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FORM 10-K
 SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2006
 Commission File Number 001-16249
 
 INTERNET CAPITAL GROUP, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
(State of other jurisdiction of 
incorporation or organization)
    
    23-2996071
(I.R.S. Employer
Identification Number)
 690 Lee Road, Suite 310, Wayne, PA
(Address of principal executive offices)
    
    19087
(Zip Code)
 (610) 727-6900
(Registrants telephone number, including area code)
 Securities
registered pursuant to Section 12(b) of the Act:
 The NASDAQ Stock Market LLCCommon Stock, par value $.001 per share
    
    (the NASDAQ Global Market)(Title of class)
    
    (Name of the exchange
on which registered)
 Securities
registered pursuant to Section 12(g) of the Act: None
 
 o þ
 o þ
 þ o
 þ
  o þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



INTERNET CAPITAL GROUP, INC.
FORM 10-K
DECEMBER 31, 2006
INDEX
  
 PageNumberPART I
    
    
    
    
    4ITEM 1.
    
    Business
    
    
    4ITEM 1A.
    
    Risk Factors
    
    
    11ITEM 1B.
    
    Unresolved Staff Comments
    
    
    20ITEM 2.
    
    Properties
    
    
    20ITEM 3.
    
    Legal Proceedings
    
    
    20ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    21PART II
    
    
    
    
    21ITEM 5.
    
    Market for
Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    21ITEM 6.
    
    Selected Consolidated Financial Data
    
    
    22ITEM 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23ITEM 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    34ITEM 8.
    
    Financial Statements and Supplementary Data
    
    
    35ITEM 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
    
    
    78ITEM 9A.
    
    Controls and Procedures
    
    
    78ITEM 9B.
    
    Other Information
    
    
    79PART III
    
    
    
    
    80ITEM 10.
    
    Directors and Executive Officers of the Registrant
    
    
    80ITEM 11.
    
    Executive Compensation
    
    
    80ITEM 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    80ITEM 13.
    
    Certain Relationships and Related Transactions
    
    
    80ITEM 14.
    
    Principal Accountant Fees and Services
    
    
    80PART IV
    
    
    
    
    81ITEM 15.
    
    Exhibits and Financial Statement Schedules
    
    
    81SIGNATURES
    
    
    
    
    87Second Amendment to Lease dated August 21, 2006 by and between Chesterbrook Partners, L.P. and Internet Capital Group Operations, Inc.Subsidiaries of Internet Capital Group, Inc.Consent of KPMG LLPCertification of Chief Executive Officer, Walter W. Buckley, IIICertification of Chief Financial Officer, R. Kirk MorganCertification of Walter W. Buckley, III Pursuant to 18 U.S.C. Section 1350Certification of R. Kirk Morgan Pursuant to 18 U.S.C. Section 1350
  2




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Forward-Looking Statements
   
    
    capital spending by enterprises and customers;
    
    our partner companies collective ability to compete successfully against their
respective competitors;
    
    rapid technological developments in the respective markets in which our partner
companies operate and our partner companies collective ability to respond to such changes
in a timely and effective manner;
    
    our ability to deploy capital effectively and on acceptable terms;
    
    our ability to maximize value in connection with divestitures;
    
    our ability to retain key personnel; and
    
    our ability to effectively manage existing capital resources.
  3




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PART I
   
 ITEM 1. Business
 Business Overview
     4




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Industry Overview
   
    
    expand access to new and existing customers and suppliers;
    
    increase efficiency and reduce costs; and
    
    focus on core competencies and outsource non-core, non-strategic processes.
 Expand access to new and existing customers and suppliers
  Increase
efficiency and reduce costs
  Focus on core competencies and outsource non-core, non-strategic processes
   5




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Our Solution and Strategy
    
    
    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
     6




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Aggregating companies into a network to promote growth
  Strategic Guidance
 Operational Support
 Exchange of Best Practices and Economies of Scale.
 Prioritize resources to accelerate development of most promising companies
   ICG Commerce Holdings, Inc. (ICG Commerce)
  7




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Investor Force Holdings, Inc. (Investor Force)
   Channel Intelligence, Inc. (Channel Intelligence)
  Freeborders, Inc. (Freeborders)
  Marketron International, Inc. (Marketron)
  Metastorm Inc. (Metastorm)
  8




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StarCite, Inc. (StarCite)
  Vcommerce Corporation (Vcommerce)
  Qcorps Residential, Inc. (d/b/a WhiteFence) (WhiteFence)
  Concentration of Customer Base and Credit Risk
  Competition
 Competition Facing our Partner Companies
   9




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Competition From Within our Network
  Employees
  Financial Information About Segments and Geographic Areas
  Availability of Reports and Other Information
  
      10




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ITEM
1A.  Risk Factors
  If general economic conditions are unfavorable, our partner companies may be unable to attract or
retain customers and the condition of our business may be adversely affected.
  We may not be able to deploy capital effectively and on acceptable terms.
  Our stock price has been volatile in the past and may continue to be volatile in the future.
   
    
    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;
    
    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;
 11




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
    
    announcements by us or our partner companies or our competitors of significant
acquisitions, strategic partnerships or joint ventures;
    
    additional sales of our securities; and
    
    additions to or departures of our key personnel or key personnel of our partner companies.
  Fluctuations in our quarterly results may adversely affect our stock price.
  
    
    the acquisition of interests in partner companies;
    
    the operating results of our partner companies;
    
    sales of our ownership interests in our partner companies, which could cause us to
recognize gains or losses under applicable accounting rules;
    
    significant fluctuations in the financial results of information technology and
e-commerce companies generally;
    
    changes in equity losses or income;
    
    changes in our methods of accounting for our partner company interests, which may
result from changes in our ownership percentages of our partner companies;
    
    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.
  Fluctuation in the price of the common stock of our publicly-traded partner companies may affect
the price of our Common Stock.
  12




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Our business depends upon the performance of our partner companies, which is uncertain.
  
    
    fluctuations in the market price of the common stock of Blackboard and GoIndustry,
our publicly-traded partner companies, which are likely to affect the price of our
Common Stock;
    
    the fact that many of our partner companies have limited operating histories, have
not yet attained significant revenues, are operating at or near break-even and may not
achieve profitability in the near-term or at all;
    
    decreased spending on information technology software and services and elongated
sales cycles, which may prevent our partner companies from succeeding; and
    
    intensifying competition for the products and services our partner companies offer,
which could lead to the failure of some of our partner companies.
  The companies that we have identified as Core partner companies may not succeed.
  13




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We have had a general history of losses and expect continued losses in the foreseeable future.
  Certain of our partner companies have a limited operating history and may never be profitable.
  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.
  Our partner companies may not be able to compete successfully.
    Our partner companies may fail to retain significant customers.
  14




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The inability of our partner companies customers to pay their obligations to them in a timely
manner, if at all, could have an adverse effect on our partner companies.
  When we divest partner company interests, we may be unable to obtain maximum value for such
interests.
  We may not maintain or be able to increase our ownership stakes in high growth 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, which would impact our investment strategy.
  15




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Our accounting estimates with respect to the ultimate recoverability of our basis in our partner
companies could change materially in the near term.
  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.
  Our
partner companies could make financial or other 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.
   16




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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.
  We may compete with 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 have implemented certain anti-takeover provisions that could make it more difficult for a third
party to acquire us.
  Some of our partner companies may be unable to protect their proprietary rights and may infringe on
the proprietary rights of others.
  17




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Government regulation of the internet and e-commerce may harm our partner companies businesses.
  Our partner companies that publish or distribute content over the internet may be subject to legal
liability.
  Our partner companies computer and communications systems may fail, which may discourage parties
from using our partner companies systems.
  Our partner companies businesses may be disrupted if they are unable to upgrade their systems to
meet increased demand.
  18




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Our partner companies may be unable to acquire or maintain easily identifiable website addresses or
prevent third parties from acquiring website addresses similar to theirs.
  If public and private capital markets are not favorable for the information technology and
e-commerce sectors, we may not be able to execute on our strategy.
  Our operations and growth could be impaired by limitations on our and our partner companies
ability to raise money.
  Because we have limited resources to dedicate to our partner companies, some of our partner
companies may not be able to raise sufficient capital to sustain their operations.
  19




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ITEM 1B. Unresolved Staff Comments
  
 ITEM 2. Properties
  Corporate Offices
  Partner Company Properties
  
 ITEM 3. Legal Proceedings
  20




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ITEM 4. Submission of Matters to a Vote of Security Holders
  
 PART II
 
 ITEM 5. Market For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
 Market Information.
 2006
    
    2005March 31
    
    June 30
    
    Sept. 30
    
    Dec. 31
    
    March 31
    
    June 30
    
    Sept. 30
    
    Dec. 31(1st)
    
    (2nd)
    
    (3rd)
    
    (4th)
    
    (1st)
    
    (2nd)
    
    (3rd)
    
    (4th)High
    
    $
    10.04
    
    
    $
    9.66
    
    
    $
    9.65
    
    
    $
    11.26
    
    
    $
    9.37
    
    
    $
    7.71
    
    
    $
    8.96
    
    
    $
    9.39Low
    
    $
    7.90
    
    
    $
    7.57
    
    
    $
    8.05
    
    
    $
    9.04
    
    
    $
    6.85
    
    
    $
    5.34
    
    
    $
    6.59
    
    
    $
    7.53
  Holders
 Dividends
 Stock Performance Graph
   COMPARISON OF CUMULATIVE TOTAL RETURN* SINCE DECEMBER 31, 2001
AMONG INTERNET CAPITAL GROUP, INC.,
THE NASDAQ COMPOSITE INDEX AND
THE GSTI INTERNET INDEX
 
 *
    
    $100 invested at closing prices on
December 31, 2001 in ICGE shares or in a stock index, including reinvestment of dividends.
 21




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ITEM 6. Selected Consolidated Financial Data
  Year Ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002(in thousands, except per share data)Consolidated Statements of Operations Data:Revenue
    
    $
    64,749
    
    
    $
    47,568
    
    
    $
    41,857
    
    
    $
    57,915
    
    
    $
    67,762Operating ExpensesCost of revenue
    
    
    42,439
    
    
    
    28,460
    
    
    
    21,464
    
    
    
    33,565
    
    
    
    43,716Selling, general and administrative
    
    
    42,108
    
    
    
    40,795
    
    
    
    31,239
    
    
    
    43,138
    
    
    
    73,257Research and development
    
    
    8,755
    
    
    
    12,276
    
    
    
    8,660
    
    
    
    13,705
    
    
    
    23,031Amortization of intangibles
    
    
    1,695
    
    
    
    2,123
    
    
    
    2,711
    
    
    
    7,955
    
    
    
    10,115Impairment related and other
    
    
    178
    
    
    
    3,448
    
    
    
    758
    
    
    
    (1,777
    )
    
    
    10,195Total operating expenses
    
    
    95,175
    
    
    
    87,102
    
    
    
    64,832
    
    
    
    96,586
    
    
    
    160,314(30,426
    )
    
    
    (39,534
    )
    
    
    (22,975
    )
    
    
    (38,671
    )
    
    
    (92,552
    )Other income (loss), net
    
    
    34,605
    
    
    
    135,489
    
    
    
    (106,178
    )
    
    
    (58,706
    )
    
    
    91,526Interest income (expense), net
    
    
    7,345
    
    
    
    523
    
    
    
    (3,630
    )
    
    
    (15,301
    )
    
    
    (19,393
    )Income (loss) before income taxes, minority
interest and equity loss
    
    
    11,524
    
    
    
    96,478
    
    
    
    (132,783
    )
    
    
    (112,678
    )
    
    
    (20,419
    )Income tax benefit (expense)
    
    
    40
    
    
    
    (18,640
    )
    
    
    
    
    
    
    
    
    
    
    (179
    )Minority interest
    
    
    1,232
    
    
    
    2,513
    
    
    
    771
    
    
    
    2,384
    
    
    
    15,228Equity loss
    
    
    (5,461
    )
    
    
    (6,703
    )
    
    
    (5,893
    )
    
    
    (14,540
    )
    
    
    (81,114
    )Income (loss) from continuing operations
    
    
    7,335
    
    
    
    73,648
    
    
    
    (137,905
    )
    
    
    (124,834
    )
    
    
    (86,484
    )Income (loss) on discontinued operations
    
    
    8,289
    
    
    
    (1,130
    )
    
    
    2,588
    
    
    
    (11,050
    )
    
    
    (15,735
    )Net income (loss)
    
    $
    15,624
    
    
    $
    72,518
    
    
    $
    (135,317
    )
    
    $
    (135,884
    )
    
    $
    (102,219
    )Basic Income (loss) Per Share:Income (loss) from continuing operations
    
    $
    0.20
    
    
    $
    1.98
    
    
    $
    (3.86
    )
    
    $
    (8.25
    )
    
    $
    (6.45
    )Income (loss) on discontinued operations
    
    
    0.22
    
    
    
    (0.03
    )
    
    
    0.07
    
    
    
    (0.73
    )
    
    
    (1.18
    )Basic income (loss) per share
    
    $
    0.42
    
    
    $
    1.95
    
    
    $
    (3.79
    )
    
    $
    (8.98
    )
    
    $
    (7.63
    )Shares used
in computation of basic
income (loss) per share
    
    
    37,570
    
    
    
    37,109
    
    
    
    35,713
    
    
    
    15,130
    
    
    
    13,400Diluted Income (loss) Per Share:Income (loss) from continuing operations
    
    $
    0.19
    
    
    $
    1.76
    
    
    $
    (3.86
    )
    
    $
    (8.25
    )
    
    $
    (6.45
    )Income (loss) on discontinued operations
    
    
    0.22
    
    
    
    (0.03
    )
    
    
    0.07
    
    
    
    (0.73
    )
    
    
    (1.18
    )Diluted income (loss) per share
    
    $
    0.41
    
    
    $
    1.73
    
    
    $
    (3.79
    )
    
    $
    (8.98
    )
    
    $
    (7.63
    )Shares used in computation of diluted
income (loss) per share
    
    
    38,106
    
    
    
    43,670
    
    
    
    35,713
    
    
    
    15,130
    
    
    
    13,400Consolidated Balance Sheet Data:Cash, cash equivalents and short-term
investments
    
    $
    120,841
    
    
    $
    147,912
    
    
    $
    86,951
    
    
    $
    77,590
    
    
    $
    121,716Working capital (deficit)
    
    $
    78,939
    
    
    $
    140,504
    
    
    $
    72,932
    
    
    $
    (124,479
    )
    
    $
    76,365Total assets
    
    $
    354,427
    
    
    $
    346,532
    
    
    $
    277,606
    
    
    $
    231,163
    
    
    $
    366,246Other long-term debt, net of current portion
    
    $
    544
    
    
    $
    4,407
    
    
    $
    11
    
    
    $
    30
    
    
    $
    7,290Senior convertible notes
    
    $
    26,590
    
    
    $
    37,000
    
    
    $
    60,000
    
    
    $
    
    
    
    $
    Convertible subordinated notes
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    173,919
    
    
    $
    283,114Total stockholders equity (deficit)
    
    $
    298,538
    
    
    $
    256,245
    
    
    $
    165,107
    
    
    $
    (19,294
    )
    
    $
    (51,646
    )
 22




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ITEM 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Introduction
    Executive Summary
    23




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Liquidity and Capital Resources
  December 31, 2006
    
    
    December 31, 2005Consolidated
    
    
    
    
    
    
    
    
    
    
    ConsolidatedCorporate
    
    
    Subsidiaries
    
    
    Total
    
    
    Corporate
    
    
    Subsidiaries
    
    
    Total(in thousands)Cash and cash equivalents
    
    $
    104,249
    
    
    $
    16,559
    
    
    $
    120,808
    
    
    $
    129,555
    
    
    $
    13,104
    
    
    $
    142,659Restricted Cash (1)
    
    
    
    
    
    
    33
    
    
    
    33
    
    
    
    
    
    
    
    253
    
    
    
    253Short-term investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    5,000$
    104,249
    
    
    $
    16,592
    
    
    $
    120,841
    
    
    $
    129,555
    
    
    $
    18,357
    
    
    $
    147,912Marketable securities
    
    $
    66,075
    
    
    $
    
    
    
    $
    66,075
    
    
    $
    63,425
    
    
    $
    
    
    
    $
    63,425Senior convertible notes due
April 2009 (2)
    
    $
    (26,590
    )
    
    $
    
    
    
    $
    (26,590
    )
    
    $
    (37,000
    )
    
    $
    
    
    
    $
    (37,000
    )
 
 (1)
    
    Restricted cash at December 31, 2006 and 2005 does not include $207 and
$696, respectively, of long-term restricted cash included in Other assets on the Companys
Consolidated balance sheets.(2)
    
    ICG repurchased all outstanding senior convertible notes on February 12,
2007 for approximately $37.1 million in cash.   24




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Summary of Statements of Cash Flows
 Year Ended December 31,2006
    
    2005
    
    2004(in thousands)Cash used in operating activities
    
    $
    (7,203
    )
    
    $
    (51,055
    )
    
    $
    (24,153
    )Cash provided by (used in) investing activities
    
    $
    (7,141
    )
    
    $
    192,693
    
    
    $
    (34,243
    )Cash provided by (used in) financing activities
    
    $
    (9,454
    )
    
    $
    (29,179
    )
    
    $
    12,781
      Contractual Cash Obligations and Commercial Commitments
  Payments due by periodTotal
    
    
    Less than 1 Year
    
    
    2-3 Years
    
    
    4-5 Years
    
    
    More than 5 years(in thousands)Senior convertible notes
    
    $
    26,590
    
    
    $
    26,590
    
    
    $
    
    
    
    $
    
    
    
    $
    Operating leases
    
    
    5,482
    
    
    
    1,560
    
    
    
    2,352
    
    
    
    1,311
    
    
    
    259Other borrowings
    
    
    1,491
    
    
    
    947
    
    
    
    544
    
    
    
    
    
    
    
    $
    33,563
    
    
    $
    29,097
    
    
    $
    2,896
    
    
    $
    1,311
    
    
    $
    259
 Off-Balance Sheet Arrangements
  25




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Our Partner Companies
  CORE PARTNER COMPANIES (%Voting Interest)Consolidated
    
    Equity
    
    CostICG Commerce (66%)
    
    Channel Intelligence (40%)
    
    (none)Investor Force (80%)
    
    Freeborders (34%)Marketron (38%)Metastorm (41%)StarCite (26%)Vcommerce (46%)WhiteFence (39%)
 OTHER HOLDINGS COMPANIES (%Voting Interest)Consolidated
    
    Equity
    
    Cost(none)
    
    GoIndustry (35%)(2)
    
    Anthem Ventures Fund, L.P. (9%)Blackboard (1)Captive Capital Corporation (5%)Creditex Group, Inc. (13%)Emptoris, Inc. (5%)Entegrity Solutions Corporation (2%)Jamcracker, Inc. (2%)Tibersoft Corporation (5%)
 
 (1)
    
    As of February 28, 2007, we own 2,187,060 shares of Blackboard (NASDAQ:BBBB) (see
Note 4  Marketable Securities to Consolidated Financial Statements.)(2)
    
    As of February 28, 2007, we own 69,177,300 shares, or 35% of the voting securities,
of GoIndustry. GoIndustrys common stock is traded on the AIM market of the London Stock Exchange
under ticker symbol GOI. See Note 3  Ownership Interests in Partner Companies, Goodwill and
Intangibles, net.) Results of Operations
   26




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Segment Information(in thousands)Reconciling ItemsDiscontinuedOther
    
    Total
    
    Operations and
    
    
    
    
    
    
    
    
    
    ConsolidatedCore
    
    Holdings
    
    Segment
    
    Dispositions
    
    Corporate
    
    Other
    
    ResultsFor The Year Ended
December 31, 2006Revenues
    
    $
    64,749
    
    
    $
    
    
    
    $
    64,749
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    64,749Net income (loss)
    
    $
    (13,911
    )
    
    $
    592
    
    
    $
    (13,319
    )
    
    $
    6,646
    
    
    $
    (13,788
    )
    
    
    36,085
    
    
    $
    15,624For The Year Ended
December 31, 2005Revenues
    
    $
    47,568
    
    
    $
    
    
    
    $
    47,568
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    47,568Net income (loss)
    
    $
    (23,120
    )
    
    $
    (4,852
    )
    
    $
    (27,972
    )
    
    $
    1,184
    
    
    $
    (18,473
    )
    
    $
    117,779
    
    
    
    72,518For The Year Ended
December 31, 2004Revenues
    
    $
    41,857
    
    
    $
    
    
    
    $
    41,857
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    41,857Net income (loss)
    
    $
    (10,856
    )
    
    $
    (2,215
    )
    
    $
    (13,071
    )
    
    $
    1,804
    
    
    $
    (18,116
    )
    
    $
    (105,934
    )
    
    $
    (135,317
    )
 For the Years Ended December 31, 2006, 2005 and 2004
 Results of Operations  Core Companies
  Year Ended December 31,2006
    
    
    2005
    
    
    2004(in thousands)Selected data:Revenue
    
    $
    64,749
    
    
    $
    47,568
    
    
    $
    41,857Cost of revenue
    
    
    (42,439
    )
    
    
    (28,460
    )
    
    
    (21,464
    )Selling, general and administrative
    
    
    (21,100
    )
    
    
    (22,420
    )
    
    
    (17,194
    )Research and development
    
    
    (8,755
    )
    
    
    (12,276
    )
    
    
    (8,660
    )Amortization of intangibles
    
    
    (1,829
    )
    
    
    (2,123
    )
    
    
    (2,711
    )Impairment related and other
    
    
    (178
    )
    
    
    (347
    )
    
    
    (282
    )Operating expenses
    
    $
    (74,301
    )
    
    
    (65,626
    )
    
    
    (50,311
    )Interest and other
    
    
    51
    
    
    
    (897
    )
    
    
    492Equity loss
    
    
    (4,410
    )
    
    
    (4,165
    )
    
    
    (2,894
    )Net loss
    
    
    (13,911
    )
    
    $
    (23,120
    )
    
    $
    (10,856
    )
 Revenue
   27




---



##### Table of Contents



Operating Expenses
   Equity Loss
     28




---



##### Table of Contents



Results of Operations  Other Holdings Companies
  Year Ended December 31,2006
    
    
    2005
    
    
    2004(in thousands)Selected data:Revenue
    
    $
    
    
    
    $
    
    
    
    $
    Operating expenses
    
    
    
    
    
    
    
    
    
    
    Interest and other
    
    
    
    
    
    
    
    
    
    
    Equity income (loss)
    
    
    592
    
    
    
    (4,852
    )
    
    
    (2,215
    )Net income (loss)
    
    $
    592
    
    
    $
    (4,852
    )
    
    $
    (2,215
    )
  Results of Operations  Reconciling Items
 Discontinued Operations and Dispositions
  Year Ended December 31,2006
    
    
    2005
    
    
    2004(in thousands)Discontinued operations
    
    $
    8,289
    
    
    $
    (1,130
    )
    
    $
    2,588Equity income (loss) of partner
companies sold/disposed of
    
    
    (1,643
    )
    
    
    2,314
    
    
    
    (784
    )Net income (loss)
    
    $
    6,646
    
    
    $
    1,184
    
    
    $
    1,804
    29




---



##### Table of Contents



Corporate
 Year Ended December 31,2006
    
    
    2005
    
    
    2004(in thousands)General and administrative
    
    $
    (20,874
    )
    
    $
    (18,779
    )
    
    $
    (14,045
    )Impairment related and other
    
    
    
    
    
    
    
    
    
    
    (476
    )Interest income (expense), net
    
    
    7,086
    
    
    
    306
    
    
    
    (3,595
    )Net loss
    
    $
    (13,788
    )
    
    $
    (18,473
    )
    
    $
    (18,116
    )
 General and Administrative
   Impairment Related and Other
  Interest Income/Expense
  30




---



##### Table of Contents



Other
 Year Ended December 31,2006
    
    
    2005
    
    
    2004(in thousands)Other income (loss) (Note 15)
    
    $
    34,813
    
    
    $
    136,603
    
    
    $
    (105,438
    )Income tax benefit (expense)
    
    
    40
    
    
    
    (18,640
    )
    
    
    Impairments
    
    
    
    
    
    
    (2,697
    )
    
    
    (1,267
    )Minority interest
    
    
    1,232
    
    
    
    2,513
    
    
    
    771Net income (loss)
    
    $
    36,085
    
    
    $
    117,779
    
    
    $
    (105,934
    )
 Other Income (Loss), Net
  Income Tax
   Impairment Charges
  Critical Accounting Policies
  31




---



##### Table of Contents



Valuation of Goodwill, Intangible Assets and Ownership Interests in Partner Companies
  Revenue Recognition
    32




---



##### Table of Contents



Deferred Income Taxes
  Commitments and Contingencies
  Recent Accounting Pronouncements
     33




---



##### Table of Contents



ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
     Minimum
    
    
    
    
    
    MaximumShares
    
    Expiration
    
    Price per
    
    Minimum
    
    Price per
    
    MaximumHedged
    
    Date
    
    Share
    

Value
    
    Share
    

Value500,000
    
    March 15, 2010
    
    $
    22.4419
    
    
    $11.2 million
    
    $
    55.4982
    
    
    $27.7 million125,000
    
    April 15, 2010
    
    $
    23.2841
    
    
    $2.9 million
    
    $
    59.8307
    
    
    $7.5 million125,000
    
    March 15, 2010
    
    $
    22.2223
    
    
    $2.8 million
    
    $
    49.8223
    
    
    $6.2 million
  Minimum
    
    
    
    
    
    MaximumShares
    
    Expiration
    
    Price per
    
    Minimum
    
    Price per
    
    MaximumHedged
    
    Date
    
    Share
    

Value
    
    Share
    

Value125,000
    
    March 15, 2010
    
    $
    22.2107
    
    
    $2.8 million
    
    $
    49.6438
    
    
    $6.2 million250,000
    
    March 15, 2010
    
    $
    24.0453
    
    
    $6.0 million
    
    $
    53.4521
    
    
    $13.4 million
  34




---



##### 



ITEM 8. Financial Statements and Supplementary Data
   
 PageNumberReport of Independent Registered Public Accounting Firm
    
    
    36Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    37Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004
    
    
    38Consolidated Statements of Stockholders Equity (Deficit) for the years ended December
31, 2006, 2005 and 2004
    
    
    39Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31,
2006, 2005 and 2004
    
    
    40Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004
    
    
    41Notes to Consolidated Financial Statements
    
    
    42
  35




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Share-Based Payment
 Internal
ControlIntegrated Framework
  
 36




---



##### Table of Contents



INTERNET CAPITAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    December 31,2006
    
    
    2005(in thousands, except per share data)AssetsCurrent AssetsCash and cash equivalents
    
    $
    120,808
    
    
    $
    142,659Restricted cash
    
    
    33
    
    
    
    253Short-term investments
    
    
    
    
    
    
    5,000Accounts receivable, net of allowance ($137-2006; $599-2005)
    
    
    6,273
    
    
    
    9,223Prepaid expenses and other current assets
    
    
    2,557
    
    
    
    15,399Assets of discontinued operations
    
    
    
    
    
    
    11,911Total current assets
    
    
    129,671
    
    
    
    184,445Marketable securities
    
    
    66,075
    
    
    
    63,425Fixed assets, net
    
    
    1,847
    
    
    
    1,886Ownership interests in Partner Companies
    
    
    137,911
    
    
    
    71,453Goodwill
    
    
    17,084
    
    
    
    17,794Intangibles, net
    
    
    182
    
    
    
    3,407Other
    
    
    1,657
    
    
    
    4,122Total Assets
    
    $
    354,427
    
    
    $
    346,532Liabilities and Stockholders EquityCurrent LiabilitiesCurrent portion of senior convertible notes
    
    $
    26,590
    
    
    $
    Current maturities of other long-term debt
    
    
    947
    
    
    
    1,113Accounts payable
    
    
    4,123
    
    
    
    6,181Accrued expenses
    
    
    4,420
    
    
    
    9,533Accrued compensation and benefits
    
    
    9,222
    
    
    
    7,141Deferred revenue
    
    
    5,430
    
    
    
    9,508Liabilities of discontinued operations
    
    
    
    
    
    
    10,465Total current liabilities
    
    
    50,732
    
    
    
    43,941Senior convertible notes
    
    
    
    
    
    
    37,000Other long-term debt
    
    
    544
    
    
    
    4,407Long-term deferred revenue
    
    
    157
    
    
    
    1,490Other liabilities
    
    
    333
    
    
    
    640Minority
interests
    
    
    4,123
    
    
    
    2,80955,889
    
    
    
    90,287Stockholders EquityPreferred stock, $0.01 par value; 10,000 shares authorized, none issued or
outstanding
    
    
    
    
    
    
    Common stock, $0.001 par value; 2,000,000 shares authorized, 38,598 (2006)
and 39,314 (2005) issued and outstanding
    
    
    39
    
    
    
    39Additional paid-in capital
    
    
    3,552,681
    
    
    
    3,535,646Accumulated deficit
    
    
    (3,317,095
    )
    
    
    (3,332,719
    )Unamortized deferred compensation
    
    
    
    
    
    
    (6,684
    )Notes receivable-stockholders
    
    
    
    
    
    
    (300
    )Accumulated other comprehensive income
    
    
    62,913
    
    
    
    60,263Total stockholders equity
    
    
    298,538
    
    
    
    256,245Total Liabilities and Stockholders Equity
    
    $
    354,427
    
    
    $
    346,532
  37




---



##### Table of Contents



INTERNET CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended December 31,2006
    
    
    2005
    
    
    2004(in thousands, except per share data)Revenue
    
    $
    64,749
    
    
    $
    47,568
    
    
    $
    41,857Operating expensesCost of revenue
    
    
    42,439
    
    
    
    28,460
    
    
    
    21,464Selling, general and administrative
    
    
    42,108
    
    
    
    40,795
    
    
    
    31,239Research and development
    
    
    8,755
    
    
    
    12,276
    
    
    
    8,660Amortization of intangibles
    
    
    1,695
    
    
    
    2,123
    
    
    
    2,711Impairment related and other
    
    
    178
    
    
    
    3,448
    
    
    
    758Total operating expenses
    
    
    95,175
    
    
    
    87,102
    
    
    
    64,832(30,426
    )
    
    
    (39,534
    )
    
    
    (22,975
    )Other income (loss), net
    
    
    34,605
    
    
    
    135,489
    
    
    
    (106,178
    )Interest income
    
    
    9,519
    
    
    
    3,890
    
    
    
    1,295Interest expense
    
    
    (2,174
    )
    
    
    (3,367
    )
    
    
    (4,925
    )Income (loss) before income taxes,
minority interest and equity loss
    
    
    11,524
    
    
    
    96,478
    
    
    
    (132,783
    )Income tax benefit (expense)
    
    
    40
    
    
    
    (18,640
    )
    
    
    Minority interest
    
    
    1,232
    
    
    
    2,513
    
    
    
    771Equity loss
    
    
    (5,461
    )
    
    
    (6,703
    )
    
    
    (5,893
    )Income (loss) from continuing operations
    
    
    7,335
    
    
    
    73,648
    
    
    
    (137,905
    )Income (loss) on discontinued operations
    
    
    8,289
    
    
    
    (1,130
    )
    
    
    2,588Net income (loss)
    
    $
    15,624
    
    
    $
    72,518
    
    
    $
    (135,317
    )Basic income (loss) per share:Income (loss) from continuing operations
    
    $
    0.20
    
    
    $
    1.98
    
    
    $
    (3.86
    )Income (loss) on discontinued operations
    
    
    0.22
    
    
    
    (0.03
    )
    
    
    0.07$
    0.42
    
    
    $
    1.95
    
    
    $
    (3.79
    )Shares used in computation of basic
income (loss) per share
    
    
    37,570
    
    
    
    37,109
    
    
    
    35,713Diluted income (loss) per share:Income (loss) from continuing operations
    
    $
    0.19
    
    
    $
    1.76
    
    
    $
    (3.86
    )Income (loss) on discontinued operations
    
    
    0.22
    
    
    
    (0.03
    )
    
    
    0.07$
    0.41
    
    
    $
    1.73
    
    
    $
    (3.79
    )Shares used in computation of diluted
income (loss) per share
    
    
    38,106
    
    
    
    43,670
    
    
    
    35,713
  38




---



##### Table of Contents



INTERNET CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 AccumulatedAdditional
    
    
    
    
    
    
    Unamortized
    
    
    Notes
    
    
    OtherCommon Stock
    
    
    Paid-In
    
    
    Accumulated
    
    
    Deferred
    
    
    Receivable-
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Compensation
    
    
    Stockholders
    
    
    Income
    
    
    Total(in thousands)Balance as of December 31, 2003
    
    
    21,839
    
    
    $
    22
    
    
    $
    3,251,068
    
    
    $
    (3,269,920
    )
    
    $
    (712
    )
    
    $
    (460
    )
    
    $
    708
    
    
    $
    (19,294
    )Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,413
    
    
    
    
    
    
    
    
    
    
    
    1,413Issuance of common stock in payment
of bonuses
    
    
    33
    
    
    
    
    
    
    
    273
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    273Issuance of common stock in exchange
for convertible subordinated notes
    
    
    15,887
    
    
    
    16
    
    
    
    267,607
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    267,623Impact of Partner Company equity
transactions (Note 14)
    
    
    
    
    
    
    
    
    
    
    2,313
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,313Issuance of restricted stock
    
    
    640
    
    
    
    
    
    
    
    4,412
    
    
    
    
    
    
    
    (4,412
    )
    
    
    
    
    
    
    
    
    
    
    Forfeiture of restricted stock
    
    
    (11
    )
    
    
    
    
    
    
    (77
    )
    
    
    
    
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    Stockholder loans principal payments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    160
    
    
    
    
    
    
    
    160Net unrealized appreciation in
marketable securities and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,936
    
    
    
    47,936Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (135,317
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (135,317
    )Balance as of December 31, 2004
    
    
    38,388
    
    
    
    38
    
    
    
    3,525,596
    
    
    
    (3,405,237
    )
    
    
    (3,634
    )
    
    
    (300
    )
    
    
    48,644
    
    
    
    165,107Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,507
    
    
    
    
    
    
    
    
    
    
    
    3,507Impact of Partner Company equity
transactions (Note 14)
    
    
    
    
    
    
    
    
    
    
    2,271
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,271Issuance of restricted stock
    
    
    819
    
    
    
    1
    
    
    
    6,013
    
    
    
    
    
    
    
    (6,014
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of stock appreciation
rights
    
    
    
    
    
    
    
    
    
    
    824
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    824Issuance of deferred stock units to
Board of Directors
    
    
    109
    
    
    
    
    
    
    
    809
    
    
    
    
    
    
    
    (543
    )
    
    
    
    
    
    
    
    
    
    
    266Repurchase of common stock from
former employees
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation tax benefit
    
    
    
    
    
    
    
    
    
    
    133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133Net unrealized appreciation in
marketable securities and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,619
    
    
    
    11,619Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,518
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,518Balance as of December 31, 2005
    
    
    39,314
    
    
    
    39
    
    
    
    3,535,646
    
    
    
    (3,332,719
    )
    
    
    (6,684
    )
    
    
    (300
    )
    
    
    60,263
    
    
    
    256,245Reclassification of unamortized
deferred compensation upon adoption
of SFAS No. 123R
    
    
    
    
    
    
    
    
    
    
    (6,684
    )
    
    
    
    
    
    
    6,684
    
    
    
    
    
    
    
    
    
    
    
    Share-based
compensation expense related
to restricted stock
    
    
    
    
    
    
    
    
    
    
    2,559
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,559Impact of Partner Company equity
transactions (Note 14)
    
    
    
    
    
    
    
    
    
    
    15,169
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,169Issuance of restricted stock
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeitures of restricted stock
    
    
    (37
    )
    
    
    
    
    
    
    (129
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (129
    )Share-based
compensation related to stock
appreciation rights and stock
options
    
    
    
    
    
    
    
    
    
    
    4,716
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,716Issuance of deferred stock units to
Board of Directors
    
    
    56
    
    
    
    
    
    
    
    674
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    674Repurchase of common stock from
current and
former employees
    
    
    (785
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    128
    
    
    
    
    
    
    
    128Stockholder
loans principal payments
    
    
    
    
    
    
    
    
    
    
    730
    
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    
    
    
    
    855Forgiveness
of stockholder loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47
    
    
    
    
    
    
    
    47Net unrealized appreciation in
marketable securities and
reclassification adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,650
    
    
    
    2,650Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,624
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,624Balance as of December 31, 2006
    
    
    38,598
    
    
    $
    39
    
    
    $
    3,552,681
    
    
    
    (3,317,095
    )
    
    $
    
    
    
    $
    
    
    
    $
    62,913
    
    
    $
    298,538
  39




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 Year Ended December 31,2006
    
    
    2005
    
    
    2004(in thousands)Net income (loss)
    
    $
    15,624
    
    
    $
    72,518
    
    
    $
    (135,317
    )Other comprehensive income (loss)Unrealized holding gains in marketable
securities
    
    
    7,674
    
    
    
    25,940
    
    
    
    47,552Reclassification adjustments/realized net
(gains) losses on marketable securities
    
    
    (5,024
    )
    
    
    (14,567
    )
    
    
    630Other accumulated other comprehensive income
(loss)
    
    
    
    
    
    
    246
    
    
    
    (246
    )Sub-total
    
    
    2,650
    
    
    
    11,619
    
    
    
    47,936Comprehensive income (loss)
    
    $
    18,274
    
    
    $
    84,137
    
    
    $
    (87,381
    )
  40




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended December 31,2006
    
    
    2005
    
    
    2004(in thousands)Operating ActivitiesNet income (loss)
    
    $
    15,624
    
    
    $
    72,518
    
    
    $
    (135,317
    )Adjustments to reconcile net loss to cash used in operating
activities(Income) loss from discontinued operations
    
    
    (8,289
    )
    
    
    1,130
    
    
    
    (2,588
    )Depreciation and amortization
    
    
    3,395
    
    
    
    3,691
    
    
    
    3,748Impairment related and other
    
    
    373
    
    
    
    2,941
    
    
    
    758Stock-based compensation
    
    
    7,680
    
    
    
    4,339
    
    
    
    1,413Equity loss
    
    
    5,461
    
    
    
    6,703
    
    
    
    5,893Other (income) loss
    
    
    (34,605
    )
    
    
    (135,489
    )
    
    
    106,401Minority interest
    
    
    (1,232
    )
    
    
    (2,513
    )
    
    
    (771
    )Changes in assets and liabilities, net of effect of acquisitions:Restricted cash
    
    
    122
    
    
    
    156
    
    
    
    170Accounts receivable, net
    
    
    (1,395
    )
    
    
    (4,631
    )
    
    
    4,345Prepaid expenses and other assets
    
    
    6,990
    
    
    
    949
    
    
    
    3,292Accounts payable
    
    
    (3,019
    )
    
    
    (6,711
    )
    
    
    (6,989
    )Accrued expenses
    
    
    1,075
    
    
    
    2,506
    
    
    
    (2,559
    )Deferred revenue
    
    
    (762
    )
    
    
    600
    
    
    
    (1,590
    )Other liabilities
    
    
    3,261
    
    
    
    3,553
    
    
    
    551Cash flows
from operating activities of continuing operations
    
    
    (5,321
    )
    
    
    (50,258
    )
    
    
    (23,243
    )Cash flows
from (used in) operating activities of discontinued operations
    
    
    (1,882
    )
    
    
    (797
    )
    
    
    (910
    )Cash used in operating activities
    
    
    (7,203
    )
    
    
    (51,055
    )
    
    
    (24,153
    )Investing ActivitiesCapital expenditures, net
    
    
    (2,265
    )
    
    
    (965
    )
    
    
    (1,003
    )Purchases of short-term investments
    
    
    
    
    
    
    (10,597
    )
    
    
    (85,219
    )Proceeds of short-term investments
    
    
    5,000
    
    
    
    63,537
    
    
    
    27,288Proceeds from sales of marketable securities
    
    
    5,554
    
    
    
    19,153
    
    
    
    7,798Proceeds from sales of Partner Company ownership interests
    
    
    40,845
    
    
    
    141,719
    
    
    
    25,668Proceeds
from sale of discontinued operations
    
    
    9,000
    
    
    
    
    
    
    
    Acquisitions of ownership interests in Partner Companies, net
    
    
    (63,292
    )
    
    
    (22,471
    )
    
    
    (8,669
    )Other acquisitions, net
    
    
    (536
    )
    
    
    
    
    
    
    Increase in cash due to consolidation of Partner Companies
    
    
    
    
    
    
    2,331
    
    
    
    Reduction in cash due to deconsolidation of Partner Company
    
    
    (1,447
    )
    
    
    
    
    
    
    Cash flows
from (used in) investing activities of continuing operations
    
    
    (7,141
    )
    
    
    192,707
    
    
    
    (34,137
    )Cash flows
used in investing activities of discontinued operations
    
    
    
    
    
    
    (14
    )
    
    
    (106
    )Cash provided by (used in) investing activities
    
    
    (7,141
    )
    
    
    192,693
    
    
    
    (34,243
    )Financing ActivitiesRepurchase of senior convertible notes
    
    
    (12,768
    )
    
    
    (28,405
    )
    
    
    Issuance of senior convertible notes, net
    
    
    
    
    
    
    
    
    
    
    58,215Repurchase of convertible subordinated notes
    
    
    
    
    
    
    
    
    
    
    (39,541
    )Long term debt and capital lease obligations, net
    
    
    (1,310
    )
    
    
    (774
    )
    
    
    (6,062
    )Repayments of advances and loans from employees/stockholders
    
    
    4,624
    
    
    
    
    
    
    
    160Issuance of stock by subsidiary
    
    
    
    
    
    
    
    
    
    
    9Cash flows
from (used in) financing activities of continuing operations
    
    
    (9,454
    )
    
    
    (29,179
    )
    
    
    12,781Cash flows from financing activities of discontinued operations
    
    
    
    
    
    
    
    
    
    
    Cash provided by (used in) financing activities
    
    
    (9,454
    )
    
    
    (29,179
    )
    
    
    12,781Net increase (decrease) in Cash and Cash Equivalents
    
    
    (23,798
    )
    
    
    112,459
    
    
    
    (45,615
    )Effect of exchange rates on cash
    
    
    65
    
    
    
    496
    
    
    
    (380
    )Cash and Cash Equivalents at the beginning of year
    
    
    144,541
    
    
    
    31,586
    
    
    
    77,581Cash and Cash Equivalents at end of year
    
    
    120,808
    
    
    
    144,541
    
    
    
    31,586Less Cash and Cash Equivalents of discontinued operations at the
end of year
    
    $
    
    
    
    $
    1,882
    
    
    $
    2,693Cash and Cash Equivalents of continuing operations at the end of
year
    
    $
    120,808
    
    
    $
    142,659
    
    
    $
    28,893
  41




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. The Company
 Description of the Company
   2. Significant Accounting Policies
 Basis of Presentation
  Year Ended December 31,2006
    
    2005
    
    2004ICG Commerce 
Investor Force 
StarCite (1)
    
    ICG Commerce
CommerceQuest (2)
Investor Force (3)
StarCite (4)
    
    ICG Commerce
CommerceQuest
  December 31,2006
    
    2005ICG Commerce
    
    ICG CommerceInvestor Force
    
    Investor ForceStarCite
 
 (1)
    
    On December 29, 2006, StarCite completed a transaction in which it
consolidated with OnVantage, Inc. Beginning on December 29, 2006, the Companys ownership
interest in the combined entity is accounted for under the equity method of accounting.
See Note 3.(2)
    
    In October 2005, CommerceQuest, a consolidated Partner Company, was
acquired by Metastorm in exchange for an equity interest in Metastorm. Beginning October 1,
2005 (see Note 3), Metastorm was accounted for as an equity method Partner Company.(3)
    
    Investor Force became a consolidated Partner Company on January 1, 2005.(4)
    
    StarCite became a consolidated Partner Company on June 8, 2005. The
results of operations of StarCite from June 8, 2005 to June 30, 2005 were not material and
were not included in the Consolidated Statements of Operations through June 30, 2005.
StarCites results of operations are included in the Consolidated Statements of Operations
beginning July 1, 2005. 42




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 2. Significant Accounting Policies  (Continued)
 Principles of Accounting for Ownership Interests in Partner Companies
  Consolidation.
  Equity Method.
  Cost Method.
 43




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 2. Significant Accounting Policies  (Continued)
   Ownership Interests in Partner Companies, Goodwill and Intangibles, net
    44




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 2. Significant Accounting Policies  (Continued)
 Revenue Recognition
     Deferred Revenue
  45




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 2. Significant Accounting Policies  (Continued)
 Use of Estimates
  Cash and Cash Equivalents
  Restricted Cash
  Short-term Investments
  Marketable Securities
  Financial Instruments
  Research and Development
  46




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 2. Significant Accounting Policies  (Continued)
 Income Taxes
  Net Income (Loss) Per Share
   Issuances of Stock By Partner Companies
  Escrow Receivable
  Concentration of Customer Base and Credit Risk
  47




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 2. Significant Accounting Policies  (Continued)
 Stock Based Compensation
    Year Ended December 31,2005
    
    
    2004(in thousands, except per share data)Net income (loss), as reported
    
    $
    72,518
    
    
    $
    (135,317
    )Stock-based employee compensation expense
included in reported net income (loss)
    
    
    4,339
    
    
    
    1,583Total stock-based employee compensation expense
determined under fair-value-based
method for all awards
    
    
    (8,305
    )
    
    
    (8,123
    )Pro forma net income (loss)
    
    $
    68,552
    
    
    $
    (141,857
    )Net income (loss) per basic share, as reported
    
    $
    1.95
    
    
    $
    (3.79
    )Net income (loss) per diluted share, as reported
    
    $
    1.73
    
    
    $
    (3.79
    )Pro forma net income (loss) per basic share
    
    $
    1.85
    
    
    $
    (3.97
    )Pro forma net income (loss) per diluted share
    
    $
    1.64
    
    
    $
    (3.97
    )
  48




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 2. Significant Accounting Policies  (Continued)
 Recent Accounting Pronouncements
     Comprehensive Income (Loss)
  Reclassifications
  49




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3. Ownership interests in Partner Companies, Goodwill and Intangibles, net
  December 31,
    
    
    December 31,2006
    
    
    2005(in thousands)Goodwill
    
    $
    17,084
    
    
    $
    17,794Intangibles, net
    
    $
    182
    
    
    $
    3,407Ownership interests in Partner
Companies  Equity Method
    
    $
    109,288
    
    
    $
    67,617Ownership interests in Partner
Companies  Cost Method
    
    
    28,623
    
    
    
    3,836$
    137,911
    
    
    $
    71,453
  Goodwill at December 31, 2005
    
    $
    17,794Additional acquisition of ICG Commerce
    
    
    697Deconsolidation of StarCite
    
    
    (2,102
    )Additional
acquisition of Investor Force
    
    
    695Goodwill at December 31, 2006
    
    $
    17,084
  50




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3. Ownership Interests in Partner Companies, Goodwill and Intangibles, net  (Continued)
  As of December 31, 2006(in thousands)Useful
    
    
    Gross Carrying
    
    
    AccumulatedIntangible Assets
    
    Life
    
    
    Amount
    
    
    Amortization
    
    
    Net Carrying AmountTechnology
    
    1.5-5 years
    
    $
    18,051
    
    
    $
    (17,869
    )
    
    $
    182
  As of December 31, 2005(in thousands)Useful
    
    
    Gross Carrying
    
    
    AccumulatedIntangible Assets
    
    Life
    
    
    Amount
    
    
    Amortization
    
    
    Net Carrying AmountTechnology
    
    1.5-5 years
    
    $
    18,105
    
    
    $
    (17,229
    )
    
    $
    876Customer lists
    
    3 years
    
    
    2,599
    
    
    
    (247
    )
    
    
    2,352Tradename
    
    Indefinite
    
    
    179
    
    
    
    
    
    
    
    179$
    20,883
    
    
    $
    (17,476
    )
    
    $
    3,407
   51




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3. Ownership Interests in Partner Companies, Goodwill and Intangibles, net  (Continued)
 Acquisitions
  Investor Force
    
    
    ICG Commerce
    
    
    StarCiteNet Assets Acquired:Goodwill
    
    $
    695
    
    
    $
    697
    
    
    $
    2,102Customer base
    
    
    
    
    
    
    
    
    
    
    2,513Technology
    
    
    
    
    
    
    
    
    
    
    75Tradename
    
    
    
    
    
    
    
    
    
    
    179Other net assets (liabilities)
    
    
    (695
    )
    
    
    233
    
    
    
    (1,659
    )$
    
    
    
    $
    930
    
    
    $
    3,210
  Deconsolidation/Disposition
    52




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3. Ownership Interests in Partner Companies, Goodwill and Intangibles, net  (Continued)
 Equity Method Companies
  Balance Sheets (Unaudited)
 As of December 31,2006 (1)
    
    
    2005 (2)Cash, cash equivalents and short-term investments
    
    $
    52,170
    
    
    $
    51,158Other current assets
    
    
    50,763
    
    
    
    54,778Other non-current assets
    
    
    128,946
    
    
    
    119,429Total assets
    
    $
    231,879
    
    
    $
    225,365Current liabilities
    
    $
    81,145
    
    
    $
    89,226Non-current liabilities
    
    
    13,470
    
    
    
    1,988Long-term debt
    
    
    14,377
    
    
    
    19,276Stockholders equity
    
    
    122,887
    
    
    
    114,875Total liabilities and stockholders equity
    
    $
    231,879
    
    
    
    225,365Total carrying value
    
    $
    109,288
    
    
    $
    67,617
 
 (1)
    
    Includes (ICG voting ownership): Channel Intelligence (40%), Freeborders (34%), GoIndustry (35%), Marketron (38%), Metastorm
(41%), StarCite (26%), Vcommerce (46%) and WhiteFence (39%).(2)
    
    Includes (ICG voting ownership): ComputerJobs (46%), CreditTrade Inc. (CreditTrade) (27%), eCredit (29%),
Freeborders (33%) GoIndustry AG (54%), Marketron (38%), Metastorm (41%) and WhiteFence (39%). Results of Operations (Unaudited)
 Year Ended December 31, 2006Other Holdings/Core (1)
    
    
    Dispositions (2)
    
    
    Total(in thousands)Revenue
    
    $
    98,674
    
    
    $
    104,873
    
    
    $
    203,547Net income (loss)
    
    $
    (13,579
    )
    
    $
    (9,061
    )
    
    $
    (22,640
    )Total equity income (loss)
    
    $
    (4,410
    )
    
    $
    (1,051
    )
    
    $
    (5,461
    )
 
 (1)
    
    Includes Channel Intelligence (from date of acquisition), Freeborders, Marketron,
Metastorm, Vcommerce (from date of acquisition) and WhiteFence.(2)
    
    Includes ComputerJobs, CreditTrade, eCredit and GoIndustry. 53




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3. Ownership Interests in Partner Companies, Goodwill and Intangibles, net  (Continued)
 Year Ended December 31, 2005Other Holdings/Core (3)
    
    
    Dispositions (4)
    
    
    Total(in thousands)Revenue
    
    $
    50,471
    
    
    $
    160,164
    
    
    $
    210,635Net income (loss)
    
    $
    (9,599
    )
    
    $
    1,085
    
    
    $
    (8,514
    )Total equity income (loss)
    
    $
    (4,165
    )
    
    $
    (2,538
    )
    
    $
    (6,703
    )
 
 (3)
    
    Includes Freeborders, Marketron, Metastorm (from date of acquisition),
WhiteFence (from date of acquisition) and StarCite (for six months ended June 30, 2005).(4)
    
    Includes ComputerJobs, Co-nect, Inc. (Co-nect) (for nine months ended September 30,
2005), CreditTrade, eCredit, GoIndustry AG and LinkShare (for nine months ended September 30, 2005). Year Ended December 31, 2004Other Holdings/Core (5)
    
    
    Dispositions (6)
    
    
    Total(In thousands)Revenue
    
    $
    45,484
    
    
    $
    138,479
    
    
    $
    183,963Net income (loss)
    
    $
    (13,565
    )
    
    $
    (13,906
    )
    
    $
    (27,471
    )Total equity income (loss)
    
    $
    (2,894
    )
    
    $
    (2,999
    )
    
    $
    (5,893
    )
 
 (5)
    
    Includes Freeborders, Investor Force, Marketron and StarCite.(6)
    
    Includes ComputerJobs, Co-nect, CreditTrade, eCredit, FoodLink Online LLC,
GoIndustry AG and LinkShare. 54




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3. Ownership Interests in Partner Companies, Goodwill and Intangibles, net  (Continued)
 Other Equity Company Information
   55




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 4. Marketable Securities and Related Derivatives
  UnrealizedCommon Shares
    
    
    
    
    
    
    HoldingOwned
    
    
    Cost
    
    
    Gains/(Losses)
    
    
    Fair Value(in thousands, except shares)December 31, 2006Blackboard
    
    
    2,187,060
    
    
    $
    3,162
    
    
    $
    62,536
    
    
    $
    65,698Blackboard hedges
    
    
    
    
    
    
    
    
    
    
    357
    
    
    
    357Other
    
    
    
    
    
    
    
    
    
    
    20
    
    
    
    20$
    3,162
    
    
    $
    62,913
    
    
    $
    66,075December 31, 2005Blackboard
    
    
    2,187,060
    
    
    $
    3,162
    
    
    $
    60,219
    
    
    $
    63,381Other
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    44$
    3,162
    
    
    $
    60,263
    
    
    $
    63,425
     56




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 4. Marketable Securities and Related Derivatives  (Continued)
  Minimum
    
    
    
    
    
    MaximumShares
    
    Expiration
    
    Price per
    
    Minimum
    
    Price per
    
    MaximumHedged
    
    Date
    
    Share
    
    Value
    
    Share
    
    Value500,000
    
    March 15, 2010
    
    $
    22.4419
    
    
    $11.2 million
    
    $
    55.4982
    
    
    $27.7 million125,000
    
    April 15, 2010
    
    $
    23.2841
    
    
    $2.9 million
    
    $
    59.8307
    
    
    $7.5 million125,000
    
    March 15, 2010
    
    $
    22.2223
    
    
    $2.8 million
    
    $
    49.8223
    
    
    $6.2 million
  Minimum
    
    
    
    
    
    MaximumShares
    
    Expiration
    
    Price per
    
    Minimum
    
    Price per
    
    MaximumHedged
    
    Date
    
    Share
    
    Value
    
    Share
    
    Value125,000
    
    March 15, 2010
    
    $
    22.2107
    
    
    $2.8 million
    
    $
    49.6438
    
    
    $6.2 million250,000
    
    March 15, 2010
    
    $
    24.0453
    
    
    $6.0 million
    
    $
    53.4521
    
    
    $13.4 million
 5. Debt
 Senior Convertible Notes
      57




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 5. Debt  (Continued)
  Convertible Subordinated Notes
   Year EndedDecember 31, 2004(in thousands)Cash repurchases of convertible debtFace value of convertible subordinated notes repurchased/redeemed
    
    $
    39,111Cash paid
    
    
    (39,541
    )Other expenses
    
    
    (169
    )Loss recorded
    
    $
    (599
    )
 Year EndedDecember 31, 2004(in thousands)Debt for equity exchangesFace value of convertible subordinated notes exchanged
    
    $
    134,808Shares of common stock issued for debt exchange
    
    
    15,887Fair value of common stock issued
    
    $
    (133,264
    )Fair value of common stock issued-original terms
    
    
    449Accrued interest
    
    
    790Other expenses
    
    
    (534
    )Expense recorded
    
    $
    (132,559
    )Net expense
included in Other income (loss), net for cash repurchases
and debt for equity exchanges (Note 15)
    
    $
    (133,158
    )
  58




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 5. Debt  (Continued)
  Other Long-Term Debt
  As of December 31,Interest Rates
    
    2006
    
    
    2005(in thousands)Notes payable
    
    6.0-10%
    
    $
    
    
    
    $
    3,158Capital leases
    
    10.3-15.7%
    
    
    168
    
    
    
    382Other Debt
    
    5.0%
    
    
    1,323
    
    
    
    1,9801,491
    
    
    
    5,520Current maturities
    
    
    
    
    (947
    )
    
    
    (1,113
    )Long term debt
    
    
    
    $
    544
    
    
    $
    4,407
  Loan and Credit Agreements
  59




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 6. Fixed Assets
  As of December 31,Useful Life
    
    2006
    
    
    2005(in thousands)Computer equipment and software,
office equipment and furniture
    
    3-10 years
    
    $
    15,278
    
    
    $
    16,270Leasehold improvements
    
    1-5 years
    
    
    167
    
    
    
    28915,445
    
    
    
    16,559Less: accumulated depreciation
and amortization
    
    
    
    
    (13,598
    )
    
    
    (14,673
    )$
    1,847
    
    
    $
    1,886
  7. Discontinued Operations
      60




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 8. Segment Information
     Segment Information(in thousands)Reconciling ItemsDiscontinuedTotal
    
    Operations and
    
    
    
    
    
    
    
    
    
    ConsolidatedCore
    
    Other Holdings
    
    Segment
    
    Dispositions
    
    Corporate
    
    Other
    
    ResultsYear Ended
December 31, 2006Revenues
    
    $
    64,749
    
    
    $
    
    
    
    $
    64,749
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    64,749Net income (loss)
    
    $
    (13,911
    )
    
    $
    592
    
    
    $
    (13,319
    )
    
    $
    6,646
    
    
    $
    (13,788
    )
    
    $
    36,085
    *
    
    $
    15,624Assets
    
    $
    172,129
    
    
    $
    9,781
    
    
    $
    181,910
    
    
    $
    
    
    
    $
    172,517
    
    
    $
    
    
    
    $
    354,427Capital Expenditures
    
    $
    (2,037
    )
    
    $
    
    
    
    $
    (2,037
    )
    
    $
    
    
    
    $
    (228
    )
    
    $
    
    
    
    $
    (2,265
    )Year Ended
December 31, 2005Revenues
    
    $
    47,568
    
    
    $
    
    
    
    $
    47,568
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    47,568Net income (loss)
    
    $
    (23,120
    )
    
    $
    (4,852
    )
    
    $
    (27,972
    )
    
    $
    1,184
    
    
    $
    (18,473
    )
    
    $
    117,779
    *
    
    $
    72,518Assets
    
    $
    118,286
    
    
    $
    3,836
    
    
    $
    122,122
    
    
    $
    15,299
    
    
    $
    209,111
    
    
    $
    
    
    
    $
    346,532Capital Expenditures
    
    $
    (830
    )
    
    $
    
    
    
    $
    (830
    )
    
    $
    
    
    
    $
    (135
    )
    
    $
    
    
    
    $
    (965
    )Year Ended
December 31, 2004Revenues
    
    $
    41,857
    
    
    $
    
    
    
    $
    41,857
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    41,857Net income (loss)
    
    $
    (10,856
    )
    
    $
    (2,215
    )
    
    $
    (13,071
    )
    
    $
    1,804
    
    
    $
    (18,116
    )
    
    $
    (105,934)
    *
    
    $
    (135,317
    )Assets
    
    $
    110,204
    
    
    $
    6,699
    
    
    $
    116,903
    
    
    $
    31,172
    
    
    $
    129,531
    
    
    $
    
    
    
    $
    277,606Capital Expenditures, net
    
    $
    (843
    )
    
    $
    
    
    
    $
    (843
    )
    
    $
    
    
    
    $
    (160
    )
    
    $
    
    
    
    $
    (1,003
    )
 
 *
    
    Other reconciling items to net income (loss) are as follows: Year Ended December 31,2006
    
    
    2005
    
    
    2004Other income (loss) (Note 15)
    
    $
    34,813
    
    
    $
    136,603
    
    
    $
    (106,705
    )Taxes
    
    
    40
    
    
    
    (18,640
    )
    
    
    Minority interest
    
    
    1,232
    
    
    
    2,513
    
    
    
    771Impairment of consolidated Partner Companies
    
    
    
    
    
    
    (2,697
    )
    
    
    $
    36,085
    
    
    $
    117,779
    
    
    $
    (105,934
    )
 61




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 9. Parent Company Financial Information
  Parent Company Balance Sheets
 December 31,2006
    
    
    2005(in thousands)AssetsCash and cash equivalents
    
    $
    104,249
    
    
    $
    129,555Other current assets
    
    
    1,904
    
    
    
    14,226Current assets
    
    
    106,153
    
    
    
    143,781Ownership interests in Partner Companies
    
    
    159,356
    
    
    
    94,639Marketable securities
    
    
    66,075
    
    
    
    63,425Other
    
    
    1,480
    
    
    
    2,815Total assets
    
    $
    333,064
    
    
    $
    304,660Liabilities and stockholders equityCurrent portion of senior convertible notes
    
    $
    26,590
    
    
    $
    Current liabilities
    
    
    7,936
    
    
    
    11,415Senior convertible notes
    
    
    
    
    
    
    37,000Stockholders equity
    
    
    298,538
    
    
    
    256,245Total liabilities and stockholders equity
    
    $
    333,064
    
    
    $
    304,660
 Parent Company Statements of Operations
 Year Ended December 31,2006
    
    
    2005
    
    
    2004(in thousands)Revenue
    
    $
    
    
    
    $
    
    
    
    $
    Operating expensesGeneral and administrative
    
    
    20,873
    
    
    
    18,779
    
    
    
    14,074Impairment related and other
    
    
    
    
    
    
    2,697
    
    
    
    476Total operating expenses
    
    
    20,873
    
    
    
    21,476
    
    
    
    14,550(20,873
    )
    
    
    (21,476
    )
    
    
    (14,550
    )Other income (loss), net *
    
    
    42,058
    
    
    
    136,603
    
    
    
    (103,705
    )Interest income (expense), net
    
    
    7,086
    
    
    
    306
    
    
    
    (3,595
    )Income (loss) before income taxes and equity loss
    
    
    28,271
    
    
    
    115,433
    
    
    
    (121,850
    )Income tax benefit (expense)
    
    
    40
    
    
    
    (18,640
    )
    
    
    Equity loss
    
    
    (12,687
    )
    
    
    (24,275
    )
    
    
    (13,467
    )Net income (loss)
    
    $
    15,624
    
    
    $
    72,518
    
    
    $
    (135,317
    )
 
 *
    
    For purposes of Parent Company reporting, discontinued
operations (see Note 7) are included in the Other income (loss), net line item. 62




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 9. Parent Company Financial Information  (Continued)
 Parent Company Statements of Cash Flows
 Year Ended December 312006
    
    
    2005
    
    
    2004(in thousands)Operating ActivitiesNet income (loss)
    
    $
    15,624
    
    
    $
    72,518
    
    
    $
    (135,317
    )Adjustments to reconcile net loss to cash used in operating activitiesDepreciation and amortization
    
    
    138
    
    
    
    144
    
    
    
    71Impairment related and other
    
    
    
    
    
    
    2,697
    
    
    
    476Stock-based compensation
    
    
    7,624
    
    
    
    4,331
    
    
    
    1,413Equity loss
    
    
    12,687
    
    
    
    24,275
    
    
    
    13,467Other income (loss)
    
    
    (42,058
    )
    
    
    (136,603
    )
    
    
    103,705Changes in assets and liabilities, net of effect of acquisitions:Restricted cash
    
    
    
    
    
    
    
    
    
    
    850Taxes receivable
    
    
    
    
    
    
    (8,392
    )
    
    
    Prepaid expenses and other assets
    
    
    9,543
    
    
    
    (73
    )
    
    
    1,176Accounts payable
    
    
    (4,149
    )
    
    
    62
    
    
    
    (189
    )Accrued expenses
    
    
    (200
    )
    
    
    1,362
    
    
    
    869Cash used in operating activities
    
    
    (791
    )
    
    
    (39,679
    )
    
    
    (13,479
    )Investing ActivitiesCapital expenditures, net
    
    
    (228
    )
    
    
    (135
    )
    
    
    (172
    )Proceeds from disposals of fixed assets
    
    
    
    
    
    
    
    
    
    
    12Proceeds from sales of marketable securities
    
    
    5,554
    
    
    
    19,153
    
    
    
    7,798Proceeds from sales of ownership interests in Partner Companies
    
    
    44,845
    
    
    
    141,719
    
    
    
    25,668Acquisitions of ownership interests in Partner Companies, net
    
    
    (66,542
    )
    
    
    (30,383
    )
    
    
    (21,147
    )Purchase of short-term investments
    
    
    
    
    
    
    (4,922
    )
    
    
    (85,219
    )Proceeds from maturities of short-term investments
    
    
    
    
    
    
    62,862
    
    
    
    27,279Cash provided by (used in) investing activities
    
    
    (16,371
    )
    
    
    188,294
    
    
    
    (45,781
    )Financing ActivitiesIssuance of senior convertible notes, net
    
    
    
    
    
    
    
    
    
    
    58,215Repurchase of senior convertible notes
    
    
    (12,768
    )
    
    
    (28,405
    )
    
    
    Repurchase of convertible subordinated notes
    
    
    
    
    
    
    
    
    
    
    (39,541
    )Repayment of loans from employees
    
    
    4,624
    
    
    
    
    
    
    
    160Cash provided by (used in) financing activities
    
    
    (8,144
    )
    
    
    (28,405
    )
    
    
    18,834Net increase (decrease) in cash and cash equivalents
    
    
    (25,306
    )
    
    
    120,210
    
    
    
    (40,426
    )Cash and cash equivalents at beginning at year
    
    
    129,555
    
    
    
    9,345
    
    
    
    49,771Cash and cash equivalents at end of year
    
    $
    104,249
    
    
    $
    129,555
    
    
    $
    9,345
 10. Stockholders Equity
   63




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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 10. Stockholders Equity  (Continued)
 Stockholder Rights Plan
    Common Stock Issued in Exchange for Convertible Debt
  64




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INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 11. Stock Option Plans
   WeightedAverage YearsRemaining ofStock-BasedUnrecognized Stock-
    
    
    CompensationYear Ended
    
    
    Based Compensation
    
    
    Expense atDecember 31,
    
    
    at December 31, 2006
    
    
    December 31, 20062006
    
    
    2005
    
    
    2004SARs
    
    $
    4.2
    
    
    $
    0.8
    
    
    $
    
    
    
    $
    10.2
    
    
    
    2.5Stock Options
    
    $
    0.5
    
    
    $
    0.2
    
    
    $
    0.5
    
    
    $
    0.2
    
    
    
    1.3Restricted Stock
    
    $
    2.6
    
    
    $
    2.9
    
    
    $
    0.9
    
    
    $
    4.0
    
    
    
    1.6DSUs
    
    $
    0.3
    
    
    $
    0.4
    
    
    $
    
    
    
    $
    
    
    
    
    0.1Stock-Based
Compensation
    
    $
    7.6
    
    
    $
    4.3
    
    
    $
    1.4
    
    
    $
    14.4
  Stock Appreciation Rights
  65




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 11. Stock Option Plans  (Continued)
  Weighted Average
    
    
    Weighted AverageSARs
    
    

Base Price
    
    
    Fair ValueSARs granted in 2005
    
    
    3,605,500
    
    
    $
    7.34
    
    
    $
    4.43Issued at December 31, 2005
    
    
    3,605,500
    
    
    $
    7.34
    
    
    $
    4.43SARs cancelled
    
    
    (156,771
    )
    
    $
    7.34
    
    
    $
    4.43SARs granted
    
    
    201,450
    
    
    $
    9.25
    
    
    $
    5.66Issued at December 31, 2006
    
    
    3,650,179
    
    
    $
    7.45
    
    
    $
    4.50
  2006Weighted Average
    
    
    Aggregate IntrinsicRemaining
    
    
    Value of SARsContractual Life
    
    
    Outstanding atSARs
    
    
    SARs
    
    
    of SARs Outstanding
    
    
    December 31, 2006Grant Price
    
    Outstanding
    
    
    Exercisable
    
    
    (in Years)
    
    
    (in thousands)$7.34
    
    
    3,443,729
    
    
    
    1,257,248
    
    
    
    8.6
    
    
    $
    10,056$8.14  $10.69
    
    
    206,450
    
    
    
    50,087
    
    
    
    9.4
    
    
    $
    2193,650,179
    
    
    
    1,307,335
    
    
    
    
    
    
    $
    10,275
 Stock Options
  66




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 11. Stock Option Plans  (Continued)
  Weighted Average
    
    
    Weighted AverageGrant Date
    
    
    Grant DateShares
    
    
    Exercise Price
    
    
    Fair ValueOutstanding
at December 31, 2003
    
    
    825,094
    
    
    $
    61.60
    
    
    $
    50.04Options granted
    
    
    55,100
    
    
    $
    7.90
    
    
    $
    5.98Options forfeited
    
    
    (89,365
    )
    
    $
    244.15
    
    
    $
    195.76Outstanding at December 31, 2004
    
    
    790,829
    
    
    $
    37.19
    
    
    $
    30.51Options granted
    
    
    12,000
    
    
    $
    7.73
    
    
    $
    5.06Options forfeited
    
    
    (75,942
    )
    
    $
    32.10
    
    
    $
    27.16Outstanding at December 31, 2005
    
    
    726,887
    
    
    $
    37.24
    
    
    $
    30.44Options granted
    
    
    250
    
    
    $
    9.34
    
    
    $
    5.74Options forfeited
    
    
    (89,683
    )
    
    $
    38.01
    
    
    $
    35.73Issued at December 31, 2006
    
    
    637,454
    
    
    $
    37.12
    
    
    $
    29.69
   2006Weighted AverageRemainingContractual Life
    
    
    Aggregate Intrinsicof Shares
    
    
    Value atShares
    
    
    Shares
    
    
    Outstanding
    
    
    December 31, 2006Exercise Price
    
    Outstanding
    
    

Vested
    
    
    (in Years)
    
    
    (in thousands)$4.59  $8.00
    
    
    137,224
    
    
    
    123,338
    
    
    
    6.5
    
    
    $
    690$8.01  $12.00
    
    
    186,483
    
    
    
    178,567
    
    
    
    6.3
    
    
    $
    240$12.01  $20.00
    
    
    127,199
    
    
    
    127,199
    
    
    
    4.9
    
    
    $
    $20.01  $2,210.00
    
    
    186,548
    
    
    
    186,548
    
    
    
    3.5
    
    
    $
    637,454
    
    
    
    615,652
    
    
    
    
    
    
    $
    930
   67




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 11. Stock Option Plans  (Continued)
 SARs and Stock Options Fair Value Assumptions
  2006
    
    2005
    
    2004Expected volatility
    
    60%
    
    60-70%
    
    70-132.99%Average expected option life
    
    6.25 years
    
    6.25 years
    
    3 yearsRisk-free interest rate
    
    4.55-5.10%
    
    3.91-4.26%
    
    2.26-2.88%Dividend yield
    
    0.0%
    
    0.0%
    
    0.0%
  Restricted Stock
  Weighted AverageGrant Date FairShares
    
    
    ValueRestricted stock granted in 2004
    
    
    640,326
    
    
    $
    6.89Forfeited
    
    
    (12,498
    )
    
    $
    7.20Issued and unvested, December 31, 2004
    
    
    627,828
    
    
    $
    6.89Granted
    
    
    819,300
    
    
    $
    7.34Vested
    
    
    (314,063
    )
    
    $
    7.02Issued and unvested, December 31, 2005
    
    
    1,133,065
    
    
    $
    7.15Granted
    
    
    49,620
    
    
    $
    9.28Vested
    
    
    (326,563
    )
    
    $
    7.12Forfeited
    
    
    (37,500
    )
    
    $
    7.34Issued and unvested December 31, 2006
    
    
    818,622
    
    
    $
    7.28
  68




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 11. Stock Option Plans  (Continued)
  Deferred Stock Units
   Weighted Average Grant DateDSUs
    
    
    Fair ValueIssued and unvested, January 1, 2005
    
    
    
    
    
    
    Granted
    
    
    108,843
    
    
    $
    7.44Vested
    
    
    34,781
    
    
    $
    7.65Issued and unvested, December 31, 2005
    
    
    74,062
    
    
    $
    7.34Granted
    
    
    56,494
    
    
    $
    9.08Vested
    
    
    (109,056
    )
    
    $
    7.87Issued and unvested, December 31, 2006
    
    
    21,500
    
    
    $
    9.22
 Consolidated Partner Companies
  69




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 11. Stock Option Plans  (Continued)
    Other
      70




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 11. Stock Option Plans  (Continued)
  71




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 12. Income Taxes
  Year Ended December 31,2006
    
    
    2005
    
    
    2004(in thousands)Income tax expense (benefit) from
continuing operations
    
    $
    (40
    )
    
    $
    18,640
    
    
    $
    Total
    
    $
    (40
    )
    
    $
    18,640
    
    
    $
    
  Year Ended December 31,2006
    
    
    2005
    
    
    2004(in thousands)Current
    
    $
    (40
    )
    
    $
    18,640
    
    
    $
    Deferred
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    (40
    )
    
    $
    18,640
    
    
    $
    
      As of December 31,2006
    
    
    2005(in thousands)Net operating loss carry forward
    
    $
    183,988
    
    
    $
    153,414Capital loss carry forward
    
    
    233,544
    
    
    
    267,018Other comprehensive income
    
    
    (22,019
    )
    
    
    (21,092
    )Reserves and accruals
    
    
    3,246
    
    
    
    3,277Stock-based compensation expense
    
    
    4,139
    
    
    
    Other, net
    
    
    329
    
    
    
    96Partner Company basis difference
    
    
    170,164
    
    
    
    214,044Valuation allowance
    
    
    (573,391
    )
    
    
    (616,757
    )Net deferred tax asset (liability)
    
    $
    
    
    
    $
    
 72




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 12. Income Taxes (Continued)
  As of December 31,2006
    
    2005
    
    2004Tax expense (benefit) at statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    (35.0
    )%Debt for equity exchanges
    
    
    
    
    
    
    
    
    
    
    35.0
    %Non-deductible expenses and other
    
    
    5.1
    %
    
    
    1.6
    %
    
    
    Valuation allowance
    
    
    (40.4
    )%
    
    
    (16.2
    )%
    
    
    (0.3
    )%
    
    
    20.4
    %
    
    
    0.0
    %
 13. Related Parties
   14. Other supplemental non-cash financing and investing activities
       73




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 14. Other supplemental non-cash financing and investing activities  (Continued)
   15. Other Income (Loss)
 Other Income (Loss), net
  Year Ended December 31,2006
    
    
    2005
    
    
    2004(in thousands)Sales/distributions of ownership interests in Partner Companies
    
    $
    31,034
    
    
    $
    125,255
    
    
    $
    22,553Gains (losses) on debt extinguishment (Note 5)
    
    
    (2,490
    )
    
    
    (5,881
    )
    
    
    (133,158
    )Realized gains on marketable securities (Note 4)
    
    
    5,484
    
    
    
    15,911
    
    
    
    6,213Other than temporary impairment of marketable securities
    
    
    
    
    
    
    (1,342
    )
    
    
    (2,869
    )Cost method Partner Company impairment charges
    
    
    
    
    
    
    
    
    
    
    (1,267
    )Gain (loss) on warrants
    
    
    (83
    )
    
    
    2,596
    
    
    
    1,191Gain on settlement of debt of Consolidated Partner Company
    
    
    
    
    
    
    
    
    
    
    1,593Other
    
    
    868
    
    
    
    64
    
    
    
    (961
    )$
    34,813
    
    
    $
    136,603
    
    
    $
    (106,705
    )Total other income (loss) for Consolidated Partner Companies
    
    
    (208
    )
    
    
    (1,114
    )
    
    
    527$
    34,605
    
    
    $
    135,489
    
    
    $
    (106,178
    )
     74




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 15. Other Income (Loss)  (Continued)
   16. Commitments and Contingencies
   2007
    
    $
    1,5602008
    
    $
    1,3182009
    
    $
    1,0342010
    
    $
    6962011
    
    $
    615Thereafter
    
    $
    259
   75




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 17. Net Income (Loss) per Share
  Year Ended December 31,2006
    
    
    2005
    
    
    2004(in thousands, except
shares and per share data)Basic and Diluted:Income (loss) from continuing operations
    
    $
    7,335
    
    
    $
    73,648
    
    
    $
    (137,905
    )Income (loss) on discontinued operations
    
    
    8,289
    
    
    
    (1,130
    )
    
    
    2,588Net income (loss)  Basic
    
    $
    15,624
    
    
    $
    72,518
    
    
    $
    (135,317
    )Interest expense  convertible debt
    
    
    
    
    
    
    3,104
    
    
    
    Net income (loss)  Diluted
    
    $
    15,624
    
    
    $
    75,622
    
    
    $
    (135,317
    )Basic:Income (loss) from continuing operations per share
    
    $
    0.20
    
    
    $
    1.98
    
    
    $
    (3.86
    )Income (loss) on discontinued operations per share
    
    
    0.22
    
    
    
    (0.03
    )
    
    
    0.07Net income (loss) per share
    
    $
    0.42
    
    
    $
    1.95
    
    
    $
    (3.79
    )Diluted:Income (loss) from continuing operations per share
    
    $
    0.19
    
    
    $
    1.76
    
    
    $
    (3.86
    )Income (loss) on discontinued operations per share
    
    
    0.22
    
    
    
    (0.03
    )
    
    
    0.07Net income (loss) per share
    
    $
    0.41
    
    
    $
    1.73
    
    
    $
    (3.79
    )Basic weighted average common shares outstanding
    
    
    37,569,795
    
    
    
    37,108,750
    
    
    
    35,712,555Incremental Diluted Shares Impact:Stock options
    
    
    52,245
    
    
    
    42,177
    
    
    
    Restricted stock
    
    
    460,550
    
    
    
    327,713
    
    
    
    Warrants
    
    
    4,352
    
    
    
    2,466
    
    
    
    DSUs
    
    
    15,662
    
    
    
    10,397
    
    
    
    SARs
    
    
    3,618
    
    
    
    30,957
    
    
    
    Convertible debt
    
    
    
    
    
    
    6,147,253
    
    
    
    Diluted weighted average common shares outstanding
    
    
    38,106,221
    
    
    
    43,669,713
    
    
    
    35,712,555
  Weighted AverageShares
    
    price per shareYear ended December 31, 2006Stock options
    
    
    381,997
    
    
    $
    57.31Stock options (exercised with partial recourse loans)
    
    
    508,028
    
    
    $
    41.70SARs
    
    
    3,483,124
    
    
    $
    7.42Senior convertible notes
    
    
    3,337,705
    
    
    $
    9.11Warrants
    
    
    3,150
    
    
    $
    100.00Year Ended December 31, 2005Stock options
    
    
    602,913
    
    
    $
    43.88Stock options (exercised with partial recourse loans)
    
    
    754,135
    
    
    $
    41.70Warrants
    
    
    9,450
    
    
    $
    100.00Year Ended December 31, 2004Stock options
    
    
    790,829
    
    
    $
    37.19Stock options (exercised with partial recourse loans)
    
    
    756,128
    
    
    $
    41.70Restricted stock
    
    
    627,828
    
    
    $
    Senior convertible notes
    
    
    6,587,621
    
    
    $
    9.11Warrants
    
    
    26,521
    
    
    $
    189.27
 76




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##### Table of Contents



INTERNET CAPITAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 18. Selected Quarterly Financial Information (Unaudited)
  Fiscal 2006 Quarter Ended
    
    
    Fiscal 2005 Quarter EndedMar.31
    
    
    Jun.30
    
    
    Sep.30
    
    
    Dec.31
    
    
    Mar.31
    
    
    Jun.30
    
    
    Sep.30
    
    
    Dec.31(in thousands, except per share data)Revenue
    
    $
    15,175
    
    
    $
    15,986
    
    
    $
    16,576
    
    
    $
    17,012
    
    
    $
    11,115
    
    
    $
    9,769
    
    
    $
    14,647
    
    
    $
    12,037Operating ExpensesCost of revenue
    
    
    9,235
    
    
    
    9,996
    
    
    
    10,452
    
    
    
    12,756
    
    
    
    6,081
    
    
    
    6,405
    
    
    
    8,286
    
    
    
    7,688Selling, general &
administrative
    
    
    10,114
    
    
    
    10,039
    
    
    
    11,317
    
    
    
    10,638
    
    
    
    8,793
    
    
    
    8,582
    
    
    
    11,977
    
    
    
    11,443Research and development
    
    
    2,431
    
    
    
    2,465
    
    
    
    2,112
    
    
    
    1,747
    
    
    
    3,156
    
    
    
    2,888
    
    
    
    4,075
    
    
    
    2,157Amortization of intangibles
    
    
    557
    
    
    
    558
    
    
    
    293
    
    
    
    287
    
    
    
    571
    
    
    
    366
    
    
    
    608
    
    
    
    578Impairment related and other
    
    
    93
    
    
    
    32
    
    
    
    24
    
    
    
    29
    
    
    
    415
    
    
    
    (6
    )
    
    
    2,718
    
    
    
    321(7,255
    )
    
    
    (7,104
    )
    
    
    (7,622
    )
    
    
    (8,445
    )
    
    
    (7,901
    )
    
    
    (8,466
    )
    
    
    (13,017
    )
    
    
    (10,150
    )Other income (loss), net
    
    
    98
    
    
    
    (1,953
    )
    
    
    15,671
    
    
    
    20,789
    
    
    
    5,056
    
    
    
    9,880
    
    
    
    119,961
    
    
    
    592Interest income
    
    
    2,532
    
    
    
    1,913
    
    
    
    2,444
    
    
    
    2,630
    
    
    
    475
    
    
    
    613
    
    
    
    752
    
    
    
    2,050Interest expense
    
    
    (654
    )
    
    
    (579
    )
    
    
    (431
    )
    
    
    (510
    )
    
    
    (910
    )
    
    
    (857
    )
    
    
    (901
    )
    
    
    (699
    )Income (loss) before minority
interest and equity loss
    
    
    (5,279
    )
    
    
    (7,723
    )
    
    
    10,062
    
    
    
    14,464
    
    
    
    (3,280
    )
    
    
    1,170
    
    
    
    106,795
    
    
    
    (8,207
    )Income tax (expense) benefit
    
    
    643
    
    
    
    1,004
    
    
    
    (1,607
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20,349
    )
    
    
    1,709Minority interest
    
    
    (64
    )
    
    
    47
    
    
    
    514
    
    
    
    735
    
    
    
    911
    
    
    
    267
    
    
    
    709
    
    
    
    626Equity loss
    
    
    (736
    )
    
    
    (1,737
    )
    
    
    (2,726
    )
    
    
    (262
    )
    
    
    (475
    )
    
    
    (477
    )
    
    
    (681
    )
    
    
    (5,070
    )Income (loss) from continuing
operations
    
    
    (5,436
    )
    
    
    (8,409
    )
    
    
    6,243
    
    
    
    14,937
    
    
    
    (2,844
    )
    
    
    960
    
    
    
    86,474
    
    
    
    (10,942
    )Income (loss) on discontinued
operations
    
    
    527
    
    
    
    639
    
    
    
    7,120
    
    
    
    3
    
    
    
    (274
    )
    
    
    116
    
    
    
    820
    
    
    
    (1,792
    )Net income (loss)
    
    $
    (4,909
    )
    
    $
    (7,770
    )
    
    $
    13,363
    
    
    $
    14,940
    
    
    $
    (3,118
    )
    
    $
    1,076
    
    
    $
    87,294
    
    
    $
    (12,734
    )Basic income (loss) per share(1)Income (loss) from continuing
operations
    
    $
    (0.14
    )
    
    $
    (0.23
    )
    
    $
    0.17
    
    
    $
    0.40
    
    
    $
    (0.07
    )
    
    $
    0.03
    
    
    $
    2.34
    
    
    $
    (0.28
    )Discontinued operations
    
    
    0.01
    
    
    
    0.02
    
    
    
    0.19
    
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    0.01
    
    
    
    (0.06
    )$
    (0.13
    )
    
    $
    (0.21
    )
    
    $
    0.36
    
    
    $
    0.40
    
    
    $
    (0.08
    )
    
    $
    0.02
    
    
    $
    2.35
    
    
    $
    (0.34
    )Shares used in computation
of basic income (loss)
per share (1)
    
    
    37,401
    
    
    
    37,470
    
    
    
    37,535
    
    
    
    37,703
    
    
    
    37,012
    
    
    
    37,040
    
    
    
    37,109
    
    
    
    37,274Diluted income (loss) per share(1)Income (loss) from continuing
operations
    
    $
    (0.14
    )
    
    $
    (0.23
    )
    
    $
    0.16
    
    
    $
    0.37
    
    
    $
    (0.07
    )
    
    $
    0.04
    
    
    $
    1.96
    
    
    $
    (0.28
    )Discontinued operations
    
    
    0.01
    
    
    
    0.02
    
    
    
    0.18
    
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    0.01
    
    
    
    (0.06
    )$
    (0.13
    )
    
    $
    (0.21
    )
    
    $
    0.34
    
    
    $
    0.37
    
    
    
    (0.08
    )
    
    $
    0.03
    
    
    $
    1.97
    
    
    $
    (0.34
    )Shares used in computation
of diluted income (loss)
per share (1)
    
    
    37,401
    
    
    
    37,470
    
    
    
    40,986
    
    
    
    41,184
    
    
    
    37,012
    
    
    
    43,784
    
    
    
    44,386
    
    
    
    37,274
 
 (1)
    
    The sum of quarterly income (loss) per share differs from the full year amount due to
changes in the number of shares outstanding during the year. 77




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##### Table of Contents



ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
  
 ITEM 9A. Controls and Procedures
 Disclosure
Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
  Internal
Control-Integrated Framework.
   Inherent
Limitations on Effectiveness of Controls
  78




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal ControlIntegrated Framework
    Internal ControlIntegrated
Framework Internal ControlIntegrated Framework
  
 
 ITEM 9B. Other Information
  79




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##### Table of Contents



PART III
 
 ITEM 10. Directors and Executive Officers of the Registrant
   
 ITEM 11. Executive Compensation
  
 ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 ITEM 13. Certain Relationships and Related Transactions
  
 ITEM 14. Principal Accountant Fees and Services
  80




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##### Table of Contents



PART IV
 
 ITEM 15. Exhibits and Financial Statement Schedules
 1. Consolidated Financial Statements
  2. Financial Statement Schedule
 Report of Independent Registered Public Accounting Firm
 
   Share-Based Payment
  
  INTERNET CAPITAL GROUP
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2004, 2005 and 2006
(in thousands)
 Balance at thebeginning of the
    
    Charged to costs
    
    
    
    
    
    Balance at the endyear
    
    and expenses
    
    Write-offs
    
    of the yearAllowance for Doubtful Accounts:December 31, 2004
    
    $
    2,019
    
    
    $
    (489
    )
    
    $
    (754
    )
    
    $
    776December 31, 2005
    
    $
    776
    
    
    $
    241
    (a)
    
    $
    (418
    )(b)
    
    $
    599December 31, 2006
    
    $
    599
    
    
    $
    641
    
    
    $
    (1,103
    )(c)
    
    $
    137
 
 (a)
    
    Reserve of $138 was established upon acquisitions of partner companies during 2005.(b)
    
    Reserve of $221 was eliminated upon deconsolidation of partner company during 2005.(c)
    
    Reserve of $656 was eliminated upon deconsolidation of partner company during 2006. 81




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##### Table of Contents



3. List of Exhibits
  Exhibit Number
    
    Document2.1
    
    Agreement of Merger, dated February 2, 1999, between Internet
Capital Group, L.L.C. and Internet Capital Group, Inc.
(incorporated by reference to Exhibit 2.1 to the Companys
Registration Statement on Form S-1, filed May 11, 1999 (File
No. 333-78193)).3.1.1
    
    Restated Certificate of Incorporation of Internet Capital
Group, Inc. (incorporated by reference to Exhibit 2.1 to the
Companys Registration Statement on Form 8-A, filed August 4,
1999 (File No. 000-26989)).3.1.2
    
    Certificate of Amendment of Restated Certificate of
Incorporation (incorporated by reference to Exhibit 3.3 to
the Companys Annual Report on Form 10-K for the year ended
December 31, 2002, filed March 31, 2003 (File No.
001-16249)).3.1.3
    
    Second Amendment of Restated Certificate of Incorporation of
Internet Capital Group, Inc. (incorporated by reference to
Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q
for the quarter ended June 30, 2004, filed August 9, 2004
(File No. 001-16249)).3.2
    
    Amended and Restated By-laws of Internet Capital Group, Inc.
(incorporated by reference to Exhibit 3.1 to the Companys
Current Report on Form 8-K, filed March 5, 2007 (File No.
001-16249)).4.1
    
    Form of Certificate for Internet Capital Group, Inc. Common
Stock (incorporated by reference to Exhibit 4.1 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2004, filed March 16, 2005 (File No.
001-16249)).4.2
    
    Rights Agreement, dated as of November 22, 2000, between
Internet Capital Group, Inc. and ChaseMellon Shareholder
Services, L.L.C., as Rights Agent, including Form of Rights
Certificate (incorporated by reference to Exhibit 1.1 to the
Companys Registration Statement on Form 8-A, filed December
1, 2000 (File No. 001-16249)).4.3
    
    Form of 5% Senior Convertible Notes due 2009 of Internet
Capital Group, Inc. (incorporated by reference to Exhibit
10.2 to the Companys Current Report on Form 8-K, filed April
1, 2004 (File No. 001-16249)).4.4
    
    Amendment No. 1 to Form of 5% Senior Convertible Notes due
2009 of Internet Capital Group, Inc. (incorporated by
reference to Exhibit 10.2 to the Companys Current Report on
Form 8-K, filed October 27, 2005 (File No. 001-16249)).4.5
    
    Amendment No. 2 to Form of 5% Senior Convertible Notes due
2009 of Internet Capital Group, Inc. (incorporated by
reference to Exhibit 10.3 to the Companys Current Report on
Form 8-K, filed October 27, 2005 (File No. 001-16249)).10.1
    
    Internet Capital Group, Inc. Amended and Restated 1999 Equity
Compensation Plan (incorporated by reference to Exhibit 10.6
to the Companys Current Report on Form 8-K, filed March 5,
2007 (File No. 001-16249)).
 82




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##### Table of Contents



Exhibit Number
    
    Document10.2
    
    Internet Capital Group, Inc. Amended and Restated 2005
Omnibus Equity Compensation Plan (incorporated by reference
to Exhibit 10.7 to the Companys Current Report on Form 8-K,
filed March 5, 2007 (File No. 001-16249)).10.3
    
    Internet Capital Group, Inc. Amended and Restated Executive
Deferred Compensation Plan (incorporated by reference to
Exhibit 10.2.2 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2002, filed March 31, 2003
(File No. 001-16249)).10.4
    
    Internet Capital Group, L.L.C. Membership Profit Interest
Plan (incorporated by reference to Exhibit 10.3 to the
Companys Registration Statement on Form S-1, filed May 11,
1999 (File No. 333-78193)).10.5
    
    Internet Capital Group, Inc. Amended and Restated
Non-Management Director Compensation Plan (incorporated by
reference to Exhibit 10.4 to the Companys Current Report on
Form 8-K, filed March 5, 2007 (File No. 001-16249)).10.6
    
    Internet Capital Group, Inc. Amended and Restated Director
Deferred Stock Unit Program (incorporated by reference to
Exhibit 10.5 to the Companys Current Report on Form 8-K,
filed March 5, 2007 (File No. 001-16249)).10.7.1
    
    Logistics.com, Inc. 2001 Equity Compensation Plan
(incorporated by reference to Exhibit 10.3 to the Companys
Annual Report on Form 10-K for the year ended December 31,
2002, filed March 31, 2003 (File No. 001-16249)).10.7.2
    
    Amendment No. 1 to the Logistics.com, Inc. 2001 Equity
Compensation Plan (incorporated by reference to Exhibit
10.3.1 to the Companys Annual Report on Form 10-K for the
year ended December 31, 2002, filed March 31, 2003 (File No.
001-16249)).10.8.1
    
    Internet Capital Group 2006 Bonus Plan (incorporated by
reference to Exhibit 10.1 of the Companys Current Report on
Form 8-K, filed February 28, 2006 (File No. 001-16249)).10.8.2
    
    Internet Capital Group 2007 Performance Plan (incorporated by
reference to Exhibit 10.3 to the Companys Current Report on
Form 8-K, filed March 5, 2007 (File No. 001-16249)).10.9
    
    Form of Internet Capital Group, Inc. Restricted Stock Grant
Without Performance Acceleration (incorporated by reference
to Exhibit 10.32 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2004, filed March 16, 2005
(File No. 001-16249)).10.10
    
    Form of Internet Capital Group, Inc. Restricted Stock Grant
With Performance Acceleration (incorporated by reference to
Exhibit 10.33 to the Companys Annual Report on Form 10-K for
the year ended December 31, 2004, filed March 16, 2005 (File
No. 001-16249)).10.11
    
    Form of Internet Capital Group, Inc. Stock Option Grant
Without Performance Acceleration (incorporated by reference
to Exhibit 10.34 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2004, filed March 16, 2005
(File No. 001-16249)).10.12
    
    Form of Internet Capital Group, Inc. Stock Option Grant With
Performance Acceleration (incorporated by reference to
Exhibit 10.35 to the Companys Annual Report on Form 10-K
for the year ended December 31, 2004, filed March 16, 2005 (File
No. 001-16249)).10.13
    
    Form of Internet Capital Group, Inc. Non-Employee Director
Initial Stock Option Grant (incorporated by reference to
Exhibit 10.36 to the Companys Annual Report on Form 10-K
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Exhibit Number
    
    Documentfor the year ended December 31, 2004, filed March 16, 2005 (File
No. 001-16249)).10.14
    
    Form of Internet Capital Group, Inc. Non-Employee Director
Annual Stock Option Grant (incorporated by reference to
Exhibit 10.37 to the Companys Annual Report on Form 10-K for
the year ended December 31, 2004, filed March 16, 2005 (File
No. 001-16249)).10.15
    
    Form of Internet Capital Group, Inc. Stock Unit Award
Agreement (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, filed July 28, 2005
(File No. 001-16249)).10.16
    
    Form of Internet Capital Group, Inc. Stock Appreciation
Rights Certificate (incorporated by reference to Exhibit 10.2
to the Companys Current Report on Form 8-K, filed July 28,
2005 (File No. 001-16249)).10.17
    
    Employment Agreement, dated February 28, 2007, by and among
Internet Capital Group Operations, Inc., Internet Capital
Group, Inc. and Walter W. Buckley, III (incorporated by
reference to Exhibit 10.1 to the Companys Current Report on
Form 8-K, filed March 5, 2007 (File No. 001-16249)).10.18
    
    Letter Agreement, dated February 28, 2007, by and between
Internet Capital Group and R. Kirk Morgan (incorporated by
reference to Exhibit 10.2 to the Companys Current Report on
Form 8-K, filed March 5, 2007 (File No. 001-16249)).10.19
    
    Letter Agreement, dated July 28, 2005, by and between
Internet Capital Group and Douglas A. Alexander (incorporated
by reference to Exhibit 10.32 to the Companys Annual Report
on Form 10-K for the year ended December 31, 2005, filed
March 15, 2006 (File No. 001-16249)).10.20
    
    Letter Agreement, dated July 28, 2005, by and between
Internet Capital Group and Anthony P. Dolanski (incorporated
by reference to Exhibit 10.3 to the Companys Current Report
on Form 8-K, filed July 28, 2005 (File No. 001-16249).10.21.1
    
    Independent Contractor Agreement, dated August 17, 2004, by
and between Internet Capital Group Operations, Inc., Wayne
Strategy Consultants, Inc. and Dr. Michael D. Zisman
(incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended September
30, 2004, filed November 9, 2004 (File No. 001-16249)).10.21.2
    
    First Amendment to Independent Contractor Agreement, dated
January 18, 2005, by and among Internet Capital Group
Operations, Inc., Wayne Strategy Consultants, Inc. and Dr.
Michael D. Zisman (incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K, filed January
19, 2005 (File No. 001-16249)).10.21.3
    
    Second Amendment to Independent Contractor Agreement, dated
August 1, 2006, by and among Internet Capital Group
Operations, Inc., Wayne Strategy Consultants, Inc. and Dr.
Michael D. Zisman (incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K, filed August 2,
2006 (File No. 001-16249)).10.22
    
    Form of Restrictive Covenant Agreement (incorporated by
reference to Exhibit 10.4 to the Companys Current Report on
Form 8-K, filed July 28, 2005 (File No. 001-16249)).10.23
    
    Form of Promissory Note (Option Loan) by and between Internet
Capital Group Operations, Inc. and certain of its officers
(incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q for the quarter ended September
30, 2002, filed November
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Exhibit Number
    
    Document14, 2002 (File No. 001-16249)).10.24
    
    Form of Share Pledge Agreement by and between Internet
Capital Group Operations, Inc. and certain of its officers
(incorporated by reference to Exhibit 10.3 to the Companys
Quarterly Report on Form 10-Q for the quarter ended September
30, 2002, filed November 14, 2002 (File No. 001-16249)).10.25
    
    Form of Promissory Note (Tax Loan) by and between Internet
Capital Group Operations, Inc. and certain of its officers
(incorporated by reference to Exhibit 10.4 to the Companys
Quarterly Report on Form 10-Q for the quarter ended September
30, 2002, filed November 14, 2002 (File No. 001-16249)).10.26.1
    
    Letter of Credit Agreement, dated as of September 30, 2002,
by and between Comerica Bank-California and Internet Capital
Group, Inc., ICG Holdings, Inc. and Internet Capital Group
Operations, Inc. (incorporated by reference to Exhibit 10.1
to the Companys Quarterly Report on Form 10-Q for the
quarter ended September 30, 2002, filed November 14, 2002
(File No. 001-16249)).10.26.2
    
    First Amendment to Letter of Credit Agreement, dated as of
October 20, 2003, by and between Comerica Bank, Internet
Capital Group, Inc., ICG Holdings, Inc. and Internet Capital
Group Operations, Inc. (incorporated by reference to Exhibit
10.1 to the Companys Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003, filed November 14, 2003
(File No. 001-16249)).10.26.3
    
    Second Amendment to Letter of Credit Agreement, dated as of
December 15, 2004, by and between Comerica Bank, Internet
Capital Group, Inc., ICG Holdings, Inc. and Internet Capital
Group Operations, Inc. (incorporated by reference to Exhibit
10.14.2 to the Companys Annual Report on Form 10-K for the
year ended December 31, 2004, filed March 16, 2005 (File No.
001-16249)).10.26.4
    
    Third Amendment to Letter of Credit Agreement, dated as of
December 15, 2005, by and between Comerica Bank, Internet
Capital Group, Inc., ICG Holdings, Inc. and Internet Capital
Group Operations, Inc. (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K, filed
December 15, 2005 (File No. 001-16249)).10.26.5
    
    Fourth Amendment to Letter of Credit Agreement, dated as of
December 15, 2006, by and between Comerica Bank, Internet
Capital Group, Inc., ICG Holdings, Inc. and Internet Capital
Group Operations, Inc. (incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K, filed
December 19, 2006 (File No. 001-16249)).10.27
    
    Securities Purchase Agreement, dated as of March 31, 2004, by
and among Internet Capital Group, Inc. and the Investors
named therein (incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K, filed April 1, 2004
(File No. 001-16249)).10.28
    
    Registration Rights Agreement, dated as of April 8, 2004, by
and among Internet Capital Group, Inc. and the Investors
named therein (incorporated by reference to Exhibit 10.3 to
the Companys Current Report on Form 8-K, filed April 1, 2004
(File No. 001-16249)).10.29
    
    Note Purchase Agreement, dated October 25, 2005, by and among
Internet Capital Group, Inc., Langley Partners, L.P., Bear
Stearns Securities Corp., Custodian for Jeffrey Thorp IRA
Rollover, JMG Capital Partners, LP and JMG Triton Offshore
Fund, Ltd. (incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, filed October 27,
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##### Table of Contents



Exhibit Number
    
    Document2005 (File No. 001-16249)).10.30
    
    Note Purchase Agreement, dated February 12, 2007, by and
between Mason Capital Management, LLC (and its affiliates and
advisory clients named therein) and Internet Capital Group,
Inc. (incorporated by reference to the Companys Current
Report on Form 8-K, filed February 12, 2007 (File No.
001-16249)).10.31
    
    Note Purchase Agreement, dated February 12, 2007, by and
between Sonoma Capital, LP and Internet Capital Group, Inc.
(incorporated by reference to the Companys Current Report on
Form 8-K, filed February 12, 2007 (File No. 001-16249)).10.32
    
    Letter Agreement, dated December 16, 2005, by and between ICG
Holdings, Inc. and Credit Suisse First Boston Capital LLC
(incorporated by reference to Exhibit 10.31 to the Companys
Annual Report on Form 10-K for the year ended December 31,
2005, filed March 15, 2006 (File No. 001-16249)).10.33.1
    
    Agreement of Lease, dated June 30, 2003, between FV Office
Partners, L.P. and Internet Capital Group Operations, Inc.
(incorporated by reference to Exhibit 10.1 to the Companys
Quarterly Report on Form 10-Q for the quarter ended June 30,
2003, filed August 14, 2003 (File No. 001-16249)).10.33.2
    
    First Amendment to Lease, dated November 20, 2003, between FV
Office Partners, L.P. and Internet Capital Group Operations,
Inc. (incorporated by reference to Exhibit 10.37 to the
Companys Annual Report on Form 10-K for the year ended
December 31, 2003, filed March 15, 2004 (File No.
001-16249)).10.33.3
    
    Second Amendment to Lease, dated August 21, 2006, by and
between Chesterbrook Partners, L.P. (as successor-in-interest
to FV Partners, L.P.) and Internet Capital Group Operations,
Inc. (filed herewith).11.1
    
    Statement Regarding Computation of Per Share Earnings
(included herein at Note 2-Significant Accounting Policies
in the subsection Net Income (Loss) Per Share to the
Consolidated Financial Statements and Note 17-Net Income
(Loss) Per Share to the Consolidated Financial Statements).21.1
    
    Subsidiaries of Internet Capital Group, Inc. (filed herewith).23.1
    
    Consent of KPMG LLP (filed herewith).31.1
    
    Certification of Chief Executive Officer required by Section
302 of the Sarbanes-Oxley Act of 2002 (filed herewith).31.2
    
    Certification of Chief Financial Officer required by Section
302 of the Sarbanes-Oxley Act of 2002 (filed herewith).32.1
    
    Certification of the Chief Executive Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).32.2
    
    Certification of the Chief Financial Officer required by
Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
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SIGNATURES
  Date: March 16, 2007
    INTERNET CAPITAL GROUP, INC.By:
    /s/ R. KIRK MORGANName:
    R. Kirk MorganTitle:
    Chief Financial Officer  Signature
    
    Title/s/ WALTER W. BUCKLEY, III

Walter W. Buckley, III
    
    Chief Executive Officer, President and Chairman of the Board
of Directors (Principal Executive Officer)/s/ R. KIRK MORGAN

R. Kirk Morgan
    
    Chief Financial Officer
(Principal Financial and Accounting Officer)/s/ DAVID J. BERKMAN

David J. Berkman
    
    Director/s/ THOMAS A. DECKER

Thomas A. Decker
    
    Director/s/ DAVID K. DOWNES

David K. Downes
    
    Director/s/ THOMAS P. GERRITY

Thomas P. Gerrity
    
    Director/s/ ROBERT E. KEITH, JR.

Robert E. Keith, Jr.
    
    Director/s/ WARREN V. MUSSER

Warren V. Musser
    
    Director/s/ PHILIP J. RINGO

Philip J. Ringo
    
    Director/s/ MICHAEL D. ZISMAN

Michael D. Zisman
    
    Director


87