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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 00-26363
INTERNET PICTURES CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 52-2213841
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State or other jurisdiction (IRS Employer
incorporation or organization Identification No.)
1009 Commerce Park Drive Oak Ridge, Tennessee 37830
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (865) 482-3000
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Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 2001 was $39,397,685 (based on the average bid and
ask price of $0.609.
The number of shares outstanding of the registrant's common stock, $.001 par
value, as of March 1, 2001 was 65,952,645.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the Annual Stockholders'
Meeting to be held on or about May 17, 2001, to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act
of 1934, as amended, are incorporated by reference into Part III of this report
on Form 10-K. Such Proxy Statement, except for the portions thereof which are
specifically incorporated herein by reference, shall not be deemed "filed" for
purposes of this report on Form 10-K.
PART I
Item 1. Business.
OVERVIEW
Internet Pictures Corporation, or iPIX, is a technology provider and the leader
in the delivery of dynamic imaging. The Company's immersive imaging technologies
and open imaging platform allow businesses to harness the power of imaging to
increase revenues, improve operations and enhance the overall Internet user
experience.
The Company's end-to-end solutions include full-service and self-service options
for the capture, processing, hosting and distribution of immersive, still and
motion pictures. More than 10,000 Web sites feature iPIX dynamic imaging,
including 22 of the top 25 Media Metrix Web sites. In a typical 24-hour period,
iPIX manages over 50 million image views, more than 700,000 image uploads and is
responsible for over one million virtual tours being seen on the Internet.
Our solutions help businesses increase the relevance and enjoyment of users' Web
site visits, resulting in increased traffic, repeat use and customer loyalty.
This, in turn, provides our customers with increased commerce, enterprise
profits and imaging revenue opportunities, without requiring significant
investment in imaging infrastructure.
iPIX combines its people, technology, processes, and partnerships to deliver an
extensive range of full and self-service dynamic imaging solutions worldwide.
From capture, to automated online image preparation and delivery to the Web,
iPIX delivers the necessary imaging solutions so customers can focus on their
core competencies.
Our open imaging platform, Rimfire, allows business to business and business to
consumer sites to quickly and easily capture, manage and distribute images and
other forms of media directly from site viewers via live Web pages. With
Rimfire, site end-users can easily publish still digital media to the Web with
simple drag-and-drop image submission. The iPIX open imaging platform solves the
most common problems associated with user-supplied media by simplifying the
tasks and the process for the user and the Web site. For example, with Rimfire,
eBay is able to allow their users to instantly add photos directly to their
listings from the "Sell Your Item" form online. The photos are automatically
sized, formatted and delivered to the eBay Web site to the standards pre-set by
eBay.
Rimfire can accept multiple media items supplied from users such as text, audio,
photos as well immersive images to deliver fresh and interactive content to web
pages. By eliminating the challenge of content submission for users, and robust
imaging infrastructure for Web sites, the Rimfire platform allows businesses to
increase the use of imaging to leverage its power to drive e-commerce and
enterprise profits.
iPIX has developed patented technology for the creation of 360-degree by
360-degree 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, and
horizon to horizon. iPIX also offers live and pre-recorded streaming immersive
video that will capitalize on the
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increasing availability of broadband networks and off-line use of mobile devices
and entertainment centers.
iPIX leverages their patented technologies and processes through relationships
with vendors such as Cisco, Compaq, Exodus, Network Appliance, and Navisite to
seamlessly distribute hundreds of terabytes of dynamic imaging to many of the
Internet's most trafficked sites. eBay, Yahoo!, AOL, Homestore.com, Microsoft
HomeAdvisor and Discovery.com are all customers of iPIX solutions. iPIX has
established an industry leading performance record in delivering dynamic imaging
with 99.98% reliability. In addition, iPIX ViewAlways technology enables users
to view images on multiple platforms from personal computers to wireless,
handheld devices.
iPIX also captures content in over 90 of the top 100 metropolitan areas across
the United States and Canada utilizing Imaging Services Corporation, or ISC, a
wholly-owned subsidiary of iPIX, managing an extensive network of trained
photographers. The content captured by ISC is prepared for distribution at our
high volume processing centers or through use of iPIX image processing software.
Our scaleable hosting and distribution infrastructure is designed to rapidly
deploy digital media across the Internet. We can seamlessly distribute digital
media to our expanding network of over 150 affiliate Web sites maintained by
AOL, Cendant, Microsoft CarPoint, and REALTOR.com. We generate revenues when we
deliver our end-to-end imaging solutions or when a customer uses our technology
to create an iPIX immersive image. In addition, we generate revenues when we
manage and distribute digital media created by our customers.
Our customers include Avis Rent-a-car, Carnival Cruise Line, Cendant, CNN,
Discovery Channel Online, eBay, Excite@Home, Expedia.com, General Motors, GTE,
Hyatt Hotels, Move.com, MTV, Polaroid, Saab, Starwood Hotels, The Walt Disney
Company TicketMaster Online, Travelocity.com and Warner Brothers.
INDUSTRY BACKGROUND
Growth of E-Commerce
The Internet has become a critical component of every business strategy. It
offers a highly efficient medium for providing information, conducting business
transactions, and bringing together groups of people with an interest in a
common subject or activity. Forrester Research estimates e-commerce revenues
will grow from approximately $657 billion worldwide in 1999 to $6.8 trillion
worldwide by 2004. There has also been substantial growth in the number and
types of Web sites, which are estimated to grow from 2.2 billion in 1999 to 4.3
billion in 2000 according to International Data Corporation.
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Value of Imaging
The effectiveness of the Internet as an informational and transactional medium
depends on the quality of the content presented. We believe content can be
greatly enhanced with the addition of user-supplied video, audio, and photos and
that e-business sites benefit from increases in frequency and duration of visits
when their offerings include the use of photos and other digital media. In
commercial transactions on the Internet, imaging can result in increased sales,
increased efficiency in the sales cycle, clearer selection among choices, and
higher realized prices. Future Image estimates that the number of images whose
posting on the Web is related to a commercial transaction is expected to exceed
1 billion in 2000 and approach 10 billion by 2003. We believe that e-commerce
providers will increasingly seek cost effective solutions that provide
high-resolution, compelling images to their customers.
According to a Jupiter Consumer Survey, better information and presentation of
products would drive 37 percent of consumers to make more purchases online.
Although images continue to have the largest impact on online users' experience,
Jupiter Research reports that few sites deploy images effectively, let alone
streaming media. In addition, a study conducted by Paine Webber found that the
second biggest obstacle to buying over the Internet is the inability to clearly
view products prior to purchase. The study states that "Robust imaging must be a
part of every e-commerce site where image detail is essential to the buyer."
Growth of E-commerce Infrastructure and Services
Forrester Research estimates that U.S. spending on e-commerce infrastructure
software will grow from $3.1 billion in 1999 to $14.5 billion in 2003. In a
Jupiter Executive Survey, 50 percent of site executives reported that
professional services firms provide more than 10 percent of their staff, and one
respondent in seven respondents reported outsourcing 50 percent or more of Web
development. According to Jupiter Communications, as Web ventures progress
through the Cost of Scaling Curves zones, they should expect to increase the
role that external professional services play in their organizations.
Gistics Research estimates the current potential market for digital asset
management services to be about $2 billion, made up of the top 2000 media and
entertainment sites spending approximately $250,000 per year, and 16,000
corporate enterprise sites spending approximately $100,000 per year. Chase
Hambrecht & Quist has stated, "We believe there will be significant demand for
infrastructure services for the complete end-to-end management of rich Internet
Media."
THE iPIX SOLUTION
Internet Pictures Corporation is an imaging technology provider and the leader
in the delivery of dynamic imaging. The Company's immersive imaging technologies
and open imaging platform allow businesses to harness the power of imaging to
increase revenues, improve operations and enhance the overall Internet user
experience.
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Our end-to-end solutions include full and self-service options for the capture,
processing, hosting and distribution of immersive, still and motion pictures.
Our solutions are based on patented technologies for the creation and deployment
of interactive imaging including still photos, immersive images, streaming
media, audio and other forms of digital media.
iPIX Immersive Imaging
Our patented technology creates iPIX immersive images by combining two 185
degree film or digital photographs taken with a fisheye lens into one 360 degree
by 360 degree 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 or using the iPIX navigation bar.
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.
Current iPIX immersive imaging solutions and applications include:
IPIX Immersive Images and Virtual Tours
iPIX provides the leading immersive, 360-degree virtual tours for real
estate, e-commerce, travel and hospitality, entertainment and new media
sites. iPIX immersive images offer viewers the opportunity to navigate
a scene on their own terms, looking in any direction, and zooming in
and out as they choose. This interactive imaging experience increases
buyer confidence and immerses the viewer in the photographed scene.
IPIX Camera Solutions
Partnering with the leading camera manufacturers including Nikon, iPIX
offers complete camera solutions for the self-service capture of iPIX
immersive images. Photographers, Web developers and designers may
purchase complete camera solutions including a digital camera, 180
degree fisheye lens, iPIX software, camera rotator and tripod. Users
may also purchase partial kits to use with their existing digital
camera equipment.
IPIX Immersive Imaging Software
iPIX offers complete immersive imaging software to allow users the
ability to create their own 360 degree by 360 degree immersive images.
The software offers automatic de-warping of fisheye images and seamless
generation of 360-degree by 360-degree immersive images from two
185-degree images. iPIX software
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creates an iPIX immersive image that has a small file size, typically
between 25 and 160 kilobytes, and can be quickly delivered, even across
low bandwidth systems.
An iPIX Image Key is an encryption tool that enables the user to save a
single iPIX immersive image captured using iPIX software. 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 online store or through our
toll-free order system. iPIX Keys are sold on a pay-per-use or
unlimited use subscription basis.
iPIX Immersive Video
One of the latest developments leveraging iPIX technology is our
immersive, interactive video, iPIX Movies. iPIX Movies employ unique
technology to capture all 180 degrees to 360-degrees of a scene,
resulting in users being able to choose their own perspective in a
streaming video environment. The number of simultaneous viewpoints is
limitless, giving each individual online user a unique experience. iPIX
Movies can be delivered in multiple formats including traditional and
streaming video.
With the increasing availability of broadband networks, we believe iPIX
Movies will become a 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 markets, 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 Imaging Platform
iPIX has developed an open imaging platform, Rimfire, that allows business and
consumer sites to quickly and easily capture, manage, and distribute media from
site viewers to live Web pages. Rimfire is an end-to-end, fully automated
imaging management solution that addresses the preparation, submission and
management of digital media. With Rimfire, users can easily publish still photos
and other digital media to the Web with simple drag-and-drop image submission.
Through processes that are instantaneous and invisible to the user, Rimfire
automatically sizes the images to the target Web site's specifications. At the
same time, on behalf of the target Web site, Rimfire can handle all of the data
and image management, storage and serving requirements associated with that
image. We believe that availability of our open imaging platform will allow
businesses to outsource their imaging tasks in much the same way that search and
email functions are outsourced today.
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The iPIX open imaging platform solves the most common problems associated with
user-supplied digital media by automating the tasks and simplifying the process
for the user and the Web site.
Digital Media Preparation
Rimfire allows Web sites to attract and retain users regardless of
their technical skill. Rimfire's drag-and-drop technology allows users
to quickly and easily submit their own media content to the Web without
the need to prepare it with desktop software ahead of time. Challenging
tasks such as formatting, sizing and cropping, are easily and
automatically accomplished through Rimfire's integrated and intuitive
tools. Instant previews of the media supplied prevent incorrect
submissions.
Digital Media Submission
Rimfire accepts a wide and growing variety of file formats and converts
the files to customer specifications automatically, with no user or
site intervention. Rimfire's smartsizing feature allows the user to
supply files of any size without worry about upload times for
submission, or viewing times. Like file formats, Rimfire automatically
prepares the media for transmission by optimizing its size to the
requirements of the site. In addition, Rimfire supports the submission
of multiple files and associated data to save time for the user and the
site.
Media Deployment
Once media is received by Rimfire, it is processed to customer
specifications again. This includes database management, further
processing such as creating multiple files of varying sizes or quality,
and distribution to the appropriate storage facility. Rimfire's
"layered" architecture enables services such as the transformation of
still images into PhotoMovies, interactive advertisements, slide shows,
images watermarked with text or graphics, or new capabilities created
by iPIX or our third party developers. Rimfire technology was designed
to be scalable and fault tolerant to handle high volumes of user
submissions and our clients' rapid pace of growth. Built on industry
standard hardware and software platforms, Rimfire allows for rapid
expansion of rich media acquisition, processing, transformation and
delivery.
Our Rimfire imaging platform was designed to integrate easily with a variety of
architectures, shortening our customers' time to market for their media enabled
offerings. Rimfire integration can be accomplished quickly, using
well-documented software tools.
iPIX generates direct and indirect revenue opportunities for Web sites by
incorporating imaging into their e-commerce and community offerings. Rimfire's
media processing capabilities include the mechanism to take different media
items supplied from users such as text, audio, and images and transform them
into one new rich media item. iPIX can then serve the media directly from iPIX
servers or send the media to a remote database to be served directly from the
Web site customer's services.
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By offering an outsourced infrastructure solution, we offer our customers an
alternative to building costly infrastructure, enabling them to utilize scarce
technical resources in other mission critical capacities, to eliminate expensive
media processing tasks, to decrease customer support expenses, and to optimize
storage and bandwidth resources.
IMAGING SERVICES
Custom Imaging Application Development -Professional Services
iPIXs' Professional Services Group serves two primary functions; (i)
assist customers with imaging platform integration and (ii) provide a
broad range of engineering services to help customers with any of their
media needs.
The Professional Services Group provides media expertise and services
for customers including imaging application design, engineering,
quality assurance, documentation, network architecture and management,
project management and customer research. The Professional Services
Group researches, designs, develops, deploys and manages imaging Web
sites for customers. The Professional Services Group also creates
imaging enabled Web applications to enhance existing Web sites or
creates new imaging-based services for Web sites. The Professional
Services Group offers Rimfire customers significant time to market
benefits and the valued skills of a team specializing in rich media on
the Internet by using rapid development and deployment techniques.
Imaging technologies developed by the Professional Services Group are
built on the iPIX imaging platform using Rimfire API's and support
Rimfire's open standards architecture. These new imaging technologies
therefore become part of Rimfire's core functionality.
Image Capture Services
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. This
network is available through Imaging Services Corporation, a
wholly-owned subsidiary of iPIX. iPIX created ISC to capture 360-degree
iPIX Virtual Tours and still photographs for channel partners including
Homestore.com, Cendant, and Starwood, as well as for iPIX customers in
the travel and hospitality, entertainment and other markets. ISC's
image-capture business manages a network of over 800 photographers in
North America. Once 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.
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THE iPIX STRATEGY
Establish iPIX as the Standard for Online Imaging Technology
We believe iPIX imaging solutions deliver the highest level of interactivity,
reliability and quality imaging content available on the Internet. Our solutions
result in more frequent and longer site visits, increased revenue and higher
profits. Because iPIX offers end-to-end imaging solutions, we are able to
deliver multi-dimensional and exponential value to online businesses. As a
result, we believe we are poised to be the standard for online imaging
technology. We will focus all business, sales and marketing strategies to
support this position. We will continue research and development efforts to
ensure that our technology remains at the forefront of innovation, yet open for
easy integration with other technologies. We will concentrate on developing
partnerships with leading network integrators and business consultancies to make
iPIX imaging a standard component of every e-business solution and drive to have
iPIX imaging solutions specified in all e-business and e-commerce solution bids.
With these combined efforts, we believe the value proposition of iPIX imaging
solutions will become well known and we will earn the reputation as the standard
and extensible platform for all online imaging.
Build Indirect Sales & Marketing Channels
iPIX has adopted a strategy that will leverage relationships with business
partners and major market leaders in order to increase market penetration and
revenue while reducing operating expenses. This strategy will develop multiple
sales and marketing channels for iPIX products and services including:
Vertical Market Leaders
iPIX has partnered with major customers such as eBay and Homestore.com
to leverage their leading sales channels to penetrate the online
residential real estate, travel and hospitality, auction and classified
markets with iPIX products and services. Through these relationships,
eBay and Homestore market and sell imaging products and services,
powered by iPIX, along with their existing services directly to their
customers. iPIX benefits from the brand equity and buying
recommendation provided by the channel partner to increase sales and
market penetration while maintaining the ability to focus on iPIX
technology support and enhancements. We will continue to target and
partner with additional vertical market leaders to serve as indirect
channels for the promotion and sale of iPIX products and services.
Partner with e-Business Consultancies and Integration Leaders
The iPIX indirect channel strategy also includes the establishment of
business relationships and alliances with the leading e-business
consultancies for the purpose of building additional channels for the
sales and marketing of iPIX products and services across multiple
markets. This strategy involves integrating iPIX products and services
to the standard e-business solutions and toolkits of the
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leading business consultancies and integration organizations such as
IBM, CommerceOne and KPMG.
The first of these relationships was established with IBM in December
2000. The IBM/iPIX relationship is aimed at leveraging the two
companies' offerings to provide a comprehensive imaging infrastructure.
By simplifying the integration of dynamic imaging into e-commerce
platforms, joint IBM/iPIX product offerings will create even greater
market adoption of both company's products and services. Through our
relationship with IBM, iPIX will integrate IBM's hardware, software,
Web hosting, and consulting services into our dynamic imaging product
and service offerings. We also will develop joint strategies to promote
and sell current and future dynamic imaging solutions to the companies'
combined customer bases, as well as utilize each others' sales force
and Web consultants in both the private and public sectors. Through
relationships with business consultancies and integration leaders, iPIX
will explore new opportunities to accelerate the creation and
deployment of iPIX imaging solutions across next-generation
technologies.
Partner with Web Developers
We will leverage the community of Web developers currently building and
designing Web sites to drive the use and adoption of iPIX dynamic
imaging. We will also generate revenue through the purchase of iPIX
camera kits and iPIX Keys by Web developers and their customers. In
March 2001, iPIX introduced the iPIX Developer Network program. This
dedicated program was specifically designed to increase
iPIX-to-developer and developer-to-developer interactivity and will
provide Web developers a competitive advantage through availability of
increased resources, technical support and special pricing for iPIX
offerings.
Partner 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. In
addition, we have established a subsidiary in Japan and China where we
will form strategic alliances with local partners in our effort to
service the growing wireless, real estate, travel and hospitality and
entertainment markets in these regions. We intend to develop local
sales and technical support capabilities in these regions. In addition,
we have entered into reseller arrangements with strategic partners in
Australia.
Business Development and Strategic Direct Sales
In addition to our indirect sales channels, iPIX employs a team of
sales professionals focused on new business development opportunities
and strategic direct sales across multiple markets including
automotive, auctions and classifieds, commercial real estate,
entertainment, government, insurance, law enforcement and travel and
hospitality. These sales professionals sell our full suite
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of iPIX imaging solutions including immersive imaging, our open imaging
platform and end-to-end imaging solutions.
Proliferation of iPIX Immersive Imaging Across The Internet
A primary goal of the iPIX business strategy is to increase the adoption and use
of iPIX immersive imaging across the Internet and to secure iPIX as the premier
technology and immersive imaging of choice. To drive the adoption and market
share of iPIX immersive imaging, we will focus on ensuring that our technology
is compatible with current and new Internet technologies. We will continue to
provide professional training and customer support to make iPIX immersive
imaging easy to use. We recently adopted a new pricing model making iPIX
immersive imaging more affordable and accessible to all levels of users. In
addition, we will maintain research and development efforts to develop new forms
of iPIX immersive imaging, integrate partner technologies into our immersive
solutions and make iPIX immersive content available to many through affordable
content syndication.
New Initiatives
In the year 2001, iPIX intends to execute several new initiatives to support our
overall business strategies. These new initiatives will include:
Indirect Channel Support
iPIX will institute sales and marketing programs to support our
indirect channel partners. These programs will be designed to educate
our partners on how to sell our solutions and provide them with the
tools to do so. We will also work together with our partners to jointly
develop tools and materials in support of the channel.
iPIX is also committed to support indirect channels through technology
development and enhancement to meet channel-specific business
requirements, including partnering with complementary technologies.
iPIX Licensing
In an effort to make iPIX imaging easier to use, more affordable and
accessible to a larger audience, we will adopt a new image key pricing
model that allows users to purchase an annual, unlimited subscription
for the creation of iPIX immersive images. In addition, we will begin
licensing collections of syndicated iPIX immersive content to
businesses that will benefit from its use on their Web sites. For
example, a collection of iPIX immersive tours of major US cities may be
licensed to travel portals.
Third Party Solution Integration
Leveraging our open imaging platform, we intend to enhance the iPIX
solutions offering through the integration of third party solutions.
These initiatives will be pursued based upon value to our customers and
potential long-term revenue opportunity.
MARKETS
We have directed our sales efforts and channel strategies toward the industry
leaders as service providers within the following markets.
CUSTOMERS/CHANNEL PARTNERS
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Ecommerce
Auctions & Classified............................................eBay
Automotive.....................AutoVantage, General Motors, Microsoft
CarPoint, Saab, Toyota
e-Retail...............................Ticketmaster Online-Citysearch
Real Estate.............................................Homestore.com
Travel and Hospitality.........Carnival Cruise Lines, Disney Vacation
Club, Expedia, Hilton Hotels, Holiday Inn,
Hyatt Hotels, Marriott, Swissotel,
Starwood Hotels, Travelocity
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Ebusiness.................................................IBM, CommerceOne, KPMG
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
Government and Public Sector............................. IBM, CommerceOne, KPMG
E-COMMERCE
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.
Auctions and Classifieds: As the primary mechanism for ecommerce, auction and
classified sites and portals such as eBay rely heavily upon imaging to drive
sales of new and used consumer items. Sellers require an easy to use method for
uploading images to accompany their item listing and buyers can have confidence
in items they can view and inspect online. Images result in more bids and higher
final sale amounts. With Rimfire, auction and classified sites can offer photo
services that make adding images to web sites easy, affordable and efficient.
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.
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. Our imaging 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.
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 destinations. We distribute our customer's digital media
content to their own web sites and to selected travel destination affiliate web
sites.
EDUCATION AND ENTERTAINMENT
Education and Entertainment. Education and entertainment industry leaders use
iPIX images to enhance the appeal and functionality of their products and web
sites. We have created iPIX online tours of movie sets to help promote the
release of feature films and campus tours to recruit new students to college
campuses. Our education and entertainment clients can choose between our full
service solution and purchase iPIX kits and iPIX keys to create their own iPIX
images.
SALES AND MARKETING
Our marketing efforts focus on supporting our sales force with marketing
materials and sales tools that help generate and close new business for iPIX.
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. We also intend to
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continue utilizing distributors and resellers to penetrate indirect markets. 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 various sales and marketing groups focus on direct and indirect sales
partners. As of March 1, 2001, the direct sales team consisted of eight
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 and fields inquiries from our web site and toll-free
customer service number. As of March 1, 2001, we had seven employees on our
telesales team.
We maintain a customer relations department with 11 employees as of March 1,
2001. 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 San Ramon, California, is focused on
developing strategic relationships and opening sales channels with potential
partners and customers in our targeted vertical markets. As of March 1, 2001, we
had three employees on our business development team.
RESEARCH AND DEVELOPMENT
iPIX has 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 - especially
those that offer increased user interactivity across new growth markets. We have
successfully created technologies compatible with the increasing availability of
broadband networks and higher resolution cameras and are pursuing the next
generation of these technologies.
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 currently 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.
We also currently compete with imaging platforms and interactive imaging
technology from Equilibrium, Kodak, and TrueSpectra. These companies offer only
components of the iPIX comprehensive imaging solution and do not currently
address how their technology successfully integrates with others to deliver an
end-to-end solution (capture, process, host, distribute) to compete with iPIX.
Some of our competitors may have greater financial, marketing, distribution and
technical resources than we have. Our success will be dependent on our ability
to compete with these and any other competitors on the quality of our solutions,
cost-effectiveness and how they can improve a customer's business.
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. We also license technology owned by Sarnoff Corporation.
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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 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.
EMPLOYEES
In October, 2000, we began a focused process of streamlining our organization to
meet our new business model and revenue goals. As of March 1, 2001, iPIX
employed 175 full-time employees in the United States, a total of 231 full-time
equivalent employees in Canada, 20 full-time employees in the Europe, Middle
East and Asia region and 16 full-time employees in Asia Pacific and Latin
America. Imaging Services Corporation, a wholly owned subsidiary of iPIX,
employs 102 full-time employees and 8 full-time equivalent independent
contractors.
We believe our employee relations are good.
Item 2. Properties.
We lease approximately 44,043 square feet of space in Oak Ridge, Tennessee for
our corporate office and operations and 18,693 square feet in San Ramon,
California for our co-headquarters. The Oak Ridge lease expires October 8, 2002.
The San Ramon lease expires on October 31, 2003. We also occupy office space in
Palo Alto, California, 10,365 square feet with a lease that expires on February
28, 2002 and an additional 3,831 square feet with a lease that expires on
September 28, 2003.
We also lease office space in Toronto, Canada for our processing 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.
Item 3. Legal Proceedings.
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.
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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
intend to proceed with the arbitration in Knoxville, Tennessee.
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.
Mr. Oxaal filed an additional complaint on December 5, 2000 in the United States
District Court for the Northern District of New York, naming us as the sole
defendant. The compliant states a single claim for relief, alleging infringement
of U.S. Patent No. 6,157,385, which issued on December 5, 2000. This patent
encompasses a method of seamlessly combining at least two images into a
spherical image. We have been served with this complaint, but no other action
has been taken.
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.
Item 4. Submission of Matters to Vote of Security Holders
No matters where submitted to a vote of the Company's stockholders during the
fourth quarter of fiscal year 2000.
Item 4A. Executive Officers of Registrant
The following sets forth information with respect to our executive officers as
of March 15, 2001:
Directors and Officers
NAME AGE TITLE
- -------- --- -----
James M. Phillips ..................................... 49 Chairman of the Board and Chief Executive Officer
Donald W. Strickland .................................. 51 President and Chief Operating Officer
John J. Kalec ......................................... 50 Chief Financial Officer and Executive Vice President
Matthew S. Heiter ..................................... 40 Executive Vice President, General Counsel and Secretary
Steven Hicks .......................................... 51 Chief Knowledge Officer and Executive Vice President
JAMES M. PHILLIPS has been the chairman and chief executive officer if 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
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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.
DONALD W. STRICKLAND has been the president and chief operating officer of iPIX
since October 2000. Mr. Strickland joined iPIX in April 2000 and served as
executive vice president until his appointment as president and chief operating
officer. 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. Mr. Strickland holds several degrees including a bachelor's degree
in physics from Virginia Tech, a master's degree in physics from the University
of Notre Dame, a master's degree in optics from the University of Rochester, a
master's degree in management from the Stanford Sloan School of Management and a
law degree from George Washington University.
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.
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.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Our common stock is traded on the Nasdaq National Market (symbol: IPIX). Prior
to August 26, 1999, there was no public market for our common stock. As of March
1, 2001, there were 376 stockholders of record.
The following table reflects the range of the high and low bid information for
our common stock for the periods indicated.
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FISCAL 2000 High Low
---- -------
Fourth Quarter 5.625 0.969
Third Quarter 17.125 5.125
Second Quarter 28.875 9.375
First Quarter 45.000 16.500
FISCAL 1999
Fourth Quarter 19.500 13.438
Third Quarter (August 26 - September 30, 1999) 25.375 17.250
We currently intend to retain all future earnings to finance the continuing
development of our business and do not anticipate paying cash dividends on our
common stock in the foreseeable future. Any payment of cash dividends in the
future will depend upon our financial condition, future loan covenants, capital
spending requirements and earnings, as well as other factors the board of
directors may deem relevant.
Item 6. Selected Financial Data.
Selected Historical Financial Information
The statement of operations data presented below for the years ended December
31, 1998, 1999 and 2000 and the balance sheet data as of December 31, 1999 and
2000 have been derived from our consolidated financial statements audited by
PricewaterhouseCoopers LLP, independent accountants, that are included
elsewhere in this report. The report of PricewaterhouseCoopers LLP which also
appears herein contains an explanatory paragraph relating to the Company's
ability to continue as a going concern as described in Note 1 to such financial
statements. The statement of operations data for the years ended December 31,
1996 and 1997 and the balance sheet data as of December 31, 1996, 1997 and 1998
are derived from audited consolidated financial statements that are not
included in this report. These results are not necessarily indicative of
results to be expected for any future period. 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 report.
STATEMENT OF OPERATIONS DATA
Fiscal Years Ended December 31,
In thousands, except per share data 1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Revenues
Products $1,337 $2,174 $ 2,789 $ 12,523 $ 48,943
Services 208 318 329 -- 4,730
------ ------ -------- -------- ---------
1,545 2,492 3,118 12,523 53,673
Cost of revenues
Products 543 461 1,274 7,262 25,442
Services 108 316 241 -- 2,464
------ ------- -------- -------- ---------
651 777 1,515 7,262 27,906
------ ------- -------- -------- ---------
Gross profit 894 1,715 1,603 5,261 25,767
------ ------- -------- -------- ---------
Operating expenses:
Sales and marketing 912 2,839 8,783 37,785 80,026
Research and development 413 1,213 2,885 5,359 13,202
General and administrative 983 2,720 3,939 13,906 22,306
Amortization of product development and
patent costs 71 858 -- -- --
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Stock-based compensation expense -- -- 1,162 20,675 5,127
Impairment and amortization of intangible
assets -- -- -- -- 234,024
Merger expenses -- -- -- -- 15,175
Restructuring charges -- -- -- -- 4,161
------- ------- -------- -------- ---------
Total operating expenses 2,379 7,630 16,769 77,725 374,021
------- ------- -------- -------- ---------
Loss from operations (1,485) (5,915) (15,166) (72,464) (348,254)
Interest expense -- (42) (202) (6,684) (436)
Other income (expense), net 201 236 303 2,545 2,095
------- ------- -------- -------- ---------
Net loss (1,284) (5,721) (15,065) (76,603) (346,595)
Dividend relative to beneficial conversion
feature of Series B convertible preferred stock -- -- -- 1,000 --
------- ------- -------- -------- ---------
Net loss attributable to common stockholders $(1,284) $(5,721) $(15,065) $(77,603) $(346,595)
======= ======= ======== ======== =========
Net loss per common share - basic and diluted $ (0.16) $ (0.50) $ (1.22) $ (3.01) $ (6.16)
======== ======== ======== ======== =========
Weighted average common shares - basic and
diluted 7,970 11,425 12,334 25,757 56,307
======= ======= ======== ======== =========
As of December 31,
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Balance Sheet Data
Cash, cash equivalents and securities available
for sale $5,238 $2,830 $1,494 $ 73,366 $ 11,035
Working capital (deficit) 4,981 (157) (371) 58,617 1,174
Total Assets 6,930 4,599 4,769 95,803 60,614
Long-term liabilities -- 29 21 387 957
Total stockholders' equity 6,216 510 1,310 81,041 28,213
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included elsewhere in this Annual Report
on Form 10-K. Historical results and percentage relationships set forth in the
statement of operations, including trends which might appear, are not
necessarily indicative of future operations.
RECENT DEVELOPMENTS
On January 16, 2001, we announced that a subsidiary of Homestore.com has
purchased certain assets from us pursuant to the terms of an acquisition
agreement dated January 12, 2001. Under the terms of the acquisition agreement,
the subsidiary of Homestore.com purchased certain computers, furniture, fixtures
and equipment, and certain sales contracts with residential real estate brokers
and agents. We used these assets in our operations involving providing virtual
tours of residential real estate properties. As part of the acquisition,
Homestore.com's subsidiary hired certain sales force and customer service
personnel. The purchase price for these assets was $12 million in cash, of which
$155,000 was paid directly to a lessor for certain capital lease obligations,
$7,454,000 was deposited into control accounts for deferred revenue obligations
and the remainder paid to the company. We also granted Homestore.com's
subsidiary an exclusive domestic license of certain of iPIX's virtual tour
technology for the residential real estate market.
STATEMENT OF OPERATIONS DATA
-------------------------------------------
Fiscal Years Ended December 31,
-------------------------------------------
In thousands, except per share data 1998 1999 2000
---- ---- ----
Revenues
Products $ 2,789 $ 12,523 $ 48,943
Services 329 -- 4,730
-------- -------- ---------
3,118 12,523 53,673
Cost of revenues
Products 1,274 7,262 25,442
Services 241 -- 2,464
-------- -------- ---------
1,515 7,262 27,906
-------- -------- ---------
Gross profit 1,603 5,261 25,767
-------- -------- ---------
Operating expenses:
Sales and marketing 8,783 37,785 80,026
Research and development 2,885 5,359 13,202
General and administrative 3,939 13,906 22,306
Stock-based compensation expense 1,162 20,675 5,127
Impairment and amortization of intangible assets -- -- 234,024
Merger expenses -- -- 15,175
Restructuring charges -- -- 4,161
-------- -------- ---------
Total operating expenses 16,769 77,725 374,021
-------- -------- ---------
Loss from operations (15,166) (72,464) (348,254)
Interest expense (202) (6,684) (436)
Other income (expense), net 303 2,545 2,095
-------- -------- ---------
Net loss (15,065) (76,603) (346,595)
Dividend relative to beneficial conversion feature
of Series B convertible preferred stock -- 1,000 --
-------- -------- ---------
Net loss attributable to common stockholders $(15,065) $(77,603) $(346,595)
======== ======== =========
Net loss per common share - basic and diluted $ (1.22) $ (3.01) $ (6.16)
======== ======== =========
Weighted average common shares - basic and
diluted 12,334 25,757 56,307
======== ======== =========
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STATEMENT OF OPERATIONS DATA
---------------------------------------
Fiscal Years Ended December 31,
---------------------------------------
In thousands, except per share data 1998 1999 2000
---- ---- ----
Revenues
Products 89.4% 100.0% 91.2%
Services 10.6 -- 8.8
------ ------ ------
100.0 100.0 100.0
Cost of Revenues
Products 40.9 58.0 47.4
Services 7.7 -- 4.6
------ ------ ------
48.6 58.0 52.0
------ ------ ------
Gross Profit 51.4 42.0 48.0
------ ------ ------
Operating Expenses:
Sales and marketing 281.7 301.7 149.1
Research and development 92.5 42.8 24.6
General and administrative 126.3 111.0 41.6
Stock-based compensation expense 37.3 165.1 9.6
Impairment and amortization of intangible assets -- -- 436.0
Merger expenses -- -- 28.3
Restructuring charges -- -- 7.7
------ ------ ------
Total operating expenses 537.8 620.6 696.9
------ ------ ------
Loss from operations (486.4) (578.6) (648.9)
Interest expense (6.5) (53.4) (0.8)
Other income (expense), net 9.7 20.3 3.9
------ ------ ------
Net loss (483.2) (611.7) (645.8)
Beneficial conversion of Series B convertible
preferred stock -- (8.0) --
------ ------ ------
Net loss attributable to common stockholders (483.2)% (619.7)% (645.8)%
====== ====== ======
Year Ended December 31, 2000 Compared to the Year Ended December 31, 1999
Revenues. Total revenues increased to $53,673,000 in 2000, compared to
$12,523,000 in 1999, an increase of $41,150,000. Product revenues increased to
$48,943,000 in 2000, compared to $12,523,000 in 1999, an increase of
$36,420,000. This increase was due primarily to an increase of $20,104,000 in
sales of virtual tours and an increase of $3,883,000 in sales of iPIX kits and
iPIX keys, primarily to e-commerce and real estate customers. Services revenues
from our professional services and Rimfire technology were $4,730,000 in 2000.
We did not have services revenues in 1999.
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 distributors of
our virtual tours. Cost of product revenues increased to $25,442,000 in 2000,
compared to $7,262,000 in 1999, an increase of $18,180,000. This increase was
due primarily to the sale of a higher volume of virtual tours. Cost of product
revenues as a percentage of product revenues decreased from 58.0% in 1999 to
52.0% in 2000. This decrease was primarily related to productivity improvements
in the virtual tours and a favorable product mix toward higher margin products.
Cost of service revenues were $2,464,000 in 2000. We did not incur any cost of
services revenues in 1999.
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 $80,026,000 in 2000, compared to
$37,785,000 in 1999, an
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increase of $42,241,000, or 111.8%. This increase was 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.
Sales and marketing expenses also increased due to the acquisitions in the
second quarter of 2000.
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 $13,202,000 in 2000, compared to $5,359,000 in
1999, an increase of $7,843,000, or 146.4%. 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 $22,306,000 in 2000, compared
to $13,906,000 in 1999, an increase of $8,400,000, or 60.4%. This increase was
due primarily to an increase in personnel and related expenses required to
support our growth, professional services, expansion of our leased facilities
and other costs associated with being a public company.
Stock-based Compensation Expense. 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 and
to the amortization of fair value of warrants issued to non-employees. The
related compensation is amortized over the vesting period of the options.
Expense related to the warrants is amortized over the term of the agreements to
which they relate. Stock-based compensation expense decreased to $5,127,000 in
2000, compared to $20,675,000 in 1999. This change is due to a decrease in
expense related to stock options issued in previous years offset by an increase
in expense related to warrants issued during 2000.
Impairment and Amortization of Intangible Assets. Amortization of intangible
assets was $57,193,000 in 2000. The amortization was a result of acquisitions
during the second quarter of 2000. During the fourth quarter of 2000, we
recorded an impairment of goodwill of $176,831,000. Certain events occurred
during the fourth quarter including the decline of our stock price and market
capitalization that led us to reevaluate expected future cash flows from
acquired businesses which indicated a need to record the impairment charge.
Merger Expenses. Merger expenses consist of costs incurred as a result of the
merger of Interactive Pictures and bamboo.com that occurred on January 19, 2000.
Restructuring Charges. During the fourth quarter of 2000, we recorded a
restructuring charge of $4,161,000 primarily associated with a reduction of our
workforce, the consolidation of certain offices and a write-off of abandoned
computer equipment.
Interest Expense. In June 1999, we entered into an agreement to sell 1,100
shares of our Series C mandatorily redeemable preferred stock and 1,251,830
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. The Company also incurred interest expense of
$166,000 in 2000 related to of debt incurred from an acquisition.
Other Income (Expense). Other income (expense) consists primarily of interest
earned on cash and investments. Other income (expense) decreased from $2,545,000
in 1999 to $2,095,000 in 2000. This decrease was due primarily to relatively
higher average cash and investment balances in 1999 reflecting the receipt of
proceeds from our equity offerings. The decrease was also due to the write-off
of investments during 2000.
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
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$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 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.
Sales and Marketing. 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 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
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 Expense. 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 1,251,830
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) 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.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations primarily through our registered
public offerings, the private placements of capital stock and a convertible
debenture. At December 31, 2000, we had $5,322,000 of cash and cash equivalents
compared to $18,627,000 at December 31, 1999.
Net cash used in operating activities was $13,093,000 in the year ended December
31, 1998, $46,786,000 in the year ended December 31, 1999, and $99,894,000 in
the year ended December 31, 2000. Net cash used for operating activities in each
of these periods is primarily a result of net losses and changes in net
operating assets. In addition, net loss included $234,024,000 for the impairment
and amortization of goodwill in 2000.
Net cash provided by/(used in) investment activities was $35,000 in the year
ended December 31, 1998, $(63,096,000) in the year ended December 31, 1999 and
$26,568,000 in the year ended December 31, 2000. Net cash provided by/(used in)
investing activities was related to the net purchases and maturities of
short-term investments and the purchase of computer software, hardware and other
equipment. In addition, cash was used in the second quarter of 2000 for
acquisitions.
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Net cash provided by financing activities was $12,741,000 in the year ended
December 31, 1998, $127,009,000 in the year ended December 31, 1999 and
$61,655,000 in the year ended December 31, 2000. The net cash provided by
financing activities in 1998 was due primarily to the private sale of shares of
our preferred stock. The net cash provided by financing activities in 1999 was
due primarily to the private and public sale of shares of our common and
preferred stock and the issuance of convertible subordinated promissory notes of
$1,800,000 that converted into preferred stock during the first quarter of 1999.
The net cash provided by financing activities in 2000 was due primarily to the
public sale of our common stock and exercise of stock options, offset by
repayments of capital leases and notes payable, and retirement of debt assumed
in an acquisition.
In order to comply with certain underwriting compensation rules of the National
Association of Securities Dealers, Inc., Interactive Pictures repurchased an
aggregate of 484,367 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, we anticipate
that the rate of capital expenditures and other expenses consistent with our
operations, personnel and marketing activities will be a material use of our
cash resources for the foreseeable future. We may also use our cash resources to
acquire or license technology, products or business related to our current
business.
We believe that our existing cash and cash equivalents will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures
until April 30, 2001. We are in the process of securing additional funds to
support our working capital requirements and may seek to raise these funds
through public or private equity financing, bank debt financing or from other
sources. Any of the equity securities may result in additional dilution to our
stockholders. There can be no assurance that our capital requirements will be
available in amounts or on terms acceptable to us, if at all. If we are unable
to raise the needed funds, we may be forced to sell assets or discontinue
operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities. "SFAS 133 is
effective for fiscal years beginning after June 15, 2000. SFAS 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.
In April 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44 (FIN 44), which clarifies the application of Accounting
Principles Board Opinion 25 for certain transactions. The interpretation
addresses many issues related to granting or modifying stock options including
changes in accounting for modifications of awards (increased life, reduction of
exercise price, etc.). It became effective July 1, 2000 but certain conclusions
cover specific events that occurred after either December 15, 1998 or January
12, 2000. The effects of applying the interpretation have been recognized on a
prospective basis from July 1, 2000. The adoption of FIN 44 has not had a
material impact on the Company.
INFLATION
Inflation has not had a significant impact on our operations to date.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
None.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements of the Company, together with the report
thereon of PricewaterhouseCoopers, LLP, independent auditors, are set forth on
the pages indicated in item 14(a) below of this Annual Report on Form 10-K.
This Form 10-K contains certain forward-looking statements regarding, among
other things, the anticipated financial and operating results of the Company.
Investors are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. We do not undertake any
obligation to publicly release any modifications or revisions to these
forward-looking statements to reflect events or circumstances occurring after
the date hereof or to reflect the occurrence of unanticipated events. In
connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, we caution
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investors that future financial and operating results may differ materially from
those projected in forward-looking statements made by, or on behalf of, us. Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors that may cause our actual results, performance, or achievements to
be materially different form any future results, performance, or achievements
expressed or implied by such forward-looking statements.
RISK FACTORS
Risk Factors Relating To Our Business, Finances and Operations:
DUE TO OUR LIMITED CASH RESOURCES, WE WILL BE FORCED TO CEASE OPERATIONS UNLESS
WE ARE SUCCESSFUL IN OBTAINING ADDITIONAL CAPITAL OR IN PURSUING STRATEGIC
ALTERNATIVES
We anticipate that our current cash, cash equivalents and cash generated from
operations will only be sufficient to meet our anticipated cash needs to
approximately April 30, 2001, although there can be no assurance in this regard.
Accordingly, we will require an additional, substantial capital infusion to
continue our operations. There can be no assurance that any additional capital
will be available to us. If we are unsuccessful in completing a financing
transaction, we may be required to cease operations, and our common stock will
have no value. In addition, potential investors in our securities should
consider the risk that, even if we are successful in completing a financing
transaction, our common stock may nonetheless have no value.
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, 2000, we had an accumulated deficit of $450 million. Accordingly,
we cannot offer any assurances that revenues will ever exceed expenses or that
we will become profitable.
Our current cash, cash equivalents and cash generated from operations will only
be sufficient to meet our anticipated cash needs to approximately April 30,
2001, although there can be no assurance in this regard. Accordingly, we will
require an additional, substantial capital infusion to continue our operations.
We do not believe that additional capital will be available to us. In addition,
we have engaged a financial advisor to explore strategic alternatives for us,
which may include a merger, asset sale, or another comparable transaction, or a
financial restructuring. If we are unsuccessful in completing a strategic
transaction, we will be required to cease operations, and our common stock will
have no value. In addition, potential investors in our securities should
consider the risk that, even if we are successful in completing a strategic
transaction, our common stock may nonetheless have no value.
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;
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- 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.
OUR COMMON STOCK MAY BE DELISTED FROM THE NASDAQ NATIONAL MARKET
We received a notice from the Nasdaq National Market on March 19, 2001 that our
common stock has been trading at below $1.00 per share for more than thirty
consecutive days. As such, we are in danger of being delisted by the Nasdaq
National Market. If a delisting were to occur, our common stock would trade on
the OTC Bulletin Board or in the "pink sheets" maintained by the National
Quotation Bureau, Inc. Such alternatives are generally considered to be less
efficient markets, and our stock price, as well as the liquidity of our common
stock, may be adversely impacted as a result.
OUR FUTURE SUCCESS IS DEPENDENT UPON KEY DISTRIBUTION AFFILIATES
The ability to broadly distribute digital media content over the Internet is
vital to our business. Through agreements between our affiliates and third
parties, our online tours may also be viewed on AOL, Excite@Home Network, GO
Network/Infoseek, Homestore.com, 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 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
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;
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- 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 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.
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. 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:
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- the growth of the Internet as a tool used in the process of
buying and selling products marketed with the help of
immersive imaging, including 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 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.
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 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
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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.
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. In addition, in October of 2000, our
board of directors approved a shareholder rights plan that has the effect of
making an acquisition of us prohibitively expensive unless our board of
directors approves of the acquisition. 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.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information called for by this item with respect to the directors of iPIX is
incorporated herein by reference to iPIX's Proxy Statement for its Annual
Meeting of Stockholders to be held on or about May 17, 2001, to be filed with
the SEC pursuant to Regulations 14A under the Securities Exchange Act of 1934,
as amended.
Item 11. Executive Compensation
The information called for by this item is incorporated herein by reference to
iPIX's Proxy Statement for its Annual Meeting of Stockholders to be held on or
about May 17, 2001, to be filed with the SEC pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information called for by this item is incorporated herein by reference to
iPIX's Proxy Statement for its Annual Meeting of Stockholders to be held on or
about May 17, 2001, to be filed with the SEC pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.
Item 13. Certain Relationships and Related Transactions.
The information called for by this item is incorporated herein by reference to
iPIX's Proxy Statement for its Annual Meeting of Stockholder to be held on or
about May 17, 2001, to be filed with the SEC pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on form 8-K.
(a) The following documents are filed as part of this Annual Report on Form
10-K:
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PAGE
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Internet Pictures Corporation Supplemental Pooled Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 1999 and 2000............................................. F-2
Consolidated Statements of Operations for the years ended December 31, 1998,
1999 and 2000......................................................................................... F-3
Consolidated Statements of Stockholders' Equity for the period from
January 1, 1998 to December 31, 2000...................................................................F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1999 and 2000........................................................................................F-7
Notes to Consolidated Financial Statements.............................................................F-8
All other schedules have been omitted because of the absence of conditions under
which they are required or because the required information is given in the
above-listed financial statements or notes thereto.
(b) Reports on Form 8-K.
1. Current Report on Form 8-K filed for an event dated October
26, 2000, announcing the adoption of a Rights Agreement.
(c) Exhibits.
The following exhibits are filed herewith or incorporated by reference:
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
3.1 Form of Amended and Restated Certificate of Incorporation of
the Registrant (incorporated herein by reference to Form S-1
as declared effective on August 25, 1999 (File No.
333-80639)).
3.1(a) Form of Amendment to the Amended and Restated Certificate of
Incorporation of the Registrant (incorporated by reference to
Form S-1 as filed with the Commission on March 17, 2000).
3.2 Form of Amended and Restated Bylaws of the Registrant
(incorporated herein by reference to Form 10-Q as filed with
the Commission on November 14, 2000).
3.3 Certificate of Designations of Series A Junior Participating
Preferred Stock (incorporated herein by reference to Form 8-A,
as filed with the Commission on November 2, 2000).
4.1 Form of certificate representing the common stock, $.001 par
value per share of Internet Pictures Corporation (incorporated
by reference to Form 10-K filed with the Commission on March
30, 2000).
4.2 Rights Agreement dated October 31, 2000 between Internet
Pictures Corporation and EquiServe (incorporated herein by
reference to Form 8-A as filed with the Commission on November
2, 2000).
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 Form of Rights Agreement dated March 31, 2000 between Internet
Pictures Corporation and the stockholders of PictureWorks
Technology, Inc. (incorporated herein by reference to Form 8-K
as filed with the Commission on March 6, 2000).
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, 2001
(incorporated herein by reference to Form 10-K filed with the
Commission on March 30, 2000).
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10.2* Separation Agreement dated September 14, 2000, between
Internet Pictures Corporation and Jeffrey D. Peters
(incorporated herein by reference to Form 10-Q as filed with
the Commission on November 14, 2000).
10.3* Employment Agreement dated August 24, 2000, between Internet
Pictures Corporation and John J. Kalec
10.4* Employment Agreement dated May 31, 2000, between Internet
Pictures Corporation and Matthew S. Heiter.
10.5* Employment Agreement dated March 7, 1996, between Picture
Works, Inc. and Donald W. Stickland.
10.6* Employment Agreement dated January 7, 2000, between Internet
Pictures Corporation and Steven Hicks.
10.7 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))
10.8 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))
10.9 1999 Employee Stock Purchase Plan(incorporated herein by
reference to Form S-4 as declared effective on December 16,
1999 (File No. 91139))
10.10 2000 Equity Incentive Plan (incorporated herein by reference
to Form S-8 as declared effective on June 27, 2000 (File No.
333-40160).
10.11 PictureWorks Technology, Inc. 1994 Stock Option Plan
(incorporated herein by reference to Form S-8 as declared
effective on May 2, 2000 (File No. 333-36068))
10.12 PictureWorks Technology, Inc. 1996 Stock Option Plan
(incorporated herein by reference to Form S-8 as declared
effective on May 2, 2000 (File No. 333-36068))
10.13 PictureWorks Technology, Inc. 1997 Stock Option Plan
(incorporated herein by reference to Form S-8 as declared
effective on May 2, 2000 (File No. 333-36068))
10.14 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)).
10.15 Acquisition Agreement dated January 12, 2001 between Internet
Pictures Corporation and Homestore Virtual Tours, Inc.
(incorporated herein by reference to Form 8-K filed on January
29, 2001).
10.16** License Agreement dated January 12, 2001 between Internet
Pictures Corporation and Homestore Virtual Tours, Inc.
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 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 by reference to report on
Form 8-K filed on March 14, 2000)
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (included on page 28)
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* Executive Compensation Plan or Agreement
** Portions of the exhibit have been omitted pursuant to a
request for confidential treatment.
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(d) Financial Statement Schedules.
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