Interactive Pictures, are not
necessarily indicative of results to be expected for any future period. These
tables and the related period-to-period comparisons shown below should be read
together with the historical financial statements appearing elsewhere in this
prospectus.

<TABLE>
<CAPTION>
---------------------------------
FISCAL YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
-------- -------- ---------
<S> <C> <C> <C>
In thousands
STATEMENTS OF OPERATIONS DATA:
Revenues.................................................... $ 46 $ 77 $ 3,756
Cost of revenues............................................ 15 67 2,880
------- ------- --------
Gross profit................................................ 31 10 876
Operating expenses:
Sales and marketing....................................... 10 300 18,044
Research and development.................................. 42 110 1,366
General and administrative................................ 122 278 8,007
Stock-based compensation.................................. -- 1,162 20,079
------- ------- --------
Total operating expenses............................... 174 1,850 47,496
------- ------- --------
Loss from operations........................................ (143) (1,840) (46,620)
Interest expense............................................ -- -- (6,672)
Other income (expense) net.................................. -- -- 647
------- ------- --------
Net loss.................................................... (143) (1,840) (52,645)
Dividend relative to beneficial conversion feature of Series
B convertible preferred stock............................. -- -- (1,000)
------- ------- --------
Net loss attributable to common stockholders................ $ (143) $(1,840) $(53,645)
======= ======= ========
</TABLE>

<TABLE>
<CAPTION>
---------------------------------
FISCAL YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
------- --------- ---------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues................................................... 100.0% 100.0% 100.0%
Cost of revenues........................................... 32.6 87.0 76.7
------ -------- --------
Gross profit............................................... 67.4 13.0 23.3
Operating expenses:
Sales and marketing...................................... 21.7 389.6 480.4
Research and development................................. 91.3 142.9 36.4
General and administrative............................... 265.2 361.0 213.2
Stock-based compensation................................. -- 1,509.1 534.5
------ -------- --------
Total operating expenses.............................. 378.2 2,402.6 1,264.6
------ -------- --------
Loss from operations....................................... (310.8) (2,389.6) (1,241.3)
Interest expense........................................... -- -- (177.6)
Other income (expense), net................................ -- -- 17.2
------ -------- --------
Net loss................................................... (310.8) (2,389.6) (1,401.7)
Dividend relative to beneficial conversion feature of
Series B convertible preferred stock..................... -- -- (26.6)
------ -------- --------
Net loss attributable to common stockholders............... (310.8)% (2,389.6)% (1,428.3)%
====== ======== ========
</TABLE>

27
<PAGE> 31

Year Ended December 31, 1999 Compared to the Year Ended December 31, 1998

Revenues. All revenues are derived from the sale of our virtual tours. Total
revenues increased to $3,756,000 in 1999, compared to $77,000 in 1998, an
increase of $3,679,000. This increase was due primarily to the implementation of
a direct sales force as well as execution of expanded marketing programs
designed to create awareness of our product offering.

Cost of Revenues. Cost of revenues consists of our direct expenses associated
with the capture, processing, hosting and distribution of virtual tours. In
addition, cost of revenues include transaction fees paid to affiliates who host
our virtual tours on their web sites and fees paid to resellers of our virtual
tours. Our cost of revenues increased to $2,880,000 in 1999, compared to $67,000
in 1998. This increase was the result of a higher volume of virtual tours sold
and the expansion of processing and hosting capacity in our processing center.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries
for marketing, sales, business development and field operations personnel. Sales
and marketing expenses also include commissions and related benefits for sales
personnel and consultants, traditional advertising and promotional expenses,
trademark licensing and technology access and sponsorship fees paid to
affiliates in order to facilitate availability of our tours on their web sites.
Sales and marketing expenses increased to $18,044,000 in 1999, compared to
$300,000 in 1998. This increase was primarily a result of the implementation of
a direct sales force, the expansion of our marketing programs, the addition of
distribution partners to which technology access and sponsorship fees were paid
and expenses associated with the issuance of equity to consultants.

Research and Development. Research and development expenses consist primarily
of personnel costs and fees paid to third party developers. Research and
development expenses increased to $1,366,000 in 1999, compared to $110,000 in
1998. This increase was due primarily to the expansion of our research and
development efforts to build our visual content and digital media
infrastructure.

General and Administrative Expenses. General and administrative expenses
consist primarily of salaries and related benefits for administrative and
executive staff, fees for professional services and general office and occupancy
expenses. General and administrative expenses increased to $8,007,000 in 1999,
compared to $278,000 in 1998. This was primarily due to increased personnel and
related costs, expansion of leased facilities and increases in professional
services.

Interest Expense. In June 1999, we entered into an agreement to sell 1,100
shares of our Series C redeemable preferred stock and 1,250,830 shares of our
common stock for total gross proceeds of $11,000,000. The $11,000,000 of
proceeds was allocated $4,394,000 to the Series C mandatorily redeemable
preferred stock and $6,606,000 to the common stock, based on their relative fair
values. The shares of the Series C mandatorily redeemable preferred stock were
redeemed in accordance with their original terms after completion of our initial
public offering by payment of their face value of $11,000,000. Consequently we
recorded interest expense of $6,606,000, which represented primarily the
original discount on the Series C mandatorily redeemable preferred stock.

Other Income (Expense). Other income (expense) consists primarily of interest
earned on cash and investments. Other income (expense) increased to $647,000 in
1999. There was no other income (expense) in 1998.

28
<PAGE> 32

Year Ended December 31, 1998 Compared to the Year Ended December 31, 1997

Total revenues increased as we expanded our virtual tours offering across
Canada. Our cost of revenues increased from the year ended December 31, 1997, as
the result of an increased volume of virtual tours sold and the expansion of our
processing capacity. We also had an increase in sales and marketing expenses
from the prior year as we expanded sales activity in additional regions in
Canada. General and administrative expenses increased from the prior year
primarily due to increased staffing levels necessary to support our expanding
operations. Our research and development expenses increased from the prior year
due to the use of additional contracted development support personnel.

LIQUIDITY AND CAPITAL RESOURCES

The following discussion reflects the supplemental pooled consolidated positions
of Interactive Pictures and bamboo.com. These pooled positions are not
necessarily indicative of results to be expected for any future period. These
positions should be read together with the supplemental pooled consolidated
financial statements appearing elsewhere in this prospectus.

We have historically derived a significant portion of our liquidity and
operating capital from the sale of equity securities, including private sales of
preferred stock and the sale of common stock in our initial public offerings.

At December 31, 1999, we had $18,627,000 of cash and cash equivalents compared
to $1,494,000 at December 31, 1998. The increase resulted from the receipt of
$90,086,000 in combined net proceeds from our initial public offerings in August
1999 and $42,095,000 in net proceeds from the sale of our preferred and common
stock in the first half of 1999. This was partially offset by purchases of net
investments in debt securities of $54,562,000, cash used by operations of
$46,786,000 and $8,426,000 for the purchase of property and equipment.

Net cash used in operating activities was $4,949,000 in the year ended December
31, 1997, $13,093,000 in the year ended December 31, 1998 and $46,786,000 in the
year ended December 31, 1999. Net cash used for operating activities in each of
these periods is primarily a result of net losses. The net loss in 1999 included
$13,821,000 for non-cash stock-based compensation expense.

Net cash provided by/(used in) investment activities was $(958,000) in the year
ended December 31, 1997, $35,000 in the year ended December 31, 1998 and
$(63,096,000) in the year ended December 31, 1999. Net cash provided by/(used
in) investing activities was related to the acquisition of property and
equipment, the purchase of short-term investments and the maturity of acquired
investment securities.

Net cash provided by financing activities was $2,997,000 in the year ended
December 31, 1997, $12,741,000 in the year ended December 31, 1998 and
$127,009,000 in the year ended December 31, 1999. The net cash provided by
financing activities was due primarily to the sale of shares of our common and
preferred stock. Net cash also was provided by the issuance of a $3,000,000 8%
convertible debenture in 1997, $1,000,000 of which was repaid and $2,000,000 of
which was converted to preferred stock.

In order to comply with certain underwriting compensation rules of the National
Association of Securities Dealers, Inc., Interactive Pictures repurchased an
aggregate of 663,098 shares of its common stock upon the consummation of its
initial public offering for an aggregate repurchase price of $3,730,000. This
repurchase transaction was completed in September 1999.

Although we have no material commitments for capital expenditures except for the
amounts we will expend upon our acquisition of PictureWorks, we anticipate an
increase in the rate of capital expenditures and other expenses consistent with
our anticipated growth in personnel, operations and marketing activities. We
anticipate utilizing a portion of the net proceeds of this offering to expand
our sales and marketing activities and enhance our research and development
through the next twelve months. We also may use our

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cash resources to acquire or license technology, products or business related to
our current business. We anticipate that our operating expenses will continue to
grow as we make investments in our sales and marketing and distribution
capabilities and that our operating expenses will be a material use of our cash
resources for the foreseeable future.

We believe that the net proceeds from this offering, together with existing cash
and cash equivalents, will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next twelve months.
After these twelve months, we may require additional funds to support our
working capital requirements or for other purposes and may seek to raise
additional funds through public or private equity financing, bank debt financing
or from other sources. There can be no assurance that this capital will be
available in amounts or on terms acceptable to us, if at all.

YEAR 2000 ISSUES

Prior to January 1, 2000, there was significant uncertainty regarding the
ability of computers to properly recognize dates in the 21st century. The
uncertainty was primarily due to the fact that most computer systems only
utilized a two digit field for date recognition. Since the passing of January 1,
2000, most computer systems have continued to function normally and the
compliance and remediation work conducted prior to year 2000 was effective in
preventing widespread problems. In particular, we have not experienced any
material problems in our computer systems related to the year 2000. Computer
experts have worried, however, that not all residual consequences of the year
2000 problem may have surfaced. Problems may still arise through
miscalculations, data corruption, system failures or disruptions of operations.
Any lingering year 2000 difficulties like these could result in the loss of
sales or availability of our products and services. In addition, if year 2000
difficulties occur, we could be subject to litigation by customers or
shareholders.

In addition, because our internal systems utilize third party hardware and
software, residual year 2000 problems affecting third parties' hardware and
software could cause our internal systems to fail. If residual year 2000
problems cause the failure of any of the technology, software or systems
necessary to use our products or operate our business, we could lose customers,
suffer significant disruptions in our business, lose revenues and incur
substantial liabilities and expenses. This would harm our business, financial
condition and results of operation.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 is effective for fiscal years beginning after June 15, 1999. SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on whether a
derivative is designed as part of a hedge transaction and, if so, the type of
hedge transaction. We do not expect that the adoption of SFAS No. 133 will have
a material effect on our financial statements.

In December 1999, the Commission issued Staff Accounting Bulletin No. 101 or SAB
101 "Revenue Recognition in Financial Statements," which provides guidance on
the recognition, presentation and disclosure of revenue in financial statements
filed with the Commission. SAB 101 outlines the basic criteria that must be met
to recognize revenue and provides guidance for disclosure related to revenue
recognition policies. We believe that the impact of SAB 101 will not have a
material effect on our financial position or results of operations.

INFLATION

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

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BUSINESS

OVERVIEW

We capture content in over 90 of the top 100 metropolitan areas across the
United States and Canada utilizing our extensive managed network of
photographers. After content is captured, images are prepared for distribution
at our high volume processing centers or through an individual's use of our
processing software. Our scaleable hosting and distribution infrastructure with
ViewAlways technology is designed to rapidly deploy visual content and other
digital media across the Internet. We can seamlessly distribute visual content
and other digital media to our expanding network of over 150 affiliate web sites
maintained by AOL, Cendant, HomeSeekers.com, Microsoft CarPoint, Microsoft
HomeAdvisor, MyFamily.com and Realtor.com. We generate revenues when we deliver
our end-to-end solutions or when a customer uses our technology to create an
iPIX immersive image. In addition, we may also generate revenues if we host and
distribute visual content and other digital media created by our customers.

Our solutions are designed for many types of digital media content, including
still images, immersive images, slide shows, video, animation and audio. We have
developed patented technology for the creation of 3608 by 3608 immersive images
which we believe offer the most compelling visual content for the Internet. iPIX
immersive images capture the world as we see it, providing a complete field of
view - from ground to sky, floor to ceiling, horizon to horizon. We also intend
to offer new products such as live and pre-recorded immersive video that will
capitalize on the increasing availability of broadband networks.

Industry leading companies use our end-to-end visual content solutions to
attract and retain web site visitors and enhance their e-commerce and marketing
initiatives. We have targeted the following global vertical markets: real
estate, travel and hospitality, automotive, e-retail, electronic publishing and
education, entertainment. Our customers include Carnival Cruise Lines, Cendant,
Century 21, CNN, Coldwell Banker, Discovery.com, Disney, ERA, General Motors,
Hilton Hotels, Intel, Microsoft, Prudential Real Estate, RE/MAX, Rent.Net,
Swissotel, The Washington Post, Ticketmaster Online-Citysearch and Warner
Brothers.

INDUSTRY BACKGROUND

Growth of e-Commerce

The emergence of the Internet and secure transaction networks has generated
significant opportunities for businesses and consumers to conduct electronic
commerce. International Data Corporation, or IDC, estimates e-commerce revenues
will grow from approximately $130 billion worldwide in 1999 to $1.6 trillion
worldwide by 2003. According to Jupiter Communications, revenue derived from
online travel bookings will grow from $4.2 billion in 1999 to $16.6 billion by
2003. Additionally, Jupiter Communications estimates that online classified
advertising will grow from $173 million in 1998 to $1.4 billion in 2003. This
widespread adoption of the Internet as a business and communications medium has
introduced rapid changes in the way information is produced, distributed and
used.

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Demand for Effective Online Content

The popularity of the Internet has resulted in substantial growth in the number
and types of web sites. According to IDC, the number of URLs on the web is
estimated to grow from 2.2 billion in 1999 to 4.3 billion in 2000. Due to this
dramatic increase, operators of web sites must devote significant time and
resources to attract and retain site traffic and generate online transactions.

In order to fulfill these objectives, companies are seeking more compelling
visual content and other digital media to significantly enhance the quality of
their online presence. Technological innovations, such as immersive images, web
cams and streaming video, offer businesses the opportunity to provide online
visual content of a more realistic and interactive nature. By using these
innovations, businesses can increase the frequency and duration of web site
visits, potentially accelerating e-commerce transactions and increasing
advertising revenues.

Need for End-to-End Solutions for Visual Content and Other Digital Media

The capture and processing of visual content and other digital media combined
with the need for highly reliable hosting and broad distribution requires time,
technical expertise, extensive relationships and resources. For example,
providing a nationwide content capture network requires the management of
relationships with hundreds of photographers across broad geographic areas. In
addition, preparing digital media content for Internet distribution requires
varying degrees of processing technology, quality assurance and image and
multimedia enhancement. Further, delivering large volumes of visual content and
other digital media to a wide variety of e-commerce web sites and Internet
portals requires a highly scalable and reliable infrastructure as well as the
development and maintenance of affiliate relationships. As a result, businesses
are searching for a comprehensive provider of outsourced solutions so that they
can focus on their core competencies without having to develop and maintain
their own digital media infrastructure.

THE IPIX SOLUTION

We provide complete visual content and digital media solutions to businesses and
consumers across the Internet. Our end-to-end solutions include the capture,
processing, hosting and distribution of visual content and other digital media
for our customers. Our solutions enable business customers to enhance their
online presence, thereby promoting increased web site traffic, repeat usage and
e-commerce transactions.

Our solutions are designed for many types of digital media content, including
still images, immersive images, slide shows, video, animation and audio. We have
developed patented technology that utilizes a standard digital camera fitted
with a fisheye lens to create 360 degrees by 360 degrees immersive images. We
believe that iPIX immersive images, alone or combined with other digital media
such as audio, video and animation, can provide businesses with more compelling
content in order to attract and retain web site visitors. Our hosting and
distribution infrastructure with ViewAlways technology seamlessly delivers
digital media content to web sites accessed from a variety of platforms,
including personal computers and wireless devices. We have also recently
introduced iPIX Movies, our new technology that combines the interactivity of
our immersive images with full-motion video.

Content Capture and Processing

We offer two options for content capture and processing. For our end-to-end
solutions, we utilize a nationwide managed network of photographers enabling us
to capture content in over 90 of the top 100 metropolitan areas across the
United States and Canada.

After the content has been captured, customers who use our end-to-end solutions
have their images prepared for distribution at our high volume processing
centers. Alternatively, customers can purchase an iPIX kit and iPIX keys to
capture and process their own immersive images. Either option creates an iPIX

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immersive image that has a small file size, typically between 25 and 160
kilobytes, and can be quickly delivered, even across low bandwidth systems.

Hosting and Distribution

Our scalable hosting and distribution capabilities are designed to efficiently
and reliably deliver digital media content, including iPIX immersive images,
over the Internet to a broad network of customer and affiliate web sites. By
utilizing our hosting and distribution capabilities, our customers can leverage
our infrastructure and expanding affiliate network to manage and distribute
digital media content. We currently have over 150 web sites that are part of our
affiliate network. Our scalable infrastructure with ViewAlways technology
provides our customers with reliable and high speed delivery of images to
multiple user platforms including personal computers and wireless devices.

THE IPIX STRATEGY

The key elements of our growth strategy are as follows:

Enhance Our Leadership Position in Visual Content and Digital Media Solutions

We intend to enhance our leadership position as a provider of visual content and
other digital media solutions for the Internet. To achieve this goal, we focus
our business development, direct sales, marketing and technology development
activities on targeted vertical markets including real estate, e-commerce and
new media. Leading companies in these vertical markets have significant need for
a comprehensive provider of visual content and other digital media solutions to
enhance their online presence and accelerate e-commerce transactions. As a
comprehensive provider of outsourced visual content and digital media solutions,
we have been able to develop extensive relationships with leading customers, web
site affiliates and Internet infrastructure companies. For example, our
affiliate network within the real estate industry enables us to broadly
distribute digital media content to all the leading destination web sites
including CyberHomes, Homebuilder.com, Homes.com, HomeSeekers.com, LoopNet,
Microsoft HomeAdvisor, Move.com, Realtor.com and Rent.Net. Through these
relationships, our digital media content is available on AOL, Excite@Home, GO
Network/Infoseek and Yahoo! In addition, our strategic relationships with Exodus
and Akamai significantly enhance our ability to deliver digital media content
quickly and reliably on a global basis across the Internet. We will continue to
leverage our infrastructure, strategic relationships and intellectual property
and resources to extend the leadership position of our visual content and
digital media solutions into a variety of targeted vertical markets.

Leverage Our End-To-End Solutions To Generate Multiple Revenue Sources

We can derive revenues from each aspect of our end-to-end solutions enabling us
to maximize our revenue opportunity with each customer. For example, when a
hotel resort or online e-commerce web site requests an iPIX immersive image of a
property or item for sale, we can charge that customer a fee for capturing and
processing the images of the property or sale item. If requested by the
customer, we also have the ability to host those images or other
customer-created images on our web servers and can distribute that visual
content to the customer's web site and our affiliates for an additional
recurring fee. In addition, we can generate revenue from advertising and online
transactions primarily driven through the e-mail version of iPIX immersive
images. Each component of our digital media content solutions may be purchased
together as a part of our end-to-end solutions, or separately, based on each
customer's request or need.

We also generate revenues from each self-service customer with their initial
purchase of an iPIX kit and subsequent purchases of iPIX keys. Further, some of
these customers may request that we host these images for them, in which case we
charge our applicable hosting and distribution fee. We also generate revenues
when we syndicate our archived digital content.

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Expand Our Visual Content Infrastructure With New Offerings

We will continue to invest in research and development to expand the features
and capabilities of our solutions and to develop new offerings. In particular,
we are developing iPIX Movies and iPIX Webcam which will take advantage of the
increasing availability of broadband networks. In addition, our agreement to
acquire PictureWorks accelerates our ability to accept user-submitted digital
media content for hosting and distribution. By continuing to add and integrate
new technologies into our existing infrastructure, we will enhance our visual
content and other digital media solutions and thereby create additional revenue
opportunities.

Among our new offerings are:

iPIX Movies. We recently introduced our newest offering, iPIX Movies, at the
Sundance Film Festival in Park City, Utah. iPIX Movies combines the
interactivity of our immersive images with full-motion video. With iPIX Movies,
viewers may simultaneously and independently select multiple fields of view and
navigate within a full-motion video. We were selected to demonstrate iPIX Movies
at the 10th Annual Technology, Entertainment and Design Conference, or TEDX,
where new media and technology trends are discussed among the industry's
leaders. We believe this technology may be utilized by the entertainment and
travel and hospitality industries.

iPIX Webcam. Another offering is the iPIX Webcam. This technology would permit
the automated remote capture, creation and transmission of 1808 by 1808 iPIX
images over the Internet. The iPIX image is continuously updated and can be
viewed on a personal computer or other Internet-enabled devices. In addition to
complimenting the digital media content solutions we offer to all of our current
targeted vertical markets, we anticipate that the entertainment, travel and
hospitality, child care and security industries are possible commercial
applications for this offering.

Expand Strategic Relationships

We believe that our strategic relationships with a variety of companies provides
us with a competitive advantage. We have contracts with several photography
network operators to enable us to quickly and efficiently respond to capture
requests in over 90 of the top 100 metropolitan areas across the United States
and Canada. We also have relationships with Internet portals and vertical market
destination web sites maintained by AOL, Cendant, Homestore.com, Microsoft
CarPoint and Ticketmaster Online-Citysearch. These relationships provide us with
the ability to broadly distribute digital media content for our customers. We
have established relationships with Exodus and Akamai to enhance our ability to
deliver visual content and other digital media to web sites quickly and with
high reliability. We also work with Kodak, Nikon and Olympus to integrate our
technology into their product offerings in order to increase the availability
and use of iPIX self-service imaging solutions.

Expand Internationally

We intend to capitalize on what we believe to be a significant opportunity for
our visual content and digital media solutions in international markets. We have
established a European subsidiary in London, England, and we plan to expand our
content capture network in Europe and to offer our end-to-end solutions in these
markets. We also intend to develop local sales and technical support
capabilities in this region. We have also entered into reseller arrangements
with strategic partners in Japan and Australia.

VISUAL CONTENT AND OTHER DIGITAL MEDIA SOLUTIONS

We offer visual content and other digital media solutions that enable businesses
to maximize the success of their online presence. We deliver comprehensive
end-to-end solutions to businesses that include the capture, processing, hosting
and distribution of visual content and other digital media to the web sites of
our customers and affiliates.

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Our solutions are designed for many types of digital media, including still
images, immersive images, slide shows, video, animation and audio. This digital
media content may be created by iPIX or submitted by the customer. For our
end-to-end solutions, a customer will typically contact us via phone, online,
fax or e-mail to request the creation, hosting and distribution of an iPIX
immersive image or other digital media content. A customer service
representative receives this order and sends the request to a member of our
photographer network. The photographer captures the image using iPIX technology
and transmits the captured image to our processing centers. The receiving
processing center completes a quality assurance check on all images and then
either delivers the image back to the customer or stores it on our web servers
for distribution to the web sites of our customers and affiliates. In addition,
we offer iPIX kits and iPIX keys that enable customers to create their own
immersive images, which we can then host and distribute. We also can host and
distribute a growing archive of iPIX images from around the world, such as the
Grand Canyon, the Great Wall of China and the Eiffel Tower. These images are
submitted by both our content capture network and freelance photographers.

Immersive Imaging Solutions

The following are some of our immersive imaging offerings:

- - iPIX Immersive Images. Our patented technology creates iPIX immersive images
by combining two 185 degrees film or digital photographs taken with a fisheye
lens into one 360 degrees by 360 degrees spherical image. Our technology
automatically compensates for any minor error in camera placement and corrects
the distortion inherent in these photographs. The resulting immersive image
can be viewed in any direction, up-down, left-right, and horizon to horizon.
The viewer can easily navigate the image by moving a cursor inside the image.

- - iPIX Movies. Our patented technology now allows us to offer full-motion
immersive video using standard film or digital imaging. iPIX Movies enable
multiple viewers to simultaneously and independently select their own field of
view within a 360 degrees by 360 degrees video stream. We recently premiered
iPIX Movies to attendees of the Sundance Film Festival in cooperation with
Creative Artists Agency. In addition, we have produced iPIX Movies for
Discovery.com and the Hawaii Convention and Visitors Bureau.

With the increasing availability of broadband networks, we believe iPIX Movies
will become the standard for streaming video content over the Internet.
Multiple streams of iPIX Movies could be delivered to a home using a digital
cable network, satellite or other broadband network. In addition to
entertainment, iPIX Movies could be used in commercial applications such as
the security, teleconferencing and surveillance industries. Our goal is to
become the leader in the field of full-motion immersive video by aggressively
pursuing and developing these commercial market applications.

- - iPIX Webcam. Existing web cam technology continuously captures and transmits
two-dimensional digital images over the Internet. We have developed a web cam
which will permit the automated remote capture, creation and transmission of
180 degrees by 180 degrees navigable hemispherical iPIX images over the
Internet. The iPIX image is continuously updated and can be viewed on a
variety of Internet-enabled devices. iPIX Webcam will enable different users
to view the same iPIX image and independently control their field of view. We
are currently engaged in a beta test with some of our customers to further
refine this technology prior to commercial availability. The entertainment,
travel and hospitality, child care and security industries are potential
commercial markets for this technology.

Rimfire

Our Rimfire Internet media offering is an end-to-end, fully automated and hosted
infrastructure solution that addresses the preparation, submission, processing,
transformation and deployment of media for web sites across the Internet. On a
Rimfire-enabled site, user submission of media is as simple as drag-and-drop of
the media file from the user's computer onto a web page. Through processes that
are instantaneous
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and invisible to the user, Rimfire automatically formats and sizes the image to
the target web site's specifications. At the same time, on behalf of the target
web site, Rimfire handles all of the data and media management, transformation,
hosting and distribution requirements associated with the digital media. We
believe that the addition of Rimfire technology to our digital media
infrastructure will allow web sites, including portals and destination sites, to
outsource their user-supplied media tasks in the future in much the same way
that functions such as search, email and chat are outsourced today.

Other Digital Media Content

Multimedia capabilities can be added to iPIX visual content to enhance the
overall experience. Multimedia enhancements can include the linking of a series
of iPIX images and the addition of other multimedia content, such as video,
audio, animation and textual information. The finished solution can be hosted on
our web server infrastructure or can be combined with other digital multimedia
features such as Macromedia Director to provide an attractive interactive
product. For example, PBS and Intel incorporated iPIX images into a digital
television broadcast of the Ken Burns documentary on Frank Lloyd Wright.

Self-Service Products

- - iPIX Kits. An iPIX kit contains all the necessary components for a user to
create their own iPIX immersive image, including a digital camera, fisheye
lens, rotator, tripod, software and an initial amount of iPIX keys.

- - iPIX Keys. An iPIX key is an encryption tool that enables the user to save a
single iPIX immersive image captured using an iPIX kit. One iPIX key enables
the user to save one iPIX image, just as one film negative enables the
creation of one film photograph. iPIX kit owners can purchase additional keys
through our web site or through our toll-free order system.

We price our keys on the basis of the potential number of viewers of an iPIX
immersive image and the useful life and utility of the iPIX immersive image.
We modify iPIX keys based on usage so that the saved iPIX immersive image may
have a limited viewing lifetime or audience or may be limited to specific
distribution.

AFFILIATE WEB SITES

We distribute visual content and other digital media content to a network of
affiliate web sites, including Internet portals and vertical market destination
sites. These affiliate relationships allow us to broadly distribute digital
media content, thereby enhancing the online presence of our customers as well as
our affiliates. We currently have over 150 affiliates, including AOL, Cendant,
Homestore.com, Microsoft CarPoint, Microsoft HomeAdvisor and Send.com.

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CUSTOMERS AND MARKETS

We have directed our initial sales efforts at industry leaders within targeted
vertical markets. The following is a description of our targeted vertical
markets and representative customers within these segments.

<TABLE>
<CAPTION>
REPRESENTATIVE CUSTOMERS
-------------------------------------------
<S> <C>
Real estate................................ Better Homes and Gardens, Century 21,
Coldwell Banker, ERA, Prudential Real
Estate, Rent.Net, RE/MAX
Travel and hospitality..................... Carnival Cruise Lines, Disney Vacation
Club, Hilton Hotels, Holiday Inn, Hyatt
Hotels, Marriott, Swissotel, Travelocity
Automotive................................. AutoVantage, General Motors, Microsoft
CarPoint, Saab, Toyota
e-Retail................................... Send.com, Ticketmaster Online-Citysearch
Electronic publishing...................... Associated Press, CNN, Chicago Tribune,
Excite@Home, Knight-Ridder, The New York
Times, Reuters, The Washington Post, The
Weather Channel
Education and entertainment................ ABC, Discovery.com, Dreamworks SKG, Duke
University, E! Online, Fox, HGTV, IBM
Worldbook, MGM, MTV, NBA, NBC, NFL,
National Geographic, PBS, Paramount Parks,
The Walt Disney Company, Warner Brothers
</TABLE>

REAL ESTATE

Residential and commercial real estate companies and professionals use our
solutions to provide online iPIX immersive images of properties including
existing homes, new homes, rental apartments and office buildings and their
surrounding areas. Users can access iPIX immersive images at any time that is
convenient for them through our affiliate real estate destination web sites such
as Realtor.com, Microsoft HomeAdvisor and Rent.Net. Our digital media content
solutions allow real estate companies and professionals offering real estate for
sale or lease to use the Internet to provide more visual information about the
property to prospective buyers. Our solutions enable real estate professionals
to cost-effectively market properties to a wide audience, thereby providing a
value-added service to both buyers and sellers. Our affiliate network within the
real estate industry enables us to broadly distribute digital media content to
all the leading destination web sites including CyberHomes, Homebuilder.com,
Homes.com, HomeSeekers.com, LoopNet, Microsoft HomeAdvisor, Move.com,
Realtor.com and Rent.Net. As a result of these relationships, our iPIX immersive
images can currently be viewed on web sites maintained by AOL, Excite@Home, GO
Network/Infoseek and Yahoo! Our solution helps to increase the convenience,
usefulness and enjoyment of their users' visits. We believe that these benefits
promote increased traffic and repeat usage on our affiliates' web sites.

E-COMMERCE

Travel and Hospitality. Hotel chains, vacation resorts, cruise lines, golf
courses, restaurants, theme parks, major tourist attractions and tourism bureaus
use our digital media content solutions to enhance their online marketing. iPIX
immersive images provide a prospective visitor the opportunity to take online
tours of rooms, meeting and conference facilities and attractions. Our visual
content and digital media solutions enable consumers to more effectively
research, plan and reserve travel arrangements over the Internet. Further,
online tours allow destination operators to feature premier packages as well as
showcase specific

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destinations. We distribute our customer's digital media content to their own
web sites and to selected travel destination affiliate web sites.

Automotive. Automobile companies use iPIX immersive images to create virtual
showrooms and highlight differences between different models and their
respective option packages. Consumers can experience a realistic perspective of
both the interior and exterior of a car while receiving on-screen descriptions
of particular features.

e-Retail. Online retailers and other e-commerce sites utilize iPIX images to
advertise their product and service offerings and accelerate electronic
commerce. For example, when Ticketmaster launched the My Ticketmaster web site,
they used iPIX images of stadium and concert venues to allow customers to view
their seat location before purchasing a ticket online. Our e-retail customers
either purchase iPIX kits to create their own iPIX images or utilize our
end-to-end solutions to create iPIX images for them.

NEW MEDIA

Electronic Publishing. Broadcasters and publishers incorporate iPIX images on
their web sites to enhance their reporting and coverage of major news events.
Also, local city guides and online classified advertisers are beginning to use
iPIX images to enhance the information on their web sites and enhance online
advertising. These companies typically own their own digital cameras and
purchase iPIX keys on a per key basis. We are exploring the potential of
offering our hosting and distribution infrastructure to our electronic
publishing customers.

Education and Entertainment. Education and entertainment industry leaders use
iPIX images to enhance the appeal and functionality of their products and web
sites. In particular, these customers provide significant exposure for our brand
and products. For example, IBM features iPIX images in their 1999 IBM Worldbook
electronic encyclopedia. Also, we have created iPIX online tours of movie sets
to help promote the release of feature films. Our education and entertainment
clients request our full service solution and purchase iPIX kits and iPIX keys
to create their own iPIX images. To increase our penetration into this market,
we have engaged Creative Artist Agency to serve as our representative to promote
and market our technology to the entertainment industry.

INTERNATIONAL

Through our European subsidiary in London, England and our strategic
relationships with resellers in Japan and Australia, we market our technology to
international customers. We are developing a sales and technical support team to
begin offering our end-to-end solutions in European markets. We believe that our
strategy of targeting vertical markets can be applied on a global scale as usage
of the Internet grows internationally. We intend to continue to seek new
international strategic relationships and expand into new global markets.

SALES AND MARKETING

Our marketing efforts focus on increasing brand awareness and supporting our
digital media content solutions. Using this strategy, we intend to acquire new
customers for our end-to-end solutions, increase purchases of iPIX kits and iPIX
keys and develop new sales opportunities. Our marketing efforts include
traditional and Internet advertising as well as direct mailings, participation
in trade shows, co-marketing with strategic partners and public relations
campaigns.

Our sales and marketing group focuses on vertical markets and targets industry
leaders. As of March 31, 2000, the direct sales team consisted of 143 employees
who operate out of our headquarters and our multiple national and international
sales offices. We also have established a telesales team that targets potential
business customers. Our telesales team also provides support for the direct
sales teams

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and fields inquiries from our web site and toll-free customer service number. As
of March 31, 2000, we had 14 employees on our telesales team.

We maintain a customer relations department with 43 employees as of March 31,
2000. Our customer relations personnel answer inquiries regarding our offerings
and respond to technical questions. Our service personnel also perform quality
assurance checks on each component included in an iPIX kit prior to shipping and
process customer service inquiries concerning order status, shipping
information, returns and exchanges.

Our business development team, based in Palo Alto, California, is focused on
developing strategic relationships and opening sales channels with potential
partners and customers in our targeted vertical markets. As of March 31, 2000,
we had 14 employees on our business development team.

Revenues from Royal LePage, a leading Canadian real estate brokerage firm,
represented 25% of total revenues for bamboo.com for the fiscal year ended
December 31, 1997 and 77% of total revenues for bamboo.com for the fiscal year
ended December 31, 1998.

TECHNOLOGY

Content Capture Technology

Our patented technology creates iPIX immersive images by combining two film or
digital photographs taken with a fisheye lens into one 360(degrees) by
360(degrees) spherical image. Our software corrects the distortion inherent in
these photographs. A person may view the resulting image in any direction, and,
if desired, save the image utilizing an iPIX key for posting to a web site,
transmitting by e-mail or saving to any storage device. iPIX images can be
downloaded rapidly and can be viewed and navigated with our software plug-in or
any standard viewer enabled with Java.

Hosting and Distribution Technology

Visual content and other digital media may be hosted on our web server
infrastructure and distributed across the Internet to our customers and network
of affiliate web sites. Once visual content or other digital media is stored on
our web servers, it is made available for display in web pages using proprietary
software. Our affiliates automatically receive notifications of new content for
their sites. Notification is accomplished using an electronic data interchange
system that we have developed and continue to maintain. Our distribution system
architecture uses extensible mark-up language, or XML, and other data
interchange formats over multiple Internet standard protocols.

Our hosting infrastructure for visual content is based on Sun Solaris and Linux
systems relying on a variety of routing, load distribution and storage hardware.
Digital media content is distributed over the Internet using a variety of
networking services, including Akamai's Freeflow service which delivers improved
access to rich content. Our hosting infrastructure is monitored 24 hours per
day, seven days per week by internal and external services with daily reporting
delivered to us and our customers and affiliates.

Viewing Technology

Our proprietary viewing technology enables immersive visual content to be viewed
on the Internet as well as distributed via e-mail and run as a stand-alone
application. For web-based visual content, our ViewAlways system automatically
identifies the user's browser type and selects either a Java or HTML immersive
image depending on the browser's ability to view Java applets. If the browser
cannot view Java applets, the image information is displayed using HTML and
still images. Our ViewAlways technology enables images to be viewed on a variety
of computer platforms using standard web browser software. Our e-mail immersive
image format is based upon our proprietary stand-alone viewer platform and can
be

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<PAGE> 43

viewed on any computer running Microsoft's Windows 95, Windows 98, Windows NT or
Windows 2000 operating systems.

Customer Relationship Management Technology

We have developed and implemented a customer relationship management, or CRM,
system hosted on a Sun Solaris platform. Our CRM system contains and manages
customer and order information and facilitates an effective and scalable
relationship with our customers. It allows us to manage customer relationships
through many channels of interaction including the Internet, phone, e-mail, fax
and directly through sales and service representatives. All of our sales,
service and support groups make extensive use of our CRM system. The information
contained in our CRM system drives the distribution of visual content through
our affiliate network.

RESEARCH AND DEVELOPMENT

We have made substantial investments in research and development. We continue to
develop enhancements to our technology and pursue new offerings. Our technology
development is focused on creating new products and services that compliment our
existing customer base and back-end infrastructure. In addition, we are pursuing
technologies compatible with the increasing availability of broadband networks
and higher resolution cameras. As of March 31, 2000, we employed 55 employees
dedicated to research and development.

COMPETITION

The market for visual content and other digital media solutions is new and
rapidly evolving. As the demand for visual content solutions increases, we
expect competition to intensify. We also compete with other providers of
immersive imaging technology including Be Here Corp. and MGI Software. We do not
believe any of our competitors are dominant in this industry. We compete with
these companies on the basis of ease of use, reliability, end user experience
and price. Some of our competitors may have greater financial, marketing,
distribution and technical resources than we have. We also compete with
traditional offline methods of marketing real estate properties, including
classified ads, brochures and still photos. Our success will be dependent on our
ability to compete with these and any other competitors on the quality of our
solutions and their cost effectiveness. There is no assurance that we will be
successful in that competition.

INTELLECTUAL PROPERTY

We rely on a combination of patent, copyright, trade secret and trademark laws
and contractual restrictions to establish and protect proprietary rights in our
products. Our patents are intended to protect and support current and future
development of our technology. In the United States, we have ten issued patents
and 11 patent applications pending. We also have recently been issued a patent
in Japan and have 20 international patent applications pending. In addition, we
license related patents and associated international filings from Motorola under
the terms of a non-royalty bearing license agreement. Motorola has a limited
right to license our patents, and Motorola's consent must be obtained before we
can execute any grant of an exclusive license to our patents in excess of one
year. In addition, upon the close of the acquisition of PictureWorks, we will
acquire a license of technology owned by Sarnoff Corporation. PictureWorks also
has filed two pending patent applications for their Rimfire software.

We believe that the ownership of patents is presently a significant factor in
our business. However, our success depends primarily on the innovative skills,
technical competence and marketing abilities of our personnel. In addition,
there can be no assurance that our current and future patent applications will
be granted, or, if granted, that the claims covered by the patents will not be
reduced from those included in our applications. We have entered into
confidentiality and invention assignment agreements with

40
<PAGE> 44

substantially all of our employees and entered into non-disclosure agreements
with our suppliers, distributors and appropriate customers to limit access to
and disclosure of our proprietary information. We must also guard against the
unauthorized use or misappropriation of our technology by third parties. We have
experienced wrongful use in the past, and although we have taken steps to stop
that use, we expect to experience more attempts in the future. There can be no
assurance that the statutory and contractual arrangements we currently depend
upon will provide sufficient protection to prevent misappropriation of our
technology or deter independent third-party development of competing
technologies.

We pursue the protection of our trademarks in the United States and, based upon
anticipated use, internationally. The laws of some foreign countries might not
protect our products or intellectual property rights to the same extent as the
laws of the United States. Effective patent, trade secret and trademark
protection may not be available in every country in which we market or license
our products.

Claims by third parties that our current or future products infringe upon their
intellectual property rights may have a material adverse effect on us.
Intellectual property litigation is complex and expensive, and the outcome of
this litigation is difficult to predict. We have been involved in litigation
relating to the protection of our intellectual property rights. Any future
litigation, regardless of outcome, may result in substantial expense to us and
significant diversion of our management and technical personnel. An adverse
determination in any litigation may subject us to significant liabilities to
third parties, require us to license disputed rights from other parties, if
licenses to these rights could be obtained, or require us to cease using the
technology.

LITIGATION

On October 28, 1998, Minds-Eye-View, Inc. and Mr. Ford Oxaal filed a lawsuit
against us in the United States District Court for the Northern District of New
York. Minds-Eye alleged in its lawsuit that we breached a duty of confidence to
them, made misrepresentations and misappropriated trade secrets. The plaintiffs
alleged that our technology wrongfully incorporated trade secrets and other
know-how gained from them in breach of various duties. The court removed this
action to arbitration upon our motion, and we cross-claimed alleging various
affirmative claims, including trade secret theft. Minds-Eye and Mr. Oxaal filed
a motion to dismiss the suit, and the court dismissed the lawsuit on May 19,
1999. Although the lawsuit was dismissed, we anticipate that the arbitration
will proceed in Knoxville, Tennessee in the summer of 2000 to decide our
affirmative claims against Mr. Oxaal.

On May 20, 1999, Mr. Oxaal filed a lawsuit against us, Kodak, Nikon and Cendant
in the same court alleging that our technology infringes upon a patent claim for
360(degrees) spherical visual technology held by him. Mr. Oxaal claims that this
alleged infringement is deliberate and willful and is seeking treble damages
against us in an unspecified amount plus interest, an accounting by us, costs
and attorney's fees, in addition to a permanent injunction prohibiting the
alleged infringement of his patent by us. We have asserted defenses to Mr.
Oxaal's claims as we believe we did not infringe any valid claims of his patent.
We believe that Mr. Oxaal's claims are without merit and we intend to vigorously
defend against his claims. However, if Mr. Oxaal were to prevail in this
lawsuit, our financial condition, results of operations and cash flows could be
materially adversely affected.

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 or results of operations.

EMPLOYEES

As of March 31, 2000, we employed 388 full-time employees in the United States,
109 full-time employees internationally, and 150 full-time equivalent
independent contractors in Canada. Our employees are not covered by any
collective bargaining agreements. We believe that our employee relations are
good. There is significant competition for employees with the managerial,
technical, marketing, sales and other

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<PAGE> 45

skills required to operate our business. Our success will depend upon our
ability to attract, retain and motivate employees.

FACILITIES

We lease approximately 44,043 square feet of space in Oak Ridge, Tennessee for
our corporate office and operations and 15,656 square feet in Palo Alto,
California for our co-headquarters. The Oak Ridge lease expires October 8, 2002
and the Palo Alto leases expire on February 28, 2002 and September 30, 2003. We
also lease office space in Toronto, Canada for our processing and customer
service call center. Our Toronto lease expires in April, 2008. We lease space in
Japan, the United Kingdom, Chicago, Fort Lauderdale, Marshfield, Massachusetts,
Naples, Florida, New York City, San Diego and San Jose for our field sales
offices.

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<PAGE> 46

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following sets forth information with respect to our directors and executive
officers as of March 1, 2000:

DIRECTORS AND OFFICERS

<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
James M. Phillips.......... 48 Chairman of the Board and Chief Executive Officer
Jeffrey D. Peters.......... 48 President
John J. Kalec.............. 49 Chief Financial Officer and Executive Vice President
Mark R. Searle............. 37 Chief Operating Officer and Executive Vice President
Matthew S. Heiter.......... 39 Executive Vice President, General Counsel and
Secretary
Steven L. Hicks............ 50 Chief Knowledge Officer and Executive Vice President
Andre L. Marquis........... 36 Chief Technology Officer and Senior Vice President
Donald W. Strickland....... 50 Executive Vice President
Steven D. Zimmermann....... 41 Senior Vice President and Corporate Fellow
Michael D. Easterly........ 53 Director
John S. Hendricks.......... 47 Director
Laban P. Jackson, Jr....... 58 Director
Kevin B. McCurdy........... 26 Director
Leonard B. McCurdy......... 53 Director
John Moragne............... 43 Director
John H. Trezevant.......... 48 Director
</TABLE>

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

JAMES M. PHILLIPS has been the chairman and chief executive officer of iPIX
since January 2000. Mr. Phillips served as the chairman and chief executive
officer of Interactive Pictures from March 1997 to January 2000 and was a member
of Interactive Pictures' board of directors from 1995 until January 2000. From
June 1995 to March 1997, Mr. Phillips was corporate vice president of Motorola,
Inc.'s multimedia markets division, a division that manufactures, markets and
sells cable modems and other advanced telecommunications products and systems.
From June 1994 to June 1995, Mr. Phillips was vice president and general manager
for Motorola's personal communication systems division, a division that designs,
manufactures, markets and distributes PCS subscriber and infrastructure systems
and equipment and other intelligent devices. Mr. Phillips also serves on the
Fogelman School of Business board of advisors at the University of Memphis and
on the Chancellor's advisory council for enhancement for the University of
Tennessee, and as a director of Tennessee Technology, Inc. and the East
Tennessee Economic Council. Mr. Phillips holds a bachelor's degree and a
master's degree in business administration from the University of Memphis.

JEFFREY D. PETERS has been the president of iPIX since January 2000. Mr. Peters
joined Interactive Pictures in August 1998 and served as its president and chief
operating officer until January 2000. From February 1996 to August 1998, Mr.
Peters was vice president/general manager of Eastman Kodak Company's digital
imaging group. From September 1991 to February 1996, Mr. Peters was vice
president and general manager of the semiconductor sector of Harris Corporation.
Mr. Peters holds a bachelor's degree from the University of Michigan and a
master's degree in business administration from the Florida Institute of
Technology.

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<PAGE> 47

JOHN J. KALEC has been the chief financial officer and executive vice president
of iPIX since January 2000. Mr. Kalec joined Interactive Pictures in August 1998
and served as vice president and chief financial officer until January 2000.
From August 1996 to August 1998, Mr. Kalec was chief financial officer of
Clayton Homes, Inc., a company specializing in manufactured housing
headquartered in Knoxville, Tennessee. From January 1996 to August 1996, Mr.
Kalec served as senior vice president of Philips Lighting Americas. From July
1992 to December 1995, he served as managing director, finance and accounting
for Philips Components International B.V., located in Eindhoven, the
Netherlands. Mr. Kalec holds a bachelor's degree in business administration from
Lewis University and a master's degree in accountancy from DePaul University.
Mr. Kalec is a director of Clayton Homes, Inc.

MARK R. SEARLE has been the chief operating officer and executive vice president
of iPIX since January 2000. Mr. Searle served as chief operating officer of
bamboo.com from January 1999 until January 2000. From October 1997 to November
1998, Mr. Searle served as the chief operating officer of Cybergold, Inc., an
online incentive marketing company. From December 1994 to April 1997, Mr. Searle
served as the vice president of operations and chief operating officer of
Plynetics Express Corporation, a rapid prototyping company. From August 1994 to
December 1994, Mr. Searle served as a senior consultant for Deloitte & Touche,
LLP. Mr. Searle holds a bachelor of arts in English and creative writing from
Princeton University and a master's degree in business administration from the
Harvard Graduate School of Business.

MATTHEW S. HEITER has been the executive vice president, general counsel and
secretary of iPIX since January 2000. Mr. Heiter served as vice president,
secretary and general counsel of Interactive Pictures from October 1999 until
January 2000. Mr. Heiter was a shareholder in the law firm of Baker, Donelson,
Bearman & Caldwell, P.C. from May 1996 to October 1999. Prior to this time, Mr.
Heiter was a partner in the law firm of Waring Cox, P.L.L.C. Mr. Heiter holds a
bachelor's degree in political science from the University of Mississippi and a
juris doctor from Vanderbilt University Law School.

STEVEN L. HICKS has been the chief knowledge officer and executive vice
president of iPIX since February 2000. From March 1997 until February 2000, Mr.
Hicks was chief technology officer of E.W. Scripps where he was responsible for
the company's web infrastructure. From May 1995 until March 1997, Mr. Hicks
served as president and founder of Interactive Solutions where he developed
business plans for Internet startups to secure funding. Mr. Hicks has served on
the board of directors of Tech 2020 and the Jones/Taylor Venture Fund. Mr. Hicks
holds a bachelor's degree in accounting and finance from Ohio State University
and is a certified public accountant.

ANDRE L. MARQUIS has been chief technology officer and senior vice president of
iPIX since January 2000. Mr. Marquis served as vice president of product
development for bamboo.com from January 1999 until January 2000. From February
1998 until November 1998, Mr. Marquis served as vice president of marketing and
founder of Accept.com. From May 1996 to February 1998, Mr. Marquis served as
director of marketing for CyberGold, Inc. Mr. Marquis holds a bachelor's degree
from the University of Rochester and master's degree in business administration
from the University of California at Berkeley.

DONALD W. STRICKLAND has served as Executive Vice President of iPIX since April
2000. Prior to joining us, Mr. Strickland was president and chief executive
officer of PictureWorks Technology, Inc. from March 1996 until March 2000. From
June 1993 until March 1996, Mr. Strickland held the position of vice president,
Imaging and Publishing at Apple Computer. Prior to joining Apple in June 1993,
Mr. Strickland spent twenty years at Eastman Kodak Company where he held a
succession of positions in engineering, sales, marketing and executive
management.

STEVEN D. ZIMMERMANN has been the senior vice president and corporate fellow of
iPIX since January 2000. Mr. Zimmermann rejoined Interactive Pictures in July
1997 and served as its corporate fellow and a vice president until January 2000.
From December 1996 to July 1997, Mr. Zimmermann served as senior engineer of
Motorola, Inc. Mr. Zimmermann was an independent consultant from August 1993 to
November 1996 and assisted technology companies in consumer product development.
From June 1988 to August

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<PAGE> 48

1993, he was an engineer and an officer with Interactive Pictures and
co-developed the technology on which its software is based. Mr. Zimmermann holds
bachelor of science and master of science degrees in electrical engineering from
the University of Tennessee.

MICHAEL D. EASTERLY has been a director of iPIX since January of 2000. Mr.
Easterly served as a director of Interactive Pictures in January 2000. Since
1994, Mr. Easterly has been president and chief executive officer of Legacy
Investment Group, Inc. and is also chief manager of Legacy Lodging, L.L.C. and
Legacy Media, L.L.C. Mr. Easterly is a member of the board of trustees of the
GSU Foundation. Mr. Easterly holds a bachelor's of science degree from the
University of Tennessee and a master's degree in business administration from
Georgia State University.

JOHN S. HENDRICKS has been a director of iPIX since January 2000. Mr. Hendricks
served as a director of Interactive Pictures from January 1997 until January
2000. Since 1982, Mr. Hendricks has been chairman and chief executive officer of
Discovery Communications, Inc., a television broadcasting company. He is also a
member of the boards of directors of Excalibur Technologies Corporation, the
National Museum of Natural History, Smithsonian Institution, the James Madison
Council, the Library of Congress, the National Cable Television Association and
the Academy of Television Arts and Sciences. Mr. Hendricks is also a member of
the advisory board of the Lowell Observatory, chairman of the board of trustees
of the Walter Kaitz Foundation and Co-chair for the CEO Forum on Education and
Technology. Mr. Hendricks holds a bachelor's degree and an honorary doctorate
from the University of Alabama.

LABAN P. JACKSON, JR. has been a director of iPIX since January 2000. From
January 1989 to January 2000, Mr. Jackson served as a director of Interactive
Pictures. Since January 1989, Mr. Jackson has served as chairman of Clear Creek
Properties, a real estate development company. Mr. Jackson is a director of
BankOne Corporation, TBN Holdings, Inc. and Gulf Stream Home and Garden, Inc.
Mr. Jackson is a graduate of the United States Military Academy.

KEVIN B. MCCURDY has been a director of iPIX since January 2000. Mr. McCurdy
founded bamboo.com in November 1995 and served as an executive vice president
and director of bamboo.com from its inception until January 2000. From September
1991 to June 1995, Mr. McCurdy attended Babson College where he earned a
bachelor of science in business administration. Mr. McCurdy is the son of
Leonard B. McCurdy.

LEONARD B. MCCURDY has been a director of iPIX since January 2000. Mr. McCurdy
served as chairman and a member of bamboo.com's board of directors from its
inception until January 2000. From January 1999 to January 2000, Mr. McCurdy
served as bamboo.com's chief executive officer. Since 1991, Mr. McCurdy has
served as the president of Lanek Limited, a private investment holding company.
From 1988 to 1991, Mr. McCurdy served as president and chief executive officer
of ISM Information Systems Management Corporation, a company that provided large
technology solutions. Mr. McCurdy is the father of Kevin B. McCurdy.

JOHN MORAGNE has been a director of iPIX since January 2000. Mr. Moragne served
as a director of bamboo.com from March 1999 until January 2000. Since May 1993,
Mr. Moragne has served as managing director of Trident Capital, a private equity
investment firm. Mr. Moragne is currently a director of DAOU Systems, Inc.,
MapQuest.com, Inc. and Newgen Results Corp. Mr. Moragne holds a bachelor of arts
from Dartmouth College, a master of sciences degree from the Stanford Graduate
School of Applied Earth Sciences and a master's degree in business
administration from the Stanford Graduate School of Business.

JOHN H. TREZEVANT has been a director of iPIX since January 2000. Mr. Trezevant
served as a director of Interactive Pictures in January 2000. Since 1994, Mr.
Trezevant has been president of Trezevant Realty Corporation and general partner
of Trezevant Properties.

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<PAGE> 49

BOARD OF DIRECTORS

Classification of Directors

Our board of directors is divided into three classes under our amended and
restated certificate of incorporation. Class I consists of Messrs. Trezevant and
Hendricks and will stand for election at the annual meeting of the shareholders
to be held in 2000. Class II consists of Messrs. Jackson, Leonard McCurdy and
Moragne and will stand for election at the annual meeting of shareholders to be
held in 2001. Class III consists of Messrs. Phillips, Kevin McCurdy and Easterly
and will stand for election at the annual meeting of the shareholders to be held
in 2002.

Board Committees

The audit committee of the board of directors reviews the internal accounting
procedures of the company and consults with and reviews the services provided by
our independent accountants. The audit committee consists of Messrs. Jackson and
Easterly.

The compensation committee of the board of directors reviews and recommends to
the board the compensation and benefits of all executive officers of the
company, administers the company's stock option plans and employee stock
purchase plan and establishes and reviews general policies relating to
compensation and benefits of employees of the company. The compensation
committee consists of Messrs. Jackson, Hendricks and Leonard McCurdy. No
interlocking relationships exist between the board of directors or compensation
committee and the board of directors or compensation committee of any other
company.

The nominating committee of the board of directors will nominate candidates to
stand for election to the board of directors of iPIX in the future. Pursuant to
a provision in the merger agreement between Interactive Pictures and bamboo.com,
the nominating committee will use its best efforts for each of the next two
years to nominate the class of directors whose term is expiring for reelection.
The nominating committee consists of Messrs. Phillips, Leonard McCurdy, Kevin
McCurdy and Jackson.

Director Compensation

Directors will not receive cash compensation for their service as members of the
board of directors, although they are reimbursed for expenses in connection with
attendance at board and committee meetings. Additional compensation is not
provided for committee participation or special assignments of the board of
directors. From time to time, our directors have received and may continue to
receive grants of options to purchase common stock.

Technology Advisory Board

We have established a technology advisory board whose membership includes
leaders in basic fields of science and technology which are relevant to our
future products, as well as other persons experienced in business and
photography. The members of the technology advisory board are: John Battin, who
previously served on our board of directors and was senior vice president of
Motorola's multimedia division; Dr. Alvin Trivelpiece, director of the Oak Ridge
National Laboratory and president of Lockheed-Martin Energy Research; Dr.
Deborah Rieman, executive director of CheckPoint Software Technologies, Inc., a
leading provider of secure enterprise networking solutions; and Senator Howard
H. Baker, Jr., the former majority leader of the Senate and a publisher of a
collection of photographs of the Big South Fork region of Tennessee. The
technology advisory board is expected to meet with our management and key
research and development personnel at least semi-annually and will provide
advice regarding future trends in business, photography, technology and basic
sciences. In consideration of this service, we granted to each of Messrs. Battin
and Baker and Drs. Trivelpiece and Rieman stock options to purchase 16,296
shares of our common stock. These grants were made in accordance with our
director compensation policy. The option to

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<PAGE> 50

purchase 6,984 of these shares vested on the date of the grant, with an
additional 4,656 shares vesting on the first and second anniversary of the date
of the grant.

EXECUTIVE COMPENSATION

The table below sets forth summary compensation information for each of the last
two fiscal years with regard to our chief executive officer and our four other
most highly compensated executive officers who are referred to as named
officers.

Executive Compensation Table

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
ANNUAL COMPENSATION
-----------------------------------------------------------------------------
LONG-TERM COMPENSATION
-------------------------------
FISCAL YEAR RESTRICTED
---------------------------- STOCK SECURITIES ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS AWARDS UNDERLYING OPTIONS COMPENSATION
- --------------------------- -------- -------- ---------- ------------------ ------------
<S> <C> <C> <C> <C> <C> <C>
James M. Phillips.............. 1999 $393,044 $550,000 $ -- -- $338,010(1)
Chairman and Chief Executive 1998 383,438 -- -- -- 214,989(2)
Officer
Leonard B. McCurdy(3).......... 1999 170,621 -- -- -- --
1998 10,109(4) -- 34,758 560,000(5) 137,643
Jeffrey D. Peters.............. 1999 302,626 200,000 -- -- 18,442(6)
President 1998 112,692 -- -- -- 25,000(6)
John J. Kalec.................. 1999 176,532 200,000 -- -- --
Chief Financial Officer 1998 62,372 -- -- -- --
Mark R. Searle................. 1999 137,500 -- -- -- --
Chief Operating Officer 1998 --(7) -- -- -- --
</TABLE>

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

(1) This amount represents a relocation expense of $313,825 and life insurance
premiums of $24,185 we paid on behalf of Mr. Phillips.
(2) This amount represents a relocation expense of $190,794 and life insurance
premiums of $24,195 we paid on behalf of Mr. Phillips.
(3) Mr. McCurdy was chairman and chief executive officer of bamboo.com in 1999.
(4) Leonard McCurdy received $10,109 for fees and services rendered to us for
fiscal year ended December 31, 1998.
(5) These options and stock were granted to Lanek Limited, an entity affiliated
with Leonard McCurdy.
(6) This amount represents a relocation expense we paid on behalf of Mr. Peters.
(7) Mr. Searle joined us in January 1999.

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<PAGE> 51

The table below sets forth information regarding grants of stock options made to
the executive officers named in the executive compensation table during the
fiscal year ended December 31, 1999 and the potential realizable value of these
stock options at assumed annual rates of stock price appreciation for the
ten-year option terms.

Stock Option Grants in the Fiscal Year ended December 31, 1999

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
----------------------------------------------------------- POTENTIAL REALIZABLE VALUE
PERCENTAGE AT ASSUMED ANNUAL
OF RATES OF STOCK PRICE
NUMBER OF TOTAL OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO OPTION TERM(1)
GRANTED IN EMPLOYEES IN EXERCISE EXPIRATION -------------------------------------
NAME FISCAL 1999 FISCAL 1999 PRICE($/SHARE) DATE 0%($) 5%($) 10%($)
- ---- ----------- ------------- -------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
James M. Phillips..... 186,234 2.0% $5.62 4/9/09 $1,746,875 $3,287,016 $ 5,540,315
Leonard B. McCurdy.... 42,000(2) 0.4 0.18 1/1/09 622,440 969,777 1,477,947
336,000(3) 3.5 0.18 2/2/09 4,979,520 7,758,214 11,823,576
Jeffrey D. Peters..... 46,559 0.5 5.62 4/9/09 436,723 821,763 1,385,094
John J. Kalec......... 81,478 0.9 5.62 4/9/09 764,264 1,438,080 2,423,907
Mark R. Searle........ 112,000(4) 1.2 0.18 2/2/09 1,859,840 2,586,071 3,941,192
56,000(4) 0.6 0.27 4/6/09 824,880 1,287,996 1,965,556
</TABLE>

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

(1) Assumes increases in the fair market value of the common stock of 0%, 5% and
10% per year from $15.00 over the terms of the options in compliance with the
rules and regulations of the Securities and Exchange Commission, and does not
represent our estimate or projection of the future value of the common stock.
The actual value realized may be greater or less than the potential realizable
values presented in the table.

(2) These options were granted to Lanek Limited, an entity affiliated with
Leonard McCurdy and were fully exercisable on the date of grant.
(3) These options became fully exercisable upon the completion of bamboo.com's
initial public offering.
(4) 25% of the shares subject to these options became exercisable upon the
completion of bamboo.com's initial public offering.

The table below sets forth information regarding stock option holdings held by
the named officers as of December 31, 1999.

Stock Option Exercise and Values for Fiscal Year ended December 31, 1999

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY
SHARES FY-END, 1999 OPTIONS AT FY-END, 1999
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James M. Phillips...... 3,519 $50,455 1,053,378 186,234 $9,880,686 $1,746,875
Leonard B. -- -- 378,000(2) -- 5,601,960 --
McCurdy(1)...........
Jeffrey D. Peters(1)... -- -- 93,117 93,118 992,627 933,042
John J. Kalec(1)....... -- -- 58,199 81,478 620,401 764,264
Mark R. Searle......... 4,000 65,670 38,000 126,000 563,160 1,862,640
</TABLE>

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

(1) These officers did not exercise any options in 1999.
(2) These include 42,000 options granted to Lanek Limited, an entity affiliated
with Leonard B. McCurdy.

Employment Agreements

We have entered into employment agreements with the following named officers:

James M. Phillips. Mr. Phillips' employment agreement expires on December
31, 2001 and is renewable automatically for one year periods unless
terminated by us or Mr. Phillips. Mr. Phillips

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<PAGE> 52

receives an annual salary of $425,000 and is eligible for a performance
based bonus. We may terminate Mr. Phillips' employment agreement with or
without cause; however, if we terminate the agreement without cause after a
change in control or if Mr. Phillips resigns for good reason, Mr. Phillips
is entitled to a severance payment of $3,000,000.

Jeffrey D. Peters. Mr. Peters' employment agreement continues indefinitely
unless terminated by us or Mr. Peters. Mr. Peters is entitled to receive an
annual salary of $300,000 and is eligible for a performance based annual
bonus. We may terminate Mr. Peters' employment agreement with or without
cause; however, if we terminate the agreement without cause, Mr. Peters is
entitled to a severance payment equal to one year's salary.

John J. Kalec. Mr. Kalec's employment agreement continues indefinitely
unless terminated by us or Mr. Kalec. Mr. Kalec is entitled to receive an
annual salary of $250,000 and is eligible for a performance based annual
bonus. We may terminate Mr. Kalec's employment agreement with or without
cause; however, if we terminate the agreement without cause before August
24, 2000, Mr. Kalec is entitled to a severance payment of $175,000.

Mark R. Searle. Mr. Searle's employment agreement continues indefinitely
unless terminated by us or Mr. Searle. Mr. Searle is entitled to receive an
annual salary of $250,000. In the event that Mr. Searle is constructively
or actually terminated without cause, he is entitled to a severance payment
equal to 20% of his annual base salary, and 25% of his outstanding options
will vest under the terms of his option agreement.

STOCK OPTION AND PURCHASE PLANS

Amended and Restated 1998 Employee, Director and Consultant Stock Plan

Our Amended and Restated 1998 Employee, Director and Consultant Stock Plan was
originally adopted by bamboo.com, a predecessor of iPIX, in December 1998, and
was amended and restated in July 1999 and further amended in January and April
2000. The 1998 plan provides for the grant of stock options to employees,
officers, directors, consultants and independent contractors of the company or
any of our affiliates.

The 1998 plan originally authorized the granting of options to purchase up to
8,179,394 shares of our common stock. The 1998 plan provides that the number of
shares available for issuance under the 1998 plan may be increased annually by
the lesser of 2,800,000, 5% of the number of shares outstanding on the first day
of the fiscal year or an amount to be determined by the board of directors. As
of March 31, 2000, options to purchase 9,659,679 shares of common stock had been
granted under the 1998 plan. If options expire or are terminated for any reason
without being exercised, the shares of common stock subject to these options
again will be available for grant.

The 1998 plan may be administered by our board of directors or by a committee of
the board of directors. The 1998 plan provides that the board of directors has
the authority to determine from time to time the eligible participants to whom
stock options are to be granted, the number of shares of common stock for which
options are exercisable and the purchase price of the shares, and all other
terms and conditions of the options.

Options granted under the 1998 plan may be incentive stock options, or ISOs,
that are intended to meet all of the requirements of an incentive stock option
as defined in Section 422 of the Internal Revenue Code or nonqualified stock
options, NQSOs, that are not intended to so qualify.

The price at which shares may be purchased upon exercise of an option shall be
fixed by the committee, in its sole discretion. The option price of an NQSO may
be greater than, equal to or less than the fair market value of the underlying
shares of common stock on the date of grant. The option price of any ISO granted
under the 1998 plan will not be less than the fair market value of the
underlying shares of

49
<PAGE> 53

common stock on the date of grant. The committee will also determine the term of
each option provided that the exercise period may not exceed ten years from the
date of grant. An optionee may pay the exercise price in cash, by delivering
shares of common stock already owned by the optionee and having a fair market
value on the date of exercise equal to the option price, or by any other method
as the committee may approve. The optionee must pay applicable withholding taxes
upon exercise of the option as a condition to receiving the shares. The
committee may impose vesting and other conditions on grants of options. Options
may be exercised while the optionee is an employee, officer, director,
consultant or advisor or within a specified period after termination of the
optionee's employment or services.

Unless the administrator determines otherwise, the restricted stock purchase
agreement entered into in connection with the exercise of the stock purchase
right shall grant us a repurchase option that is exercisable upon the voluntary
or involuntary termination of the purchaser's service with us for any reason,
including death or disability. The purchase price for share repurchases pursuant
to restricted stock purchase agreements shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to us. Any repurchase option shall lapse at the rate that the administrator
determines.

The 1998 plan provides that in the event we merge with or into another
corporation or upon a sale of substantially all of our assets, the successor
corporation shall assume or substitute each option or stock purchase right. If
the outstanding options or stock purchase rights are not assumed or substituted,
the administrator shall provide notice to the optionee that he or she has the
right to exercise the option or stock purchase right for all of the shares
covered by the option or stock purchase right, including shares which would not
otherwise be exercisable, for a period of fifteen days from the date of the
notice. The option or stock purchase right will terminate upon the expiration of
the fifteen-day period. In addition, options granted under the 1998 plan may
provide, and past grants have provided, for additional vesting in the event of
our change of control. Upon a stock split, combination or similar corporate
event, the 1998 plan provides for appropriate adjustments to the number of
shares authorized under the 1998 plan and options outstanding thereunder.

1999 Employee Stock Purchase Plan.

The 1999 Employee Stock Purchase Plan, which was approved in July 1999 and was
amended and restated in January 2000, provides our employees the opportunity to
purchase shares of common stock at a price below fair market value. The stock
purchase plan is administered by the board of directors or by a committee of the
board of directors. The board or its committee has full and exclusive authority
to interpret the terms of the purchase plan and determine eligibility.

Our employees are eligible to participate if they are customarily employed by us
or our subsidiaries for at least 20 hours per week over five months in any
calendar year. However, an employee may not be granted a right to purchase stock
under the purchase plan if that employee:

- immediately after the grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or

- owns rights to purchase stock under all employee stock purchase plans
accruing at a rate exceeding $25,000 worth of stock for each calendar
year.

A total of 700,000 shares of common stock have been reserved for issuance under
the stock purchase plan. The stock purchase plan provides that the number of
shares available for issuance under the purchase plan may be increased annually
by the lesser of 1,400,000 shares, 2.5% of the outstanding shares on the first
day of the fiscal year or an amount determined by the board of directors. As of
March 31, 2000, no shares had been purchased by our employees under the stock
purchase plan.

The price of the stock purchased under the stock purchase plan is 85% of the
lower of the fair market value of the common stock at the beginning of the
offering period or the end of the applicable purchase

50
<PAGE> 54

period. In the event the fair market value at the end of a purchase period is
less than the fair market value of the common stock at the beginning of the
offering period, participants will be withdrawn from the current offering period
and will automatically be re-enrolled in a new offering period. An employee's
eligibility to participate in the stock purchase plan ends automatically upon
termination of employment with us.

The stock purchase plan provides that, in the event we merge with or into
another corporation or upon a sale of substantially all of our assets, the
successor corporation may assume or substitute for each outstanding right to
purchase shares of common stock under the stock purchase plan. If the successor
corporation refuses to assume or substitute for the outstanding options, the
offering period then in progress will be shortened and a new exercise date will
be set.

Amended and Restated 1997 Equity Compensation Plan

Our Amended and Restated 1997 Equity Compensation Plan was originally adopted by
Interactive Pictures, a constituent company of iPIX, in November 1997 and was
amended and restated in January, 2000. The 1997 plan provides for the grant of
stock options to employees, officers, directors, consultants and independent
contractors of the company or any of our affiliates.

The 1997 plan authorizes the granting of options to purchase up to 4,105,028
shares of our common stock. The number of shares may be adjusted. As of March
31, 2000, options to purchase 3,073,400 shares of our common stock had been
granted under the 1997 plan. If options expire or are terminated for any reason
without being exercised, the shares of our common stock subject to these options
again will be available for grant.

The 1997 plan may be administered by our board of directors or by a committee of
the board of directors. The 1997 plan provides that the board of directors has
the authority to determine from time to time the eligible participants to whom
stock options are to be granted, the number and purchase price of the shares of
common stock for which options are exercisable and all other terms and
conditions of the options.

Options granted under the 1997 plan may be incentive stock options, or ISOs,
that are intended to meet all of the requirements of an incentive stock option
as defined in Section 422 of the Internal Revenue Code or nonqualified stock
options, NQSOs, that are not intended so to qualify. During any calendar year, a
grantee may not receive options to purchase common stock for more than 25% of
the total number of shares of common stock reserved under the 1997 plan.

The price at which shares may be purchased upon exercise of an option is fixed
by the committee, in its sole discretion. The option price of an NQSO may be
greater than, equal to or less than the fair market value of the underlying
shares of common stock on the date of grant. The option price of any ISO granted
under the 1997 plan will not be less than the fair market value of the
underlying shares of common stock on the date of grant. The committee also
determines the term of each option provided that the exercise period may not
exceed ten years from the date of grant. An optionee may pay the exercise price
in cash, by delivering shares of common stock already owned by the optionee and
having a fair market value on the date of exercise equal to the option price, or
by any other method as the committee may approve. The optionee must pay
applicable withholding taxes upon exercise of the option as a condition to
receiving the shares. The committee may impose vesting and other conditions on
grants of options, as the committee deems appropriate. Options may be exercised
while the optionee is an employee, officer, director, consultant or advisor or
within a specified period after termination of the optionee's employment or
services.

In the event of a change of control, any outstanding options will become fully
exercisable, unless the committee determines otherwise. If a merger takes place
in which we are not the surviving corporation, all outstanding options will be
assumed or replaced with comparable options of the surviving corporation. The
committee may require that optionees surrender their outstanding options in the
event of a change of

51
<PAGE> 55

control and receive a payment in cash or common stock equal to the amount by
which the fair market value of the shares subject to the options exceeds the
exercise price of the options.

As of March 31, 2000, we have options to purchase 561,750 shares currently
exercisable under our 1997 plan, options to purchase 1,291,520 shares currently
exercisable under our 1998 plan and 1,486,491 shares currently exercisable under
individual grants that were not granted under any option plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

John Moragne and Duncan Fortier served during fiscal year 1999 as members of the
compensation committee of the board of directors. Neither of these persons is or
has been an officer or employee of ours. None of our executive officers has
served as a director or member of the compensation committee of any other entity
whose executive officers served on our board of directors or compensation
committee.

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<PAGE> 56

PRINCIPAL STOCKHOLDERS

The table below shows the amount of our common stock beneficially owned as of
March 31, 2000, except as otherwise noted below, by (1) each stockholder known
to our management to be the beneficial owner of more than 5% of the outstanding
shares of common stock, (2) each of our directors and named officers and (3) all
current directors and executive officers as a group. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and includes voting or investment power with respect to the shares.
To our knowledge, except under applicable community property laws or as
otherwise indicated, the persons named in the table have sole voting and sole
investment control with regard to all shares beneficially owned. The number of
shares of common stock outstanding used in calculating the percentage for each
listed person includes the shares of our common stock underlying options or
warrants exercisable within 60 days of March 31, 2000, but excludes shares of
common stock underlying options held by other persons. The applicable percentage
ownership for each stockholder prior to the offering is based upon 52,521,512
shares of common stock and after the offering is based upon 57,521,512 shares of
common stock. Unless otherwise stated, the address for each person below is 1009
Commerce Park Drive, Oak Ridge, Tennessee, 37830.

<TABLE>
<CAPTION>
------------------------------------------------------------
PERCENTAGE PERCENTAGE
NUMBER OF SHARES OF SHARES OF SHARES
NAME AND ADDRESS OF BENEFICIALLY OUTSTANDING PRIOR OUTSTANDING
BENEFICIAL OWNER OWNED PRIOR TO OFFERING TO OFFERING AFTER OFFERING
- ------------------- ----------------------- ----------------- --------------
<S> <C> <C> <C>
5% STOCKHOLDERS, EXECUTIVE OFFICERS AND DIRECTORS:
Motorola, Inc......................................... 2,846,782 5.4% 4.9%
1303 East Algonquin Rd
Schamburg, IL 60196
Funds affiliated with Trident Capital................. 2,410,884(2) 4.6 4.2
John Moragne(1)
2480 Sand Hill Road
Menlo Park, CA 94025
Lanek Limited
Leonard B. McCurdy.................................. 2,366,000(3) 4.5 4.1
James M. Phillips..................................... 1,118,975(4) 2.1 1.9
Jeffrey D. Peters..................................... 120,285(5) * *
John J. Kalec......................................... 108,637(6) * *
Mark R. Searle........................................ 140,000(7) * *
John S. Hendricks..................................... 588,761(8) 1.1 1.0
Laban P. Jackson, Jr.................................. 342,227(9) * *
Kevin B. McCurdy...................................... 1,430,800 2.7 2.5
All directors and executive officers as a group....... 9,622,349(10) 17.7 16.2
</TABLE>

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<PAGE> 57

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

* Less than one percent.

(1) Mr. Moragne, a member of our board of directors, is a member of Trident
Capital Management-II, L.L.C, the general partner of Information
Associates-II, L.P. Mr. Moragne is also a member of IA-II Affiliates Fund,
L.L.C. Mr. Moragne disclaims beneficial ownership of the shares held by
Information Associates-II, L.P. and IA-II Affiliates Fund, L.L.C. except to
the extent of his pecuniary interest.

(2) Includes 2,277,996 shares held by Information Associates-II, L.P. and
132,888 shares held by and IA-II Affiliates Fund, L.L.C.

(3) Includes 2,013,200 shares held by Lanek Limited, a five percent shareholder
and affiliate of Leonard B. McCurdy.

(4) Includes 3,519 shares held in trust for the benefit of Mr. Phillips' minor
children and 1,115,456 shares of common stock issuable upon the exercise of
stock options.

(5) Includes 108,646 shares of common stock issuable upon the exercise of stock
options.

(6) Includes 85,358 shares of common stock issuable upon the exercise of stock
options.

(7) Includes 136,000 shares of common stock issuable upon the exercise of stock
options.

(8) Includes 15,520 shares of common stock issuable upon the exercise of stock
options. Also includes 111,698 shares of common stock held by Hendricks
Family Investments, L.L.C. Also includes 461,543 shares of common stock held
by Discovery Communications, Inc. of which Mr. Hendricks is chairman and
chief executive officer, to which he disclaims all beneficial ownership.

(9) Includes 138,800 shares of common stock issuable upon the exercise of stock
options.

(10) Includes 1,846,869 shares of common stock issuable upon the exercise of
stock options. Also includes 2,277,996 shares held by Information
Associates-II, L.P. and 132,888 shares held by and IA-II Affiliates Fund,
L.L.C. Also includes 2,013,200 shares held by Lanek Limited. Also includes
111,698 and 461,543 shares of common stock held by Hendricks Family
Investments and Discovery Communications, respectively.

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<PAGE> 58

RELATED PARTY TRANSACTIONS

In December 1996, Interactive Pictures issued to each of Motorola, Inc. and
Discovery Communications, Inc., 461,543 shares of common stock for an aggregate
purchase price of $2.0 million each. John S. Hendricks, one of our directors, is
the chairman and chief executive officer of Discovery. In April 1998, Motorola
and Discovery exchanged their shares of Interactive Pictures common stock for a
like number of shares of Interactive Pictures' Series B preferred stock. Each of
Motorola and Discovery are currently entitled to demand and piggyback
registration rights with regard to these shares.

Interactive Pictures licenses from Motorola patent and patent applications
related to its technology under a patent license agreement dated January 17,
1997. These licenses have been granted for the lives of the underlying Motorola
patents on a worldwide, royalty-free, non-exclusive, non-transferable basis with
the right to sublicense. We may not grant third parties exclusive licenses for
the technology for a term exceeding one year without the prior written consent
of Motorola.

In January 1997, Interactive Pictures granted Discovery a world-wide, exclusive
license to utilize its technology in connection with the development of 15
destination-specific CD-ROM titles. The term of the Discovery license will
expire on the expiration date of the last underlying patent.

On March 12, 1999, bamboo.com issued Information Associates-II, L.P. and IA-II
Affiliates Fund, L.L.C. 2,277,996 and 132,888 shares of Series B convertible
preferred stock, respectively, for a purchase price of $4,724,401 and $275,600,
respectively. Information Associates-II, L.P. and IA-II Affiliates Fund, L.L.C.
are related to Trident Capital, a related party. John Moragne, a director, is an
acting general partner in Information Associates-II, L.P. and IA-II Affiliates
Fund, L.L.C.

From January to March 1999, Interactive Pictures sold an aggregate of 4,797,994
shares of Series D preferred stock to a group of private investors for an
aggregate purchase price of $27.0 million. Purchasers of Interactive Pictures'
Series D preferred stock included the following related parties:

<TABLE>
<CAPTION>
--------------------------
NUMBER OF AGGREGATE
NAME SHARES PURCHASE PRICE
- ---- --------- --------------
<S> <C> <C>
Motorola, Inc............................................... 533,110 $3,000,000
Laban P. Jackson, Jr........................................ 71,081 400,000
John S. Hendricks........................................... 44,425 250,000
</TABLE>

All of Interactive Pictures' shares of preferred stock converted into
Interactive Pictures common stock upon completion of Interactive Pictures'
initial public offering. Each of the purchasers of the Series D preferred stock
are entitled to demand and piggyback registration rights with regard to their
shares of common stock.

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<PAGE> 59

DESCRIPTION OF CAPITAL STOCK

GENERAL

Our amended and restated certificate of incorporation authorizes the issuance of
up to 150,000,000 shares of common stock, par value $0.001 per share, 7,421,536
shares of Class B common stock, par value $0.0001 per share and 5,001,100 shares
of preferred stock, par value $0.001 per share, 1,100 shares of which shall be
designated Series C redeemable preferred stock and 5,000,000 shares the rights
and preferences of which may be established from time to time by our board of
directors. This description is only a summary.

COMMON STOCK

Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the shareholders, and there are no cumulative voting
rights. Stockholders of common stock may receive dividends after all dividends
that are owed have been paid to stockholders of preferred stock. In the event of
a liquidation, dissolution or winding up, holders of common stock would be
entitled to share in our assets remaining after the payment of liabilities and
the satisfaction of any liquidation preference granted the holders of any then
outstanding shares of preferred stock. Holders of common stock have no
preemptive or conversion rights or other subscription rights and there are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and the shares of common stock issued in
connection with this offering, when issued and paid for, will be, fully paid and
nonassessable. The rights, preferences and privileges of the holders of common
stock are subject to and may be adversely affected by the rights of the holders
of shares of any series of preferred stock, which we may designate and issue in
the future.

CLASS B COMMON STOCK

Each holder of Class B common stock is entitled to one vote for each share on
all matters to be voted upon by the stockholders and, except as required by law,
shall have voting rights and powers equal to the voting rights and powers of the
common stock. There are no cumulative voting rights. Holders of Class B common
stock are not entitled to dividends and are not entitled to receive any assets
of the corporation upon dissolution or liquidation. Under the terms of a pairing
agreement with our Canadian subsidiary, bamboo Canada, Inc., holders of Class B
common stock must also hold an equal number of shares of Series C preferred
stock of bamboo Canada, Inc. These holders may elect at any time and for no cost
to convert their bamboo Canada Series C preferred stock into shares of our
common stock. Upon such a conversion, we are required to redeem the holder's
shares of our Class B common stock for a redemption price of $0.0001 per share.

PREFERRED STOCK

Our board of directors is authorized from time to time, without stockholder
approval, to issue up to an aggregate of 5,001,100 shares of preferred stock,
$0.001 par value per share, in one or more series. Included in this amount are
1,100 shares of Series C redeemable preferred stock. Each series of preferred
stock may have the rights and preferences, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences
that our board of directors determines. The rights of the holders of common
stock will be subject to, and may be adversely affected by, the rights of
holders of any preferred stock that may be issued in the future.

REGISTRATION RIGHTS

We have granted registration rights to a number of our stockholders who were
former holders of convertible preferred stock or their permitted transferees. We
have also agreed to grant registration rights to former

56
<PAGE> 60

stockholders of PictureWorks. In the event that we propose to register any
shares of common stock under the Securities Act, the holders of registration
rights are entitled to receive notice of the registration and may be entitled to
include their shares therein. In addition, these stockholders may demand that we
file a registration statement for the sale of their shares. In either event, if
the registration is for an underwritten offering, the underwriters for the
proposed offering will have the right to limit the number of shares in the
registration.

At any time after we become eligible to file a registration statement on Form
S-3, holders of $1,000,000 of registrable securities may require us to file
registration statements on Form S-3 under the Securities Act for their shares of
common stock. We are not required to effect more than one registration of this
type in any 12 month period. If we register any shares for sale by holders of
registrable securities, we have agreed to bear all of the expenses of the
registration.

EFFECT OF SELECTED PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS,
AND THE DELAWARE ANTI-TAKEOVER STATUTE

Provisions of our restated certificate of incorporation and bylaws allow us to
issue preferred stock without any vote or further action by our stockholders and
eliminate the right of stockholders to act by written consent without a meeting.
These provisions may make it more difficult for stockholders to take corporate
actions and could have the effect of delaying or preventing a change in control
of iPIX.

Section 203 of the Delaware General Corporation Law applies to us. Subject to
exceptions, Section 203 of the Delaware law prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the interested
stockholder attained that status with the approval of the board of directors or
unless the business combination is approved in a prescribed manner.

Our restated certificate of incorporation provides that the board of directors
will be divided into three classes of directors, with each class serving a
staggered three-year term. The classification system of electing directors may
tend to discourage a third party from making a tender offer or otherwise
attempting to obtain control of us and may maintain the incumbency of the board
of directors, as the classification of the board of directors generally
increases the difficulty of replacing a majority of the directors. Our restated
certificate of incorporation eliminates the right of stockholders to act by
written consent without a meeting and our bylaws eliminate the right of
stockholders to call special meetings of stockholders. The restated certificate
of incorporation does not provide for cumulative voting in the election of
directors. These and other provisions may have the effect of deferring hostile
takeovers or delaying changes in control or management of iPIX. The amendment of
any of these provisions would require approval by the board of directors and
holders of at least 66 2/3% of the outstanding common shares.

BOARD OF DIRECTOR VACANCIES

Our bylaws authorize the board of directors to fill vacancies on the board of
directors or increase the size of the board of directors. This may deter a
stockholder from removing incumbent directors and simultaneously gaining control
of the board of directors by filling the vacancies created by the removal with
its own nominees.

STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS

Our restated certificate of incorporation provides that stockholders may act
only at duly called annual or special meetings of stockholders, and not by
written consent. Our bylaws further provide that special meetings of our
stockholders may be called only by the president, chief executive officer or
chairman of the board of directors or a majority of the board of directors.

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<PAGE> 61

ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS

Our restated bylaws provide that stockholders seeking to bring business before
our annual meeting of stockholders, or to nominate candidates for the board of
directors at our annual meeting, must provide timely notice of their intent in
writing. To be timely, a stockholder's notice must be delivered to, or mailed
and received at, our principal executive offices not less than 120 days prior to
the first anniversary of the date of notice of annual meeting provided with
respect to the previous year's annual meeting of stockholders. However, if no
annual meeting was held in the previous year or the date of the annual meeting
has been changed by more than 30 calendar days earlier than such anniversary,
notice by the stockholder, to be timely, must be received a reasonable amount of
time before the solicitation is made. The restated bylaws also specify
requirements as to the form and content of a stockholder's notice. These
provisions may discourage stockholders from bringing matters before the annual
meeting or from making nominations for directors at the annual meeting.

AUTHORIZED BUT UNISSUED SHARES

Our authorized but unissued shares of common stock and preferred stock are
available for future issuance without shareholder approval, subject to
limitations imposed by the Nasdaq National Market. These additional shares may
be utilized for a variety of corporate purposes, including future public
offerings to raise additional capital, corporate acquisitions and employee
benefit plans.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

Our restated certificate of incorporation and amended and restated by-laws
provide that our directors and officers will be indemnified by us to the fullest
extent permitted by Delaware law, as it now reasonably exists or may in the
future be amended, against all expenses and liabilities reasonably incurred in
connection with their services for or on behalf of us. In addition, our restated
certificate of incorporation provides that our directors will not be personally
liable for monetary damages to us for breaches of their fiduciary duty as
directors. We have obtained insurance which insures our directors and officers
against losses attributable to their service as a member of the board of
directors and which insures us against our obligations to indemnify the
directors and officers.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is Norwest Bank Minnesota,
National Association.

LISTING

We are listed on the Nasdaq National Market under the symbol IPIX.

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<PAGE> 62

UNDERWRITING

Internet Pictures and the underwriters named below have entered into an
underwriting agreement covering the common stock to be offered in this offering.
J.P. Morgan Securities Inc., Chase Securities Inc., FleetBoston Robertson
Stephens Inc., Dain Rauscher Incorporated and Prudential Securities Incorporated
are acting as representatives of the underwriters. Each underwriter has agreed
to purchase the number of shares of common stock opposite its name below.

<TABLE>
<CAPTION>
----------------
NUMBER OF SHARES
UNDERWRITERS ----------------
<S> <C>
J.P. Morgan Securities Inc..................................
Chase Securities Inc........................................
FleetBoston Robertson Stephens Inc..........................
Dain Rauscher Incorporated..................................
Prudential Securities Incorporated..........................

Total............................................. 5,000,000
==========
</TABLE>

The underwriting agreement provides that if the underwriters take any of the
shares presented in the table above, then they must take all of these shares. No
underwriter is obligated to take any shares allocated to a defaulting
underwriter except under limited circumstances.

The underwriters are offering the shares of common stock, subject to the prior
sale of shares, and when, as and if these shares are delivered to and accepted
by them. The underwriters will initially offer to sell shares to the public at
the offering price shown on the cover page of this prospectus. The underwriters
may sell shares to securities dealers at a discount of up to $ per share
from the offering price. Any of these securities dealers may resell shares to
other brokers or dealers at a discount of up to $ per share from the
offering price.

If the underwriters sell more shares than the total number shown in the table
above, the underwriters have the option to buy up to an additional 750,000
shares of common stock from us to cover these sales. They may exercise this
option during the 30-day period from the date of this prospectus. If any shares
are purchased with this option, the underwriters will purchase shares in
approximately the same proportion as shown in the table above.

The following table shows the per share and total underwriting discounts that we
will pay to the underwriters. These amounts are shown assuming both no exercise
and full exercise of the underwriters' option to purchase additional shares.

<TABLE>
<CAPTION>
----------------------------
PAID BY INTERNET PICTURES
----------------------------
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share................................................... $ $
------- -------
Total............................................. $ $
======= =======
</TABLE>

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<PAGE> 63

The underwriters may purchase and sell shares of common stock in the open market
in connection with this offering. These transactions may include short sales,
stabilizing transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
slowing a decline in the market price of the common stock while the offering is
in progress. The underwriters may also impose a penalty bid, which means that an
underwriter must repay to the other underwriters a portion of the underwriting
discount received by it. An underwriter may be subject to a penalty bid if the
representatives of the underwriters, while engaging in stabilizing or short
covering transactions, repurchase shares sold by or for the account of that
underwriter. These activities may stabilize, maintain or affect the market price
of the common stock. As a result, the price of the common stock may be higher
than the price that might exist in the open market. If the underwriters commence
these activities, they may discontinue them at any time. The underwriters may
carry out these transactions on the Nasdaq National Market or in the
over-the-counter market.

Prior to the pricing of the shares, and until such time when a stabilizing bid
may have been made, some or all of the underwriters who are market makers in the
shares may make bids for or purchasers of shares subject to certain
restrictions, known as passive market making activities.

One or more of the underwriters may facilitate the marketing of this offering
online directly or through one of its affiliates. In those cases, prospective
investors may view offering terms and a prospectus online and, depending upon
the particular underwriter, place orders online or through their financial
advisors.

We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be $1.0 million.

Internet Pictures and the selling stockholders have agreed to indemnify the
underwriters against various liabilities, including liabilities under the
Securities Act of 1933. Internet Pictures and its directors, officers and
several of its stockholders have agreed with the underwriters, subject to
limited exceptions, not to transfer, dispose of or hedge any of their common
stock, or securities convertible into or exchangeable for shares of common
stock, for a period of 90 days after the date of this prospectus, except with
the prior written consent of J.P. Morgan Securities Inc. This agreement does not
apply to any of our employee benefit plans existing on the date of this
prospectus.

Our common stock is listed on the Nasdaq National Market under the symbol IPIX.

It is expected that delivery of the shares will be made to investors on or about
, 2000.

From time to time in the ordinary course of their businesses, some of the
underwriters and their affiliates have engaged in and may in the future engage
in commercial banking and/or investment transactions with Internet Pictures and
its affiliates. J.P. Morgan Securities Inc. and an affiliate hold an aggregate
of 159,184 shares of common stock of Internet Pictures. In addition, an entity
affiliated with Dain Rauscher Wessels, a division of Dain Rauscher Incorporated,
and an entity with a business relationship with Prudential Securities
Incorporated each hold an aggregate of 86,102 shares and 8,610 shares,
respectively, of common stock of Internet Pictures.

The underwriters have agreed that:

- they have not offered or sold and, before the date which is six months
after the date of this prospectus, will not offer or sell shares to
persons in the United Kingdom, except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments, as principal or agent, for the purposes of their businesses
or in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the
Public Offers of Securities Regulations 1995 or the Financial Services
Act 1986;

60
<PAGE> 64

- they have complied with and will comply with all applicable provisions of
the Financial Services Act 1986 regarding anything done by them in
relation to the shares in, from or involving the United Kingdom; and

- they have only issued or passed on and will only issue or pass on in the
United Kingdom any document received by them in connection with the offer
of shares to a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986, Order 1996 or is a person to whom this
document may lawfully be issued or passed.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us by
Baker, Donelson, Bearman & Caldwell, a professional corporation, Memphis,
Tennessee. Members of Baker, Donelson, Bearman & Caldwell, in the aggregate,
beneficially own 16,841 shares of our common stock. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Cahill
Gordon & Reindel, New York, New York.

EXPERTS

The consolidated financial statements and the supplemental pooled consolidated
financial statements of Internet Pictures Corporation (formerly bamboo.com,
Inc.) as of December 31, 1998 and 1999 and for each of the three years in the
period ended December 31, 1999 and the supplemental pooled consolidated
financial statements of Internet Pictures Corporation as of December 31, 1998
and 1999 and for each of the three years in the period ended December 31, 1999
included in this prospectus have been so included in reliance upon the report
(which contains an explanatory paragraph relating to the merger of bamboo.com,
Inc. with Interactive Pictures Corporation) of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting. The report also contains an explanatory paragraph
highlighting Internet Pictures Corporation's net operating losses and possible
requirement for additional financing, as described in Note 1, paragraph 3 to the
related consolidated financial statements and supplemental pooled consolidated
financial statements.

The consolidated financial statements of Interactive Pictures Corporation as of
December 31, 1998 and 1999 and for each of the three years in the period ended
December 31, 1999 included in this prospectus have been so included in reliance
upon the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting. The report
also contains an explanatory paragraph highlighting Interactive Pictures
Corporation's net operating losses and possible requirement for additional
financing, as described in Note 1, paragraph 4 to the related consolidated
financial statements.

The financial statements of PictureWorks Technology, Inc. as of March 31, 1999
and December 31, 1999 and for the year ended March 31, 1999 and the nine months
ended December 31, 1999 included in this prospectus have been so included in
reliance upon the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting. The
report also contains an explanatory paragraph highlighting PictureWorks
Technology Inc.'s net operating losses and possible requirement for additional
financing, as described in Note 1, paragraph 2 to the related financial
statements.

AVAILABLE INFORMATION

We have filed with the Commission a registration statement on Form S-1 with
respect to the common stock being offered by this prospectus. This prospectus
does not contain all of the information set forth in the registration statement.
For further information about us and the common stock, reference is made to the
registration statement and its exhibits. Descriptions in this prospectus of any
contract or other document are not necessarily complete and, where the contract
or document is an exhibit to the registration statement, any description is
qualified in all respects by the exhibit. Copies of the registration statement,

61
<PAGE> 65

including exhibits, may be examined without charge in the Public Reference
Section of the Securities and Exchange Commission, 450 Fifth Street, N.W. Room
1024, Washington, DC 20549, and the Securities and Exchange Commission's
Regional Offices located at 500 West Madison Street, Suite 1400, Chicago, IL
60601, and Seven World Trade Center, 13th Floor, New York, NY 10048, or on the
Internet at http://www.sec.gov. Information about the operation of the Public
Reference Room may be obtained by calling the Commission at 1-800-SEC-0300.
Copies of all or a portion of the registration statement can be obtained from
the Public Reference Section of the Commission upon payment of prescribed fees.

We are subject to the information and reporting requirements of the Exchange Act
and, in accordance therewith, file periodic reports, proxy statements and other
information with the Commission. Our reports, proxy statements and other
information may also be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, DC 20006.

62
<PAGE> 66

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTERNET PICTURES CORPORATION (FORMERLY BAMBOO.COM, INC.)
HISTORICAL FINANCIAL STATEMENTS
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets at December 31, 1998 and
1999................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the period from January 1, 1997 to December 31,
1999................................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998, and 1999...................... F-6
Notes to Consolidated Financial Statements................ F-7

INTERNET PICTURES CORPORATION SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS
Supplemental Pooled Consolidated Balance Sheets at
December 31, 1998 and 1999............................. F-25
Supplemental Pooled Consolidated Statements of Operations
for the years ended December 31, 1997, 1998, and
1999................................................... F-26
Supplemental Pooled Consolidated Statements of
Stockholders' Equity (Deficit) for the period from
January 1, 1997 to December 31, 1999................... F-27
Supplemental Pooled Consolidated Statements of Cash Flows
for the years ended December 31, 1997, 1998 and 1999... F-29
Notes to Supplemental Pooled Consolidated Financial
Statements............................................. F-30

INTERACTIVE PICTURES CORPORATION HISTORICAL FINANCIAL
STATEMENTS
Report of Independent Accountants......................... F-51
Consolidated Balance Sheets at December 31, 1998 and
1999................................................... F-52
Consolidated Statements of Operations for the years ended
December 31, 1997, 1998 and 1999....................... F-53
Consolidated Statements of Changes in Shareholders' Equity
for the period from January 1, 1997 to December 31,
1999................................................... F-54
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999....................... F-55
Notes to Consolidated Financial Statements................ F-56

PICTUREWORKS TECHNOLOGY, INC. FINANCIAL STATEMENTS
Report of Independent Accountants......................... F-68
Balance Sheets at March 31, 1999 and December 31, 1999.... F-69
Statements of Operations for the year ended March 31,
1999, and the nine months ended December 31, 1999...... F-70
Statements of Mandatorily Redeemable Convertible Preferred
Stock and Stockholders' Deficit for the year ended
March 31, 1999 and the nine months ended December 31,
1999................................................... F-71
Statements of Cash Flows for the year ended March 31, 1999
and the nine months ended December 31, 1999............ F-72
Notes to Financial Statements............................. F-73
</TABLE>

F-1
<PAGE> 67

REPORT OF INDEPENDENT ACCOUNTANTS

To The Board of Directors and Stockholders of
Internet Pictures Corporation
(formerly bamboo.com, Inc.):

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and stockholders' equity (deficit) present
fairly, in all material respects, the financial position of Internet Pictures
Corporation (formerly bamboo.com, Inc.) and its subsidiary at December 31, 1998
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. These
consolidated financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. Any
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

As described in Note 12, on January 19, 2000, Internet Pictures Corporation
(formerly bamboo.com, Inc.) merged with Interactive Pictures Corporation in a
transaction accounted for as a pooling of interests. The accompanying
supplemental pooled consolidated financial statements give retroactive effect to
the merger of Internet Pictures Corporation (formerly bamboo.com, Inc.) with
Interactive Pictures Corporation. Accounting principles generally accepted in
the United States proscribe giving effect to a consummated business combination
accounted for by the pooling of interests method in financial statements that do
not include the date of consummation. These financial statements do not extend
through the date of consummation; however, they will become the historical
consolidated financial statements of Internet Pictures Corporation (formerly
bamboo.com, Inc.) and its subsidiary after financial statements covering the
date of consummation of the business combination are issued.

In our opinion, based upon our audits, the accompanying supplemental pooled
consolidated balance sheets and the related supplemental pooled consolidated
statements of operations and stockholders' equity (deficit) present fairly, in
all material respects, the financial position of Internet Pictures Corporation
(formerly bamboo.com, Inc.) and its subsidiary at December 31, 1998 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These supplemental pooled
consolidated financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these supplemental
pooled consolidated financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

See Note 1, paragraph 3, for a discussion regarding the possible need for
additional equity or debt financing and management's plans in this regard.

PricewaterhouseCoopers LLP

San Jose, California

January 31, 2000, except for Note 12, of the Consolidated Financial Statements
and Note 16 of the Supplemental Pooled Consolidated Financial Statements, which
are as of March 31, 2000, and except for Note 1, paragraph 3, of the
Consolidated Financial Statements and the Supplemental Pooled Consolidated
Financial Statements, which are as of May 2, 2000.

F-2
<PAGE> 68

INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
-----------------
DECEMBER 31,
-----------------
1998 1999
------- -------
(In thousands, except share and per share amounts)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 430 $ 5,818
Securities available-for-sale............................... -- 10,014
Accounts receivable, net of allowance for doubtful accounts
of $1 in 1998 and $3 in 1999.............................. 19 171
Prepaid expenses and other current assets................... 79 2,651
------- -------
Total current assets............................... 528 18,654
Property and equipment...................................... 212 5,222
Other assets................................................ 40 1,484
------- -------
Total assets....................................... $ 780 $25,360
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 133 $ 1,773
Accrued liabilities......................................... 122 3,219
Deferred revenue............................................ -- 4,748
Notes payable to shareholders............................... 8 --
Obligations under capital lease............................. -- 191
------- -------
Total current liabilities.......................... 263 9,931
Obligations under capital lease, net of current portion..... -- 373
------- -------
Total liabilities.................................. 263 10,304
------- -------
Commitments (Note 9)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, No par value in 1998 and
$0.001 par value in 1999 Authorized: 500,000 shares in
1998 and 5,001,100 shares in 1999
Issued and outstanding: 231,250 shares in 1998 and none
in 1999
Liquidation value: $917 at December 31, 1998.......... -- --
Class B common stock, No par value in 1998 and $0.0001 par
value in 1999
Authorized: Unlimited shares in 1998 and 7,421,536 in
1999
Issued and outstanding: 7,421,536 shares in 1998 and
7,012,736 shares in 1999............................... 1 1
Common stock: $0.001 par value in 1999;
Authorized 70,000,000 shares in 1999
Issued and outstanding: none in 1998 and 15,467,853 in
1999................................................... -- 15
Additional paid in capital................................ 2,653 73,465
Unearned stock-based compensation......................... -- (2,535)
Notes receivable from stockholders........................ (54) (181)
Accumulated deficit....................................... (2,074) (55,719)
Accumulated other comprehensive income (loss)............. (9) 10
------- -------
Total stockholders' equity......................... 517 15,056
------- -------
Total liabilities and stockholders' equity......... $ 780 $25,360
======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 69

INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
-------------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
(In thousands, except share and per share amounts)
Revenues.................................................. $ 46 $ 77 $ 3,756
Cost of revenues (excludes stock-based compensation of $0,
$0 and $398)............................................ 15 67 2,880
---------- ---------- -----------
Gross profit.............................................. 31 10 876
Operating expenses:
Sales and marketing (excludes stock-based compensation
of $0, $583 and $13,139)............................. 10 300 18,044
General and administrative (excludes stock-based
compensation of $0, $446 and $5,316)................. 122 278 8,007
Research and development (excludes stock-based
compensation of $0, $133 and $1,226)................. 42 110 1,366
Stock-based compensation................................ -- 1,162 20,079
---------- ---------- -----------
Total operating expenses........................ 174 1,850 47,496
---------- ---------- -----------
Loss from operations...................................... (143) (1,840) (46,620)
Other income (expense):
Interest income......................................... -- -- 647
Interest expense, net................................... -- -- (6,672)
---------- ---------- -----------
Net loss.................................................. (143) (1,840) (52,645)
Dividend relative to beneficial conversion related to
issuance of Series B convertible preferred stock........ -- -- (1,000)
---------- ---------- -----------
Net loss attributable to common stockholders.............. $ (143) $ (1,840) $ (53,645)
========== ========== ===========
Net loss per common share -- basic and diluted............ $ (0.05) $ (0.31) $ (4.13)
========== ========== ===========
Weighted average common shares -- basic and diluted....... 2,818,873 5,953,169 12,989,610
========== ========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 70

INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 1997 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
CLASS B COMMON NOTES
PREFERRED STOCK STOCK COMMON STOCK ADDITIONAL RECEIVABLE
-------------------- ------------------ ------------------- PAID IN FROM
NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT CAPITAL STOCKHOLDERS
---------- ------- --------- ------ ---------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
In thousands, except share and per
share amounts
Balances -- January 1, 1997....... -- $ -- 2,800,000 $-- -- $-- $ 147 $ --
Common stock issued for cash in
July 1997...................... -- -- 45,025 -- -- -- 14 --
Net loss......................... -- -- -- -- -- -- -- --
Other comprehensive income....... -- -- -- -- -- -- -- --
---------- ------- --------- -- ---------- --- ------- -----
Balances -- December 31, 1997..... -- -- 2,845,025 -- -- -- 161 --
Issuance of Series A convertible
preferred stock in October and
December 1998.................. 231,250 -- -- -- -- -- 925 --
Common stock issued for cash
through March to September
1998........................... -- -- 1,342,231 -- -- -- 432 --
Common stock issued for services
through February to May 1998... -- -- 1,027,600 -- -- -- 326 --
Issuance of options to purchase
common stock in exchange for
services....................... -- -- -- -- -- -- 536 --
Shares issued upon exercise of
options for common stock in
September 1998................. -- -- 1,870,680 1 -- -- 4 --
Warrants for common stock
issued......................... -- -- -- -- -- -- 23 --
Issuance of warrant for common
stock for services............. -- -- -- -- -- -- 168 --
Issuance of common stock upon
exercise of stock options...... -- -- 336,000 -- -- -- 78 (78)
Settlement of note receivable as
offset to note payable......... -- -- -- -- -- -- -- 24
Net loss......................... -- -- -- -- -- -- -- --
Other comprehensive loss......... -- -- -- -- -- -- -- --
---------- ------- --------- -- ---------- --- ------- -----
Balances -- December 31, 1998..... 231,250 -- 7,421,536 1 -- -- 2,653 (54)
Issuance of Series B preferred
stock, net..................... 2,324,780 2 -- -- -- -- 13,403 --
Conversion of Series A and Series
B preferred stock into common
stock.......................... (2,556,030) (2) -- -- 7,156,874 7 (5) --
Issuance of common stock with
Series C mandatorily redeemable
preferred stock in June 1999... -- -- 1,250,830 1 6,605 --
Issuance of common stock on
IPO............................ -- -- -- -- 4,376,000 5 26,777 --
Issuance of common stock upon
exercise of warrants........... -- -- -- -- 255,385 -- -- --
Conversion of Class B common
stock to common stock.......... -- -- (408,800) -- 408,800 -- -- --
Stock options granted for
services in 1999............... -- -- -- -- -- -- 5,610 --
Unearned stock-based
compensation................... -- -- -- -- -- -- 15,734 --
Amortization of stock-based
compensation................... -- -- -- -- -- -- -- --
Issuance of restricted common
stock issued to service
provider in January 1999....... -- -- -- -- 120,400 -- 1,270 --
Amortization of stock-based
compensation for service
provider....................... -- -- -- -- -- -- -- --
Issuance of common stock upon
exercise of stock options...... -- -- -- -- 1,899,564 2 418 (127)
Dividend relative to beneficial
conversion feature related to
issuance of Series B preferred
stock.......................... -- -- -- -- -- -- 1,000 --
Net loss......................... -- -- -- -- -- -- -- --
Other comprehensive income....... -- -- -- -- -- -- -- --
---------- ------- --------- -- ---------- --- ------- -----
Balances -- December 31, 1999..... -- $ -- 7,012,736 $1 15,467,853 $15 $73,465 $(181)
========== ======= ========= == ========== === ======= =====

<CAPTION>
----------------------------------------------------
ACCUMULATED
UNEARNED OTHER
STOCK-BASED COMPREHENSIVE ACCUMULATED
COMPENSATION INCOME (LOSS) DEFICIT TOTAL
------------ ------------- ----------- -------
<S> <C> <C> <C> <C>
In thousands, except share and per
share amounts
Balances -- January 1, 1997....... $ -- $(1) $ (91) $ 55
Common stock issued for cash in
July 1997...................... -- -- -- 14
Net loss......................... -- -- (143) (143)
Other comprehensive income....... -- 1 -- 1
------- --- -------- -------
Balances -- December 31, 1997..... -- -- (234) (73)
Issuance of Series A convertible
preferred stock in October and
December 1998.................. -- -- -- 925
Common stock issued for cash
through March to September
1998........................... -- -- -- 432
Common stock issued for services
through February to May 1998... -- -- -- 326
Issuance of options to purchase
common stock in exchange for
services....................... -- -- -- 536
Shares issued upon exercise of
options for common stock in
September 1998................. -- -- -- 5
Warrants for common stock
issued......................... -- -- -- 23
Issuance of warrant for common
stock for services............. -- -- -- 168
Issuance of common stock upon
exercise of stock options...... -- -- -- --
Settlement of note receivable as
offset to note payable......... -- -- -- 24
Net loss......................... -- -- (1,840) (1,840)
Other comprehensive loss......... -- (9) -- (9)
------- --- -------- -------
Balances -- December 31, 1998..... -- (9) (2,074) 517
Issuance of Series B preferred
stock, net..................... -- -- -- 13,405
Conversion of Series A and Series
B preferred stock into common
stock.......................... -- -- -- --
Issuance of common stock with
Series C mandatorily redeemable
preferred stock in June 1999... -- -- -- 6,606
Issuance of common stock on
IPO............................ -- -- -- 26,782
Issuance of common stock upon
exercise of warrants........... -- -- -- --
Conversion of Class B common
stock to common stock.......... -- -- -- --
Stock options granted for
services in 1999............... -- -- -- 5,610
Unearned stock-based
compensation................... (15,734) -- -- --
Amortization of stock-based
compensation................... 13,199 -- -- 13,199
Issuance of restricted common
stock issued to service
provider in January 1999....... (1,270) -- -- --
Amortization of stock-based
compensation for service
provider....................... 1,270 -- -- 1,270
Issuance of common stock upon
exercise of stock options...... -- -- -- 293
Dividend relative to beneficial
conversion feature related to
issuance of Series B preferred
stock.......................... -- -- (1,000) --
Net loss......................... -- -- (52,645) (52,645)
Other comprehensive income....... -- 19 -- 19
------- --- -------- -------
Balances -- December 31, 1999..... $(2,535) $10 $(55,719) $15,056
======= === ======== =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 71

INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
--------------------------
YEARS ENDED DECEMBER 31,
--------------------------
1997 1998 1999
----- ------- --------
<S> <C> <C> <C>
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(143) $(1,840) $(52,645)
Items not affecting cash
Depreciation and amortization.......................... 11 32 859
Provision for doubtful accounts........................ -- -- 2
Issuance of common stock in exchange for services...... -- 370 1,270
Interest charge on redemption of Series C mandatorily
redeemable preferred stock............................ -- -- 6,606
Issuance of Series B convertible preferred stock in
settlement of interest payable........................ -- -- 8
Warrant committed in exchange for services............. -- 168 --
Issuance of options in exchange for services........... -- 536 5,610
Stock-based compensation............................... -- -- 13,199
Changes in assets and liabilities:
Accounts receivable.................................. (7) (14) (154)
Prepaid expenses and other current assets............ -- (83) (2,575)
Other assets......................................... -- (40) (1,433)
Accounts payable..................................... 7 127 1,652
Accrued liabilities.................................. 8 95 3,090
Deferred revenue..................................... -- -- 4,748
----- ------- --------
Net cash used in operating activities............. (124) (649) (19,763)
----- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (6) (219) (5,367)
Purchase of securities available-for-sale................. -- (19,014)
Proceeds from securities available-for-sale............... -- -- 9,000
----- ------- --------
Net cash used in investing activities............. (6) (219) (15,381)
----- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from obligation under capital lease.............. -- -- 204
Repayment of obligation under capital lease............... -- -- (142)
Notes payable to stockholders............................. (14) (27) (8)
Proceeds from issuance of convertible notes payable....... -- -- 1,800
Proceeds from issuance of common stock, net of issuance
costs.................................................. 14 387 33,388
Proceeds from exercise of common stock options............ -- 5 293
Proceeds from issuance of Series A convertible preferred
stock, net of issuance costs........................... -- 925 --
Proceeds from issuance of Series B convertible preferred
stock, net of issuance costs........................... -- -- 11,597
Proceeds from issuance of Series C mandatorily redeemable
convertible preferred stock, net of issuance costs..... -- -- 4,394
Proceeds from issuance of warrants........................ -- 23 --
Repayment of Series C mandatorily redeemable preferred
stock.................................................. -- -- (11,000)
----- ------- --------
Net cash provided by financing activities......... -- 1,313 40,526
----- ------- --------
Effect of exchange rate changes on cash..................... 3 (19) 6
Increase (decrease) in cash during the year................. (127) 426 5,388
Cash and cash equivalents, beginning of year................ 131 4 430
----- ------- --------
Cash and cash equivalents, end of year...................... $ 4 $ 430 $ 5,818
===== ======= ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 72

INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

bamboo.com.inc. (the "Company" or "bamboo Delaware") was incorporated on March
26, 1998 as Jutvision Corporation under the laws of the state of Delaware. The
Company has a wholly-owned subsidiary, bamboo.com Canada Inc. ("bamboo Canada"),
a company incorporated on December 23, 1998 under the laws of the province of
Ontario, Canada as Jutvision Canada Inc. The Company and its subsidiary generate
revenue from the sale of its virtual tour product of real estate and other
properties on the Internet. Tours are produced by videotaping the inside and
outside of the home or other property, processing the videotape into a complete
virtual tour, and distributing the virtual tour to sites on the Internet. The
virtual tours provide enhanced visual content and are integrated with multiple
listing services by real estate destination web sites. The Company's markets are
the United States and Canada. In 1999, the Company emerged from the development
stage.

The business of the Company was previously operated as Jutvision Corporation, a
company incorporated on November 2, 1995 under the laws of the Province of
Ontario, Canada.

On January 1, 1999, the Board of Directors authorized a corporate reorganization
(see Note 2). Through a series of share exchange agreements, bamboo Delaware,
emerged as the parent company of bamboo Canada and Jutvision Corporation was
merged with bamboo Canada. Prior to the reorganization, bamboo.com did not have
any operations, assets or liabilities.

Under the terms of the reorganization, there was no change in ownership and,
therefore, Jutvision Corporation, has been treated as a predecessor business and
its results presented as the historic results of the Company. The predecessor
business's financial statements presented herein include the results of
operations and cash flows for the periods ended December 31, 1997 and 1998 and
the balance sheet as of December 31, 1998.

On April 23, 1999, Jutvision Canada, Inc. changed its name to bamboo.com Canada,
Inc. and Jutvision Corporation changed its name to bamboo.com, Inc.

On August 25, 1999, the Company completed an initial public offering ("IPO") of
4,000,000 shares of its common stock resulting in proceeds, net of underwriting
discount and other direct costs of approximately $24,333.

2. REORGANIZATION

Each Board of Directors approved a reorganization of Jutvision Corporation,
bamboo Canada and bamboo Delaware effective January 1, 1999 through the
following share exchange arrangements:

a) EXCHANGE OF COMMON STOCKHOLDERS. The common stockholders of Jutvision
Corporation agreed to exchange the outstanding 7,421,536 common shares on a
one-for-one basis for Series B convertible preferred shares of bamboo Canada. In
addition, holders of the outstanding common stock of Jutvision Corporation also
agreed to purchase on a pro-rata basis 7,421,536 Class B common shares of bamboo
Delaware on a one-for-one basis for $0.0001 per share.

F-7
<PAGE> 73
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

stock and Class B common stock of bamboo Delaware have identical rights and
privileges with regard to voting. The Series B convertible preferred stock has
voting privileges only where a separate class vote is required by law.

The Series B convertible preferred stock may not be transferred without either a
two-thirds vote of the existing common stockholders of bamboo Canada or approval
of the Board of Directors of bamboo Canada. The Series B convertible preferred
stock of bamboo Canada automatically converted into common stock of bamboo
Delaware if:

- the net proceeds of an initial public offering of bamboo Delaware common
stock exceeds $10,000; or,

- there is written election by not less than two-thirds majority of the
Series B stockholders; or

- there is a liquidation, dissolution or winding-up of bamboo Canada.

On June 7, 1999, bamboo Canada amended its articles of incorporation and the
Conversion and Pairing Agreement to reflect the creation of Series C convertible
preferred stock ("Series C"). Effective June 11, 1999, the outstanding Series B
convertible preferred stock was converted to Series C. The Series C has
substantially all of the same rights and preferences as the Series B convertible
preferred shares, except that the Series C shares do not automatically convert
in the event that the parent company, bamboo.com, completes an initial public
offering of its stock. Under the amended conversion and pairing agreement, the
Series C shares are exchangeable on a one for one basis for common stock of the
parent company, bamboo.com, and the shares of the Series C will be redeemed at
par value of $0.0001 per share.

Due to the terms of the Conversion and Pairing Agreement, the equity interest of
the Series B convertible preferred shareholders of bamboo Canada is inseparable
from and substantively represents an equivalent equity interest in bamboo
Delaware. Accordingly, these shares are presented as equity in the parent
company in the consolidated financial statements.

(b) EXCHANGE OF PREFERRED STOCKHOLDING. In connection with the reorganization,
holders of the 231,250 shares of outstanding Series A convertible preferred
stock ("Series A") of Jutvision Corporation agreed to exchange their shares on a
one-for-one basis for Series A of bamboo Delaware.

On December 23, 1998, 500,000 shares of the undesignated preferred stock in
bamboo Delaware were designated as Series A, having the same rights and
characteristics as the Series A of Jutvision Corporation.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION. These consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary. All significant
inter-company balances and transactions have been eliminated.

FOREIGN CURRENCY TRANSLATION. The functional currency of the Company's
subsidiary is the Canadian dollar. Monetary assets and liabilities denominated
in foreign currencies are translated into U.S. dollars, at the exchange rate
prevailing at the balance sheet date. Non-monetary assets and liabilities and
transactions are translated at exchange rates prevailing at the respective
transaction dates. Revenue and expenses are translated at the average rates of
exchange during the year. Translation gains and losses are recorded in
accumulated other comprehensive income (loss).

F-8
<PAGE> 74
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Exchange gains and losses arising from foreign currency transactions are
included in the statement of operations and comprehensive income (loss).

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.

CASH, CASH EQUIVALENTS AND INVESTMENTS. The Company considers all highly liquid
investments with a maturity from date of purchase of three months or less to be
cash equivalents. Cash and cash equivalents consist primarily of cash on deposit
with banks and high quality money market instruments. All other liquid
investments are classified as either short-term or long-term securities
available-for-sale, which consist of commercial paper and corporate bonds.

Management determines the appropriate classification of investment securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. At December 31, 1999, all investment securities were designated as
available-for-sale. Securities available-for-sale are carried at fair value,
using available market information with unrealized gains and losses reported in
accumulated other comprehensive income/(loss).

Realized gains and losses, which are calculated using the specific
identification method and declines in value judged to be other-than-temporary on
securities available-for-sale are included in the statement of operations as
realized or incurred. Interest and dividends on securities classified as
available-for-sale are included in interest income.

At December 31, 1999, the Company's securities available-for-sale consisted of
the following: Commercial paper $6,962, corporate bonds $3,039, municipal bonds
of $3,013 and money market funds of $1,476. Of these securities, $10,014 and
$4,476 was classified as securities available-for-sale and cash and cash
equivalents, respectively.

As of December 31, 1999, the difference between the fair value and the amortized
cost of securities available-for-sale was not significant. For the year ended
December 31, 1999, there were no realized gains and losses on sales of
securities available-for-sale.

FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts of certain of the
Company's financial instruments, including cash equivalents, securities
available-for-sale, accounts receivable, accounts payable, and notes payable to
stockholders approximate fair value due to their short-term maturities. Capital
leases are carried at cost, which approximate fair value due to the proximity of
the implicit rates of these financial instruments and the prevailing rates for
similar instruments.

CERTAIN RISKS AND CONCENTRATIONS. The Company's financial instruments that are
exposed to concentration of credit risk consist primarily of cash and cash
equivalents, securities available-for-sale and accounts receivable. The Company
maintains its accounts for cash and cash equivalents, securities
available-for-sale with one major bank in the United States and one major bank
in Canada. Deposits in these banks may exceed the amount of insurance provided
on such deposits. The Company has not experienced any losses on its deposits of
its cash and cash equivalents. Its securities available-for-sale are with one
major financial institution in the United States.

F-9
<PAGE> 75
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The Company's revenue is derived entirely from the sale of its virtual tour
product. The Company performs ongoing credit evaluations of its customers'
financial condition and generally requires no collateral.

The following table summarizes the accounts receivables from customers in excess
of 10% of the total accounts receivable.

<TABLE>
<CAPTION>
------------
YEARS ENDED
DECEMBER 31,
------------
1999
1998 ----
<S> <C> <C>
Company A................................................... 58% 0%
Company B................................................... 13% 0%
Company C................................................... 0% 23%
Company D................................................... 0% 19%
Company E................................................... 0% 18%
</TABLE>

For the year ended December 31, 1997 and 1998, Company A accounted for 25% and
77% of total revenues, respectively. For the year ended December 31, 1999, no
Company accounted for 10% of total revenues.

100%, 100% and 7% of revenues were earned from customers located in Canada with
accounts receivable balances denominated in Canadian dollars in the years ended
December 31, 1997, 1998 and 1999, respectively.

More than 90% of the Company's revenue is related to the real estate industry.
The Company does not list real estate on its own web site and is therefore
dependent upon distribution agreements with real estate destination sites. If
any of these agreements were terminated its revenue and results of operations
could be adversely affected.

PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost and
depreciated on a straight line basis over the estimated lives of the assets
ranging between two and five years. Leasehold improvements are amortized over
the term of the lease or the estimated useful lives, whichever is shorter. Major
additions and improvements are capitalized, while replacements, maintenance and
repairs that do not improve or extend the life of the assets are charged to
operations. In the period assets are retired or otherwise disposed of, the costs
and related accumulated depreciation and amortization are removed from the
accounts, and any gain or loss on disposal is included in the statement of
operations.

Depreciation and amortization expense for the years ended December 31, 1997,
1998 and 1999, was $11, $32 and $859, respectively.

ACCOUNTING FOR LONG-LIVED ASSETS. The Company reviews property and equipment
and other long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amounts of an asset may not be
recoverable. Recoverability is measured by comparison of carrying amount to
future net cash flows an asset is expected to generate. If an asset is
considered to be impaired, the impairment to be recognized is measured by the
amount as which the carrying amount of the assets exceeds the projected
discounted future cash flows arising from the asset.

REVENUE RECOGNITION. The Company generates revenue from the sales of its
virtual tour product to real estate agents and others that includes videotaping
a home, other property or venue, processing the videotape into a complete
virtual tour and distributing the virtual tour to sites on the internet. Revenue

F-10
<PAGE> 76
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

from the sale of tours is recognized at the time a virtual tour is posted to the
Web site selected by the customer, provided there are no remaining significant
obligations and collection of the resulting receivable is probable. The Company
calculates a return provision based on historical experience and makes
appropriate reserves at the time revenue is recognized.

BARTER REVENUES. Barter revenues come from one distinct contractual source:
barter sale of virtual tours similar in nature to the Company's cash sale of
virtual tours. Barter revenues result from the exchange by the Company of a
number of virtual tours for advertising on Web sites of a third party. Barter
revenues are recognized in accordance with APB 29, "Accounting for Nonmonetary
Transactions". The Company records barter revenue at fair value of the virtual
tours exchanged for advertising.

Revenues and sales and marketing expenses arising from this transaction are
recorded at fair value as the Company has an established historical practice of
receiving cash for similar sales of virtual tours. The Company recorded no
barter revenue in 1997 and 1998. In 1999, the Company began to engage in barter
sale of virtual tours and recorded barter revenues of $127, which represented
approximately 3% of total revenues for 1999. Sales and marketing expense arising
from this barter transaction was recognized when the Company's advertisements
are delivered on the reciprocal Web site which is typically the same period in
which the virtual tours are delivered.

STOCK-BASED COMPENSATION. The Company has adopted the disclosure-only
provisions of Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-based
Compensation." The Company has elected to continue accounting for stock-based
compensation issued to employees using Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly,
pro forma disclosures required under SFAS No. 123 have been presented (see Note
8). Under APB 25, compensation expense is based on the difference, if any, on
the date of grant, between the fair value of the Company's stock and exercise
price of the option. Stock and other equity instruments issued to non-employees
have been accounted for in accordance with SFAS No. 123 and Emerging Issues Task
Force ("EITF") No. 96-18, "Accounting for Equity Instruments Issued to other
Than Employees for Acquiring, or in Conjunction with Selling, Goods, or
Services," and valued using the Black-Scholes model.

In connection with certain employee and non-employee stock option and restricted
stock grants, the Company amortizes unearned stock-based compensation over the
vesting period of the related grant using the method set out in FASB
Interpretation No. 28 ("FIN"). Under FIN 28, each tranche of options is
accounted for as a separate grant awarded for past services. Accordingly, the
compensation expense is recognized over the period in which the services have
been provided. This method results in higher compensation expense in the earlier
vesting periods of the related grants.

INCOME TAXES. The Company accounts for its income taxes in accordance with the
liability method. Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting and income tax
bases of assets and liabilities and are measured using the enacted tax rates and
laws. Valuation allowances are established, when necessary, to reduce deferred
tax assets to the amounts expected to be realized.

RESEARCH AND DEVELOPMENT COSTS. Research and development costs are charged to
operations as incurred, except for certain software development costs. In
January 1999, the Company adopted Statement of Position ("SOP") 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for

F-11
<PAGE> 77
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Internal Use," which provides guidance for the accounting of software developed
or obtained for internal use, including the requirement to capitalize specified
costs and amortization of such costs. Costs incurred in the design, creation and
maintenance of content, graphics and user interface of the Company's web-site
are expensed as incurred. Costs incurred in the development of application and
infrastructure of the web-site are capitalized and amortized over the useful
life of the web-site. In 1999, such costs eligible for capitalization were
insignificant.

INTERNAL USE SOFTWARE. In January 1999, the Company adopted Statement of
Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use," which provides guidance for the accounting of
software developed or obtained for internal use, including the requirement to
capitalize specified costs and amortization of such costs. Costs incurred in the
design, creation and maintenance of content, graphics and user interface of the
Company's web-site are expensed as incurred. Costs incurred in the development
of application and infrastructure of the web-site are capitalized and amortized
over the useful life of the web-site.

ADVERTISING. The Company expenses advertising costs as they are incurred.
Advertising expense for each of the years in the three year period ended
December 31, 1999 were $7, $62 and $4,278, respectively. Of these total
expenses, barter advertising expenses of $127 were incurred during the year
ended December 31, 1999. There were no barter advertising expenses for 1997 and
1998.

NET LOSS PER COMMON SHARE. Basic net loss per common share is computed by
dividing the net loss attributable to common stockholders for the period by the
weighted average number of common shares outstanding during the period. Diluted
net loss per common share is computed by dividing the net loss for the period by
the weighted average number of common and common equivalent shares outstanding
during the period. Common equivalent shares, composed of common shares issuable
upon the exercise of stock options and warrants and common stock subject to a
right of repurchase, are included in the diluted net loss per share computation
to the extent such shares are dilutive.

The following table summarizes common stock equivalents that are not included in
the diluted net income per share calculation of the denominator above because to
do so would be antidilutive for the periods indicated:

<TABLE>
<CAPTION>
---------------------------
YEARS ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------ ------ ---------
<S> <C> <C> <C>
Weighted average effect of common stock equivalents:
Series A convertible preferred stock...................... -- 31,667 150,154
Series B convertible preferred stock...................... -- -- 1,031,820
Options to purchase common stock.......................... -- -- 4,933,996
Warrants to purchase common stock......................... -- -- 269,260
Unvested common stock subject to repurchase............... -- -- 19,242
------ ------ ---------
-- 31,667 6,404,472
------ ------ ---------
</TABLE>

COMPREHENSIVE INCOME (LOSS). Effective January 1, 1998, the Company adopted the
provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting comprehensive income (loss) and its
components in financial statements. Comprehensive income (loss), as defined,
includes all changes inequity during a period from non-owner sources.

F-12
<PAGE> 78
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

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

<TABLE>
<CAPTION>
--------------------------
YEARS ENDED DECEMBER 31,
--------------------------
1997 1998 1999
----- ------- --------
<S> <C> <C> <C>
Net loss.................................................... $(143) $(1,840) $(52,645)
Foreign currency translation adjustment..................... 1 (9) 19
----- ------- --------
Comprehensive loss................................ $(142) $(1,849) $(52,626)
----- ------- --------
</TABLE>

RECENT ACCOUNTING PRONOUNCEMENTS. In June 1998, the FASB issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities. SFAS
133 requires that all derivatives be recognized at fair value in the statement
of financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. The Company does not
currently hold derivative instruments or engage in hedging activities.

In July 1999, the FASB issued Statement of Financial Accounting Standards No.
137, or SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB No. 133". SFAS 137 deferred
the effective date of SFAS 133 until the first fiscal quarter beginning after
June 15, 2000.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 or SAB 101 "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. Management
believes that the impact of SAB 101 will not have a material effect on the
financial position or results of operations of the Company.

4. BALANCE SHEET ACCOUNTS

PREPAID EXPENSES AND OTHER CURRENT ASSETS:

<TABLE>
<CAPTION>
-------------
1998 1999
---- ------
<S> <C> <C>
Prepaid expenses............................................ $79 $1,757
Other receivables........................................... -- 894
--- ------
$79 $2,651
--- ------
</TABLE>

F-13
<PAGE> 79
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
-------------
1998 1999
---- ------
<S> <C> <C>
Service provider equipment.................................. $197 $ 714
Computer equipment.......................................... 45 2,045
Office equipment............................................ 11 2,777
Leasehold improvements...................................... 4 590
---- ------
257 6,126
Less: Depreciation and amortization......................... (45) (904)
---- ------
$212 $5,222
---- ------
</TABLE>

Property and equipment includes $706 of assets held under capital leases and
accumulated amortization of assets held under capital leases of $165 at December
31, 1999.

ACCRUED LIABILITIES:

<TABLE>
<CAPTION>
-------------
1998 1999
---- ------
<S> <C> <C>
Accrued liabilities -- trade................................ $ 82 $2,322
Accrued salaries and benefits............................... 40 382
Employee share purchase plan................................ -- 515
---- ------
$122 $3,219
---- ------
</TABLE>

5. BORROWINGS

On February 2, 1999, the Company issued convertible subordinated promissory
notes of $1,800, which bore interest at a rate of 10% per annum. On March 12,
1999, the entire principal balance of $1,800 plus accrued interest of $9 was
converted into 311,495 shares of Series B convertible preferred stock of the
Company.

On April 16, 1999, the Company obtained a line of credit under which the Company
can borrow up to $1,000 in short term financing. Amounts drawn down bear
interest at prime (8.50% at December 31, 1999). No advances have been drawn from
this line of credit. The line of credit is collateralized by a $1,000
certificate of deposit; $200 of which is restricted for payroll processing.

6. STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK. Under the Company's Certificate of Incorporation,
as amended, the Company's convertible preferred stock is issuable in series and
the Company's Board of Directors subject to stockholder approval, is authorized
to determine the rights, preferences and privileges of each series. The Company
has authorized 5,001,100 shares of convertible preferred stock, of which 1,100
is designated as Series C mandatorily redeemable preferred stock ("Series C").

On March 12, 1999, the Company issued 2,152,574 shares of Series B convertible
preferred stock ("Series B"), having a par value of $0.001 per share, at $5.807
per share for total cash proceeds of $10,686 and for conversion of notes payable
and settlement of accrued interest of $1,809.

F-14
<PAGE> 80
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

On May 5, 1999, the Company issued an additional 172,206 shares of Series B with
a par value of $0.001 for $5.807 per share for total cash proceeds of $1,000. In
connection with this issuance, the Company recorded a charge of $1,000
representing a beneficial conversion feature limited to the proceeds received.

On June 11, 1999, the Company entered into an agreement to sell 1,100 shares of
its Series C and 1,250,830 shares of its common stock for total gross proceeds
of $11,000. The $11,000 of proceeds from issuance has been allocated to the
Series C mandatorily redeemable preferred stock and the common stock based on
their relative fair values. Accordingly, $4,394 was allocated to the Series C
and $6,606 was allocated to the common stock at June 11, 1999.

The relative fair values are $8,023 for the Series C and $12,062 for the common
stock. Upon completion of the initial public offering, on August 31, 1999 the
Company repaid the redemption amount of $11,000. As a result the Company
recognized the entire discount of $6,606 as an interest charge in the year ended
December 31, 1999.

The terms of Series A, Series B and Series C were as follows:

DIVIDENDS. The holders of Series A and Series B were entitled to dividends of
$0.32 and $0.4646, respectively, per share per annum, as and when declared by
the Board of Directors.

The holders of Series C redeemable preferred stock were entitled to receive
cumulative dividends out of any assets legally available and prior and in
preference to any other securities, of $500 per share accruing annually from
June 30, 2000.

VOTING RIGHTS. Each share of Series A and Series B entitled a holder to the
number of votes per share equal to the number of shares of common stock
(including fractions of a share) into which each share of Series A and Series B
was convertible. The Series C mandatorily redeemable preferred stock were
entitled to elect one director to the Board of Directors, which currently
consists of six directors in total.

LIQUIDATION. Upon any liquidation, dissolution or winding up of the Company,
the holders of the Series A and Series B were to rank in parity with each other
and would been titled to receive, in equal preference, before any distribution
or payment is made to the holders of common stock, a sum equal to all declared
and unpaid dividends, in addition to an amount per share of $4.00 and $5.807,
respectively. In addition, Series B holders are entitled to participate pro rata
based on the number of shares of common stock into which the Series B convert,
along with the holders of the common stock in any surplus assets remaining after
payment of the liquidation preferences. This amount is limited to $14.5175 per
Series B share.

The holders of Series C were entitled to receive prior and in preference to any
other distribution, dividend or redemption payments of any assets of the Company
their payment of the redemption price.

CONVERSION. Each share of Series A and Series B was convertible into the number
of shares of common stock determined by dividing $4.00 and $5.807, respectively,
by the conversion price at the time in effect for each such share of convertible
preferred stock.

INITIAL PUBLIC OFFERING. On August 25, 1999, the Company completed the IPO of
4,000,000 shares of its common stock at a price of $7 per share. Proceeds of the
offering, net of underwriting discount and other direct costs of the offering,
were approximately $24,333. On September 7, 1999, under the terms of the
underwriting agreement covering the IPO, the underwriters exercised their over
allotment option for

F-15
<PAGE> 81
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

376,000 shares of the common stock of the Company. Proceeds received, net of
underwriting discount, from exercise of the over allotment option were
approximately $2,448.

Upon completion of the Company's IPO and in accordance with the respective
preferred stock purchase agreements 231,250 and 2,324,780 shares of the
Company's Series A and Series B convertible preferred stock converted into
647,500 and 6,509,370 shares of common stock of the Company respectively.

In accordance with the terms of the original option grants upon completion of
the IPO options to purchase 1,921,409 shares of the Company's common stock
became fully vested. As a result, additional compensation expense of $2,622 has
been recorded in the year ended December 31, 1999.

On August 31, 1999, the Company used $11,000 of the proceeds of the IPO to
redeem 1,100 shares of the Company's Series C.

COMMON STOCK. The Company's Certificate of Incorporation authorizes the Company
to issue 70,000,000 common shares with $0.001 par value. Each common share
entitles the holder to one vote. The holders of the shares of common stock are
also entitled to receive dividends whenever funds are legally available and when
declared by the Board of Directors, subject to the prior rights of holders of
all classes of stock at the time outstanding having priority rights as to
dividends.

STOCK SPLIT. On September 15, 1998, the Company authorized a 1,000:1 common
stock split and on July 19, 1999, the Company authorized a 2.8:1 forward common
stock split, which was effected prior to the closing of the public offering on
August 25, 1999. The effect of these stock splits have been retroactively
reflected throughout the financial statements.

EMPLOYEE STOCK PURCHASE PLAN. On June 9, 1999, the Board of Directors approved
the 1999 Employee Stock Purchase Plan and on July 19, 1999, the Company's
stockholders approved the adoption of the 1999 Employee Stock Purchase Plan
under which 700,000 shares have been reserved for issuance at December 31, 1999.

CLASS B COMMON STOCK. As part of the reorganization on January 1, 1999, (Note
2) the Company authorized and issued 7,421,536 Class B common shares with a par
value of $0.0001 per share. Each common share entitles the holder to one vote.

F-16
<PAGE> 82
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

COMMON SHARE UNITS. On June 28, 1998, the Company issued 120,000 common share
units for total proceeds of $76, net of share issuance costs. Each unit
consisted of 2.8 common shares and a warrant to purchase 2.8 common shares. The
fair value of the warrants was established at $23 using the Black-Scholes method
with the following assumptions, no annual dividend, volatility of 55%, risk free
interest rate of 5.35% and term of one year. Based on the fair value of the
underlying instruments within the common share unit, $53 of the total proceeds
was allocated to common shares and the balance of $23 was allocated to the
warrants to purchase common shares. Each warrant entitled the holder to purchase
2.8 common shares at approximately $0.23 per share on or before June 28, 1999.

On December 8, 1998, the warrants were exercised to purchase 336,000 common
shares for net proceeds of $78. On December 31, 1998, promissory notes
pertaining to this warrant conversion were outstanding in the amount of $54. The
promissory notes are non-interest bearing until June 28, 1999, after which
interest accrues at the prime rate charged from time to time by the Royal Bank
of Canada, compounded semi-annually, and have no repayment terms.

ISSUED FOR SERVICES RENDERED. At various times throughout the year ended
December 31, 1998, 1,027,600 common shares were issued to certain individuals,
for services rendered. The fair market value of the stock issued of $326 was
charged to results of operations and comprehensive loss.

STOCK OPTION PLAN

1998 Employee, Director and Consultant Stock Option Plan

During 1998, the Company authorized an Employee, Director and Consultant Stock
Option Plan for a total of 2,380,000 common shares. This plan became effective
on January 1, 1999 once the Company was reorganized. During 1999, an additional
5,799,394 common shares were authorized under the Plan. Each option under the
incentive plan allows for the purchase of common stock of the Company and
expires not later than five or ten years from the date of grant, depending on
the ownership of the option participants. The vesting terms of the stock options
will be determined on each grant date and are generally two or three years;
however, the amount of options that can be exercised per participant in any
calendar year will be restricted to an aggregate fair market value of $100 of
the underlying common stock.

Activity under the Plan is set forth below:

<TABLE>
<CAPTION>
-----------------------------------------------------------
OPTIONS OUTSTANDING
------------------------------------
AVERAGE
WEIGHTED
AVAILABLE PRICE PER EXERCISE
FOR GRANT SHARES SHARE PRICE AMOUNT
---------- ---------- ------------ -------- -------
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1999................ -- -- -- -- --
Options authorized....................... 8,179,394
Options granted.......................... (7,235,039) 7,235,039 $0.18-$22.75 $1.48 $10,728
Options exercised........................ -- (1,899,564) 0.18-7.00 0.22 (420)
Options canceled......................... 160,300 (160,300) 0.18-7.00 1.35 (216)
Stock purchase rights granted............ (120,400) 120,400 0.18 0.18 22
Stock purchase rights exercised.......... -- (120,400) 0.18 0.18 (22)
---------- ---------- ------------ ----- -------
Balances, December 31, 1999.............. 984,255 5,175,175 $0.18-$22.75 $1.95 $10,092
========== ========== ============ ===== =======
</TABLE>

F-17
<PAGE> 83
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

The options outstanding and currently exercisable by exercise price at December
31, 1999 are as follows:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE (YEARS) PRICE OUTSTANDING PRICE
-------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.18 2,933,052 9.1 $ 0.18 1,893,635 $ 0.18
0.27 991,610 9.3 0.27 404,950 0.27
0.36 67,200 9.3 0.36 58,800 0.36
0.54 384,476 9.4 0.54 147,526 0.54
3.57 105,084 9.5 3.57 33,390 3.57
7.00 288,453 9.6 7.00 35,627 7.00
14.44 61,000 9.9 14.44 -- 14.44
16.25 241,000 9.8 16.25 -- 16.25
16.75 75,000 10.0 16.75 -- 16.75
22.75 28,300 9.7 22.75 -- 22.75
--------- ---------
5,175,175 2,573,928
========= =========
</TABLE>

As of December 31, 1997 and 1998, there were no options outstanding.

PRO FORMA STOCK-BASED COMPENSATION. The Company has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," ("SFAS No. 123") for option grants to employees.
Had compensation cost been recorded based on the fair value at the grant date
for the awards in 1999 consistent with the provisions of SFAS No. 123, the
Company's net loss for the year ended December 31, 1999 would have been as
follows:

<TABLE>
<CAPTION>
--------
1999
--------
<S> <C>
Net loss attributable to common stockholders -- as
reported.................................................. $(53,645)
Net loss attributable to common stockholders -- pro forma
(unaudited)............................................... (54,544)
Net loss per common share -- basic and diluted as
reported.................................................. (4.13)
Net loss per common share -- basic and diluted pro forma
(unaudited)............................................... (4.20)
</TABLE>

Such pro forma disclosures may not be representative of future compensation cost
because options vest over several years and additional grants are made each
year. In addition the value of options granted whilst the Company was non-public
have been established using the minimum value method. The fair value of each
option grant in 1999 have been estimated on the date of grant using the
risk-free interest rates between 5% and 6%, expected lives of four years and a
dividend yield of nil. The fair value of all future grants will be established
using a method which includes a volatility factor.

RESTRICTED STOCK AGREEMENTS. In February 1999, the Company issued from the plan
120,400 shares of its common stock on exercise of stock purchase rights granted
in exchange for services under restricted purchase agreements. In accordance
with the term of the grant the repurchase provision expired on August 25, 1999,
the effective date of the Company's IPO.

Additionally, the Company recorded unearned stock-based compensation for
restricted common stock granted to service providers of approximately $1,270
including the effect of the accelerated vesting on the effective date of the
Company's IPO during the year ended December 31, 1999.

F-18
<PAGE> 84
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

WARRANT. Pursuant to a marketing and distribution agreement entered into on
November 11, 1998, the Company agreed to issue a stock purchase warrant to
purchase up to 280,000 shares of common stock at $1.43 per share and expires on
December 31, 1999. The warrant has been recorded at its fair value of $168 with
the costs charged to the statement of operations and comprehensive income (loss)
in the year ended December 31, 1998. The fair value of the warrant was estimated
using the Black-Scholes option-pricing model. The following assumptions were
used in the model: no annual dividend, expected volatility of 55%, risk-free
interest rate of 5.35%; and an expected life of 1.2 years. This warrant was
exercised in December 1999.

STOCK-BASED COMPENSATION. In connection with certain stock option grants to
employees during the year ended December 31, 1999, the Company recorded unearned
stock-based compensation totaling $15,734, which is being amortized over the
vesting periods of the related options which is generally two to three years.
Amortization of this stock-based compensation recognized during the year ended
December 31, 1999 totaled approximately $13,199. The total unearned stock-based
compensation recorded to date will be amortized as follows: $1,842 in 2000; $595
in 2001 and $98 in 2002.

Options to acquire 1,870,680 and 715,553 shares of common stock were issued to
non-employees during the year ended December 31, 1998 and 1999, respectively.
The fair value of the common stock options was determined to be $536 and $5,610
for 1998 and 1999, respectively, using the Black-Scholes pricing model.
Stock-based compensation related to stock options granted to non-employees is
recognized as the service is provided. At each reporting date, the Company
remeasures the unvested portion of such option grants using the Black-Scholes
pricing model. As a result, the stock-based compensation expense will fluctuate
as the fair market value of our common stock fluctuates. In connection with the
grant of stock options to non-employees, the Company recorded stock-based
compensation expense of $536 and $5.6 million for the year ended December 31,
1998 and 1999, respectively. Future stock-based compensation from these options
is estimated to be $484 at December 31, 1999.

7. INCOME TAXES

The principal items accounting for the difference between income taxes computed
at the Statutory rate and the provision for income taxes are as follows:

<TABLE>
<CAPTION>
-----------------------
DECEMBER 31,
-----------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Statutory rate (Canadian 1997 and 1998, US Federal 1999).... 44.5% 44.5% 34.0%
Amounts not deductible for tax purposes..................... (0.5)% 0.0% (13.9)%
Operating losses not benefited.............................. (44.0)% (44.5)% (20.1)%
----- ----- -----
-- -- --
===== ===== =====
</TABLE>

No federal or state income taxes were recorded for the years prior to 1999.

F-19
<PAGE> 85
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

At December 31, 1999, bamboo.com Canada Inc. had accumulated income tax losses
of $1,944 available in Canada for carry-forward to reduce taxable income of
future years, the benefit of which has not been recorded in these financial
statements. The income tax losses expire as follows:

For Canadian federal and Ontario provincial tax purposes, bamboo.com Canada Inc.
net operating loss carryforwards are subject to certain limitations on
utilization in the event of changes in ownership.

At December 31, 1999, the Company had accumulated approximately $26,911 and
$32,218 of federal and state net operating loss carryforwards available to
offset future taxable income which expire at varying amounts beginning in 2019
and 2007, respectively. Under the Tax Reform Act of 1986, the amounts and
benefits from net operating loss carryforwards may be impaired or limited in
certain circumstances. Such amounts, if any, have not been determined. Events
which cause limitations in the amount of net operating losses that the Company
may utilize in any one year include, but are not limited to, a cumulative
ownership change of more than 50%, as defined, over a three year period.

Deferred tax assets are summarized as follows:

<TABLE>
<CAPTION>
-----------------
1998 1999
----- --------
<S> <C> <C>
Deferred tax assets:
Non-capital losses (Canadian 1998 and US Federal 1999)...... $ 865 $ 11,029
Deferred revenue............................................ -- 831
Accrued liabilities......................................... -- 221
Other....................................................... 8 95
----- --------
873 12,176
Deferred tax liabilities:
Depreciation and amortization............................. -- (64)
----- --------
Net Deferred tax assets................................... 873 12,112
Valuation allowance......................................... (873) (12,112)
----- --------
$ -- $ --
===== ========
</TABLE>

The Company has recorded a full valuation allowance against its deferred tax
assets because it believes it is more likely than not that sufficient taxable
income will not be realized during the carryforward period to utilize the
deferred tax asset. The valuation allowance increased by $770 and $11,239 during
1998 and 1999, respectively. Realization of the future tax benefits related to
the deferred tax assets is dependent upon many factors, including the Company's
ability to generate taxable income in the respective tax jurisdiction within the
loss carryforward periods.

F-20
<PAGE> 86
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

8. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
------------------------------
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Supplemental disclosures:
Unearned stock-based compensation related to stock option
grants................................................. $ -- $ -- $ 15,734
-------- -------- --------
Property and equipment acquired under capital leases...... -- -- 502
-------- -------- --------
Conversion of notes payable to Series B................... -- -- 1,800
-------- -------- --------
Issuance of Series B convertible preferred stock in
settlement of interest................................. -- -- 8
-------- -------- --------
Dividend relative to beneficial conversion feature of
Series B............................................... -- -- 1,000
-------- -------- --------
Exercise of common stock options and warrants in exchange
for note receivable.................................... -- 78 127
-------- -------- --------
Interest paid............................................. -- -- 66
-------- -------- --------
Income taxes paid......................................... -- -- 1
-------- -------- --------
Note receivable settled as offset of note payable......... -- 24 --
-------- -------- --------
Common stock issued below fair value...................... -- 45 --
-------- -------- --------
Issuance of common stock for services..................... -- 326 1,270
-------- -------- --------
Issuance of warrant for common stock for services......... -- 168 --
-------- -------- --------
Issuance of options for common stock for services......... -- 536 5,610
-------- -------- --------
</TABLE>

9. COMMITMENTS

OPERATING LEASES. The Company is obligated under leases for the rental of
facilities, computer equipment and office equipment. Minimum future rental
payments under the Company's current leases in effect as at December 31, 1999
are as follows:

Total rent expense was $8, $39 and $757 in the years ended December 31, 1997,
1998 and 1999.

MARKETING AND DISTRIBUTION AGREEMENTS. The Company has entered into marketing
and distribution agreements with certain real estate destination Web sites to
maintain certain promotional and linkage rights, and technology access in
exchange for total minimum payments of $12,322 payable over three years. A total
of $4,696 of the payments are non cancelable. The Company records the expenses
as

F-21
<PAGE> 87
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

incurred. Under the terms of the agreements (as amended), the following minimum
non-cancelable and total future payments are due beginning in April 1999:

<TABLE>
<CAPTION>
------------------------
NON-CANCELABLE TOTAL
-------------- -------
<S> <C> <C>
2000........................................................ $ 4,696 $ 5,563
2001........................................................ -- 5,477
2002........................................................ -- 1,282
2003........................................................ -- --
------- -------
$ 4,696 $12,322
======= =======
</TABLE>

In addition, under the terms of the distribution agreement entered into on July
15, 1999, the Company is subject to making additional payments totaling $1,375
which are contingent upon the party achieving certain milestones.

CAPITAL LEASE OBLIGATIONS. On March 24, 1999, the Company entered into a master
capital lease agreement to obtain up to $1,500 in capital lease financing for
purchases of video equipment, office furniture and other equipment including
computer hardware and software made subsequent to January 1, 1999 to December
31, 1999. On May 6, 1999, the Company committed $426 in property and equipment
to capital lease under a sale and leaseback provision of the master capital
lease agreement.

At December 31, 1999, the future minimum payments under these and other capital
lease agreements are as follows:

<TABLE>
<S> <C>
----
2000........................................................ $274
2001........................................................ 269
2002........................................................ 154
----
Minimum lease payments...................................... 697
Less: Amount representing interest.......................... 133
----
Principal amount of minimum lease payments.................. 564
Less current portion........................................ 191
----
$373
----
</TABLE>

10. RELATED PARTY TRANSACTIONS

Notes payable issued to stockholders in 1998 were non-interest bearing if repaid
in total, on or before June 30, 1999. These notes were repaid in total before
June 30, 1999. In October 1999, the Company issued 173,600 shares of Common
Stock to an executive officer in exchange for a $34 note receivable. The note
bears interest at a rate of 6% per annum and is collateralized by the shares,
all proceeds of the shares and other collateral.

11. SEGMENT INFORMATION

The Company has adopted the Financial Accounting Standards Board's Statements of
Financial Accounting Standards No. 131, or SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information,"

F-22
<PAGE> 88
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

effective for fiscal years beginning after December 31, 1997. SFAS 131
supersedes Statement of Financial Accounting Standards No. 14 of SFAS 14,
"Financial Reporting for Segments of a Business Enterprise." SFAS 131 changes
current practice under SFAS 14 by establishing a new framework on which to base
segment reporting and also requires interim reporting of segment information.

Management uses one measurement of profitability for its business. The Company
markets its products and related services to customers in the United States and
Canada.

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

<TABLE>
<CAPTION>
---------------------
LONG-LIVED
REVENUES ASSETS
-------- ----------
<S> <C> <C>
1999
Canada.................................................... $ 249 $2,486
United States............................................. 3,507 2,736
------ ------
$3,756 $5,222
====== ======
1998
Canada.................................................... $ 77 $ 50
United States............................................. -- 162
------ ------
$ 77 $ 212
====== ======
1997
Canada.................................................... $ 46 $ 14
United States............................................. -- --
------ ------
$ 46 $ 14
====== ======
</TABLE>

12. SUBSEQUENT EVENTS

MERGER WITH INTERACTIVE PICTURES CORPORATION. The Company and Interactive
Pictures Corporation entered into an Agreement and Plan of Merger dated as of
October 25, 1999 (the "Merger Agreement"). Pursuant to the Merger Agreement,
Interactive Pictures Corporation became a wholly-owned subsidiary of a
newly-formed bamboo.com, Inc. subsidiary, Internet Pictures Corporation ("iPIX")
on January 19, 2000. In exchange for Interactive Pictures Corporation common
stock, the Company issued 1.369 shares of its common stock for every share of
Interactive Pictures Corporation common stock outstanding as of January 19,
2000. All outstanding options to purchase Interactive Pictures Corporation
common stock were assumed by the Company and became options to purchase shares
of the Company's common stock. iPIX was then merged with and into the Company
and the name of the surviving company remained iPIX. The transaction is
accounted for as a pooling of interest and qualifies as a tax-free
reorganization. The merger has been approved by both the Board of Directors and
shareholders of the Company and Interactive Pictures Corporation.

WARRANTS. On January 6, 2000, the Company granted warrants in connection with a
strategic relationship to purchase a total of 200,000 shares of common stock at
an exercise price per share equal to 90% of the of the average closing price of
the Company's common stock calculated over the fifteen trading days immediately
preceding the date of the warrant. The warrants vest as follows: 100,000 six
months after the incorporation of immoeuro B.V., 50,000 on September 30, 2000
and 50,000 on December 31, 2000.

F-23
<PAGE> 89
INTERNET PICTURES CORPORATION
(FORMERLY BAMBOO.COM, INC.)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

Based on the term of the warrant, fair value of the underlying common stock and
the risk-free rate at the date of grant, a volatility of 70% and a nil dividend
yield, the Company estimates a charge of approximately $2,253 of unearned
stock-based compensation. As the shares subject to warrant are unvested, the
unvested shares will be revalued at each reporting date and the revised fair
value will be expensed upon the vesting of the remaining shares. As a result,
the charge is subject to substantial increase of decrease based on future
changes in the fair value of the underlying common stock.

MERGER WITH PICTUREWORKS TECHNOLOGY. The Company and PictureWorks Technology,
Inc. (PictureWorks) entered into an Agreement and Plan of Merger dated March 6,
2000 ("the Merger Agreement"). Pursuant to the Merger Agreement, PictureWorks
became a wholly-owned subsidiary of a newly-formed iPIX subsidiary, Purple Sub,
Inc. on March 31, 2000. A total of 4,644,334 shares of iPIX common stock were
exchanged for all common and mandatorily redeemable convertible preferred shares
of PictureWorks. All outstanding options and warrants to purchase PictureWorks'
common stock were assumed by iPIX and became options to purchase shares of iPIX.

F-24
<PAGE> 90

INTERNET PICTURES CORPORATION

SUPPLEMENTAL POOLED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
--------------------
DECEMBER 31,
--------------------
1998 1999
-------- ---------
<S> <C> <C>
(In thousands, except share and per share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 1,494 $ 18,627
Securities available-for-sale............................... -- 42,739
Accounts receivable, net of allowance for doubtful accounts
of $171 in, 1998 and $198 in 1999......................... 861 3,356
Inventory, net of reserve for obsolescence of $100 in 1998
and $55 in 1999........................................... 328 1,059
Prepaid expenses and other current assets................... 384 7,211
-------- ---------
Total current assets............................... 3,067 72,992
Long-term securities available-for-sale..................... -- 12,000
Property and equipment, net................................. 1,565 9,135
Other assets................................................ 137 1,676
-------- ---------
Total assets....................................... $ 4,769 $ 95,803
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Convertible debenture....................................... $ 1,000 $ --
Accounts payable............................................ 534 2,711
Accrued liabilities......................................... 1,770 6,203
Deferred revenue............................................ 118 5,262
Notes payable to stockholders............................... 8 --
Current portion of promissory note and obligations under
capital lease............................................. 8 199
-------- ---------
Total current liabilities.......................... 3,438 14,375
-------- ---------
Promissory note and obligations under capital lease, net of
current portion........................................... 21 387
Commitments and contingencies (Note 11)
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 and no par values in 1998 and $0.001
par value in 1999......................................... 6 0
Authorized: 12,136,438 in 1998 and 15,001,100 in 1999
Issued and outstanding: 6,430,375 in 1998 and none in 1999
Aggregate liquidation value: $25,536 in 1998 and nil in
1999
Class B common stock, $0.0001 par value: 1 1
Authorized: Unlimited in 1998 and 7,421,536 in 1999
Issued and outstanding: 7,421,536 in 1998 and 7,012,736 in
1999
Common stock, $0.001 par value: 6 38
Authorized: 51,279,160 in 1998 and 150,000,000 in 1999
Issued and outstanding: 5,615,371 in 1998 and 38,231,581
in 1999
Additional paid-in capital.................................. 27,458 187,829
Notes receivable from stockholders.......................... (54) (181)
Unearned stock-based compensation........................... -- (2,955)
Accumulated deficit......................................... (26,098) (103,701)
Accumulated other comprehensive income (loss)............... (9) 10
-------- ---------
Total stockholders' equity......................... 1,310 81,041
-------- ---------
Total liabilities and stockholders' equity......... $ 4,769 $ 95,803
======== =========
</TABLE>

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

F-25
<PAGE> 91

INTERNET PICTURES CORPORATION

SUPPLEMENTAL POOLED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
-----------------------------
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
(In thousands, except per share amounts)
REVENUES:
Products.................................................... $ 2,174 $ 2,789 $ 12,523
Research and development services........................... 318 329 --
------- -------- --------
2,492 3,118 12,523
------- -------- --------
COST OF REVENUES:
Products (excludes stock-based compensation of $0, $0,
$398)..................................................... 461 1,274 7,262
Research and development services........................... 316 241 --
------- -------- --------
777 1,515 7,262
------- -------- --------
Gross profit................................................ 1,715 1,603 5,261
------- -------- --------
OPERATING EXPENSES:
Sales and marketing (excludes stock-based compensation of
$0, $583 and $13,353).................................. 2,839 8,783 37,785
Research and development (excludes stock-based
compensation of $0, $133 and $1,331)................... 1,213 2,885 5,359
General and administrative (excludes stock-based
compensation of $0, $446 and $5,593)................... 2,720 3,939 13,906
Amortization of product development and patent costs...... 858 -- --
Stock-based compensation expense.......................... -- 1,162 20,675
------- -------- --------
Total operating expenses.......................... 7,630 16,769 77,725
------- -------- --------
Loss from operations........................................ (5,915) (15,166) (72,464)
OTHER INCOME (EXPENSE):
Interest expense............................................ (42) (202) (6,684)
Other income (expense), net................................. 236 303 2,545
------- -------- --------
Net loss.................................................... (5,721) (15,065) (76,603)
------- -------- --------
Beneficial conversion related to issuance of Series B
convertible preferred stock............................... -- -- (1,000)
------- -------- --------
Net loss attributable to common stockholders................ $(5,721) $(15,065) $(77,603)
------- -------- --------
Basic and diluted loss per common share..................... $ (0.50) $ (1.22) $ (3.01)
======= ======== ========
Weighted average common shares -- basic and diluted......... 11,425 12,334 25,757
======= ======== ========
</TABLE>

The accompanying notes are an integral part of these supplemental pooled
consolidated financial statements.
F-26
<PAGE> 92

INTERNET PICTURES CORPORATION

SUPPLEMENTAL POOLED CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JANUARY 1, 1997 TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
CLASS B COMMON NOTES
PREFERRED STOCK STOCK COMMON STOCK ADDITIONAL RECEIVABLE
--------------------- ------------------ ------------------- PAID IN FROM
NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT CAPITAL STOCKHOLDERS
----------- ------- --------- ------ ---------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
In thousands, except share and per
share amounts
Balances -- January 1, 1997........ -- $ -- 2,800,000 $-- 8,606,307 $ 9 $ 10,126 $ --
Common stock issued for cash in
July 1997....................... -- -- 45,025 -- -- -- 14 --
Net loss.......................... -- -- -- -- -- -- -- --
Other comprehensive income........ -- -- -- -- -- -- -- --
----------- ------- --------- -- ---------- --- -------- -----
Balances -- December 31, 1997...... -- -- 2,845,025 -- 8,606,307 9 10,140 --
Issuance of Series A convertible
preferred stock in October and
December 1998................... 231,250 -- -- -- -- -- 925 --
Common stock issued for cash
through March to September
1998............................ -- -- 1,342,231 -- -- -- 432 --
Common stock issued for services
through February to May 1998.... -- -- 1,027,600 -- -- -- 326 --
Issuance of options to purchase
common stock in exchange for
services........................ -- -- -- -- -- -- 536 --
Shares issued upon exercise of
options for common stock........ -- -- 2,206,680 1 -- -- 83 (78)
Warrants for common stock
issued.......................... -- -- -- -- -- -- 23 --
Issuance of warrant for common
stock for services.............. -- -- -- -- -- -- 168 --
Settlement of note receivable as
offset to note payable.......... -- -- -- -- -- -- -- 24
Conversion of common stock into
Series A & B preferred stock.... 3,174,841 3 -- -- (3,174,841) (3) 15 --
Proceeds from issuance of Series C
preferred stock and warrants,
net of related costs............ 2,996,327 3 -- -- -- -- 12,526 --
Conversion of $1,000 debenture
into Series C preferred stock... 230,486 -- -- -- -- -- 1,000 --
Proceeds from issuance of common
stock and warrants, net of
related costs................... -- -- -- -- 314,269 -- 1,281 --
Exchange of common for preferred
shares and related repurchase
and retirement of Series C
preferred stock................. -- -- -- -- (232,792) -- -- --
Repurchase and retirement of
Series B preferred stock........ (202,528) -- -- -- -- -- -- --
Issuance of common stock upon
exercise of stock options....... -- -- -- -- 102,429 -- 3 --
Net loss.......................... -- -- -- -- -- -- -- --
Other comprehensive loss.......... -- -- -- -- -- -- -- --
----------- ------- --------- -- ---------- --- -------- -----
Balances -- December 31, 1998...... 6,430,376 6 7,421,536 1 5,615,372 6 27,458 (54)
Issuance of Series B preferred
stock, net...................... 2,324,780 2 -- -- -- -- 13,403 --
Conversion of Series A and Series
B preferred stock into common
stock........................... (2,556,030) (1) -- -- 7,156,870 7 (6) --
Issuance of common stock with
Series C mandatorily redeemable
preferred stock in June 1999.... -- -- 1,250,830 1 6,605 --
Issuance of common stock on
IPOs............................ -- -- -- -- 9,646,650 10 90,076 --
Conversion of Class B common stock
to common stock................. -- -- (408,800) 408,800 -- --
Issuance of common stock upon
exercise of warrants............ -- -- -- -- 1,034,684 1 723 --
Stock options granted for services
in 1999......................... -- -- -- -- -- -- 5,610 --
Unearned stock-based
compensation.................... -- -- -- -- -- -- 16,750 --
Amortization of stock-based
compensation.................... -- -- -- -- -- -- -- --
Restricted common stock issued to
service provider in January
1999............................ -- -- -- -- 120,400 -- 1,270 --
Amortization of stock-based
compensation for service
provider........................ -- -- -- -- -- -- -- --
Stock issued on exercise of stock
options......................... -- -- -- -- 1,899,561 2 418 (127)
Dividend relative to beneficial
conversion feature related to
issuance of Series B preferred
stock........................... -- -- -- -- -- -- 1,000 --

<CAPTION>
-----------------------------------------------------
ACCUMULATED
UNEARNED OTHER
STOCK-BASED COMPREHENSIVE ACCUMULATED
COMPENSATION INCOME (LOSS) DEFICIT TOTAL
------------ ------------- ----------- --------
<S> <C> <C> <C> <C>
In thousands, except share and per
share amounts
Balances -- January 1, 1997........ $ -- $(1) $ (3,919) $ 6,215
Common stock issued for cash in
July 1997....................... -- -- -- 14
Net loss.......................... -- -- (5,721) (5,721)
Other comprehensive income........ -- 1 -- 1
------- --- --------- --------
Balances -- December 31, 1997...... -- -- (9,640) 509
Issuance of Series A convertible
preferred stock in October and
December 1998................... -- -- -- 925
Common stock issued for cash
through March to September
1998............................ -- -- -- 432
Common stock issued for services
through February to May 1998.... -- -- -- 326
Issuance of options to purchase
common stock in exchange for
services........................ -- -- -- 536
Shares issued upon exercise of
options for common stock........ -- -- -- 6
Warrants for common stock
issued.......................... -- -- -- 23
Issuance of warrant for common
stock for services.............. -- -- -- 168
Settlement of note receivable as
offset to note payable.......... -- -- -- 24
Conversion of common stock into
Series A & B preferred stock.... -- -- (15) --
Proceeds from issuance of Series C
preferred stock and warrants,
net of related costs............ -- -- -- 12,529
Conversion of $1,000 debenture
into Series C preferred stock... -- -- -- 1,000
Proceeds from issuance of common
stock and warrants, net of
related costs................... -- -- -- 1,281
Exchange of common for preferred
shares and related repurchase
and retirement of Series C
preferred stock................. -- -- (500) (500)
Repurchase and retirement of
Series B preferred stock........ -- -- (878) (878)
Issuance of common stock upon
exercise of stock options....... -- -- -- 3
Net loss.......................... -- -- (15,065) (15,065)
Other comprehensive loss.......... -- (9) -- (9)
------- --- --------- --------
Balances -- December 31, 1998...... -- (9) (26,098) 1,310
Issuance of Series B preferred
stock, net...................... -- -- -- 13,405
Conversion of Series A and Series
B preferred stock into common
stock........................... -- -- -- --
Issuance of common stock with
Series C mandatorily redeemable
preferred stock in June 1999.... -- -- -- 6,606
Issuance of common stock on
IPOs............................ -- -- -- 90,086
Conversion of Class B common stock
to common stock................. -- -- -- --
Issuance of common stock upon
exercise of warrants............ -- -- -- 724
Stock options granted for services
in 1999......................... -- -- -- 5,610
Unearned stock-based
compensation.................... (16,750) -- -- --
Amortization of stock-based
compensation.................... 13,795 -- -- 13,795
Restricted common stock issued to
service provider in January
1999............................ (1,270) -- -- --
Amortization of stock-based
compensation for service
provider........................ 1,270 -- -- 1,270
Stock issued on exercise of stock
options......................... -- -- -- 293
Dividend relative to beneficial
conversion feature related to
issuance of Series B preferred
stock........................... -- -- (1,000) --
</TABLE>

F-27
<PAGE> 93
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------
CLASS B COMMON NOTES
PREFERRED STOCK STOCK COMMON STOCK ADDITIONAL RECEIVABLE
--------------------- ------------------ ------------------- PAID IN FROM
NUMBER AMOUNT NUMBER AMOUNT NUMBER AMOUNT CAPITAL STOCKHOLDERS
----------- ------- --------- ------ ---------- ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Proceeds from issuance of Series D
preferred stock and warrants,
net of related costs............ 4,264,885 4 -- -- -- -- 22,080 --
Issuance of common stock upon
exercise of stock options....... -- -- -- -- 305,457 -- 326 --
Conversion of $1,000 debenture and
interest into Series C preferred
stock........................... 238,939 -- -- -- -- -- 1,036 --
Conversion of preferred stock to
common stock.................... (10,702,950) (11) -- -- 10,702,950 11 -- --
Conversion of redeemable common
stock to common stock........... -- -- -- -- 13,951 -- 80 --
Issuance of common stock for
advertising fees................ -- -- -- -- 76,056 -- 1,000 --
Net loss.......................... -- -- -- -- -- -- -- --
Other comprehensive income........ -- -- -- -- -- -- -- --
----------- ------- --------- -- ---------- --- -------- -----
Balances -- December 31, 1999...... -- $ -- 7,012,736 $1 38,231,581 $38 $187,829 $(181)
=========== ======= ========= == ========== === ======== =====

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

F-28
<PAGE> 94

INTERNET PICTURES CORPORATION

SUPPLEMENTAL POOLED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
------------------------------
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
(In thousands) ------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(5,721) $(15,065) $ (76,603)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 1,001 256 1,325
Provisions for doubtful accounts receivable............... 190 (20) 27
Provision for inventory obsolescence...................... (44) 100 195
Loss (gain) on disposal of fixed assets................... 88 -- (6)
Amortization of discounts on securities
available-for-sale..................................... (51) (167) (177)
Interest charge on redemption of Series C mandatorily
redeemable preferred stock............................. -- -- 6,606
Non-cash compensation expense related to issuance of
options and warrants................................... -- -- 13,821
Issuance of common stock, options and warrant in exchange
for services........................................... -- 1,074 6,880
Issuance of Series B convertible preferred stock in
settlement of
interest payable....................................... -- -- 8
Changes in operating assets and liabilities:
Accounts receivable.................................... (452) (298) (2,522)
Inventory.............................................. (120) (196) (926)
Prepaid expenses and other current assets.............. 7 (255) (5,826)
Other assets........................................... (162) (19) (1,383)
Accounts payable....................................... (78) 202 2,189
Accrued liabilities.................................... 528 1,176 4,462
Costs and estimated earnings in excess of billings on
uncompleted contracts................................ (35) 64 --
Deferred revenue....................................... (100) 55 5,144
------- -------- ---------
Net cash used in operating activities............. (4,949) (13,093) (46,786)
------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (510) (1,132) (8,426)
Purchases of securities available-for-sale.................. (3,933) (7,832) (113,328)
Maturities of securities available-for-sale................. 3,485 8,999 58,766
Purchase of intangible asset................................ -- -- (150)
Proceeds from disposal of property and equipment............ -- -- 42
------- -------- ---------
Net cash provided by (used in) investing
activities...................................... (958) 35 (63,096)
------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock.................. 14 1,700 98,817
Net proceeds from issuance of preferred stock............... -- 13,454 41,075
Repurchase of preferred and common stock.................... -- (1,378) (3,730)
Proceeds from obligation under capital leases............... -- -- 204
Repayment of obligation under capital lease................. -- -- (142)
Repayment of Series C mandatorily redeemable convertible
preferred stock........................................... -- -- (11,000)
Issuance (repayment) of convertible debenture............... 3,000 (1,000) 1,800
Notes payable to stockholders and repayments of notes
payable................................................... (17) (35) (15)
------- -------- ---------
Net cash provided by financing activities......... 2,997 12,741 127,009
------- -------- ---------
Effect of exchange rate changes on cash..................... 3 (19) 6
------- -------- ---------
Net increase (decrease) in cash and cash equivalents........ (2,907) (336) 17,133
Cash and cash equivalents, beginning of year................ 4,737 1,830 1,494
------- -------- ---------
Cash and cash equivalents, end of year...................... $ 1,830 $ 1,494 $ 18,627
======= ======== =========
</TABLE>

The accompanying notes are an integral part of these supplemental pooled
consolidated financial statements.
F-29
<PAGE> 95

INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

On January 19, 2000, bamboo.com, Inc. (bamboo) merged with Interactive Pictures
Corporation (Interactive) in a transaction accounted for using the pooling of
interests method of accounting (Note 3). Concurrent with the merger, bamboo
changed its name to Internet Pictures Corporation ("iPIX" or "the Company"). For
financial reporting purposes, bamboo is considered the successor business to
Jutvision Corporation, a Canadian corporation (Note 15).

iPIX is an Internet infrastructure company that provides visual content and
other digital media solutions to facilitate commerce, communication and
entertainment. The Company offers complete end-to-end solutions that include the
capture, processing, hosting and distribution of visual content and other
digital media for the Internet. iPIX solutions are designed for many types of
digital media content, including still images, 360 by 360 immersive images,
slide shows, video, animation and audio.

The Company has cash, cash equivalents and securities available-for-sale of
$49,221 at March 31, 2000. Management believes that existing cash and investment
balances will be sufficient to fund operations through December 2000. In May
2000, the Company anticipates completion of a secondary offering of its common
stock. The proceeds from this offering will likely be required in order for the
Company to meet working capital needs beyond December 2000. There can be no
assurance, however, that the Company will be able to complete this offering or
that it will raise additional equity or debt financing under terms favorable to
the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION. The consolidated financial statements of the
Company include the accounts of iPIX and its wholly-owned subsidiaries,
Interactive Pictures UK Limited, a United Kingdom company and bamboo.com Canada,
Inc. All significant intercompany balances and transactions have been
eliminated.

FOREIGN CURRENCY TRANSLATION. The functional currency of the Company's Canadian
and United Kingdom subsidiaries is the Canadian dollar and British pound,
respectively. Monetary assets and liabilities denominated in foreign currencies
were translated into the Company's functional currency, U.S. dollars, at the
exchange rate prevailing at the balance sheet date. Non-monetary assets and
liabilities and transactions were translated at exchange rates prevailing at the
respective transaction dates. Revenue and expenses are translated at the average
rates of exchange during the year. Translation gains and losses are recorded in
accumulated other comprehensive income (loss). Transaction exchange gains and
losses were included in the statement of operations.

CASH, CASH EQUIVALENTS AND INVESTMENTS. The Company considers all highly liquid
debt instruments with an original maturity or remaining maturity at date of
purchase of three months or less to be cash equivalents. All other liquid
investments are classified as either short-term or long-term investments.

Management determines the appropriate classification of investment securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. At December 31, 1999, all investment securities are designated as
available-for-sale. Available-for-sale securities are carried at fair value,
using available market information and appropriate valuation methodologies, with
unrealized gains and losses reported in accumulated other comprehensive income
(loss).

F-30
<PAGE> 96
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in the
statement of income. There have been no such transactions in the year ended
December 31, 1999.

Interest income includes interest, amortization of purchase premiums and
discounts, and realized gains and losses on sales of securities. The cost of
securities sold is based on the specific identification method.

CERTAIN RISKS AND CONCENTRATIONS. Financial instruments that potentially
subject the Company to a concentration of credit risk consist of cash and cash
equivalents, and accounts receivable. Cash and cash equivalents are deposited
with high credit quality financial institutions. The Company's accounts
receivable are derived from revenue earned from clients located in the U.S. and
abroad. The Company performs ongoing credit evaluations of its clients'
financial condition and generally requires no collateral from its clients. To
date, the Company has not experienced any material losses.

During 1998, one customer accounted for 13% of revenue and 16% of accounts
receivable. One additional customer also represented 16% of accounts receivable
at December 31, 1998. No customer represented in excess of 10% of the Company's
accounts receivable at December 31, 1999. No customer represented in excess of
10% of the Company's revenues in 1997 or 1999.

More than 47% of the Company's revenue is related to the real estate industry.
The Company does not list real estate on its own web site and is therefore
dependent upon distribution agreements with real estate destination sites. If
any of these agreements were terminated, its revenues and results of operations
could be adversely affected.

INVENTORY. Inventory, which consists primarily of digital cameras and related
hardware, is stated at the lower of cost or market, with costs determined using
standard costs (which approximate first-in, first-out costs). The Company
records a provision for obsolete inventory whenever such an impairment has been
identified.

PREPAID EXPENSES. Prepaid expenses consist primarily of advertising, trade
shows, insurance, and merger-related costs, which will be reflected as an
expense during the period benefited.

PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost and are
depreciated primarily using the straight-line method over estimated useful
lives, which range from two to ten years. Leasehold improvements are amortized
over the term of the lease or estimated useful life, whichever is shorter.
Routine maintenance and repair costs are expensed as incurred. The costs of
major additions, replacements, and improvements are capitalized. Gains and
losses from disposals are included in operations as incurred.

PATENTS AND PRODUCT DEVELOPMENT COSTS. External legal costs incurred to
maintain the Company's intellectual property position are capitalized and
amortized over the estimated useful life of the related patents.

The Company also capitalizes eligible software costs incurred after
technological feasibility of the product has been established by a working
model. Capitalized software costs are amortized over the estimated useful life
of the product on a straight-line basis.

During 1997, the Company became aware of certain competitors using alternative
technologies and determined that it was necessary to revise the estimated
economic lives of both capitalized product

F-31
<PAGE> 97
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

development costs and patent costs from five years and seven years,
respectively, to one year and three years, respectively. The effect of the
change was to increase amortization expense by approximately $650. Qualifying
costs in 1998 and 1999 were insignificant and, therefore, the Company did not
capitalize such costs.

ACCOUNTING FOR LONG-LIVED ASSETS. The carrying value of intangible assets,
property and equipment, and other long-lived assets is reviewed on a regular
basis for the existence of facts, both internally and externally, that may
suggest impairment. The Company recognizes impairment losses whenever events or
circumstances result in the carrying amount of the assets exceeding the sum of
the expected future cash flows associated with such assets. The measurement of
the impairment losses to be recognized is based on the difference between the
discounted cash flows from such assets and the carrying amounts of the assets.
To date no such impairment has been indicated.

INCOME TAXES. The Company uses the asset and liability method of accounting for
income taxes, which requires the recognition of deferred tax liabilities and
assets for expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities. A valuation
allowance against deferred tax assets is recorded if, based upon available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized. Tax credits are accounted for as a reduction of tax
expense in the year in which the credits reduce taxes payable.

The Company does not recognize deferred income taxes for temporary differences
associated with its investment in the foreign subsidiary because the differences
are essentially permanent in duration.

Interactive Pictures UK Limited is not included in the tax filing of its parent,
Interactive Pictures Corporation. As a result, Interactive Pictures UK Limited
files a separate return with the United Kingdom tax authorities.

REVENUE RECOGNITION. Product revenue is recognized upon shipment or delivery to
distributors and end users provided there are no uncertainties surrounding
product acceptance, there are no significant vendor obligations, the fees are
fixed and determinable, and collection is considered probable. Revenue from the
sale of the Company's virtual tour products is recognized upon distribution to
the website designated by the customer. The Company provides an allowance for
returns upon recognizing revenue as deemed necessary based on historical
experience. Returns were insignificant for all years presented. Payments
received in advance are initially recorded as deferred revenue and recognized
ratably as obligations are fulfilled.

During 1997 and 1998, the Company derived service revenues from research and
development activities performed under fixed-price contracts with certain U.S.
government agencies and other third parties. Such revenues were recognized using
the percentage-of-completion method of accounting (based on the ratio of costs
incurred to total estimated costs, or as certain targets in the development
process were met, as appropriate under the contract). Provisions for estimated
losses on uncompleted contracts were made on a contract-by-contract basis and
recognized in the period in which such losses became probable and could be
reasonably estimated. Such losses were insignificant. Unbilled fees and services
on contracts were comprised of costs plus estimated earnings on certain
contracts in excess of contractual billings on such contracts. Advanced billings
and billings in excess of costs plus estimated earnings were classified as
deferred revenue.

F-32
<PAGE> 98
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

BARTER REVENUES. Barter revenues come from barter sales of the Company's
products which are similar in nature to the Company's cash sales for the same
products. Barter revenues have resulted from the exchange by the Company of
certain products for advertising. Barter revenues are recognized in accordance
with APB 29, "Accounting for Nonmonetary Transactions." The Company records
barter revenue at fair value of the products exchanged for advertising.

Revenues and sales and marketing expenses arising from these transactions are
recorded at fair value as the Company has an established historical practice of
receiving cash for similar sales. The Company recorded no barter revenue or
related expense in 1997 or 1998. In 1999, the Company recorded barter revenues
of $229,000, which represented approximately 2% of total revenues for 1999.
Sales and marketing expense arising from these barter transactions is recognized
when the advertising takes place which is typically the same period in which the
products are delivered.

RESEARCH AND DEVELOPMENT COSTS. Research and development expenditures are
expensed as incurred except for certain software development costs. Costs
incurred under contracts to perform research and development for others,
excluding contracts with government agencies, are accounted for under Statement
of Financial Accounting Standards (SFAS) No. 68, Research and Development
Arrangements.

ADVERTISING EXPENSES. All advertising expenditures are expensed as incurred.
Advertising expenses for 1997, 1998 and 1999, were $399, $1,149 and $8,513,
respectively. The Company recognizes expenditures under cooperative advertising
arrangements net of reimbursements received from participants.

STOCK-BASED COMPENSATION. The Company has adopted the disclosure provisions of
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 123. "Accounting for Stock-based Compensation." The
Company has elected to continue accounting for stock-based compensation issued
to employees using Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and, accordingly, pro forma
disclosures required under SFAS No. 123 have been presented (see Note 9). Under
APB 25, compensation expense is based on the difference, if any, on the date of
grant, between the fair value of the Company's stock and exercise price of the
option. Stock and other equity instruments issued to non-employees have been
accounted for in accordance with SFAS No. 123 and Emerging Issues Task Force
Issue No. 96-18, "Accounting for Equity Instruments Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods, or Services,"
and valued using the Black-Scholes model.

In connection with certain employee and non-employee stock option and restricted
stock grants, the Company amortizes unearned stock-based compensation over the
vesting period of the related grant using the method prescribed in FASB
Interpretation No. 28. Under this method, each vested tranche of options is
accounted for as a separate grant awarded for past services. Accordingly, the
compensation expense is recognized over the period in which the services have
been provided. This method results in higher compensation expense in the earlier
vesting periods of the related grants.

The Company presents stock-based compensation expense as a separate line item in
its consolidated statements of operations.

ESTIMATES. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results

F-33
<PAGE> 99
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

could differ from those estimates. Examples of items affected by certain
significant estimates made by management are long-lived assets, including
patents and product development costs, certain accruals, receivables and
inventory.

SEGMENT REPORTING. The Company uses a "management" approach, which designates
the internal organization that is used by management for making operating
decisions and assessing performance as the source of the Company's reportable
segments. Segment reporting includes disclosures about products and services,
geographic areas, and major customers.

NET LOSS PER SHARE. The Company computes net loss per share in accordance with
SFAS No. 128, Earnings Per Share, Basic and diluted net loss per share is
computed by dividing the net loss available to common shareholders for the
period by the weighted average number of shares of common stock outstanding
during the period. The calculation of diluted net loss per share excludes
potential common shares if the effect is antidilutive. Common equivalent shares
are included in the diluted net loss per share computation to the extent such
shares are dilutive.

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

<TABLE>
<CAPTION>
----------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Weighted average effect of common stock equivalents
Preferred Stocks:
Series A.............................................. -- 1,670,444 1,488,868
Series B.............................................. -- 595,292 1,460,197
Series C.............................................. -- 2,068,592 1,918,406
Series D.............................................. -- -- 2,082,783
Employee stock options.................................. 954,523 905,196 5,517,884
Warrants to purchase common stock....................... -- -- 685,512
Unvested common stock subject to repurchase............. -- -- 19,242
Convertible debenture................................... 119,085 604,387 51,781
--------- --------- ----------
1,073,608 5,843,911 13,224,673
========= ========= ==========
</TABLE>

COMPREHENSIVE INCOME (LOSS). On January 1, 1998, the Company adopted SFAS No.
130, Reporting Comprehensive Income ("SFAS 130"), which establishes new
requirements for reporting and displaying comprehensive income (loss) and its
components. The adoption of SFAS 130 has no impact on the Company's net loss or
total stockholders' equity. This new accounting standard requires net unrealized
gains or losses on the Company's available-for-sale securities and cumulative
foreign currency translation adjustments to be reported as accumulated other
comprehensive income (loss).

F-34
<PAGE> 100
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

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

<TABLE>
<CAPTION>
-----------------------------
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Net loss.................................................... $(5,721) $(15,065) $(76,603)
Foreign currency translation adjustment..................... 1 (9) 19
------- -------- --------
Comprehensive loss................................ $(5,720) $(15,074) $(76,584)
------- -------- --------
</TABLE>

RECENT ACCOUNT PRONOUNCEMENTS. SFAS 133, Accounting for Derivatives and Hedging
Activities, establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS 133 is effective for fiscal quarters
beginning after June 15, 2000. The adoption of SFAS 133 is not expected to have
a material impact on the Company's reported results of operations, financial
position or cash flows.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 or SAB 101 "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. Management
believes that the impact of SAB 101 will not have a material impact on the
financial position or results of operations of the Company.

3. BUSINESS COMBINATION

Interactive and the Company received shareholder approval and executed an
Agreement and Plan of Merger ("the merger agreement") in January 2000. Pursuant
to the merger agreement, Interactive became a wholly-owned subsidiary of the
Company and the Company issued 1.369 shares of its common stock for every share
of Interactive common stock outstanding immediately prior to the Effective Time
(as defined in the merger agreement) of the merger. The transaction was
accounted for as a pooling of interests. Accordingly, all prior period financial
statements have been restated to reflect the exchange ratio and to include the
results of operations, financial position and cash flows of Interactive as
though it had always been a part of the Company.

The results of operations for the separate companies and the combined amounts
presented in the consolidated financial statements are as follows:

<TABLE>
<CAPTION>
--------------------------------
FISCAL YEAR ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
Total revenue
Internet Pictures Corporation............................. $ 46 $ 77 $ 3,756
Interactive............................................... 2,446 3,041 8,767
------- -------- --------
Combined.................................................. $ 2,492 $ 3,118 $ 12,523
======= ======== ========
Net loss attributable to common stockholders
Internet Pictures Corporation............................. $ (143) $ (1,840) $(53,645)
Interactive............................................... (5,578) (13,225) (23,958)
------- -------- --------
Combined.................................................. $(5,721) $(15,065) $(77,603)
======= ======== ========
</TABLE>

F-35
<PAGE> 101
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Immaterial adjustments were made to conform the Company's and Interactive
Pictures Corporation's accounting policies.

In connection with the merger, the Company will record a charge of approximately
$14,500 in operating expenses for costs incurred related to the merger upon
consummation. Until the merger was completed, merger costs totaling $1,927 and
$700 were deferred and included in prepaids and other assets and accrued
liabilities, respectively at December 31, 1999. These merger costs consist
primarily of investment banking fees and costs of attorneys, accountants, and
other directly related external costs.

4. BALANCE SHEET ACCOUNTS

Securities available-for-sale consist of the following at December 31, 1999:

<TABLE>
<CAPTION>
FAIR
COST VALUE
------- -------
<S> <C> <C>
SHORT-TERM:
Certificates of deposit..................................... $ 6,725 $ 6,725
Commercial paper............................................ 7,000 7,000
Corporate notes............................................. 21,955 21,950
Government notes............................................ 7,000 7,064
------- -------
$42,680 $42,739
------- -------
LONG-TERM:
Corporate notes............................................. $ 9,000 $ 9,000
Government notes............................................ 3,000 3,000
------- -------
$12,000 $12,000
======= =======
</TABLE>

All of the long-term securities available-for-sale mature in 2001.

PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
----------------
1998 1999
------ -------
<S> <C> <C>
Furniture and equipment..................................... $1,920 $10,118
Leasehold improvements...................................... 57 751
------ -------
1,977 10,869
Accumulated depreciation and amortization................. (412) (1,734)
------ -------
Property and equipment, net............................... $1,565 $ 9,135
====== =======
</TABLE>

Property and equipment includes $706 of assets held under capital leases and
related accumulated amortization of $165 at December 31, 1999.

F-36
<PAGE> 102
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

ACCRUED LIABILITIES:

<TABLE>
<CAPTION>
---------------
1998 1999
------ ------
<S> <C> <C>
Accrued liabilities -- trade................................ $ 82 $1,192
Accrued marketing........................................... -- --
Accrued salaries and benefits............................... 40 382
Employee share purchase plan................................ -- 515
Accrued legal fees.......................................... 451 1,140
Accrued vacation............................................ 137 625
Accrued advertising......................................... -- 649
Accrued relocation expenses................................. 461 --
Other liabilities........................................... 599 1,700
------ ------
$1,770 $6,203
====== ======
</TABLE>

5. INCOME TAXES

The components of the Company's net deferred tax asset (liability) as of
December 31, 1998 and 1999, are as follows:

<TABLE>
<CAPTION>
------------------
1998 1999
------- --------
<S> <C> <C>
DEFERRED TAX ASSETS (LIABILITIES):
CURRENT:
Financial reserves.......................................... $ 103 $ 106
Stock based compensation.................................... -- 96
Accrued expenses and deferred revenue....................... 255 1,514
------- --------
358 1,716
Valuation allowance......................................... (358) (1,716)
------- --------
Net current deferred tax asset (liability)........ $ -- $ --
------- --------
LONG-TERM:
Foreign net operating loss carryforwards.................... $ 865 $ 1,087
Net operating loss carryforwards............................ 7,911 27,637
Research and development credits............................ 45 45
Intangible assets........................................... 239 221
Other....................................................... 8 31
------- --------
9,068 29,021
Valuation allowance......................................... (9,068) (29,021)
------- --------
Net long-term deferred tax asset (liability)...... $ -- $ --
------- --------
</TABLE>

At December 31, 1999, the Company had accumulated income tax losses of $1,944
available in Canada for carry-forward to reduce taxable income of future years,
the benefit of which has not been recorded in these financial statements. The
income tax losses expire beginning in 2002.

F-37
<PAGE> 103
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

At December 31, 1999, the Company has available $72,911 and $78,218 of federal
and state, respectively net operating loss carryforwards which it may use to
offset future taxable income. The net operating loss carryforwards, if not
utilized, will begin to expire in 2002. To the extent that net operating loss
carryforwards, when realized, relate to stock option deductions, the resulting
benefits will be credited to stockholders' equity. The Company has available
research and development credits of approximately $45 that will expire in 2010.

The Company has recorded a full valuation allowance against its deferred tax
assets because it believes it is more likely than not that sufficient taxable
income will not be realized during the carryforward period to utilize the
deferred tax asset. The valuation allowance increased by $5,784 and $21,311
during 1998 and 1999, respectively. Realization of the future tax benefits
related to the deferred tax assets is dependent upon many factors, including the
Company's ability to generate taxable income in the respective tax jurisdiction
within the loss carryforward periods.

The Company's 1997, 1998 and 1999 income tax provision differs from that
obtained by using the Canadian statutory rate of 44.5% in 1997 and 1998 and the
US statutory rate of 34% in 1999 due to the following:

<TABLE>
<CAPTION>
----------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Computed "expected" tax benefit............................. $(2,545) $(6,704) $(26,045)
State income taxes, net of U.S. federal benefit............. -- -- (949)
U.S. losses taxed at lower rate............................. 365 865 --
Valuation allowance changes affecting the provision for
income taxes.............................................. 2,166 5,784 19,613
Permanent differences....................................... 14 55 7,381
------- ------- --------
$ -- $ -- $ --
======= ======= ========
</TABLE>

Internal Revenue Code section 382 stipulates an annual limitation on the amount
of Federal and State net operating losses incurred prior to a change in
ownership, which can be utilized to offset the Company's future taxable income.
An ownership change occurred as a result of the consummation of Interactive's
initial public offering as well as the merger between the Company and
Interactive.

6. BORROWINGS

INTERNET PICTURES CORPORATION

On February 2, 1999, the Company issued convertible subordinated promissory
notes of $1,800, which bore interest at a rate of 10% per annum. On March 12,
1999, the entire principal balance of $1,800 plus accrued interest of $8 was
converted into 311,495 shares of Series B convertible preferred stock of the
Company.

On April 16, 1999, the Company obtained up to $1,000 in short term financing
which bears interest at prime (8.50% at December 31, 1999). No advances have
been drawn from this line of credit. The line of credit is collateralized by a
$1,000 certificate of deposit; $200 of which is restricted for payroll
processing.

INTERACTIVE PICTURES CORPORATION

On October 29, 1997, Interactive issued a $3,000, 8% convertible debenture due
September 30, 1998 (the Debenture). The debenture was convertible into 505,084
shares of Series C preferred stock. Effective

F-38
<PAGE> 104
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

October 23, 1998, $1,000 of the Debenture was assigned by the investor to a
group of private investors who converted such portion of the Debenture into
168,361 shares of Series C preferred stock. Interactive paid off $1,000 of the
Debenture in October 1998, and converted the remaining $1,000 into 174,535
shares of Series C preferred stock in March 1999. The Series C preferred stock
was converted into common stock in connection with Interactive's initial public
offering in August 1999.

Interactive entered into a $40 non-interest bearing promissory note payable
during August 1997; due in monthly installments of $1, including principal and
imputed interest, through August 2002. The note is collateralized by certain
furniture and equipment of Interactive.

7. STOCKHOLDERS' EQUITY

GENERAL

The Company's amended and restated certificate of incorporation authorizes the
issuance of up to 150,000,000 shares of common stock, par value $0.001 per
share, 7,421,536 shares of Class B common stock, par value $0.0001 per share and
5,001,100 shares of preferred stock, par value $0.001 per share. The board of
directors is authorized, without stockholder approval, to issue up to an
aggregate of 5,001,100 shares of preferred stock, $0.001 par value per share, in
one or more series. Included in this amount are 1,100 shares of Series C
redeemable preferred stock. Each series of preferred stock may have the rights
and preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences that the board of directors
determines. There was no preferred stock outstanding at December 31, 1999.

Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the shareholders, and there are no cumulative voting
rights. Holders of common stock may receive dividends after all dividends that
are owed have been paid to holders of preferred stock.

Each holder of Class B common stock is entitled to one vote for each share on
all matters to be voted upon by the stockholders and, except as required by law,
shall have voting rights and powers equal to the voting rights and powers of the
common stock. There are no cumulative voting rights. Holders of Class B common
stock are not entitled to dividends and are not entitled to receive any assets
of the corporation upon dissolution or liquidation. Under the terms of a pairing
agreement with the Canadian subsidiary, bamboo.com Canada, Inc., ("bamboo
Canada") holders of Class B common stock must also hold an equal number of
shares of Series C preferred stock of bamboo Canada. These holders may elect at
any time and for no cost to convert their bamboo Canada Series C preferred stock
into shares of common stock. Upon such a conversion, the Company is required to
redeem the Class B common stock for $0.0001 per share.

Following is a description of outstanding stock for Interactive and the Company
prior to the merger.

INTERNET PICTURES CORPORATION

In June 1998, the Company issued 120,000 common share units for total proceeds
of $76, net of share issuance costs. Each unit consisted of 2.8 common shares
and a warrant to purchase 2.8 common shares. The fair value of the warrants was
established at $23, using the Black-Scholes method with the following
assumptions, no annual dividend, volatility of 55%, risk free interest rate of
5.35% and term of one year. Based on the fair value of the underlying
instruments within the common share unit, $53, of the total proceeds was
allocated to common shares and the balance of $23, was allocated to the warrants
to

F-39
<PAGE> 105
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

purchase common shares. Each warrant entitled the holder to purchase 2.8 common
shares at approximately $0.23 per share on or before June 28, 1999.

In December 1998, the warrants were exercised to purchase 336,000 common shares
for net proceeds of $78. On December 31, 1998, promissory notes pertaining to
this warrant conversion were outstanding in the amount of $54. The promissory
notes bear interest at the prime rate charged from time to time by the Royal
Bank of Canada, compounded semi-annually, and have no repayment terms.

At various times throughout the year ended December 31, 1998, 1,027,600 common
shares were issued to certain individuals, for services rendered. The fair
market value of the stock issued of $326, was charged to results of operations.

On September 15, 1998, the Company's board of directors authorized a 1,000:1
common stock split and on July 19, 1999, the Company authorized a 2.8:1 forward
common stock split, which was effected prior to the closing of the public
offering on August 25, 1999. The effect of these stock splits have been
retroactively reflected throughout the financial statements.

In March 1999, the Company issued 2,152,574 shares of Series B preferred stock,
having a par value of $0.001 per share, at $5.807 per share for total cash
proceeds of $10,687 and for conversion of notes payable and settlement of
accrued interest of $1,808.

In May 1999, the Company issued an additional 172,206 shares of Series B
convertible preferred stock with a par value of $0.001 for $5.807 per share for
total cash proceeds of $1,000. In connection with this issuance, the Company
recorded a charge of $1,000 representing a beneficial conversion feature limited
to the proceeds received.

In June 1999, the Company entered into an agreement to sell 1,100 shares of its
Series C mandatorily redeemable preferred stock and 1,250,830 shares of its
common stock for total gross proceeds of $11,000. The $11,000 of proceeds from
issuance was allocated to the Series C mandatorily redeemable preferred stock
and the common stock based on their relative fair values. Accordingly, $4,394
was allocated to the Series C redeemable preferred stock and $6,606 was
allocated to the common stock.

The relative fair values are $8,000 for the Series C mandatorily redeemable
preferred stock and $12,100 for the common stock. Upon completion of the initial
public offering in August 1999, the Company repaid the $11,000. As a result, the
Company recognized the entire discount of $6,606 as an interest charge in the
year ended December 31, 1999.

In February 1999, the Company issued from the plan 120,400 shares of its common
stock on exercise of stock purchase rights granted in exchange for services
under restricted purchase agreements. In accordance with the term of the grant,
the repurchase provision expired on the effective date of the Company's IPO.

Pursuant to a marketing and distribution agreement entered into in November
1998, the Company agreed to issue a stock purchase warrant to purchase up to
280,000 shares of common stock at $1.43 per share and was to expire on December
31, 1999. The warrant was recorded at its fair value of $168 with the

F-40
<PAGE> 106
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

costs charged to the statement of operations and comprehensive income (loss) in
the year ended December 31, 1998. The fair value of the warrant was estimated
using the Black-Scholes option-pricing model. The following assumptions were
used in the model: no annual dividend, expected volatility of 55%, risk-free
interest rate of 5.35%; and an expected life of 1.2 years. This warrant was
exercised in December 1999.

In August 1999, the Company completed the initial public offering of 4,000,000
shares of its common stock at a price of $7 per share. Proceeds of the offering,
net of underwriting discount and other direct costs of the offering, were
approximately $24,333. On September 7, 1999, under the terms of the underwriting
agreement covering the initial public offering, the underwriters exercised their
over allotment option for 376,000 shares of the common stock of the Company.
Proceeds received, net of underwriting discount, from exercise of the over
allotment option were approximately $2,448.

Upon completion of the Company's public offering and in accordance with the
respective preferred stock purchase agreements, 231,250 and 2,324,780 shares of
the Company's Series A and Series B convertible preferred stock converted into
647,500 and 6,509,370 shares of common stock, respectively.

INTERACTIVE PICTURES CORPORATION

During 1998, Interactive issued 2,996,327 shares of Series C preferred stock, as
well as warrants to purchase an additional 834,351 shares of Series C preferred
stock, for net proceeds of $12,529. In connection with the Series C transaction,
the Company exchanged, on a one-for-one basis, an aggregate of 3,174,841 shares
of common stock for 2,251,754 shares of Series A preferred stock and 923,087
shares of Series B preferred stock. Also during 1998, Interactive issued
warrants to purchase 31,427 shares of common stock.

During 1999, Interactive issued an aggregate of 4,264,885 shares of Series D
preferred stock for gross proceeds of $24,000, 533,111 shares of Series D
redeemable preferred stock for gross proceeds of $3,000 and 143,939 shares of
redeemable common stock for gross proceeds of $810. In connection with the
Series D issuance, warrants to purchase 302,630 shares of Series D preferred
stock and 9,312 warrants to purchase common stock were issued.

In June 1999, the NASD informed Interactive that it would consider a portion of
its redeemable convertible preferred stock and redeemable common stock to be
underwriting compensation received in connection with the proposed initial
public offering in excess of the amounts allowable under the NASD's Conduct
Rules. In order to comply with the NASD's Conduct Rules, Interactive repurchased
663,098 shares of stock, including shares representing the redeemable
convertible preferred stock and the redeemable common stock, for $3,730.

In connection with Interactive's initial public offering in August 1999, all
preferred stock converted one-for-one into common stock and all warrants were
exercised. Net proceeds from the initial public offering of 5,270,650 shares of
common stock totaled $63,304.

Before the effectiveness of the registration statement covering the shares of
common stock sold in the initial public offering, Interactive provided written
materials to persons it identified as eligible participants in its directed
share program. Interactive has been advised that these materials may constitute
a prospectus that does not meet the requirements of the Securities Act of 1933.
If the distribution of these materials did constitute a violation of the
Securities Act of 1933, the recipients of these materials who

F-41
<PAGE> 107
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

purchased common stock in this offering would have the right, for a period of
one year from the date of their purchase of common stock, to obtain recovery of
the consideration paid in connection with their purchase of common stock or, if
they had already sold the stock, sue the Company for damages resulting from
their purchase of common stock. These damages could total up to approximately
$2,800 plus interest; based on the initial public offering price of $13.15 per
share, if these investors seek recovery or damages after an entire loss of their
investment.

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair values of financial instruments have been estimated using data which the
Company considered the best available. The following estimation methodologies
were used:

CASH AND CASH EQUIVALENTS. Cash and cash equivalents are reflected at carrying
value, which is considered fair value due to the short-term nature of these
instruments.

ACCOUNTS RECEIVABLE. Accounts receivable consists primarily of trade
receivables. The Company has estimated their fair value to be the carrying
value.

SECURITIES AVAILABLE-FOR-SALE The estimated fair value of securities
available-for-sale is based on the quoted market prices for those or similar
investments. Amortized costs approximate fair value.

CAPITAL LEASES. Capital leases are carried at cost, which approximate fair
value due to the proximity of the implicit rates of these financial instruments
and the prevailing rates for similar instruments.

CONVERTIBLE DEBENTURE AND PROMISSORY NOTE. Fair values are based on quoted
market prices for the same or similar issues, or the carrying value is used
where a market price is unavailable. The carrying value is assumed to be the
fair value for these liabilities as no market price for a comparable instrument
was available.

9. EMPLOYEE STOCK AND BENEFIT PLANS

1998 Employee, Director and Consultant Stock Option Plan

During 1998, the Company authorized an Employee, Director and Consultant Stock
Option Plan for a total of 2,380,000 common shares. This plan became effective
on January 1, 1999 once the Company was reorganized. During 1999, an additional
5,799,394 common shares were authorized under the Plan. As of December 31, 1999,
7,195,139 options had been granted under the Employee, Director and Consultant
Stock Option Plan. Each option under the incentive plan allows for the purchase
of common stock of the Company and expires not later than five or ten years from
the date of grant, depending on the ownership of the option participants. The
vesting terms of the stock options will e determined on each grant date and are
generally two or three years; however, the amount of options that can be
exercised per participant in any calendar year will be restricted to an
aggregate fair market value of $100 of the underlying common stock.

1997 Equity Compensation Plan

The Company authorized the 1997 Equity Compensation Plan, under which 4,105,027
shares of common stock are authorized and reserved for issuance to selected
employees, officers, directors, consultants and advisors. The Company reserved a
sufficient number of shares of common stock for issuance pursuant to

F-42
<PAGE> 108
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

the authorized options. As of December 31, 1999, 3,003,123 options had been
granted under the 1997 plan. In addition, the Company granted certain options to
purchase shares of the Company's common stock to employees not under the 1997
plan; these options were primarily granted prior to the authorization of the
1997 plan. The exercise price of all options granted is the fair value of the
Company's common stock at the date of grant as estimated by common stock and
convertible preferred stock transactions with third parties at or near grant
dates. The options generally vest over one to three-year periods and expire five
years after the respective vesting dates.

A summary of the Company's stock option activity is as follows:

<TABLE>
<CAPTION>
--------------------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE STOCK AVERAGE
OF EXERCISE GRANT DATE OPTIONS EXERCISE
SHARES PRICES FAIR VALUE EXERCISABLE PRICE
---------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Under option at January 1, 1997........ 809,854 610,694 $0.41
Options granted in 1997................ 1,220,782 $ 2.97 $0.97
Options cancelled in 1997.............. (147,124) 2.69
----------
Under option at December 31, 1997...... 1,883,512 926,954 1.18
Options granted in 1998................ 733,876 4.38 1.21
Options exercised in 1998.............. (102,429) 0.02
Options cancelled in 1998.............. (15,520) 4.73
----------
Under option at December 31, 1998...... 2,499,439 1,143,378 1.80
Options granted in 1999................ 9,490,319 3.64
Options exercised in 1999.............. (2,205,017) .34
Options cancelled in 1999.............. (256,922) 4.92
Stock purchase rights granted.......... 120,400 .18
Stock purchase rights exercised........ (120,400) .18
----------
Under option at December 31, 1999...... 9,527,819 4,579,244 2.03
---------- ---------
</TABLE>

The following table summarizes information about stock options at December 31,
1999:

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICE AT 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/99 EXERCISE PRICE
- -------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$.03-.54 4,599,818 8.84 $ .22 2,728,391 $ .20
$3.57-9.00 3,443,828 7.21 $ 5.82 1,713,953 $ 4.55
$14.44-25.25 1,484,173 9.74 $20.20 136,900 $21.38
</TABLE>

Stock-Based Compensation Related to Options

In connection with certain stock options granted to employees during the year
ended December 31, 1999, the Company recorded unearned stock-based compensation
totaling $16,750, which is being amortized over the vesting periods of the
related options which is generally two to three years. Amortization of this
stock-based compensation recognized during the year ended December 31, 1999
totaled approximately $13,795.

F-43
<PAGE> 109
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The total unearned stock-based compensation recorded to date will be amortized
as follows: $2,110 in 2000; $700 in 2001 and $145 in 2002.

In accordance with the terms of the original option grants, upon completion of
the initial public offering, options to purchase 1,921,409 shares of the
Company's common stock became fully vested. As a result, additional compensation
expense of $2,622 was recorded in the year ended December 31, 1999.

Options to acquire 1,870,680 and 715,553 shares of common stock under the 1998
Employee, Director and Consultant Stock Option Plan, were issued to
non-employees of the Company during the year ended December 31, 1998 and 1999,
respectively. The fair value of the common stock options was determined to be
$536 and $5,610 for 1998 and 1999, respectively, using the Black-Scholes pricing
model. Stock-based compensation related to stock options granted to
non-employees is recognized as earned. At each reporting date, the Company
re-values the stock-based compensation using the Black-Scholes pricing model. As
a result, the stock-based compensation expense will fluctuate as the fair market
value of our common stock fluctuates. In connection with the grant of stock
options to non-employees, the Company recorded stock-based compensation expense
of $536 and $5,601 for the year ended December 31, 1998 and 1999, respectively.
Future stock-based compensation from these options is estimated to be $484 at
December 31, 1999.

For all other option grants, because the exercise price of the Company's stock
options equal the deemed fair value of the underlying stock on the date of the
grant, no compensation cost has been recognized in the accompanying financial
statements. Pro forma information regarding net loss is required by Statement
123, and has been determined as if the Company had accounted for its stock
options under the fair value method of Statement 123. The Company had determined
that the difference between historical results and such pro forma information
would have been to increase the net loss by $311, $301 and $1,541 in 1997, 1998
and 1999, respectively, and to increase the net loss per share to $(0.94),
$(2.91), and $(3.07) in 1997, 1998 and 1999 respectively.

The minimum fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: expected lives of five years in 1997 and 1998 and
three to four years in 1999; risk free interest rate of 5.71% in 1997, 4.59% in
1998, 5% to 6% in 1999, and expected dividends and volatility of zero in 1997
and 1998 and 55% to 68.5% in 1999.

401(k) Plan

The Company has a 401(k) profit sharing plan which is available to all full-time
employees after six months of service and those part-time employees who have
completed one thousand hours of employment during twelve consecutive months. The
Company will match sixty-five cent per dollar up to 6.15% of the employee's
annual salary. The Company made contributions of $44, $116 and $201 in 1997,
1998 and 1999, respectively.

10. SEGMENT INFORMATION

The Company has two reportable segments: (1) products, and (2) research and
development services for others. The accounting policies of the segments are the
same as those of the Company. The Company evaluates the performance of its
segments and allocates resources to them based solely on evaluation of

F-44
<PAGE> 110
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

gross profit. There are no inter-segment revenues. The Company does not make
allocations of corporate costs to the individual segment and does not identify
separate assets of the segments in making decisions regarding performance or
allocation of resources to them. Management believes the Company's future growth
will occur in the products segment.

Information about reported segments is as follows:

<TABLE>
<CAPTION>
--------------------------------
RESEARCH
AND
DEVELOPMENT
YEARS ENDED DECEMBER 31: PRODUCTS SERVICES TOTAL
- ------------------------ -------- ----------- -------
<S> <C> <C> <C>
1997
Revenues.................................................... $ 2,174 $318 $ 2,492
Gross profit................................................ 1,713 2 1,715
1998
Revenues.................................................... $ 2,789 $329 $ 3,118
Gross profit................................................ 1,515 88 1,603
1999
Revenues.................................................... $12,523 $ 0 $12,523
Gross profit................................................ 5,261 0 5,261
</TABLE>

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

<TABLE>
<CAPTION>
-------------------------
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
REVENUES:
United States............................................... $1,834 $2,404 $10,092
Canada...................................................... 46 77 249
Japan....................................................... 273 352 135
Europe...................................................... 22 41 1,131
Other foreign countries..................................... 317 244 916
------ ------ -------
$2,492 $3,118 $12,523
====== ====== =======
LONG-LIVED ASSETS:
Foreign..................................................... $ 14 $ 65 $ 2,626
United States............................................... 663 1,500 6,509
------ ------ -------
$ 677 $1,565 $ 9,135
====== ====== =======
</TABLE>

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

F-45
<PAGE> 111
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

11. COMMITMENTS AND CONTINGENCIES

MARKETING AND DISTRIBUTION AGREEMENTS

The Company has entered into marketing and distribution agreements with certain
real estate destination Web sites to maintain certain promotional and linkage
rights, and technology access in exchange for total minimum payments of $12,322
payable over three years. A total of $4,696 of the payments are non cancelable.
The Company records the expenses as incurred. Under the terms of the agreements
(as amended), the following minimum non-cancelable and total future payments are
due:

<TABLE>
<CAPTION>
------------------------
NON-CANCELABLE TOTAL
-------------- -------
<S> <C> <C>
2000........................................................ $4,696 $ 5,563
2001........................................................ -- 5,477
2002........................................................ -- 1,282
------ -------
$4,696 $12,322
====== =======
</TABLE>

CAPITAL LEASE OBLIGATIONS

In March 1999, the Company entered into a master capital lease agreement to
obtain up to $1,500 in capital lease financing for purchases of video equipment,
office furniture and other equipment including computer hardware and software
made subsequent to January 1, 1999 to December 31, 1999. In May 1999, the
Company committed $426 in property and equipment to capital lease under a sale
and leaseback provision of the master capital lease agreement.

At December 31, 1999, the future minimum payments under these and other capital
lease agreements are as follows:

<TABLE>
<CAPTION>
----
<S> <C>
2000........................................................ $274
2001........................................................ 269
2002........................................................ 154
----
Minimum lease payments...................................... 697
Less: Amount representing interest.......................... 133
----
Principal amount of minimum lease payments.................. 564
Less current portion........................................ 191
----
$373
====
</TABLE>

F-46
<PAGE> 112
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

OPERATING LEASES

The Company leases certain office space and equipment under noncancelable
operating leases. Future minimum lease payments are as follows:

Rental expense for operating leases was $160, $469 and $1,669 for 1997, 1998 and
1999, respectively.

The Company is subject to claims in the ordinary course of business. Management
believes the ultimate resolution of these matters will have no material impact
on the financial condition, results of operations or cash flows of the Company.

In October 1998, a lawsuit was filed against Interactive. This lawsuit alleged
that Interactive breached a duty of confidence, made misrepresentations and
misappropriated trade secrets. The court removed this action to arbitration upon
Interactive's motion and Interactive cross-claimed alleging various affirmative
claims. The court dismissed the lawsuit in May 1999 upon motion of the
plaintiffs. However, arbitration is expected to take place in the spring of
2000. In May 1999, one of the original plaintiffs filed a second lawsuit against
Interactive alleging patent infringement. Management believes that the claims
are without merit and intends to vigorously defend against such claims. Since
the plaintiffs have not specified in their lawsuit the amount of damages they
seek, an estimate of the ultimate potential liability of Interactive cannot be
made. If Interactive does not effectively defend against the claims,
Interactive's financial condition, results of operations and cash flows could be
materially adversely affected.

12. RESEARCH AND DEVELOPMENT ARRANGEMENTS

The Company performed certain research and development activities under various
third party contracts under which the Company received payments upon achieving
certain targets in the development process. One of these contracts provided for
receipt of royalties under a license agreement. The remaining contract for which
information is disclosed below included no such arrangements. Both of these
contracts expired during 1998.

Total revenue earned and costs incurred under third party research and
development contracts, excluding contracts with government agencies, at December
31, is as follows:

<TABLE>
<CAPTION>
------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenue earned.............................................. $105 $ 63 $--
Cost incurred............................................... 208 -- --
</TABLE>

F-47
<PAGE> 113
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

13. RELATED PARTY TRANSACTIONS

Notes payable issued to stockholders in 1998 were repaid during 1999.

In October 1999, the Company issued 173,600 shares of common stock to an
executive officer in exchange for a $34 note receivable. The note bears interest
at a rate of 6% per annum and is collateralized by the shares, all proceeds of
the shares and other collateral.

14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
---------------------------
YEARS ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Supplemental disclosures:
Unearned stock-based compensation related to stock option
grants................................................. $ -- $ -- $15,734
Property and equipment acquired under capital leases...... -- -- 502
Conversion of notes payable to Series B convertible
preferred stock........................................ -- -- 1,800
Issuance of Series B convertible preferred stock in
settlement of interest................................. -- -- 8
Beneficial conversion related to issuance of Series B
convertible preferred stock............................ -- -- 1,000
Exercise of common stock options and warrants in exchange
for note receivable.................................... -- 78 127
Interest paid............................................. -- -- 66
Income Taxes paid......................................... -- -- 1
Note receivable settled as offset of note payable......... -- 24 --
Common stock issued below fair value...................... -- 45 --
Issuance of common stock for services..................... -- 326 1,270
Issuance of warrant for common stock for services......... -- 168 --
Issuance of options for common stock for services......... -- 536 5,610
Equipment acquired through issuance of promissory note.... 40 -- --
Conversion of debenture into Series C preferred stock..... -- 1,000 --
Common stock, exchanged for Series A and B preferred
stock.................................................. -- -- --
Conversion of debenture into Series C preferred stock..... -- -- 1,000
Issuance of common stock for portion of placement fee in
connection with issuance of Series D preferred stock... -- -- 786
Issuance of common stock for advertising alliance fee..... -- -- 1,000
Conversion of 13,951 shares of redeemable common stock
into 13,951 shares of common stock..................... -- -- --
</TABLE>

15. PREDECESSOR BUSINESS

The Company was incorporated in 1998 as Jutvision Corporation under the laws of
the state of Delaware. The Company has a wholly-owned subsidiary, bamboo.com
Canada Inc. ("bamboo Canada"), a company also incorporated in 1998 under the
laws of the province of Ontario, Canada as Jutvision Canada Inc. The business of
the Company was previously operated as Jutvision Corporation, a company
incorporated in 1995 under the laws of the Province of Ontario, Canada.

F-48
<PAGE> 114
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

On January 1, 1999, the Board of Directors authorized a corporate
reorganization. Through a series of share exchange agreements, bamboo Delaware,
emerged as the parent company of bamboo Canada and Jutvision Corporation was
merged with bamboo Canada. Prior to the reorganization, bamboo did not have any
operations, assets or liabilities.

Under the terms of the reorganization, there was no change in ownership and,
therefore, Jutvision Corporation, has been treated as a predecessor business and
its results presented as the historic results of the Company. The predecessor
business's financial information reflected herein includes the results of
operations and cash flows for the periods ended December 31, 1997 and 1998 and
the balance sheets as of December 31, 1997 and 1998.

On April 23, 1999, Jutvision Canada, Inc. changed its name to bamboo.com Canada,
Inc. and Jutvision Corporation changed its name to bamboo.

BAMBOO SHARE EXCHANGE AGREEMENTS. Each Board of Directors approved a
reorganization for Jutvision Corporation, bamboo Canada and bamboo Delaware
effective January 1, 1999 through the following share exchange arrangements:

(a) EXCHANGE OF COMMON STOCK. The common stockholders of Jutvision Corporation
agreed to exchange the outstanding 7,421,536 common shares on a one-for-one
basis for Series B convertible preferred shares of bamboo Canada. In addition,
holders of the outstanding common stock of Jutvision Corporation also agreed to
purchase on a pro-rata basis 7,421,536 Class B common shares of bamboo Delaware
on a one-for-one basis for $0.0001 per share.

Under the charters of the respective companies and under a Conversion and
Pairing Agreement, between bamboo Delaware and bamboo Canada, the holders of the
Series B convertible preferred stock of bamboo Canada may exchange their shares
at any time on a one-for-one basis for common stock of bamboo Delaware, and the
shares of the Series B will be redeemed at par value of $0.0001 per share.
Common stock and Class B common stock of bamboo Delaware have identical rights
and privileges with regard to voting. The Series B convertible preferred stock
has voting privileges only where a separate class vote is required by law.

- the net proceeds of an initial public offering of bamboo Delaware common
stock exceeds $15,000,000; or,

- there is written election by not less than two-thirds majority of the
Series B holders; or

- there is a liquidation, dissolution or winding-up of bamboo Canada.

One June 7, 1999, bamboo Canada amended its articles of incorporation and the
Conversion and Pairing Agreement to reflect the creation of Series C convertible
preferred shares ("Series C shares"). Effective June 11, 1999, the outstanding
Series B convertible preferred shares were converted to Series C convertible
preferred shares. The Series C shares have substantially all of the same rights
and preferences as the Series B convertible preferred shares, except that the
Series C shares do not automatically convert

F-49
<PAGE> 115
INTERNET PICTURES CORPORATION

NOTES TO SUPPLEMENTAL POOLED
CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

in the event that the parent company, bamboo.com, completes an initial public
offering of its stock. Under the amended conversion and pairing agreement, the
Series C shares are exchangeable on a one for one basis for common stock of the
parent company, bamboo.com, and the shares of the Series C will be redeemed at
par value of $0.0001 per share.

(b) EXCHANGE OF PREFERRED STOCK. In connection with the reorganization, holders
of the 231,250 outstanding Series A convertible preferred shares of Jutvision
Corporation agreed to exchange their shares on a one-for-one basis for Series A
convertible preferred stock of bamboo Delaware.

On December 23, 1998, 500,000 shares of the undesignated preferred stock in
bamboo Delaware were designated as Series A convertible preferred stock, having
the same rights and characteristics as the Series A convertible preferred shares
of Jutvision Corporation.

16. SUBSEQUENT EVENTS

MERGER WITH PICTUREWORKS TECHNOLOGY, INC. The Company and PictureWorks
Technology, Inc. (PictureWorks) entered into an Agreement and Plan of Merger
dated March 6, 2000 ("the Merger Agreement"). Pursuant to the Merger Agreement,
PictureWorks became a wholly-owned subsidiary of a newly-formed iPIX subsidiary,
Purple Sub, Inc. on March 31, 2000. A total of 4,644,334 shares of iPIX common
stock were exchanged for all common and mandatorily redeemable convertible
preferred shares of PictureWorks. All outstanding options and warrants to
purchase PictureWorks' common stock were assumed by iPIX and became options to
purchase shares of iPIX.

Upon consummation of the merger, 576,442 shares of Series C-1 convertible
preferred stock were issued from escrow to Sarnoff Corporation, 118,831 common
shares subject to a warrant became exercisable and guarantee fees of $700 and a
note payable of $200 became due and payable to related parties.

WARRANTS

On January 6, 2000, the Company granted warrants in connection with a strategic
relationship to purchase a total of 200,000 shares of common stock at an
exercise price per share equal to 90% of the average closing price of the
Company's common stock calculated over the fifteen trading days immediately
preceding the date of the warrant. The warrants vest as follows: 100,000 six
months after the incorporation of immoeuro B.V., 50,000 on September 30, 2000
and 50,000 on December 31, 2000.

Based on the term of the warrant, fair value of the underlying common stock and
the risk-free rate at the date of grant, a volatility or 70% and a nil dividend
yield, the Company estimates a charge of approximately $2,253 of unearned
stock-based compensation. As the shares subject to warrant are unvested, the
unvested shares will be revalued at each reporting date and the revised fair
value will be expensed upon the vesting of the remaining shares. As a result,
the charge is subject to substantial increase or decrease based on future
changes in the fair value of the underlying common stock.

F-50
<PAGE> 116

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Internet Pictures Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in shareholders' equity, and of
cash flows present fairly, in all material respects, the financial position of
Interactive Pictures Corporation and its subsidiary (the "Company") at December
31, 1998 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

See Note 1, paragraph 4, for a discussion regarding the possible need for
additional equity or debt financing and management's plans in this regard.

Knoxville, Tennessee

January 28, 2000, except as to Note 1 for which the date is May 2, 2000

F-51
<PAGE> 117

INTERACTIVE PICTURES CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
-------- -------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 1,064 $12,809
Securities available-for-sale............................... -- 32,725
Accounts receivable, less allowance for doubtful accounts of
$170 at December 31, 1998 and $195 at December 31, 1999... 842 3,185
Inventory, less reserve for obsolescence of $100 at December
31, 1998 and $55 at December 31, 1999..................... 328 1,059
Prepaid expenses............................................ 305 4,560
-------- -------
Total current assets............................... 2,539 54,338
-------- -------
Long-term securities available-for sale..................... -- 12,000
Property and equipment:
Furniture and equipment................................... 1,667 4,582
Leasehold improvements.................................... 53 161
-------- -------
1,720 4,743
Less accumulated depreciation and amortization.............. (367) (830)
-------- -------
Property and equipment, net................................. 1,353 3,913
-------- -------
Other assets................................................ 97 192
-------- -------
Total assets....................................... $ 3,989 $70,443
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Convertible debenture....................................... $ 1,000 $ --
Accounts payable............................................ 409 946
Accrued expenses............................................ 1,648 2,984
Deferred revenue............................................ 118 514
-------- -------
Total current liabilities.......................... 3,175 4,444
-------- -------
Long-term portion of promissory note........................ 21 14
Commitments and contingencies (Note 10)
SHAREHOLDERS' EQUITY:
Preferred stock $0.001 par value; 10,000,000 shares
authorized in 1999; -- --
no shares issued or outstanding
Convertible preferred stock:
Series A $0.001 par value; 1,644,817 shares authorized,
issued and outstanding at December 31, 1998 ($6,576
aggregate liquidation value at December 31, 1998)....... 2 --
Series B $0.001 par value; 674,279 shares authorized at
December 31, 1998; 526,340 shares issued and outstanding
at December 31, 1998 ($3,126 aggregate liquidation value
at December 31, 1998)................................... 1 --
Series C $0.001 par value; 4,482,705 shares authorized at
December 31, 1998; 2,357,058 shares issued and
outstanding at December 31, 1998 ($14,000 aggregate
liquidation value at December 31, 1998)................. 2 --
Series D $0.001 par value; 3,725,803 authorized in 1998;
no shares issued or outstanding......................... -- --
Common stock, $0.001 par value, 17,004,500 shares authorized
at December 31, 1998 and 100,000,000 shares authorized at
December 31, 1999; 4,101,805 shares issued and outstanding
at December 31, 1998 and 16,627,997 shares issued and
outstanding at December 31, 1999.......................... 4 17
Additional paid-in capital.................................. 24,808 114,370
Deferred stock compensation................................. -- (762)
Accumulated deficit......................................... (24,024) (47,640)
-------- -------
Total shareholders' equity......................... 793 65,985
-------- -------
Total liabilities and shareholders' equity......... $ 3,989 $70,443
======== =======
</TABLE>

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

F-52
<PAGE> 118

INTERACTIVE PICTURES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
REVENUES:
Products.................................................... $ 2,128 $ 2,712 $ 8,767
Services.................................................... 318 329 --
------- -------- --------
2,446 3,041 8,767
------- -------- --------
COST OF REVENUES:
Products.................................................... 446 1,207 4,382
Services.................................................... 316 241 --
------- -------- --------
762 1,448 4,382
------- -------- --------
Gross profit................................................ 1,684 1,593 4,385
------- -------- --------
OPERATING EXPENSES:
Sales and marketing (excludes $0, $0, and $91 of stock-based
compensation)............................................. 2,829 8,483 19,741
Research and Development (excludes $0, $0, and $45 of
stock-based compensation)................................. 1,171 2,775 3,993
General and administrative (excludes $0, $0, and $118 of
stock-based compensation)................................. 2,598 3,661 5,899
Amortization of product development and patent costs........ 858 -- --
Non-cash compensation expense............................... -- -- 254
------- -------- --------
Total operating expenses.......................... 7,456 14,919 29,887
------- -------- --------
Interest income............................................. 181 276 1,899
Interest expense............................................ (42) (202) (12)
Other income (expense), net................................. 55 27 (1)
------- -------- --------
Net loss.......................................... $(5,578) $(13,225) $(23,616)
======= ======== ========
Basic and diluted loss per common share (Note 2)............ $ (0.89) $ (2.84) $ (2.53)
Weighted average common shares outstanding -- basic and
diluted................................................... 6,287 4,661 9,326
</TABLE>

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

F-53
<PAGE> 119

INTERACTIVE PICTURES CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED PREFERRED PREFERRED PREFERRED ADDITIONAL DEFERRED
STOCK STOCK STOCK STOCK COMMON PAID-IN STOCK ACCUMULATED
SERIES A SERIES B SERIES C SERIES D STOCK CAPITAL COMPENSATION DEFICIT
--------- --------- --------- --------- ------ ---------- ------------ -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1997...... $-- $-- $-- $-- $ 6 $ 9,982 $ -- $ (3,828)
Net loss..................... -- -- -- -- -- -- -- (5,578)
--- --- --- --- --- -------- ------- --------
Balances, December 31, 1997.... -- -- -- -- 6 9,982 -- (9,406)
Issuance of 74,820 common
shares upon exercise of
options.................... -- -- -- -- -- 3 -- --
Conversion of 2,319,095
shares of common stock into
Series A and B preferred
stock...................... 2 1 -- -- (2) 15 -- (15)
Proceeds from issuance of
2,188,698 shares of Series
C preferred stock and
warrants, net of related
costs...................... -- -- 2 -- -- 12,527 -- --
Conversion of $1,000
debenture into 168,361
shares of Series C
preferred stock............ -- -- -- -- -- 1,000 -- --
Proceeds from issuance of
229,561 shares of common
stock and warrants, net of
related costs.............. -- -- -- -- -- 1,281 -- --
Exchange of common for
preferred shares and
related repurchase and
retirement of 170,045
shares of Series C
preferred stock............ -- -- -- -- -- -- -- (500)
Repurchase and retirement of
147,939 shares of Series B
preferred stock............ -- -- -- -- -- -- -- (878)
Net loss..................... -- -- -- -- -- -- -- (13,225)
--- --- --- --- --- -------- ------- --------
Balances, December 31, 1998.... 2 1 2 -- 4 24,808 -- (24,024)
Proceeds from issuance of
3,115,328 shares of Series
D preferred stock and
warrants, net of related
costs...................... -- -- -- 3 -- 22,081 -- --
Issuance of 223,122 common
shares upon exercise of
options.................... -- -- -- -- -- 326 -- --
Conversion of $1,000
debenture and interest into
174,535 shares of Series C
preferred stock............ -- -- -- -- -- 1,036 -- --
Net loss..................... -- -- -- -- -- -- -- (23,616)
Conversion of preferred stock
to 7,818,077 shares of
common stock............... (2) (1) (2) (3) 8 -- -- --
Issuance of options to
purchase 795,130 shares of
common stock............... -- -- -- -- -- 1,034 (1,034) --
Forfeiture of options to
purchase 13,688 shares of
common stock............... -- -- -- -- -- (18) 18 --
Proceeds from issuance of
3,850,000 shares of common
stock upon initial public
offering, net of related
costs...................... -- -- -- -- 4 63,300 -- --
Conversion of redeemable
common stock to 10,191
shares of common stock..... -- -- -- -- -- 80 -- --
Issuance of 55,556 shares of
common stock for
advertising fees........... -- -- -- -- -- 1,000 -- --
Issuance of 569,247 shares of
common stock upon exercise
of warrants................ -- -- -- -- 1 723 -- --
Amortization of deferred
stock compensation......... -- -- -- -- -- -- 254 --
--- --- --- --- --- -------- ------- --------
Balances, December 31, 1999.... $-- $-- $-- $-- $17 $114,370 $ (762) $(47,640)
=== === === === === ======== ======= ========
</TABLE>

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

F-54
<PAGE> 120

INTERACTIVE PICTURES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
-------- --------- ---------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(5,578) $(13,225) $(23,616)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 990 224 466
Provision for doubtful accounts receivable................ 190 (20) 25
Loss (gain) on disposal of fixed assets................... 88 -- (6)
Accretion of securities available-for-sale discounts...... (51) (167) (177)
Provision for inventory obsolescence...................... (44) 100 195
Non-cash expense related to issuance of options and
warrants................................................ -- -- 280
Changes in operating assets and liabilities:
Accounts receivable....................................... (445) (284) (2,368)
Inventory................................................. (120) (196) (926)
Prepaid expenses.......................................... 7 (172) (3,251)
Other assets.............................................. (162) 21 50
Accounts payable.......................................... (85) 75 537
Accrued expenses.......................................... 520 1,081 1,372
Costs and estimated earnings in excess of billings on
uncompleted contracts................................... (35) 64 --
Deferred revenue.......................................... (100) 55 396
------- -------- --------
Net cash used in operating activities.............. (4,825) (12,444) (27,023)
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment........................ (504) (913) (3,059)
Purchases of securities available-for-sale.................. (3,933) (7,832) (94,314)
Maturities of securities available-for-sale................. 3,485 8,999 49,766
Proceeds from disposal of equipment......................... -- -- 42
Purchase of intangible asset................................ -- -- (150)
------- -------- --------
Net cash provided by (used in) investing
activities....................................... (952) 254 (47,715)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock.................. -- 1,285 65,136
Net proceeds from issuance of preferred stock............... -- 12,529 25,084
Repurchase of preferred and common stock.................... -- (1,378) (3,730)
Issuance (repayment) of convertible debenture............... 3,000 (1,000) --
Repayments of promissory note............................... (3) (8) (7)
------- -------- --------
Net cash provided by financing activities.......... 2,997 11,428 86,483
------- -------- --------
Net increase (decrease) in cash and cash equivalents........ (2,780) (762) 11,745
Cash and cash equivalents, beginning of period.............. 4,606 1,826 1,064
------- -------- --------
Cash and cash equivalents, end of period.................... $ 1,826 $ 1,064 $ 12,809
======= ======== ========
</TABLE>

No income taxes were paid in any period presented. Interest payments were
insignificant in all periods presented.

NONCASH INVESTING AND FINANCING ACTIVITIES:

During 1998, a $1,000 convertible debenture was converted into 168,361 shares of
Series C preferred stock. In addition, 2,319,095 shares of common stock were
exchanged for 1,644,817 shares of Series A preferred stock and 674,279 shares of
Series B preferred stock.

During 1999, a $1,000 convertible debenture and accrued interest was converted
into 174,535 shares of Series C preferred stock.

Also during 1999, the Company issued 105,142 shares of redeemable common stock
for a portion of the placement fee in connection with the issuance of Series D
preferred stock, and 55,556 shares to independent party as an advertising
alliance fee. The Company converted 10,191 shares of redeemable common stock
into 10,191 shares of common stock upon consummation of the IPO.

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

F-55
<PAGE> 121

INTERACTIVE PICTURES CORPORATION

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

1. GENERAL

Interactive Pictures Corporation ("iPIX" or the "Company") is engaged in the
design and sale of electronic digital imaging products related to iPIX images.
The Company's patented technology allows viewers to Step Inside the Picture with
iPIX images and changes the way people create and view images, immersing them in
a 360 degrees X 360 degrees spherical environment. iPIX images provide a
complete field of view in a window, which can be navigated by moving a cursor
inside the image.

Using the Company's technology, clients can create virtual tours and multimedia
content to enhance marketing and accelerate electronic commerce over the
Internet. The Company's customers are primarily in the real estate, publishing,
and corporate and e-commerce industries. Customers in the real estate, and the
corporate and e-commerce markets represented an aggregate of 57%, 62% and 70% of
total revenues for 1997, 1998 and 1999, respectively.

The Company performs research and development to enhance its own products, as
well as for other entities with whom the Company has entered into contracts. The
Company also performs content development services for itself and others with
whom the Company has entered into contracts.

The combined company (Note 12) has cash, cash equivalents and securities
available-for-sale of $49,221 at March 31, 2000. Management believes that
existing cash and investment balances will be sufficient to fund operations
through December 2000. In May 2000, the combined company anticipates completion
of a secondary offering of its common stock. The proceeds from this offering
will likely be required in order for the combined company to meet working
capital needs beyond December 2000. There can be no assurance, however, that the
combined company will be able to complete this offering or that it will raise
additional equity or debt financing under terms favorable to the combined
company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The consolidated financial statements of the
Company include the accounts of Interactive Pictures Corporation and its
wholly-owned subsidiary, Interactive Pictures UK Limited, a United Kingdom
company formed in 1998. All significant intercompany balances and transactions
have been eliminated. The subsidiary's functional currency is the British Pound.
The cumulative translation adjustment account as of December 31, 1998 and
December 31, 1999, was insignificant.

Cash and Cash Equivalents. The Company considers all highly liquid debt
instruments with a maturity of three months or less when purchased to be cash
equivalents.

Securities Available-for-Sale. Securities available-for-sale represent those
securities intended to be held for an indefinite period of time. Securities
available-for-sale are recorded at fair value based on prices obtained from
commercial pricing services.

Unrealized gains and losses are excluded from earnings and reported in other
comprehensive income in shareholders' equity. Interest income includes interest,
amortization of purchase premiums and discounts, and realized gains and losses
on sales of securities. The cost of securities sold is based on the specific
identification method. Amortized costs approximated fair values and unrealized
gains and losses were insignificant for all periods presented.

Concentrations of Credit Risk. Financial instruments that potentially subject
the Company to a concentration of credit risk consist of cash and cash
equivalents, and accounts receivable. Cash and cash equivalents are deposited
with high credit quality financial institutions. The Company's accounts
receivable are derived from revenue earned from clients located in the U.S. and
abroad. The Company performs

F-56
<PAGE> 122
INTERACTIVE PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ongoing credit evaluations of its clients' financial condition and generally
requires no collateral from its clients. To date, the Company has not
experienced any material losses.

During 1998, one customer accounted for 13% of revenue and 16% of accounts
receivable. One additional customer also represented 16% of accounts receivable
at December 31, 1998. Four customers represented 10%, 10%, 11%, and 28%,
respectively, of accounts receivable at December 31, 1997. No customer
represented in excess of 10% of the Company's accounts receivable at December
31, 1999. No customer represented in excess of 10% of the Company's revenues in
1997 or 1999.

Inventory. Inventory, which consists primarily of digital cameras and related
hardware, is stated at the lower of cost or market, with cost determined using
standard costs (which approximate first-in, first-out costs). The Company
records a provision for obsolete inventory whenever such an impairment has been
identified.

Prepaid Expenses. Prepaid expenses consist primarily of advertising, trade
shows, insurance, and merger-related payments, which will be reflected as an
expense during the period benefited.

Property and Equipment. Property and equipment consist primarily of computer
equipment and office furnishings, which are stated at cost. Routine maintenance
and repair costs are expensed as incurred. The costs of major additions,
replacements, and improvements are capitalized. Gains and losses from disposals
are included in operations upon disposal. To date, disposals of property and
equipment have been insignificant. Fixed assets are depreciated primarily using
the straight-line method over estimated useful lives, which range from three to
ten years. Leasehold improvements are amortized over the term of the lease or
estimated useful life, whichever is shorter.

Patents and Product Development Costs. External legal costs incurred to
maintain the Company's intellectual property position are capitalized and
amortized over the estimated useful life of the related patents.

During 1997, the Company became aware of certain competitors using alternative
technologies and determined that it was necessary to revise the estimated
economic lives of both capitalized product development costs and patent costs
from five years and seven years, respectively, to one year and three years,
respectively. The effect of the change was to increase amortization expense by
approximately $650. Qualifying costs in 1998 and 1999 were insignificant and,
therefore, the Company did not capitalize such costs.

Long-Lived Assets. The carrying value of intangible assets, property and
equipment, and other long-lived assets is reviewed on a regular basis for the
existence of facts, both internally and externally, that may suggest impairment.
The Company recognizes impairment losses whenever events or circumstances result
in the carrying amount of the assets exceeding the sum of the expected future
cash flows associated with such assets. The measurement of the impairment losses
to be recognized is based on the difference between the fair values and the
carrying amounts of the assets. To date no such impairment has been indicated.

Income Taxes. The Company uses the asset and liability method of accounting for
income taxes, which requires the recognition of deferred tax liabilities and
assets for expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities. A valuation
allowance against deferred tax assets is recorded if, based upon available
evidence, it is more likely than

F-57
<PAGE> 123
INTERACTIVE PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

not that some or all of the deferred tax assets will not be realized. Tax
credits are accounted for as a reduction of tax expense in the year in which the
credits reduce taxes payable.

The Company does not recognize deferred income taxes for temporary differences
associated with its investment in the foreign subsidiary because the differences
are essentially permanent in duration.

Revenue Recognition. Product revenue is recognized upon shipment or delivery to
distributors and end users provided there are no uncertainties surrounding
product acceptance, there are no significant vendor obligations, the fees are
fixed and determinable, and collection is considered probable. The Company
provides an allowance for returns upon recognizing revenue as deemed necessary
based on historical experience. Returns were insignificant for all years
presented. Payments received in advance are initially recorded as deferred
revenue and recognized ratably as obligations are fulfilled.

The Company derives service revenues from research and development activities
performed under fixed-price contracts with certain U.S. government agencies and
other third parties. Such revenues are recognized using the
percentage-of-completion method of accounting (based on the ratio of costs
incurred to total estimated costs, or as certain targets in the development
process are met, as appropriate under the contract). Provisions for estimated
losses on uncompleted contracts are made on a contract-by-contract basis and are
recognized in the period in which such losses become probable and can be
reasonably estimated. To date, such losses have been insignificant. Unbilled
fees and services on contracts are comprised of costs plus estimated earnings on
certain contracts in excess of contractual billings on such contracts. Advanced
billings and billings in excess of costs plus estimated earnings are classified
as deferred revenue.

Research and Development Costs. Research and development expenditures are
expensed as incurred. Costs incurred under contracts to perform research and
development for others, excluding contracts with government agencies, are
accounted for under Statement of Financial Accounting Standards (SFAS) No. 68,
Research and Development Arrangements (Note 11).

Advertising Expenses. All advertising expenditures are expensed as incurred.
Advertising expenses for 1997, 1998 and 1999, were $392, $1,087 and $4,235,
respectively. The Company recognizes expenditures under cooperative advertising
arrangements net of reimbursements received from participants.

Accounting for Stock-Based Compensation. The Company has elected to continue
following Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations in accounting for stock options
granted to employees rather than the alternative fair value accounting provided
for under SFAS No. 123, Accounting for Stock-Based Compensation ("Statement
123").

Foreign Currency Transactions. Substantially all historical sales have been
denominated in U.S. dollars. All transaction gains and losses are included in
operations. Such amounts have been insignificant to date.

Estimates. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Examples of
items affected by certain significant estimates made by management are
long-lived assets, including patents and product development costs, certain
accruals, receivables and inventory.

F-58
<PAGE> 124
INTERACTIVE PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Segment Reporting. The Company uses a "management" approach, which designates
the internal organization that is used by management for making operating
decisions and assessing performance as the source of the Company's reportable
segments. Segment reporting includes disclosures about products and services,
geographic areas, and major customers.

Net Loss Per Share. The Company computes net loss per share in accordance with
SFAS No. 128, Earnings Per Share, and SEC Staff Accounting Bulletin No. 98.
Basic and diluted net loss per share is computed by dividing the net loss
available to common shareholders for the period by the weighted average number
of shares of common stock outstanding during the period. The calculation of
diluted net loss per share excludes potential common shares if the effect is
antidilutive. Potential common shares are composed of incremental shares of
common stock issuable upon the exercise of potentially dilutive stock options
and warrants and upon conversion of the Company's preferred stock and
convertible debenture.

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
NUMERATOR:
Net loss....................................... $ (5,578) $ (13,225) $ (23,616)
DENOMINATOR:
Weighted average shares........................ 6,286,565 4,660,789 9,326,042
NET LOSS PER SHARE:
Basic and diluted.............................. $ (0.89) $ (2.84) $ (2.53)
</TABLE>

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- --------- ---------
<S> <C> <C> <C>
Weighted average effect of common stock equivalents
Preferred Stocks:
Series A............................................. -- 1,197,061 977,877
Series B............................................. -- 434,837 312,920
Series C............................................. -- 1,511,024 1,401,319
Series D............................................. -- -- 1,521,390
Warrants............................................... -- -- 304,055
Employee stock options................................. 697,241 661,210 426,507
Convertible debenture.................................. 86,987 441,481 37,824
------- --------- ---------
784,228 4,245,613 4,981,892
======= ========= =========
</TABLE>

Reclassifications. Certain reclassifications have been made to certain
previously reported 1997 and 1998 amounts to conform with the 1999 presentation.

Comprehensive Income. On January 1, 1998, the Company adopted SFAS No. 130,
Reporting Comprehensive Income ("SFAS 130"), which establishes new requirements
for reporting and displaying comprehensive income (loss) and its components. The
adoption of SFAS 130 has no impact on the Company's net loss or total
stockholders' equity. This new accounting standard requires net unrealized gains
or losses on the Company's available-for-sale securities and cumulative foreign
currency translation adjustments to be reported as accumulated other
comprehensive income (loss).

F-59
<PAGE> 125
INTERACTIVE PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Stock Split. On July 2, 1999, the Board of Directors approved a 0.34009-for-1
reverse stock split. All references to number of shares, per share amounts,
stock option data, and warrant exercise prices have been restated for all
periods presented.

Recent Accounting Pronouncements. SFAS 133, Accounting for Derivatives and
Hedging Activities, establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS 133 is effective for fiscal years
beginning after June 15, 2000. The adoption of SFAS 133 is not expected to have
a material impact on the Company's reported results of operations, financial
position or cash flows.

In March 1998, AICPA issued Statement of Position 98-4, Deferral of the
Effective Date of a Provision of SOP 97-2. SOP 98-4 defers for one year the
application of certain provisions of Statements of Position 97-2, Software
Revenue Recognition. Different informal and nonauthoritative interpretations of
certain provisions of SOP 97-2 have arisen and, as a result, the AICPA issued
SOP 98-9 in December 1998, which is effective for periods beginning after March
15, 1999. SOP 98-9 extends the effective date of SOP 98-4 and provides
additional interpretive guidance. The adoption of SOP 97-2, SOP 98-4 and SOP
98-9 have not had and are not expected to have a material impact on the
Company's reported results of operations, financial position or cash flows.

3. BALANCE SHEET ACCOUNTS

Securities available for sale consist of the following at December 31:

<TABLE>
<CAPTION>
COST FAIR VALUE
------- ----------
<S> <C> <C>
SHORT-TERM:
Certificates of deposit..................................... $ 6,725 $ 6,725
Commercial paper............................................ 7,000 7,000
Corporate notes............................................. 15,000 15,000
Government notes............................................ 4,000 4,000
------- -------
$32,725 $32,725
======= =======
LONG-TERM:
Corporate notes............................................. $ 9,000 $ 9,000
Government notes............................................ 3,000 3,000
------- -------
$12,000 $12,000
======= =======
</TABLE>

All of the long-term securities available-for-sale mature in 2001.

F-60
<PAGE> 126
INTERACTIVE PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Accrued liabilities consist of the following as of December 31:

<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Accrued legal fees.......................................... $ 451 $ 350
Accrued vacation............................................ 137 285
Accrued advertising......................................... -- 649
Accrued relocation expenses................................. 461 --
Other liabilities........................................... 599 1,700
------ ------
$1,648 $2,984
====== ======
</TABLE>

4. INCOME TAXES

The components of the Company's net deferred tax asset (liability) as of
December 31, 1998 and 1999, are as follows:

<TABLE>
<CAPTION>
1998 1999
------- --------
<S> <C> <C>
DEFERRED TAX ASSETS (LIABILITIES)
CURRENT:
Financial reserves.......................................... $ 103 $ 106
Stock based compensation.................................... -- 96
Accrued expenses and deferred revenue....................... 255 462
------- --------
358 664
Valuation allowance......................................... (358) (664)
------- --------
Net current deferred tax asset(liability)......... $ -- $ --
======= ========
LONG-TERM:
Foreign net operating loss.................................. $ -- $ 222
carryforwards Net operating loss carryforwards.............. 7,911 17,279
Research and development credits............................ 45 45
Intangible assets........................................... 239 221
------- --------
8,195 17,767
Valuation allowance......................................... (8,195) (17,767)
------- --------
Net long-term deferred tax asset (liability)...... $ -- $ --
======= ========
</TABLE>

At December 31, 1999, the Company has available net operating loss carryforwards
of approximately $46,000, which it may use to offset future federal taxable
income. The net operating loss carryforwards, if not utilized, will begin to
expire in 2009. To the extent that net operating loss carryforwards, when
realized, relate to stock option deductions, the resulting benefits will be
credited to shareholders' equity. The Company has available research and
development credits of approximately $45 that will expire in 2010.

Income tax benefits have not been recorded since the Company has fully reserved
the tax benefit of temporary differences, operating losses and tax credit
carryforwards based on management's evaluation of the positive and negative
evidence impacting the realizability of the assets, consisting principally of
net operating loss carryforwards. Management has considered the Company's
history of losses and concluded that as of December 31, 1998 and 1999, the
deferred tax assets should be fully reserved.

F-61
<PAGE> 127
INTERACTIVE PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's 1997, 1998 and 1999 income tax provision differs from that
obtained by using the statutory rate of 34% due to the following:

<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Computed "expected" tax benefit............................. $(1,897) $(4,496) $(8,029)
State income taxes, net of federal income tax benefit....... (223) (524) (945)
Valuation allowance changes affecting the provision for
income taxes.............................................. 2,105 4,965 8,911
Permanent differences....................................... 15 55 63
------- ------- -------
$ -- $ -- $ --
======= ======= =======
</TABLE>

Internal Revenue Code Section 382 stipulates an annual limitation on the amount
of Federal and State net operating losses incurred prior to a change in
ownership, which can be utilized to offset the Company's future taxable income.
An ownership change occurred as a result of the consummation of the Company's
initial public offering.

5. DEBT

On October 29, 1997, the Company issued a $3,000, 8% convertible debenture due
September 30, 1998 (the Debenture). The debenture was convertible into 505,084
shares of Series C preferred stock. Effective October 23, 1998, $1,000 of the
Debenture was assigned by the investor to a group of private investors who
converted such portion of the Debenture into 168,361 shares of Series C
preferred stock. The Company paid off $1,000 of the Debenture in October 1998,
and converted the remaining $1,000 into 174,535 shares of Series C preferred
stock in March 1999. The Series C preferred stock was converted into common
stock in connection with the Company's initial public offering in August 1999.

The Company entered into a $40 non-interest bearing promissory note payable
during August 1997; due in monthly installments of $1, including principal and
imputed interest, through August 2002. The note is collateralized by certain
furniture and equipment of the Company.

6. SHAREHOLDERS' EQUITY

During 1998, the Company issued 2,188,698 shares of Series C preferred stock, as
well as warrants to purchase an additional 609,460 shares of Series C preferred
stock, for net proceeds of $12,529. In connection with the Series C transaction,
the Company exchanged, on a one-for-one basis, an aggregate of 2,319,095 shares
of common stock for 1,644,817 shares of Series A preferred stock and 674,278
shares of Series B preferred stock. Also during 1998, the Company issued
warrants to purchase 22,956 shares of common stock.

During 1999, the Company amended its Charter to change the par value of its
common stock to $0.001. All amounts included in the accompanying financial
statements have been restated to retroactively reflect the change in par value.
Also in 1999, the Company issued an aggregate of 3,115,328 shares of Series D
preferred stock for gross proceeds of $24,000, 389,416 shares of Series D
redeemable preferred stock for gross proceeds of $3,000 and 105,142 shares of
redeemable common stock for gross proceeds of $810. In connection with the
Series D issuance, warrants to purchase 221,059 shares of Series D preferred
stock and 6,802 warrants to purchase common stock were issued.

In June 1999, the NASD informed the Company that it would consider a portion of
its redeemable convertible preferred stock and redeemable common stock to be
underwriting compensation received in connection with the proposed initial
public offering in excess of the amounts allowable under the NASD's Conduct
Rules. In order to comply with the NASD's Conduct Rules, the Company repurchased
484,367

F-62
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INTERACTIVE PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shares of common stock, including shares representing the redeemable convertible
preferred stock and the redeemable common stock, for $3,730.

In connection with the Company's initial public offering in August 1999, all
preferred stock converted one-for-one into common stock and all warrants were
exercised. Net proceeds from the initial public offering of 3,850,000 shares of
common stock totaled $63,300.

Before the effectiveness of the registration statement covering the shares of
common stock sold in the Company's initial public offering, the Company provided
written materials to persons it identified as eligible participants in its
directed share program. The Company has been advised that these materials may
constitute a prospectus that does not meet the requirements of the Securities
Act of 1933. If the distribution of these materials did constitute a violation
of the Securities Act of 1933, the recipients of these materials who purchased
common stock in this offering would have the right, for a period of one year
from the date of their purchase of common stock, to obtain recovery of the
consideration paid in connection with their purchase of common stock or, if they
had already sold the stock, sue the Company for damages resulting from their
purchase of common stock. These damages could total up to approximately $2,800
plus interest; based on the initial public offering price of $18.00 per share,
if these investors seek recovery or damages after an entire loss of their
investment.

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair values of financial instruments have been estimated using data which the
Company considered the best available. The following estimation methodologies
were used:

Cash and Cash Equivalents. Cash and cash equivalents are reflected at
carrying value, which is considered fair value due to the short-term nature
of these instruments.

Accounts Receivable. Accounts receivable consists primarily of trade
receivables. The Company has estimated their fair value to be the carrying
value.

Securities Available-for-Sale. The estimated fair value of securities
available-for-sale is based on the quoted market prices for those or
similar investments. Amortized costs approximate fair value.

Convertible Debenture and Promissory Note. Fair values are based on
quoted market prices for the same or similar issues, or the carrying value
is used where a market price is unavailable. The carrying value is assumed
to be the fair value for these liabilities as no market price for a
comparable instrument was available.

8. EMPLOYEE STOCK AND BENEFIT PLANS

STOCK OPTION PLAN

The Company has authorized the 1997 Equity Compensation Plan (the "Plan"), under
which 2,998,559 shares of common stock are authorized and reserved for issuance
to selected employees, officers, directors, consultants and advisors. The
Company has reserved a sufficient number of shares of common stock for issuance
pursuant to the authorized options. As of December 31, 1999, 2,193,662 options
had been granted under this Plan. In addition, the Company has granted certain
options to purchase shares of the Company's common stock to employees not under
the Plan; these options were primarily granted prior to the authorization of the
1997 plan. The exercise price of all options granted is the fair value of the
Company's common stock at the date of grant as estimated by common stock and
convertible preferred stock transactions with third parties at or near grant
dates. The options generally vest over one to three-year periods and expire five
years after the respective vesting dates.

F-63
<PAGE> 129
INTERACTIVE PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the Company's stock option activity is as follows:

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE STOCK AVERAGE
OF EXERCISE GRANT DATE OPTIONS EXERCISE
SHARES PRICES FAIR VALUE EXERCISABLE PRICE
--------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Under option at January 1, 1997.... 591,566 446,088 $0.56
Options granted in 1997.......... 891,733 $ 4.06 $0.97
Options cancelled in 1997........ (107,468) 3.68
---------
Under option at December 31,
1997............................. 1,375,831 677,103 1.62
Options granted in 1998.......... 536,067 6.00 1.21
Options exercised in 1998........ (74,820) 0.03
Options cancelled in 1998........ (11,337) 6.47
---------
Under option at December 31,
1998............................. 1,825,741 5.35 835,192 2.47
Options granted in 1999.......... 1,647,392 14.48
Options exercised is 1999........ (223,122) 1.46
Options cancelled in 1999........ (70,578) 10.26
---------
Under option at December 31,
1999............................. 3,179,433 1,464,803 5.11
=========
</TABLE>

The following table summarizes information about stock options at December 31,
1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- ------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICE AT 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/99 EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.03 163,243 2.25 $ 0.03 163,243 $ 0.03
$ 3.68 -
$ 9.00....... 2,228,116 6.94 $ 5.79 1,201,560 $ 4.52
$15.88 -
$25.25....... 788,074 9.69 $21.58 100,000 $21.38
</TABLE>

ACCOUNTING FOR STOCK-BASED COMPENSATION

In April and May of 1999, the Company issued options to employees and directors
to purchase 795,130 shares of common stock at $7.70 per share. The Company
recorded deferred stock compensation totaling approximately $1,034 during these
time periods, which represents the difference between the deemed fair market
value of the Company's common stock for accounting purposes and the exercise
price of the options at the date of grant. The deferred stock compensation has
been presented as a reduction of shareholders' equity and will be amortized over
the three-year vesting period of the options.

For all other option grants, because the exercise price of the Company's stock
options equals the deemed fair value of the underlying stock on the date of the
grant, no compensation cost has been recognized in the accompanying financial
statements. Pro forma information regarding net loss is required by Statement
123, and has been determined as if the Company had accounted for its stock
options under the fair value method of Statement 123. The Company has determined
that the difference between historical results and such pro forma information
would have been to increase the net loss by $311, $301 and $642 in 1997, 1998
and 1999, respectively, and to increase the net loss per share to $(0.94),
$(2.91), and $(2.60) in 1997, 1998 and 1999, respectively.

The minimum fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants: expected lives of five years in 1997 and 1998 and
three years in 1999; risk free interest rate of 5.71% in 1997, 4.59% in

F-64
<PAGE> 130
INTERACTIVE PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1998, 6.03% in 1999, and expected dividends and volatility of zero in 1997 and
1998 and 68.5% in 1999.

401(K) PLAN

The Company has a 401(k) profit sharing plan which is available to all full-time
employees after six months of service and those part-time employees who have
completed one thousand hours of employment during twelve consecutive months. The
Company will match sixty-five cents per dollar up to 6.15% of the employee's
annual salary. The Company made contributions of $44, $116 and $201 in 1997,
1998 and 1999, respectively.

9. SEGMENT INFORMATION

The Company has two reportable segments: 1) iPIX products, and 2) research and
development services for others. The accounting policies of the segments are the
same as those of the Company. The Company evaluates the performance of its
segments and allocates resources to them based solely on evaluation of gross
profit. There are no inter-segment revenues. The Company does not make
allocations of corporate costs to the individual segments and does not identify
separate assets of the segments in making decisions regarding performance or
allocation of resources to them. Management believes the Company's future growth
will occur in the iPIX products segment.

Information about reported segments is as follows:

<TABLE>
<CAPTION>
RESEARCH AND
DEVELOPMENT
IPIX SERVICES
PRODUCTS FOR OTHERS TOTAL
-------- ------------ ------
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31:
1997
Revenues................................................ $2,128 $318 $2,446
Gross profit............................................ 1,682 2 1,684
1998
Revenues................................................ $2,712 $329 $3,041
Gross profit............................................ 1,505 88 1,593
1999
Revenues................................................ $8,767 $ 0 $8,767
Gross profit............................................ 4,385 0 4,385
</TABLE>

F-65
<PAGE> 131
INTERACTIVE PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
REVENUES:
United States............................................... $1,834 $2,404 $6,585
Japan....................................................... 273 352 135
United Kingdom.............................................. 22 41 533
Holland..................................................... -- -- 318
Sweden...................................................... -- -- 280
Other foreign countries..................................... 317 244 916
------ ------ ------
$2,446 $3,041 $8,767
====== ====== ======
LONG-LIVED ASSETS:
Foreign..................................................... $ -- $ 15 $ 140
United States............................................... 663 1,338 3,773
------ ------ ------
$ 663 $1,353 $3,913
====== ====== ======
</TABLE>

Foreign revenues include all sales made to customers outside the United States,
including those generated by the UK subsidiary.

10. COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases certain office space under noncancelable operating leases.
Future minimum lease payments with remaining terms in excess of one year are as
follows:

Rental expense for operating leases was $152, $430 and $912 for 1997, 1998 and
1999, respectively.

In October 1998, a lawsuit was filed against the Company. This lawsuit alleged
that the Company breached a duty of confidence, made misrepresentations and
misappropriated trade secrets. The court removed this action to arbitration upon
the Company's motion and the Company cross-claimed alleging various affirmative
claims. The court dismissed the lawsuit in May 1999 upon motion of the
plaintiffs. However, arbitration is expected to take place in the spring of
2000. In May 1999, one of the original plaintiffs filed a second lawsuit against
the Company alleging patent infringement. Management believes that the claims
are without merit and intends to vigorously defend against such claims. Since
the plaintiffs have not specified in their lawsuit the amount of damages they
seek, an estimate of the ultimate potential liability of the Company cannot be
made. If the Company does not effectively defend against the claims, the
Company's financial condition, results of operations and cash flows could be
materially adversely affected.

F-66
<PAGE> 132
INTERACTIVE PICTURES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. RESEARCH AND DEVELOPMENT ARRANGEMENTS

The Company performs certain research and development activities under various
third party contracts under which the Company receives payments upon achieving
certain targets in the development process. One of these contracts provided for
receipt of royalties under a license agreement. The remaining contract for which
information is disclosed below included no such arrangements. Both of these
contracts expired prior to December 31, 1998.

Total revenue earned and costs incurred under third party research and
development contracts, excluding contracts with government agencies, at December
31, is as follows:

<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenue earned.............................................. $105 $63 $--
Cost incurred............................................... 208 -- --
</TABLE>

12. MERGER WITH BAMBOO.COM, INC.

On January 19, 2000, the Company and bamboo.com, Inc. ("bamboo") received
shareholder approval and executed an Agreement and Plan of Merger ("the merger
agreement"). Pursuant to the merger agreement, iPIX became a wholly-owned
subsidiary of bamboo and bamboo issued 1.369 shares of its common stock for
every share of iPIX common stock outstanding immediately prior to the Effective
Time (as defined in the merger agreement) of the merger. The transaction was
accounted for as a pooling of interests. The combined company was renamed
Internet Pictures Corporation.

The effects of the combination on 1999 results of operations, as if the merger
had taken place prior to December 31, 1999, are as follows:

<TABLE>
<CAPTION>
SUPPLEMENTAL
IPIX COMBINED
12/31/99 12/31/99
-------- ------------
<S> <C> <C>
Revenue..................................................... $ 8,767 $12,523
Net loss.................................................... (23,616) 76,603
Basic and diluted earnings per share........................ (2.53) (3.01)
</TABLE>

Based on review of accounting policies of both companies, an adjustment of $342
has been made in the supplemental combined results to accelerate amortization of
the Company's deferred compensation expense to conform to the policy determined
most appropriate.

13. MERGER WITH PICTUREWORKS TECHNOLOGY, INC. (UNAUDITED)

The Company and PictureWorks Technology, Inc. (PictureWorks) entered into an
Agreement and Plan of Merger dated March 6, 2000 ("the Merger Agreement").
Pursuant to the Merger Agreement, PictureWorks became a wholly-owned subsidiary
of a newly-formed iPIX subsidiary, Purple Sub, Inc. on March 31, 2000. A total
of 4,644,334 shares of iPIX common stock were exchanged for all common and
mandatorily redeemable convertible preferred shares of PictureWorks. All
outstanding options and warrants to purchase PictureWorks' common stock were
assumed by iPIX and became options and warrants to purchase shares of iPIX.

F-67
<PAGE> 133

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
PictureWorks Technology, Inc.

In our opinion, the accompanying balance sheets and the related statements of
operations, of mandatorily redeemable convertible preferred stock and
stockholders' deficit, and of cash flows present fairly, in all material
respects, the financial position of PictureWorks Technology, Inc. (the
"Company") as of March 31, 1999 and December 31, 1999 and the results of its
operations and its cash flows for the year ended March 31, 1999 and the nine
months ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

See Note 1, paragraph 2 for a discussion regarding the possible need for
additional equity or debt financing and management's plans in this regard.

PricewaterhouseCoopers LLP

San Jose, California

January 25, 2000, except Note 16, which is as of March 31, 2000

and Note 1, paragraph 2, which is as of May 2, 2000

F-68
<PAGE> 134

PICTUREWORKS TECHNOLOGY, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
------------------------
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
(in thousands, except share and per share amounts)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 158 $ 98
Accounts receivable, net of allowance for doubtful accounts
of $16 and $16 at March 31, 1999 and December 31, 1999,
respectively.............................................. 24 94
Prepaid expenses and other current assets................... 91 118
-------- --------
Total current assets.............................. 273 310
Property and equipment, net................................. 240 354
Intangible assets, net...................................... 3,806 3,252
-------- --------
Total assets...................................... $ 4,319 $ 3,916
======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Borrowings under bank line of credit agreement.............. $ 1,717 $ --
Accounts payable............................................ 287 408
Accrued liabilities......................................... 446 533
Deferred revenue............................................ 60 183
Note payable to related party............................... -- 200
-------- --------
Total current liabilities......................... 2,510 1,324
Borrowings under bank line of credit agreement.............. -- 1,780
Other notes payable......................................... -- 2,700
-------- --------
Total liabilities................................. 2,510 5,804
-------- --------
Commitments (Note 7)
Mandatorily redeemable convertible preferred stock, $0.001
par value:
Authorized: 12,352,292
Issued and outstanding: 9,664,399 shares at March 31, 1999
and 9,664,399 shares at December 31, 1999..............
Liquidation value: $15,980 at December 31, 1999........... 14,853 17,807
-------- --------
STOCKHOLDERS' DEFICIT:
Common stock, $0.001 par value:
Authorized: 25,000,000
Issued and outstanding: 5,083,902 shares at March 31, 1999
and 5,129,923 shares at December 31, 1999.............. 5 5
Additional paid-in capital.................................. -- 1,391
Unearned stock-based compensation........................... -- (3,574)
Stockholder note receivable................................. (126) (126)
Accumulated deficit......................................... (12,923) (17,391)
-------- --------
Total stockholders' deficit....................... (13,044) (19,695)
-------- --------
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
deficit........................................ $ 4,319 $ 3,916
======== ========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-69
<PAGE> 135

PICTUREWORKS TECHNOLOGY, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
-------------------------
NINE MONTHS
YEAR ENDED ENDED
MARCH 31, DECEMBER 31,
1999 1999
---------- ------------
<S> <C> <C>
(in thousands, except per share amounts)
Revenues.................................................... 4,242 2,961
------- -------
Cost of revenues............................................ 1,260 1,149
Gross profit................................................ 2,982 1,812
------- -------
OPERATING EXPENSES:
Sales and marketing (excludes stock-based compensation of
$nil and $398)............................................ 2,815 1,460
Research and development (excludes stock-based compensation
of $nil and $272)......................................... 2,766 2,584
General and administrative (excludes stock-based
compensation of $nil and $86)............................. 1,250 1,094
Stock-based compensation.................................... -- 756
------- -------
Total operating expenses.......................... 6,831 5,894
------- -------
Loss from operations........................................ (3,849) (4,082)
OTHER INCOME (EXPENSE):
Interest income............................................. 54 8
Interest expense............................................ (98) (262)
------- -------
Loss before income taxes.................................... (3,893) (4,336)
Provision for income taxes.................................. 194 132
------- -------
Net loss.................................................... $(4,087) $(4,468)
Accretion of mandatorily redeemable convertible preferred
stock..................................................... $(1,540) $(2,954)
------- -------
Net loss attributable to common stockholders................ $(5,627) $(7,422)
======= =======
Basic and diluted net loss per common share................. $ (1.17) $ (1.49)
======= =======
Weighted average common shares -- basic and diluted......... 4,789 4,978
======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-70
<PAGE> 136

PICTUREWORKS TECHNOLOGY, INC.

STATEMENTS OF MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
MANDATORILY
REDEEMABLE
CONVERTIBLE ADDITIONAL UNEARNED STOCKHOLDER
PREFERRED STOCK COMMON STOCK PAID-IN STOCK-BASED NOTE ACCUMULATED
(in thousands, except share NUMBER AMOUNT NUMBER AMOUNT CAPITAL COMPENSATION RECEIVABLE DEFICIT
amounts) --------- ------- --------- ------ ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at April 1,
1998.................... 3,608,635 $ 3,675 5,079,965 $5 $ -- $ -- $(126) $ (7,296)
Issuance of Series C
preferred stock, net of
issuance costs.......... 3,398,774 5,386 -- -- -- -- -- --
Series C preferred stock
issued upon conversion of
notes payable........... 351,223 562 -- -- -- -- -- --
Issuance of Series D
preferred stock in
consideration of asset
purchase................ 2,305,767 3,689 -- -- -- -- -- --
Accretion of mandatorily
redeemable convertible
preferred stock......... -- 1,541 -- -- (1) -- -- (1,540)
Exercise of common stock
options................. -- -- 3,937 -- 1 -- -- --
Net loss.................. -- -- -- -- -- -- -- (4,087)
--------- ------- --------- -- ------- ------- ----- --------
Balances at March 31,
1999.................... 9,664,399 14,853 5,083,902 5 -- -- (126) (12,923)
Accretion of mandatorily
redeemable convertible
preferred stock......... -- 2,954 -- -- (2,954) -- -- --
Exercise of common stock
options................. -- -- 46,021 -- 15 -- -- --
Unearned stock-based
compensation............ -- -- -- -- 4,330 (4,330) -- --
Amortization of unearned
stock-based
compensation............ -- -- -- -- -- 756 -- --
Net loss.................. -- -- -- -- -- -- -- (4,468)
--------- ------- --------- -- ------- ------- ----- --------
Balances at December
31,1999................. 9,664,399 $17,807 5,129,923 $5 $ 1,391 $(3,574) $(126) $(17,391)
========= ======= ========= == ======= ======= ===== ========

<CAPTION>
-------------

TOTAL
STOCKHOLDERS'
(in thousands, except share DEFICIT
amounts) -------------
<S> <C>
Balances at April 1,
1998.................... $ (7,417)
Issuance of Series C
preferred stock, net of
issuance costs.......... --
Series C preferred stock
issued upon conversion of
notes payable........... --
Issuance of Series D
preferred stock in
consideration of asset
purchase................ --
Accretion of mandatorily
redeemable convertible
preferred stock......... (1,541)
Exercise of common stock
options................. 1
Net loss.................. (4,087)
--------
Balances at March 31,
1999.................... (13,044)
Accretion of mandatorily
redeemable convertible
preferred stock......... (2,954)
Exercise of common stock
options................. 15
Unearned stock-based
compensation............ --
Amortization of unearned
stock-based
compensation............ 756
Net loss.................. (4,468)
--------
Balances at December
31,1999................. $(19,695)
========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-71
<PAGE> 137

PICTUREWORKS TECHNOLOGY, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
-------------------------
NINE MONTHS
YEAR ENDED ENDED
MARCH 31, DECEMBER 31,
1999 1999
(In thousands) ---------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(4,087) $(4,468)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization............................. 215 722
Provision for doubtful accounts and sales returns......... (36) --
Non-cash interest expense................................. 55 --
Sales refund converted to promissory note................. -- 200
Loss on disposal of property and equipment................ -- 10
Amortization of unearned stock-based compensation......... -- 756
Changes in operating assets and liabilities:
Accounts receivable.................................... 761 (70)
Prepaid expenses and other current assets.............. 54 (27)
Accounts payable....................................... (232) 121
Accrued liabilities.................................... (88) 87
Deferred revenue....................................... (609) 123
------- -------
Net cash used in operating activities............. (3,967) (2,546)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (137) (272)
Purchases of technology..................................... (162) (20)
------- -------
Net cash used in investing activities............. (299) (292)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of stock............................. 5,387 15
Borrowings under bank line of credit agreement.............. 1,729 3,072
Repayments under bank line of credit agreement.............. (2,012) (3,009)
Borrowings under promissory notes........................... -- 2,700
Repayments of convertible subordinated notes................ (852) --
------- -------
Net cash provided by financing activities......... 4,252 2,778
------- -------
Decrease in cash and cash equivalents....................... (14) (60)
Cash and cash equivalents, beginning of period.............. 172 158
------- -------
Cash and cash equivalents, end of period.................... $ 158 $ 98
======= =======
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-72
<PAGE> 138

PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

THE COMPANY. PictureWorks Technology, Inc. (the "Company") was incorporated in
the state of Delaware in April 1994. The Company has recently refocused its
business strategy from the design, development, and marketing of digital color
desktop imaging technology to a strategy of providing solutions to imaging
problems on the Internet. The Company's imaging digital technology provides an
infrastructure solution facilitating the use of digital media, such as video,
audio, photographs, and other images on the Internet. The Company serves
internet sites, portals and hubs which depend on user-supplied media rather that
centralized content generation. The Company develops solutions for leading
Internet companies in the residential real estate, online auction,
community-of-interest, insurance, classifieds and
architecture/engineering/construction markets.

As detailed on Note 16, the Company was acquired by InterNet Pictures
Corporation and is dependent on InterNet Pictures Corporation for the continued
financing of tis operations. InterNet Pictures Corporation has cash, and cash
equivalents and securities available-for-sale of $49,221 at March 31, 2000.
Management believes that existing cash and investment balances will be
sufficient to fund operations through December 2000. In May 2000, InterNet
Pictures Corporation anticipates completion of a secondary offering of its
common stock. The proceeds from this offering will likely be required in order
for InterNet Pictures Corporation to meet working capital needs beyond December
2000. There can be no assurance, however, that InterNet Pictures Corporation
will be able to complete this offering or that it will raise additional equity
or debt financing under terms favorable to InterNet Pictures Corporation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

CASH AND CASH EQUIVALENTS. The Company considers all highly liquid instruments
purchased with original or remaining maturities of three months or less to be
cash equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS. The reported amounts of certain of the
Company's financial instruments, including cash and cash equivalents, accounts
receivable and accounts payable, approximate fair value due to their short
maturities. Based on borrowing rates available to the Company for loans with
similar terms, the carrying value of the line of credit and other notes payable
approximates fair value.

CERTAIN RISKS AND CONCENTRATIONS. Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
temporary cash investments including U.S. Treasury bills, other short-term
obligations of the U.S. Government and its agencies, money market funds, and
certificates of deposit. The Company places its temporary cash investments
primarily with one financial institution which management believes to be
creditworthy. Deposits with these banks may exceed the amount of insurance
provided on such deposits.

The Company licenses its products primarily to companies in the United States
and Japan. The Company performs ongoing credit evaluations of these customers
and generally does not require collateral. Reserves are maintained for potential
credit losses and such losses to date have been within management's
expectations.

F-73
<PAGE> 139
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

For the year ended March 31, 1999, and the nine months ended December 31, 1999,
revenues from one foreign customer accounted for 33.4% and 27.2% of total
revenue, respectively.

Revenues from customers representing 10% or more of total revenue are as
follows:

<TABLE>
<CAPTION>
------------------------------
YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
1999 1999
---------- -----------------
<S> <C> <C>
Customer A.................................................. 33% 28%
Customer B.................................................. -- 17%
</TABLE>

Accounts receivable from customers representing 10% or more of aggregate
accounts receivable are as follows:

<TABLE>
<CAPTION>
------------------------------
YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
1999 1999
---------- -----------------
<S> <C> <C>
Customer A.................................................. -- 43%
Customer B.................................................. -- 49%
</TABLE>

REVENUE RECOGNITION. Revenue from desktop imaging products and internet
services is recognized upon delivery of the software license to the customer
provided there are no significant obligations remaining, there is persuasive
evidence of an arrangement, the license fee is fixed and determinable and
collection of the resulting receivable is probable. Royalties derived from
desktop imaging products are recognized as revenues upon receipt of the royalty
sell-through reports from customers, which is generally in the quarter following
the quarter in which the sale by the customer took place.

Revenues from development fees for significantly customizing software for
customers is recognized on the percentage of completion basis after making
appropriate allowances for foreseeable losses where applicable.

At the time of recognizing revenue from sales, the Company makes an allowance
for returns of product based on historical experience and also makes an accrual
for the costs of providing customer support to customers.

PROPERTY AND EQUIPMENT. Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed on a straight-line basis over
the estimated useful lives of three to five years. Amortization of leasehold
improvements is computed on a straight-line basis over the shorter of the
facility lease term or the estimated useful lives of the improvements. Major
additions and improvements are capitalized, while replacements, maintenance and
repairs that do not improve or extend the life of the assets are charged to
operations. In the period assets are retired or otherwise disposed of, the costs
and related accumulated depreciation and amortization are removed from the
accounts, and any gain or loss on disposal is included in results of operations.

ACCOUNTING FOR LONG-LIVED ASSETS. Intangible assets include the cost of
acquired patents and trademarks and are amortized using the straight line method
over a period of 5 years, and are stated net of accumulated amortization. The
Company assesses the recoverability of acquired intangible assets as well as
other long-lived assets, in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of," which

F-74
<PAGE> 140
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

requires the Company to review the carrying value of an asset for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset might not be recoverable. When such an event occurs, the Company
estimates the future undiscounted cash flows expected to result from the use of
the asset and its eventual disposition. If the undiscounted expected future cash
flows are less than the carrying amount of the asset, an impairment loss is
recognized.

ADVERTISING COSTS. Advertising is expensed as incurred. During the year ended
March 31, 1999, and the nine months ended December 31, 1999, the Company
incurred $130 and $7, respectively, in advertising expenses.

INCOME TAXES. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), which requires the use of the liability method in
accounting for income taxes. Under this method, deferred tax assets and
liabilities are measured using enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

SOFTWARE DEVELOPMENT COSTS. Software development costs have been accounted for
in accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." Under the Standard, capitalization of software development costs
begins upon the establishment of technological feasibility, subject to net
realizable value considerations. The Company begins capitalization upon
completion of a working model. To date, such capitalizable costs have not been
material. Accordingly, the Company has charged all such costs to research and
development expense. Future capitalized costs, if any, will be amortized based
on the greater of the expense as determined on a straight-line basis over the
estimated life of the products or the ratio of current revenue to the total of
current and anticipated future revenue.

INTERNAL USE SOFTWARE. Costs incurred in the design, creation and maintenance
of content, graphics and user interface of the Company's web sites are expensed
as incurred in accordance with SOP 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." Costs incurred in the
development of application and infrastructure of the web sites are capitalized
and amortized over the useful life of the web sites. For the year ended March
31, 1999, and the nine months ended December 31, 1999, the costs that could be
capitalized were insignificant.

STOCK-BASED COMPENSATION. The Company follows the disclosure provisions of
Financial Accounting Standards Board ("FASB") SFAS No. 123, "Accounting for
Stock-Based Compensation." The Company has elected to continue accounting for
stock-based compensation issued to employees using Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and,
accordingly, pro forma disclosures required under SFAS No. 123 have been
presented (see Note 9). Under APB No. 25, compensation expense is based on the
difference, if any, on the date of the grant, between the fair value of the
Company's stock and the exercise price of the option. Stock issued to
non-employees has been accounted for in accordance with the provisions of SFAS
No. 123 and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."

F-75
<PAGE> 141
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

COMPREHENSIVE INCOME. The Company has adopted the accounting treatment
prescribed by Statement of Financial Accounting Standard No. 130 "Reporting
Comprehensive Income" ("SFAS 130"). The adoption of this statement had no impact
on the Company's financial statements for the periods presented.

NET LOSS PER COMMON SHARE. Basic net loss per common share is computed by
dividing the net loss attributable to common stockholders for the period by the
weighted average number of common shares outstanding during the period. Diluted
net loss per common share is computed by dividing the net loss attributable to
common stockholders for the period by the weighted average number of common and
common equivalent shares outstanding during the period. Common equivalent
shares, composed of common shares issuable upon the exercise of stock options
and warrants and upon conversion of convertible preferred stock, are included in
the diluted net loss per common share calculation to the extent these shares are
dilutive. A reconciliation of the numerator and denominator used in the
calculation of basic and diluted net loss per common share follows:

<TABLE>
<CAPTION>
------------------------------
YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
1999 1999
---------- -----------------
<S> <C> <C>
NUMERATOR:
Net loss attributable to common stockholders................ $(5,627) $(7,422)
------- -------
DENOMINATOR:
Weighted average common shares.............................. 5,082 5,115
Weighted average unvested common shares subject to
repurchase................................................ (293) (137)
------- -------
Denominator for basic and diluted calculation............... 4,789 4,978
------- -------
Basic and diluted net loss per common share................. $ (1.17) $ (1.49)
======= =======
</TABLE>

The following table summarizes common stock equivalents that are not included in
the denominator used in the diluted net loss per common share calculation
because to do so would be antidilutive for the periods indicated:

<TABLE>
<CAPTION>
------------------------------
YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
1999 1999
---------- -----------------
<S> <C> <C>
Weighted average effect of common stock equivalents:
Series A mandatorily redeemable convertible preferred
stock..................................................... 4,558,424 4,558,424
Series B mandatorily redeemable convertible preferred
stock..................................................... 2,658,846 2,658,846
Series C mandatorily redeemable convertible preferred
stock..................................................... 3,514,339 3,749,997
Series D mandatorily redeemable convertible preferred
stock..................................................... 94,757 2,305,767
Options to purchase common stock............................ 2,345,307
Warrants to purchase convertible preferred and common
stock..................................................... 1,919,886 515,430
Common stock subject to repurchase.......................... 292,748 136,635
---------- ----------
13,039,000 16,270,406
---------- ----------
</TABLE>

RECENTLY ISSUED ACCOUNTING STANDARDS. In 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards, No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which is
effective for fiscal quarters beginning after June 15, 2000. The Company

F-76
<PAGE> 142
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

does not believe that the adoption of this pronouncement will have a material
effect on the financial statements.

In January 2000, the Financial Accounting Standards Board ("FASB") Emerging
Issues Task Force ("EITF") issued EITF 99-17, "Accounting for Advertising Barter
Transactions." The EITF reached a final consensus that such transactions should
be recorded at fair value only when the Company has a substantial historical
practice of selling advertising for cash. The historical practice is based
solely on the Company's own past experience in selling advertising for cash. The
adoption of the provisions of EITF for the nine months ended December 31, 1999
has had no impact on the Company's net loss or financial condition.

In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101") "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. Management
believes that the impact of SAB 101 will not have a material effect on the
financial position or results of operations of the Company.

3. ASSET PURCHASE

In March 1999, the Company signed an agreement to acquire certain tangible and
intangible assets from Videobrush, a subsidiary of Sarnoff Corporation. The
total acquisition price was $3,871 and consisted of (i) cash payments of $182
and (ii) 2,305,767 shares of Series D preferred stock valued at $1.60 per share.
An additional 1,152,883 shares of Series D preferred stock were placed in escrow
subject to a contingent earnout provision based on annual incremental revenue
attributed to products incorporating the purchased technology during each fiscal
year commencing April 1, 1999 and ending with the fiscal year ending March 31,
2003. The earnout provision may be accelerated upon the following acceleration
events; (i) assignment or exclusive license of the technology to a third party,
(ii) an underwritten initial public offering of the Company's common stock, or
(iii) a transaction or series of transactions whereby the Company consolidates
or merges with or into any other corporation or business entity.

Upon an acceleration event which occurs on or prior to March 31, 2001, (i) 50%
of the earnout shares remaining in escrow shall be released to Sarnoff
Corporation as of the final closing date of the event plus (ii) a percentage of
the remaining shares based on annual incremental revenue attributed to products
incorporating the purchased technology for any partial period prior to the final
closing date of the event. Upon an acceleration event which occurs following
March 31, 2001, earnout shares released from escrow will be the greater of (i)
50% of the earnout shares remaining in escrow as of the final closing date of
the event or (ii) a percentage of the remaining shares based on annual
incremental revenue attributed to products incorporating the purchased
technology for any partial period prior to the final closing date of the event.
Following any acceleration event, the earnout provision shall terminate and any
escrow shares remaining undelivered shall be returned to the Company for
cancellation. Any additional consideration issued in connection with the
earn-out provision will be treated as additional goodwill.

The purchase price was allocated to the acquired assets based on fair value as
follows:

<TABLE>
<S> <C>
------
Current assets.............................................. $ 45
Patented technology......................................... 3,826
------
$3,871
======
</TABLE>

F-77
<PAGE> 143
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The patented technology is being amortized over the useful life of five years.

4. BALANCE SHEET ACCOUNTS

PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
------------------------
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
Equipment................................................... $ 617 $ 311
Software.................................................... 109 228
Furniture and fixtures...................................... 33 42
Leasehold improvements...................................... 31 19
----- -----
790 600
Less: Accumulated depreciation and amortization............. (550) (246)
----- -----
$ 240 $ 354
===== =====
</TABLE>

Depreciation and amortization expense for property and equipment for the year
ended March 31, 1999 and the nine months ended December 31, 1999 was $215 and
$148, respectively.

INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
------------------------
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
Patented technology......................................... $3,806 $3,826
Less: Accumulated amortization.............................. -- (574)
------ ------
$3,806 $3,252
====== ======
</TABLE>

Amortization expense for patented technology was nil and $574 in the year end
March 31, 1999 and the nine months ended December 31, 1999, respectively.

ACCRUED LIABILITIES

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
------------------------
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
Accrued salaries and benefits............................... $204 $282
Accrued interest............................................ -- 16
Other....................................................... 242 235
---- ----
$446 $533
==== ====
</TABLE>

5. EQUITY INVESTMENT IN INTERNET SERVICES CUSTOMER

On September 1, 1999, the Company entered into a software development and
license agreement with an internet services customer. In connection this
agreement, the internet services customer granted the

F-78
<PAGE> 144
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Company 1,250,000 shares of its common stock in consideration for providing
exclusive development services. At December 31, 1999, the Company owned
approximately 9% of the outstanding common stock in the internet services
customer.

The internet services customer is a private company with a limited operating
history. Also, the services the company is rendering on behalf of the internet
services customer have not previously been sold for cash. Therefore, since it is
not possible to reliably measure the value of consideration received or given
up, the Company has not recognized any revenue or recorded any asset for the
investment in the shares received.

The investment in the internet services customer has been accounted for using
the equity method as the Company has significant influence over the operations
of the internet services customer. However, since the Company is not obligated
to provide any financial support and has not guaranteed any obligations of the
internet services customer, the Company would not recognize any future losses
which would lower the equity investment below zero.

6. BORROWINGS

LINE OF CREDIT. In September 1998 the Company entered into a revolving line of
credit agreement with a financial institution for up to $2,000 subject to
certain accounts receivable collections. Interest accrues monthly at the bank's
prime rate plus 2% (10.5% at December 31, 1999). Amounts borrowed under this
agreement are collateralized by substantially all assets of the Company.
Interest expense is due monthly on the last day of each month. Interest expense
related to this line of credit for the nine months ending December 31, 1999 was
$40. As of December 31, 1999, the Company's outstanding loan balance was
approximately $1,780. The agreement restricts the Company from paying or
declaring dividends to stockholders.

PROMISSORY NOTES. At December 31, 1999, the Company had obligations totaling
$2,700 under promissory notes payable to a financial institution. The notes bear
interest at the bank's prime rate plus 2% (10.5% at December 31, 1999). Interest
expense is due monthly on the last day of each month. The notes are
collateralized by substantially all assets of the Company.

At December 31, 1999, the Company had an obligation totaling $200 under a
promissory note payable to a customer. Effective January 1, 1999, the note bears
interest at 8% per annum. The note matures no later than the earliest to occur
of the following: (i) the closing of a financing in which the Company receives
at least $2,000 in cash (except for any bridge financing the Company closes
prior to January 31, 2000); (ii) the date of an initial public offering of the
Company's stock; (iii) the closing date of a merger of the Company into or
acquisition of the Company by another company; or (iv) January 2, 2001.

F-79
<PAGE> 145
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

7. COMMITMENTS

The Company has entered into operating leases for equipment and facilities with
original terms ranging from one to five years. The future minimum lease payments
under all noncancelable leases having initial terms longer than one year at
December 31, 1999 are as follows:

<TABLE>
<CAPTION>
TWELVE MONTHS ENDING DECEMBER 31,
- --------------------------------- ----
<S> <C>
2000.............................................. $267
2001.............................................. 30
2002.............................................. 24
2003.............................................. 1
----
Total minimum lease payments......................... $322
====
</TABLE>

Rent expense for the years ended March 31, 1999, and the nine months ended
December 31, 1999 was $216 and $173, respectively.

8. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

Authorized and outstanding mandatorily redeemable convertible preferred stock
and its principal terms are as follows at December 31, 1999:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------
SHARES REDEMPTION
------------------------ AMOUNT TOTAL AMOUNT AT
ISSUED AND NET OF CUMULATIVE CARRYING DECEMBER 31, LIQUIDATION
SERIES AUTHORIZED OUTSTANDING ISSUANCE COSTS ACCRETION AMOUNT 1999 PREFERENCE
- ------ ---------- ----------- -------------- ---------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
A 2,279,212 2,279,212 $ 310 $2,620 $ 2,929 $ 3,349 $ 729
B 1,623,083 1,329,423 2,525 345 2,870 4,333 3,988
C 3,749,997 3,749,997 5,948 1,620 7,568 7,620 7,574
C-1 1,200,000 -- -- -- -- -- --
D 3,500,000 2,305,767 3,689 751 4,440 4,440 3,689
---------- --------- ------- ------ ------- ------- -------
Total 12,352,292 9,664,399 $12,472 $5,336 $17,807 $19,742 $15,980
========== ========= ======= ====== ======= ======= =======
</TABLE>

The rights, preferences and privileges of the preferred stockholders are as
follows:

DIVIDENDS

The Company's Certificate of Incorporation provides the holders of Series C are
entitled to a dividend of 6% of the original issuance price of the Series C
Preferred Stock, respectively, when, if and as declared by the Board of
Directors in preference to the holders of shares of Common Stock or any other
series preferred stock of the Company. After payment of such dividends on the
Series C Preferred Stock, the holders of each class of series preferred stock,
in preference of any shares of Common Stock shall be entitled to receive pari
passu, when, if and as declared by the Board of Directors at a rate of 6% of the
original issuance price of each such series, per annum. Dividends are
noncumulative. As of December 31, 1999 no dividends have been declared or paid
on any class of the Company's capital stock.

F-80
<PAGE> 146
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

LIQUIDATION

The holders of Series C Preferred Stock are entitled to a liquidation preference
in an amount per share of Series C Preferred Stock that is the greater of (i)
the original issuance price plus a premium at the rate of 15% of the original
issuance price compounded annually from the date of issue plus any declared but
unpaid dividends; (ii) twelve million dollars divided by the number of shares of
Series C Preferred Stock then outstanding plus the number of shares of Common
Stock into which any shares of Series C Preferred Stock have already been
converted, exchanged or otherwise substituted, or (iii) the value such holder
would receive if each outstanding share of Series C Preferred Stock had been
converted into Common Stock.

After payment of the full liquidation preference to the holders of the Series C
Preferred Stock the holders of Series A, B, and D Preferred Stock shall be
entitled to a liquidation preference of an amount per share equal to the
original issuance price for such series plus all declared and unpaid dividends.
The remaining assets of the Company shall be distributed ratably to the holders
of the Common Stock and the Series A, B, and D Preferred Stock on an
as-if-converted to Common Stock basis.

CONVERSION

Preferred stock is convertible, at the option of the holder, into shares of
common stock at an initial conversion price of $0.16165 for Series A Preferred
Stock, $1.50 for the Series B Preferred Stock, $1.60 for Series C Preferred
Stock and $1.60 for Series D Preferred Stock as adjusted for stock splits,
combinations, or recapitalization. Convertible preferred stock shares are
convertible into Common Stock at a rate of one-to-two for Series A and B and
one-to-one for Series C and D. The conversion price and the conversion rate may
be adjusted by Common Stock dividends and distributions, reclassifications,
exchange or substitution, reorganization, merger, or consolidation or sale of
assets, or sale of shares below the series conversion price. Preferred stock
will automatically convert to Common Stock upon the closing of a firmly
underwritten public offering in which the aggregate gross proceeds to the
Company are at least $15,000, the valuation of the Company is not less than
$60,000 and the value of the Common Stock at closing is at least $12,000.

REDEMPTION

At any time after March 31, 2002, the holders of a majority of the outstanding
shares of Series C Preferred Stock may require the Company to redeem the Series
C Preferred Stock in 16 equal quarterly installments. Series C shall be redeemed
in full before any redemption payment is made with respect to any other class or
series of capital stock of the Company. The redemption price for Series C
Preferred Stock shall be the greater of (i) the liquidation value, (ii) $3.20,
or (iii) the amount which would be realized on conversion to common stock in the
event of a liquidation, dissolution or winding up of the Company.

At any time after March 31, 2002, the holders of a majority of the outstanding
shares of Series B Preferred Stock may require redemption in three annual
installments. In the event the holders of Series B Preferred Stock elect to be
redeemed by the Company, the holders of a majority of the outstanding shares of
Series A and Series D Preferred Stock may require the Company to redeem the
greater of (i) the sum of the original issuance price per share plus declared
and unpaid dividends with respect to such shares or (ii) the fair market value
of such series as determined by the Board of Directors.

F-81
<PAGE> 147
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The cumulative accretion of the Series A and B redeemable convertible preferred
stock was $840 at April 1, 1998. During 1998, and 1999, the Company accreted the
Series A, B and D redeemable convertible preferred stock to its deemed fair
value of $6.92 per share resulting in an accretion charge of approximately
$2,875. The Company accreted the Series C preferred stock to $3.20 for shares
resulting in an accretion charge of $1,620. In determining the accretion, the
Company used the interest method.

9. COMMON STOCK

STOCK SPLITS

On March 25, 1996, the board of Directors approved a 2:1 stock split of the
Company's Common Stock and a change from 1:1 to 1:2 in the conversion ratio of
Series A and B preferred shares into common shares of the Company. All shares
and share data in the accompanying financial statements have been retroactively
adjusted to reflect these stock splits.

The Company's Certificate of Incorporation, as amended, authorizes the Company
to issue 25,000,000 shares of common stock. Each share of common stock has the
right to one vote. The holders of common stock are also entitled to receive
dividends whenever funds are legally available and when declared by the Board of
Directors, subject to the prior rights of holders of preferred stock at the time
outstanding.

At December 31, 1999, the Company had reserved shares of common stock for future
issuance as follows:

<TABLE>
<S> <C>
----------
Conversion of Series A mandatorily redeemable convertible
preferred stock........................................... 4,558,424
Conversion of Series B mandatorily redeemable convertible
preferred stock........................................... 2,658,846
Conversion of Series C mandatorily redeemable convertible
preferred stock........................................... 3,749,997
Conversion of Series D mandatorily redeemable convertible
preferred stock........................................... 2,305,767
Exercise of stock options................................... 2,693,393
Issuance of stock options................................... 221,113
Exercise of warrants and conversion to common stock......... 1,299,717
----------
17,487,257
==========
</TABLE>

The Company had not declared or paid cash dividends as of December 31, 1999.

STOCK OPTION PLANS

In November 1994, the Company adopted the 1994 Stock Option Plan (the "1994
Plan"), in May 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan") and in November 1996, the Company adopted the 1997 Stock Option Plan (the
"1997 Plan"). Under the 1994 Plan, eligible employees, directors, and
consultants can receive options to purchase shares of the Company's Common Stock
at a price not less than 100% and 50% of the fair value on the date of the grant
for incentive stock options and nonqualified stock options, respectively. Under
the 1996 and 1997 Plans, eligible employees, directors, and consultants who own
less than 10% of all voting classes of stock can receive options to purchase
shares of the Company's common stock at a price not less than 110% and 85% of
fair value on the date of grant of incentive stock options and nonqualified
stock options, respectively. Employees owning greater than 10% of all voting
classes of stock can receive options to purchase shares at a price not less than
110% of the fair market value for both incentive and nonqualified stock options.
The options granted under the Plans are exercisable over a maximum term of ten
years from the date of grant and generally

F-82
<PAGE> 148
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

vest in various installments over a five-year period under the 1994 Plan and a
four-year period under the 1996 and 1997 Plans.

Stock purchase rights may also be granted under the 1996 and 1997 Plans. Stock
purchase rights must be exercised within 30 days of the grant date. Shares
purchased under stock purchase rights are restricted and subject to repurchase
by the Company at the original purchase price. The repurchase option expires as
determined by the offer, but in no case at a rate less than 20% per year over
five years from the date of purchase.

A summary of the stock option activity under the Plans is set forth below:

<TABLE>
<CAPTION>
----------------------------------------------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
AVAILABLE NUMBER OF EXERCISE AGGREGATE PER
FOR GRANT SHARES PRICE PRICE SHARE
--------- --------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Balances at April 1, 1998............... 355,071 2,609,393 $0.17-$0.48 $608 $0.23
Granted................................. (39,500) 39,500 0.48 19 0.48
Exercised............................... -- (3,937) 0.32 (80) 0.33
Cancelled............................... 234,750 (234,750) 0.32-0.48 (1) 0.34
-------- ---------
Balances at March 31, 1999.............. 550,321 2,410,206 0.17-0.48 546 0.23
Granted................................. (418,000) 418,000 0.48 201 0.48
Cancelled............................... 88,792 (88,792) 0.32-0.48 (23) 0.34
Exercised............................... -- (46,021) 0.32 (15) 0.32
-------- ---------
Balances at December 31, 1999........... 221,113 2,693,393 0.17-0.48 $709 0.26
======== ========= ====
</TABLE>

The following table summarizes information with respect to stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
--------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- -------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.17... 915,000 4.62 $0.17 908,667 $0.17
0.32... 1,331,893 6.86 0.32 1,060,993 0.32
0.48... 446,500 8.33 0.48 15,052 0.48
--------- ---------
2,693,393 6.34 0.30 1,984,712 0.25
========= =========
</TABLE>

The Company accounts for employee stock options in accordance with the provision
of APB No. 25 and complies with the disclosure requirements of SFAS No. 123.

F-83
<PAGE> 149
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

FAIR VALUE DISCLOSURES

The fair value of each option grant has been estimated on the date of grant
using the minimum value method with the following assumptions:

<TABLE>
<CAPTION>
--------------------------
NINE MONTHS
YEAR ENDED ENDED
MARCH 31, DECEMBER 31,
1999 1999
---------- ------------
<S> <C> <C>
Weighted average fair values................................ $ 0.58 $ 5.29
Assumptions:
Risk-free interest rates.................................. 4.30-5.59% 5.93-5.99%
Expected lives............................................ 4 years 4 years
Dividend yield............................................ -- --
</TABLE>

Had compensation cost for the Company's stock option grants to employees been
determined based on the fair market values of the stock option at the date of
grant consistent with the provisions of SFAS No. 123, the Company's net loss
would have changed to the pro forma amounts as follows:

<TABLE>
<CAPTION>
-------------------------------
YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
1999 1999
---------- ------------------
<S> <C> <C>
Net loss attributable to common stockholders................ $(5,627) $(7,422)
Net loss pro forma (unaudited).............................. (5,625) (7,392)
Basic and diluted net loss per common share................. $ (1.17) (1.49)
Basic and diluted net loss per share pro forma
(unaudited)............................................... (1.17) (1.48)
</TABLE>

The effects of applying SFAS No. 123 in this pro forma disclosure may not be
indicative of future amounts. Additional awards in future years are anticipated.

STOCK-BASED COMPENSATION

In connection with certain employee and non-employee stock option grants during
the nine months ended December 31, 1999, the Company recorded unearned
stock-based compensation totaling approximately $2,279, which is being amortized
over the vesting periods of the related options, generally four years using the
method set out in FASB Interpretation No. 28 ("FIN 28"). Under the FIN 28
method, each vested tranche of options is accounted for as a separate option
grant awarded for past services. Accordingly, the compensation expense is
recognized over the period during which the services have been provided. This
method results in higher compensation expense in the earlier vesting periods of
the related options. Amortization of stock-based compensation from options
granted during the nine months ended December 31, 1999 totaled $471.

STOCK PURCHASE RIGHTS

In September 1996, the Company's President exercised the right to purchase
393,393 shares in exchange for a full recourse promissory note issued to the
Company in the amount of $126. Interest accrues semiannually at a 6.74% annual
rate. The note and accrued interest are due and payable upon the earliest to
occur of any of the following: (i) the termination of the President's employment
relationship with the Company, (ii) upon the sale of certain shares purchased
whereby proceeds from the sale are greater than

F-84
<PAGE> 150
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

or equal to the other outstanding amount owing on the note or (iii) September
2002. Shares purchased are subject to repurchase and will be released from the
repurchase rights in equal monthly installments through March 11, 2000.

10. WARRANTS

WARRANTS

In March 1996, in connection with the sale of Series B Preferred Stock, the
Company granted to the Series B preferred stockholders warrants to purchase up
to 293,660 shares of the Company's Series B Preferred Stock at an exercise price
equal to $3.00 per share. The warrants expire on March 8, 2001.

In August 1999, the Company granted a warrant to purchase 712,397 shares of
common stock at an exercise price of $2.86 per share to an internet services
customer.

The following summarizes the warrants outstanding at December 31, 1999:

<TABLE>
<CAPTION>
------------------------------------------------
NUMBER EXERCISE TERM EXPIRATION
CLASS OF STOCK OF SHARES PRICE (YEARS) DATE
- -------------- --------- -------- ------- ---------------
<S> <C> <C> <C> <C>
Series B mandatorily redeemable convertible
preferred stock................................ 293,660 $3.00 5 March 8, 2001
Common stock..................................... 712,397 $2.86 3 August 24, 2002
</TABLE>

Upon IPO, the warrant to purchase mandatorily redeemable convertible preferred
stock will automatically convert to warrants to purchase common stock of the
Company under the same terms.

The Company has determined the estimated fair market value of the warrants
issued during the nine months ended December 31, 1999 to be approximately
$2,051. The Company believes that the fair value of the warrants issued are a
more reliable measure of the value of the services received because it has
recent issuances of its preferred stock to indicate fair value. The fair values
of the warrants were estimated using the Black-Scholes model and are charged to
operating expenses over the term of the related agreements.

The fair value of the warrants was estimated on the date of issuance using the
term of the warrant, an average risk-free interest rate of 5.73%, expected
dividends of nil and volatility of 70%.

The amortization of warrant stock-based compensation was nil for the year ended
March 31, 1999 and $285 for the nine months ended December 31, 1999.

11. INCOME TAXES

The income tax provision comprises:

<TABLE>
<CAPTION>
----------------------------------
YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1999 DECEMBER 31, 1999
-------------- -----------------
<S> <C> <C>
CURRENT
Federal................................................. $ -- $ --
State................................................... -- 12
Foreign................................................. -- 120
---- ----
$194 $132
==== ====
</TABLE>

F-85
<PAGE> 151
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The difference between the actual tax provision and the amount obtained by
applying the federal statutory rate to income before provision for income taxes
is as follows:

<TABLE>
<CAPTION>
------------------------
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
Tax provision at federal statutory rate..................... 34.0% 34.0%
Current year net operating losses and temporary differences
for which no benefit has been recognized.................. -- --
---- ----
-- --
==== ====
</TABLE>

Significant components of the Company's net deferred tax assets are as follows:

<TABLE>
<CAPTION>
------------------------
MARCH 31, DECEMBER 31,
1999 1999
--------- ------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards.......................... $ 3,535 $ 4,854
Research and development credits.......................... 708 1,124
Foreign tax credits....................................... 750 819
Capitalized research and development...................... 153 --
Accrued liabilities and other............................. 80 --
------- -------
Total before (less) valuation allowance..................... 5,226 6,797
Less: Valuation allowance................................... (5,226) (6,797)
------- -------
Net deferred tax assets........................... $ -- $ --
======= =======
</TABLE>

For the nine months ended December 31, 1999, the valuation allowance increased
by approximately $1,571. The Company had net operating loss carryforwards for
federal and state income tax purposes of approximately $12,598 and $7,965,
respectively, which expire in the years 2004 through 2019 if not utilized. In
addition, the Company had federal and state research and development credits of
approximately $723 and $401, respectively. These credits expire through 2019 if
not utilized. The Company has foreign tax credit carryforwards of approximately
$819, that expire through 2004 if not utilized.

Due to the change in ownership provisions of the Tax Reform Act of 1986, the
availability of the Company's net operating loss credit carryforwards may be
subject to an annual limitation against taxable income in future periods if a
change in ownership of more than 50% of the value of the Company's stock should
occur over a three-year period. Such a change could substantially limit the
eventual tax utilization of these carryforwards.

The income tax provision of $194 and $132 for the fiscal year ended March 31,
1999 and the nine months ended December 31, 1999, respectively, consist
primarily of Japanese withholding taxes on royalties paid to the Company by
Japanese investors.

12. 401(K) PLAN

The Company has a defined contribution pension plan (the "Plan") under Section
401(k) of the Internal Revenue Code for its eligible employees. All employees,
as defined, are eligible to participate after completion of three months of
employment with the Company. Employee contributions to the Plan are

F-86
<PAGE> 152
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

subject to certain statutory limitations. The after-tax voluntary contributions
are limited to 15% of the aggregate compensation paid to the employee in all the
years since participation in the Plan. The Company's contribution to the Plan is
discretionary. The Company has not made any contributions to the plan for the
year ended March 31, 1999 or the nine months ended December 31, 1999.

RELATED PARTY TRANSACTIONS

LICENSE AGREEMENT

In October 1995, the Company entered into a license agreement which requires it
to make certain royalty payments to an affiliated company (the "Licensor"). The
sole shareholder of the Licensor is also a shareholder and the Chairman of the
Board of Directors of the Company. This agreement grants the Company a
perpetual, worldwide license to use, reproduce, market and distribute the
software that is used by the Company. The Company has 30 days to accept or
reject new development releases. The Licensor provides support and maintenance
on the current version of the software. This agreement was terminated in October
1998, and was not extended. Royalty expenses of $158 and $53 were incurred
during the year ended March 31, 1999, and the nine months ended December 31,
1999, respectively, in connection with the license agreement.

In June 1997 and October 1997, the Company converted $648 of trade payables owed
to the licensor into convertible subordinated promissory notes. Interest on the
notes accrued at an annual rate of prime plus 1%. All notes payable balances had
been repaid as of March 31, 1999. At March 31, 1999, and December 31, 1999, the
Company owed the Licensor $20 and $6 in current trade payables, respectively.

NOTES RECEIVABLE FROM SHAREHOLDERS

At December 31, 1999, the Company had a note receivable from a shareholder and
officer of the Company related to purchases of common stock in the amount of
$126, which accrues interest at a rate of 6.74% per annum. The note is full
recourse and is secured by common stock. The note is due and payable upon the
earliest of any of the following: (i) the termination of the employment
relationship with the Company, (ii) upon the sale of certain shares purchased
whereby proceeds from the sale are greater than or equal to the other
outstanding amount owing on the note or (iii) September 2002. Shares purchased
are subject to repurchase and will be released from the repurchase rights in
equal monthly installments through March 11, 2000.

GUARANTEES

Certain stockholders and members of the Company's Board of Directors have
guaranteed $2,700 of the Company's outstanding promissory notes. As
consideration for the guarantee on $2,000 of the promissory notes, the Company
will pay a 35% fee to the guarantors upon the occurrence of (i) the closing of
any financing or refinancing of the indebtedness of the Company, or any public
or private offering of equity securities of the Company's resulting in net
proceeds to the Company in excess of $6,000, (ii) the closing of any transaction
or group of related transactions whereby a majority of the capital stock of the
Company or control of any of its principal lines of business, capital stock or
assets is purchased, sold or otherwise transferred to a third party, (iii) the
date on which any amount is paid by any guarantor in respect of such guarantor's
guarantee agreement, or (iv) the date on which the promissory notes issued by
the Company is paid by the Company and cancelled by the holder thereof.

F-87
<PAGE> 153
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

SALES TO AFFILIATED CUSTOMERS

The Company's President and Chief Executive Officer is a member of the Board of
Directors of a company that is also a customer. As of December 31, 1999, the
Company owns approximately 9% of the customers common stock. During the nine
months ended December 31, 1999, the Company recognized $507 of revenue for
internet services provided to the customer. (See Note 5)

Certain directors and stockholders of the Company are also directors and
stockholders of a customer. During fiscal year 1999, the Company received a $200
license fee from the customer in connection with a technology license agreement,
which was terminated in December 1999. The license fee was refunded in the form
of a $200 promissory note to the customer as of December 31, 1999. The note
bears interest at 8% per annum and matures no later than the earliest of the
following: (i) the closing of a financing in which the Company receives at least
$2,000 in cash (except for any bridge financing the Company closes prior to
January 31, 2000); (ii) the date of an initial public offering of the Company's
stock; (iii) the closing date of a merger of the Company into or acquisition of
the Company by another company; or (iv) January 2, 2001.

CONSULTING AGREEMENT

In April 1998, the Company entered into a consulting agreement with the Chairman
of the Board of Directors who is also a shareholder of the Company. Consulting
fees of $90 were incurred during the nine months ended December 31, 1999,
respectively, in connection with the consulting agreement. At December 31, 1999,
the Company owed consulting fees of $120 associated with the consulting
agreement.

14. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
-------------------------
NINE MONTHS
YEAR ENDED ENDED
MARCH 31, DECEMBER 31,
1999 1999
---------- ------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Interest paid............................................... $ 23 $ --
Taxes paid.................................................. 12 12
Conversion of subordinated stockholder notes payable and
accrued interest to Series C mandatorily redeemable
convertible preferred stock............................... 562 --
Unearned stock-based compensation........................... -- 3,574
Assets acquired in exchange for shares of Series D
mandatorily redeemable convertible preferred stock........ 3,689 --
Accretion of mandatorily redeemable convertible preferred
stock..................................................... 1,540 2,954
</TABLE>

15. SEGMENT INFORMATION

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131"). This statement establishes
standards for the way companies report information about operating segments in
annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company adopted SFAS 131 in the nine month

F-88
<PAGE> 154
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

period ended December 31, 1999. In accordance with the provisions of SFAS No.
131, the following is a summary of revenue and long-lived assets by geographical
area for the periods presented:

<TABLE>
<CAPTION>
------------------------------
YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
1999 1999
---------- -----------------
<S> <C> <C>
Revenue by external customers:
United States............................................. $2,006 $1,618
Japan..................................................... 1,822 1,196
Rest of World............................................. 414 147
------ ------
$4,242 $2,961
------ ------
Long-lived assets:
United States............................................. $ 237 $ 354
Japan..................................................... 3 --
Rest of World............................................. -- --
------ ------
$ 240 $ 354
====== ======
</TABLE>

Revenue by external customer is based on the customer's billing locations.
Long-lived assets are those assets used in each geographic location.

16. SUBSEQUENT EVENTS

OPERATING LEASE

On February 4, 2000, the Company entered into an operating lease agreement for a
second operating facility. The noncancelable lease term commences on March 15,
2000 and expires on February 28, 2001. February 22, 2000, the Company entered
into an operating lease agreement to extend the term of this lease to February
28, 2003. The additional future minimum lease payments under the these
noncancelable leases are as follows:

<TABLE>
<CAPTION>
TWELVE MONTHS ENDING DECEMBER 31,
---------------------------------
<S> <C>
------
2000........................................................ $ 337
2001........................................................ 464
2002........................................................ 480
2003........................................................ 80
------
Total minimum lease payments...................... $1,361
======
</TABLE>

PROMISSORY NOTES AND LINE OF CREDIT

On January 26, 2000, the Company secured an additional $5,000 promissory note
with a financial institution. The note bears interest at the bank's prime rate
plus 2% and matures on September 30, 2000. The note is collateralized by
substantially all the assets of the company.

On January 26, 2000, the Company renegotiated the line of credit agreement and
the promissory notes payable to the financial institution extending the maturity
dates to February 28, 2001.

F-89
<PAGE> 155
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

STOCK-OPTIONS

On January 12, 2000, the Company granted 735,000 stock options under the 1997
Stock Option Plan with an exercise price of $1.20 per share. On February 2,
2000, the Company granted 190,000 stock options under the 1997 Stock Option Plan
with an exercise price of $1.80 per share. On March 31, 2000, the Company
granted 105,000 stock options under the 1998 Stock Option Plan with an exercise
price of $6.29. Based on the fair value of the underlying common stock at the
date of grant, the Company estimates approximately $5,822 of unearned
stock-based compensation associated with these stock-option grants, which will
be amortized as follows: $3,392 in 2000, $1,488 in 2001, $719 in 2002, $222 in
2003 and $1 in 2004.

WARRANTS

On January 4, 2000, the Company granted a warrant to purchase 237,662 shares of
common stock at an exercise price of $2.10 per share in connection with its
financial advisory agreement. The warrant has a five-year term and expires on
January 4, 2005. Under the terms of the warrant agreement, 50% of the shares
vested upon execution of the warrant agreement. Based on the fair value of the
underlying common stock at the date of execution of the agreement, the Company
estimates approximately $749 of stock-based compensation which will be expensed
in January 2000. The remaining 50% vest upon the occurrence of either (i) an
initial public offering of the Company's common stock with gross proceeds to the
Company in excess of $20 million or (ii) a sale of more than 80% of the voting
interest in the Company. Based on the fair value of the underlying common stock
at the date of grant, the Company estimates approximately $749 of unearned
stock-based compensation. Since 118,831 shares subject to warrant are unvested,
they are remeasured until the performance milestone is met. This remeasurement
resulted in an additional charge of $129 up until March 31, 2000. As a result,
this charge is subject to substantial increase or decrease based on future
changes in the fair value of the underlying common stock. The revised fair value
will be expensed upon vesting of the remaining shares. The total fair value of
the warrant at March 31, 2000 is approximately $1,626.

On January 14, 2000, the Company granted an immediately vested warrant to
purchase 50,000 shares of common stock at an exercise price of $4.00 per share
in connection with a professional services agreement. The warrant has a
five-year term and expires on January 14, 2005. Based on the fair value of the
underlying common stock and the risk-free rate at the date of grant, a
volatility or 70% and a nil dividend yield, the Company estimates a charge of
approximately $280 of unearned stock-based compensation which will be expensed
over the term of the related agreement.

On January 15, 2000, the Company granted a warrant to purchase up to 230,000
shares of common stock at an exercise price of $4.00 per share in connection
with a partnership development services agreement. The warrant has a four-year
term and expires on January 15, 2004. Under the terms of the warrant agreement,
the shares are earned based on revenues generated from future strategic partner
transactions in 2000 and 2001. Since the terms of the warrant are not fixed, the
fair value of the warrant is measured based on the minimum number of shares
vested. Accordingly, the Company has booked no charge. Stock-based compensation
expense will be recorded based on the fair value of the underlying common stock
at the date the shares are earned. As a result, this charge is subject to
substantial increase or decrease based on future changes in the fair value of
the underlying common stock.

On January 26, 2000, the Company granted an immediately vested warrant to
purchase up to 187,500 shares of common stock at an exercise price of $4.00 per
share in connection with the amendment of its

F-90
<PAGE> 156
PICTUREWORKS TECHNOLOGY, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

borrowing facility agreement. The warrant has a five-year term and expires on
January 26, 2005. Based on the fair value of the common stock and the risk-free
rate at the date of the grant, a volatility of 70% and a nil dividend yield, the
Company estimates a charge of approximately $1,049 of stock-based compensation
would be recorded over the remaining term of the borrowing agreement.

On March 30, 2000, the Company granted an immediately vested warrant to purchase
up to 28,125 shares of common stock at an exercise price of $4.00 per share in
connection with an amendment of its borrowing facility agreement. The warrant
has a five-year term and expires in April 2005. Based on the fair value of the
common stock and the risk-free rate at the date of the grant, a volatility of
70% and a nil dividend yield, the Company estimates a charge of approximately
$180 of stock-based compensation would be recorded over the remaining term of
the borrowing agreement.

Under the terms of the Company's March 30, 2000 amendment to the Loan and
Security Agreement with its lender, upon consummation of the merger agreement
with iPIX, the Company is obligated to repay the outstanding notes payable and
lines of credit on the earlier of i) September 30, 2000 or ii) the completion of
iPIX's contemplated Secondary Offering at which point the Loan and Security
Agreement will terminate.

DISTRIBUTION OF SHARES IN INTERNET SERVICES CUSTOMER

In February 2000, the Company distributed 320,000 of the common shares in the
Internet Services Customer to specific employees. As a result, the Company's
interest in the Internet Services Customer decreased to 7%.

MERGER AGREEMENT

MERGER WITH INTERNET PICTURES CORPORATION. The Company and Internet Pictures
Corporation ("iPIX") entered into an Agreement and Plan of Merger dated March 6,
2000 ("the Merger Agreement"). Pursuant to the Merger Agreement, PictureWorks
Technology, Inc. became a wholly-owned subsidiary of a newly-formed iPIX
subsidiary, Purple Sub, Inc. on March 31, 2000. A total of 4,644,334 shares of
iPIX common stock were exchanged for all common and mandatorily redeemable
convertible preferred stock. All outstanding options and warrants to purchase
the Company's common stock were assumed by iPIX and became options and warrants
to purchase shares of iPIX.

F-91
<PAGE> 157

(IPIX LOGO)
<PAGE> 158

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Expenses of the Registrant in connection with the issuance and distribution of
the securities being registered, other than the underwriting discount SEC
registration fee, NASD filing fees and Nasdaq National Market listing fees, are
estimated as follows:

<TABLE>
<CAPTION>
----------
TOTAL
----------
<S> <C>
SEC Registration Fee........................................ $ 127,892
NASD Filing Fees............................................ 30,500
Nasdaq National Market Listing Fee.......................... 17,500
Printing and Engraving Expenses............................. 250,000
Legal Fees and Expenses..................................... 250,000
Accountants' Fees and Expenses.............................. 250,000
Expenses of Qualification Under State Securities Laws,
Including Attorneys' Fees................................. 15,000
Transfer Agent and Registrar's Fees......................... 20,000
Miscellaneous Costs......................................... 39,108
----------
Total............................................. $1,000,000
==========
</TABLE>

* To be provided by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES

The Delaware General Corporations Law ("DGCL") provides that a corporation may
indemnify any director or officer against liability incurred in connection with
a proceeding if (i) the director or officer acted in good faith, (ii) the
director or officer reasonably believed, in the case of conduct in his or her
official capacity with the corporation, that such conduct was in the
corporation's best interests, and, in all other cases, that his or her conduct
was not opposed to the best interests of the corporation, and (iii) the director
or officer in connection with any criminal proceeding had no reasonable cause to
believe that his or her conduct was unlawful. In actions brought by or in the
right of the corporation, however, the DGCL provides that no indemnification may
be made if the director or officer is adjudged liable to the corporation.
Similarly, the DGCL prohibits indemnification in connection with any proceeding
charging improper personal benefit to a director or officer, if such director or
officer is adjudged liable on the basis that a personal benefit was improperly
received. In cases where the director or officer is wholly successful, on the
merits or otherwise, in the defense of any proceeding instigated because of his
or her status as a director or officer of a corporation, the DGCL mandates that
the corporation indemnify the director or officer against reasonable expenses
incurred in the proceeding. Notwithstanding the foregoing, the DGCL provides
that a court of competent jurisdiction, upon application, may order that a
director or officer be indemnified for reasonable expense if, in consideration
of all relevant circumstances, the court determines that such individual is
fairly and reasonably entitled to indemnification, whether or not the standard
of conduct set forth above was met.

Our amended and restated certificate of incorporation and amended and restated
bylaws provide that we will indemnify from liability, and advance expenses to,
any present or former director or officer to the fullest extent allowed by the
DGCL, as amended from time to time, or any subsequent law, rule, or regulation
adopted in lieu thereof.

Additionally, our amended and restated certificate of incorporation provides
that no director will be personally liable to us or any of our stockholders for
monetary damages for breach of any fiduciary duty except for liability arising
from (i) any breach of a director's duty of loyalty to us or our stockholders,

II-1
<PAGE> 159

(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, or (iii) any unlawful distributions.

The proposed form of the Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement contains certain provisions relating to our
indemnification and our controlling persons by the Underwriters and relating to
the indemnification of the Underwriters by us, our controlling persons.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In the three years preceding the filing of this registration statement, the
registrant has sold the following securities that were not registered under the
Securities Act:

1. On July 31, 1997 we issued 45,024 shares of common stock to six non-U.S.
investors: Lisa Field, Peter Field, Carol Slavens, Michael Slavens, Paul
Slavens, Alevai Developments Limited for an aggregate consideration of
C$18,759.89.

2. On February 12, 1998 we issued 420,000 shares of common stock to three
officers: Leonard McCurdy, Kevin McCurdy, Howard Field for an aggregate
consideration of C$150,000, paid for by services rendered and options to
purchase 1,400,000 shares of common stock at an exercise price of $.01.

3. On March 31, 1998 we issued a total of 616,000 shares of common stock to
fourteen non-U.S. investors: Nolan Bederman, Howard Field, Lisa field,
Peter Field, Lloyd Hope, Jane McCurdy, Kristy McCurdy, Carol Slavens,
Michael Slavens, Paul Slavens, Lanek Limited, Invescorp Limited, and Alevai
Developments Limited for an aggregate consideration of C$220,000.

4. On April 8, 1998 we issued a total of 100,800 shares of common stock to
one officer and two non-U.S. investors: Howard Field, Vestmark Limited and
Kristy McCurdy, respectively, for an aggregate consideration of C$36,000.

5. On April 13, 1998 we issued 112,000 shares of common stock to one
employee, Justin Holmes, for an aggregate consideration of C$40,000.

6. On April 21, 1998 we issued a total of 112,000 shares of common stock to
one officer and one investor: Duncan Fortier and Jascan Investment Corp.,
respectively, for an aggregate consideration of C$40,000.

7. On May 22, 1998 we issued a total of 495,600 shares of common stock to
two investors: Pierre G. Lesperance and Mark Stephenson for an aggregate
consideration of C$177,000.

8. On June 28, 1998 we issued 120,000 units for 2.8 shares of common stock
and one warrant to purchase an additional 2.8 shares of common stock to six
investors: Roy Dalton, Jascan Investments Corp., Lanek Limited, Vince Oddy,
Vestmark Limited, and Howard Field which were exercised for an aggregate
consideration of C$120,000.

9. On September 28, 1998 we issued a total of 37,432 shares of common stock
to three investors: Dona Goldstein, Roseco Incorporated, and 421272 Ontario
Limited for an aggregate consideration of C$40,104.

10. On September 30, 1998 we issued 140,000 shares of common stock to one
investor, Matthew Kunzweiler for an aggregate consideration of C$150,000.

11. On October 20, 1998 we issued a total of 416,500 shares of Series A
preferred stock to eleven investors: Braden L. Berg, Jerome Gotkin, Peter
E. Jaffe, John P. Kelleher, Elizabeth Kunkel, Peter S. Lawrence, Tamar
Kagan Levine, Lewis S. Kunkel, Jr. and Louse R. Kunkel, Barbara F. Reily,
Salomon Smith Barney-Custodian for the Sep IRA of Marc S. Levine, and V.R.
Investments, LP at an aggregate consideration of $595,000.

II-2
<PAGE> 160

12. On November 11, 1998 we issued a warrant to purchase 280,000 shares of
common stock to one investor, RealSelect, Inc. for an exercise price of
$1.43 per share.

13. On December 8, 1998 we issued a total of 70,000 shares of Series A
preferred stock to three U.S. investors: Mario M. Rosati, W.S. Investment
Company, 98B, and Matthew Kunzweiler and a total of 161,000 shares of
Series A preferred stock to seven investors: Acheson Family Trust, Paula
Oprica Aicklen, Charmaine Doyle, Michael J. Hemmer, Carol Smith Slavens and
Darin Vest at an aggregate consideration of C$330,000.

14. On January 1, 1999 we issued a total of 7,421,536 shares of Class B
redeemable common stock to twenty-eight stockholders: 421272 Ontario
Limited, Alevai Developments Limited, Nolan Bederman, Sam Bederman, Roy
Dalton, Howard Field, Lisa Field, Peter Field, Duncan Fortier, Global
Technology Investments Ltd., Donna Goldsten, Justin Holmes, Lloyd Hope, IBT
Ventures, Jascan Investments Inc., Matthew Kunzweiler, Lanek Limited,
Pierre G. Lesperance, Jane McCurdy, Kristy McCurdy, Kevin B. McCurdy, Vince
Oddy, Cameron Roach, Roseco Incorporated, Carol Smith Slavens, Michael
Slavens, Paul Slavens, and Vestmark Limited as part of the amalgamation and
reorganization of our business as a Delaware corporation.

15. On February 25, 1999 we issued a total of 120,400 shares of common
stock to two investors: Mario M. Rosati and WS Investment Company, 99A for
an aggregate consideration $21,500.

16. On March 12, 1999 we issued a total of 6,027,194 shares of Series B
preferred stock to eighteen investors: Comstock Net Services, Inc., Dain
Rauscher Wessels Investors LLC, DigaComm (JVN), L.L.C., Jerome Gotkin,
Melody Kean Haller, Information Associates-II, L.P., IA-II Affiliates Fund,
L.L.C., Intel Corporation, JVC Associates Partnership, Bill Kunzweiler,
Peter S. Lawrence, Michael A. Berke-Trustee of the JV #1 Trust, Silicon
Valley Bancshares, Michael Stefonick, Walden Media and Information
Technology Fund, L.P., Walden EDB Partners, L.P., Walden Japan Partners,
L.P., and WS Investment Company, 99A for an aggregate consideration of
$12,499,962.37.

17. On May 5, 1999 we issued 482,177 shares of Series B preferred stock to
one investor, Walden Media and Information Technology Fund, L.P. for a
total purchase price of $1,000,000.24.

18. On June 11, 1999 we entered into an agreement to sell 1,100 shares of
its Series C redeemable preferred stock and 1,250,830 shares of our common
stock to five investors: GCW&F Investment Partners, HKL I, LLC, Jason
Strober, VantagePoint Venture Partners III, LP, and VantagePoint
Communications Partners, LP for an aggregate consideration of $11,000,000.

19. From our incorporation in 1995 to August 25, 1999, we have issued
options and stock purchase rights to purchase an aggregate of 6,620,986
shares of our common stock under the 1998 Employee Director and Consultant
Stock Plan to employees, directors, and consultants with exercise prices
ranging from $0.1786 to $3.5714.

20. On December 31, 1999, we issued RealSelect 255,385 shares of common
stock upon the exercise of their warrant. RealSelect chose to perform a
cashless exercise of their warrant and surrendered 24,615 shares of common
stock as consideration for the exercise.

21. On January 7, 2000, we issued warrants to two our distribution partners
exercisable for an aggregate of 200,000 shares of common stock with an
exercise price equal to ninety percent of the average closing price of our
common stock, as reported in The Wall Street Journal, calculated over the
fifteen trading days immediately preceding January 7, 2000.

22. On March 31, 2000, we issued 4,644,334 shares of our common stock to
stockholders of PictureWorks Technology, Inc. in exchange for all of the
issued and outstanding shares of capital stock of PictureWorks. The
aggregate value of the shares we issued was $173.0 million.

II-3
<PAGE> 161

23. On April 19, we issued a warrant to a strategic partner exercisable for
an aggregate of 600,000 shares of common stock with an exercise price equal
to the average closing price of our common stock as reported in The Wall
Street Journal, calculated over the fifteen trading days immediately
preceding April 19, 2000.

The issuances of securities described in Items 1-10 and 13 were sold in Canadian
dollars and are denominated above in Canadian dollars. "C$" means Canadian
dollars.

The issuances of securities described in Items 1-4 and 6-9 and were sold to
persons who were neither nationals nor residents of the United States and no
facilities or instruments of U.S. interstate commerce were used in connection
with any offer or sale thereof.

The number of shares of Series A and Series B preferred stock described in Items
11, 13, 16 and 17 readjusted to reflect the number of shares of common stock
into which the preferred stock converted upon the consummation of our initial
public offering.

The issuance of the other above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such
Securities Act as transactions by an issuer not involving any public offering.
In addition, the issuances described in Item 19 were deemed exempt from
registration under the Securities Act in reliance upon Rule 701 promulgated
under the Securities Act. The recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or go sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and warrants issued
in such transactions. All recipients had adequate access, through their
relationships with us, to information about us.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) Exhibits

THE FOLLOWING IS A LIST OF EXHIBITS FILED AS A PART OF THIS REGISTRATION
STATEMENT:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
1.1 -- Form of the Underwriting Agreement between Internet Pictures
Corporation, the selling stockholders and the underwriters.
3.1** -- Form of Amended and Restated Certificate of Incorporation of
the Registrant.
3.1(a)** -- Amendment to the Certificate of Incorporation of the
Registrant.
3.2** -- Form of Amended and Restated Bylaws of the Registrant.
4.1 -- Form of certificate representing the common stock, $.001 par
value per share of Internet Pictures Corporation
(incorporated herein by reference to the annual report on
Form 10K filed on March 30, 2000).
4.2 -- Investors' Rights Agreement dated as of March 12, 1999 by
and between bamboo.com and certain investors (incorporated
herein by reference to Form S-1 as declared effective on
August 25, 1999 (File No. 333-80639)).
4.3 -- Amended and Restated Registration Rights Agreement dated
December 23, 1996, between Interactive Pictures Corporation,
Motorola, Inc. and Discovery Communications, Inc.
(incorporated herein by reference to Form S-1 as declared
effective on August 4, 1999 (File No. 333-78983)).
4.4 -- Rights Agreement dated April 9, 1998, between Interactive
Pictures Corporation and purchasers of Series C Preferred
Stock (incorporated herein by reference to Form S-1 as
declared effective on August 4, 1999 (File No. 333-78983)).
4.5 -- Amended and Restated Rights Agreement dated March 22, 1999,
between Interactive Pictures Corporation and purchasers of
Series D Preferred Stock (incorporated herein by reference
to Form S-1 as declared effective on August 4, 1999 (File
No. 333-78983)).
</TABLE>

II-4
<PAGE> 162

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
4.6** -- Form of Rights Agreement dated March 31, 2000 between the
Registrant and stockholders of PictureWorks Technology, Inc.
5.1** -- Opinion of Baker, Donelson, Bearman and Caldwell as to the
legality of the common stock being offered
10.1 -- Executive Employment Agreement dated January 24, 1997,
between Interactive Pictures Corporation and James M.
Phillips, as amended (incorporated herein by reference to
Form S-1 as declared effective on August 4, 1999 (File No.
333-78983)) as further amended by amendment number 3 on
February 22, 2000 (incorporated herein by reference to the
annual report on Form 10K filed on March 30, 2000).
10.2 -- Employment and Noncompetition Agreement dated August 17,
1998, between Interactive Pictures Corporation and Jeffrey
D. Peters (incorporated herein by reference to Form S-1 as
declared effective on August 4, 1999 (File No. 333-78983)).
10.3 -- Employment and Noncompetition Agreement dated August 24,
1998, between Interactive Pictures Corporation and John J.
Kalec (incorporated herein by reference to Form S-1 as
declared effective on August 4, 1999 (File No. 333-78983)).
10.4 -- Employment Agreement dated June 23, 1997, between
Interactive Pictures Corporation and Steven D. Zimmerman
(incorporated herein by reference to Form S-1 as declared
effective on August 4, 1999 (File No. 333-78983)).
10.5 -- Amended and Restated Employment Agreement with Mark R.
Searle dated June 1, 1999 (incorporated herein by reference
to Form S-1 as declared effective on August 25, 1999 (File
No. 333-80639)), as amended on October 15, 1999 (which
amendment is hereby incorporated by reference to
bamboo.com's quarterly report on Form 10Q filed on November
15, 1999).
10.6 -- Amended and Restated 1997 Equity Compensation Plan
(incorporated herein by reference to Form S-4 as declared
effective on December 16, 1999 (File No. 91139))
10.7 -- Amended and Restated 1998 Employee, Director and Consultant
Stock Plan (incorporated herein by reference to Form S-4 as
declared effective on December 16, 1999 (File No. 91139))
10.8 -- 1999 Employee Stock Purchase Plan (incorporated herein by
reference to Form S-4 as declared effective on December 16,
1999 (File No. 91139))
10.9 -- Form of Indemnification Agreement between the Registrant and
each of its directors and officers (incorporated herein by
reference to Form S-1 as declared effective on August 25,
1999 (File No. 333-80639)).
10.10 -- Line of Credit with Silicon Valley Bank dated April 16, 1999
(incorporated herein by reference to Form S-1 as declared
effective on August 25, 1999 (File No. 333-80639)).
10.11 -- Joint Services Agreement with RealSelect, Inc. dated as of
Nov. 11, 1998, as amended June 11, 1999 (incorporated herein
by reference to Form S-1 as declared effective on August 25,
1999 (File No. 333-80639)).
10.12 -- Distribution Agreement with Microsoft Corporation dated as
of March 16, 1999 (incorporated herein by reference to Form
S-1 as declared effective on August 25, 1999 (File No.
333-80639)).
10.13 -- Distribution Agreement with HomeSeekers.com, Inc. dated as
of Nov. 20, 1998 (incorporated herein by reference to Form
S-1 as declared effective on August 25, 1999 (File No.
333-80639)).
10.14 -- Distribution Agreement with Homes.com, a division of PCL
Media Limited, dated as of May 10, 1999 (incorporated herein
by reference to Form S-1 as declared effective on August 25,
1999 (File No. 333-80639)).
10.15 -- Access Agreement with Cendant Corporation dated July 15,
1999 (incorporated herein by reference to Form S-1 as
declared effective on August 25, 1999 (File No. 333-80639)).
</TABLE>

II-5
<PAGE> 163

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
10.16 -- RE/MAX Approved Supplier License Agreement with RE/MAX
International, Inc. dated April 5, 1999 (incorporated herein
by reference to Form S-1 as declared effective on August 25,
1999 (File No. 333-80639)).
10.17 -- License Agreement dated January 17, 1997, between
Interactive Pictures Corporation and Discovery
Communications, Inc. (incorporated herein by reference to
Form S-1 as declared effective on August 4, 1999 (File No.
333-78983)).
10.18 -- Patent License Agreement dated January 17, 1997, between
Interactive Pictures Corporation and Motorola, Inc.
(incorporated herein by reference to Form S-1 as declared
effective on August 4, 1999 (File No. 333-78983)).
10.19 -- Agreement and plan of merger dated as of October 25, 1999
among Interactive Pictures Corporation, bamboo.com, Inc. and
Merger Sub. (incorporated herein by reference to Form S-4 as
declared effective on December 16, 1999 (File No. 91139))
10.20 -- Agreement and plan of merger dated as of March 6, 2000 among
Internet PictureWorks, PictureWorks Technology, Inc. and
PurpleSub, Inc. (incorporated herein by reference to Form
8-K filed with the SEC on March 14, 2000).
21.1** -- Subsidiaries of the Registrant
23.1 -- Consent of PricewaterhouseCoopers LLP, Independent
Accountants for Internet Pictures Corporation
23.2 -- Consent of PricewaterhouseCoopers LLP, Independent
Accountants for Interactive Pictures Corporation
23.3 -- Consent of PricewaterhouseCoopers LLP, Independent
Accountants for PictureWorks Technology, Inc.
23.4** -- Consent of Baker, Donelson, Bearman & Caldwell (included in
opinion filed as Exhibit 5.1)
24.1** -- Power of Attorney (included on page II-7)
27.1** -- Financial Data Schedule (for SEC use only)
</TABLE>

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

** Previously filed.

(B) Financial Statement Schedules

ITEM 17. UNDERTAKINGS

(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel, the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(2) To provide the underwriter at the closing specified in the underwriting
agreement certificates in such denominations and registered in such names
as required by the underwriter to permit prompt delivery to each purchaser.

II-6
<PAGE> 164

(3) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(4) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-7
<PAGE> 165

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oak Ridge, State of
Tennessee, on May 2, 2000.

INTERNET PICTURES CORPORATION

By: /s/ JAMES M. PHILLIPS
------------------------------------
James M. Phillips
Chairman of the Board and Chief
Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on May 2, 2000.

* Chairman of the Board and Chief Executive
- --------------------------------------------- Officer
James M. Phillips

* Executive Vice President and Chief Financial
- --------------------------------------------- Officer (Chief Accounting Officer)
John J. Kalec

* Director
- ---------------------------------------------
Michael D. Easterly

* Director
- ---------------------------------------------
John S. Hendricks

* Director
- ---------------------------------------------
Laban P. Jackson, Jr.

* Director
- ---------------------------------------------
Kevin B. McCurdy

* Director
- ---------------------------------------------
Leonard B. McCurdy

* Director
- ---------------------------------------------
John Moragne

* Director
- ---------------------------------------------
John H. Trezevant

*By: /s/ JAMES M. PHILLIPS
- ---------------------------------------------
James M. Phillips
Power of Attorney
</TABLE>

II-8
<PAGE> 166

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
1.1 -- Form of the Underwriting Agreement between Internet Pictures
Corporation and the underwriters.
3.1** -- Form of Amended and Restated Certificate of Incorporation of
the Registrant.
3.1(a)** -- Amendment to the Certificate of Incorporation of the
Registrant.
3.2** -- Form of Amended and Restated Bylaws of the Registrant.
4.1 -- Form of certificate representing the common stock, $.001 par
value per share of Internet Pictures Corporation
(incorporated herein by reference to the annual report on
Form 10K filed on March 30, 2000).
4.2 -- Investors' Rights Agreement dated as of March 12, 1999 by
and between bamboo.com and certain investors (incorporated
herein by reference to Form S-1 as declared effective on
August 25, 1999 (File No. 333-80639)).
4.3 -- Amended and Restated Registration Rights Agreement dated
December 23, 1996, between Interactive Pictures Corporation,
Motorola, Inc. and Discovery Communications, Inc.
(incorporated herein by reference to Form S-1 as declared
effective on August 4, 1999 (File No. 333-78983)).
4.4 -- Rights Agreement dated April 9, 1998, between Interactive
Pictures Corporation and purchasers of Series C Preferred
Stock (incorporated herein by reference to Form S-1 as
declared effective on August 4, 1999 (File No. 333-78983)).
4.5 -- Amended and Restated Rights Agreement dated March 22, 1999,
between Interactive Pictures Corporation and purchasers of
Series D Preferred Stock (incorporated herein by reference
to Form S-1 as declared effective on August 4, 1999 (File
No. 333-78983)).
4.6** -- Form of Rights Agreement dated March 31, 2000 between the
Registrant and stockholders of PictureWorks Technology, Inc.
5.1** -- Opinion of Baker, Donelson, Bearman and Caldwell as to the
legality of the common stock being offered
10.1 -- Executive Employment Agreement dated January 24, 1997,
between Interactive Pictures Corporation and James M.
Phillips, as amended (incorporated herein by reference to
Form S-1 as declared effective on August 4, 1999 (File No.
333-78983)) as further amended by amendment number 3 on
February 22, 2000 (incorporated herein by reference to the
annual report on Form 10K filed on March 30, 2000).
10.3 -- Employment and Noncompetition Agreement dated August 24,
1998, between Interactive Pictures Corporation and John J.
Kalec (incorporated herein by reference to Form S-1 as
declared effective on August 4, 1999 (File No. 333-78983)).
10.4 -- Employment Agreement dated June 23, 1997, between
Interactive Pictures Corporation and Steven D. Zimmerman
(incorporated herein by reference to Form S-1 as declared
effective on August 4, 1999 (File No. 333-78983)).
10.5 -- Amended and Restated Employment Agreement with Mark R.
Searle dated June 1, 1999 (incorporated herein by reference
to Form S-1 as declared effective on August 25, 1999 (File
No. 333-80639)), as amended on October 15, 1999 (which
amendment is hereby incorporated by reference to
bamboo.com's quarterly report on Form 10Q filed on November
15, 1999).
10.6 -- Amended and Restated 1997 Equity Compensation Plan
(incorporated herein by reference to Form S-4 as declared
effective on December 16, 1999 (File No. 91139))
10.7 -- Amended and Restated 1998 Employee, Director and Consultant
Stock Plan (incorporated herein by reference to Form S-4 as
declared effective on December 16, 1999 (File No. 91139))
10.8 -- 1999 Employee Stock Purchase Plan (incorporated herein by
reference to Form S-4 as declared effective on December 16,
1999 (File No. 91139))
</TABLE>

II-9
<PAGE> 167

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
10.9 -- Form of Indemnification Agreement between the Registrant and
each of its directors and officers (incorporated herein by
reference to Form S-1 as declared effective on August 25,
1999 (File No. 333-80639)).
10.10 -- Line of Credit with Silicon Valley Bank dated April 16, 1999
(incorporated herein by reference to Form S-1 as declared
effective on August 25, 1999 (File No. 333-80639)).
10.11 -- Joint Services Agreement with RealSelect, Inc. dated as of
Nov. 11, 1998, as amended June 11, 1999 (incorporated herein
by reference to Form S-1 as declared effective on August 25,
1999 (File No. 333-80639)).
10.12 -- Distribution Agreement with Microsoft Corporation dated as
of March 16, 1999 (incorporated herein by reference to Form
S-1 as declared effective on August 25, 1999 (File No.
333-80639)).
10.13 -- Distribution Agreement with HomeSeekers.com, Inc. dated as
of Nov. 20, 1998 (incorporated herein by reference to Form
S-1 as declared effective on August 25, 1999 (File No.
333-80639)).
10.14 -- Distribution Agreement with Homes.com, a division of PCL
Media Limited, dated as of May 10, 1999 (incorporated herein
by reference to Form S-1 as declared effective on August 25,
1999 (File No. 333-80639)).
10.15 -- Access Agreement with Cendant Corporation dated July 15,
1999 (incorporated herein by reference to Form S-1 as
declared effective on August 25, 1999 (File No. 333-80639)).
10.16 -- RE/MAX Approved Supplier License Agreement with RE/MAX
International, Inc. dated April 5, 1999 (incorporated herein
by reference to Form S-1 as declared effective on August 25,
1999 (File No. 333-80639)).
10.17 -- License Agreement dated January 17, 1997, between
Interactive Pictures Corporation and Discovery
Communications, Inc. (incorporated herein by reference to
Form S-1 as declared effective on August 4, 1999 (File No.
333-78983)).
10.18 -- Patent License Agreement dated January 17, 1997, between
Interactive Pictures Corporation and Motorola, Inc.
(incorporated herein by reference to Form S-1 as declared
effective on August 4, 1999 (File No. 333-78983)).
10.19 -- Agreement and plan of merger dated as of October 25, 1999
among Interactive Pictures Corporation, bamboo.com, Inc. and
Mergersub (incorporated herein by reference to Form S-4 as
declared effective on December 16, 1999 (File No. 91139))
10.20 -- Agreement and plan of merger dated as of March 6, 2000 among
Internet Pictures Corporation, PictureWorks Technology, Inc.
and PurpleSub, Inc. (incorporated herein by reference to
Form 8-K filed with the SEC on March 14, 2000.)
21.1** -- Subsidiaries of the Registrant
23.1 -- Consent of PricewaterhouseCoopers LLP, Independent
Accountants for Internet Pictures Corporation
23.2 -- Consent of PricewaterhouseCoopers LLP, Independent
Accountants for Interactive Pictures Corporation
23.3 -- Consent of PricewaterhouseCoopers LLP, Independent
Accountants for PictureWorks Technology, Inc.
23.4** -- Consent of Baker, Donelson, Bearman & Caldwell (included in
opinion filed as Exhibit 5.1)
24.1** -- Power of Attorney (included on page II-7)
27.1** -- Financial Data Schedule (for SEC use only)
</TABLE>

- ---------------
** Previously filed.

II-10

<PAGE> 1
EXHIBIT 1.1

INTERNET PICTURES CORPORATION

[ ] Shares of Common Stock

Underwriting Agreement

, 2000

J.P. Morgan Securities Inc.
Chase Securities Inc.
FleetBoston Robertson Stephens Inc.
Dain Rauscher Incorporated
Prudential Securities Incorporated
As Representatives of the several Underwriters
listed in Schedule I hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260

Ladies and Gentlemen:

Internet Pictures Corporation, a Delaware corporation (the
"Company"), proposes to issue and sell to the several Underwriters listed in
Schedule I hereto (the "Underwriters"), for whom you are acting as
representatives (the "Representatives"), an aggregate of [ ] shares (the
"Underwritten Shares") of common stock, par value $.001 per share, of the
Company (the "Common Stock"). In addition, at the option of the Underwriters and
for the sole purpose of covering over-allotments in connection with the sale of
the Underwritten Shares, the Company proposes to issue and sell to the
Underwriters up to an additional [ ] shares (the "Option Shares") of Common
Stock. The Underwritten Shares and the Option Shares are herein referred to as
the "Shares."

The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement, including a prospectus, relating to the Shares. The registration
statement as amended at the time when it shall become effective including
information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Securities Act, is referred to
in this Agreement as the "Registration Statement", and the prospectus in the
form first used to confirm sales of Shares is referred to in this Agreement as
the "Prospectus." If the Company has filed an abbreviated registration statement
pursuant to Rule 462(b) under the Securities Act (the "Rule 462 Registration
Statement"),

<PAGE> 2
-2-

then any reference herein to the term "Registration Statement" shall be deemed
to include such Rule 462 Registration Statement.

1. The Company agrees to issue and sell the Underwritten
Shares, to the several Underwriters as hereinafter provided, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees to purchase,
severally and not jointly, from the Company at a purchase price per share of
$ (the "Purchase Price") the number of Underwritten Shares (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
the aggregate number of Underwritten Shares by a fraction, the numerator of
which is the aggregate number of Underwritten Shares to be purchased by such
Underwriter as set forth opposite the name of such Underwriter in Schedule I
hereto and the denominator of which is the aggregate number of Underwritten
Shares to be purchased by all the Underwriters from the Company hereunder.

In addition, the Company agrees to sell the Option Shares to
the several Underwriters, and the Underwriters shall have the option to purchase
at their election up to [ ] Option Shares for the sole purpose of covering
over-allotments in the sale of the Underwritten Shares. The Underwriters, on the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, shall have the option to purchase, severally and
not jointly, from the Company at the Purchase Price that portion of the number
of Option Shares as to which such election shall have been exercised (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
such number of Option Shares by a fraction, the numerator of which is the
maximum number of Option Shares which such Underwriter is entitled to purchase
and the denominator of which is the maximum number of Option Shares that all of
the Underwriters are entitled to purchase hereunder, for the sole purpose of
covering over-allotments (if any) in the sale of the Underwritten Shares by the
several Underwriters.

The Underwriters may exercise the option to purchase the
Option Shares at any time (but not more than once) on or before the thirtieth
day following the date of this Agreement, by written notice from the
Representatives to the Company. Such notice shall set forth the aggregate number
of Option Shares as to which the option is being exercised and the date and time
when the Option Shares are to be delivered and paid for which may be the same
date and time as the Closing Date (as hereinafter defined) but shall not be
earlier than the Closing Date nor later than the tenth full Business Day (as
hereinafter defined) after the date of such notice (unless such time and date
are postponed in accordance with the provisions of Section 9 hereof). Any such
notice shall be given at least two full Business Days prior to the date and time
of delivery specified therein.

2. The Company understands that the Underwriters intend
(i) to make a public offering of the Shares as soon after (A) the Registration
Statement has become effective and (B) the parties hereto have executed and
delivered this Agreement, as in the judgment

<PAGE> 3
-3-

of the Representatives is advisable and (ii) initially to offer the Shares upon
the terms set forth in the Prospectus.

3. Payment for the Shares shall be made by wire transfer
in immediately available funds to the account specified to the Representatives
by the Company with regard to payment to the Company in the case of the
Underwritten Shares, on , 2000, or at such other time on the same or
such other date, not later than the fifth Business Day thereafter, as the
Representatives and the Company may agree upon in writing or (Y) to the account
specified to the Representatives by the Company with regard to payment to the
Company with regard to the Option Shares on the date and time specified by the
Representatives in the written notice of the Underwriters' election to purchase
such Option Shares. The time and date of such payment for the Underwritten
Shares is referred to herein as the "Closing Date" and the time and date for
such payment for the Option Shares, if other than the Closing Date, are herein
referred to as the "Additional Closing Date." As used herein, the term "Business
Day" means any day other than a day on which banks are permitted or required to
be closed in New York City.

Payment for the Shares to be purchased on the Closing Date or
the Additional Closing Date, as the case may be, shall be made against delivery
to the Representatives for the respective accounts of the several Underwriters
of the Shares to be purchased on such date registered in such names and in such
denominations as the Representatives shall request in writing not later than two
full Business Days prior to the Closing Date or the Additional Closing Date, as
the case may be, with any transfer taxes payable in connection with the transfer
to the Underwriters of the Shares duly paid by the Company. The certificates for
the Shares will be made available for inspection and packaging by the
Representatives at the office of J.P. Morgan Securities Inc. set forth above not
later than 1:00 P.M., New York City time, on the Business Day prior to the
Closing Date or the Additional Closing Date, as the case may be.

4. The Company represents and warrants to each
Underwriter that:

(a) no order preventing or suspending the use of any
preliminary prospectus has been issued by the Commission, and each
preliminary prospectus filed as part of the Registration Statement as
originally filed or as part of any amendment thereto, or filed pursuant
to Rule 424 under the Securities Act, complied when so filed in all
material respects with the Securities Act, and did not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information relating to any Underwriter furnished to
the Company in writing by such Underwriter through the Representatives
expressly for use therein;
<PAGE> 4
-4-

(b) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose has been instituted or, to the knowledge of the Company,
threatened by the Commission; and the Registration Statement and
Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) comply, or will
comply, as the case may be, in all material respects with the
Securities Act and do not and will not, as of the applicable effective
date as to the Registration Statement and any amendment thereto and as
of the date of the Prospectus and any amendment or supplement thereto,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading, and the Prospectus, as amended or
supplemented, if applicable, at the Closing Date or Additional Closing
Date, as the case may be, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; except that the foregoing representations and
warranties shall not apply to statements or omissions in the
Registration Statement or the Prospectus made in reliance upon and in
conformity with information relating to any Underwriter furnished to
the Company in writing by such Underwriter through the Representatives
expressly for use therein;

(c) the financial statements, and the related notes
thereto, included in the Registration Statement and the Prospectus
present fairly the consolidated financial position of the Company and
its consolidated subsidiaries as of the dates indicated and the results
of their operations and changes in their consolidated cash flows for
the periods specified; said financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis, and the supporting schedules included in the
Registration Statement present fairly the information required to be
stated therein; the financial statements, and the related notes
thereto, included in the Registration Statement and the Prospectus
present fairly the consolidated financial position of each of
Interactive Pictures Corporation ("IPC") and PictureWorks Technology,
Inc. ("PictureWorks") as of the dates indicated and the results of
their operations and changes in their consolidated cash flows for the
periods specified; said financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis, and the supporting schedules included in the
Registration Statement present fairly the information required to be
stated therein; and the pro forma financial information, and the
related notes thereto, included in the Registration Statement and the
Prospectus has been prepared in accordance with the applicable
requirements of the Securities Act and are base upon good faith
estimates and assumptions believed by the Company to be reasonable;

(d) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, there has
not been any change in the capital

<PAGE> 5
-5-

stock or long-term debt of the Company or any of its subsidiaries, or
any material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, business,
prospects, management, financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, taken as a
whole (a "Material Adverse Change"), otherwise than as set forth or
contemplated in the Prospectus; and except as set forth or contemplated
in the Prospectus neither the Company nor any of its subsidiaries has
entered into any transaction or agreement (whether or not in the
ordinary course of business) material to the Company and its
subsidiaries taken as a whole;

(e) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with power and authority (corporate and
other) to own its properties and conduct its business as described in
the Prospectus, and has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws
of each other jurisdiction in which it owns or leases properties, or
conducts any business, so as to require such qualification, other than
where the failure to be so qualified or in good standing would not have
a material adverse effect on the general affairs, business, prospects,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect");

(f) each of the Company's subsidiaries has been duly
incorporated or organized and is validly existing as a corporation
under the laws of its jurisdiction of incorporation or organization,
with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus, and has been
duly qualified as a foreign corporation for the transaction of business
and is in good standing under the laws of each jurisdiction in which it
owns or leases properties, or conducts any business, so as to require
such qualification, other than where the failure to be so qualified or
in good standing would not have a Material Adverse Effect; and all the
outstanding shares of capital stock of each subsidiary of the Company
have been duly authorized and validly issued, are fully-paid and
non-assessable, and (except, in the case of foreign subsidiaries, for
directors' qualifying shares and except as described in the Prospectus)
are owned by the Company, directly or indirectly, free and clear of all
liens, encumbrances, security interests and claims;

(g) this Agreement has been duly authorized, executed and
delivered by the Company;

(h) the Company has an authorized capitalization as set
forth in the Prospectus and such authorized capital stock conforms as
to legal matters to the description thereof set forth in the
Prospectus, and all of the outstanding shares of capital stock of the
Company have been duly authorized and validly issued, are fully-paid
and

<PAGE> 6
-6-

non-assessable and are not subject to any pre-emptive or similar
rights; and, except as described in or expressly contemplated by the
Prospectus, there are no outstanding rights (including, without
limitation, pre-emptive rights), warrants or options to acquire, or
instruments convertible into or exchangeable for, any shares of capital
stock or other equity interest in the Company or any of its
subsidiaries, or any contract, commitment, agreement, understanding or
arrangement of any kind relating to the issuance of any capital stock
of the Company or any such subsidiary, any such convertible or
exchangeable securities or any such rights, warrants or options;

(i) the Underwritten Shares and the Option Shares have
been duly authorized, and, when issued and delivered to and paid for by
the Underwriters in accordance with the terms of this Agreement, will
be duly issued and will be fully paid and non-assessable and will
conform to the descriptions thereof in the Prospectus; and the issuance
of such Shares is not subject to any preemptive or similar rights;

(j) neither the Company nor any of its subsidiaries is,
or with the giving of notice or lapse of time or both would be, in
violation of or in default under, its certificate or articles of
incorporation or by-laws or any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or
any of its subsidiaries is a party or by which it or any of them or any
of their respective properties is bound, except for violations and
defaults which individually or in the aggregate would not have a
Material Adverse Effect; the issue and sale of the Shares to be sold by
the Company hereunder and the performance by the Company of its
obligations under this Agreement and the consummation of the
transactions contemplated herein will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a default
under, any indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries is bound
or to which any of the property or assets of the Company or any of its
subsidiaries is subject, nor will any such action result in any
violation of the provisions of the certificate or articles of
incorporation or the by-laws of the Company or any applicable law or
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company, its subsidiaries
or any of their respective properties; and no consent, approval,
authorization, order, license, registration or qualification of or with
any such court or governmental agency or body is required for the issue
and sale of the Shares to be sold by the Company hereunder or the
consummation by the Company of the transactions contemplated by this
Agreement, except such consents, approvals, authorizations, orders,
licenses, registrations or qualifications as have been obtained under
the Securities Act and as may be required under state securities or
Blue Sky Laws in connection with the purchase and distribution of the
Shares by the Underwriters;

<PAGE> 7
-7-

(k) other than as set forth or contemplated in the
Prospectus, there are no legal or governmental investigations, actions,
suits or proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its subsidiaries
or any of their respective properties or to which the Company or any of
its subsidiaries is or may be a party or to which any property of the
Company or any of its subsidiaries is or may be the subject which, if
determined adversely to the Company or any of its subsidiaries, could
individually or in the aggregate have, or reasonably be expected to
have, a Material Adverse Effect, and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others; and there are no
statutes, regulations, contracts or other documents that are required
to be described in the Registration Statement or Prospectus or to be
filed as exhibits to the Registration Statement that are not described
or filed as required;

(l) the Company and its subsidiaries have good and
marketable title in fee simple to all items of real property and good
and marketable title to all personal property owned by them, in each
case free and clear of all liens, encumbrances and defects except such
as are described or referred to in the Prospectus or such as do not
materially affect the value of such property and do not interfere with
the use made or proposed to be made of such property by the Company and
its subsidiaries; and any real property and buildings held under lease
by the Company and its subsidiaries are held by them under valid,
existing and enforceable leases with such exceptions as are not
material and do not interfere with the use made or proposed to be made
of such property and buildings by the Company or its subsidiaries;

(m) no relationship, direct or indirect, exists between
or among the Company or any or its subsidiaries on the one hand, and
the directors, officers, stockholders, customers or suppliers of the
Company or any of its subsidiaries on the other hand, which is required
by the Securities Act to be described in the Registration Statement and
the Prospectus which is not so described;

(n) except as disclosed in the Registration Statement, no
person has the right to require the Company to register any securities
for offering and sale under the Securities Act by reason of the filing
of the Registration Statement with the Commission or the issue and sale
of the Shares to be sold by the Company hereunder; all holders of
securities of the Company having rights to the registration of shares
of Common Stock, or other securities, because of the filing of the
Registration Statement by the Company, have waived such rights or such
rights have expired by reason of lapse of time following notification
of the Company's intent to file the Registration Statement;

(o) the Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment company"
or an entity "controlled" by an

<PAGE> 8
-8-

"investment company", as such terms are defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act");

(p) PricewaterhouseCoopers LLP ("PricewaterhouseCoopers")
who have certified certain financial statements of the Company, its
subsidiaries, IPC and PictureWorks are independent public accountants
as required by the Securities Act;

(q) the Company and its subsidiaries have filed all
federal, state, local and foreign tax returns which have been required
to be filed and have paid all taxes shown thereon and all assessments
received by them or any of them to the extent that such taxes have
become due and are not being contested in good faith; and, except as
disclosed in the Registration Statement and the Prospectus, there is no
tax deficiency which has been or might reasonably be expected to be
asserted or threatened against the Company or any subsidiary which
individually or in the aggregate would have a Material Adverse Effect;

(r) the Company has not taken nor will it take, directly
or indirectly, any action designed to, or that might be reasonably
expected to, cause or result in stabilization or manipulation of the
price of the Common Stock;

(s) each of the Company and its subsidiaries owns,
possesses or has obtained all licenses, permits, certificates,
consents, orders, approvals and other authorizations from, and has made
all declarations and filings with, all federal, state, local and other
governmental authorities (including foreign regulatory agencies), all
self-regulatory organizations and all courts and other tribunals,
domestic or foreign, necessary to own or lease, as the case may be, and
to operate its properties and to carry on its business as conducted as
of the date hereof, and neither the Company nor any such subsidiary has
received any actual notice of any proceeding relating to revocation or
modification of any such license, permit, certificate, consent, order,
approval or other authorization, except as described in the
Registration Statement and the Prospectus; and each of the Company and
its subsidiaries is in compliance with all laws and regulations
relating to the conduct of its business as conducted as of the date
hereof, except for noncompliance which would not, individually or in
the aggregate, have a Material Adverse Effect;

(t) there are no existing or, to the best knowledge of
the Company, threatened labor disputes with the employees of the
Company or any of its subsidiaries which are likely to have a Material
Adverse Effect;

(u) the Company and its subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and
local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or

<PAGE> 9
-9-

wastes, pollutants or contaminants ("Environmental Laws"), (ii) have
received all permits, licenses or other approvals required of them
under applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and conditions of
any such permit, license or approval, except where such noncompliance
with Environmental Laws, failure to receive required permits, licenses
or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, individually or in
the aggregate, have a Material Adverse Effect;

(v) each employee benefit plan, within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended, ("ERISA") that is maintained, administered or contributed to
by the Company or any of its affiliates for employees or former
employees of the Company and its affiliates has been maintained in
compliance with its terms and the requirements of any applicable
statutes, orders, rules and regulations, including but not limited to
ERISA and the Internal Revenue Code of 1986, as amended ("Code"). To
the knowledge of the Company, no prohibited transaction, within the
meaning of Section 406 of ERISA or Section 4975 of the Code has
occurred with respect to any such plan excluding transactions effected
pursuant to a statutory or administrative exemption. For each such plan
which is subject to the funding rules of Section 412 of the Code or
Section 302 of ERISA no "accumulated funding deficiency" as defined in
Section 412 of the Code has been incurred, whether or not waived, and
the fair market value of the assets of each such plan (excluding for
these purposes accrued but unpaid contributions) exceeded the present
value of all benefits accrued under such plan determined using
reasonable actuarial assumptions;

(w) each of the Company and its subsidiaries owns, is
licensed to use or otherwise possesses adequate rights to use the
patents, patent rights, licenses, inventions, trademarks, service
marks, trade names, copyrights and know-how, including trade secrets
and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures (collectively, the "Intellectual
Property") necessary to carry on the business conducted by it, except
to the extent that the failure to own, be licensed to use or otherwise
possess adequate rights to use such Intellectual Property would not
have a Material Adverse Effect; except as set forth in the Prospectus,
the Company has not received any notice of infringement of or conflict
with (and the Company has no knowledge of any infringement of or
conflict with ) asserted rights of others with respect to its
Intellectual Property; the discoveries, inventions, products or
processes of the Company referred to in the Registration Statement and
the Prospectus do not, to the knowledge of the Company, infringe or
conflict with any right or patent of any third party, or any discovery,
patent product or process which is the subject of a
<PAGE> 10
-10-

patent application filed by any third party, known to the Company which
could have a Material Adverse Effect;

(x) the statistical and market-related data included in
the Registration Statement and the Prospectus are based on or derived
from sources which are believed by the Company to be reliable;

(y) the Company carries, or is covered by, insurance in
such amounts and covering such risks as is adequate for the conduct of
its business and the value of its properties and as is customary for
companies engaged in similar businesses in similar industries;

(z) except for compensation to be received by the
Underwriters under this Agreement, the Company does not know of any
outstanding claims for services, either in the nature of a finder's fee
or origination fee, with respect to any of the transactions
contemplated hereby;

(aa) The Company has reviewed its operations, the
operations of its subsidiaries and the operations of any third parties
with which the Company has a material relationship to evaluate the
extent to which the business or operations of the Company will be
affected by the Year 2000 Problem. As a result of such review and
except as disclosed in the Prospectus, the Company has no reason to
believe, and does not believe, that the Year 2000 Problem has had or
will have a Material Adverse Effect or result in any material loss or
interference with the Company's or any subsidiary's business or
operations. The "Year 2000 Problem" as used herein means any
significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case of
dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000; and

(bb) the Company has delivered to the Representatives
written lock-up agreements, substantially in the form attached hereto
as Exhibit 1 (each, a "Lock-Up Agreement"), of each of its directors
and executive officers and certain stockholders previously identified
by the Representatives.

5. (A) The Company covenants and agrees with each of the
several Underwriters as follows:

(a) to use its best efforts to cause the Registration
Statement to become effective at the earliest possible time and, if
required, to file the final Prospectus with the Commission within the
time periods specified by Rule 424(b) and Rule 430A under

<PAGE> 11
-11-

the Securities Act and to file promptly all reports and any definitive
proxy or information statements required to be filed by the Company
with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder (collectively, the "Exchange
Act") subsequent to the date of the Prospectus and for so long as the
delivery of a prospectus is required in connection with the offering or
sale of the Shares; and to furnish copies of the Prospectus to the
Underwriters in New York City prior to 10:00 a.m., New York City time,
on the Business Day next succeeding the date of this Agreement in such
quantities as the Representatives may reasonably request;

(b) to deliver, at the expense of the Company, to the
Representatives six signed copies of the Registration Statement (as
originally filed) and each amendment thereto, in each case including
exhibits, and to each other Underwriter a conformed copy of the
Registration Statement (as originally filed) and each amendment
thereto, in each case without exhibits and, during the period mentioned
in paragraph (e) below, to each of the Underwriters as many copies of
the Prospectus (including all amendments and supplements thereto) as
the Representatives may reasonably request;

(c) before filing any amendment or supplement to the
Registration Statement or the Prospectus, whether before or after the
time the Registration Statement becomes effective, to furnish to the
Representatives a copy of the proposed amendment or supplement for
review and not to file any such proposed amendment or supplement to
which the Representatives reasonably object;

(d) to advise the Representatives promptly, and to
confirm such advice in writing (i) when the Registration Statement has
become effective, (ii) when any amendment to the Registration Statement
has been filed or becomes effective, (iii) when any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish the
Representatives with copies thereof, (iv) of any request by the
Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for any additional
information, (v) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any
order preventing or suspending the use of any preliminary prospectus or
the Prospectus or the initiation or threatening of any proceeding for
that purpose, (vi) of the occurrence of any event, within the period
referenced in paragraph (e) below, as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, and (vii) of
the receipt by the Company of any notification with respect to any
suspension of the qualification of the Shares for offer and sale in any
jurisdiction or the initiation or threatening of any

<PAGE> 12
-12-

proceeding for such purpose; and to use its best efforts to prevent the
issuance of any such stop order, or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or
of any order suspending any such qualification of the shares, or
notification of any such order thereof and, if issued, to obtain as
soon as possible the withdrawal thereof;

(e) if, during such period of time after the first date
of the public offering of the Shares as in the opinion of counsel for
the Underwriters a prospectus relating to the Shares is required by law
to be delivered in connection with sales by the Underwriters or any
dealer, any event shall occur as a result of which it is necessary to
amend or supplement the Prospectus in order to make the statements
therein, in light of the circumstances when the Prospectus is delivered
to a purchaser, not misleading, or if it is necessary to amend or
supplement the Prospectus to comply with law, forthwith to prepare and
furnish, at the expense of the Company, to the Underwriters and to the
dealers (whose names and addresses the Representatives will furnish to
the Company) to which Shares may have been sold by the Representatives
on behalf of the Underwriters and to any other dealers upon request,
such amendments or supplements to the Prospectus as may be necessary so
that the statements in the Prospectus as so amended or supplemented
will not, in the light of the circumstances when the Prospectus is
delivered to a purchaser, be misleading or so that the Prospectus will
comply with law;

(f) to endeavor to qualify the Shares for offer and sale
under the securities or Blue Sky laws of such jurisdictions as the
Representatives shall reasonably request and to continue such
qualification in effect so long as reasonably required for distribution
of the Shares; provided that the Company shall not be required to file
a general consent to service of process in any jurisdiction;

(g) to make generally available to its security holders
and to the Representatives as soon as practicable an earnings statement
covering a period of at least twelve months beginning with the first
fiscal quarter of the Company occurring after the effective date of the
Registration Statement, which shall satisfy the provisions of Section
11(a) of the Securities Act and Rule 158 of the Commission promulgated
thereunder;

(h) so long as the Shares are outstanding, to furnish to
the Representatives copies of all reports or other communications
(financial or other) furnished to holders of the Shares, and copies of
any reports and financial statements furnished to or filed with the
Commission or any national securities exchange;

(i) for a period of 90 days after the date of the
Prospectus (the "Lock-Up Period") not to (i) offer, pledge, announce
the intention to sell, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant

<PAGE> 13
-13-

any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common
Stock or (ii) enter into any swap or other agreement that transfers, in
whole or in part, any of the economic consequences of ownership of the
Common Stock, whether any such transaction described in clause (i) or
(ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise without the prior written consent of
the Representatives, other than the Shares to be sold by the Company
hereunder and any options granted or to be granted shares of Common
Stock of the Company issued upon the exercise of options granted under
the Company's Amended and Restated 1997 Equity Compensation Plan and
the Amended, Restated 1998 Employee Director and Consultant Stock Plan
and any other stock option plan maintained by the Company.
Notwithstanding the foregoing, the Company may issue shares of its
Common Stock during the Lock-Up Period in connection with acquisitions,
strategic alliances or joint ventures ("Excepted Transactions");
provided, however, that: (i) the Company shall give J.P. Morgan
Securities Inc. 5 days prior written notice of any such issuance
describing the Excepted Transaction in reasonable detail and stating
the number of shares of Common Stock proposed to be issued in the
Excepted Transaction, (ii) all Common Stock issued in connection with
the Excepted Transaction shall remain subject to the lock-up
restrictions of this paragraph 5(A)(i) for the remainder of the Lock-up
Period, (iii) prior to any such issuance of Common Stock, each person
that is to acquire any such Common Stock shall sign a lock-up agreement
in form and substance reasonably acceptable to J.P. Morgan Securities
Inc. covering all such Securities for the remainder of the Lock-up
Period and (iv) no such issuance shall be made unless and until the
requirements and conditions in the foregoing clauses (i), (ii) and
(iii) have been complied with and satisfied;

(j) to use the net proceeds received by the Company from
the sale of the Shares by the Company pursuant to this Agreement in the
manner specified in the Prospectus under caption "Use of Proceeds";

(k) to use its best efforts to list for quotation the
Shares on the National Association of Securities Dealers Automated
Quotations National Market (the "Nasdaq National Market"); and

(l) whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all costs and expenses incident to the performance of
its obligations hereunder, including without limiting the generality of
the foregoing, all costs and expenses (i) incident to the preparation,
reregistration, transfer, execution and delivery of the Shares, (ii)
incident to the preparation, printing and filing under the Securities
Act of the Registration Statement, the Prospectus and any preliminary
prospectus (including in each case all

<PAGE> 14
-14-

exhibits, amendments and supplements thereto), (iii) incurred in
connection with the registration or qualification of the Shares under
the laws of such jurisdictions as the Representatives may designate
(including fees of counsel for the Underwriters and its disbursements),
(iv) in connection with the listing of the Shares on the Nasdaq
National Market, (v) related to the filing with, and clearance of the
offering by, the National Association of Securities Dealers, Inc., (vi)
in connection with the printing (including word processing and
duplication costs) and delivery of this Agreement, the Preliminary and
Supplemental Blue Sky Memoranda and the furnishing to the Underwriters
and dealers of copies of the Registration Statement and the Prospectus,
including mailing and shipping, as herein provided, (vii) any expenses
incurred by the Company in connection with a "road show" presentation
to potential investors, (viii) the cost of preparing stock certificates
and (ix) the cost and charges of any transfer agent and any registrar.

(B) The Representatives represent and agree that (i) they
have not offered or sold and, prior to the expiry of the period of six months
from the Closing Date, will not offer or sell, any Shares to persons in the
United Kingdom except persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public within the meaning of
the Public Offers of Securities Regulation 1995, (ii) they have complied and
will comply with all applicable provisions of the Financial Services Act of 1986
with respect to anything done by them in relation to the Common Stock in, form
or otherwise involving the United Kingdom and (iii) they have only issued or
passed on, and will only issue and pass on, in the United Kingdom any document
received by them in connection with the offering of the Common Stock to a person
who is of a kind described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisement) (Exemptions) Order 1995 or is a person to whom such
document may otherwise lawfully be issued or passed on.

6. The several obligations of the Underwriters hereunder
to purchase the Shares on the Closing Date or the Additional Closing Date, as
the case may be, are subject to the performance by the Company of their
respective obligations hereunder and to the following additional conditions:

(a) the Registration Statement shall have become
effective (or if a post-effective amendment is required to be filed
under the Securities Act, such post-effective amendment shall have
become effective) not later than 5:00 P.M., New York City time, on the
date hereof; and no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment shall be in
effect, and no proceedings for such purpose shall be pending before or
threatened by the Commission; the Prospectus shall have been filed with
the Commission pursuant to Rule 424(b)

<PAGE> 15
-15-

within the applicable time period prescribed for such filing by the
rules and regulations under the Securities Act and in accordance with
Section 5(a) hereof; and all requests for additional information shall
have been complied with to the satisfaction of the Representatives;

(b) the representations and warranties of the Company
contained herein are true and correct on and as of the Closing Date or
the Additional Closing Date, as the case may be, as if made on and as
of the Closing Date or the Additional Closing Date, as the case may be,
and the Company shall have complied with all agreements and all
conditions on its part to be performed or satisfied hereunder at or
prior to the Closing Date or the Additional Closing Date, as the case
may be;

(c) subsequent to the execution and delivery of this
Agreement and prior to the Closing Date or the Additional Closing Date,
as the case may be, there shall not have occurred any downgrading, nor
shall any notice have been given of (i) any downgrading, (ii) any
intended or potential downgrading or (iii) any review or possible
change that does not indicate an improvement, in the rating accorded
any securities of or guaranteed by the Company by any "nationally
recognized statistical rating organization," as such term is defined
for purposes of Rule 436(g)(2) under the Securities Act;

(d) since the respective dates as of which information is
given in the Prospectus there shall not have been any change in the
capital stock or long-term debt of the Company or any of its
subsidiaries or any Material Adverse Change, or any development
involving a prospective Material Adverse Change, otherwise than as set
forth or contemplated in the Prospectus, the effect of which in the
judgment of the Representatives makes it impracticable or inadvisable
to proceed with the public offering or the delivery of the Shares on
the Closing Date or the Additional Closing Date, as the case may be, on
the terms and in the manner contemplated in the Prospectus; and neither
the Company nor any of its subsidiaries has sustained since the date of
the latest audited financial statements included in the Prospectus any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus;

(e) the Representatives shall have received on and as of
the Closing Date or the Additional Closing Date, as the case may be, a
certificate of an executive officer of the Company, with specific
knowledge about the Company's financial matters, satisfactory to the
Representatives to the effect set forth in subsections (a) through (d)
(with respect to the respective representations, warranties, agreements
and conditions of the Company) of this Section and to the further
effect that there has not occurred

<PAGE> 16
-16-

any Material Adverse Change, or any development involving a prospective
Material Adverse Change from that set forth or contemplated in the
Registration Statement;

(f) Baker, Donelson, Bearman & Caldwell, special counsel
for the Company, shall have furnished to the Representatives their
written opinion, dated the Closing Date or the Additional Closing Date,
as the case may be, in form and substance satisfactory to the
Representatives, to the effect that:

(i) the Company has been duly incorporated and
is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation, with power and
authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus;

(ii) the Company has been duly qualified as a
foreign corporation for the transaction of business and is in
good standing under the laws of each other jurisdiction in
which it owns or leases properties, or conducts any business,
so as to require such qualification, other than where the
failure to be so qualified or in good standing would not have
a Material Adverse Effect;

(iii) each of the Company's subsidiaries has been
duly incorporated or organized and is validly existing as a
corporation under the laws of its jurisdiction of
incorporation or organization with power and authority
(corporate and other) to own its properties and conduct its
business as described in the Prospectus and has been duly
qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties, or
conducts any business, so as to require such qualification,
other than where the failure to be so qualified and in good
standing would not have a Material Adverse Effect; and all of
the outstanding shares of capital stock of each subsidiary
have been duly and validly authorized and issued, are fully
paid and non-assessable, and (except, in the case of foreign
subsidiaries, for directors' qualifying shares and except as
otherwise set forth in the Prospectus) are owned directly or
indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;

(iv) other than as set forth or contemplated in
the Prospectus, there are no legal or governmental
investigations, actions, suits or proceedings pending or, to
the best of such counsel's knowledge, threatened against or
affecting the Company or any of its subsidiaries or any of
their respective properties or to which the Company or any of
its subsidiaries is or may be a party or to which any property
of the Company or its subsidiaries is or may be the subject
which, if determined adversely to the Company or any of its
subsidiaries, could individually or in the aggregate have, or
reasonably be expected to have, a

<PAGE> 17
-17-

Material Adverse Effect; to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others; and such
counsel does not know of any statutes, regulations, contracts
or other documents that are required to be described in the
Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement that are not described
or filed as required;

(v) this Agreement has been duly authorized,
executed and delivered by the Company;

(vi) the authorized capital stock of the Company
conforms as to legal matters to the description thereof
contained in the Prospectus;

(vii) the shares of capital stock of the Company
outstanding prior to the issuance of the Shares to be sold by
the Company hereunder have been duly authorized and are
validly issued, fully paid and non-assessable;

(viii) the Shares to be issued and sold by the
Company hereunder have been duly authorized, and when
delivered to and paid for by the Underwriters in accordance
with the terms of this Agreement, will be validly issued,
fully paid and non-assessable and the issuance of such Shares
is not subject to any preemptive or similar rights;

(ix) the Common Stock conforms in all material
respects as to legal matters to the description thereof
contained in the Registration Statement and the Prospectus
under the heading "Description of Capital Stock;"

(x) such counsel is of the opinion that the
Registration Statement and the Prospectus and any amendments
and supplements thereto (other than the financial statements
and related schedules therein, as to which such counsel need
express no opinion) comply as to form in all material respects
with the requirements of the Securities Act and believes that
(other than the financial statements and related schedules
therein, as to which such counsel need express no belief) the
Registration Statement and the prospectus included therein at
the time the Registration Statement became effective did not
contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and
that the Prospectus, as amended or supplemented, if
applicable, does not contain any untrue statement of a
material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;

<PAGE> 18
-18-

(xi) neither the Company nor any of its
subsidiaries is, or with the giving of notice or lapse of time
or both would be, in violation of or in default under, its
certificate or articles of incorporation or by-laws or, to
such counsel's knowledge, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known
to such counsel to which the Company or any of its
subsidiaries is a party or by which it or any of them or any
of their respective properties is bound, except for violations
and defaults which individually and in the aggregate are not
material to the Company and its subsidiaries taken as a whole;
the issue and sale of the Shares being delivered on the
Closing Date or the Additional Closing Date, as the case may
be, to be sold by the Company hereunder, and the performance
by the Company of its obligations under this Agreement and the
consummation of the transactions contemplated herein will not
conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument known to such counsel to which the Company or any
of its subsidiaries is a party or by which the Company or any
of its subsidiaries is bound or to which any of the property
or assets of the Company or any of its subsidiaries is
subject, nor will any such action result in any violation of
the provisions of the certificate or articles of incorporation
or the by-laws of the Company or, to such counsel's knowledge,
any applicable law or statute or any order, rule or regulation
of any court or governmental agency or body having
jurisdiction over the Company, its subsidiaries or any of
their respective properties;

(xii) no consent, approval, authorization, order,
license, registration or qualification of or with any court or
governmental agency or body is required for the issuance by
the Company of the Shares to be sold by it hereunder, the
consummation by the Company of the other transactions
contemplated by this Agreement, except such consents,
approvals, authorizations, orders, licenses, registrations or
qualifications as have been obtained under the Securities Act
and as may be required under state securities or Blue Sky laws
in connection with the purchase and distribution of the Shares
by the Underwriters;

(xiii) the Company is not and, after giving effect
to the offering and sale of the Shares, will not be an
"investment company" or entity "controlled" by an "investment
company", as such terms are defined in the Investment Company
Act;

(xiv) to such counsel's knowledge, each of the
Company and its subsidiaries owns, possesses or has obtained
all licenses, permits, certificates,

<PAGE> 19
-19-

consents, orders, approvals and other authorizations from, and
has made all declarations and filings with, all federal,
state, local and other governmental authorities (including
foreign regulatory agencies), all self-regulatory
organizations and all courts and other tribunals, domestic or
foreign, necessary to own or lease, as the case may be, and to
operate its properties and to carry on its business as
conducted as of the date hereof, and neither the Company nor
any such subsidiary has received any actual notice of any
proceeding relating to revocation or modification of any such
license, permit, certificate, consent, order, approval or
other authorization, except as described in the Registration
Statement and the Prospectus; and, to such counsel's
knowledge, each of the Company and its subsidiaries is in
compliance with all laws and regulations relating to the
conduct of its business as conducted as of the date of the
Prospectus;

(xv) to such counsel's knowledge, the Company and
its subsidiaries have good and marketable title in fee simple
to all real property and good and marketable title to all
personal property owned by them, in each case free and clear
of all liens, encumbrances and defects except such as are
described or referred to in the Prospectus or such as do not
materially affect the value of such property and do not
interfere with the use made and proposed to be made of such
property by the Company and its subsidiaries; and, to such
counsel's knowledge, any real property and buildings held
under lease by the Company and its subsidiaries are held by
them under valid, existing and enforceable leases with such
exceptions as are not material and do not interfere with the
use made or proposed to be made of such property and buildings
by the Company or its subsidiaries; and

(xvi) to such counsel's knowledge, each of the
Company and its subsidiaries is in compliance with all
Environmental Laws, except, in each case, where noncompliance,
individually or in the aggregate, would not have a Material
Adverse Effect; there are no legal or governmental proceedings
pending or, to the knowledge of such counsel, threatened
against or affecting the Company or any of its subsidiaries
under any Environmental Law which, individually or in the
aggregate, could reasonably be expected to have a Material
Adverse Effect;

(xvii) all holders of securities of the Company
having rights to the registration of shares of Common Stock,
or other securities, because of the filing of the Registration
Statement by the Company have waived such rights or such
rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration
Statement; and

<PAGE> 20
-20-

(xviii) the Registration Statement has been declared
effective under Securities Act and, to such counsel's
knowledge, no stop order proceedings with respect thereto are
pending before or threatened by the Commission under the
Securities Act.

In rendering such opinions, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the
United States, the State of Tennessee and Delaware General Corporation
Law, to the extent such counsel deems proper and to the extent
specified in such opinion, if at all, upon an opinion or opinions (in
form and substance reasonably satisfactory to Underwriters' counsel) of
other counsel reasonably acceptable to the Underwriters' counsel,
familiar with the applicable laws; (B) as to matters of fact, to the
extent such counsel deems proper, on certificates of responsible
officers of the Company and certificates or other written statements of
officials of jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company. The opinion of
such counsel for the Company shall state that the opinion of any such
other counsel upon which they relied is in form satisfactory to such
counsel and, in such counsel's opinion, the Underwriters and they are
justified in relying thereon. With respect to the matters to be covered
in subparagraphs (vi), (ix) and (x) above counsel may state their
opinion and belief is based upon their participation in the preparation
of the Registration Statement and the Prospectus and any amendment or
supplement thereto and review and discussion of the contents thereof
but is without independent check or verification except as specified.

The opinion of Baker, Donelson, Bearman & Caldwell described
above shall be rendered to the Underwriters at the request of the
Company and shall so state therein;

(g) Banner & Wittcoff, special intellectual property
counsel for the Company, shall have furnished to the Representatives
their written opinion, dated the Closing Date or additional Closing
Date, as the case may be, in form and substance satisfactory to the
Representatives, to the effect that the Company and each of its
subsidiaries owns, is licensed to use or otherwise possesses adequate
rights to use the Intellectual Property reasonably necessary to carry
on the business conducted by it, except to the extent that the failure
to own, be licensed to use or otherwise possess adequate rights to use
such Intellectual Property would not have a Material Adverse Effect;
except as set forth in the Prospectus, the Company has not received any
notice of infringement of or conflict with, and to the best of the such
counsel's knowledge, there is no infringement of or conflict with,
asserted rights of others with respect to the Intellectual Property;
the discoveries, inventions, products or processes of the Company
referred to in the Registration Statement and the Prospectus do not, to
the best of such counsel's knowledge, infringe or conflict with any
right or patent of any third party, or

<PAGE> 21
-21-

any discovery, patent product or process which is the subject of a
patent application filed by any third party; to the knowledge of such
counsel, the Company and each of its subsidiaries owns, is licensed to
use or otherwise possesses adequate rights to use patents and patent
rights reasonably necessary to carry on the business conducted by it;

(h) on the effective date of the Registration Statement
and the effective date of the most recently filed post-effective
amendment to the Registration Statement and also on the Closing Date or
Additional Closing Date, as the case may be, PricewaterhouseCoopers
shall have furnished to you letters, dated the respective dates of
delivery thereof, in form and substance satisfactory to you, containing
statements and information of the type customarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus;

(i) the Representatives shall have received on and as of
the Closing Date or Additional Closing Date, as the case may be, an
opinion of Cahill Gordon & Reindel, counsel to the Underwriters, with
respect to the due authorization and valid issuance of the Shares, the
Registration Statement, the Prospectus and other related matters as the
Representatives may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon such matters;

(j) the Shares to be delivered on the Closing Date or
Additional Closing Date, as the case may be, shall have been approved
for listing on the Nasdaq National Market, subject to official notice
of issuance;

(k) on or prior to the Closing Date or Additional Closing
Date, as the case may be, the Company shall have furnished to the
Representatives such further certificates and documents as the
Representatives shall reasonably request; and

(l) the Lock-Up Agreements shall be in full force and
effect on the Closing Date or Additional Closing Date, as the case may
be.

7. The Company agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, the legal fees and other expenses
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be

<PAGE> 22
-22-

stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information relating to any Underwriter
furnished to the Company in writing by such Underwriter through the
Representatives expressly for use therein.

Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person who controls the Company within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act,
but only with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter through the Representatives expressly
for use in the Registration Statement, the Prospectus, any amendment or
supplement thereto, or any preliminary prospectus.

If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to the preceding
paragraphs of this Section 7, such person (the "Indemnified Person") shall
promptly notify the person or persons against whom such indemnity may be sought
(each an "Indemnifying Person") in writing, and such Indemnifying Persons, upon
request of the Indemnified Person, shall retain counsel reasonably satisfactory
to the Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Persons may designate in such proceeding and shall pay the fees and
expenses of such counsel related to such proceeding. In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
and not the Indemnifying Persons unless (i) the Indemnifying Persons and the
Indemnified Person shall have mutually agreed to the contrary, (ii) the
Indemnifying Persons has failed within a reasonable time to retain counsel
reasonably satisfactory to the Indemnified Person or (iii) the named parties in
any such proceeding (including any impleaded parties) include both an
Indemnifying Person and the Indemnified Person and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that no Indemnifying Person
shall, in connection with any proceeding or related proceeding in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Indemnified Persons, and that all
such fees and expenses shall be reimbursed as they are incurred. Any such
separate firm for the Underwriters, each affiliate of any Underwriter which
assists such Underwriter in the distribution of the Shares and such control
persons of Underwriters shall be designated in writing by J.P. Morgan Securities
Inc. and any such separate firm for the Company, its directors, its officers who
sign the Registration Statement and such control persons of the Company shall be
designated in writing by the Company. No Indemnifying Person shall be liable for
any settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for

<PAGE> 23
-23-

the plaintiff, each Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an Indemnified
Person shall have requested an Indemnifying Person to reimburse the Indemnified
Person for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, such Indemnifying Person agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
Indemnifying Person of the aforesaid request and (ii) such Indemnifying Person
shall not have reimbursed the Indemnified Person in accordance with such request
prior to the date of such settlement. No Indemnifying Person shall, without the
prior written consent of the Indemnified Person, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person is
or could have been a party and indemnity could have been sought hereunder by
such Indemnified Person, unless such settlement includes an unconditional
release of such Indemnified Person from all liability on claims that are the
subject matter of such proceeding.

If the indemnification provided for in the first three
paragraphs of this Section 7 is unavailable to an Indemnified Person or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each Indemnifying Person under such paragraph, in lieu of
indemnifying such Indemnified Person thereunder, shall contribute to the amount
paid or payable by such Indemnified Person as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand shall be
deemed to be in the same respective proportions as the net proceeds from the
offering (before deducting expenses) received by the Company and the total
underwriting discounts and the commissions received by the Underwriters, in each
case as set forth in the table on the cover of the Prospectus, bear to the
aggregate public offering price of the Shares. The relative fault of the Company
on the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.

The Company and the Underwriters agree that it would not be
just and equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if

<PAGE> 24
-24-

the Underwriters were treated as one entity for such purposes) or by any other
method of allocation that does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an Indemnified Person as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses incurred by such Indemnified Person in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 7, in no event shall an Underwriter be required to contribute any amount
in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section ll(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 7 are several in proportion to the respective number of Shares set forth
opposite their names in Schedule I hereto, and not joint.

The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.

The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect regardless of
(i) any termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter or by or on
behalf of the Company, its officers or directors or any other person controlling
the Company and (iii) acceptance of and payment for any of the Shares.

8. Notwithstanding anything herein contained, this
Agreement (or the obligations of the several Underwriters with respect to the
Option Shares) may be terminated in the absolute discretion of the
Representatives, by notice given to the Company, if after the execution and
delivery of this Agreement and prior to the Closing Date (or, in the case of the
Option Shares, prior to the Additional Closing Date) (i) trading generally shall
have been suspended or materially limited on or by, as the case may be, any of
the New York Stock Exchange or the American Stock Exchange, the National
Association of Securities Dealers, Inc., the Chicago Board Options Exchange, the
Chicago Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of or guaranteed by the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities, or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in the judgment of the

<PAGE> 25
-25-

Representatives, is material and adverse and which, in the judgment of the
Representatives, makes it impracticable to market the Shares being delivered at
the Closing Date or the Additional Closing Date, as the case may be, on the
terms and in the manner contemplated in the Prospectus.

9. This Agreement shall become effective upon the later
of (x) execution and delivery hereof by the parties hereto and (y) release of
notification of the effectiveness of the Registration Statement (or, if
applicable, any post-effective amendment) by the Commission.

If on the Closing Date or the Additional Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they have agreed to purchase hereunder on such date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Underwritten Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as the Representatives
may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 9 by an
amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If on the Closing Date or the Additional Closing
Date, as the case may be, any Underwriter or Underwriters shall fail or refuse
to purchase Shares which it or they have agreed to purchase hereunder on such
date, and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares to be purchased
on such date, and arrangements satisfactory to the Representatives, the Company
for the purchase of such Shares are not made within 36 hours after such default,
this Agreement (or the obligations of the several Underwriters to purchase the
Option Shares, as the case may be) shall terminate without liability on the part
of any non-defaulting Underwriter or the Company. In any such case either you or
the Company shall have the right to postpone the Closing Date (or, in the case
of the Option Shares, the Additional Closing Date), but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.

10. If this Agreement shall be terminated by the
Underwriters, or any of them, because of any failure or refusal on the part of
the Company to comply with the terms or to fulfill any of the conditions of this
Agreement, or if for any reason any of the Company

<PAGE> 26
-26-

shall be unable to perform its obligations under this Agreement or any condition
of the Underwriters' obligations cannot be fulfilled, the Company agrees to
reimburse the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
(including the fees and expenses of its counsel) reasonably incurred by the
Underwriter in connection with this Agreement or the offering contemplated
hereunder.

11. This Agreement shall inure to the benefit of and be
binding upon the Company and the Underwriters, each affiliate of any Underwriter
which assists such Underwriter in the distribution of the Shares, any
controlling persons referred to herein and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any other person, firm or corporation any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. No purchaser of Shares from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.

12. Any action by the Underwriters hereunder may be taken
by the Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf
of the Underwriters, and any such action taken by the Representatives jointly or
by J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260 (telefax: (212) 648-5705); Attention: Syndicate Department. Notices
to the Company shall be given to them at 1009 Commerce Park Drive, Oak Ridge,
Tennessee (telefax: (404) 482-9755); Attention: President, with a copy to Baker,
Donelson, Bearman & Caldwell, 633 Chestnut St., Suite 1800, Chattanooga,
Tennessee 37450 (telefax: (423) 209-4255); Attention: J. Porter Durham, Jr.

13. This Agreement may be signed in counterparts, each of
which shall be an original and all of which together shall constitute one and
the same instrument.

14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PROVISIONS THEREOF.

<PAGE> 27
-27-

If the foregoing is in accordance with your understanding,
please sign and return four counterparts hereof.

Very truly yours,

INTERNET PICTURES CORPORATION

By:
------------------------------
Name:
Title:

Accepted the date first written above:

J.P. MORGAN SECURITIES INC.
CHASE SECURITIES INC.
FLEETBOSTON ROBERTSON STEPHENS INC.
DAIN RAUSCHER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
Acting severally on behalf
of themselves and the
several Underwriters listed
in Schedule I hereto.

By: J.P. MORGAN SECURITIES INC.

By:
-------------------------------------
Name:
Title:

<PAGE> 28

SCHEDULE I

Number of
Underwritten Shares
Underwriter To Be Purchased
- ----------- -------------------
<S> <C>
J.P. Morgan Securities Inc............................
Chase Securities Inc..................................
FleetBoston Robertson Stephens Inc....................
Dain Rauscher Incorporated............................
Prudential Securities Incorporated.................... -------------------

Total [ ]
</TABLE>

<PAGE> 29

EXHIBIT 1

LOCK-UP AGREEMENT

, 2000

J.P. MORGAN SECURITIES INC.
CHASE SECURITIES INC.
FLEETBOSTON ROBERTSON STEPHENS INC.
DAIN RAUSCHER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
As Representatives of the several
Underwriters named in Schedule I to
the Underwriting Agreement referred to below
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260

Re: Internet Pictures Corporation - Public Offering

Ladies and Gentlemen:

The undersigned understands that you, as Representatives of
the several Underwriters, propose to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Internet Pictures Corporation, a Delaware
corporation (the "Company"), providing for the public offering (the "Public
Offering") by the several Underwriters named in Schedule I to the Underwriting
Agreement (the "Underwriters"), of common stock, par value $.001 per share (the
"Common Stock"), of the Company. Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Underwriting Agreement.

In consideration of the Underwriters' agreement to purchase
and make the Public Offering of the Common Stock, and for other good and
valuable consideration receipt of which is hereby acknowledged, the undersigned
hereby agrees that, without the prior written consent of J.P. Morgan Securities
Inc. on behalf of the Underwriters, the undersigned will not, during the period
ending 90 days after the date of the prospectus relating to the Public Offering
(the "Prospectus"), (1) offer, pledge, announce the intention to sell, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock of the Company, or any securities of the Company which are substantially
similar to the Common Stock, or any securities convertible into or exercisable
or

<PAGE> 30
-2-

exchangeable for Common Stock (including, but not limited to, Common Stock
which may be deemed to be beneficially owned by the undersigned in accordance
with the rules and regulations of the Securities and Exchange Commission and
securities which may be issued upon exercise of a stock option or warrant) or
(2) enter into any swap, option, future, forward or other agreement that
transfers, in whole or in part, any of the economic consequences of ownership of
the Common Stock or any securities of the Company which are substantially
similar to the Common Stock, including, but not limited to, any security
convertible into or exercisable or exchangeable for Common Stock, whether any
such transaction described in clause (1) or (2) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. In
addition, the undersigned agrees that, without the prior written consent of J.P.
Morgan Securities Inc. on behalf of the Underwriters, it will not, during the
period ending 90 days after the date of the Prospectus, make any demand for or
exercise any right with respect to, the registration of any shares of Common
Stock or any substantially similar securities of the Company, including but not
limited to, any security convertible into or exercisable or exchangeable for
Common Stock.

In furtherance of the foregoing, the Company and any duly
appointed transfer agent for the registration or transfer of the securities
described herein are hereby authorized to decline to make any transfer of
securities if such transfer would constitute a violation or breach of this
Lock-Up Agreement.

The undersigned hereby represents and warrants that the
undersigned has full power and authority to enter into this Lock-up Agreement.
All authority herein conferred or agreed to be conferred and any obligations of
the undersigned shall be binding upon the successors, assigns, heirs or personal
representatives of the undersigned.

The undersigned understands that, if the Underwriting
Agreement does not become effective, on or prior to June 30, 2000, or if the
Underwriting Agreement (other than the provisions thereof which survive
termination) shall terminate or be terminated prior to payment for and delivery
of the Common Stock to be sold thereunder, the undersigned shall be released
from all obligations under this Lock-Up Agreement.

The undersigned understands that the Underwriters are entering
into the Underwriting Agreement and proceeding with the Public Offering in
reliance upon this Lock-Up Agreement.

<PAGE> 31
-3-

THIS LOCK-UP AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.

Very truly yours,

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

By:
-----------------------------(1)
Name:
Title:

Accepted as of the date
first set forth above:

J.P. MORGAN SECURITIES INC.
CHASE SECURITIES INC.
FLEETBOSTON ROBERTSON STEPHENS INC.
DAIN RAUSCHER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED

Acting severally on behalf of themselves and
the several Underwriters to be named in
Schedule I to the Underwriting Agreement

By: J.P. MORGAN SECURITIES INC.

By:
------------------------------------------------
Name:
Title:

- ----------------------------------
(1) To be completed by an entity other than an individual.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1
of our report dated January 31, 2000, except for Note 12 of the consolidated
financial statements and Note 16 of the supplemental pooled consolidated
financial statements, which are as of March 31, 2000 and Note 1, paragraph 3 of
both the consolidated financial statements and the supplemental pooled
consolidated financial statements which is as of May 2, 2000 relating to the
consolidated financial statements and the supplemental pooled consolidated
financial statements of Internet Pictures Corporation (formerly bamboo.com),
which appears in this Registration Statement. We also consent to the references
to us under the heading "Experts" and "Selected Historical Financial
Information" in this Registration Statement.

/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP

San Jose, California
May 2, 2000

<PAGE> 1
EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated January 28, 2000, except as to Note 1 for which the date is May 2,
2000, relating to the consolidated financial statements of Interactive Pictures
Corporation, which appears in such Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Registration Statement.

/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP

Knoxville, Tennessee
May 2, 2000

<PAGE> 1
EXHIBIT 23.3

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Registration Statement on Form S-1 of
Internet Pictures Corporation of our report dated January 25, 2000, except for
Note 16, which is as at March 31, 2000 and Note 1, paragraph 2, which is as of
May 2, 2000 relating to this financial statements of PictureWorks Technology,
Inc., which appears in this Registration Statement on Form S-1. We also consent
to the reference to us under the heading "Experts" in this Registration
Statement on Form S-1 of Internet Pictures Corporation.

/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP

San Jose, California
May 2, 2000