UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

Commission File Number 000-26929

INTERNET CAPITAL GROUP, INC.

(610) 727-6900
(Registrant’s telephone number, including area code)

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 þ No o

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

The number of shares of the Company’s Common Stock outstanding as of May 2, 2005 was 38,400,704 shares.

INTERNET CAPITAL GROUP, INC.
FORM 10-Q
March 31, 2005

INDEX

Although we refer in this Report to the companies in which we have acquired a convertible debt or an equity ownership interest as our “Partner Companies” and that we 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, and 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.

This Quarterly Report on Form 10-Q includes forward looking statements within the meaning of Section 21E of the Securities Exchange Act, as amended. See the subsection of Part I, Item 2 entitled “Risk Factors” for more information.

Our internet website address is www.internetcapital.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed by us with the Securities and Exchange Commission pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are accessible free of charge through our website as soon as reasonably practicable after we electronically file those documents with, or otherwise furnish them to, the Securities and Exchange Commission.

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INTERNET CAPITAL GROUP, INC.
PARTNER COMPANIES AS OF MARCH 31, 2005

Core

CommerceQuest, Inc. (“CommerceQuest”)

CommerceQuest is an enterprise software and service provider that enables its customers to turn business strategy into business processes by fully integrating the work that people do with software systems that optimize business performance. CommerceQuest delivers a complete set of scalable business process management solutions that leverage existing IT investments to unite people, processes and technology in a service-based architecture.

CreditTrade Inc. (“CreditTrade”)

CreditTrade provides transaction, data and information services to the credit markets. CreditTrade is a broker specializing in credit default swaps and secondary loans.

Freeborders, Inc. (“Freeborders”)

Freeborders provides product lifecycle management software and services to leading retailers and their suppliers, enabling brands to more effectively manage the increasing complexity of their supply chains. Freeborders solutions help drive profitable revenue growth, speed products to market, improve inventory management, and maintain control, consistency and quality.

GoIndustry AG (“GoIndustry”)

GoIndustry provides corporations, financial institutions, and insolvency practitioners a comprehensive range of industrial asset services, including disposal, valuation and related consulting. Additionally, for large corporations, GoIndustry provides enterprise asset management solutions for used and under-utilized capital assets.

ICG Commerce Holdings, Inc. (“ICG Commerce”)

ICG Commerce is a procurement services provider delivering total procurement cost savings through a combination of deep expertise and hosted technology. ICG Commerce provides a comprehensive range of solutions to help companies identify savings through sourcing, realize savings through implementation and purchase-to-pay automation and drive continuous improvements through ongoing category management.

Investor Force Holdings, Inc. (“Investor Force”)

Investor Force is a software technology company specializing in the delivery of revenue and efficiency generating business solutions to the institutional investment community. Investor Force serves a broad array of over 500 institutional investment clients, including money managers, consultants, plan sponsors and institutional investors. By eliminating manual, time-consuming tasks and providing greater portfolio insight, Investor Force helps firms serve their institutional clients faster and with greater intelligence and productivity.

LinkShare Corporation (“LinkShare”)

LinkShare is a provider of internet technology solutions to track, manage, and analyze the performance of sales, marketing and business development initiatives. Combining patented technology, the reach and distribution of a robust network, and expert account management services, LinkShare empowers clients with the ability to collaborate with partners online and develop cost-efficient pay-for-performance campaigns. LinkShare provides the platform, tools, and reporting to help clients acquire new customers, increase revenues, drive results and measure success across affiliate, search and email initiatives.

3

Marketron International, Inc. (f/k/a BuyMedia, Inc.) (“Marketron”)

Marketron is a provider of broadcast management solutions for the radio, TV and cable industries. Marketron’s fully integrated suite of sales, traffic, finance and business intelligence solutions automates workflow from proposal to billing, enabling groups to optimize inventory and increase revenues.

StarCite, Inc. (“StarCite”)

StarCite provides a comprehensive suite of software applications and services to the meeting and events industry. StarCite helps drive efficiencies and cost savings to both corporate buyers and suppliers. More than 400 corporate, association and third-party meeting buyers rely on StarCite’s Enterprise Meeting Solutions for workflow, procurement, supply chain management, spend analysis and attendee management. Thousands of industry suppliers rely on the StarCite Online Marketplace, supplier marketing programs and enabling technologies to increase meeting revenues. StarCite’s international division represents destination management companies and other premier international travel suppliers using both technology and traditional means.

Other Holdings

Agribuys, Inc. (“Agribuys”)

Agribuys is a provider of supply chain management software and services targeted specifically to the fresh food industry.

Anthem/CIC Ventures Fund LP (“Anthem”)

Anthem is a financial services company providing specialized asset management and investment services to institutional investors and high net-worth individuals.

Arbinet — thexchange Inc. (“Arbinet”) (Nasdaq:ARBX)

Arbinet is an electronic market for trading, routing and settling communications capacity. Members of the exchange, consisting primarily of communications service providers, anonymously buy and sell voice calls and Internet capacity based on route quality and price through its marketplace.

Axxis, Inc. (f/k/a FuelSpot.com, Inc.) (“Axxis”)

Axxis is a provider of supply chain decision support software and market data to the downstream petroleum industry.

Blackboard, Inc. (“Blackboard”) (Nasdaq:BBBB)

Blackboard is an enterprise software company for e-education, serving the global needs of primary and secondary schools, higher education, corporations and government agencies.

Captive Capital Corporation (f/k/a eMarketCapital, Inc.) (“Captive Capital”)

Captive Capital provides turnkey programs to manufacturers and dealers who want to offer competitive financing to their customers.

ComputerJobs.com, Inc. (“ComputerJobs.com”)

ComputerJobs.com is an information technology employment website.

4

Co-nect, Inc. (f/k/a Simplexis.com) (“Co-nect”)

Co-nect is a provider of data-driven, K-12 professional development solutions focused on improving the quality of classroom instruction district-wide. Co-nect delivers training, tools, and resources to solve critical issues such as whole school improvement, data-informed decision-making, technology integration, and early reading failure.

eCredit.com, Inc. (“eCredit”)

eCredit delivers credit risk management and collections software and services to Fortune 1000 companies and financial institutions. eCredit improves credit and collections decision-making practices to deliver process efficiencies, optimized risk management, reduced operating costs and increased revenues.

Emptoris, Inc. (“Emptoris”)

Emptoris combines collaborative sourcing capabilities with the power of scientific optimization technology that enables purchasing professionals to perform complex bid analysis and select the optimal supply base allocation that produces hard dollar savings on cost of goods sold.

Entegrity Solutions Corporation (“Entegrity Solutions”)

Entegrity Solutions provides secure access management and content delivery solutions, from DCE through single sign-on, eAuthentication and application authorization.

Jamcracker, Inc. (“Jamcracker”)

Jamcracker provides software solutions and expertise to software companies and service providers to efficiently deliver and manage their on demand solutions.

Tibersoft Corporation (“Tibersoft”)

Tibersoft serves the needs of prominent food service operators and distributors by providing products that improve and enhance supply chains for food service operators, distributors and manufacturers to better understand their businesses.

Traffic.com, Inc. (f/k/a Mobility Technologies, Inc.) (“Traffic.com”)

Traffic.com employs a unique data collection, data processing, and data distribution to generate the unique traffic information in the industry.

Verticalnet, Inc. (“Verticalnet”) (Nasdaq:VERT)

Verticalnet provides supply management solutions that offer visibility, insight and control required to identify, realize and sustain value from supply management initiatives.

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PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

INTERNET CAPITAL GROUP, INC.

See accompanying notes to Consolidated Financial Statements.

6

INTERNET CAPITAL GROUP, INC.

See accompanying notes to Consolidated Financial Statements.

7

INTERNET CAPITAL GROUP, INC.

Supplemental non-cash — See Note 8.

See accompanying notes to Consolidated Financial Statements.

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INTERNET CAPITAL GROUP, INC.

1. The Company

Description of the Company

Internet Capital Group (the “Company”) builds and owns Internet software and services companies that drive business productivity and reduce transaction costs between firms. The Company devotes its expertise and capital to maximizing the success of these platform companies that are delivering software and service applications to customers worldwide. The Company was formed in March 1996 and is headquartered in Wayne, Pennsylvania.

Although the Company refers to companies in which it has acquired a convertible debt or an equity ownership interest as its “Partner Companies” and indicates that it has a “partnership” with these companies, it does not act as an agent or legal representative for any of its Partner Companies, it does not have the power or authority to legally bind any of its Partner Companies and it does not have the types of liabilities in relation to its Partner Companies that a general partner of a partnership would have.

2. Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The consolidated financial statements also include the following majority-owned subsidiaries for all or a portion of the periods indicated, each of which was consolidated since the date the Company acquired majority voting control (collectively, the “Consolidated Subsidiaries”):

THREE MONTHS ENDED MARCH 31, 2005
CommerceQuest
ICG Commerce
Investor Force

THREE MONTHS ENDED MARCH 31, 2004
CommerceQuest
ICG Commerce

Principles of Accounting for Ownership Interests in Partner Companies

The various interests that the Company acquires in its Partner Companies are accounted for under three methods: consolidation, equity and cost. The applicable accounting method is generally determined based on the Company’s voting interest in a Partner Company.

Consolidation. Partner Companies in which the Company directly or indirectly owns 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 balance sheet and results of operations are reflected within the Company’s Consolidated Financial Statements. All significant intercompany accounts and transactions have been eliminated. Participation of other Partner Company stockholders in the net assets and in the earnings or losses of a consolidated Partner Company is reflected in the caption “Minority interest” in the Company’s Consolidated Balance Sheet and Statements of Operations. Minority interest adjusts the Company’s consolidated results of operations to reflect only the Company’s share of the earnings or losses of the consolidated Partner Company. The results of operations and cash flows of a consolidated Partner Company are included through the latest interim period in which the Company owned a greater than 50% direct or indirect voting interest for the entire interim period or otherwise exercised control over the Partner Company. Upon dilution of control below 50%, the accounting method is adjusted to the equity or cost method of accounting, as appropriate, for subsequent periods.

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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

2. Significant Accounting Policies — (Continued)

Equity Method. Partner Companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises 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 the Company’s holdings in common, preferred and other convertible instruments in the Partner Company. Under the equity method of accounting, a Partner Company’s accounts are not reflected within the Company’s Consolidated Balance Sheets and Statements of Operations; however, the Company’s share of the earnings or losses of the Partner Company is reflected in the caption “Equity loss” in the Consolidated Statements of Operations. The carrying value of equity method Partner Companies is reflected in “Ownership interests in Partner Companies” in the Company’s Consolidated Balance Sheets.

When the Company’s investment in an equity method Partner Company is reduced to zero, no further losses are recorded in the Company’s consolidated financial statements unless the Company guaranteed obligations of the Partner Company or has committed additional funding. When the Partner Company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

Cost Method. Partner Companies not accounted for under the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, the Company’s share of the earnings or losses of such companies is not included in the Consolidated Balance Sheet or Consolidated Statements of Operations. However, cost method Partner Company impairment charges are recognized in the Consolidated Statements of Operations. If circumstances suggest that the value of the Partner Company has subsequently recovered, such recovery is not recorded.

When a cost method Partner Company qualifies for use of the equity method, the Company’s investment is adjusted retroactively for its share of the past results of its operations. Therefore, prior losses could significantly decrease the Company’s carrying value balance at that time.

The Company records its ownership interest in equity securities of Partner Companies accounted for under the cost method at cost, unless these securities have readily determinable fair values based on quoted market prices, in which case these interests are valued at fair value and classified as marketable securities or some other classification in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.”

Restricted Cash

The Company considers cash legally restricted and held as a compensating balance for letter of credit arrangements as restricted cash. At March 31, 2005 and December 31, 2004, restricted cash was held primarily in money market accounts. Long-term restricted cash of $0.9 million at March 31, 2005 and December 31, 2004 is included in “Other” assets on the Company’s Consolidated Balance Sheets.

Short-term Investments

Short-term investments are debt securities, principally commercial paper and certificates of deposit, maturing in less than one year, are classified as available for sale and are recorded at market value using the specific identification method. Short-term investments consisted of $34.4 million in commercial paper at March 31, 2005. Short-term investments consisted of $53.9 million in commercial paper and $4.0 million in certificates of deposit at December 31, 2004. All of the short-term investments mature in 2005.

Concentration of Customer Base and Credit risk

Approximately 13% of the Company’s revenue for the three months ended March 31, 2005, related to one customer of ICG Commerce. Accounts receivable from this customer at March 31, 2005 were $2.0 million.

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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

2. Significant Accounting Policies — (Continued)

Accounts Receivable/Accounts Payable

ICG Commerce provides services in which it manages the transaction between its customer and a third party supplier. In these transactions, ICG Commerce is responsible for paying the supplier for the full cost of the goods or services and the customer is responsible for paying ICG Commerce an amount, which is generally ICG Commerce’s cost plus a transaction fee, for the goods or services. ICG Commerce is typically responsible for paying the supplier independent of when and if ICG Commerce receives payment from its customer. ICG Commerce receives payment directly from its customer. ICG Commerce records the gross amount of the associated receivables and payables on the accompanying Consolidated Balance Sheets. However, ICG Commerce records the net amount of the transaction fee as revenue on the accompanying Consolidated Statements of Operations. As of March 31, 2005 and December 31, 2004, accounts receivable included approximately $8.9 million and $8.5 million, respectively, and accounts payable included $5.0 million and $4.6 million, respectively, related to such transactions.

Stock-Based Compensation

As permitted by SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company measures compensation cost in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Accordingly, no compensation expense is recorded for stock options issued to employees that are granted at fair market value. Stock options issued to non-employees are recorded at fair value at the date of grant. Fair value is determined using the Black-Scholes model and the expense is amortized over the vesting period.

In December 2002, the Financial Accounting Standards Board (“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 disclosures that are incremental to those required by SFAS No. 123. The Company has continued to account for stock-based compensation in accordance with the APB Opinion No. 25. The Company has adopted the disclosure-only provisions of SFAS No. 148.

The following table illustrates the effect on the Company’s net loss and net loss per share as if the fair value based method had been applied to all outstanding and unvested awards:

The per share weighted-average fair value of options issued by the Company during the three months ended March 31, 2005 and 2004 was $5.11 and $6.55, respectively. The following assumptions were used to determine the fair value of stock options granted to employees by the Company for the three months ended March 31, 2005 and 2004:

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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

2. Significant Accounting Policies — (Continued)

The Company also includes its share of its consolidated and equity method Partner Companies’ SFAS No. 123 pro forma expense in the Company’s SFAS No. 123 pro forma expense. The methods used by these Partner Companies included the minimum value method for private Partner Companies and the Black-Scholes method for public Partner Companies.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment.” SFAS No. 123R revises SFAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. SFAS No. 123R requires compensation costs related to share-based payment transactions to be recognized in the financial statements (with limited exceptions). The amount of compensation cost is measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. The Company estimates that the effect on net loss and loss per share in the periods following adoption of SFAS No. 123R will be consistent with our pro forma disclosure under SFAS No. 123, except that estimated forfeitures will be considered in the calculation of compensation expense under SFAS No. 123R. However, the actual effect on net loss and loss per share will vary depending upon the number of grants of equity in 2005 compared to prior years. Further, the Company has not yet determined the actual model it will use to calculate fair value. This statement is effective as of the beginning of the first annual reporting period that begins after June 15, 2005.

3. Ownership interests in Partner Companies, Goodwill and Intangibles, net

The following table summarizes the Company’s goodwill and intangibles, net, ownership interests in Partner Companies and impairments by method of accounting.

The increase in goodwill of $2.5 million is due to the consolidation of Investor Force. As the Company has not completed the allocation of purchase price for Investor Force, goodwill could be adjusted.

As of March 31, 2005 and December 31, 2004, all of the Company’s goodwill was allocated to the Core segment.

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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

3. Ownership interests in Partner Companies, Goodwill and Intangibles, net — (Continued)

Intangible assets, net are shown in the table below:

Amortization expense for intangible assets during the three months ended March 31, 2005 and 2004 was $0.6 million, and $0.8 million respectively. Estimated amortization expense for the fiscal year ending December 31, 2005 and succeeding fiscal years is as follows (in thousands):

Acquisitions

During the three months ended March 31, 2005, the Company acquired voting control of Investor Force and began to consolidate its operations. Had the Company consolidated its operations for the three months ended March 31, 2004, revenue, net loss and net loss per share would have been $13.1 million, $(124.4) million and $(3.91) per share, respectively.

Impairments

The Company recorded no impairments for the three months ended March 31, 2005 and 2004.

Equity Method Companies

The following unaudited summarized financial information relates to the nine Partner Companies accounted for under the equity method of accounting at March 31, 2005 (voting ownership %):

Core - CreditTrade (30%), Freeborders (48%), GoIndustry (54%), LinkShare (40%), Marketron (38%) and StarCite (53%). Although the Company’s ownership percentage in GoIndustry and StarCite exceeds 50% at March 31, 2005, the Company has not consolidated their financial statements due to the existence of certain minority voting rights in accordance with Emerging Issues Task Force (“EITF”) No. 96-16, “Investor’s Accounting for an Investee When an Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights.”

Other Holdings - ComputerJobs.com (46%), Co-nect (36%) and eCredit (31%).

This information has been compiled from the financial statements of the respective Partner Companies.

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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

3. Ownership interests in Partner Companies, Goodwill and Intangibles, net — (Continued)

Balance Sheets (Unaudited)

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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

3. Ownership interests in Partner Companies, Goodwill and Intangibles, net

Results of Operations (Unaudited)

Warrants

The estimated fair value of warrants held in Partner Companies was approximately $2.2 million and $1.7 million at March 31, 2005 and December 31, 2004, respectively. The value of the Company’s warrants is included in “Other” assets in the Company’s Consolidated Balance Sheets. Gains on the fair value of all outstanding warrants was $0.5 million for the three months ended March 31, 2005. This gain is included in “Other income (loss), net” on the Company’s Consolidated Statements of Operations.

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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

4. Marketable Securities

Marketable securities represent the Company’s holdings in equity securities. The cost, unrealized holding gains/(losses), and fair value of marketable securities at March 31, 2005 and December 31, 2004 were as follows:

The amounts reflected as the Company’s cost for Blackboard, Arbinet and Verticalnet was the carrying value on the date these Partner Companies converted to marketable securities. During the three months ended March 31, 2005, the Company sold 263,000 shares of Blackboard for proceeds of $4.4 million. The gains on these sales of $4.3 million is reflected in “Other income (loss), net” in the Company’s Consolidated Statements of Operations.

5. Income Taxes

At March 31, 2005, the Company had net operating loss carry forwards of approximately $414 million that may be used to offset future taxable income. Approximately $397 million of these carry forwards are subject to significant limitations on their utilization due to ownership changes experienced by the Company and certain consolidated Partner Companies. The annual limitation on the utilization of net operating loss carry forwards is approximately $13 million. These carry forwards expire between 2008 and 2024. Additional limitations on the utilization of these carry forwards may be imposed if the Company experiences another change in ownership.

A valuation allowance has been provided for the Company’s net deferred tax asset as the Company believes, after evaluating all positive and negative evidence, historical and prospective, that it is more likely than not that these benefits will not be realized.

6. Net Loss per Share

The calculations of Net Loss per Share were:

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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

6. Net Loss per Share – (Continued)

The following dilutive securities were not included in the computation of diluted net loss per share as their effect would have been anti-dilutive:

7. Comprehensive Loss

Comprehensive income (loss) is the change in equity of a business enterprise during a period resulting from transactions and other events and circumstances from non-owner sources. Excluding net loss, the Company’s primary source of comprehensive loss is net unrealized holding gains (losses) related to its marketable securities. The following summarizes the components of comprehensive loss:

8. Debt

Senior Convertible Notes

In April 2004, the Company issued $60.0 million of senior convertible notes. The notes bear interest at an annual rate of 5%, payable semi-annually, and mature in April 2009. The notes are convertible at the option of the holder, at any time on or before maturity into shares of the Company’s common stock at a conversion price of $9.108 per share. Additionally, subsequent to October 8, 2004, provided that at the time of redemption the Company is in compliance with certain other requirements, the notes may be redeemed by the Company if the Company’s closing stock price exceeds $15.94 per share for at least 20 out of 30 consecutive trading days. The Company recorded interest expense of $0.7 million for the three months ended March 31, 2005 related to these notes. Deferred financing fees related to the senior convertible notes of $1.6 million are being amortized over the

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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

8. Debt – (Continued)

life of the notes. Included in “Other” assets in the accompanying Consolidated Balance Sheets at March 31, 2005 and December 31, 2004 were $1.4 million and $1.5 million, respectively, of deferred financing fees. The Company expensed $0.1 million relating to these fees in the three months ended March 31, 2005.

Convertible Subordinated Notes

In December 1999, the Company issued $566.3 million of convertible subordinated notes. The notes bore interest at an annual rate of 5.5% and were scheduled to mature in December 2004. From 2001 through March 31, 2004, the Company repurchased and extinguished $527.2 million of the original $566.3 million face value of convertible notes for $89.8 million in cash and 23.2 million shares of the Company’s common stock in a series of separate transactions. As of March 31, 2004, the remaining balance of the convertible notes was $39.1 million. In June 2004, the Company redeemed for cash the remaining $39.1 million face value of convertible notes for $39.5 million.

The following tables summarize the Company’s debt-for-equity exchanges:

The expense recorded above is included in “Other income (loss), net” in the Company’s Consolidated Statements of Operations.

The debt-for-equity exchanges were accounted for in accordance with SFAS No. 84, “Induced Conversions of Convertible Debt,” and accordingly the Company recorded expense equal to the fair value of the shares issued in excess of the fair value of the shares issuable pursuant to the original conversion terms, less accrued interest. Also, additional paid-in capital increased by the face value of the convertible notes exchanged and the fair value of the shares issued in excess of the shares issuable pursuant to the original terms.

The Company recorded interest expense of $1.1 million, during the three months ended March 31, 2004, related to these notes. Additionally, the Company recorded an expense of $0.3 million related to deferred financing fees.

Loan and Credit Agreements

On September 30, 2002, the Company entered into a loan agreement with Comerica Bank to provide for the issuance of letters of credit (the “Loan Agreement”). The Loan Agreement provided for issuances of letters of credit up to $20 million subject to a cash-secured borrowing base as defined by the Loan Agreement. The Loan Agreement was extended to December 14, 2005, and the maximum amount of letters of credit authorized to be issued was reduced to $10 million. Issuance fees of 0.50% per annum of the face amount of each letter of credit will be paid to Comerica Bank subsequent to issuance. The Loan Agreement also is subject to a 0.25% per annum unused commitment fee payable to the bank quarterly. No amounts were outstanding at March 31, 2005 or December 31, 2004.

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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

9. Restructuring

During 2004 and 2005, the Company and its consolidated Partner Companies implemented restructuring plans designed to reduce cost structures. The restructuring costs include the estimated costs to close offices including costs to fulfill the Company’s obligations under signed lease contracts and the write-off of leasehold improvements. The restructuring costs also include employee severance and related benefits including the estimated costs of cash severance, non-cash charges for the acceleration of stock options and forgiveness of interest on employee stock option loans. Cash severance was generally paid in a lump sum or over the shorter of a six-month period or until new employment. Restructuring charges totaled less than $0.1 million and $0.7 million for the three months ended March 31, 2005 and 2004, respectively. These charges are included in “Impairment related and other” in the Consolidated Statements of Operations. The following table provides further detail of the remaining employee severance and office closure costs.

The remaining $0.2 million accrual will be paid in the remainder of 2005 using cash from operations.

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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

10. Segment Information

The Company’s reportable segments using the “management approach” under SFAS No. 131, “Disclosure About Segments of a Business Enterprise and Related Information,” consist of two operating segments, the core (“Core”) operating segment and the other holdings (“Other Holdings”) operating segment. Each segment includes the results of the Company’s Consolidated Partner Companies and records the Company’s share of earnings and losses of Partner Companies accounted for under the equity method of accounting and captures the Company’s basis in the assets of all of its partner companies. Any marketable securities are considered “Corporate” assets whereas, prior to becoming marketable securities, the Partner Company would have been included in the Core or Other Holdings category.

The Core operating segment includes those partner companies in which the Company’s management takes a very active role in providing strategic direction and management assistance. The Other Holdings operating segment includes holdings in companies where, in general, the Company provides less operational support, does not have a controlling ownership stake and the partner company is managed to provide the greatest near-term stockholder value.

Approximately 17% and 21% of the Company’s consolidated revenue for the three months ended March 31, 2005, and 2004, respectively, relates to sales generated in Germany. Approximately 5% and 11% of the Company’s consolidated revenue for the three months ended March 31, 2005, and 2004, respectively, relates to sales generated in the United Kingdom. As of March 31, 2005 and December 31, 2004, the Company’s assets were primarily located in the United States.

The following summarizes the selected information related to the Company’s segments.

Segment Information

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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

11. Parent Company Financial Information

Parent company financial information is provided to present the financial position and results of operations of the Company and its wholly-owned subsidiaries as if the Partner Companies accounted for under the consolidation method of accounting were accounted for under the equity method of accounting for all applicable periods presented. The Company’s share of the consolidated Partner Companies’ losses is included in “Equity loss” in the Parent Company Statements of Operations for all periods presented based on the Company’s ownership percentage in each period. The carrying value of the consolidated companies as of March 31, 2005 and December 31, 2004 is included in “Ownership interests in Partner Companies” in the Parent Company Balance Sheets.

Parent Company Balance Sheets

Parent Company Statements of Operations

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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS- (Continued)

11. Parent Company Financial Information – (Continued)

Parent Company Statements of Cash Flows

12. Other Income (loss), net

Other income (loss), net consists of the effect of transactions and other events relating to the Company’s ownership interests in its Partner Companies and its operations in general.

During the three months ended March 31, 2005 and 2004, the Company sold its ownership interests in various Partner Companies in exchange for cash and contingent consideration. The gain of $0.4 million in 2005 primarily relates to the sale of iSky, Inc. and Syncra Systems, Inc. The gain of $19.0 million in 2004 relates to the sale of the Company’s ownership interests in eMerge Interactive, Inc. (“eMerge Interactive”) and Onvia.com, Inc. (“Onvia.com”).

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 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.

Because we own significant interests in information technology and e-commerce companies, many of which have generated 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 relating to our ownership interests in partner companies. These transactions and events are described in more detail in our Notes to Consolidated Financial Statements and include dispositions of, and changes to, our partner company ownership interests, dispositions of our holdings of available-for-sale securities and debt extinguishments.

Introduction

The Consolidated Financial Statements include the consolidated accounts of Internet Capital Group, Inc., a company incorporated in Delaware, and its subsidiaries, both wholly-owned and consolidated (Internet Capital Group, Inc. and all such subsidiaries, hereafter “we,” “ICG,” the “Company” or “Internet Capital Group”) and have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”).

Internet Capital Group (the “Company”) builds and owns Internet software and services companies that drive business productivity and reduce transaction costs between firms. The Company devotes its expertise and capital to maximizing the success of these platform companies that are delivering software and service applications to customers worldwide. The various interests that we acquire in our partner companies are accounted for under one of three accounting methods: consolidation, equity method or cost method. The applicable accounting method is generally determined based on our voting interest in a partner company. Generally, if we own more than 50% of the outstanding voting securities of a partner company, and for which other shareholders do not possess the right to affect significant management decisions, a partner company’s accounts are reflected within our consolidated financial statements. Generally, if we own between 20% and 50% of the outstanding voting securities, a partner company’s accounts are not reflected within our consolidated financial statements; 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. 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 or losses of these companies is not included in our consolidated statements of operations.

Information for all periods presented below reflects the grouping of ICG partner companies into two segments, consisting of the Core segment and the Other Holdings segment. The Core operating segment includes those partner companies in which the Company’s management takes a very active role in providing strategic direction and management assistance (“Core”). The Other Holdings operating segment includes holdings in companies where, in general, we provide less operational support, we do not have a controlling ownership stake and the partner company is managed to provide the greatest near-term stockholder value (“Other Holdings”). From time to time, partner companies are disposed of by ICG or the partner company ceases operations. For presentational purposes, the partner companies included within the segments as of March 31, 2005, are consistently the same 24 partner companies for the three months ended March 31, 2005 and 2004 periods.

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Net loss for the three months ended March 31, 2005 totaled $3.1 million and included net gains totaling $5.1 million consisting of the following: (i) gains on the disposition of partner companies and marketable securities of $4.6 million, and (ii) gains on partner company warrants/other of $0.5 million.

Net loss for the three months ended March 31, 2004 totaled $123.8 million and included net charges totaling $114.4 million consisting of the following: (i) charges in accordance with SFAS No. 84, “Induced Conversions of Convertible Debt,” net of $132.6 million relating to our 2004 debt-for-equity exchanges and other retirements, (ii) gains on disposition of partner companies and marketable securities of $18.9 million and (iii) net restructuring charges of $0.7 million.

Liquidity and Capital Resources

The following table summarizes certain balance sheet information for the parent company, Internet Capital Group:

In the period from January through March 2004, we repurchased and extinguished $134.8 million of convertible subordinated notes by issuing 15.9 million shares of our common stock. In April 2004, we issued $60.0 million of senior convertible notes due in April 2009. We used the net proceeds to redeem the then outstanding balance of $39.1 million of convertible subordinated notes due December 2004. The residual will be used for general operations requirements and fundings to existing partner companies as well as potential new partner companies.

We believe existing cash, cash equivalents and short-term investments and proceeds from the potential sales of all or a portion of our interests in certain marketable securities and partner companies to be sufficient to fund our cash requirements for the foreseeable future, including future commitments to existing partner companies, debt obligations and general operations requirements.

At March 31, 2005, as well as the date of this filing, we were not obligated for any significant funding and guarantee commitments to existing partner companies. If ICG Commerce 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 ICG Commerce’s fair market value in excess of $1.0 billion, up to $70 million, to a venture capital firm. The Company and one of its executive officers were limited partners of this venture capital firm. The Company retains a contingent economic interest in such firm but the executive officer retains no such interest. A member of our Board of Directors also has an interest in this venture capital firm. The Company’s 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 ICG Commerce is well below $1.0 billion.

We will continue to evaluate acquisition opportunities and may acquire additional ownership interests in new and existing partner companies in the next twelve months; however, such acquisitions will generally be made at our discretion. If we elect to make additional acquisitions, it may become necessary for us to monetize certain assets and/or raise additional funds. We may not be able to monetize certain assets or 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.

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The following table summarizes our and our consolidated subsidiaries’ cash and cash equivalents, restricted cash and short-term investments:

Summary of Liquidity

Consolidated working capital decreased to $73.9 million at March 31, 2005 from $76.8 million at December 31, 2004 primarily due to operating losses.

Summary of Statements of Cash Flows

Net cash used in operating activities was approximately $9.1 million for the three months ended March 31, 2005 compared to $7.0 million during the comparable 2004 period. The increase in cash used in operating activities is primarily the result of the increased losses due to an additional consolidated partner company in the 2005 period.

Net cash provided by investing activities for the three months ended March 31, 2005 was $28.2 million versus $9.2 million during the comparable 2004 period. The increase in cash provided by investing activities is primarily due to maturities of short-term investments of $28.5 million and sales of marketable securities of $4.4 million offset by purchases of short-term investments of $4.9 million in the 2005 period versus proceeds from sales of partner company ownership interests of $13.1 million offset by $3.8 million of acquisitions of ownership interests in partner companies in the comparable 2004 period.

Net cash used in financing activities increased $0.1 million for the three months ended March 31, 2005. The increase in cash used in financing activities is principally the result of repayments of capital lease obligations.

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

We had no material changes to contractual cash obligations and commercial commitments for the three months ended March 31, 2005.

Off-Balance Sheet Arrangements

We are not involved in any off-balance sheet arrangements that have or are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Our Partner Companies

As of March 31, 2005, we owned interests in 24 partner companies that are categorized below based on segment and method of accounting.

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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 24 partner companies for the three months ended March 31, 2005 and 2004. The method of accounting for any particular partner company may change based on our ownership interest.

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 and operating as a public company. The measure of segment net loss reviewed by us does not include items such as impairment related charges, income taxes and accounting changes, which are reflected in other reconciling items in the information that follows.

For the Three Months Ended March 31, 2005

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.

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Revenue

Revenue increased $2.3 million from $12.1 million in the quarter ended March 31, 2004 to $14.4 million in the quarter ended March 31, 2005. The consolidation in 2005 of Investor Force increased revenue $0.9 million versus the 2004 period. The residual increase is primarily due to increased revenue at ICG Commerce offset by reduced revenue at CommerceQuest.

Operating Expenses

Operating Expenses increased $2.6 million from $16.4 million in the quarter ended March 31, 2004 to $19.0 million in the quarter ended March 31, 2005. The consolidation in 2005 of Investor Force increased operating expenses $2.1 million versus the 2004 period. The residual $0.5 million increase is primarily the result of higher operating expenses at ICG Commerce offset by lower operating expenses at CommerceQuest.

Equity Loss

The total revenue of our six Core equity method partner companies improved from $38.9 million in the three months ended March 31, 2004 to $47.9 million in the three months ended March 31, 2005. The improvements are primarily the result of increased revenue at our partner companies involved with affiliate marketing and credit derivatives offset primarily by reduced revenue at our partner companies involved with online auctions.

Our six Core equity companies reported aggregate net loss of less than $0.1 million in the first quarter of 2005 compared to net income of $0.8 million in the comparable 2004 period. Results for the 2005 period were impacted by higher spending levels in the current period to extend product, services and sales versus the 2004 period. Accordingly, our share of the net losses of these partner companies increased in the three months ended March 31, 2005 versus the 2004 period.

Results of Operations – Other Holdings Companies

The following presentation of our Results of Operations – Other Holdings Companies includes our share of the results of our equity method Other Holdings partner companies.

Equity loss decreased period over period primarily as a result of increased losses for these partner companies.

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Discontinued Operations and Dispositions

The following is a summary of the components included in “Discontinued Operations and Dispositions,” a reconciling item for segment reporting purposes:

The impact to our consolidated results of equity method partner companies we have disposed of our ownership interest in or have ceased operations during the three months ended March 31, 2005 and 2004 is also included in the caption “Discontinued Operations and Dispositions” for segment reporting purposes.

Corporate

General and Administrative

Our corporate expenses increased principally as a result of expenses incurred for certain compliance measures.

Restructuring (Impairment Related and Other)

During the first quarter of 2004, we settled a lease obligation for more than we had estimated, resulting in a charge of $0.5 million.

Interest Income/Expense

The decrease in interest expense, net is primarily attributable to the reduction in average principal amount of convertible notes outstanding and a reduction in interest rates.

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Other

Other Income (Loss), Net

Other income (loss), net was income of $5.2 million in the three months ended March 31, 2005 versus a loss of $113.8 million in the comparable 2004 period. The decrease in losses from 2005 versus 2004 is primarily attributable to the 2004 loss of $132.6 million on our debt-for-equity exchanges offset by sales of ownership interests in partner companies of $19.0 million versus the 2005 gain of $4.7 million on sales of marketable securities and partner companies.

Income Taxes

Our net deferred tax asset of $629 million at March 31, 2005 consists of deferred tax assets of $647 million, relating primarily to partner company basis differences, capital and net operating loss carry forwards, offset by deferred tax liabilities of $18 million primarily related to unrealized appreciation in available for sale securities. During 2001, we recorded a full valuation allowance against our net assets that has been maintained through March 31, 2005. (See Note 5 to our Consolidated Financial Statements).

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 U. S. generally accepted accounting principles. 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, revenues, income taxes and 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 important to the presentation of our financial statements and require the most difficult, subjective and complex judgments.

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

We perform on-going business reviews and perform annual goodwill impairment tests in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets” and other impairments tests in accordance with APB No. 18 “Equity Method Investments” and SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” 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

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whether impairment indicators are present. Should unforeseen events occur or should operating trends change significantly, additional impairment losses could occur.

Revenue

ICG Commerce may assume all or a part of a customer’s procurement function as part of sourcing arrangements. Typically, in these engagements, ICG Commerce is paid a fee based on a percentage of the amount spent by its customer’s purchasing department in the specified areas ICG Commerce manages, a fixed fee agreed upon in advance, and in many cases ICG Commerce has the opportunity to earn additional fees based on the level of savings achieved for customers. ICG Commerce recognizes fee income as earned and any additional fees as ICG Commerce becomes entitled to them. In these arrangements, ICG Commerce does not assume inventory, warranty or credit risk for the goods or services a customer purchases, but ICG Commerce does negotiate the arrangements between a customer and supplier.

CommerceQuest recognizes 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. CommerceQuest sells its software directly to end users, as well as through resellers. When contracts contain multiple elements wherein vendor specific objective evidence exists for all undelivered elements, CommerceQuest accounts for the delivered elements in accordance with the “Residual Method” prescribed by Statements of Position (“SOP”) No. 98-9 “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.”

CommerceQuest assesses whether the fee is fixed or determinable and collection is probable at the time of the transaction. In determining whether the fee is fixed or determinable, CommerceQuest compares the payment terms of the transaction to its normal payment terms. If a significant portion of a fee is due after its normal payment terms, CommerceQuest accounts for the fee as not being fixed or determinable and recognizes revenue as the fees become due. CommerceQuest assesses whether collection is probable based on a number of factors, including the customer’s past transaction history and credit-worthiness. CommerceQuest does not request collateral from its customers. If CommerceQuest determines that collection of a fee is not probable, CommerceQuest defers the fee and recognizes 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, CommerceQuest allocates 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.

Investor Force’s revenues are primarily derived from sales of subscriptions to Investor Force’s proprietary manager database and analytical tools. Subscriptions are generally one year in length, and revenue is recognized ratably over the subscription period.

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.

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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. From time to time, 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.

Recent Accounting Pronouncements

In December 2004, the FASB issued SFAS 123R, “Share-Based Payment.” SFAS No. 123R revises SFAS 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. SFAS 123R will require compensation costs related to share-based payment transactions to be recognized in the financial statements (with limited exceptions). The amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. This statement is effective as of the beginning of the first annual reporting period that begins after June 15, 2005. We estimate that the effect on net income and earnings per share in the periods following adoption of SFAS 123R will be consistent with our pro forma disclosure under SFAS No. 123, except that estimated forfeitures will be considered in the calculation of compensation expense under SFAS No. 123R. However, the actual effect on net income and earnings per share will vary depending upon the number of grants of equity in 2005 compared to prior years. Further, we have not yet determined the actual model we will use to calculate fair value.

SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” was issued in May 2003. SFAS No. 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 also includes required disclosures for financial instruments within its scope. For us, SFAS No. 150 was effective for instruments entered into or modified after May 31, 2003 and otherwise at July 1, 2003, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, SFAS No. 150 became effective for us on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. We currently do not have any financial instruments that are within the scope of SFAS No. 150.

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:

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

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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 Report. 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 Report might not occur.

Our business involves a number of risks, some of which are beyond our control. You should carefully consider each of the risks and uncertainties we describe below and all of the other information in this Report before deciding to invest in our shares. The risks and uncertainties we describe below are not the only ones we face. Additional risks and uncertainties that we do not currently know or that we currently believe to be immaterial may also adversely affect our business.

Risks Particular to Internet Capital Group

If general economic conditions are unfavorable our partner companies may be unable to attract or retain customers and our ability to grow our business may be adversely effected.

Numerous external forces, including fear of terrorism, hostilities in the Middle East involving United States armed forces, lack of consumer confidence and interest rate or currency rate fluctuations, could affect the economy. If the economy is unfavorable, our partner companies’ customers and potential customers may be unwilling to spend money on technology-related goods or services. If our partner companies are unable to attract new customers or retain existing customers, our ability to grow our business will be adversely affected.

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

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

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

	•	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;
	•	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 information technology and e-commerce industries;
	•	negative public perception of the prospects of information technology 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;
	•	additional sales of our securities;
	•	additions to or departures of our key personnel or key personnel of our partner companies; and
	•	our debt obligations.

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

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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 information technology and e-commerce 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 information technology and e-commerce markets;
	•	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.