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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For Fiscal Year Ended December 31, 2002

Commission file 000-26929

INTERNET CAPITAL GROUP, INC.

(610) 989-0111

      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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.     Yes     x          No     o

      Indicated 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.     o

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

      The approximate aggregate market value of Common Stock held by non-affiliates of the Company was $59.7 million as of June 28, 2002. (For purposes of determining this amount only, the Company has defined affiliates including, as of June 28, 2002, (a) its executive officers, (b) its directors and (c) each stockholder that the Company is aware is a beneficial owner of 10% or more of the outstanding common stock of the Company.

      The number of shares of the Company’s Common Stock outstanding as of March 14, 2003 was 286,720,469 shares.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the definitive proxy statement (the “Definitive Proxy Statement”) to be filed with the Securities and Exchange Commission (the “SEC”) relative to the Company’s Annual Meeting of Stockholders for the fiscal year ended December 31, 2002 are incorporated by reference into Part II and Part III of this Report.

INTERNET CAPITAL GROUP, INC.

INDEX

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INTERNET CAPITAL GROUP, INC.

Agribuys, Inc. (“Agribuys”)

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PART I

      Although we refer in this report on Form 10-K (“Report”) to companies in which we have acquired a convertible debt or an equity ownership interest as our “partner companies” and indicate that we have a “partnership” with these companies, we do not act as an agent or legal representative for any of our partner companies, we do not have the power or authority to legally bind any of our partner companies, and we do not have the types of liabilities in relation to our partner companies that a general partner of a partnership would have.

Item 1.     Business

Business Overview

      Internet Capital Group, Inc. (“ICG” or the “Company”) is an information technology company actively engaged in delivering software solutions and services that are designed to enhance business operations by increasing efficiency, reducing costs and improving sales results. ICG operates through a network of partner companies that deliver those solutions to customers. To help drive partner company progress, ICG provides operational assistance, capital support, industry expertise, access to operational best practices, and a strategic network of business relationships. ICG was formed on March 4, 1996 and is headquartered in Wayne, Pennsylvania.

      In the information technology industry, certain terms are often used to describe the nature of a company’s business, including the following terms: internet company, business to business e-commerce, software company, outsourcing, procurement services, supply chain and customer relationship management. These terms apply, in varying degrees, to our partner companies. Our partner companies also typically provide customers with systems integration consulting services or stand alone services. For convenience throughout this Report, we generally refer to our partner companies’ businesses as technology solutions and services.

      The current market environment creates a substantial opportunity for providers of software and services that improve sales results, reduce costs and increase efficiencies by streamlining business processes both within an enterprise and across the value chain. An increasing number of large enterprises are focusing on their core competencies to drive differentiation and competitive advantage for their firms. This means that they are looking for ways to outsource non-core, or non-strategic processes that cost time and money, and more importantly distract them from top priorities, of achieving profitability, growing market share and delivering new products or services. Our partner companies deliver software and services to help businesses focus on their core competencies. As of December 31, 2002, our partner company network is made up of 38 companies in which we own interests.

      With a sharp focus on those companies that we believe have the greatest potential to generate value for ICG stockholders, our operating strategy is to build and develop our partner companies by providing them with both human and financial resources. This support leverages the collective knowledge and best practices both within ICG and across our network of partner companies. We use these collective resources to actively support the business strategies, operations and management teams of our partner companies. Our resources include the experience, industry relationships and specific expertise of our management team, our partner companies’ management teams, our Board of Directors and our Advisory Board.

      ICG is a successor to a business originally founded as a Delaware limited liability company under the name Internet Capital Group, L.L.C. As a limited liability company, Internet Capital Group, L.L.C. was treated for income tax purposes as a partnership with taxes on the income generated by Internet Capital Group, L.L.C. paid by its members. Internet Capital Group, L.L.C. merged into Internet Capital Group, Inc. on February 2, 1999 with Internet Capital Group, Inc. surviving (the “Reorganization.”) As required by its limited liability company agreement to satisfy the members’ tax liabilities, Internet Capital Group, L.L.C. declared a $10.7 million distribution to its members. Internet Capital Group, Inc. has assumed all liabilities of Internet Capital Group, L.L.C. including the distribution to members of Internet Capital Group, L.L.C. Also as part of the Reorganization, Internet Capital Group, Inc. issued 164,011,098 shares of common stock to the

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Industry Overview

      The internet’s growth creates substantial market opportunities for companies that provide software and services to help traditional businesses increase efficiency and cost savings by leveraging the internet and other technologies. Historically, e-commerce has occurred through electronic data interchange over proprietary networks, which are costly and available only to a limited number of participants. The internet provides an open platform with common communication protocols to build efficient, cost-effective networks that facilitate e-commerce.

      During 2002, the e-commerce market continued a period of development and growth as enterprises of all sizes and across all industries looked for vehicles to help them:

	•	Increase efficiency and reduce cost;
	•	Focus on core competencies and outsource non-core, non-strategic processes; and
	•	Expand access to new and existing customers and suppliers.

Increase efficiency and reduce cost

      Traditional businesses are utilizing the internet to automate their internal operations, including manufacturing, finance, sales and purchasing functions. The internet is also used to increase information flow and access throughout the value chain. This increases operational efficiency by reducing the time, costs and resources required to transact business, lowering inventory levels and procurement costs and improving responsiveness to customers and suppliers. Recently, challenging market conditions only served to increase the need for companies to reduce bottom line costs and increase operational efficiencies to support growth, or even survival in some cases.

Focus on core competencies and outsource non-core, non-strategic processes

      There are an increasing number of large enterprises focusing on their core competencies to drive differentiation and competitive advantage for their firms. This means that they are looking for ways to outsource non-core, or non-strategic, processes that cost time and money, and more importantly distract them from their top priorities, which are to grow market share and deliver new products or services.

Expand access to new and existing customers and suppliers

      Traditional businesses have relied on their sales forces and purchasing departments to develop and maintain customer and supplier relationships. This model is constrained by the time and cost required to exchange current information regarding requirements, prices and product availability, and the difficulty of cost-effectively locating new customers and suppliers and managing existing relationships. Traditional businesses can leverage the internet to obtain and communicate real-time, accurate information regarding requirements, prices and products to a global audience, including suppliers, customers and business partners. This should make it easier for businesses to attract new customers and suppliers, improve service and increase revenue.

      We believe that the benefits of e-commerce are broad and will be realized by businesses in times of economic growth or contraction, because e-commerce can be used to build top line revenues in times of growth, and new levels of efficiency in times of contraction.

Our Solution and Strategy

      Our goal is to become a leader in information technology by owning significant stakes in leading companies that deliver the savings and efficiency of the internet to businesses of all sizes across all industries.

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      With a sharp focus on those companies that we believe offer the greatest potential to generate value for ICG stockholders, our operating strategy is to build and develop our partner companies by providing them with both human and financial resources. This support leverages the collective knowledge and best practices both within ICG and across our network of partner companies. We use these collective resources to actively support the business strategies, operations and management teams of our partner companies. Our resources include the experience, industry relationships and specific expertise of our management team, our partner companies’ management team, our Board of Directors and our Advisory Board.

      Although ICG’s mission of building leading companies has remained constant since its inception, the Company’s focus and operational tenets have evolved with the growth of the e-commerce market and in response to changes within the overall business environment. This evolution included:

	•	Identifying key markets and owning stakes in potential leaders in e-commerce;
	•	Aggregating companies into a network to share knowledge and promote growth; and
	•	Prioritizing resources to accelerate development of those partner companies that we believe are the most likely to create value for our stockholders.

Identifying key markets and owning stakes in potential leaders

      Our expertise in the e-commerce market has allowed us to identify companies that we believe are positioned to succeed. In building our partner company network, we applied an analysis that capitalized on this competitive advantage. We were very active in acquiring new companies during 1999 and 2000, bringing the network composition to an all-time high of 80 companies by late 2000. In evaluating whether to enter a market or acquire a stake in a specific company, we weighed each opportunity in terms of several industry and company factors. With regards to industry criteria, we evaluated the inefficiencies within each market, its competitive landscape and the potential each market had in terms of the number and dollar value of transactions it would be able to support. In measuring the potential of each partner company, we looked at market position and share, our ability to own a significant stake and the company’s potential to contribute to the network’s value in terms of operational resources and the quality of its management team.

      After we identified an attractive potential partner company, we negotiated the acquisition of a significant interest in the company. As a condition to an acquisition, we generally required representation on the company’s board of directors to ensure our ability to provide active guidance to the partner company. We structured acquisitions to permit the partner company’s management and key personnel to retain an equity stake in the company. During our negotiations with potential partner companies we emphasized the value of our network and resources, which we believe gave us a competitive advantage over other acquirers in successfully consummating transactions.

      In late 2000, we reallocated our capital resources as described below to focus on those partner companies that we believed presented the greatest potential for ICG stockholders. Due to this increased focus on certain existing partner companies, we decreased our focus on new acquisitions. Accordingly, our strategy since late 2000 has been to acquire interests in new partner companies only when we believe the strategic value of such companies was extremely compelling.

      After acquiring interests in partner companies, we selectively continue to participate in their follow-on financings and selectively increase our ownership positions.

Aggregating companies into network to promote growth

      During 1999 and 2000 we acquired interests in numerous partner companies, and as we made those acquisitions, we immediately took an active role in the partner companies by providing both strategic guidance and operational support:

      Strategic Guidance. We provide strategic guidance to our partner companies regarding market positioning, business model development and market trends. Our focus on the e-commerce market and the knowledge

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      Operational Support. We provide operational support to our partner companies in the areas of finance, sales and marketing, business development and human resources. The majority of our partner companies have an assigned operations and finance team. This team advises our partner companies’ management on day-to-day management and operational issues.

      Exchange of Best Practices and Economies of Scale. One of the principal goals of our network is to promote best practices and economies of scale among our partner companies. We promote and facilitate the information flow among our partner companies and as they follow similar business cycles and challenges, key learnings are leveraged to increase operational efficiencies, accelerate decision-making and promote growth. This includes the negotiation of umbrella vendor contracts in specific areas such as marketing and human resources that can be beneficial to many partner companies. Importantly, the challenging economic environment has had a significant effect on most of our partner companies. The benefits of a network effect has enabled many of these companies to leverage strategies implemented by some companies to cut costs and evolve business models to quickly respond to these common challenges.

Prioritize resources to accelerate development of most promising companies

      Although we do and will continue to concentrate on providing the operational and strategic support to promote growth and profitability at our partner companies, the market volatility that began in early 2000 necessitated a prioritization of both our human and capital resources toward partner companies believed to have the greatest potential to generate value for our stockholders. Based on our active involvement in the e-commerce market since 1996, we believe that our expertise allows us to identify companies that are positioned to succeed. This enables the prioritization of our resources to accelerate the development of partner companies we believe offer the greatest value for our stockholders over the long-term. We believe this prioritization and focus will result in the streamlining of our partner company network into a smaller but stronger group of companies. We intend to continue to focus on our private and public partner companies that we believe have the greatest value potential, which we refer to as our core (“Core”) partner companies. We believe these companies are gaining traction in delivering the software and services that we believe have the potential to dramatically increase efficiency and savings for businesses. However, this categorization does not necessarily imply that every one of our Core partner companies is a de facto success at this time. Rather, it captures those companies that are receiving the majority of management’s time and resources as we consider them our most promising.

      At December 31, 2002 our Core partner companies consisted of:

	Blackboard, Marketron, CommerceQuest, CreditTrade, eCredit, eMerge Interactive, FreeBorders, GoIndustry, ICG Commerce, Investor Force, iSky, Jamcracker, LinkShare, OneCoast, Syncra Systems, Universal Access and Verticalnet.

      These Core partner companies deliver a wide array of software and services to help customers streamline and automate business processes with the goal of reducing costs and increasing efficiencies both within the four walls of the enterprise and across their individual value chains.

      We believe that additional partner companies may be included in this category in the future and that, conversely, certain partner companies may be removed from this category in the future.

Government Regulations and Legal Uncertainties

      Government regulation of the internet and e-commerce is evolving and unfavorable changes could harm our partner companies’ business. Our partner companies are subject to general business regulations and laws, as well as regulations and laws specifically governing the internet and e-commerce. Such existing and future laws and regulations may impede the growth of the internet or other online services. These regulations and laws may cover taxation, user privacy, pricing, content, copyrights, distribution, electronic contracts, consumer protection, the provision of online payment services, broadband residential internet access and the characteris-

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Proprietary Rights

      Our partner companies have copyrights with respect to software applications, websites and other materials. These materials may constitute an important part of our partner companies’ assets and competitive strengths. Federal law generally protects such copyrights for 90 years from the creation of the underlying material.

Competition

Competition From our Stockholders and Within our Network

We may compete with one of our stockholders and some of our partner companies, and our partner companies may compete with each other, which could deter companies from partnering with us and may limit future business opportunities.

      We may compete with one of our stockholders and some of our partner companies for internet-related opportunities. As of December 31, 2002, Safeguard Scientifics, Inc. (“Safeguard Scientifics”) owns 12.9% of our outstanding common stock and may compete with us to acquire interests in e-commerce companies. The Chairman of Safeguard Scientifics’ Board of Directors and Safeguard Scientifics’ former Chairman and CEO are currently members of our Board of Directors. This may give Safeguard Scientifics access to our business plan and knowledge about potential transactions. In addition, we may compete with our partner companies to acquire interests in e-commerce companies and our partner companies may compete with each other for e-commerce opportunities. This competition, and the complications posed by the Safeguard Scientifics affiliated directors, may deter companies from partnering with us and may limit our business opportunities.

Competition Facing our Partner Companies

      Competition for information technology and internet products and services is intense. As the market for e-commerce grows, we expect that competition will intensify. Barriers to entry are minimal and competitors can offer products and services at a relatively low cost. Our partner companies compete for a share of a customer’s:

	•	purchasing budget for technology solutions, services, materials and supplies with other similar providers and traditional distribution channels; and
	•	dollars spent on consulting services with many established information systems and management consulting firms.

      In addition, some of our partner companies compete to attract and retain a critical mass of buyers and sellers. Several companies offer competitive solutions that compete with one or more of our partner companies. We expect that additional companies will offer competing solutions on a stand-alone or combined basis in the future. Furthermore, our partner companies’ competitors may develop information technology and internet products or services that are superior to, or have greater market acceptance than, the solutions offered by our partner companies. Many of our partner companies’ competitors have greater brand recognition and greater financial, marketing and other resources than our partner companies. This may place our partner companies at a disadvantage in responding to their competitors’ pricing strategies, technological advances, advertising campaigns, strategic partnerships and other initiatives.

      If our partner companies are unable to compete successfully against their competitors, our partner companies may fail.

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Employees

      We have reduced our headcount from 31 at March 15, 2002 to 23 at March 14, 2003 in order to reduce our corporate expenses. Although we believe our and our consolidated partner companies current staffing levels are adequate to conduct business, we cannot ensure that we and our consolidated partner companies will not need to increase headcount in the future.

      Headcount at our consolidated partner companies at March 14, 2003 is 1,040.

Financial Information About Segments

      Segment information is set forth in Note 10 of the Notes to Consolidated Financial Statements included in Item 8 below and incorporated herein by reference.

Financial Information About Geographic Areas

      We do not believe that foreign or geographic area revenues are material or significant to an understanding of our business and operations.

Item 2.     Properties

      The location and general description of our properties as of March 14, 2003 are as follows:

Corporate Offices

      Our corporate headquarters are located at 435 Devon Park Drive, Building 600 in an office facility located in Wayne, Pennsylvania, where we lease approximately 23,000 square feet. We utilize approximately 10,000 square feet for our corporate operations and sublease the residual 13,000 square feet.

Partner Company Properties

      Our consolidated partner companies lease approximately 390,647 square feet of office, administrative, sales and marketing, operations and data center space, principally in California, Colorado, Georgia, Illinois, Indiana, Massachusetts, Missouri, New Hampshire, New York, North Carolina, Pennsylvania, Texas and Virginia in the United States, and also Australia, Canada, China, France, Germany, Hong Kong, Spain, Sweden and the United Kingdom.

Item 3.     Legal Proceedings

      In May and June 2001, certain of the Company’s present directors, along with the Company, certain of its former directors, certain of its present and former officers and its underwriters, were named as defendants in nine class action complaints filed in the United States District Court for the Southern District of New York. The plaintiffs and the alleged classes they seek to represent include present and former stockholders of the Company. The complaints generally allege violations of Sections 11 and 12 of the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, based on, among other things, the dissemination of statements allegedly containing material misstatements and/or omissions concerning the commissions received by the underwriters of the initial public offering and follow-on public offering of the Company as well as failure to disclose the existence of purported agreements by the underwriters with some of the purchasers in these offerings to buy additional shares of the Company’s stock subsequently in the open market at pre-determined prices above the initial offering prices. The plaintiffs seek for themselves and the alleged class members an award of damages and litigation costs and expenses. The claims in these cases have been consolidated for pre-trial purposes (together with other issuers and underwriters) before one judge in the Southern District of New York federal court. In April 2002, a consolidated, amended complaint was filed against these defendants which generally alleges the same violations and also refers to alleged misstatements or omissions that relate to the recommendations regarding the Company’s stock by analysts employed by the underwriters. In June and July 2002, defendants, including the Company defendants, filed motions to dismiss plaintiffs’ complaints on numerous grounds. The Company’s motion was denied in its entirety in a lengthy

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      On August 6, 2002, EOP-One Market, L.L.C. filed a lawsuit against the Company and ten John Doe defendants in the Superior Court of California, City and County of San Francisco. The action asserts a claim for breach of contract and alleges a failure to pay rent on property at One Market Street, San Francisco, since October 1, 2001, under a lease extending to December 31, 2010. The lawsuit seeks damages, interest, attorneys’ fees and costs. The Company has asserted a cross-complaint against EOP-One Market, L.L.C. and 20 John Doe cross-defendants asserting claims for breach of contract, return of security deposit and unfair business act or practices. The cross-complaint alleges, among other things, that the cross-defendants breached an agreement under which the Company would return a portion of the leased space to EOP-One Market, L.L.C. in exchange for a cash payment to the Company. The cross-complaint seeks compensatory damages, interest, restitution of the security deposit and an injunction against further withholding of the security deposit amount, attorneys’ fees and costs.

      On December 20, 2002, the Company was named as a defendant in an action filed in the United States District Court for the District of Maine. The plaintiffs include former stockholders of Animated Images, Inc (“Animated Images”), one of the Company’s former partner companies. In addition to the Company, the defendants include FreeBorders, a current partner company, and four individual defendants, including former officers of the Company and former Animated Images directors. The complaint generally alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Section 5(a) of the Securities Act of 1933, fraud, breach of contract, breach of fiduciary duty and civil conspiracy, among other claims, in connection with the merger of Animated Images into FreeBorders. In support of these claims, the plaintiffs allege, among other things, that the defendants misrepresented the value of the stock of FreeBorders, resulting in plaintiffs’ having received less consideration in the merger than that to which they believe they were entitled. The litigation is currently in its preliminary stage.

Item 4.     Submission of Matters to a Vote of Security Holders

      No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 2002.

PART II

Item 5.     Market For Registrant’s Common Equity and Related Stockholder Matters

      (a) Our common stock is currently traded on the Nasdaq SmallCap Market under the symbol “ICGE”. We transferred from the Nasdaq National Market to the Nasdaq SmallCap Market effective June 10, 2002. Our initial public offering of stock occurred on August 5, 1999 at $6.00 (post split) per share on the Nasdaq National Market. The price range per share reflected in the table below is the highest and lowest sale price for our stock as reported by the Nasdaq National Market and the Nasdaq SmallCap Market during each quarter our common stock has been publicly traded.

      As of March 14, 2003, the last reported sale price for our common stock on the Nasdaq SmallCap was $0.29 per share.

      (b) Holders. As of March 14, 2003, there were approximately 1,742 holders of record of our common stock, although there is a much larger number of beneficial owners.

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      (c) Dividends. We have never declared or paid cash dividends on our capital stock and we do not intend to pay cash dividends in the foreseeable future. We plan to retain any earnings for use in the operation of our business and to fund future growth.

      (d) Securities Authorized for Issuance Under Equity Compensation Plans

      We incorporate by reference the information contained under the caption “Equity Compensation Plan Information” in our Definitive Proxy Statement for our annual meeting of stockholders, to be filed within 120 days after the end of the year covered by this Report pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended.

Item 6.     Selected Consolidated Financial Data

      The following table summarizes certain selected historical consolidated financial information of ICG that has been derived from our audited consolidated financial statements for each of the five years ended December 31, 2002, 2001, 2000, 1999 and 1998. The financial information for 2001 and 2000 has been adjusted to reflect that the method of accounting for Jamcracker changed from the cost method to the equity method of accounting. See Note 1 — “Prior period adjustments” to our Consolidated Financial Statements. The financial information may not be indicative of our future performance. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and Notes thereto included in this Report.

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(1)

On February 2, 1999, the Company converted from an LLC to a C corporation. The Company became subject to corporate federal and state income taxes concurrent with the conversion to a C corporation. The information for the years ended December 31, 1999 and 1998 include pro forma information with respect to income taxes, net income (loss) and net income (loss) per share assuming the Company had been taxed as a C corporation since January 1, 1999 and 1998. The unaudited pro forma information provided does not necessarily reflect the income taxes, net income (loss) and net income (loss) per share that would have occurred had the Company been taxed as a C corporation since January 1, 1998.

      The Company has not paid a cash dividend since its inception. In December 1999, the Company declared and paid a 100% stock dividend. All share information in this Report reflects this dividend.

      The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth elsewhere in this Report and the risks discussed in our other SEC filings. The following discussion should be read in conjunction with our audited Consolidated Financial Statements and related Notes thereto included elsewhere in this Report.

      Although we refer in this Report to companies in which we have acquired a convertible debt or an equity ownership interest as our “partner companies” and indicate that we have a “partnership” with these companies”, we do not act as an agent or legal representative for any of our partner companies, we do not have the power or authority to legally bind any of our partner companies, and we do not have the types of liabilities in relation to our partner companies that a general partner of a partnership would have.

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      Because we own significant interests in information technology companies, many of which generate net losses, we have experienced, and expect to continue to experience, significant volatility in our quarterly results. While many of our partner companies have consistently reported losses, we have recorded net income in certain periods and experienced significant volatility from period to period due to one-time or infrequently occurring transactions and other events incidental to our ownership interests in partner companies. These transactions and events are described in more detail in Note 2 and Note 18 of our Consolidated Financial Statements and include dispositions of and changes to, our partner company ownership interests, dispositions of our holdings of available-for-sale securities, debt extinguishment and impairment charges.

Critical Accounting Policies

      Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our investments in our partner companies, marketable securities, income taxes, commitments and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

      We believe the following critical accounting policies are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgment.

Valuation of Goodwill, Intangible Assets and Ownership Interests in Partner Companies

      We perform on-going business reviews and, based on quantitative and qualitative measures, assess the need to record impairment losses on goodwill, intangible assets and our ownership interests in our partner companies when impairment indicators are present. Where impairment indicators are present, we determine the amount of the impairment charge as the excess of the carrying value over the fair value. We determine fair value based on a combination of the discounted cash flow methodology, which is based upon converting expected future cash flows to present value, and the market approach, which includes analysis of market price multiples of companies engaged in lines of business similar to the company being evaluated. The market price multiples are selected and applied to the company based on relative performance, future prospects and risk profile of the company in comparison to the guideline companies. Significant assumptions relating to future operating results must be made when estimating the future cash flows associated with these companies. Significant assumptions relating to achievement of business plan objectives and milestones must be made when evaluating whether impairment indicators are present. Should unforeseen events occur or should operating trends change significantly, additional impairment losses could occur.

Revenue

      We may assume all or a part of a customer’s procurement function as part of sourcing arrangements. Typically, in these engagements, we are paid a fee based on a percentage of the amount spent by our customer’s purchasing department in the specified areas we manage, a fixed fee agreed upon in advance, and in many cases we have the opportunity to earn additional fees based on the level of savings achieved for customers. We recognize fee income as earned and any additional fees as we become entitled to them. In these arrangements, we do not assume inventory, warranty or credit risk for the goods or services a customer purchases, but we do negotiate the arrangements between a customer and supplier.

      We recognize license revenue when a signed contract or purchase order exists, the software has been shipped or electronically delivered, the license fee is fixed or determinable, and collection of the resulting receivable is probable. When contracts contain multiple elements wherein vendor specific objective evidence exists for all undelivered elements, we account for the delivered elements in accordance with the “Residual

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      We assess whether the fee is fixed or determinable and collection is probable at that time of the transaction. In determining whether the fee is fixed or determinable, we compare the payment terms of the transaction to our normal payment terms. If a significant portion of a fee is due after our normal payment terms, we account for the fee as not being fixed or determinable and recognize revenue as the fees become due. We assess whether collection is probable based on a number of factors, including the customer’s past transaction history and credit-worthiness. We do not request collateral from our customers. If we determine that collection of a fee is not probable, we defer the fee and recognize revenue at the time collection becomes probable, which is generally upon receipt of cash.

      First-year maintenance typically is sold with the related software license and renewed on an annual basis thereafter. For such arrangements with multiple obligations, we allocate revenue to each component of the arrangement based on the fair value of the undelivered elements. Fair values of ongoing maintenance and support obligations are based on separate sales of renewals to other customers or upon renewal rates quoted in the contracts. Maintenance revenue is deferred and recognized ratably over the term of the maintenance and support period. Fair value of services, such as consulting or training, is based upon separate sales of these services. Consulting and training services are generally billed based on hourly rates and revenues are generally recognized as the services are performed. Consulting services primarily consist of implementation services related to the installation of our products and generally do not include significant customization to or development of the underlying software code.

Deferred Income Taxes

      We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We consider future taxable income and prudent and feasible tax planning strategies in determining the need for a valuation allowance. In the event that we determine that we would not be able to realize all or part of our net deferred tax assets, an adjustment to the deferred tax assets is charged to earnings in the period such determination is made. Likewise, if we later determine that it is more likely than not that the net deferred tax assets would be realized, then the previously provided valuation allowance would be reversed.

Commitments and Contingencies

      From time to time, we are a defendant or plaintiff in various legal actions that arise in the normal course of business. We are also a guarantor of various third-party obligations and commitments. We are required to assess the likelihood of any adverse judgments or outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of reserves required for these contingencies, if any, which would be charged to earnings, is made after careful analysis of each individual matter. The required reserves may change in the future due to new developments in each matter or changes in circumstances, such as a change in settlement strategy. Changes in required reserves could increase or decrease our earnings in the period the changes are made.

Basis of Presentation

Effect of Various Accounting Methods on our Results of Operations

      The various interests that we acquire in our partner companies are accounted for under three broad methods: consolidation, equity method and cost method. The applicable accounting method is generally determined based on our voting interest in a partner company.

      Consolidation. Partner companies in which we directly or indirectly own more than 50% of the outstanding voting securities are generally accounted for under the consolidation method of accounting. Under this method, a partner company’s accounts are reflected within our Consolidated Statements of Operations. Participation of other partner company stockholders in the earnings or losses of a consolidated partner

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      Equity Method. Partner companies whose results we do not consolidate, but over whom we exercise significant influence, are generally accounted for under the equity method of accounting. Whether or not we exercise significant influence with respect to a partner company depends on an evaluation of several factors including, among others, representation on the partner company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the partner company, including voting rights associated with our holdings in common, preferred and other convertible securities of the partner company. Under the equity method of accounting, a partner company’s accounts are not reflected within our Consolidated Statements of Operations; however, our share of the earnings or losses of the partner company is reflected in the caption “Equity loss” in our Consolidated Statements of Operations.

      Cost Method. Partner companies not accounted for under either the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, our share of the earnings of losses or these companies is not included in our Consolidated Statements of Operations.

Reportable Segments

      Our reportable segments using the “management approach” under Statement of Financial Accounting Standards, (SFAS) No. 131, “Disclosure About Segments of a Business Enterprise and Related Information”, consist of two operating segments, the Core partner companies operating segment and the emerging (“Emerging”) partner companies operating segment. Each segment includes the results of our consolidated partner companies, our share of earnings and losses of partner companies accounted for under the equity method of accounting and captures our basis in the assets of all of our partner companies. Our operations, as well as our partner companies’ operations, were principally in the United States of America during all periods presented.

      As of December 31, 2002, we owned interests in 38 partner companies which are categorized below based on segment and method of accounting.

CORE PARTNER COMPANIES (% Voting Interest)

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EMERGING PARTNER COMPANIES (% Voting Interest)

      The following summarizes the unaudited selected financial information related to our segments. Each segment includes the results of our consolidated partner companies and records our share of the earnings and losses of partner companies accounted for under the equity method of accounting. The partner companies included within the segments are consistently the same 38 partner companies for 2002, 2001 and 2000. The method of accounting for any particular partner company may change based on our ownership interest.

      The Core operating segment includes those partner companies in which our management takes a very active role in providing strategic direction and management assistance. The Emerging operating segment includes investments in companies that are, in general, managed to provide the greatest near-term stockholder value. Discontinued operations and dispositions are those partner companies that have been sold or ceased operations and are no longer included in a segment for all periods presented. Corporate expenses represent our General and Administrative expenses of supporting the partner companies. The measure of segment net loss reviewed by us does not include items such as impairment related charges, income taxes, extraordinary items and accounting changes, which are reflected in other reconciling items in the information which follows.

      The financial information for 2001 and 2000 has been adjusted to reflect that the method of accounting for Jamcracker changed from the cost method to the equity method of accounting. See Note 1 to our Consolidated Financial Statements.

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Results of Operations — Core Companies

      The following presentation of our Results of Operations — Core Companies includes the results of our consolidated Core partner companies and our share of the results of our equity method Core partner companies.

Core Segment Results

      Revenue from Core companies was $108.0 million for 2002 versus $91.2 million for 2001. As a result of CommerceQuest, eCredit, OneCoast and FreeBorders being consolidated for a greater period during 2002 than in 2001, Core revenue increased $29.2 million for 2002 versus 2001. Increases in the customer base, increased activity of existing customers and an acquisition resulted in increased revenues at ICG Commerce of $4.3 million for 2002 versus 2001. These increases were offset by a decrease of $16.7 million as a result of deconsolidating AssetTrade.com, Inc. (“AssetTrade”) during 2001.

      Revenue from Core companies was $91.2 million for 2001 versus $7.8 million for 2000. As a result of our acquisitions of majority ownership positions in AssetTrade, CommerceQuest, eCredit and OneCoast, Core revenue increased $46.9 million for 2001 versus 2000. Increases in the customer base, increased activity of existing customers and an acquisition at ICG Commerce resulted in increased ICG Commerce revenues of $38.7 million for 2001 versus 2000.

      Operating expenses including cost of revenue, selling, general and administrative and research and development for core companies were $148.6 million for 2002, versus $172.4 million for 2001. These operating expenses have decreased by $38.9 million as ICG Commerce implemented cost reduction programs and by $28.0 million as a result of deconsolidating AssetTrade during 2001. These decreases were partially offset by an increase of $43.1 million due to CommerceQuest, eCredit, OneCoast and FreeBorders being consolidated for a greater period during 2002 than in 2001.

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      Operating expenses for core companies were $172.4 million for 2001 versus $92.9 million for 2000. These operating expenses increased by $52.0 million due to our acquisition of majority ownership positions in AssetTrade, CommerceQuest, eCredit and OneCoast. In addition, those costs associated with ICG Commerce increased $31.1 million as they developed their business model.

      Amortization of goodwill ceased on January 1, 2002 in accordance with SFAS No. 142. Amortization of other intangibles related to Core companies was $12.0 million for 2002. Amortization of goodwill and other intangibles related to Core companies was $49.1 million for 2001 versus $19.0 million for 2000. The increase for 2001 versus 2000 primarily relates to the consolidation of CommerceQuest, eCredit and OneCoast. (See Note 1 to our Consolidated Financial Statements)

      A significant portion of our net results from our Core companies is derived from those partner companies in which we hold a substantial minority ownership interest. Our share of income or losses of these companies, amortization of goodwill related to our carrying value of these companies and any impairment losses related to these companies is recorded in our Consolidated Statements of Operations under “Equity loss”.

      The following table summarizes the components of Equity loss for segment reporting purposes (in thousands):

      Our share of income and net losses of Core companies decreased to $39.9 million in 2002 versus $267.3 million in 2001. As a result of our share of Verticalnet’s, eMerge Interactive’s and Universal Access’ reduced 2002 losses versus 2001, our equity loss decreased by $185.8 million. Equity loss decreased $19.5 million as we consolidated CommerceQuest, eCredit and OneCoast for a greater period in 2002 versus accounting for these companies as equity method companies for the majority of 2001. The residual decrease of $22.1 million is due to decreased losses at the majority of our Core equity method companies in 2002 versus 2001 as they increased revenues and reduced operating expenses.

      Our share of net income and net losses of Core companies was $267.3 million for 2001 versus $211.8 million for 2000. As the result of our share of Verticalnet’s, eMerge Interactive and Universal Access’s increased losses for 2001 versus 2000, equity loss increased by $105.2 million. Equity loss decreased $31.1 as we consolidated AssetTrade, CommerceQuest, eCredit and OneCoast for a portion of 2001 versus accounting for these companies as equity method companies for all of 2000. The residual decrease is due to decreased losses at a majority of our Core equity method companies resulting from increased revenue and reduced operating expenses.

      Our investment in certain Core equity method partner companies had been reduced to zero at December 31, 2001. As a result we do not record our share of these companies losses until such time as our share of income equals the unrecorded losses or the partner companies equity transactions result in an adjustment of our investment. Of those companies which had a zero basis as of December 31, 2001, Verticalnet has had the largest impact on our past results. Our share of Verticalnet’s loss for 2001 and 2000 was $184.8 million and $85.2 million, respectively. As our basis in Verticalnet was reduced to zero during the fourth quarter of 2001 we only recorded $167.0 million of our share of losses in 2001. Our share of Verticalnet’s 2002 results exceeded the unrecorded losses resulting in $3.8 million in income. Other partner companies with a zero or near zero basis that continue to incur losses may not have an impact on our 2003 results.

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      Amortization of goodwill ceased effective January 1, 2002 in accordance with SFAS No. 142. Approximately $58.6 million of the 2001 versus 2000 decrease relates to AssetTrade, CommerceQuest, eCredit and OneCoast becoming consolidated companies during 2001.

      Impairment losses related to Core equity method partner companies totaled $7.0 million and $367.5 million for 2002 and 2001 and are included in “other” for segment reporting purposes. See “Other” subsection below.

Results of Operations — Emerging Companies

      The following presentation of our Results of Operations — Emerging Companies includes the results of our Consolidated Emerging Partner Companies and our share of the results of our equity method Core partner companies.

Emerging Segment Results

      Our consolidated Emerging companies have generated negligible revenues to date. The period over period decreases and increases in operating expenses is primarily a result of deconsolidating Emptoris and OnMedica during 2002 and consolidating Emptoris and OnMedica for a greater period in 2001 versus 2000.

      The following table summarizes the components of Equity loss (in thousands):

      Our share of income and net losses of Emerging companies was $15.9 million for 2002 versus $40.5 million for 2001. The decrease is principally the result of our basis in these companies being reduced to zero, our ownership interest being reduced and reduced losses at these companies.

      Amortization of goodwill ceased effective January 1, 2002 in accordance with SFAS No. 142.

      Impairment losses related to Emerging equity method companies totaled $16.8 million and $15.6 million for 2002 and 2001 and are included in “other” for segment reporting purposes. See “Other” subsection below.

Discontinued Operations and Dispositions

      During 2002, two consolidated subsidiaries sold substantially all of their assets. In accordance with SFAS No. 144, these transactions were treated as discontinued operations. Accordingly, the revenue and operating results for 2002, 2001 and 2000 have been presented, net, in one line item “Loss on discontinued operations” in our Consolidated Statements of Operations. These two consolidated subsidiaries, Delphion, Inc. (“Delphion”) and Logistics.com, Inc. (“Logistics.com”) had revenue of $16.1 million, $8.0 million and

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      The impact to our consolidated results of the partner companies that we have disposed of our ownership interest in or have ceased operations during 2002, 2001 or 2000 is also included in the caption “Dispositions” for segment reporting purposes. The most significant individual consolidated partner companies’ revenues and net loss related to these dispositions were as follows: RightWorks, Inc. (“RightWorks”) revenues of $15.2 million and $19.4 million and net losses of $135.8 million and $227.6 million in 2001 and 2000, respectively; and PaperExchange.com, Inc. (“PaperExchange.com”) revenues of $4.4 million and $12.6 million and net losses of $15.6 million and $41.1 million in 2001 and 2000, respectively.

      Our share of income and losses of those equity method companies we disposed of was income of $4.2 million in 2002 and losses of $159.3 million and $257.9 million for 2001 and 2000, respectively. The most significant individual equity method company, Breakaway Solutions, Inc. (“Breakaway Solutions”) represented $59.4 million and $83.7 million of this equity loss in 2001 and 2000, respectively. Goodwill amortization related to these equity method companies totaled $35.2 million and $126.9 million in 2001 and 2000.

      Impairment losses related to equity method partner companies classified as “Dispositions” totaled $5.7 million, $57.4 million and $157.8 million for 2002, 2001 and 2000, respectively, and are included in “other” for segment reporting purposes. See subsection below.

Corporate

      Our general and administrative costs consist primarily of employee compensation, facilities, outside services such as legal, accounting and consulting, travel-related costs and stock-based compensation. The decrease is the result of the restructuring of our operations. See subsection Restructuring below. Included in these expenses is stock-based compensation of $15.3 million, $14.3 million and $7.1 million for 2002, 2001 and 2000, respectively, consisting primarily of amortization expense related to options granted below fair value in 1999 and grants of restricted stock to employees during 2001. Stock-based compensation for 2002 and 2001 increased as the result of restricted stock grants to employees and modifications to certain stock option grants and related stockholder notes during 2001 and 2002.

      During 2002, 2001 and 2000, we restructured our operations to better align our general and administrative expenses with the reduction in the number of our partner companies. The restructuring resulted in charges of $1.5 million, $32.9 million and $25.9 million for the years ended December 31, 2002, 2001 and 2000, respectively. The total of $60.3 million consisted of $21.2 million of non-cash charges related to vesting acceleration of stock options and fixed assets write-offs and $39.1 million in employee severance and lease termination costs. These charges are included in Impairment Related and Other section in the Consolidated Statement of Operations (See Note 8 to our Consolidated Financial Statements).

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      The decrease in interest expense, net of $5.0 million is primarily attributable to the reduction in the amount of notes outstanding at December 31, 2002 versus 2001. Interest expense during the year ended December 31, 2002 and 2001 was primarily attributed to the December 1999 issuance of $566.3 million in convertible subordinated notes due 2004 bearing interest at 5.5%. The increase in interest expense, net of $22.2 million in 2001 is primarily due to the decrease in the average balance of cash and cash equivalents and short-term investments during 2001 versus 2000.

Other

      We continually evaluate the carrying values of our partner companies. Additionally, we operate in an industry that is rapidly evolving, extremely competitive and where many businesses have experienced difficulty in raising additional capital necessary to fund operating losses. In 1999 and 2000 the Company announced several significant acquisitions that were financed principally with shares of the Company’s stock and, based on the price of the Company’s stock at that time were valued in excess of $1 billion. Valuations of public companies operating in our industry declined significantly during 2001 and 2002. Based on our periodic review of our partner company carrying values impairment charges of $43.5 million, $1.3 billion and $348.6 million were recorded in 2002, 2001 and 2000, respectively (See Note 2 to our Consolidated Financial Statements).

      In 2002 and 2001, the Company purchased and extinguished $163.0 million and $120.2 million, respectively, face value of convertible subordinated notes for $48.8 million and $35.5 million, respectively, in cash. The purchases resulted in gains in the amount of $111 million and $81 million, respectively, net of expenses. In addition, other income (loss), net decreased in 2002 as compared to 2001 principally as a result of sales of available for sale securities and losses related to the fair value of partner company warrants in 2001.

      Other income (loss), net decreased in 2001 as compared to 2000 as we recognized significant gains in 2000 relating to our sale of TRADEX Technologies, Inc. to Ariba, Inc. (“Ariba”) and stock issuances by Verticalnet and Breakaway Solutions versus losses in 2001 for impairment charges on cost method partner companies, sales of available-for-sale securities and losses related to the fair value of partner company warrants.

      Our net deferred tax asset of $779.1 million at December 31, 2002 consists of deferred tax assets of $780.2 million, relating primarily to net operating loss carry forwards, offset by deferred tax liabilities of $1.1 million primarily related to non-deductible stock-based compensation. During 2001, we recorded a full valuation allowance against our net assets which was maintained during 2002 (See note 14 to our Consolidated Financial Statements).

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Liquidity and Capital Resources

      As of December 31, 2002, we had $88.9 million in cash, cash equivalents and short-term investments, $10.2 million in available-for-sale securities, principally consisting of shares in i2 Technologies, Inc. (“i2 Technologies”) and $9.2 million in restricted cash for total liquidity of $108.3 million. In addition, our consolidated partner companies had cash, cash equivalents, restricted cash and short-term investments of $38.8 million. Consolidated working capital decreased to $74.9 million at December 31, 2002 compared to $177.3 million at December 31, 2001, primarily as a result of advances we made to partner companies, our repurchase of debt and net cash outflows from operations during the year ended December 31, 2002.

      Net cash used in operating activities was approximately $86.4 million for the year ended December 31, 2002 compared to $267.7 million during the same prior year period. The decrease is primarily the result of the decreased losses at our consolidated partner companies.

      Net cash provided by investing activities during the year ended December 31, 2002 was $18.0 million, versus net cash provided by investing activities of $97.4 million during the comparable 2001 period. The decrease is primarily due to reduced proceeds from the sale of available-for-sale securities and proceeds from partner company dispositions offset by fewer acquisitions of ownership interests.

      Existing cash, cash equivalents and short-term investments, proceeds from the issuance of debt and equity securities of our consolidated partner companies to third parties, proceeds from the potential sales of all or a portion of our available-for-sale securities or minority interests in certain partner companies, and other internal sources of cash flow are expected to be sufficient to fund our cash requirements through March 31, 2004, including commitments to existing partner companies, debt obligations and repurchases and general operations requirements. At December 31, 2002, we had $23 million of funding and guarantee commitments relating to partner companies, of which approximately $6.9 million was funded during the three months ended March 31, 2003. If a certain consolidated partner company achieves a fair market value in excess of $1.0 billion, we will be obligated to pay, in cash or stock at our option, 4% of the partner company’s fair market value in excess of $1.0 billion, up to $70 million. This contingent obligation will expire on the earlier to occur of May 31, 2005 or an unaffiliated company sale, if the valuation milestone is not achieved. Currently, the fair market value of this partner company is well below $1.0 billion. We will continue to evaluate acquisition opportunities and may acquire additional equity or debt interests in new and existing partner companies during the next 12 months; however, such acquisitions are largely discretionary. If we elect to make additional acquisitions, it may become necessary for us to raise additional funds. We may not be able to raise additional capital and failure to do so could have a material adverse effect on our business. If additional funds are raised through the issuance of equity securities, our existing stockholders may experience significant dilution.

      We are a party to a loan agreement which provides for issuances of letters of credit up to $20 million subject to a cash secured borrowing base. As of December 31, 2002, $5.9 million in letters of credit were outstanding under the agreement.

      We and our consolidated subsidiaries are involved in various claims and legal actions arising in the ordinary course of business. We do not expect the ultimate liability with respect to these actions will materially affect our financial position or cash flows.

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Contractual Cash Obligations and Commercial Commitments

      The following table summarizes our contractual cash obligations and commercial commitments at December 31, 2002:

      See Notes 6 and 19 to our Consolidated Financial Statements for additional information.

Recent Accounting Pronouncements

      In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143, which addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs is effective for fiscal years beginning after June 15, 2002. We do not expect the adoption of this new standard to have a material impact on our results of operations or financial position.

      In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and certain portions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” SFAS No. 144 provides updated guidance concerning the recognition and measurement of an impairment loss for certain types of long-lived assets, and requires that long-lived assets to be disposed of by sale be measured at the lower of the carrying amount or fair value less cost to sell, and reported separately in the asset and liabilities sections of the consolidated balance sheet. SFAS No. 144 also expands the reporting of discontinued operations to include components of an entity that have been or will be disposed of. The scope of SFAS No. 144 excludes long-lived assets, goodwill and other intangibles that are accounted for in accordance with SFAS No. 142. As we discussed above, the adoption of SFAS No. 144, as of January 1, 2002, impacted our consolidated results of operations and statements of cash flows with the sale of assets related to two of our partner companies, Delphion and Logistics. As a result, our 2001 and 2000 Consolidated Financial Statements were restated to reflect the effect of the dispositions.

      In March 2002, the EITF reached consensus on Issue 50, “Accounting for the conversion of a recourse note to a nonrecourse note” of EITF No. 00-23, “Issues Related to the Accounting for Stock Compensation under APB Opinion No. 25 and FASB Interpretation No. 44.” This consensus establishes that the conversion of a substantive recourse note to a nonrecourse note should be accounted for as the repurchase of the shares previously exercised where the repurchase amount is equal to the sum of (a) the then-current principal balance of the recourse note, (b) accrued interest, if any and (c) the intrinsic value of the new option. In most instances, compensation expense is recorded where the fair market value of the repurchased shares is less than the repurchase amount at the date of conversion. This consensus was applied prospectively to conversions of recourse notes to nonrecourse notes occurring after March 21, 2002 and resulted in compensation expense of approximately $3.7 million for 2002.

      In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections,” which is effective for fiscal years beginning after May 15, 2002. This statement rescinds the indicated statements and amends other existing pronouncements to make various technical corrections, clarify meanings, or describe their applicability under

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      In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities,” which is effective for exit or disposal activities that are initiated after December 31, 2002. This statement nullifies Emerging Issues Task Force Issue (EITF) No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” This statement requires that liabilities associated with exit or disposal activities initiated after adoption be recognized and measured at fair value when incurred as opposed to at the date an entity commits to the exit or disposal plans. We anticipate the adoption of this new standard to have an impact on the timing of when we recognize any future restructuring charges in our Consolidated Financial Statements.

      In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which expands previously issued accounting guidance and disclosure requirements for certain guarantees. The interpretation requires an entity to recognize an initial liability for the fair value of an obligation assumed by issuing a guarantee. The provision for initial recognition and measurement of the liability will be applied on a prospective basis to guarantees issued or modified after December 31, 2002. We do not expect this interpretation to have a material impact on our consolidated financial position or results of operations.

      In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123,” which provides optional transition guidance for those companies electing to voluntarily adopt the accounting provisions of SFAS No. 123. In addition, the statement mandates certain new disclosures that are incremental to those required by SFAS No. 123. We will continue to account for stock-based compensation in accordance with Accounting Principles Board (APB) Opinion No. 25. As such, we do not expect this standard to have a material impact on our consolidated financial position or results of operations. We adopted the disclosure-only provisions of SFAS No. 148 as of December 31, 2002.

      In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of APB Opinion No. 51,” which requires all variable interest entities (VIEs) to be consolidated by the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interests in the VIE. In addition, the interpretation expands disclosure requirements for both variable interest entities that are consolidated as well as VIEs from which the entity is the holder of a significant amount of the beneficial interests, but not the majority. The disclosure requirements of this interpretation are effective for all financial statements issued after January 31, 2003. The consolidation requirements of this interpretation are effective for all periods beginning after June 15, 2003. It is possible that under the consolidation provisions, we may be required to consolidate previously unconsolidated partner companies. Our management is still assessing the impact of this interpretation.

      In November 2002, the FASB issued EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” This issue addresses how to account for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. The final consensus of this issue is applicable to agreements entered into in fiscal periods beginning after June 15, 2003. Additionally, companies will be permitted to apply the guidance in this issue to all existing arrangements as the cumulative effect of a change in accounting principle in accordance with APB Opinion No. 20, “Accounting Changes.” We do not believe that adoption of this issue will have a material impact on our consolidated financial position, consolidated results of operations, or liquidity.

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Risk Factors

      Forward-looking statements made with respect to our financial condition and results of operations and business in this Report and those made from time to time by us through our senior management are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our current expectations and projections about future events but are subject to known and unknown risks, uncertainties and assumptions about us and our partner companies that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements.

      Factors that could cause our actual results, levels of activity, performance or achievements to differ materially from those anticipated in forward-looking statements include, but are not limited to, factors discussed elsewhere in this Report and include among other things:

	•	our ability and our partner companies’ ability to access the capital markets;
	•	our ability to effectively manage existing capital resources;
	•	our ability to retain key personnel;
	•	our ability to maximize value in connection with divestitures;
	•	development of the e-commerce and information technology markets;
	•	our outstanding indebtedness; and
	•	our partner companies’ ability to compete successfully against competitors.

      In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue” or the negative of such terms or other similar expressions. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Form 10-K might not occur.

Risks Particular to Internet Capital Group

Our ability to grow our business and the businesses of our partner companies may be adversely affected if economic conditions in the United States are not favorable.

      The United States economy has been weakened by, among other things, a recession, the terrorist attacks of September 11, 2001 and the response of the United States to such attacks and hostilities in the Middle East involving the United States Armed Forces. These matters, and subsequent future terrorist attacks or hostilities or economic deterioration, could continue to result in further weakness in the United States economy, which could negatively affect our business.

Our stock price has been volatile in the past and may continue to be volatile in the future.

      Our stock price has historically been very volatile. Stock prices of technology companies have generally been volatile as well. This volatility may continue in the future.

      The following factors, among others, will add to our common stock price’s volatility:

	•	actual or anticipated variations in our quarterly results and those of our partner companies;
	•	changes in the market valuations of our partner companies and other technology and internet companies;
	•	conditions or trends in the software industry in general and the e-commerce sector in particular;

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	•	negative public perception of the prospects of internet companies;
	•	changes in our financial estimates and those of our partner companies by securities analysts;
	•	new products or services offered by us, our partner companies and their competitors;
	•	announcements by our partner companies and their competitors of technological innovations;
	•	announcements by us or our partner companies or our competitors of significant acquisitions, strategic partnerships or joint ventures;
	•	our capital commitments;
	•	additional sales of our securities;
	•	additions to or departures of our key personnel or key personnel of our partner companies; and
	•	general economic conditions such as a recession or interest rate or currency rate fluctuations and the reluctance of enterprises to increase spending on new technologies.

      Many of these factors are beyond our control. These factors may decrease the market price of our common stock, regardless of our operating performance.

If our common stock ceases to be listed for trading on the Nasdaq SmallCap Market, the price and liquidity of our common stock may be adversely affected.

      Companies listed on the Nasdaq SmallCap Market are required to maintain a minimum bid price of $1.00 per share. When we transferred from the Nasdaq National Market to the Nasdaq SmallCap Market, our securities were trading below $1.00. As a result of our transfer to the SmallCap market, we were granted an initial grace period lasting until October 22, 2002 to regain compliance with the $1.00 per share minimum bid price requirement. On October 23, 2002 we received a letter from Nasdaq informing us that, although we did not regain compliance during the initial grace period, we qualified for and would be provided with a second grace period, lasting 180 calendar days, to regain compliance. Accordingly, while we are not now in compliance with the SmallCap Market’s $1.00 per share minimum bid price requirement, we currently have until April 21, 2003 to regain compliance. In the event that we have not regained compliance by April 21, 2003, we may be eligible for a third grace period. Nasdaq recently proposed, and received SEC approval for, an additional grace period for minimum bid price deficient companies. This new grace period would allow us 90 additional days after April 21, 2003 to regain compliance. To qualify for this new grace period, on April 21, 2003 our most recent public financial filing must demonstrate that we meet one of three “core” criteria for the SmallCap Market. We currently meet one of these criteria (the requirement that the market value of our listed securities be at least $50 million); however, there can be no assurance that our most recent public financial filing as of April 21, 2003 will demonstrate compliance with any of the three relevant criteria necessary to qualify for the additional 90-day grace period.

      In order to regain compliance with the SmallCap Market’s minimum bid price requirement, the bid price of our common stock must close at $1.00 per share or more for a minimum of ten consecutive trading days before the end of the relevant grace period. There can be no assurance that we will achieve compliance with the $1.00 per share minimum bid price before the last applicable grace period is exhausted, or that we will continue to satisfy all of the other listing requirements of the Nasdaq SmallCap Market. In the event that we do not qualify for listing on the Nasdaq SmallCap Market, sales of our common stock would likely be conducted only in the over-the-counter market. This could have a negative impact on the price and liquidity of our common stock, as investors could find it more difficult to purchase or dispose of, or to obtain accurate quotations as to the market value of, our common stock.

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We may not be able to pay our long-term debt when it matures.

      In December 1999 the Company issued convertible subordinated notes that bear interest at an annual rate of 5.5% and mature in December 2004. As of December 31, 2002, $283.1 million in face value of these notes remained outstanding. We may be unable to repay or refinance this long-term debt when it matures. If we successfully refinance this debt, then we may issue securities that will be senior to our common stock and may issue equity securities that would dilute the interests of the holders of our common stock. If we are unable to pay or refinance these obligations when due, we would probably be rendered insolvent and could be forced into bankruptcy. In a bankruptcy proceeding it is likely that the holders of our common stock would lose most or all of their investment.

Our outstanding indebtedness could negatively impact our future prospects.

      As of December 31, 2002, we had $283.1 million in outstanding convertible subordinated notes and $19.6 million in long-term debt (including the current portion thereof). This indebtedness may:

	•	make it more difficult to obtain additional financing;
	•	limit our ability to deploy existing capital resources; and
	•	constrain our ability to react quickly in an unfavorable economic climate.

      If we are unable to satisfy our debt service requirements, substantial liquidity problems could result, which would negatively impact our future prospects.

Our business depends upon the performance of our partner companies, which is uncertain.

      Economic, governmental, industry and internal company factors outside our control affect each of our partner companies. If our partner companies do not succeed, the value of our assets and the price of our common stock will decline. The material risks relating to our partner companies include:

	•	fluctuations in the market price of the common stock of Verticalnet, eMerge Interactive, Onvia.com and Universal Access, our publicly traded partner companies, and other future publicly traded partner companies, which are likely to affect the price of our common stock;
	•	many of our partner companies are in the early stages of their development with limited operating history, little revenue and substantial losses;
	•	lack of the widespread commercial use of the internet, decreased spending on information technology software and services and elongated sales cycles which may prevent our partner companies from succeeding;
	•	intensifying competition for the products and services our partner companies offer, which could lead to the failure of some of our partner companies; and
	•	the inability of our partner companies to secure additional financing, which may force some of our partner companies to cease or scale back operations.

      Of our $366.2 million in total assets as of December 31, 2002, $71.7 million, or 19.6%, consisted of ownership interests in and advances to our partner companies accounted for under the equity and cost methods. The carrying value of our partner company ownership interests includes our original acquisition cost, the effect of accounting for certain of our partner companies under the equity method of accounting, the effect of adjustments to our carrying value resulting from certain issuances of equity securities by our partner companies, and the effect of impairment charges recorded for the decrease in value of certain partner companies. The carrying value of our partner companies will be impaired and decrease if one or more of our partner companies do not succeed. The carrying value of our partner companies is not marked to market; therefore, a decline in the market value of one of our publicly traded partner companies may impact our financial position by not more than the carrying value of the partner company. However, this decline would likely affect the price of our common stock. For example, our stakes in our publicly traded partner companies,

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      Other material risks relating to our partner companies are more fully described below under “Risks Particular to Our Partner Companies.”

Because we have limited resources to dedicate to our partner companies, some of the partner companies may not be able to raise sufficient capital to sustain their operations.

      Our allocation of resources to our partner companies is mostly discretionary. Because our resources and our ability to raise capital are limited, we cannot commit to provide our partner companies with sufficient capital resources to allow them to reach a cash flow positive position. If our partner companies are not able to raise capital from other outside sources, then they may need to cease operations.

If public and private capital markets are not favorable for the technology sector we may not be able to execute on our strategy.

      Our strategy includes creating value for our stockholders by building leading technology e-commerce companies. Our success depends on the acceptance by the public and private capital markets of technology companies in general, including initial public offerings of those companies. The technology market has experienced significant volatility recently and the market for initial public offerings of technology companies has been extremely weak since 2000. If these conditions continue, we may not be able to create stockholder value by taking our partner companies public. In addition, reduced market interest in technology e-commerce companies may reduce the market value of our publicly traded partner companies.

Fluctuations in our quarterly results may adversely affect our stock price.

      We expect that our quarterly results will fluctuate significantly due to many factors, including:

	•	the operating results of our partner companies;
	•	significant fluctuations in the financial results of technology companies generally;
	•	changes in equity losses or income;
	•	the acquisition or divestiture of interests in partner companies;
	•	changes in our methods of accounting for our partner company interests, which may result from changes in our ownership percentages of our partner companies;
	•	sales of equity securities by our partner companies, which could cause us to recognize gains or losses under applicable accounting rules;
	•	the pace of development or a decline in growth of the technology market;
	•	competition for the goods and services offered by our partner companies; and
	•	our ability to effectively manage our growth and the growth of our partner companies.

      We believe that period-to-period comparisons of our operating results are not meaningful. If our operating results in one or more quarters do not meet securities analysts’ or investors’ expectations, the price of our common stock could decrease.

The loss of any of our or our partner companies’ executive officers or other key personnel or our or our partner companies’ inability to attract additional key personnel could disrupt our business and operations.

      We believe that our success will depend on continued employment by us and our partner companies of executive officers and key personnel, as well as on our and our partner companies’ ability to attract additional qualified personnel. If one or more members of our executive officers or key personnel, or our partner

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      The success of some of our partner companies also depends on their having highly trained technical and marketing personnel. A shortage in the number of trained technical and marketing personnel could limit the ability of our partner companies to increase sales of their existing products and services and launch new product offerings.

We have had a history of losses and expect continued losses in the foreseeable future.

      We have had significant operating losses and, excluding the effect of any future non-operating gains, we expect to continue incurring significant operating losses in the future. As a result, we may not have sufficient resources to expand our operations in the future. We can give no assurances as to when or whether we will achieve profitability, and if we ever have profits, we may not be able to sustain them.

We may have difficulty assisting our partner companies in managing their operations.

      Our partner companies are facing different challenges. Some are growing rapidly. Some face elongated sales cycles where our prospective customers maintain tight controls over technology spending. These situations are likely to place significant strain on their resources and on the resources we allocate to assist our partner companies. In addition, our management may be unable to convince our partner companies in adopting ideas for effectively and successfully managing such situations.

Our accounting estimates with respect to the ultimate recoverability of our basis in our partner companies could change materially in the near term.

      We operate in an industry that is rapidly evolving and extremely competitive. Many internet-based businesses, including some with business models similar to ours, have experienced difficulty in raising additional capital necessary to fund operating losses and continue investments that their management teams believe are necessary to sustain operations. Valuations of public companies operating in the technology sector have declined significantly since early 2000. In the first quarter of 2000 we announced several significant acquisitions that were financed principally with shares of our stock and based on the price of our stock at that time, were valued in excess of $1 billion. Based on our periodic review of our partner company holdings, including those valued during 2001, impairment charges of $1.3 billion were recorded to write off certain partner company holdings. It is reasonably possible that our accounting estimates with respect to the useful life and ultimate recoverability of our carrying basis including goodwill in other partner companies could change in the near term and that the effect of such changes on the financial statements could be material. At year end, the recorded amount of carrying basis including goodwill is not impaired, although we cannot assure that our future results will confirm this assessment, that a significant write-down or write-off of partner company carrying basis including goodwill will not be required in the future, or that a significant loss will not be recorded in the future upon the sale of a partner company.

We may compete with one of our stockholders and some of our partner companies, and our partner companies may compete with each other, which could deter companies from partnering with us and may limit future business opportunities.

      We may compete with one of our stockholders and some of our partner companies for internet-related opportunities. As of December 31, 2002, Safeguard Scientifics owns 12.9% of our outstanding common stock and may compete with us to acquire interests in e-commerce companies. The Chairman of Safeguard Scientifics’ Board of Directors and Safeguard Scientifics’ former Chairman and CEO are currently members of our Board of Directors. This may give Safeguard Scientifics access to our business plan and knowledge about potential transactions. In addition, we may compete with our partner companies to acquire interests in e-commerce companies and our partner companies may compete with each other for e-commerce opportunities. This competition, and the complications posed by the Safeguard Scientifics affiliated directors, may deter companies from partnering with us and may limit our business opportunities.

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Our partner companies could make business decisions that are not in our best interests or that we do not agree with, which could impair the value of our partner company interests.

      Although we generally seek a significant equity interest and participation in the management of our Core partner companies, we may not be able to control significant business decisions of our Core partner companies. In addition, although we currently own a controlling interest in several of our Core partner companies, we may not maintain this controlling interest. Equity interests in partner companies in which we lack control or share control involves additional risks that could cause the performance of our interest and our operating results to suffer, including the management of a partner company having economic or business interests or objectives that are different from ours and partner companies not taking our advice with respect to the financial or operating difficulties that they may encounter.

      Our inability to prevent dilution of our ownership interests in our partner companies or our inability to otherwise have a controlling influence over the management and operations of our partner companies could have an adverse impact on our status under the Investment Company Act. Our ability to adequately control our partner companies could also prevent us from assisting them, or could prevent us from liquidating our interest in them at a time or at a price that is favorable to us. Additionally, our partner companies may not collaborate with each other or act in ways that are consistent with our business strategy. These factors could hamper our ability to maximize returns on our interests and cause us to recognize losses on our interests in partner companies.

Our operations and growth could be impaired by limitations on our and our partner companies’ ability to raise money.

      We have been dependent on the capital markets for access to funds for acquisitions, operations and other purposes. While we attempt to operate our business in such a manner so as to be independent from the capital markets, there is no assurance that we will be successful in doing so. Our partner companies are also dependent on the capital markets to raise capital for their own purposes. During the past three years, the market for internet-related and software companies and initial public offerings weakened dramatically. If this weakness continues for an extended period of time, our ability and the ability of our partner companies to grow and access the capital markets, if necessary, will be impaired, which would require us to take other actions, such as borrowing money on terms that may be unfavorable to us, or divesting of interests in our partner companies to raise capital.

Our stakes in some partner companies have been and are likely to be diluted, which could materially reduce the value of our stake in such partner companies.

      Since we allocate our financial resources to those partner companies that we believe have the most potential, our ownership interests in other partner companies have been and are likely to continue to be diluted due to our decision not to participate in financings. This dilution results in a reduction in the value of our stakes in such partner companies.

In the future, we may need to raise additional capital to fund our operations and this capital may not be available on acceptable terms, if at all.

      We may need to raise additional funds in the future and we cannot be certain that we will be able to obtain additional financing on favorable terms, if at all.

Even if a number of our partner companies achieve profitability, we may not be able to extract cash from such companies, which could have a negative impact on our operations.

      One of our goals is to help our partner companies achieve profitability. Even if a number of our partner companies do meet such goal, we may not be able to access cash generated by such partner companies to fund our own operations, which could have a negative impact on our operations.

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When we divest partner company interests, we may be unable to obtain maximum value for such interests.

      We focus our capital and human resources on those partner companies that we believe present the greatest long-term stockholder value. We may divest our interests in those partner companies that do not fit this criterion or in other partner companies that we believe are no longer core to our strategy. We divest of our interests in other partner companies to generate cash or for strategic reasons. When we divest all or part of an interest in a partner company interest, we may not receive maximum value for our position. For partner companies with publicly-traded stock, we may be unable to sell our interest at then-quoted market prices. Furthermore, for those partner companies that do not have publicly-traded stock, the realizable value of our interests may ultimately prove to be lower than the carrying value currently reflected in our consolidated financial statements. We continually evaluate the carrying value of our ownership interests in and advances to each of our partner companies for possible impairment based on achievement of business plan objectives and milestones, the value of each ownership interest in the partner company relative to carrying value, the financial condition and prospects of the partner company and other relevant factors. If we are unable to raise capital from other sources we may be forced to sell our stakes in partner companies at unfavorable prices in order to sustain our operations. Additionally, we may be unable to find buyers for certain of our assets, which could adversely affect our business.

We may have difficulty selling our stakes in our publicly-traded partner companies.

      Because we hold significant stakes of restricted securities thinly-traded public companies, we may have difficulty selling our interest in such companies and, if we are able to sell our shares, such sales may be subject to volume limitations and may be at prices that are below the then-quoted bid prices.

The Companies that we have identified as Core partner companies may not succeed.

      We cannot ensure that the companies we have identified as Core partner companies are those that actually have the greatest value proposition or are those to which we will continue to allocate capital. Although we have identified certain of our partner companies as Core partner companies, this categorization does not necessarily imply that every one of our Core partner companies is a de facto success at this time or will become successful in the future. There is no guarantee that a Core partner company will remain categorized as Core or that it will be able to successfully continue operations.

Due to our decision to allocate the majority of our resources to partner companies we believe present the greatest long-term stockholder value, our ability to provide support to our other partner companies will be limited.

      We allocate our resources to focus on those partner companies that we believe present the greatest stockholder value. We cannot ensure that the companies we identified in this process are those that actually have the greatest value proposition. As a result of our reallocation of resources, we will not allocate capital to all of our existing partner companies. Our decision to not provide additional capital support to some of our partner companies could have a material adverse impact on the operations of such partner companies.

We may have to buy, sell or retain assets when we would otherwise choose not to in order to avoid registration under the Investment Company Act of 1940, which would impact our investment strategy.

      We believe that we are actively engaged in the business of technology through our network of majority-owned subsidiaries and companies that we are considered to “control.” Under the Investment Company Act, a company is considered to control another company if it owns more than 25% of that company’s voting securities and is the largest stockholder of such company. A company may be required to register as an investment company if more than 45% of its total assets consist of, and more than 45% of its income/ loss and revenue attributable to it over the last four quarters is derived from, ownership interests in companies it does not control. Because many of our partner companies are not majority-owned subsidiaries, and because we own 25% or less of the voting securities of a number of our partner companies, changes in the value of our interests in our partner companies and the income/ loss and revenue attributable to our partner companies could subject

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We have implemented certain anti-takeover provisions that could make it more difficult for a third party to acquire us.

      Provisions of our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. Our certificate of incorporation provides that our board of directors may issue preferred stock without stockholder approval and also provides for a staggered board of directors. We are subject to the provisions of Section 203 of the Delaware General Corporation Law, which restricts certain business combinations with interested stockholders. Additionally, we have a Rights Agreement which has the effect of discouraging any person or group from beneficially owning more that 15% of our outstanding common stock unless our board has amended the plan or redeemed the rights. The combination of these provisions may inhibit a non-negotiated merger or other business combination.

In August 2003, members of management may sell shares of the Company’s common stock in connection with the vesting of restricted stock grants, which could have a negative effect on the price of the Company’s stock.

      Members of our management have been granted shares of restricted stock, of which approximately 1.2 million will vest in August 2003. We believe that individuals are likely to sell shares of the Company’s common stock to cover tax liabilities associated with the vesting and they may sell additional vested shares. Such sales could have a negative effect on the stock price.

Risks Particular to Our Partner Companies

Many of our partner companies have a limited operating history and may never be profitable.

      Many of our partner companies are early-stage companies with limited operating histories, have significant historical losses and may never be profitable. Many of these companies have incurred substantial costs to develop and market their products and expand operations, have incurred net losses and cannot fund their cash needs from operations. Operating expenses of these companies could increase in the foreseeable future as they continue to develop products, increase sales and marketing efforts and expand operations.

Fluctuation in the price of the common stock of our publicly-traded partner companies may affect the price of our common stock.

      Verticalnet, eMerge Interactive, Onvia.com and Universal Access are our publicly-traded partner companies. The price of their common stock has been highly volatile. As of December 31, 2002, the market value of our publicly-traded partner companies was $12.6 million. Fluctuations in the price of Verticalnet’s, eMerge Interactive’s, Onvia.com’s and Universal Access’ and other future publicly-traded partner companies’ common stock are likely to affect the price of our common stock. Our assets as reflected in our balance sheet

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      Verticalnet’s results of operations, and accordingly the price of its common stock, may be adversely affected by the risk factors disclosed in its SEC filings, including the following factors:

	•	potential inability to sustain operations due to cash constraints and exploration of alternatives that include a sale of all or part of its business or a reorganization or liquidation of Verticalnet;
	•	inability to retain key management and experienced software personnel;
	•	inability to generate significant revenues from enterprise, software licensing and professional services;
	•	inability to reduce expenses or generate an operating profit;
	•	inability to establish brand awareness;
	•	inability to acquire additional funding;
	•	inability to maintain listing on the Nasdaq SmallCap Market; and
	•	lengthy sales and implementation cycles for products.

      eMerge Interactive’s results of operations, and accordingly the price of its common stock, may be adversely affected by the risk factors disclosed in its SEC filings, including the following factors:

	•	lack of commercial acceptance of eMerge Interactive’s products and services;
	•	inability to respond to competitive developments;
	•	failure to achieve brand recognition;
	•	failure to introduce new products and services; and
	•	failure to upgrade and enhance its technologies to accommodate expanded product and service offerings and increased customer traffic.

      Onvia.com’s results of operations, and accordingly the price of its common stock, may be adversely affected by the risk factors disclosed in its SEC filings, including the following factors:

	•	potential loss of rights to distribute governmental content;
	•	potential reduction in governmental spending resulting in a reduction of Onvia.com’s bid flow;
	•	inability to increase subscribership to its premium, higher priced services;
	•	many competitors of Onvia.com have larger customer bases and greater brand recognition;
	•	government agencies’ unwillingness to purchase their business services and products online;
	•	a significant number of small businesses, government agencies and their vendors’ unwillingness to use its emarketplace to buy and sell services and products;
	•	failure of small business customers to provide data about themselves;
	•	inability to enhance the features and services of its exchange to achieve acceptance and scalability;
	•	negative impact on stock price and future operations resulting from a declared cash distribution; and
	•	inability to manage a change in strategy.

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      Universal Access’ results of operations, and accordingly the price of its common stock, may be adversely affected by the risk factors disclosed in its SEC filings, including the following factors:

	•	failure of its services to be sufficiently rapid, reliable and cost-effective;
	•	unwillingness of clients to outsource the obtaining of circuits;
	•	inability to market its services effectively;
	•	inability to expand its Universal Transport Exchange (UTX) facilities;
	•	failure to successfully operate a network operations center;
	•	inability to implement and maintain its Universal Information Exchange (UIX) databases;
	•	failure of the market for UTX services to grow;
	•	inability to maintain listing on the Nasdaq SmallCap Market;
	•	changes in market valuations of telecommunications and internet-related companies;
	•	inability of clients’ to pay their obligations;
	•	inability to obtain third party financing;
	•	inability to reduce costs and increase revenues, difficulties or delays in delivering circuits;
	•	inability to successfully aggregate circuits; and
	•	dependence on several large clients.