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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE


SECURITIES EXCHANGE ACT OF 1934


For Fiscal Year Ended December 31, 2002

Commission file 000-26929



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INTERNET CAPITAL GROUP, INC.

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 23-2996071                                 
|(State of other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification Number)
|                                                                  
|600 Building, 435 Devon Park Drive, Wayne,
    PA                  |  | 19087                                      
|(Address of principal executive offices)                           |  | (Zip Code)                                 

(610) 989-0111

( Registrants
telephone number, including area code)




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Indicate by check mark whether the Registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities and Exchange Act of
1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for
the past
90 days.     Yes     x          No     o

Indicated by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of Registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to
this
Form 10-K.     o

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

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

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

DOCUMENTS INCORPORATED BY REFERENCE

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









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INTERNET CAPITAL GROUP, INC.

FORM 10-K


DECEMBER 31, 2002


INDEX

|           |          |  |                                                                                           |        |  |    | 
|---------- | -------- |  | ----------------------------------------------------------------------------------------- | ------ |  | -- | 
|           |          |  |                                                                                           | Page  
|           |          |  |                                                                                           | Number
|           |          |  |                                                                                           |       
|PART I     |          |  | 4                                                                                         |       
|           | Item 1.  |  | Business                                                                                  |        |  | 4  | 
|           | Item 2.  |  | Properties                                                                                |        |  | 9  | 
|           | Item 3.  |  | Legal Proceedings                                                                         |        |  | 9  | 
|           | Item 4.  |  | Submission of Matters to a Vote of Security
    Holders                                   |        |  | 10 | 
|PART II    |          |  | 10                                                                                        |       
|           | Item 5.  |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |        |  | 10 | 
|           | Item 6.  |  | Selected Consolidated Financial Data                                                      |        |  | 11 | 
|           | Item 7.  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |        |  | 12 | 
|           | Item 7A. |  | Quantitative and Qualitative Disclosures About
    Market Risk                            |        |  | 37 | 
|           | Item 8.  |  | Financial Statements and Supplementary Data                                               |        |  | 37 | 
|           | Item 9.  |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosures |        |  | 76 | 
|PART III   |          |  | 76                                                                                        |       
|           | Item 10. |  | Directors and Executive Officers of the Registrant                                        |        |  | 76 | 
|           | Item 11. |  | Executive Compensation                                                                    |        |  | 76 | 
|           | Item 12. |  | Security Ownership of Certain Beneficial Owners
    and Management                        |        |  | 76 | 
|           | Item 13. |  | Certain Relationships and Related Transactions                                            |        |  | 76 | 
|           | Item 14. |  | Controls and Procedures                                                                   |        |  | 76 | 
|PART IV    |          |  | 76                                                                                        |       
|           | Item 15. |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |        |  | 76 | 
|SIGNATURES |          |  | 82                                                                                        |       

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INTERNET CAPITAL GROUP, INC.

PARTNER COMPANIES AS OF DECEMBER 31,
2002


Agribuys, Inc. (Agribuys)

Anthem/ CIC Ventures Fund LP (Anthem)


Arbinet  thexchange Inc.
(Arbinet)


Blackboard, Inc. (Blackboard)


Captive Capital Corporation (f/k/a
eMarketCapital, Inc.)  (Captive Capital)


Citadon, Inc. (Citadon)


ClearCommerce Corporation
(ClearCommerce)


CommerceQuest, Inc. (CommerceQuest)


ComputerJobs.com, Inc.
(ComputerJobs.com)


Co-nect, Inc. (f/k/a Simplexis.com)
(Co-nect)


CreditTrade Inc. (CreditTrade)


eCredit.com, Inc. (eCredit)


eMerge Interactive, Inc. (eMerge
Interactive) (Nasdaq:EMRG)


Emptoris, Inc. (Emptoris)


Entegrity Solutions Corporation (Entegrity
Solutions)


FreeBorders, Inc. (FreeBorders)


FuelSpot.com, Inc. (FuelSpot)


GoIndustry AG (GoIndustry)


ICG Commerce Holdings, Inc. (ICG
Commerce)


inreon Limited (inreon)


Internet Commerce Systems, Inc. (Internet
Commerce Systems)


Investor Force Holdings, Inc. (Investor
Force)


iSky, Inc. (iSky)


Jamcracker, Inc. (Jamcracker)


LinkShare Corporation (LinkShare)


Marketron International, Inc. (f/k/a BuyMedia,
Inc.) (Marketron)


Mobility Technologies, Inc. (f/k/a traffic.com
Inc.) (Mobility Technologies)


OneCoast Network Holdings, Inc. (f/k/a USgift
Corporation)  (OneCoast)


OnMedica Group PLC (OnMedica)


Onvia.com, Inc. (Onvia.com)
(Nasdaq:ONVI)


Persona, Inc. (Persona)


Sourceree Limited (Sourceree)


StarCite, Inc. (StarCite)


Surgency, Inc. (fka Benchmarking)
(Surgency)


Syncra Systems, Inc. (Syncra Systems)


Tibersoft Corporation (Tibersoft)


Universal Access Global Holdings, Inc.
(Universal Access)  (Nasdaq:UAXS)


Verticalnet, Inc. (Verticalnet)
(Nasdaq:VERT)


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PART I

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

Item
1.     Business

Business Overview

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

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

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

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

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

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members of Internet Capital Group, L.L.C. The
separate existence of Internet Capital Group, L.L.C. ceased in
connection with the Reorganization.


Industry Overview

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

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



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

Increase efficiency and reduce
cost

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

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

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

Expand access to new and existing customers
and suppliers

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

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

Our Solution and Strategy

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

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

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



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

Identifying key markets and owning stakes
in potential leaders

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

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

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

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

Aggregating companies into network to
promote growth

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

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

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base of our partner companies, strategic
investors, management and advisory board give us valuable
experience that we share with our partner company network.


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

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

Prioritize resources to accelerate
development of most promising companies

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

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



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

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

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

Government Regulations and Legal
Uncertainties

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

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tics and quality of products and services. It is
not clear how existing laws governing issues such as property
ownership, sales and other taxes, libel and personal privacy
apply to the internet and e-commerce. Unfavorable resolution of
these issues may harm our partner companies business.


Proprietary Rights

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

Competition

Competition From our Stockholders and
Within our Network

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

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

Competition Facing our Partner
Companies

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



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

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

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

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Employees

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

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

Financial Information About Segments

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

Financial Information About Geographic
Areas

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

Item 2.     Properties

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

Corporate Offices

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

Partner Company Properties

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

Item 3.     Legal
Proceedings

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

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opinion by the Court dated February 19,
2003. The Company will hereafter be required to answer the
complaint and participate in the discovery process. There have
been no other material developments in these cases to date.


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

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

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

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

PART II

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

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

|     |  |                    |      |         |  |          |      |         |  |          |      |         |  |          |      |         |  |  |      |  |  |  |      |  |  |  |      |  |  |  |      | 
|---- |  | ------------------ | ---- | ------- |  | -------- | ---- | ------- |  | -------- | ---- | ------- |  | -------- | ---- | ------- |  |  | ---- |  |  |  | ---- |  |  |  | ---- |  |  |  | ---- | 
|     |  |                   
|     |  | Three Months Ended
|     |  |                   
|     |  | March 31           |      | June 30 |  | Sept. 30 |      | Dec. 31 |  | March 31 |      | June 30 |  | Sept. 30 |      | Dec. 31
|     |  | 2001               |      | 2001    |  | 2001     |      | 2001    |  | 2002     |      | 2002    |  | 2002     |      | 2002   
|     |  |                    |      |         |  |          |      |         |  |          |      |         |  |          |      |        
|High |  |                    | 6.78 |         |  |          | 4.14 |         |  |          | 2.10 |         |  |          | 1.54 |         |  |  | 1.58 |  |  |  | 0.67 |  |  |  | 0.42 |  |  |  | 0.89 | 
|Low  |  |                    | 1.70 |         |  |          | 1.22 |         |  |          | 0.34 |         |  |          | 0.42 |         |  |  | 0.61 |  |  |  | 0.24 |  |  |  | 0.17 |  |  |  | 0.15 | 

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

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

10



---



##### 



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

(d) Securities Authorized for Issuance
Under Equity Compensation Plans

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

Item 6.     Selected
Consolidated Financial Data

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

|                                                                                                                      |                                                |                                   |          |        |          |      |            |         |            |      |          |         |          |   |         |        |         |   |         |        |        | 
|--------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | --------------------------------- | -------- | ------ | -------- | ---- | ---------- | ------- | ---------- | ---- | -------- | ------- | -------- | - | ------- | ------ | ------- | - | ------- | ------ | ------ | 
|                                                                                                                      |                                                |                                  
|                                                                                                                      |                                                | Year Ended December 31,          
|                                                                                                                      |                                                |                                  
|                                                                                                                      |                                                | 2002                              |          | 2001   |          | 2000 |            | 1999    |            | 1998
|                                                                                                                      |                                                |                                   |          |        |          |      |            |         |            |     
|                                                                                                                      |                                                |                                  
|                                                                                                                      |                                                | (in thousands, except share data)
|Consolidated Statements of Operations
    Data:                                                                       |                                                |                                   |          |        |          |      |            |         |            |      |          |         |          |   |         |        |         |   |         |       
|Revenue                                                                                                               |                                                | $                                 | 108,457  |        |          | $    | 115,651    |         |            | $    | 42,238   |         |          | $ | 16,536  |        |         | $ | 3,135   |       
|Operating Expenses                                                                                                    |                                                |                                   |          |        |          |      |            |         |            |      |          |         |          |   |         |        |         |   |         |       
|                                                                                                                      | Cost of revenue                                |                                   |          | 69,095 |          |      |            | 84,818  |            |      |          | 46,065  |          |   |         | 8,156  |         |   |         | 4,643  |       
|                                                                                                                      | Selling, general and administrative            |                                   |          | 91,870 |          |      |            | 244,266 |            |      |          | 243,871 |          |   |         | 45,606 |         |   |         | 15,221 |       
|                                                                                                                      | Research and development expenses              |                                   |          | 24,100 |          |      |            | 43,788  |            |      |          | 68,821  |          |   |         |       |         |   |         |       |       
|                                                                                                                      | Amortization of goodwill and other intangibles |                                   |          | 12,000 |          |      |            | 125,854 |            |      |          | 239,813 |          |   |         | 3,318  |         |   |         | 293    |       
|                                                                                                                      | Impairment related and other                   |                                   |          | 12,376 |          |      |            | 851,257 |            |      |          | 160,844 |          |   |         |       |         |   |         |       |       
|                                                                                                                      |                                                |                                   |          |        |          |      |            |         |            |      |          |         |          |   |         |        |         |   |         |       
|                                                                                                                      |                                                | Total operating expenses          |          |        | 209,441  |      |            |         | 1,349,983  |      |          |         | 759,414  |   |         |        | 57,080  |   |         |        | 20,157 | 
|                                                                                                                      |                                                |                                   |          |        |          |      |            |         |            |      |          |         |          |   |         |        |         |   |         |       
|                                                                                                                      |                                                |                                   | (100,984 | )      |          |      | (1,234,332 | )       |            |      | (717,176 | )       |          |   | (40,544 | )      |         |   | (17,022 | )     
|                                                                                                                      |                                                |                                   |          |        |          |      |            |         |            |      |          |         |          |   |         |        |         |   |         |       
|Other income (loss), net                                                                                              |                                                |                                   | 93,333   |        |          |      | (109,795   | )       |            |      | 627,227  |         |          |   | 67,384  |        |         |   | 30,483  |       
|Interest income (expense), net                                                                                        |                                                |                                   | (19,757  | )      |          |      | (25,775    | )       |            |      | 7,126    |         |          |   | 5,734   |        |         |   | 925     |       
|                                                                                                                      |                                                |                                   |          |        |          |      |            |         |            |      |          |         |          |   |         |        |         |   |         |       
|Income (loss) before income taxes, minority
    interest and equity Loss                                              |                                                |                                   | (27,408  | )      |          |      | (1,369,902 | )       |            |      | (82,823  | )       |          |   | 32,574  |        |         |   | 14,386  |       
|Income tax expense (benefit)                                                                                          |                                                |                                   | (179     | )      |          |      | 12,584     |         |            |      | 319,449  |         |          |   | 23,722  |        |         |   |        |       
|Minority interest                                                                                                     |                                                |                                   | 15,438   |        |          |      | 108,223    |         |            |      | 84,245   |         |          |   | 6,026   |        |         |   | 5,382   |       
|Equity loss                                                                                                           |                                                |                                   | (81,114  | )      |          |      | (1,048,860 | )       |            |      | (980,391 | )       |          |   | (92,099 | )      |         |   | (5,869  | )     
|                                                                                                                      |                                                |                                   |          |        |          |      |            |         |            |      |          |         |          |   |         |        |         |   |         |       
|Income (loss) before discontinued operations and
    cumulative effect of change in accounting principle              |                                                |                                   | (93,263  | )      |          |      | (2,297,955 | )       |            |      | (659,520 | )       |          |   | (29,777 | )      |         |   | 13,899  |       
|Loss on discontinued operations, net of gain of
    $10,317 (2002) and tax benefit of $2,917 (2001) and $7,806 (2000) |                                                |                                   | (8,956   | )      |          |      | (32,889    | )       |            |      | (7,028   | )       |          |   |        |        |         |   |        |       
|Cumulative effect of change in accounting
    principle                                                               |                                                |                                   |         |        |          |      | (7,886     | )       |            |      |         |         |          |   |        |        |         |   |        |       
|                                                                                                                      |                                                |                                   |          |        |          |      |            |         |            |      |          |         |          |   |         |        |         |   |         |       
|                                                                                                                      |                                                | Net Income (Loss)                 |          | $      | (102,219 | )    |            | $       | (2,338,730 | )    |          | $       | (666,548 | ) |         | $      | (29,777 | ) |         | $      | 13,899 | 
|                                                                                                                      |                                                |                                   |          |        |          |      |            |         |            |      |          |         |          |   |         |        |         |   |         |       

11



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##### 



|                                                                                                                                 |  |                                   |         |      |  |      |         |      |  |      |           |   |  |   |           |   |  |   |         | 
|-------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | --------- | - |  | - | --------- | - |  | - | ------- | 
|                                                                                                                                 |  |                                  
|                                                                                                                                 |  | Year Ended December 31,          
|                                                                                                                                 |  |                                  
|                                                                                                                                 |  | 2002                              |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                                                                                                                                 |  |                                   |         |      |  |      |         |      |  |     
|                                                                                                                                 |  |                                  
|                                                                                                                                 |  | (in thousands, except share data)
|Diluted Loss Per Share:                                                                                                          |  |                                   |         |      |  |      |         |      |  |      |           |   |  |   |           |   |  |   |         | 
|Income (loss) before discontinued operations and
    cumulative effect of change in accounting principle per
    share  diluted |  | $                                 | (0.35   | )    |  | $    | (8.25   | )    |  | $    | (2.40     | ) |  | $ | (0.15     | ) |  | $ | 0.12    | 
|Loss on discontinued operations per
    share  diluted                                                                          |  |                                   | (0.03   | )    |  |      | (0.12   | )    |  |      | (0.02     | ) |  |   |          |   |  |   |        | 
|Cumulative effect of change in accounting
    principle per share  diluted                                                      |  |                                   |        |      |  |      | (0.03   | )    |  |      |          |   |  |   |          |   |  |   |        | 
|                                                                                                                                 |  |                                   |         |      |  |      |         |      |  |      |           |   |  |   |           |   |  |   |         | 
|Net income (loss) per share  diluted                                                                                            |  | $                                 | (0.38   | )    |  | $    | (8.40   | )    |  | $    | (2.42     | ) |  | $ | (0.15     | ) |  | $ | 0.12    | 
|Weighted average shares outstanding 
    diluted                                                                                |  |                                   | 267,998 |      |  |      | 278,353 |      |  |      | 275,044   |   |  |   | 201,851   |   |  |   | 112,299 | 
|Pro forma net income (loss) (unaudited)(1)                                                                                       |  |                                   |        |      |  |      |        |      |  |      |          |   |  | $ | (37,449   | ) |  | $ | 8,756   | 
|Pro forma net income (loss) per share 
    diluted (unaudited) (1)                                                              |  |                                   |        |      |  |      |        |      |  |      |          |   |  | $ | (0.19     | ) |  | $ | 0.08    | 
|Consolidated Balance Sheet Data:                                                                                                 |  |                                   |         |      |  |      |         |      |  |      |           |   |  |   |           |   |  |   |         | 
|Cash and cash equivalents                                                                                                        |  | $                                 | 118,657 |      |  | $    | 238,135 |      |  | $    | 410,073   |   |  | $ | 1,343,460 |   |  | $ | 26,841  | 
|Working capital                                                                                                                  |  | $                                 | 74,919  |      |  | $    | 177,275 |      |  | $    | 356,524   |   |  | $ | 1,305,380 |   |  | $ | 20,453  | 
|Total assets                                                                                                                     |  | $                                 | 366,246 |      |  | $    | 655,047 |      |  | $    | 3,330,583 |   |  | $ | 2,050,384 |   |  | $ | 96,785  | 
|Other long-term debt, net of current portion                                                                                     |  | $                                 | 7,919   |      |  | $    | 10,645  |      |  | $    | 169       |   |  | $ | 3,185     |   |  | $ | 352     | 
|Convertible subordinated notes                                                                                                   |  | $                                 | 283,114 |      |  | $    | 446,061 |      |  | $    | 566,250   |   |  | $ | 566,250   |   |  | $ |        | 
|Total stockholders equity (deficit)                                                                                             |  | $                                 | (51,646 | )    |  | $    | 34,737  |      |  | $    | 2,266,167 |   |  | $ | 1,420,221 |   |  | $ | 80,724  | 



---



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

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



|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

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

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

12



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##### 



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

Critical Accounting Policies

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

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

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

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

Revenue

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

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

13



---



##### 



Method prescribed by Statements of Position
No. 98-9 Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions.


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

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

Deferred Income Taxes

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

Commitments and Contingencies

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

Basis of Presentation

Effect of Various Accounting Methods on our
Results of Operations

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

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

14



---



##### 



company is reflected in the caption
Minority interest in our Consolidated Statements of
Operations. Minority interest adjusts our consolidated net
results of operations to reflect only our share of the earnings
or losses of the consolidated partner company.


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

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

Reportable Segments

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

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

CORE PARTNER COMPANIES (% Voting
Interest)




|                    |  |                          |  |                 
|------------------- |  | ------------------------ |  | ----------------
|Consolidated        |  | Equity                   |  | Cost            
|                    |  |                          |  |                 
|CommerceQuest (80%) |  | CreditTrade (30%)        |  | Blackboard (15%)
|eCredit (99.9%)     |  | eMerge Interactive (33%) |  |                 
|FreeBorders (55%)   |  | GoIndustry (31%)         |  |                 
|ICG Commerce (75%)  |  | Investor Force (38%)     |  |                 
|OneCoast (97%)      |  | iSky, Inc (25%)          |  |                 
|                    |  | Jamcracker (21%)         |  |                 
|                    |  | LinkShare (40%)          |  |                 
|                    |  | Marketron (40%)          |  |                 
|                    |  | Syncra Systems (28%)     |  |                 
|                    |  | Universal Access (22%)   |  |                 
|                    |  | Verticalnet (22%)        |  |                 

15



---



##### 



EMERGING PARTNER COMPANIES (% Voting
Interest)




|                      |  |                                 |  |                         
|--------------------- |  | ------------------------------- |  | ------------------------
|Consolidated          |  | Equity                          |  | Cost                    
|                      |  |                                 |  |                         
|Captive Capital (54%) |  | Agribuys (31%)                  |  | Anthem (9%)             
|                      |  | ComputerJobs.com (46%)          |  | Arbinet (3%)            
|                      |  | Co-nect (36%)                   |  | Citadon (2%)            
|                      |  | inreon (17%)                    |  | ClearCommerce (12%)     
|                      |  | Internet Commerce Systems (44%) |  | Emptoris (12%)          
|                      |  | Mobility Technologies (25%)     |  | Entegrity Solutions (2%)
|                      |  | OnMedica (33%)                  |  | FuelSpot (9%)           
|                      |  | Onvia.com (22%)                 |  | Persona (11%)           
|                      |  | Sourceree (39%)                 |  |                         
|                      |  | StarCite (22%)                  |  | Tibersoft (5%)          
|                      |  | Surgency (22%)                  |  |                         

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

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

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

|         |  |                                      |          |                   |  |         |         |              |  |              |          |       |  |         |        |   |  |   |         |   |  |   |        |   |  |   |          |  
|-------- |  | ------------------------------------ | -------- | ----------------- |  | ------- | ------- | ------------ |  | ------------ | -------- | ----- |  | ------- | ------ | - |  | - | ------- | - |  | - | ------ | - |  | - | -------- | -
|         |  |                                     
|         |  | For the Year Ended December 31, 2002
|         |  |                                     
|         |  |                                      |          |                   |  |        
|         |  |                                      |          | Reconciling Items |  |        
|         |  |                                      |          |                   |  |        
|         |  |                                      |          | Discontinued      |  |         |         |             
|         |  |                                      |          | Operations        |  |         |         |             
|         |  |                                      |          | Total             |  | and     |         |              |  | Consolidated
|         |  | Core                                 |          | Emerging          |  | Segment |         | Dispositions |  | Corporate    |          | Other |  | Results
|         |  |                                      |          |                   |  |         |         |              |  |              |          |       |  |        
|         |  |                                     
|         |  | (in thousands)                      
|Revenues |  | $                                    | 107,964  |                   |  | $       | 507     |              |  | $            | 108,471  |       |  | $       |       |   |  | $ |        |   |  | $ | (14    | ) |  | $ | 108,457  |  
|Net loss |  | $                                    | (104,608 | )                 |  | $       | (17,272 | )            |  | $            | (121,880 | )     |  | $       | (4,750 | ) |  | $ | (55,026 | ) |  | $ | 79,437 |   |  | $ | (102,219 | )

|         |  |                                      |          |                   |  |         |          |              |  |              |          |       |  |         |          |   |  |   |          |   |  |   |            |   |  |   |            |  
|-------- |  | ------------------------------------ | -------- | ----------------- |  | ------- | -------- | ------------ |  | ------------ | -------- | ----- |  | ------- | -------- | - |  | - | -------- | - |  | - | ---------- | - |  | - | ---------- | -
|         |  |                                     
|         |  | For the Year Ended December 31, 2001
|         |  |                                     
|         |  |                                      |          |                   |  |        
|         |  |                                      |          | Reconciling Items |  |        
|         |  |                                      |          |                   |  |        
|         |  |                                      |          | Discontinued      |  |         |          |             
|         |  |                                      |          | Operations        |  |         |          |             
|         |  |                                      |          | Total             |  | and     |          |              |  | Consolidated
|         |  | Core                                 |          | Emerging          |  | Segment |          | Dispositions |  | Corporate    |          | Other |  | Results
|         |  |                                      |          |                   |  |         |          |              |  |              |          |       |  |        
|         |  |                                     
|         |  | (in thousands)                      
|Revenues |  | $                                    | 91,155   |                   |  | $       | 2,936    |              |  | $            | 94,091   |       |  | $       | 22,855   |   |  | $ |         |   |  | $ | (1,295     | ) |  | $ | 115,651    |  
|Net loss |  | $                                    | (525,202 | )                 |  | $       | (102,232 | )            |  | $            | (627,434 | )     |  | $       | (394,786 | ) |  | $ | (108,617 | ) |  | $ | (1,207,893 | ) |  | $ | (2,338,730 | )

16



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##### 



|         |  |                                      |          |                   |  |         |         |              |  |              |          |       |  |         |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|-------- |  | ------------------------------------ | -------- | ----------------- |  | ------- | ------- | ------------ |  | ------------ | -------- | ----- |  | ------- | -------- | - |  | - | -------- | - |  | - | ------- | - |  | - | -------- | -
|         |  |                                     
|         |  | For the Year Ended December 31, 2000
|         |  |                                     
|         |  |                                      |          |                   |  |        
|         |  |                                      |          | Reconciling Items |  |        
|         |  |                                      |          |                   |  |        
|         |  |                                      |          | Discontinued      |  |         |         |             
|         |  |                                      |          | Operations        |  |         |         |             
|         |  |                                      |          | Total             |  | and     |         |              |  | Consolidated
|         |  | Core                                 |          | Emerging          |  | Segment |         | Dispositions |  | Corporate    |          | Other |  | Results
|         |  |                                      |          |                   |  |         |         |              |  |              |          |       |  |        
|         |  |                                     
|         |  | (in thousands)                      
|Revenues |  | $                                    | 7,809    |                   |  | $       | 2,979   |              |  | $            | 10,788   |       |  | $       | 33,770   |   |  | $ |         |   |  | $ | (2,320  | ) |  | $ | 42,238   |  
|Net loss |  | $                                    | (472,191 | )                 |  | $       | (91,056 | )            |  | $            | (563,247 | )     |  | $       | (705,398 | ) |  | $ | (135,860 | ) |  | $ | 737,957 |   |  | $ | (666,548 | )

Results of Operations  Core
Companies

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

Core Segment Results

|                                               |  |                |          |      |  |      |          |   |  |   |          |  
|---------------------------------------------- |  | -------------- | -------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                               |  | 2002           |          | 2001 |  | 2000
|                                               |  |                |          |      |  |     
|                                               |  |               
|                                               |  | (in thousands)
|Selected data:                                 |  |                |          |      |  |      |          |   |  |   |          |  
|Revenue                                        |  | $              | 107,964  |      |  | $    | 91,155   |   |  | $ | 7,809    |  
|Cost of Revenue                                |  |                | (68,670  | )    |  |      | (61,857  | ) |  |   | (22,055  | )
|Selling general and administrative             |  |                | (55,795  | )    |  |      | (95,831  | ) |  |   | (50,302  | )
|Research and development                       |  |                | (24,100  | )    |  |      | (14,675  | ) |  |   | (20,503  | )
|Amortization of goodwill and other intangibles |  |                | (12,000  | )    |  |      | (49,142  | ) |  |   | (19,025  | )
|Equity loss                                    |  |                | (39,868  | )    |  |      | (356,360 | ) |  |   | (368,141 | )
|Impairment and other                           |  |                | (12,139  | )    |  |      | (38,492  | ) |  |   | 26       |  
|                                               |  |                |          |      |  |      |          |   |  |   |          |  
|Net loss                                       |  | $              | (104,608 | )    |  | $    | (525,202 | ) |  | $ | (472,191 | )
|                                               |  |                |          |      |  |      |          |   |  |   |          |  



| |        
| | -------
| | Revenue

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

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



| |                   
| | ------------------
| | Operating Expenses

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

17



---



##### 



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



| |                                                   
| | --------------------------------------------------
| | Amortization of goodwill and other
    intangibles

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



| |            
| | -----------
| | Equity Loss

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

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

|                              |  |      |         |      |  |      |          |   |  |   |          |  
|----------------------------- |  | ---- | ------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                              |  | 2002 |         | 2001 |  | 2000
|                              |  |      |         |      |  |     
|Share of income (losses), net |  | $    | (39,868 | )    |  | $    | (267,339 | ) |  | $ | (211,797 | )
|Amortization of goodwill      |  |      |        |      |  |      | (89,021  | ) |  |   | (156,344 | )
|                              |  |      |         |      |  |      |          |   |  |   |          |  
|                              |  | $    | (39,868 | )    |  | $    | (356,360 | ) |  | $ | (368,141 | )
|                              |  |      |         |      |  |      |          |   |  |   |          |  

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

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

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

18



---



##### 



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

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

Results of Operations  Emerging
Companies

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

Emerging Segment Results

|                                               |  |                |         |      |  |      |          |   |  |   |         |  
|---------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                               |  | 2002           |         | 2001 |  | 2000
|                                               |  |                |         |      |  |     
|                                               |  |               
|                                               |  | (in thousands)
|Selected data:                                 |  |                |         |      |  |      |          |   |  |   |         |  
|Revenue                                        |  | $              | 507     |      |  | $    | 2,936    |   |  | $ | 2,979   |  
|Cost of revenue                                |  |                | (425    | )    |  |      | (2,073   | ) |  |   | (1,615  | )
|Selling general and administrative             |  |                | (1,409  | )    |  |      | (14,988  | ) |  |   | (9,441  | )
|Research and development                       |  |                |        |      |  |      | (7,879   | ) |  |   | (5,670  | )
|Amortization of goodwill and other intangibles |  |                |        |      |  |      | (7,708   | ) |  |   | (8,113  | )
|Equity loss                                    |  |                | (15,945 | )    |  |      | (57,517  | ) |  |   | (69,709 | )
|Minority interest and other                    |  |                |        |      |  |      | (15,003  | ) |  |   | 513     |  
|                                               |  |                |         |      |  |      |          |   |  |   |         |  
|Net loss                                       |  | $              | (17,272 | )    |  | $    | (102,232 | ) |  | $ | (91,056 | )
|                                               |  |                |         |      |  |      |          |   |  |   |         |  

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

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

|                              |  |      |         |      |  |      |         |   |  |   |         |  
|----------------------------- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                              |  | 2002 |         | 2001 |  | 2000
|                              |  |      |         |      |  |     
|Share of income (losses), net |  | $    | (15,945 | )    |  | $    | (40,466 | ) |  | $ | (53,631 | )
|Amortization of goodwill      |  |      |        |      |  |      | (17,051 | ) |  |   | (16,078 | )
|                              |  |      |         |      |  |      |         |   |  |   |         |  
|                              |  | $    | (15,945 | )    |  | $    | (57,517 | ) |  | $ | (69,709 | )
|                              |  |      |         |      |  |      |         |   |  |   |         |  

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

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

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

Discontinued Operations and
Dispositions

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

19



---



##### 



$0.7 million for 2002, 2001 and 2000
respectively. Our share of these companies losses totaled
$19.3 million, $32.9 million and $7.0 million for
2002, 2001 and 2000 respectively. Additionally, we recorded a
gain of $10.3 million in 2002 relating to these
transactions.


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

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

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

Corporate

|                                   |  |                |         |      |  |      |          |   |  |   |          |  
|---------------------------------- |  | -------------- | ------- | ---- |  | ---- | -------- | - |  | - | -------- | -
|                                   |  | 2002           |         | 2001 |  | 2000
|                                   |  |                |         |      |  |     
|                                   |  |               
|                                   |  | (in thousands)
|General and administrative         |  | $              | (34,680 | )    |  | $    | (51,964  | ) |  | $ | (85,832  | )
|Impairment related and other       |  |                | (1,499  | )    |  |      | (32,862  | ) |  |   | (25,919  | )
|Research and development           |  |                |        |      |  |      |         |   |  |   | (22,548  | )
|Interest (income) expense, net     |  |                | (18,847 | )    |  |      | (23,791  | ) |  |   | (1,561   | )
|                                   |  |                |         |      |  |      |          |   |  |   |          |  
|Total Corporate Operating Expenses |  | $              | (55,026 | )    |  | $    | (108,617 | ) |  | $ | (135,860 | )
|                                   |  |                |         |      |  |      |          |   |  |   |          |  



| |                           
| | --------------------------
| | General and Administrative

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



| |                                                 
| | ------------------------------------------------
| | Restructuring (Impairment Related and
    Other)

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

20



---



##### 





| |                        
| | -----------------------
| | Interest Income/Expense

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

Other

|                               |  |                |         |      |  |      |            |   |  |   |          |  
|------------------------------ |  | -------------- | ------- | ---- |  | ---- | ---------- | - |  | - | -------- | -
|                               |  | 2002           |         | 2001 |  | 2000
|                               |  |                |         |      |  |     
|                               |  |               
|                               |  | (in thousands)
|Impairment (Note 2)            |  | $              | (43,490 | )    |  | $    | (1,275,941 | ) |  | $ | (348,597 | )
|Other income (loss) (Note 18)  |  |                | 107,668 |      |  |      | (44,873    | ) |  |   | 682,860  |  
|Taxes                          |  |                | (179    | )    |  |      | 12,584     |   |  |   | 319,449  |  
|Minority interest              |  |                | 15,438  |      |  |      | 108,223    |   |  |   | 84,245   |  
|Change in Accounting Principle |  |                |        |      |  |      | (7,886     | ) |  |   |         |  
|                               |  |                |         |      |  |      |            |   |  |   |          |  
|                               |  | $              | 79,437  |      |  | $    | (1,207,893 | ) |  | $ | 737,957  |  
|                               |  |                |         |      |  |      |            |   |  |   |          |  



| |                   
| | ------------------
| | Impairment Charges

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



| |                         
| | ------------------------
| | Other Income (Loss), Net

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

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



| |             
| | ------------
| | Income Taxes

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

21



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##### 



Liquidity and Capital Resources

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

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

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

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

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

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

22



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##### 



Contractual Cash Obligations and Commercial
Commitments

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

|                               |  |                |         |           |  |            |        |  |  |   |         | 
|------------------------------ |  | -------------- | ------- | --------- |  | ---------- | ------ |  |  | - | ------- | 
|                               |  |                |         | Less than |  |           
|                               |  | Total          |         | 1 year    |  | Thereafter
|                               |  |                |         |           |  |           
|                               |  |               
|                               |  | (in thousands)
|Convertible Subordinated Notes |  | $              | 314,257 |           |  | $          | 15,571 |  |  | $ | 298,686 | 
|Funding Commitments            |  |                | 22,710  |           |  |            | 15,975 |  |  |   | 6,735   | 
|Operating Leases               |  |                | 71,435  |           |  |            | 30,467 |  |  |   | 40,968  | 
|Other borrowings               |  |                | 19,647  |           |  |            | 11,728 |  |  |   | 7,919   | 
|                               |  |                |         |           |  |            |        |  |  |   |         | 
|Total                          |  | $              | 428,049 |           |  | $          | 73,741 |  |  | $ | 354,308 | 
|                               |  |                |         |           |  |            |        |  |  |   |         | 

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

Recent Accounting Pronouncements

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

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

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

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

23



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##### 



changed conditions. SFAS No. 145 encourages
early adoption of the provision of this standard that rescinds
SFAS No. 4, Reporting Gains and Losses from
Extinguishments of Debt. Accordingly, we elected to early
adopt this provision during the second quarter of fiscal 2002.
We reclassified prior year extraordinary gains related to the
early retirement of debt to Other Income (loss), net
in our Consolidated Statements of Operations. The adoption of
the remaining provisions of this new standard did not have a
material impact on our results of operations or financial
position.


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

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

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

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

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

24



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Risk Factors

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

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



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

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

Risks Particular to Internet Capital
Group

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

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

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

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

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



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

25



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

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

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

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

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

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

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

Our outstanding indebtedness could negatively
impact our future prospects.

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



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

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

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

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



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

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

27



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##### 



had a combined market value of $12.6 million
in the aggregate as of December 31, 2002. A decline in the
market value of our publicly traded partner companies will
likely cause a decline in the price of our common stock.


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

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

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

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

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

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

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



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

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

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

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

28



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##### 



companies executive offices or key
personnel were unable or unwilling to continue in their present
positions, or if we or our partner companies were unable to hire
qualified personnel, our business and operations could be
disrupted and our operating results and financial condition
would be seriously harmed.


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

30



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

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

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

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

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

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

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

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

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

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

31



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us to regulation under the Investment Company Act
unless we take precautionary steps. For example, in order to
avoid having excessive income from non-controlled
interests, we may not sell minority interests we would otherwise
want to sell or we may have to generate non-investment income by
selling interests in partner companies that we are considered to
control. We may also need to ensure that we retain more than 25%
ownership interests in our partner companies after any equity
offerings. In addition, we may have to acquire additional income
or loss generating majority-owned or controlled interests that
we might not otherwise have acquired or may not be able to
acquire non-controlling interests in companies that
we would otherwise want to acquire. It is not feasible for us to
be regulated as an investment company because the Investment
Company Act rules are inconsistent with our strategy of actively
managing, operating and promoting collaboration among our
network of partner companies. On August 23, 1999, the SEC
granted our request for an exemption under Section 3(b)(2)
of the Investment Company Act declaring us to be primarily
engaged in a business other than that of investing, reinvesting,
owning, holding or trading in securities. This exemptive order
reduces the risk that we may have to take action to avoid
registration as an investment company, but it does not eliminate
the risk.


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

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

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

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

Risks Particular to Our Partner
Companies

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

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

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

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

32



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dated December 31, 2002, were
$366.2 million, of which $11.2 million related to
Verticalnet, eMerge Interactive, Onvia.com and Universal Access.
However, we believe that comparisons of the value of our
holdings in partner companies to the value of our total assets
are not meaningful because not all of our partner company
ownership interests are marked to market in our balance sheet.


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



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

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



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

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



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

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



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

The success of our partner companies depends
on the development of the e-commerce market, which is
uncertain.

Some of our partner companies rely on e-commerce
markets for the success of their businesses. The development of
the e-commerce market is in its early stages. If widespread
commercial use of the internet does not develop, or if the
internet does not develop as an effective medium for providing
products and services, our partner companies may not succeed.

Our long-term success depends on widespread
market acceptance of e-commerce.

A number of factors could prevent widespread
market acceptance of e-commerce, including the following:



| |   |                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the unwillingness of businesses to shift from
    traditional processes to e-commerce processes;                                                                                     
|
| |  | the network necessary for enabling substantial
    growth in usage of e-commerce may not be adequately developed;                                                                    
|
| |  | increased government regulation or taxation,
    which may adversely affect the viability of e-commerce;                                                                             
|
| |  | insufficient availability of telecommunication
    services or changes in telecommunication services which could
    result in slower response times for the users of e-commerce; and
|
| |  | concern and adverse publicity about the security
    of e-commerce transactions.                                                                                                     

34



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Our partner companies may fail if their
competitors provide superior technology offerings or continue to
have greater resources than our partner companies
have.

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



| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | purchasing budget for information technology and
    services, materials and supplies with other online providers and
    traditional distribution channels; and
|
| |  | dollars spent on consulting services with many
    established information systems and management consulting firms.                                             

In addition, some of our partner companies
compete to attract and retain a critical mass of buyers and
sellers. Many companies offer competitive solutions that compete
with one or more of our partner companies. We expect that
additional companies will offer competing solutions on a
stand-alone or combined basis in the future. Furthermore, our
partner companies competitors may develop products or
services that are superior to, or have greater market acceptance
than, the solutions offered by our partner companies. If our
partner companies are unable to compete successfully against
their competitors, our partner companies may fail.

Many of our partner companies competitors
have greater brand recognition and greater financial, marketing
and other resources than our partner companies. This may place
our partner companies at a disadvantage in responding to their
competitors pricing strategies, technological advances,
advertising campaigns, strategic partnerships and other
initiatives.

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

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

The inability of our partner companies
customers to pay their obligations to them in a timely manner or
at all could have an adverse effect on our partner
companies.

Some of the customers of our partner companies
may have inadequate financial resources to meet all their
obligations. If a significant number of customers are unable to
pay amounts owed to a partner company, such partner
companys results of operations and financial condition
could be adversely affected.

Some of our partner companies may be unable to
protect their proprietary rights and may infringe on the
proprietary rights of others.

Our partner companies are inventing new solutions
for doing business. In support of this innovation, they will
develop proprietary techniques, trademarks, processes and
software. Although we believe reasonable efforts will be taken
to protect the rights to this intellectual property, the
complexity of international trade secret, copyright, trademark
and patent law, coupled with the limited resources of these
young companies and the demands of quick delivery of products
and services to market, create risk that their efforts will
prove inadequate. Further, the nature of internet business
demands that considerable detail about their innovative
processes and techniques be exposed to competitors, because it
must be presented on the websites in order to attract clients.
Some of our partner companies also license content from third
parties and it is possible that they could become subject to
infringement actions based upon the content licensed from those
third parties. Our partner companies generally obtain
representations as to the origin and ownership of such licensed
content; however, this may not adequately protect them. Any
claims against our partner companies proprietary rights,
with or without merit, could subject our partner companies to
costly litigation and the diversion of their technical and
management personnel. If our partner companies incur costly
litigation and their personnel are not effectively deployed, the
expenses and losses incurred by our partner companies will
increase and their profits, if any, will decrease.

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Government regulation of the internet and
e-commerce may harm our partner companies
businesses.

Government regulation of the internet and
e-commerce is evolving and unfavorable changes could harm our
partner companies business. Our partner companies are
subject to general business regulations and laws specifically
governing the internet and e-commerce. Such existing and future
laws and regulations may impede the growth of the internet or
other online services. These regulations and laws may cover
taxation, user privacy, pricing content, copyrights,
distribution, electronic contracts, consumer protection, the
provision of online payment services, broadband residential
internet access and the characteristics and quality of products
and services. It is not clear how existing laws governing issues
such as property ownership, sales and other taxes, libel and
personal privacy apply to the internet and e-commerce.
Unfavorable resolution of these issues may harm our partner
companies business.

Our partner companies that publish or
distribute content over the internet may be subject to legal
liability.

Some of our partner companies may be subject to
legal claims relating to the content on their websites, or the
downloading and distribution of this content. Claims could
involve matters such as defamation, invasion of privacy and
copyright infringement. Providers of internet products and
services have been sued in the past, sometimes successfully,
based on the content of material. In addition, some of the
content provided by our partner companies on their websites is
drawn from data compiled by other parties, including
governmental and commercial sources. The data may have errors.
If any of our partner companies website content is
improperly used or if any of our partner companies supply
incorrect information, it could result in unexpected liability.
Any of our partner companies that incur this type of unexpected
liability may not have insurance to cover the claim or its
insurance may not provide sufficient coverage. If our partner
companies incur substantial cost because of this type of
unexpected liability, the expenses incurred by our partner
companies will increase and their profits, if any, will decrease.

Our partner companies computer and
communications systems may fail, which may discourage parties
from using our partner companies systems.

Some of our partner companies businesses
depend on the efficient and uninterrupted operation of their
computer and communications hardware systems. Any system
interruptions that cause our partner companies websites to
be unavailable to web browsers may reduce the attractiveness of
our partner companies websites to third parties. If third
parties are unwilling to use our partner companies
websites, our business, financial condition and operating
results could be adversely affected. Interruptions could result
from natural disasters as well as power loss, telecommunications
failure and similar events.

Our partner companies businesses may be
disrupted if they are unable to upgrade their systems to meet
increased demand.

Capacity limits on some of our partner
companies technology, transaction processing systems and
network hardware and software may be difficult to project and
they may not be able to expand and upgrade their systems to meet
increased use. As traffic on our partner companies
websites continues to increase, they must expand and upgrade
their technology, transaction processing systems and network
hardware and software. Our partner companies may be unable to
accurately project the rate of increase in use of their
websites. In addition, our partner companies may not be able to
expand and upgrade their systems and network hardware and
software capabilities to accommodate increased use of their
websites. If our partner companies are unable to appropriately
upgrade their systems and network hardware and software, the
operations and processes of our partner companies may be
disrupted.

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.

Some of our partner companies hold various
website addresses relating to their brands. These partner
companies may not be able to prevent third parties from
acquiring website addresses that are similar to their addresses,
which could adversely affect the use by businesses of our
partner companies websites. In these

36



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##### 



instances, our partner companies may not grow as
we expect. The acquisition and maintenance of website addresses
generally is regulated by governmental agencies and their
designees. The regulation of website addresses in the United
States and in foreign countries is subject to change. As a
result, our partner companies may not be able to acquire or
maintain relevant website addresses in all countries where they
conduct business. Furthermore, the relationship between
regulations governing such addresses and laws protecting
trademarks is unclear.




|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

We are exposed to equity price risks on the
marketable portion of our equity securities. Our public holdings
at December 31, 2002 include equity positions in companies
in the technology industry sector, including: eMerge
Interactive; Universal Access; Onvia.com; and Verticalnet, many
of which have experienced significant historical volatility in
their stock prices. A 20% adverse change in equity prices, based
on a sensitivity analysis of our public holdings as of
December 31, 2002, would result in an approximate
$2.5 million decrease in the fair value of our public
holdings.

Although we typically do not attempt to reduce or
eliminate our market exposure on these securities, particularly
with respect to securities of our partner companies, we did
enter into a forward contract on 1.8 million shares of our
holdings in i2 Technologies. The forward contract limits
our exposure to and benefits from price fluctuations in the
underlying equity securities. As of December 31, 2002,
1.8 million shares of i2 Technologies remain under
this arrangement. In addition, 0.5 million shares of
i2 Technologies were held in escrow, which were released to
us in 2002, and have not been hedged which have a market value
of $0.5 million at December 31, 2002. The combined
value of the forward contract, the underlying hedged securities
and the unhedged securities at December 31, 2002 was
$10.1 million. The forward contract matures in September
2003. We may enter into similar collar arrangements in the
future; particularly with respect to available-for-sale
securities, which do not constitute ownership interests in our
partner companies.

The carrying values of financial instruments,
including cash and cash equivalents, accounts receivable,
accounts payable and notes payable, approximate fair value
because of the short maturity of these instruments. At
December 31, 2002, the fair value of convertible
subordinated notes is $116.1 million versus a carrying
value of $283.1 million. The carrying value of other
long-term debt approximates its fair value, as estimated by
using discounted future cash flows based on our current
incremental borrowing rates for similar types of borrowing
arrangements.

We have historically had very low exposure to
changes in foreign currency exchange rates, and as such, have
not used derivative financial instruments to manage foreign
currency fluctuation risk.



|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The following Consolidated Financial Statements,
and the related Notes thereto, of Internet Capital Group, Inc.
and the Report of Independent Auditors are filed as a part of
this Report on Form 10-K.

|                                                                                                                       |  |        |    | 
|---------------------------------------------------------------------------------------------------------------------- |  | ------ | -- | 
|                                                                                                                       |  | Page  
|                                                                                                                       |  | Number
|                                                                                                                       |  |       
|Report of Independent Auditors                                                                                         |  |        | 38 | 
|Consolidated Balance Sheets as of
    December 31, 2002 and 2001                                                       |  |        | 39 | 
|Consolidated Statements of Operations for the
    years ended December 31, 2002, 2001 and 2000                         |  |        | 40 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000                         |  |        | 41 | 
|Consolidated Statements of Stockholders
    Equity (Deficit) for the years ended December 31, 2002,
    2001 and 2000 |  |        | 42 | 
|Consolidated Statements of Comprehensive Loss for
    the years ended December 31, 2002, 2001 and 2000                 |  |        | 43 | 
|Notes to Consolidated Financial Statements                                                                             |  |        | 44 | 

37



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##### 



REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders

Internet Capital Group, Inc.:


We have audited the accompanying consolidated
balance sheets of Internet Capital Group, Inc. and subsidiaries
as of December 31, 2002 and 2001, and the related
consolidated statements of operations, cash flows,
stockholders equity (deficit) and comprehensive loss
for each of the years in the three-year period ended
December 31, 2002. These consolidated financial statements
are the responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Internet Capital Group, Inc.
and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2002 in
conformity with accounting principles generally accepted in the
United States of America.

As discussed in Note 1 to the Consolidated
Financial Statements, the Company changed its method of
accounting for goodwill, discontinued operations, accounting for
an investment, accounting for notes receivable from stockholders
and reporting gains on extinguishment of debt in 2002 and
derivatives in 2001.

/s/ KPMG
LLP

Philadelphia, Pennsylvania

February 20, 2003


38



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##### 



INTERNET CAPITAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

|                                                   |                                                                                                                              |                                      |                                                          |               |         |         |         |            |         |         | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | -------------------------------------------------------- | ------------- | ------- | ------- | ------- | ---------- | ------- | ------- | 
|                                                   |                                                                                                                              |                                     
|                                                   |                                                                                                                              | As of December 31,                  
|                                                   |                                                                                                                              |                                     
|                                                   |                                                                                                                              | 2002                                 |                                                          | 2001         
|                                                   |                                                                                                                              |                                      |                                                          |              
|                                                   |                                                                                                                              |                                      |                                                          | (as adjusted)
|                                                   |                                                                                                                              |                                     
|                                                   |                                                                                                                              | (in thousands except per            
|                                                   |                                                                                                                              | share data)                         
|ASSETS                                            
|Current Assets                                     |                                                                                                                              |                                      |                                                          |               |         |         |         |           
|                                                   | Cash and cash equivalents                                                                                                    |                                      | $                                                        | 118,657       |         |         | $       | 238,135    |        
|                                                   | Restricted cash                                                                                                              |                                      |                                                          | 10,876        |         |         |         | 10,457     |        
|                                                   | Short term investments                                                                                                       |                                      |                                                          | 7,311         |         |         |         | 10,475     |        
|                                                   | Accounts receivable, net of allowance
    ($4,255  2002; $5,249  2001)                                                     |                                      |                                                          | 32,859        |         |         |         | 31,400     |        
|                                                   | Prepaid expenses and other current assets                                                                                    |                                      |                                                          | 6,528         |         |         |         | 10,255     |        
|                                                   |                                                                                                                              |                                      |                                                          |               |         |         |         |           
|                                                   |                                                                                                                              | Total current assets                 |                                                          |               | 176,231 |         |         |            | 300,722 |        
|Assets of discontinued operations                  |                                                                                                                              |                                      | 5,746                                                    |               |         |         | 45,444  |           
|Fixed assets, net                                  |                                                                                                                              |                                      | 10,292                                                   |               |         |         | 20,735  |           
|Ownership interests in Partner Companies           |                                                                                                                              |                                      | 71,732                                                   |               |         |         | 163,137 |           
|Available for sale securities                      |                                                                                                                              |                                      | 10,228                                                   |               |         |         | 17,389  |           
|Goodwill, net                                      |                                                                                                                              |                                      | 61,938                                                   |               |         |         | 55,806  |           
|Other                                              |                                                                                                                              |                                      | 30,079                                                   |               |         |         | 51,814  |           
|                                                   |                                                                                                                              |                                      |                                                          |               |         |         |         |           
|                                                   |                                                                                                                              | Total Assets                         |                                                          | $             | 366,246 |         |         | $          | 655,047 |        
|                                                   |                                                                                                                              |                                      |                                                          |               |         |         |         |           
|LIABILITIES AND STOCKHOLDERS EQUITY
    (DEFICIT)
|Current Liabilities                                |                                                                                                                              |                                      |                                                          |               |         |         |         |           
|                                                   | Current maturities of other long-term debt                                                                                   |                                      | $                                                        | 11,728        |         |         | $       | 17,156     |        
|                                                   | Accounts payable                                                                                                             |                                      |                                                          | 13,042        |         |         |         | 16,042     |        
|                                                   | Accrued expenses                                                                                                             |                                      |                                                          | 33,812        |         |         |         | 38,895     |        
|                                                   | Accrued compensation and benefits                                                                                            |                                      |                                                          | 11,554        |         |         |         | 13,723     |        
|                                                   | Accrued restructuring                                                                                                        |                                      |                                                          | 12,113        |         |         |         | 14,660     |        
|                                                   | Deferred revenue                                                                                                             |                                      |                                                          | 19,063        |         |         |         | 22,971     |        
|                                                   |                                                                                                                              |                                      |                                                          |               |         |         |         |           
|                                                   |                                                                                                                              | Total current liabilities            |                                                          |               | 101,312 |         |         |            | 123,447 |        
|Liabilities of discontinued operations             |                                                                                                                              |                                      | 5,296                                                    |               |         |         | 23,278  |           
|Other long-term debt                               |                                                                                                                              |                                      | 7,919                                                    |               |         |         | 10,645  |           
|Other liabilities                                  |                                                                                                                              |                                      | 13,145                                                   |               |         |         | 8,985   |           
|Minority interest                                  |                                                                                                                              |                                      | 7,106                                                    |               |         |         | 7,894   |           
|Convertible subordinated notes                     |                                                                                                                              |                                      | 283,114                                                  |               |         |         | 446,061 |           
|                                                   |                                                                                                                              |                                      |                                                          |               |         |         |         |           
|                                                   |                                                                                                                              |                                      | 417,892                                                  |               |         |         | 620,310 |           
|Commitments and contingencies (Note 19)            |                                                                                                                              |                                      |                                                          |               |         |         |         |           
|Stockholders Equity (Deficit)                     |                                                                                                                              |                                      |                                                          |               |         |         |         |           
|                                                   | Preferred stock (Note 12)                                                                                                    |                                      |                                                          |              |         |         |         |           |        
|                                                   | Common stock, $.001 par value; 2,000,000 shares
    authorized, 286,720 (2002) and 287,689 (2001) issued
    and outstanding |                                      |                                                          | 287           |         |         |         | 288        |        
|                                                   | Additional paid in capital                                                                                                   |                                      |                                                          | 3,085,232     |         |         |         | 3,081,088  |        
|                                                   | Accumulated deficit                                                                                                          |                                      |                                                          | (3,134,036    | )       |         |         | (3,031,817 | )      
|                                                   | Unamortized deferred compensation                                                                                            |                                      |                                                          | (2,968        | )       |         |         | (9,610     | )      
|                                                   | Notes receivable-stockholders                                                                                                |                                      |                                                          | (460          | )       |         |         | (4,721     | )      
|                                                   | Accumulated other comprehensive income (loss)                                                                                |                                      |                                                          | 299           |         |         |         | (491       | )      
|                                                   |                                                                                                                              |                                      |                                                          |               |         |         |         |           
|                                                   |                                                                                                                              | Total stockholders equity (deficit) |                                                          |               | (51,646 | )       |         |            | 34,737  |        
|                                                   |                                                                                                                              |                                      |                                                          |               |         |         |         |           
|                                                   |                                                                                                                              |                                      | Total Liabilities and Stockholders Equity
    (Deficit) |               | $       | 366,246 |         |            | $       | 655,047 | 
|                                                   |                                                                                                                              |                                      |                                                          |               |         |         |         |           

See notes to consolidated financial statements.

39



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##### 



INTERNET CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                                             |                                                |                                      |          |               |  |               |            |           |  |   |          |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------ | -------- | ------------- |  | ------------- | ---------- | --------- |  | - | -------- | ------- | 
|                                                                                                                                             |                                                |                                     
|                                                                                                                                             |                                                | Year Ended December 31,             
|                                                                                                                                             |                                                |                                     
|                                                                                                                                             |                                                | 2002                                 |          | 2001          |  | 2000         
|                                                                                                                                             |                                                |                                      |          |               |  |              
|                                                                                                                                             |                                                |                                      |          | (as adjusted) |  | (as adjusted)
|                                                                                                                                             |                                                |                                     
|                                                                                                                                             |                                                | (in thousands except per share data)
|Revenue                                                                                                                                      |                                                | $                                    | 108,457  |               |  | $             | 115,651    |           |  | $ | 42,238   |        
|Operating expenses                                                                                                                           |                                                |                                      |          |               |  |               |            |           |  |   |          |        
|                                                                                                                                             | Cost of revenue                                |                                      |          | 69,095        |  |               |            | 84,818    |  |   |          | 46,065  | 
|                                                                                                                                             | Selling, general and administrative            |                                      |          | 91,870        |  |               |            | 244,266   |  |   |          | 243,871 | 
|                                                                                                                                             | Research and development                       |                                      |          | 24,100        |  |               |            | 43,788    |  |   |          | 68,821  | 
|                                                                                                                                             | Amortization of goodwill and other intangibles |                                      |          | 12,000        |  |               |            | 125,854   |  |   |          | 239,813 | 
|                                                                                                                                             | Impairment related and other                   |                                      |          | 12,376        |  |               |            | 851,257   |  |   |          | 160,844 | 
|                                                                                                                                             |                                                |                                      |          |               |  |               |            |           |  |   |          |        
|                                                                                                                                             | Total operating expenses                       |                                      |          | 209,441       |  |               |            | 1,349,983 |  |   |          | 759,414 | 
|                                                                                                                                             |                                                |                                      |          |               |  |               |            |           |  |   |          |        
|                                                                                                                                             |                                                |                                      | (100,984 | )             |  |               | (1,234,332 | )         |  |   | (717,176 | )      
|Other income (loss), net                                                                                                                     |                                                |                                      | 93,333   |               |  |               | (109,795   | )         |  |   | 627,227  |        
|Interest income                                                                                                                              |                                                |                                      | 4,098    |               |  |               | 17,226     |           |  |   | 51,379   |        
|Interest expense                                                                                                                             |                                                |                                      | (23,855  | )             |  |               | (43,001    | )         |  |   | (44,253  | )      
|                                                                                                                                             |                                                |                                      |          |               |  |               |            |           |  |   |          |        
|Loss before income taxes, minority interest and
    equity loss                                                                              |                                                |                                      | (27,408  | )             |  |               | (1,369,902 | )         |  |   | (82,823  | )      
|Income tax (expense) benefit                                                                                                                 |                                                |                                      | (179     | )             |  |               | 12,584     |           |  |   | 319,449  |        
|Minority interest                                                                                                                            |                                                |                                      | 15,438   |               |  |               | 108,223    |           |  |   | 84,245   |        
|Equity loss                                                                                                                                  |                                                |                                      | (81,114  | )             |  |               | (1,048,860 | )         |  |   | (980,391 | )      
|                                                                                                                                             |                                                |                                      |          |               |  |               |            |           |  |   |          |        
|Loss before discontinued operations and
    cumulative effect of change in accounting principle                                              |                                                |                                      | (93,263  | )             |  |               | (2,297,955 | )         |  |   | (659,520 | )      
|Loss on discontinued operations, net of gain of
    $10,317 (2002) (Note 9) and tax benefit of $2,917
    (2001) and $7,806 (2000) (Note 14) |                                                |                                      | (8,956   | )             |  |               | (32,889    | )         |  |   | (7,028   | )      
|Cumulative effect of change in accounting
    principle (Note 4)                                                                             |                                                |                                      |         |               |  |               | (7,886     | )         |  |   |         |        
|                                                                                                                                             |                                                |                                      |          |               |  |               |            |           |  |   |          |        
|Net loss                                                                                                                                     |                                                | $                                    | (102,219 | )             |  | $             | (2,338,730 | )         |  | $ | (666,548 | )      
|                                                                                                                                             |                                                |                                      |          |               |  |               |            |           |  |   |          |        
|Basic and diluted loss per share:                                                                                                            |                                                |                                      |          |               |  |               |            |           |  |   |          |        
|Loss before discontinued operations and
    cumulative effect of change in accounting principle                                              |                                                | $                                    | (0.35    | )             |  | $             | (8.25      | )         |  | $ | (2.40    | )      
|Loss on discontinued operations                                                                                                              |                                                |                                      | (0.03    | )             |  |               | (0.12      | )         |  |   | (0.02    | )      
|Cumulative effect of change in accounting
    principle                                                                                      |                                                |                                      |         |               |  |               | (0.03      | )         |  |   |         |        
|                                                                                                                                             |                                                |                                      |          |               |  |               |            |           |  |   |          |        
|                                                                                                                                             |                                                | $                                    | (0.38    | )             |  | $             | (8.40      | )         |  | $ | (2.42    | )      
|                                                                                                                                             |                                                |                                      |          |               |  |               |            |           |  |   |          |        
|Shares used in computation of basic and diluted
    loss per share                                                                           |                                                |                                      | 267,998  |               |  |               | 278,353    |           |  |   | 275,044  |        
|                                                                                                                                             |                                                |                                      |          |               |  |               |            |           |  |   |          |        

See notes to consolidated financial statements.

40



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##### 



INTERNET CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                           |                                                                   |                         |          |               |   |               |            |           |   |   |           |          |  
|-------------------------------------------------------------------------- | ----------------------------------------------------------------- | ----------------------- | -------- | ------------- | - | ------------- | ---------- | --------- | - | - | --------- | -------- | -
|                                                                           |                                                                   |                        
|                                                                           |                                                                   | Year Ended December 31,
|                                                                           |                                                                   |                        
|                                                                           |                                                                   | 2002                    |          | 2001          |   | 2000         
|                                                                           |                                                                   |                         |          |               |   |              
|                                                                           |                                                                   |                         |          | (as adjusted) |   | (as adjusted)
|                                                                           |                                                                   |                        
|                                                                           |                                                                   | (in thousands)         
|Operating Activities                                                       |                                                                   |                         |          |               |   |               |            |           |   |   |           |         
|Net loss                                                                   |                                                                   | $                       | (102,219 | )             |   | $             | (2,338,730 | )         |   | $ | (666,548  | )       
|Adjustments to reconcile net loss to cash used in
    operating activities |                                                                   |                         |          |               |   |               |            |           |   |   |           |         
|                                                                           | Depreciation and amortization                                     |                         |          | 21,850        |   |               |            | 145,109   |   |   |           | 246,531  |  
|                                                                           | Purchased in process research and development                     |                         |          |              |   |               |            |          |   |   |           | 11,470   |  
|                                                                           | Impairment related and other                                      |                         |          | 10,475        |   |               |            | 820,100   |   |   |           | 160,844  |  
|                                                                           | Stock-based compensation                                          |                         |          | 13,128        |   |               |            | 29,103    |   |   |           | 25,747   |  
|                                                                           | Deferred tax expense (benefit)                                    |                         |          | 179           |   |               |            | (12,584   | ) |   |           | (319,449 | )
|                                                                           | Equity loss                                                       |                         |          | 81,114        |   |               |            | 1,048,860 |   |   |           | 980,391  |  
|                                                                           | Other income (loss)                                               |                         |          | (93,333       | ) |               |            | 109,795   |   |   |           | (627,227 | )
|                                                                           | Minority interest                                                 |                         |          | (15,438       | ) |               |            | (108,223  | ) |   |           | (84,245  | )
|                                                                           | Loss on discontinued operations                                   |                         |          | 8,956         |   |               |            | 32,889    |   |   |           | 7,028    |  
|                                                                           | Cumulative effect of change in accounting
    principle           |                         |          |              |   |               |            | 7,886     |   |   |           |         |  
|Changes in assets and liabilities, net of effect
    of acquisitions:      |                                                                   |                         |          |               |   |               |            |           |   |   |           |         
|                                                                           | Restricted cash                                                   |                         |          | 267           |   |               |            | (10,457   | ) |   |           |         |  
|                                                                           | Accounts receivable, net                                          |                         |          | (821          | ) |               |            | 11,716    |   |   |           | (24,621  | )
|                                                                           | Prepaid expenses and other assets                                 |                         |          | 13,918        |   |               |            | 121       |   |   |           | (21,504  | )
|                                                                           | Accounts payable                                                  |                         |          | (3,913        | ) |               |            | (13,716   | ) |   |           | 20,825   |  
|                                                                           | Accrued expenses                                                  |                         |          | (12,210       | ) |               |            | (10,605   | ) |   |           | 21,680   |  
|                                                                           | Deferred revenue                                                  |                         |          | (2,073        | ) |               |            | 12,747    |   |   |           | 206      |  
|                                                                           | Other liabilities                                                 |                         |          | (6,237        | ) |               |            | 8,271     |   |   |           | 2,682    |  
|                                                                           |                                                                   |                         |          |               |   |               |            |           |   |   |           |         
|Cash used in operating activities                                          |                                                                   |                         | (86,357  | )             |   |               | (267,718   | )         |   |   | (266,190  | )       
|Investing Activities                                                       |                                                                   |                         |          |               |   |               |            |           |   |   |           |         
|                                                                           | Capital expenditures                                              |                         |          | (961          | ) |               |            | (5,729    | ) |   |           | (50,306  | )
|                                                                           | Proceeds from sales of available for sale
    securities          |                         |          | 1,559         |   |               |            | 182,500   |   |   |           | 179,606  |  
|                                                                           | Proceeds from sales of Partner Company ownership
    interests    |                         |          | 42,219        |   |               |            | 168,270   |   |   |           | 35,310   |  
|                                                                           | Acquisitions of ownership interests in Partner
    Companies, net |                         |          | (21,902       | ) |               |            | (125,918  | ) |   |           | (992,287 | )
|                                                                           | Other acquisitions, net                                           |                         |          |              |   |               |            | 10,529    |   |   |           | 600      |  
|                                                                           | Proceeds/(Purchase) of short-term investments, net                |                         |          | 2,952         |   |               |            | 1,075     |   |   |           | (3,878   | )
|                                                                           | Reduction in cash due to deconsolidation of
    Partner Companies |                         |          | (5,876        | ) |               |            | (133,376  | ) |   |           | (2,580   | )
|                                                                           |                                                                   |                         |          |               |   |               |            |           |   |   |           |         
|Cash provided by (used in) investing activities                            |                                                                   |                         | 17,991   |               |   |               | 97,351     |           |   |   | (833,535  | )       
|Financing Activities                                                       |                                                                   |                         |          |               |   |               |            |           |   |   |           |         
|                                                                           | Issuance of common stock, net                                     |                         |          |              |   |               |            | 851       |   |   |           | 7,206    |  
|                                                                           | Long term debt and capital lease obligations, net                 |                         |          | (10,627       | ) |               |            | 22,220    |   |   |           | (10,013  | )
|                                                                           | Line of credit borrowings                                         |                         |          | 999           |   |               |            | 6,511     |   |   |           | 653      |  
|                                                                           | Line of credit repayments                                         |                         |          | (805          | ) |               |            | (2,880    | ) |   |           | (77      | )
|                                                                           | Proceeds from convertible note offering                           |                         |          |              |   |               |            |          |   |   |           | 4,664    |  
|                                                                           | Repurchase of convertible notes                                   |                         |          | (48,752       | ) |               |            | (35,456   | ) |   |           |         |  
|                                                                           | Repayment of advances and loans to employees                      |                         |          |              |   |               |            | 3,437     |   |   |           | 13,588   |  
|                                                                           | Advances and loans to employees                                   |                         |          |              |   |               |            | (1,500    | ) |   |           |         |  
|                                                                           | Issuance of stock by subsidiary                                   |                         |          | 9,882         |   |               |            | 5,491     |   |   |           | 150,317  |  
|                                                                           | Other                                                             |                         |          | 38            |   |               |            | 35        |   |   |           |         |  
|                                                                           |                                                                   |                         |          |               |   |               |            |           |   |   |           |         
|Cash provided by (used in) financing activities                            |                                                                   |                         | (49,265  | )             |   |               | (1,291     | )         |   |   | 166,338   |         
|                                                                           |                                                                   |                         |          |               |   |               |            |           |   |   |           |         
|Net decrease in Cash and Cash Equivalents                                  |                                                                   |                         | (117,631 | )             |   |               | (171,658   | )         |   |   | (933,387  | )       
|                                                                           |                                                                   |                         |          |               |   |               |            |           |   |   |           |         
|                                                                           | Effect of exchange rates on cash                                  |                         |          | (1,847        | ) |               |            | (280      | ) |   |           |         |  
|Cash and Cash Equivalents at the beginning of year                         |                                                                   |                         | 238,135  |               |   |               | 410,073    |           |   |   | 1,343,460 |         
|                                                                           |                                                                   |                         |          |               |   |               |            |           |   |   |           |         
|Cash and Cash Equivalents at the end of year                               |                                                                   | $                       | 118,657  |               |   | $             | 238,135    |           |   | $ | 410,073   |         
|                                                                           |                                                                   |                         |          |               |   |               |            |           |   |   |           |         

See notes to consolidated financial statements.

41



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##### 



INTERNET CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY (DEFICIT)

|                                                                                                    |  |              |         |            |  |             |     |             |  |              |           |               |  |               |            |       |  |   |         |   |  |   |         |   |  |   |         |   |  |   |            |  
|--------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ---------- |  | ----------- | --- | ----------- |  | ------------ | --------- | ------------- |  | ------------- | ---------- | ----- |  | - | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ---------- | -
|                                                                                                    |  |              |         |            |  |             |     |             |  |              |           | Accumulated   |  |              
|                                                                                                    |  | Common Stock |         | Additional |  |             |     | Unamortized |  | Notes        |           | Other         |  |              
|                                                                                                    |  |              |         | Paid-In    |  | Accumulated |     | Deferred    |  | Receivable-  |           | Comprehensive |  |              
|                                                                                                    |  | Shares       |         | Amount     |  | Capital     |     | Deficit     |  | Compensation |           | Stockholders  |  | Income (loss) |            | Total
|                                                                                                    |  |              |         |            |  |             |     |             |  |              |           |               |  |               |            |      
|Balance as of December 31,
    1999.                                                                |  |              | 263,579 |            |  | $           | 264 |             |  | $            | 1,513,615 |               |  | $             | (26,539    | )     |  | $ | (11,846 | ) |  | $ | (79,790 | ) |  | $ | 24,517  |   |  | $ | 1,420,221  |  
|Issuance of common stock and income tax benefit
    upon exercise of options                        |  |              | 340     |            |  |             |    |             |  |              | 6,365     |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 6,365      |  
|Stockholder loans principal payments                                                                |  |              |        |            |  |             |    |             |  |              |          |               |  |               |           |       |  |   |        |   |  |   | 13,588  |   |  |   |        |   |  |   | 13,588     |  
|Issuance of common stock for acquisitions                                                           |  |              | 22,585  |            |  |             | 23  |             |  |              | 1,556,142 |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 1,556,165  |  
|Issuance of common stock upon exercise of Warrants                                                  |  |              | 834     |            |  |             | 1   |             |  |              | 840       |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 841        |  
|Amortization of deferred compensation                                                               |  |              |        |            |  |             |    |             |  |              |          |               |  |               |           |       |  |   | 7,104   |   |  |   |        |   |  |   |        |   |  |   | 7,104      |  
|Issuance of stock options to non-employees                                                          |  |              |        |            |  |             |    |             |  |              | 6,698     |               |  |               |           |       |  |   | (6,698  | ) |  |   |        |   |  |   |        |   |  |   |           |  
|Repurchase of common stock from employees                                                           |  |              | (5,744  | )          |  |             | (6  | )           |  |              | (14,876   | )             |  |               |           |       |  |   | 733     |   |  |   | 14,149  |   |  |   |        |   |  |   |           |  
|Compensation charge in connection with the
    acceleration of vesting                              |  |              |        |            |  |             |    |             |  |              | 12,034    |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 12,034     |  
|Impact of issuance of common stock by a
    subsidiary or equity method Partner Company, net        |  |              |        |            |  |             |    |             |  |              | 7,912     |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 7,912      |  
|Foreign currency adjustment                                                                         |  |              |        |            |  |             |    |             |  |              |          |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   | 293     |   |  |   | 293        |  
|Net unrealized (depreciation) in
    available-for-sale securities and reclassification adjustments |  |              |        |            |  |             |    |             |  |              |          |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   | (91,866 | ) |  |   | (91,866    | )
|Other                                                                                               |  |              |        |            |  |             |    |             |  |              | 58        |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 58         |  
|Net loss                                                                                            |  |              |        |            |  |             |    |             |  |              |          |               |  |               | (666,548   | )     |  |   |        |   |  |   |        |   |  |   |        |   |  |   | (666,548   | )
|                                                                                                    |  |              |         |            |  |             |     |             |  |              |           |               |  |               |            |       |  |   |         |   |  |   |         |   |  |   |         |   |  |   |            |  
|Balance as of December 31, 2000 (as
    adjusted)                                                   |  |              | 281,594 |            |  |             | 282 |             |  |              | 3,088,788 |               |  |               | (693,087   | )     |  |   | (10,707 | ) |  |   | (52,053 | ) |  |   | (67,056 | ) |  |   | 2,266,167  |  
|Issuance of common stock and income tax benefit
    upon exercise of options                        |  |              | 313     |            |  |             |    |             |  |              | 846       |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 846        |  
|Stockholder loans principal payments                                                                |  |              |        |            |  |             |    |             |  |              |          |               |  |               |           |       |  |   |        |   |  |   | 3,342   |   |  |   |        |   |  |   | 3,342      |  
|Issuance of common stock for acquisitions                                                           |  |              | 2,665   |            |  |             | 3   |             |  |              | 2,121     |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 2,124      |  
|Issuance of common stock upon exercise of warrants                                                  |  |              | 1       |            |  |             |    |             |  |              | 5         |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 5          |  
|Amortization of deferred compensation                                                               |  |              |        |            |  |             |    |             |  |              |          |               |  |               |           |       |  |   | 13,917  |   |  |   |        |   |  |   |        |   |  |   | 13,917     |  
|Issuance of restricted stock to employees                                                           |  |              | 9,135   |            |  |             | 9   |             |  |              | 16,053    |               |  |               |           |       |  |   | (16,062 | ) |  |   |        |   |  |   |        |   |  |   |           |  
|Repurchase of common stock from employees                                                           |  |              | (6,019  | )          |  |             | (6  | )           |  |              | (19,918   | )             |  |               |           |       |  |   | 3,242   |   |  |   | 16,682  |   |  |   |        |   |  |   |           |  
|Impact of subsidiary equity transactions                                                            |  |              |        |            |  |             |    |             |  |              | 19,706    |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 19,706     |  
|Forgiveness of stockholder loans                                                                    |  |              |        |            |  |             |    |             |  |              |          |               |  |               |           |       |  |   |        |   |  |   | 795     |   |  |   |        |   |  |   | 795        |  
|Foreign currency adjustment                                                                         |  |              |        |            |  |             |    |             |  |              |          |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   | (292    | ) |  |   | (292       | )
|Net unrealized appreciation in available-for-sale
    securities and reclassification adjustments   |  |              |        |            |  |             |    |             |  |              |          |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   | 66,857  |   |  |   | 66,857     |  
|Modifications to stockholder loans                                                                  |  |              |        |            |  |             |    |             |  |              | (26,513   | )             |  |               |           |       |  |   |        |   |  |   | 26,513  |   |  |   |        |   |  |   |           |  
|Net loss                                                                                            |  |              |        |            |  |             |    |             |  |              |          |               |  |               | (2,338,730 | )     |  |   |        |   |  |   |        |   |  |   |        |   |  |   | (2,338,730 | )
|                                                                                                    |  |              |         |            |  |             |     |             |  |              |           |               |  |               |            |       |  |   |         |   |  |   |         |   |  |   |         |   |  |   |            |  
|Balance as of December 31, 2001 (as
    adjusted)                                                   |  |              | 287,689 |            |  |             | 288 |             |  |              | 3,081,088 |               |  |               | (3,031,817 | )     |  |   | (9,610  | ) |  |   | (4,721  | ) |  |   | (491    | ) |  |   | 34,737     |  
|Amortization of deferred compensation                                                               |  |              |         |            |  |             |    |             |  |              |          |               |  |               |           |       |  |   | 6,393   |   |  |   |        |   |  |   |        |   |  |   | 6,393      |  
|Forfeitures of restricted stock, net                                                                |  |              | (969    | )          |  |             | (1  | )           |  |              | (248      | )             |  |               |           |       |  |   | 249     |   |  |   |        |   |  |   |        |   |  |   |           |  
|Impact of subsidiary equity transactions                                                            |  |              |        |            |  |             |    |             |  |              | 4,950     |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   |        |   |  |   | 4,950      |  
|Net unrealized appreciation in available-for-sale
    securities and reclassification adjustments   |  |              |        |            |  |             |    |             |  |              |          |               |  |               |           |       |  |   |        |   |  |   |        |   |  |   | 790     |   |  |   | 790        |  
|Modifications to stockholder loans                                                                  |  |              |        |            |  |             |    |             |  |              | (558      | )             |  |               |           |       |  |   |        |   |  |   | 4,261   |   |  |   |        |   |  |   | 3,703      |  
|Net loss                                                                                            |  |              |        |            |  |             |    |             |  |              |          |               |  |               | (102,219   | )     |  |   |        |   |  |   |        |   |  |   |        |   |  |   | (102,219   | )
|                                                                                                    |  |              |         |            |  |             |     |             |  |              |           |               |  |               |            |       |  |   |         |   |  |   |         |   |  |   |         |   |  |   |            |  
|Balances as of December 31,
    2002.                                                               |  |              | 286,720 |            |  | $           | 287 |             |  | $            | 3,085,232 |               |  | $             | (3,134,036 | )     |  | $ | (2,968  | ) |  | $ | (460    | ) |  | $ | 299     |   |  | $ | (51,646    | )
|                                                                                                    |  |              |         |            |  |             |     |             |  |              |           |               |  |               |            |       |  |   |         |   |  |   |         |   |  |   |         |   |  |   |            |  

See notes to consolidated financial statements.

42



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##### 



INTERNET CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
LOSS

|                                    |                                                                                      |                         |          |               |   |               |            |         |   |   |          |          |  
|----------------------------------- | ------------------------------------------------------------------------------------ | ----------------------- | -------- | ------------- | - | ------------- | ---------- | ------- | - | - | -------- | -------- | -
|                                    |                                                                                      |                        
|                                    |                                                                                      | Year Ended December 31,
|                                    |                                                                                      |                        
|                                    |                                                                                      | 2002                    |          | 2001          |   | 2000         
|                                    |                                                                                      |                         |          |               |   |              
|                                    |                                                                                      |                         |          | (as adjusted) |   | (as adjusted)
|                                    |                                                                                      |                        
|                                    |                                                                                      | (in thousands)         
|Net Loss                            |                                                                                      | $                       | (102,219 | )             |   | $             | (2,338,730 | )       |   | $ | (666,548 | )       
|                                    |                                                                                      |                         |          |               |   |               |            |         |   |   |          |         
|Other comprehensive loss before tax |                                                                                      |                         |          |               |   |               |            |         |   |   |          |         
|                                    | Unrealized holding losses in available-for-sale
    securities                       |                         |          | (6,875        | ) |               |            | (3,203  | ) |   |          | (188,868 | )
|                                    | Foreign currency translation adjustment                                              |                         |          |              |   |               |            | (292    | ) |   |          | 1,058    |  
|                                    | Reclassification adjustments/realized net gains
    on available-for-sale securities |                         |          | 7,665         |   |               |            | 109,613 |   |   |          | 44,250   |  
|Taxes related to comprehensive loss |                                                                                      |                         |          |               |   |               |            |         |   |   |          |         
|                                    | Unrealized holding losses in available-for-sale
    securities                       |                         |          |              |   |               |            |        |   |   |          | 69,019   |  
|                                    | Reclassification adjustments/realized net gains
    on available-for-sale securities |                         |          |              |   |               |            | (39,553 | ) |   |          | (17,032  | )
|                                    |                                                                                      |                         |          |               |   |               |            |         |   |   |          |         
|Other comprehensive income (loss)   |                                                                                      |                         | 790      |               |   |               | 66,565     |         |   |   | (91,573  | )       
|                                    |                                                                                      |                         |          |               |   |               |            |         |   |   |          |         
|Comprehensive loss                  |                                                                                      | $                       | (101,429 | )             |   | $             | (2,272,165 | )       |   | $ | (758,121 | )       
|                                    |                                                                                      |                         |          |               |   |               |            |         |   |   |          |         

See notes to consolidated financial statements.

43



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##### 



INTERNET CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1. Significant Accounting
Policies

Description
of the Company

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

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



| |                      
| | ---------------------
| | Basis of Presentation

The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. The
Consolidated Statements of Operations and Cash Flows also
include the following majority owned subsidiaries for all or a
portion of the periods indicated, each of which was consolidated
since the date the Company acquired majority control
(collectively, the Consolidated Subsidiaries):

|                       |  |                                                   |  |                       
|---------------------- |  | ------------------------------------------------- |  | ----------------------
|                      
|Year Ended December 31
|                      
|2002                   |  | 2001                                              |  | 2000                  
|                       |  |                                                   |  |                       
|Captive Capital        |  | AssetTrade                                        |  | Animated Images       
|CommerceQuest          |  | Captive Capital                                   |  | AssetTrade            
|eCredit                |  | CommerceQuest                                     |  | Captive Capital       
|FreeBorders            |  | CyberCrop.com, Incorporated
    (CyberCrop.com) |  | CyberCrop.com         
|ICG Commerce           |  | eCredit                                           |  | EmployeeLife.com, Inc.
|OneCoast               |  | Emptoris                                          |  | Emptoris              
|                       |  | eu-Supply.com Svenska AB (eu-Supply)            |  | eu-Supply             
|                       |  | ICG Asia Ltd. (ICG Asia)                        |  | ICG Asia              
|                       |  | ICG Commerce                                      |  | ICG Commerce          
|                       |  | Mesania                                           |  | iParts, Inc.          
|                       |  | MROLink Corporation (MRO Link)                  |  | Mesania               
|                       |  | OneCoast                                          |  | MROLink               
|                       |  | OnMedica                                          |  | OnMedica              
|                       |  | PaperExchange.com                                 |  | PaperExchange.com     
|                       |  | RightWorks                                        |  | RightWorks            
|                       |  |                                                   |  | StarCite              

During 2002, 2001 and 2000, certain Partner
Companies which had been accounted for as consolidated companies
during the year were disposed of, ceased operations or the
Companys ownership decreased to a level which resulted in
deconsolidation during the year.

44



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

1. Significant Accounting
Policies  (Continued)

The Consolidated Balance Sheets include the
following majority owned subsidiaries:

|                |  |                
|--------------- |  | ---------------
|               
|December 31,   
|               
|2002            |  | 2001           
|                |  |                
|Captive Capital |  | Captive Capital
|CommerceQuest   |  | CommerceQuest  
|eCredit         |  | eCredit        
|FreeBorders     |  | Emptoris       
|ICG Commerce    |  | ICG Commerce   
|OneCoast        |  | OneCoast       
|                |  | OnMedica       



| |                                                                          
| | -------------------------------------------------------------------------
| | Principles of Accounting for Ownership
    Interests in Partner Companies

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

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

Equity Method.Partner Companies that are not
consolidated, but over which the Company exercises significant
influence, are accounted for under the equity method of
accounting. Whether or not the Company exercises significant
influence with respect to a Partner Company depends on an
evaluation of several factors including, among others,
representation on the Partner Companys Board of Directors
and ownership level, which is generally a 20% to 50% interest in
the voting securities of the Partner Company, including voting
rights associated with the Companys holdings in common,
preferred and other convertible instruments in the Partner
Company. Under the equity method of accounting, a Partner
Companys accounts are not reflected within the
Companys Consolidated Balance Sheets and Statements of
Operations; however, the Companys share of the earnings or
losses of the Partner Company is reflected in the caption
Equity loss in the Consolidated Statements of
Operations. The carrying value of equity method Partner
Companies is reflected in Ownership interests in Partner
Companies in the Companys Consolidated Balance
Sheets.

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

45



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

1. Significant Accounting
Policies  (Continued)

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

When a cost method Partner Company qualifies for
use of the equity method, the Companys investment is
adjusted retroactively for its share of the past results of its
operations. Therefore, prior losses could significantly decrease
the Companys basis at that time. See discussion in
Prior-period adjustments below.

The Company records its ownership interest in
debt securities of Partner Companies accounted for under the
cost method at cost because it has the ability and intent to
hold these securities until maturity. The Company records its
ownership interest in equity securities of Partner Companies
accounted for under the cost method at cost, unless these
securities have readily determinable fair values based on quoted
market prices, in which case these interests are valued at fair
value and classified as available-for-sale securities or some
other classification in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity
Securities. In addition to the Companys investments
in voting and non-voting equity and debt securities, it also
periodically makes advances to its Partner Companies in the form
of promissory notes which are accounted for in accordance with
SFAS No. 114, Accounting By Creditors for Impairment
of a Loan.



| |                   
| | ------------------
| | Impairment Charges

The Company continually evaluates the carrying
value of its ownership interests in each of its Partner
Companies for possible impairment based on achievement of
business plan objectives and milestones, the value of each
ownership interest in the Partner Company relative to carrying
value, the financial condition and prospects of the Partner
Company, and other relevant factors. The business plan
objectives and milestones the Company considers include, among
others, those related to financial performance such as
achievement of planned financial results or completion of
capital raising activities, and those that are not primarily
financial in nature such as obtaining key business partnerships
or the hiring of key employees.

Impairment Charges are determined by comparing
the estimated fair value of a Partner Company with its carrying
value. Fair value is determined by estimating the cash flows
related to the asset, including estimated proceeds on
disposition. Effective January 1, 2002, the Company adopted
the provisions of SFAS No. 142 Goodwill and other
Intangible Assets. Upon adoption of SFAS No. 142, the
Company was required to reassess the useful lives and residual
values of all intangible assets acquired in purchase business
combinations. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, the Company was
required to test the intangible asset for impairment in
accordance with the provisions of SFAS No. 142 within the
first interim period. No impairment loss was recognized upon
adoption.

The Company operates in an industry that is
rapidly evolving and extremely competitive. Many internet-based
businesses, including some with business models similar to the
Companys Partner Companies, have experienced difficulty in
raising additional capital necessary to fund operating losses
and continued investments that their management teams believe
are necessary to sustain operations. Valuations of public
companies operating in the internet e-commerce sector declined
significantly during 2001 and 2002. In 1999, 2000 and 2001, the
Company announced several significant acquisitions that were
financed principally with shares of the Companys stock
and, based on the price of the Companys stock at that
time, were valued in excess of $1 billion. Based on the
Companys periodic review of its Partner Company holdings,
impairment charges of $43.5 million and $1.3 billion
were recorded in 2002 and 2001, respectively. See Note 2.

46



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

1. Significant Accounting
Policies  (Continued)



| |                    
| | -------------------
| | Revenue Recognition

During 2002 and 2001, the Companys revenues
were primarily attributable to ICG Commerce, OneCoast,
CommerceQuest and eCredit. During 2000, the Companys
revenues were primarily attributable to PaperExchange.com and
RightWorks.

ICG Commerce generates revenue from enabled
sourcing, full service arrangements and managed eProcurement
services. Enabled sourcing revenue includes revenue from
procurement consulting services, auction services and sourcing
programs and is generally recognized as the services are
rendered. In full service arrangements, ICG Commerce assumes all
or a part of the procurement function for a customer. Typically
in these engagements ICG Commerce is paid a fee based on a
percentage of the amount spent by our customers purchasing
department in the specified areas. Managed eProcurement revenue
includes transaction fees, which are typically based on a
percentage of the cost of the items purchased through the
exchange. Because ICG Commerce does not carry inventory risk,
transaction revenue is recorded under the net method. Under this
method, the net transaction fees and not the gross amounts
charged to customers are recorded as revenues.

CommerceQuest and eCredit derive revenue from
software license fees and services. Fees from licenses are
recognized as revenue upon contract execution, provided all
shipment obligations have been met, fees are fixed or
determinable, collection is probable, and vendor-specific
objective evidence exists for the undelivered elements of the
arrangement. Maintenance revenue is recognized ratably over the
term of the maintenance contract. Consulting and training
revenue is recognized when the services are performed.
Implementation fees, which do not relate to software license
fees including start-up fees, are deferred and generally
recognized as revenue on a percentage of completion basis.

OneCoast is a manufacturer representative agency
which solicits sales of gift and home accessories. OneCoast
receives commissions from manufacturers based on sale to retail
distribution channels. Commission revenue is recorded upon
shipment of goods from the manufacturer to the retailer.

PaperExchange.com operated an e-business
marketplace for the pulp and paper industry. PaperExchange.com
acted as a principal or as an agent under agreements with
certain suppliers. The majority of PaperExchange.coms
revenue was the result of arrangements where PaperExchange.com
acted as a principal, took ownership and bore the risk of loss.
An insignificant amount of revenues had been generated from
amounts for which PaperExchange.com acted as an agent. Revenues
were recognized when products were shipped.

RightWorks derived revenue from software license
fees and services. Fees from licenses were recognized as revenue
upon contract execution, provided all shipment obligations had
been met, fees were fixed or determinable, collection was
probable, and vendor-specific objective evidence existed to
allocate the total fee among all elements of the arrangement.
Maintenance revenue was recognized ratably over the term of the
maintenance contract. Consulting and training revenue was
recognized when the services were performed.



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America requires management to make estimates
and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results
could differ from those estimates.

These estimates include evaluation of the
Companys investments in its Partner Companies, investments
in marketable securities, asset impairment, revenue recognition,
income taxes and commitments and contingencies. Certain amounts
recorded to reflect the Companys share of losses of
Partner Companies accounted for under the equity method are
based on unaudited results of operations of those Partner

47



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



1. Significant Accounting
Policies  (Continued)


Companies and may require adjustments in the
future when audits of these entities are made final. It is
reasonably possible that the Companys accounting estimates
with respect to the useful life and ultimate recoverability of
our carrying basis including goodwill in Partner Companies could
change in the near term and that the effect of such changes on
the financial statements could be material. At year end, the
Company believes the recorded amount of carrying basis including
goodwill is not impaired, although there can be no assurance
that the Companys future results will confirm this
assessment, that a significant write-down or write-off of
Partner Company carrying basis including goodwill will not be
required in the future, or that a significant loss will not be
recorded in the future upon the sale of a Partner Company.



| |                          
| | -------------------------
| | Cash and Cash Equivalents

The Company considers all highly liquid
instruments with an original maturity of 90 days or less at
the time of purchase to be cash equivalents. Cash and cash
equivalents at December 31, 2002 and 2001 are invested
principally in money market accounts, certificates of deposit
and commercial paper.



| |                
| | ---------------
| | Restricted Cash

The Company considers cash legally restricted
held as a compensating balances for letter of credit
arrangements as restricted cash. At December 31, 2002 and
2001, restricted cash was held in money market accounts.



| |                              
| | -----------------------------
| | Available-for-Sale Securities

Available-for-sale securities are reported at
fair value, based on quoted market prices, with the net
unrealized gain or loss reported as a component of
Accumulated other comprehensive income (loss) in
stockholders equity.



| |                       
| | ----------------------
| | Short-term Investments

Short-term investments are debt securities
maturing in less than one year and are carried at amortized
cost, which approximates fair value.



| |                      
| | ---------------------
| | Financial Instruments

Cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses are carried at cost which
approximates fair value due to the short-term maturity of these
instruments. The Companys interests in public Partner
Companies accounted for under the equity method of accounting
had a fair value of $12.6 million and $154.8 million
as of December 31, 2002 and December 31, 2001,
respectively, compared to a carrying value of $11.2 million
and $41.0 million, respectively. Available-for-sale
securities are carried at fair value. Long-term debt is carried
at cost, which approximates current market rates. The
Companys convertible subordinated notes had a fair value
of $116.1 million and $187.4 million as of
December 31, 2002 and 2001, respectively, versus a carrying
value of $283.1 million and $446.1 million. Fair value
of the Companys convertible subordinated notes is
determined by obtaining thinly traded market quotes from public
sources.



| |                                 
| | --------------------------------
| | Derivative Financial Instruments

The Company selectively uses derivative financial
instruments, including cashless collar agreements
(Collars) and forward contracts to manage its
exposure to fluctuations in certain of its investments in
publicly held equity securities. The Company has recorded these
investments at their estimated fair market value, with
unrealized gains and losses resulting from changes in fair value
recorded as a component of Accumulated other comprehensive
income (loss) in stockholders equity. Unrealized
gains and losses as a

48



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



1. Significant Accounting
Policies  (Continued)


result of these instruments are recognized in the
Consolidated Statement of Operations when the underlying hedged
item is extinguished or otherwise terminated. The Company does
not hold or issue any derivative financial instruments for
trading purposes and is not a party to leveraged instruments.

The credit risks associated with the
Companys derivative financial instruments are controlled
through the evaluation and monitoring of the creditworthiness of
the counter parties. Although the Company may be exposed to
losses in the event of nonperformance by the counter parties,
the Company does not expect such losses, if any, to be
significant.

Goodwill
and Other Intangibles

Goodwill and other intangibles, net relate to the
Companys acquisitions of its consolidated subsidiaries.
During the years ended 2001 and 2000, goodwill was amortized
over a period of three years and assessed for impairment in
accordance with SFAS No. 121. Effective January 1,
2002, the Company adopted SFAS No. 142 Goodwill and
Other Intangible Assets, and, as a result, the Company no
longer amortizes goodwill and assesses the impairment of
goodwill in accordance with the provisions of SFAS No. 142.
Goodwill associated with the Companys equity method
investments is no longer amortized and continues to be assessed
for impairment under the provisions of Accounting Principles
Board (APB) No. 18 Equity Method
Investments.

Effective January 1, 2002, intangibles
meeting the criteria in SFAS No. 142 for amortizable
intangibles continue to be amortized over their remaining useful
life. Amortization of intangibles not meeting the criteria in
SFAS No. 142 for amortizable intangibles ceased as of
January 1, 2002 and the intangibles are tested for
impairment under the provisions of SFAS No. 142.

Deferred
Revenue

Deferred revenue consists primarily of payments
received in advance of revenue being earned under purchasing
sourcing arrangements, software licensing, software
installation, maintenance agreements and various start up fees.

Research
and Development

Research and development costs are charged to
expense as incurred.

Income
Taxes

Income taxes are accounted for under the asset
and liability method whereby deferred tax assets and liabilities
are recognized for the estimated future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which
the temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.

Net
Loss Per Share

Basic net loss per share (EPS) is computed
using the weighted average number of common shares outstanding
during each period. Diluted EPS includes common stock
equivalents, unless anti-dilutive, that would arise from the
exercise of stock options and conversion of other convertible
securities and is adjusted, if applicable, for the effect on net
income (loss) of such transactions. If a consolidated or
equity method Partner Company has dilutive options or securities
outstanding, diluted net income per share is computed by

49



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

1. Significant Accounting
Policies  (Continued)

deducting from income (loss) from
continuing operations the income attributable to the potential
exercise of the dilutive options or securities of the Partner
Company.

As the Company has incurred losses for the years
ended December 31, 2002, 2001 and 2000, the effect of
diluted securities are not included as they would be
anti-dilutive.

Issuances
of Stock By Partner Companies

At the time a Partner Company accounted for under
the consolidation or equity method of accounting issues its
common stock at a price different from the Partner
Companys book value per share, the Companys share of
the Partner Companys net equity changes and the Company
adjusts the basis in the Partner Company accordingly. If at that
time, the Partner Company is not a newly-formed, non-operating
entity, nor a research and development, start-up or development
stage company, nor is there question as to the Companys
ability to continue in existence, the Company records the change
in its share of the Partner Companys net equity as a gain
or loss in our Consolidated Statements of Operations. See
Note 18.

Foreign
Currency Translation

The functional currency for the Companys
foreign subsidiaries is the local currency of the country in
which it operates. Assets and liabilities are translated using
the exchange rate at the balance sheet date. Revenue, expenses,
gains and losses are translated at the average exchange rate in
the month those elements are recognized. Translation
adjustments, which have not been material to date, are included
in Other comprehensive income (loss) in our Consolidated
Statements of Comprehensive Loss.

Stock
Based Compensation

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

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure 
an amendment of FASB Statement No. 123, which
provides optional transition guidance for those companies
electing to voluntarily adopt the accounting provisions of SFAS
No. 123. In addition, the statement mandates certain new
disclosures that are incremental to those required by SFAS
No. 123. The Company will continue to account for
stock-based compensation in accordance with APB No. 25. As
such, the Company does not expect this standard to have a
material impact on its consolidated financial position or
results of operations. The Company has adopted the
disclosure-only provisions of SFAS No. 148 at
December 31, 2002.

Had compensation cost been recognized pursuant to
SFAS No. 148, the Companys net loss would have been
as follows (unaudited):

50



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

1. Significant Accounting
Policies  (Continued)

|                                                                                                                                    |  |                         |          |      |  |      |            |   |  |   |          |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | ---- |  | ---- | ---------- | - |  | - | -------- | -
|                                                                                                                                    |  |                        
|                                                                                                                                    |  | Year Ended December 31,
|                                                                                                                                    |  |                        
|                                                                                                                                    |  | 2002                    |          | 2001 |  | 2000
|                                                                                                                                    |  |                         |          |      |  |     
|                                                                                                                                    |  |                        
|                                                                                                                                    |  | (in thousands)         
|Net loss, as reported                                                                                                               |  | $                       | (102,219 | )    |  | $    | (2,338,730 | ) |  | $ | (666,548 | )
|Add stock-based employee compensation expense
    included in reported net loss, net of tax                                         |  |                         | 13,128   |      |  |      | 29,103     |   |  |   | 25,747   |  
|Deduct total stock-based employee compensation
    expense determined under fair-value-based method for all
    rewards, net of tax |  |                         | (37,282  | )    |  |      | (49,694    | ) |  |   | (210,787 | )
|                                                                                                                                    |  |                         |          |      |  |      |            |   |  |   |          |  
|Pro forma net loss                                                                                                                  |  | $                       | (126,373 | )    |  | $    | (2,359,321 | ) |  | $ | (851,588 | )
|                                                                                                                                    |  |                         |          |      |  |      |            |   |  |   |          |  
|Net loss per share, as reported                                                                                                     |  | $                       | (0.38    | )    |  | $    | (8.40      | ) |  | $ | (2.42    | )
|Pro forma net loss per share                                                                                                        |  | $                       | (0.47    | )    |  | $    | (8.48      | ) |  | $ | (3.10    | )

The per share weighted-average fair value of
options issued by the Company during 2002, 2001 and 2000 was
$0.41, $1.20 and $33.89, respectively.

The following assumptions were used to determine
the fair value of stock options granted to employees by the
Company through December 31, 2002:

|                             |  |           
|---------------------------- |  | ----------
|Volatility                   |  | 96-156.5% 
|Average expected option life |  | 5 years   
|Risk-free interest rate      |  | 2.87-6.74%
|Dividend yield               |  | 0.0%      

The Company also includes its share of its
Partner Companies SFAS No. 148 pro forma expense in the
Companys SFAS No. 148 pro forma expense. The methods
used by the Partner Companies included the minimum value method
for private Partner Companies and the Black-Scholes method for
public Partner Companies.

Comprehensive
Income (Loss)

The Company reports and displays comprehensive
income (loss) and its components in the Consolidated Statements
of Comprehensive Income (Loss). Comprehensive income (loss) is
the change in equity of a business enterprise during a period
from non-owner sources. Excluding net income (loss), the
Companys sources of comprehensive income (loss) are from
net unrealized appreciation on its available-for-sale securities
and foreign currency translation adjustments; such translation
adjustments have been negligible to date. Reclassification
adjustments result from the recognition in net income of gains
or losses that were included in comprehensive income (loss) in
prior periods.

Prior-period
adjustments

In accordance with generally accepted accounting
principles, the Company has retroactively adjusted the prior
periods to reflect the impact of a change in accounting for the
Companys ownership in Jamcracker from the cost method of
accounting to the equity method of accounting. See Note 2.

Reclassifications

Certain prior year amounts have been reclassified
to conform with the current year presentation. The impact of
these changes is not material and did not affect net income
(loss).

51



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##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

1. Significant Accounting
Policies  (Continued)

Recent
Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 143,
Accounting for Asset Retirement Obligations. SFAS
No. 143, which addresses accounting and reporting for
obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs is
effective for fiscal years beginning after June 15, 2002.
The Company does not expect the adoption of this new standard to
have a material impact on its results of operations or financial
position.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which supersedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and certain portions
of Accounting Principles Board Opinion No. 30,
Reporting the Results of Operations  Reporting
the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. SFAS No. 144 provides updated guidance
concerning the recognition and measurement of an impairment loss
for certain types of long-lived assets, and requires that
long-lived assets to be disposed of by sale be measured at the
lower of the carrying amount or fair value less cost to sell,
and reported separately in the assets and liabilities sections
of the consolidated balance sheet. SFAS No. 144 also
expands the reporting of discontinued operations to include
components of an entity that have been or will be disposed of.
The scope of SFAS No. 144 excludes long-lived assets,
goodwill and other intangibles that are accounted for in
accordance with SFAS No. 142. The adoption of SFAS
No. 144, as of January 1, 2002, impacted the
Companys consolidated results of operations and statements
of cash flows with the sale of assets related to two of the
Companys partner companies, Delphion and Logistics. See
Note 9.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections, which is effective for fiscal years beginning
after May 15, 2002. This statement rescinds the indicated
statements and amends other existing pronouncements to make
various technical corrections, clarify meanings, or describe
their applicability under changed conditions. SFAS No. 145
encourages early adoption of the provision of this standard that
rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishments of Debt. Accordingly, the Company elected
to early adopt this provision during the second quarter of
fiscal 2002. The Company reclassified extraordinary gains
related to the early retirement of debt to Other Income
(Expense) in the Consolidated Statements of Operations during
the year ended December 31, 2001. The adoption of the
remaining provisions of this new standard did not have a
material impact on the Companys results of operations or
financial position.

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

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which is effective for exit or disposal
activities that are initiated after December 31, 2002. This
statement nullifies Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructur-

52



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

1. Significant Accounting
Policies  (Continued)

ing). This statement requires that
liabilities associated with exit or disposal activities
initiated after adoption be recognized and measured at fair
value when incurred as opposed to at the date an entity commits
to the exit or disposal plans. The Company expects the adoption
of this new standard to have an impact on the timing of any
future restructuring charges.

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

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

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

2. Acquisitions and
impairments/dispositions of ownership interests in Partner
Companies

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

|                                                            |  |                |        |      |  |   |         | 
|----------------------------------------------------------- |  | -------------- | ------ | ---- |  | - | ------- | 
|                                                            |  |               
|                                                            |  | December 31,  
|                                                            |  |               
|                                                            |  | 2002           |        | 2001
|                                                            |  |                |        |     
|                                                            |  |               
|                                                            |  | (in thousands)
|Goodwill                                                    |  | $              | 61,938 |      |  | $ | 55,806  | 
|Other intangibles                                           |  |                | 16,728 |      |  |   | 29,090  | 
|                                                            |  |                |        |      |  |   |         | 
|                                                            |  | $              | 78,666 |      |  | $ | 84,896  | 
|                                                            |  |                |        |      |  |   |         | 
|Ownership interest in Partner
    Companies  Equity Method |  | $              | 58,822 |      |  | $ | 152,240 | 
|Ownership interests in Partner
    Companies  Cost Method  |  |                | 12,910 |      |  |   | 27,147  | 
|                                                            |  |                |        |      |  |   |         | 
|                                                            |  | $              | 71,732 |      |  | $ | 179,387 | 
|                                                            |  |                |        |      |  |   |         | 

53



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2. Acquisitions and
impairments/dispositions of ownership interests in Partner
Companies  (Continued)

|                     |  |                              |  |                         |        |      |  |      |           |  |  |   |         | 
|-------------------- |  | ---------------------------- |  | ----------------------- | ------ | ---- |  | ---- | --------- |  |  | - | ------- | 
|                     |  |                              |  |                        
|                     |  |                              |  | Impairments            
|                     |  | Statements of                |  | Year Ended December 31,
|                     |  | Operations                   |  |                        
|                     |  | Presentation                 |  | 2002                    |        | 2001 |  | 2000
|                     |  |                              |  |                         |        |      |  |     
|                     |  |                              |  |                        
|                     |  |                              |  | (in thousands)         
|Consolidation Method |  | Impairment related and other |  | $                       |       |      |  | $    | 770,535   |  |  | $ | 134,925 | 
|Equity Method        |  | Equity loss                  |  |                         | 29,498 |      |  |      | 440,484   |  |  |   | 157,768 | 
|Cost Method          |  | Other income (loss), net     |  |                         | 13,992 |      |  |      | 64,922    |  |  |   | 55,904  | 
|                     |  |                              |  |                         |        |      |  |      |           |  |  |   |         | 
|                     |  |                              |  | $                       | 43,490 |      |  | $    | 1,275,941 |  |  | $ | 348,597 | 
|                     |  |                              |  |                         |        |      |  |      |           |  |  |   |         | 

Consolidated
Companies  Acquisitions

During 2002 and 2001, the Company completed
acquisitions of new or follow-on majority ownership positions in
Partner Companies, which were accounted for under the purchase
method of accounting. The purchase price, including the carrying
value of the ownership interest for Partner Companies previously
accounted for under the equity method, have been allocated to
the assets and the liabilities based upon their fair values at
the date of the acquisition. The results of operations of each
acquisition are included in the Companys Consolidated
Statements of Operations from the date of each acquisition. The
assets and liabilities for these acquisitions were allocated as
follows:

|                  |  |                    |        |                 |  |                    |        |   |  |   |        |  
|----------------- |  | ------------------ | ------ | --------------- |  | ------------------ | ------ | - |  | - | ------ | -
|                  |  | Goodwill and Other |        | Working Capital |  | Other Assets      
|                  |  | Intangible Assets  |        | (Deficit)       |  | (Liabilities), Net
|                  |  |                    |        |                 |  |                   
|                  |  |                   
|                  |  | (in thousands)    
|2002 Acquisitions |  |                    |        |                 |  |                    |        |   |  |   |        |  
|FreeBorders       |  | $                  | 1,375  |                 |  | $                  | 625    |   |  | $ |       |  
|CommerceQuest     |  | $                  | 6,500  |                 |  | $                  | 1,500  |   |  | $ |       |  
|ICG Commerce      |  | $                  | 7,500  |                 |  | $                  | 18,500 |   |  | $ |       |  
|2001 Acquisitions |  |                    |        |                 |  |                    |        |   |  |   |        |  
|CommerceQuest     |  | $                  | 44,047 |                 |  | $                  | 1,014  |   |  | $ | (8,998 | )
|OneCoast          |  | $                  | 20,354 |                 |  | $                  | (3,143 | ) |  | $ | (8,704 | )
|eCredit           |  | $                  | 11,097 |                 |  | $                  | (1,377 | ) |  | $ | 7,183  |  

Presented below is unaudited selected pro forma
financial information for the years ended December 31, 2002
and 2001 as if the acquired Partner Companies accounted for
under the consolidation method were included in the financial
statements as consolidated subsidiaries for the entire periods
presented. The unaudited selected financial information may not
be indicative of the actual results that would have occurred had
the acquisitions been consummated at the beginning of the period
presented and is not intended to be a projection of future
results.

|                                     |  |                         |          |               |  |   |            |  
|------------------------------------ |  | ----------------------- | -------- | ------------- |  | - | ---------- | -
|                                     |  |                        
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 2002                    |          | 2001         
|                                     |  |                         |          |              
|                                     |  |                         |          | (as adjusted)
|                                     |  |                        
|                                     |  | (in thousands)         
|Revenue                              |  | $                       | 114,293  |               |  | $ | 120,733    |  
|Net loss                             |  | $                       | (107,634 | )             |  | $ | (2,371,546 | )
|Basic and Diluted Net Loss per share |  | $                       | (0.40    | )             |  | $ | (8.52      | )

Consolidated
Companies  Impairments

In June 2000, the Company acquired a controlling
interest in RightWorks for 5,892,048 shares of the
Companys common stock valued at $754 million
($128 per share) and $22 million in cash. On
March 8,

54



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2. Acquisitions and
impairments/dispositions of ownership interests in Partner
Companies  (Continued)

2001, the Company announced the merger of
RightWorks with i2 Technologies. Based on the closing price
of i2 Technologies stock at the date of the announcement
($21.43 per share), the Company recorded a non-cash,
pre-tax loss of approximately $672.3 million. At
March 8, 2001, all of RightWorks long-term net assets
were classified as assets held for sale. As of March 31,
2001, i2 Technologies stock had declined significantly resulting
in revaluation of the assets held for sale and an additional
loss of $26.9 million or a total loss on sale of
$699.2 million. On August 23, 2001, the merger closed
and the Company received approximately 4.5 million shares
of i2 Technologies common stock.

In May 2000, the Company acquired a controlling
interest in Harbour Ring International Holdings Limited, a
listed company on the Hong Kong Stock Exchange which was renamed
ICG Asia, for $116.5 million in cash. In June 2001, the
Company agreed to sell its stake in ICG Asia to Asian
conglomerate Hutchison Whampoa Limited and Reading Investments
Limited for $98.6 million, which included proceeds from the
sale of the Companys subsidiary in Japan to ICG Asia, and
recorded a net loss on sale of $15.2 million.

In September 2000, after the Company acquired a
controlling interest in PaperExchange.com for
4,864,221 shares of the Companys common stock valued
at $165.8 million, the plans to develop relationships with
an existing paper consortium and exploit relationships with
certain strategic partners deteriorated and the Chief Executive
Officer of PaperExchange.com resigned. The impairment charge of
$128.2 million was based on the estimated fair value of
PaperExchange.com, which was determined by estimating the
discounted future cash flows of the Company including the
estimated proceeds upon disposition. PaperExchange.com ceased
operations and filed for Chapter 7 bankruptcy in 2001.

Also included in Impairment related and
other are other impairment charges of $56.1 million
and $6.7 million, for the years ended December 31,
2001 and 2000, respectively related to five other consolidated
Partner Companies for which the Company had determined that it
will not be able to recover its full investment. Additionally,
during the year ended December 31, 2002, our consolidated
Partner Companies recorded impairment charges, principally
related to other intangibles, of approximately $2.4 million.

Equity
Method Companies  Acquisitions

The Companys original cost basis of Partner
Companies accounted for under the equity method was
$822.5 million and $859.7 million at December 31,
2002 and 2001, respectively. The excess of the Companys
carrying value in the ownership interests in these Partner
Companies over its share of their net equity resulted in
amortization of $141.3 million and $299.3 million for
the years ended December 31, 2001 and 2000, respectively.

The Companys ownership in a Core partner
company increased from 8% at December 31, 2001 to 21% at
March 31, 2002. In accordance with Generally Accepted
Accounting Principles, the Company has retroactively adjusted
the prior periods to reflect the impact of a change in
accounting for the Companys ownership in this company from
the cost method of accounting to the equity method of
accounting. Equity loss was increased by $9.6 million and
$6.6 million to reflect the Companys loss for the
years ended December 31, 2001 and 2000, respectively, as if
this partner company was accounted for as an equity method
company.

The following unaudited summarized financial
information for Partner Companies accounted for under the equity
method of accounting at December 31, 2002 and 2001 has been
compiled from the financial statements of the respective Partner
Companies.

55



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2. Acquisitions and
impairments/dispositions of ownership interests in Partner
Companies  (Continued)

Balance
Sheets

|                        |                                            |                    |         |               |  |   |         |         | 
|----------------------- | ------------------------------------------ | ------------------ | ------- | ------------- |  | - | ------- | ------- | 
|                        |                                            |                   
|                        |                                            | As of December 31,
|                        |                                            |                   
|                        |                                            | 2002               |         | 2001         
|                        |                                            |                    |         |              
|                        |                                            |                    |         | (as adjusted)
|                        |                                            |                   
|                        |                                            | (in thousands)    
|Current assets          |                                            | $                  | 203,954 |               |  | $ | 471,160 |        
|Non-current assets      |                                            |                    | 152,912 |               |  |   | 463,945 |        
|                        |                                            |                    |         |               |  |   |         |        
|                        | Total assets                               |                    | $       | 356,866       |  |   | $       | 935,105 | 
|                        |                                            |                    |         |               |  |   |         |        
|Current liabilities     |                                            | $                  | 136,732 |               |  | $ | 308,551 |        
|Non-current liabilities |                                            |                    | 76,759  |               |  |   | 137,582 |        
|Stockholders equity    |                                            |                    | 143,375 |               |  |   | 488,972 |        
|                        |                                            |                    |         |               |  |   |         |        
|                        | Total liabilities and Stockholders equity |                    | $       | 356,866       |  |   | $       | 935,105 | 
|                        |                                            |                    |         |               |  |   |         |        

Results
of Operations

|         |  |                         |          |               |  |               |            |   |  |   |            |  
|-------- |  | ----------------------- | -------- | ------------- |  | ------------- | ---------- | - |  | - | ---------- | -
|         |  |                        
|         |  | Year Ended December 31,
|         |  |                        
|         |  | 2002                    |          | 2001          |  | 2000         
|         |  |                         |          |               |  |              
|         |  |                         |          | (as adjusted) |  | (as adjusted)
|         |  |                        
|         |  | (in thousands)         
|Revenue  |  | $                       | 391,991  |               |  | $             | 1,778,900  |   |  | $ | 1,150,258  |  
|Net loss |  | $                       | (225,137 | )             |  | $             | (1,564,427 | ) |  | $ | (1,594,498 | )

Equity
Method Companies  Impairments

In June 2000, the Company acquired a 39% interest
in eCredit for 4,655,558 shares of the Companys
common stock valued at $424.7 million or approximately $91
per share. The Company increased its interest in eCredit to
approximately 42% for an additional $25.6 million in cash
and notes through the remainder of 2000. In accordance with its
accounting policy, the Company determined that it was necessary
to record an impairment charge of $367.5 million as of
March 31, 2001. The impairment charge was based on the
estimated current fair value of eCredit, which was determined by
estimating the Companys future discounted cash flows
related to eCredit including the estimated proceeds upon
disposition.

In December 1999, the Company acquired an
ownership interest in MetalSite, Inc.
(MetalSite) for the companys common stock
valued at $150 million (approximately $176 per share) and
cash of $30 million. During the fourth quarter of 2000, the
Company determined that there was an other than temporary
decline in the fair value of MetalSite and recorded an
impairment charge of $112.7 million, in accordance with its
accounting policy.

In addition to the equity impairments noted
above, the Company also recorded impairment charges during the
years ended December 31, 2002, 2001 and 2000 of
$29.5 million, $73.0 million and $45.1 million,
respectively, related to thirteen other equity method Partner
Companies of which eleven have been subsequently disposed of or
ceased operations. The impairment charges of these equity method
companies have been included in the Companys Consolidated
Statement of Operations as Equity loss.

Cost
Method Companies  Impairments

The Companys original cost basis of Partner
Companies accounted for by the cost method was
$39.3 million and $74.8 million at December 31,
2002 and 2001, respectively.

56



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2. Acquisitions and
impairments/dispositions of ownership interests in Partner
Companies  (Continued)

The Company recorded $14.0 million,
$64.9 million and $55.9 million in impairment charges
during the years ended December 31, 2002, 2001 and 2000,
respectively, related to cost method Partner Companies for which
it has been determined that the Company will not be able to
recover its full investment.

3. Goodwill and Other Intangible
Assets

Effective January 1, 2002, the Company
adopted SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS No. 142 no longer permits the
amortization of goodwill and indefinite-lived intangible assets.
Instead, these assets must be reviewed annually for impairment
in accordance with this statement. Accordingly, the Company
ceased amortization of all goodwill and indefinite-lived
intangible assets as of January 1, 2002. During the first
quarter of 2002, the Company completed the transitional
impairment test of other intangible assets, which indicated that
the Companys other intangible assets were not impaired.
During the second quarter of 2002, the Company completed the
transitional impairment test of goodwill, which indicated that
the Companys goodwill was not impaired. As of
December 31, 2002, goodwill was allocated to the
Companys segments as follows: Core 
$60.8 million; Emerging $1.1 million.
Amortizable intangible assets as of December 31, 2002 and
2001 of $16.0 million and $28.3 million, respectively,
are included in other assets in the Companys Consolidated
Balance Sheets. Unamortizable intangible assets of
$0.8 million and $0.8 million, as of December 31,
2002 and 2001, respectively, are included in other assets in the
Companys Consolidated Balance Sheets. Other intangible
assets that meet the new criteria continue to be amortized over
their useful lives as shown in the table below.

|                              |  |        |           |                         |  |              |        |              |  |   |         |   |  |   |        | 
|----------------------------- |  | ------ | --------- | ----------------------- |  | ------------ | ------ | ------------ |  | - | ------- | - |  | - | ------ | 
|                              |  |        |           |                        
|                              |  |        |           | As of December 31, 2002
|                              |  |        |           |                        
|                              |  | Useful |           | Gross Carrying          |  | Accumulated  |        | Net Carrying
|Amortizable Intangible Assets |  | Life   |           | Amount                  |  | Amortization |        | Amount      
|                              |  |        |           |                         |  |              |        |             
|                              |  |        |           |                        
|                              |  |        |           | (in thousands)         
|Customer Base                 |  |        | 3-5 years |                         |  | $            | 15,540 |              |  | $ | (7,051  | ) |  | $ | 8,489  | 
|Technology                    |  |        | 3-5 years |                         |  |              | 20,890 |              |  |   | (13,397 | ) |  |   | 7,493  | 
|                              |  |        |           |                         |  |              |        |              |  |   |         |   |  |   |        | 
|                              |  |        |           |                         |  | $            | 36,430 |              |  | $ | (20,448 | ) |  | $ | 15,982 | 
|                              |  |        |           |                         |  |              |        |              |  |   |         |   |  |   |        | 

|              |  |        |           |                         |  |              |        |              |  |   |        |   |  |   |        | 
|------------- |  | ------ | --------- | ----------------------- |  | ------------ | ------ | ------------ |  | - | ------ | - |  | - | ------ | 
|              |  |        |           |                        
|              |  |        |           | As of December 31, 2001
|              |  |        |           |                        
|              |  | Useful |           | Gross Carrying          |  | Accumulated  |        | Net Carrying
|              |  | Life   |           | Amount                  |  | Amortization |        | Amount      
|              |  |        |           |                         |  |              |        |             
|Customer Base |  |        | 3-5 years |                         |  | $            | 16,640 |              |  | $ | (2,275 | ) |  | $ | 14,365 | 
|Technology    |  |        | 3-5 years |                         |  |              | 20,148 |              |  | $ | (6,173 | ) |  |   | 13,975 | 
|              |  |        |           |                         |  |              |        |              |  |   |        |   |  |   |        | 
|              |  |        |           |                         |  | $            | 36,788 |              |  | $ | (8,448 | ) |  | $ | 28,340 | 
|              |  |        |           |                         |  |              |        |              |  |   |        |   |  |   |        | 

Amortization expense for intangible assets that
meet the new criteria during years ended December 31, 2002
and 2001 was $12.0 million and $6.1 million,
respectively. Additionally, there was amortization expense
related to pre SFAS No. 142 goodwill and intangibles in the
years ended December 31, 2001 and 2000 of
$119.8 million and $239.8 million, respectively.

Estimated amortization expense for the five
succeeding fiscal years ended is as follows (in thousands):

|                                 |  |   |       | 
|-------------------------------- |  | - | ----- | 
|December 31, 2003                |  | $ | 9,755 | 
|December 31, 2004                |  | $ | 4,364 | 
|December 31, 2005                |  | $ | 1,737 | 
|December 31, 2006                |  | $ | 126   | 
|December 31, 2007 and thereafter |  | $ |      | 

57



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

3. Goodwill and Other Intangible
Assets  (Continued)

The following table reconciles the
reported net loss to the as adjusted net
loss after adding pre SFAS No. 142 goodwill and intangibles
amortization back to the net loss and net loss per share for the
years ended December 31, 2002 and 2001:

|                                           |  |                               |          |               |  |   |            |  
|------------------------------------------ |  | ----------------------------- | -------- | ------------- |  | - | ---------- | -
|                                           |  |                              
|                                           |  | Year Ended December 31,      
|                                           |  |                              
|                                           |  | 2002                          |          | 2001         
|                                           |  |                               |          |              
|                                           |  |                               |          | (as adjusted)
|                                           |  |                              
|                                           |  | (in thousands, except for per
|                                           |  | share data)                  
|Reported net loss                          |  | $                             | (102,219 | )             |  | $ | (2,338,730 | )
|Amortization of goodwill                   |  |                               |         |               |  |   | 119,740    |  
|Equity loss  goodwill amortization        |  |                               |         |               |  |   | 125,735    |  
|                                           |  |                               |          |               |  |   |            |  
|Adjusted loss                              |  | $                             | (102,219 | )             |  | $ | (2,093,255 | )
|                                           |  |                               |          |               |  |   |            |  
|Basic and diluted income (loss) per share: |  |                               |          |               |  |   |            |  
|Reported                                   |  | $                             | (0.38    | )             |  | $ | (8.40      | )
|Amortization of goodwill                   |  |                               |         |               |  |   | 0.43       |  
|Equity loss  goodwill amortization        |  |                               |         |               |  |   | 0.45       |  
|                                           |  |                               |          |               |  |   |            |  
|Adjusted net loss per share                |  | $                             | (0.38    | )             |  | $ | (7.52      | )
|                                           |  |                               |          |               |  |   |            |  

4. Derivative Financial
Instruments

In September 2001, the Company entered into a
variable share forward contract to hedge 1.8 million shares
of its holdings of i2 Technologies common stock. At
December 31, 2001, approximately 0.5 million shares
were held in escrow. These shares were released to the Company
in 2002, are still held and have not been hedged. At
December 31, 2002 and 2001, the Companys holdings of
i2 Technologies and related forward contract was valued at
$10.1 million and $16.1 million, respectively. Based
on the terms of the contract, the i2 Technologies forward
contract and related shares will be worth a minimum of
$9.7 million or $5.38 per share and a maximum of
$20.2 million or $11.23 per share at maturity in September
2003. The forward contract limits the Companys exposure to
and benefits from price fluctuations in the underlying equity
securities. The Company has designated the forward contract as a
cash flow hedge and recorded the forward contract at its
estimated fair value, with unrealized gains and losses resulting
from changes in fair value recorded as a component of
Accumulated other comprehensive loss and changes due
to the ineffectiveness of these instruments in Other
income (loss), net. Unrealized gains and losses as a
result of these instruments are recognized in the Consolidated
Statements of Operations when the underlying hedged item is
extinguished or otherwise terminated.

The adoption of SFAS No. 133 resulted in
recording $7.9 million of decline in fair value of warrants
held in Partner Companies to Cumulative effect of change
in accounting principle in the Consolidated Statement of
Operations as of January 1, 2001. The fair value of
warrants held in Partner Companies was $53.7 million on
January 1, 2001. Estimated losses on the fair value of all
outstanding warrants for years ended December 31, 2002 and
2001, was approximately $0.9 million and
$53.9 million, respectively. The Company acquired warrants
which had a value of $13.1 million and disposed of warrants
which had a value of $6.4 million during the year ended
December 31, 2001. The Company exercised warrants which had
a value of $0.4 million and $4.4 million during the
years ended December 31, 2002 and 2001, respectively. The
estimated fair value of warrants held in Partner Companies was
approximately $0.8 million and $2.1 million at
December 31, 2002 and 2001, respectively.

58



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##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

5. Available-for-Sale
Securities

Available-for-sale securities represent the
Companys holdings in marketable equity securities and
related hedge. The cost, unrealized holding gains/(losses), and
fair value of available-for-sale securities at December 31,
2002 and 2001 were as follows:

|                        |  |                |        |                    |  |            |      |   |  |   |        | 
|----------------------- |  | -------------- | ------ | ------------------ |  | ---------- | ---- | - |  | - | ------ | 
|                        |  |                |        | Unrealized Holding |  |           
|                        |  | Cost           |        | Gains/(Losses)     |  | Fair Value
|                        |  |                |        |                    |  |           
|                        |  |               
|                        |  | (in thousands)
|2002                    |  |                |        |                    |  |            |      |   |  |   |        | 
|i2 Technologies         |  | $              | 9,763  |                    |  | $          | 377  |   |  | $ | 10,140 | 
|divine                  |  |                | 166    |                    |  |            | (78  | ) |  |   | 88     | 
|                        |  |                |        |                    |  |            |      |   |  |   |        | 
|                        |  | $              | 9,929  |                    |  | $          | 299  |   |  | $ | 10,228 | 
|                        |  |                |        |                    |  |            |      |   |  |   |        | 
|2001                    |  |                |        |                    |  |            |      |   |  |   |        | 
|i2 Technologies         |  | $              | 15,791 |                    |  | $          | 287  |   |  | $ | 16,078 | 
|divine                  |  |                | 2,033  |                    |  |            | (996 | ) |  |   | 1,037  | 
|Other equity securities |  |                | 56     |                    |  |            | 218  |   |  |   | 274    | 
|                        |  |                |        |                    |  |            |      |   |  |   |        | 
|                        |  | $              | 17,880 |                    |  | $          | (491 | ) |  | $ | 17,389 | 
|                        |  |                |        |                    |  |            |      |   |  |   |        | 

6. Debt

In December 1999, the Company issued
$566.3 million of convertible subordinated notes. The notes
bear interest at an annual rate of 5.5% and mature in December
2004. The notes are convertible at the option of the holder, at
any time on or before maturity into shares of the Companys
common stock at a conversion price of $127.44 per share, which
is equal to a conversion rate of 7.8468 shares per $1,000
principal of notes. Additionally, the notes may be redeemed by
the Company if the Companys closing stock price exceeds
150% of the conversion price then in effect for at least 20
trading days within a period of 30 consecutive trading days. The
conversion rate is subject to adjustment.

In 2002 and 2001, the Company purchased and
extinguished $163.0 million and $120.2 million face
value of convertible subordinated notes for $48.8 million
and $35.5 million in cash, respectively. The purchases
resulted in a gain, net of expenses from the extinguishments in
the amounts of $111 million and of $81 million,
respectively, that were included in Other income
(expense), net in the Companys Consolidated
Statement of Operations.

The Company recorded interest expense of
$20.0 million and $29.7 million relating to these
notes during the years ended December 31, 2002 and 2001,
respectively, with interest payments due semi-annually through
December 21, 2004. Issuance costs of $18.3 million
have been recorded in other assets and are being amortized as
interest expense over the term of the notes using the effective
interest method. In connection with the Companys early
extinguishments of debt in 2002 and 2001, approximately
$4.9 million of these issuance costs was immediately
expensed and included in the computation of the gain. As of
December 31, 2002, the remaining balance of these issuance
costs is approximately $3.3 million and is included in
other assets in the Companys Consolidated Balance Sheets.

Loan
and Credit Agreements

On September 30, 2002, the Company entered
into a loan agreement with Comerica Bank to provide for the
issuance of letters of credit (the Loan Agreement).
The Loan Agreement provides for issuances of letters of credit
up to $20 million subject to a cash-secured borrowing base
as defined by the Loan Agreement. Issuance fees of 0.50% per
annum of the face amount of each letter of credit will be paid
to Comerica Bank subsequent to issuance. The Loan Agreement also
is subject to a 0.25% per annum unused commitment fee

59



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##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



6. Debt  (Continued)


payable to the bank quarterly. As of
December 31, 2002, $5.9 million in letters of credit
were outstanding under the loan agreement and amounts secured
under the Loan Agreement is included in Restricted
Cash on the Companys Consolidated Balance Sheets. As
of December 31, 2001, $8.6 million in letters of
credit from the Companys previous credit facility were
outstanding under the previous agreement and was reported as
Restricted Cash on the Companys Consolidated
Balance Sheets.

Other
Long-Term Debt

The Companys long-term debt at
December 31, 2002 of $19.6 million relates to its
Consolidated Partner Companies, and primarily consists of
secured notes due to stockholders and outside lenders of
CommerceQuest, FreeBorders, OneCoast and capital lease
commitments. $3.3 million of this debt is secured by cash
collateral, which is included in Restricted Cash on
the Companys Consolidated Balance Sheets.

|                   |  |                |                |                    |  |      |         |   |  |   |         |  
|------------------ |  | -------------- | -------------- | ------------------ |  | ---- | ------- | - |  | - | ------- | -
|                   |  |                |                |                   
|                   |  |                |                | As of December 31,
|                   |  |                |                |                   
|                   |  | Interest Rates |                | 2002               |  | 2001
|                   |  |                |                |                    |  |     
|Bank Debt          |  |                | Prime + 1.75%  |                    |  | $    | 3,300   |   |  | $ | 3,250   |  
|Notes payable      |  |                | 4.25% - 40.51% |                    |  |      | 15,567  |   |  |   | 23,208  |  
|Capital leases     |  |                | 12.0% - 14.39% |                    |  |      | 780     |   |  |   | 1,343   |  
|                   |  |                |                |                    |  |      |         |   |  |   |         |  
|                   |  |                |                |                    |  |      | 19,647  |   |  |   | 27,801  |  
|Current maturities |  |                |                |                    |  |      | (11,728 | ) |  |   | (17,156 | )
|                   |  |                |                |                    |  |      |         |   |  |   |         |  
|Long term debt     |  |                |                |                    |  | $    | 7,919   |   |  | $ | 10,645  |  
|                   |  |                |                |                    |  |      |         |   |  |   |         |  

Aggregate maturities for long-term debt at
December 31, 2002 are $11.7 million in 2003,
$7.1 million in 2004 and $0.8 million in 2005.

7. Fixed Assets

|                                                                    |  |             |              |                    |  |      |         |   |  |   |         |  
|------------------------------------------------------------------- |  | ----------- | ------------ | ------------------ |  | ---- | ------- | - |  | - | ------- | -
|                                                                    |  |             |              |                   
|                                                                    |  |             |              | As of December 31,
|                                                                    |  |             |              |                   
|                                                                    |  | Useful Life |              | 2002               |  | 2001
|                                                                    |  |             |              |                    |  |     
|                                                                    |  |             |              |                   
|                                                                    |  |             |              | (in thousands)    
|Computer equipment and software, office equipment
    and furniture |  |             | 3 - 10 years |                    |  | $    | 35,947  |   |  | $ | 38,438  |  
|Leasehold improvements                                              |  |             | 1 - 7 years  |                    |  |      | 6,753   |   |  |   | 6,116   |  
|                                                                    |  |             |              |                    |  |      |         |   |  |   |         |  
|                                                                    |  |             |              |                    |  |      | 42,700  |   |  |   | 44,554  |  
|Less: accumulated depreciation and amortization                     |  |             |              |                    |  |      | (32,408 | ) |  |   | (23,819 | )
|                                                                    |  |             |              |                    |  |      |         |   |  |   |         |  
|                                                                    |  |             |              |                    |  | $    | 10,292  |   |  | $ | 20,735  |  
|                                                                    |  |             |              |                    |  |      |         |   |  |   |         |  

Depreciation expense for the years ended
December 31, 2002, 2001 and 2000 was $9.8 million,
$18.3 million and $6.7 million, respectively.

8. Restructuring

During 2002, 2001 and 2000, the Company and its
consolidated Partner Companies implemented restructuring plans
designed to reduce cost structures by closing and consolidating
offices, disposing of fixed assets and reducing their
workforces. In 2002, 2001 and 2000, the Company and its
consolidated partner companies recorded $10.0 million,
$56.2 million and $25.9 million, respectively,
primarily consisting of additional employee severance and office
closure costs related to workforce reductions. The restructuring
costs

60



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##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

8. Restructuring 
(Continued)

include the estimated costs to close offices
including costs to fulfill the Companys obligations under
signed lease contracts and the write-off of leasehold
improvements. Employee severance and related benefits include
the estimated costs of cash severance and non-cash charges for
the acceleration of stock options and forgiveness of interest on
employee stock option loans. Cash severance was paid in a lump
sum or over the shorter of a six-month period or until new
employment. These charges are included in Impairment
related and other in the Consolidated Statements of
Operations.

Restructuring activity is summarized as follows:

|                                        |  |                |        |               |  |          |        |             |  |              |         |   |  |   |        |   |  |   |        | 
|--------------------------------------- |  | -------------- | ------ | ------------- |  | -------- | ------ | ----------- |  | ------------ | ------- | - |  | - | ------ | - |  | - | ------ | 
|                                        |  |                |        |               |  |          |        | Non-cash    |  |             
|                                        |  | Accrual at     |        |               |  |          |        | Items       |  | Accrual at  
|                                        |  | December 31,   |        | Restructuring |  | Cash     |        | Expensed    |  | December 31,
|                                        |  | 2001           |        | Charges       |  | Payments |        | Immediately |  | 2002        
|                                        |  |                |        |               |  |          |        |             |  |             
|                                        |  |               
|                                        |  | (in thousands)
|Restructuring  2002                    |  |                |        |               |  |          |        |             |  |              |         |   |  |   |        |   |  |   |        | 
|Office closure cost                     |  | $              |       |               |  | $        | 3,402  |             |  | $            | (434    | ) |  | $ | (1,573 | ) |  | $ | 1,395  | 
|Employee severance and related benefits |  |                |       |               |  |          | 7,093  |             |  |              | (5,867  | ) |  |   | (40    | ) |  |   | 1,186  | 
|                                        |  |                |        |               |  |          |        |             |  |              |         |   |  |   |        |   |  |   |        | 
|                                        |  |                |       |               |  |          | 10,495 |             |  |              | (6,301  | ) |  |   | (1,613 | ) |  |   | 2,581  | 
|Restructuring  2001                    |  |                |        |               |  |          |        |             |  |              |         |   |  |   |        |   |  |   |        | 
|Office closure cost                     |  |                | 11,807 |               |  |          |       |             |  |              | (2,684  | ) |  |   |       |   |  |   | 9,123  | 
|Employee severance and related benefits |  |                | 2,650  |               |  |          | (486   | )           |  |              | (1,904  | ) |  |   |       |   |  |   | 260    | 
|                                        |  |                |        |               |  |          |        |             |  |              |         |   |  |   |        |   |  |   |        | 
|                                        |  |                | 14,457 |               |  |          | (486   | )           |  |              | (4,588  | ) |  |   |       |   |  |   | 9,383  | 
|Restructuring  2000                    |  |                |        |               |  |          |        |             |  |              |         |   |  |   |        |   |  |   |        | 
|Lease Termination Costs                 |  |                | 203    |               |  |          |       |             |  |              | (54     | ) |  |   |       |   |  |   | 149    | 
|                                        |  |                |        |               |  |          |        |             |  |              |         |   |  |   |        |   |  |   |        | 
|                                        |  | $              | 14,660 |               |  | $        | 10,009 |             |  | $            | (10,943 | ) |  | $ | (1,613 | ) |  | $ | 12,113 | 
|                                        |  |                |        |               |  |          |        |             |  |              |         |   |  |   |        |   |  |   |        | 

9. Discontinued Operations

In 2002, two Partner Companies of the Company
sold substantially all of their assets. In accordance with SFAS
No. 144, these Partner Companies have been treated as
discontinued operations. Accordingly, the operating results of
these two discontinued operations have been presented separately
from continuing operations and include the gains recognized on
disposition. The gain on sale of $10.3 million related to
these two transactions is included in the line item Loss
on discontinued operations in our Consolidated Statements
of Operations. Accordingly, revenues and operating results for
2002, 2001 and 2000 is presented, net, in one line item
Loss on discontinued operations in our Consolidated
Statements of Operations. These two former consolidated
subsidiaries, Delphion and Logistics.com, had aggregate revenues
of $16.1 million, $8.0 million and $0.7 million for
2002, 2001 and 2000, respectively. The Companys share of
the net losses of Delphion and Logistics.com totaled
$19.3 million, $32.9 million and $7.0 million for
2002, 2001 and 2000, respectively.

The sale of the assets of Delphion occurred on
December 13, 2002 with proceeds distributed to the Company
of approximately $10.0 million. Additional proceeds of
$2.9 million could be distributed to the Company within
eighteen months of the sale transaction. This amount is being
held in escrow as security for any potential future
indemnification obligations. The Company will record a
Gain on Discontinued Operations if these additional
amounts are received.

The sale of the assets of Logistics.com occurred
on December 31, 2002 with proceeds distributed to the
Company of approximately $10.8 million. The Company
received an additional $0.5 million in early January

61



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



9. Discontinued Operations 
(Continued)


2003. Additional proceeds of $1.4 million
could be distributed to the Company within twelve months of the
sale transaction. This amount is being held in escrow as
security for any potential future indemnification obligations.
The Company will record a Gain on Discontinued
Operations if these additional amounts are received.

10. Segment Information

The Companys reportable segments using the
management approach under SFAS No. 131,
Disclosure About Segments of a Business Enterprise and
Related Information, consist of two operating segments,
the Core Operating Segment and the Emerging Operating Segment.
Each segment includes the results of the Companys
Consolidated Partner Companies and records the Companys
share of earnings and losses of Partner Companies accounted for
under the equity method of accounting and captures our basis in
the assets of all of our partner companies. The Companys
and Partner Companies operations were principally in the
United States of America during all periods presented.

The Core operating segment includes those partner
companies in which the Companys management takes a very
active role in providing strategic direction and management
assistance. The Emerging operating segment includes investments
in companies that are, in general, managed to provide the
greatest near term stockholder value.

The following summarizes the unaudited selected
information related to the Companys segments. All
significant intersegment activity has been eliminated. Assets
are owned or allocated assets used by each operating segment.

|                     |  |                                      |          |                   |  |         |         |              |  |              |          |       |  |         |        |   |  |   |         |   |  |   |        |   |  |   |          |  
|-------------------- |  | ------------------------------------ | -------- | ----------------- |  | ------- | ------- | ------------ |  | ------------ | -------- | ----- |  | ------- | ------ | - |  | - | ------- | - |  | - | ------ | - |  | - | -------- | -
|                     |  |                                     
|                     |  | For the Year Ended December 31, 2002
|                     |  |                                     
|                     |  |                                      |          |                   |  |        
|                     |  |                                      |          | Reconciling Items |  |        
|                     |  |                                      |          |                   |  |        
|                     |  |                                      |          | Discontinued      |  |         |         |             
|                     |  |                                      |          | Operations        |  |         |         |             
|                     |  |                                      |          | Total             |  | and     |         |              |  | Consolidated
|                     |  | Core                                 |          | Emerging          |  | Segment |         | Dispositions |  | Corporate    |          | Other |  | Results
|                     |  |                                      |          |                   |  |         |         |              |  |              |          |       |  |        
|                     |  |                                     
|                     |  | (in thousands)                      
|Revenues             |  | $                                    | 107,964  |                   |  | $       | 507     |              |  | $            | 108,471  |       |  | $       |       |   |  | $ |        |   |  | $ | (14    | ) |  | $ | 108,457  |  
|Net loss             |  | $                                    | (104,608 | )                 |  | $       | (17,272 | )            |  | $            | (121,880 | )     |  | $       | (4,750 | ) |  | $ | (55,026 | ) |  | $ | 79,437 |   |  | $ | (102,219 | )
|Assets               |  | $                                    | 221,188  |                   |  | $       | 17,451  |              |  | $            | 238,639  |       |  | $       | 5,746  |   |  | $ | 121,861 |   |  | $ |       |   |  | $ | 366,246  |  
|Capital expenditures |  | $                                    | (959     | )                 |  | $       | (2      | )            |  | $            | (961     | )     |  | $       |       |   |  | $ |        |   |  | $ |       |   |  | $ | (961     | )

|                     |  |                                      |          |                   |  |         |          |              |  |              |          |       |  |         |          |   |  |   |          |   |  |   |            |   |  |   |            |  
|-------------------- |  | ------------------------------------ | -------- | ----------------- |  | ------- | -------- | ------------ |  | ------------ | -------- | ----- |  | ------- | -------- | - |  | - | -------- | - |  | - | ---------- | - |  | - | ---------- | -
|                     |  |                                     
|                     |  | For the Year Ended December 31, 2001
|                     |  |                                     
|                     |  |                                      |          |                   |  |        
|                     |  |                                      |          | Reconciling Items |  |        
|                     |  |                                      |          |                   |  |        
|                     |  |                                      |          | Discontinued      |  |         |          |             
|                     |  |                                      |          | Operations        |  |         |          |             
|                     |  |                                      |          | Total             |  | and     |          |              |  | Consolidated
|                     |  | Core                                 |          | Emerging          |  | Segment |          | Dispositions |  | Corporate    |          | Other |  | Results
|                     |  |                                      |          |                   |  |         |          |              |  |              |          |       |  |        
|                     |  |                                     
|                     |  | (in thousands)                      
|Revenues             |  | $                                    | 91,155   |                   |  | $       | 2,936    |              |  | $            | 94,091   |       |  | $       | 22,855   |   |  | $ |         |   |  | $ | (1,295     | ) |  | $ | 115,651    |  
|Net loss             |  | $                                    | (525,202 | )                 |  | $       | (102,232 | )            |  | $            | (627,434 | )     |  | $       | (394,786 | ) |  | $ | (108,617 | ) |  | $ | (1,207,893 | ) |  | $ | (2,338,730 | )
|Assets               |  | $                                    | 236,589  |                   |  | $       | 64,302   |              |  | $            | 300,891  |       |  | $       | 67,158   |   |  | $ | 286,998  |   |  | $ |           |   |  | $ | 655,047    |  
|Capital expenditures |  | $                                    | (2,302   | )                 |  | $       | (184     | )            |  | $            | (2,486   | )     |  | $       | (2,895   | ) |  | $ | (348     | ) |  | $ |           |   |  | $ | (5,729     | )

62



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

10. Segment Information 
(Continued)

|                     |  |                                                    |           |                   |  |         |         |              |  |              |           |       |  |         |           |   |  |   |          |   |  |   |         |   |  |   |           |  
|-------------------- |  | -------------------------------------------------- | --------- | ----------------- |  | ------- | ------- | ------------ |  | ------------ | --------- | ----- |  | ------- | --------- | - |  | - | -------- | - |  | - | ------- | - |  | - | --------- | -
|                     |  |                                                   
|                     |  | For the Year Ended December 31, 2000 (as adjusted)
|                     |  |                                                   
|                     |  |                                                    |           |                   |  |        
|                     |  |                                                    |           | Reconciling Items |  |        
|                     |  |                                                    |           |                   |  |        
|                     |  |                                                    |           | Discontinued      |  |         |         |             
|                     |  |                                                    |           | Operations        |  |         |         |             
|                     |  |                                                    |           | Total             |  | and     |         |              |  | Consolidated
|                     |  | Core                                               |           | Emerging          |  | Segment |         | Dispositions |  | Corporate    |           | Other |  | Results
|                     |  |                                                    |           |                   |  |         |         |              |  |              |           |       |  |        
|                     |  |                                                   
|                     |  | (in thousands)                                    
|Revenues             |  | $                                                  | 7,809     |                   |  | $       | 2,979   |              |  | $            | 10,788    |       |  | $       | 33,770    |   |  | $ |         |   |  | $ | (2,320  | ) |  | $ | 42,238    |  
|Net loss             |  | $                                                  | (472,191  | )                 |  | $       | (91,056 | )            |  | $            | (563,247  | )     |  | $       | (705,398  | ) |  | $ | (135,860 | ) |  | $ | 737,957 |   |  | $ | (666,548  | )
|Assets               |  | $                                                  | 1,010,527 |                   |  | $       | 197,593 |              |  | $            | 1,208,120 |       |  | $       | 1,698,553 |   |  | $ | 423,910  |   |  | $ |        |   |  | $ | 3,330,583 |  
|Capital expenditures |  | $                                                  | (16,951   | )                 |  | $       | (2,543  | )            |  | $            | (19,494   | )     |  | $       | (19,349   | ) |  | $ | (11,463  | ) |  | $ |        |   |  | $ | (50,306   | )






|  |                                                
|- | -----------------------------------------------
|* | Other reconciling items to loss are as follows:

|                               |  |      |         |      |  |      |            |   |  |   |          |  
|------------------------------ |  | ---- | ------- | ---- |  | ---- | ---------- | - |  | - | -------- | -
|                               |  | 2002 |         | 2001 |  | 2000
|                               |  |      |         |      |  |     
|Impairment (Note 2)            |  | $    | (43,490 | )    |  | $    | (1,275,941 | ) |  | $ | (348,597 | )
|Taxes                          |  |      | (179    | )    |  |      | 12,584     |   |  |   | 319,449  |  
|Minority interest              |  |      | 15,438  |      |  |      | 108,223    |   |  |   | 84,245   |  
|Change in accounting principle |  |      |        |      |  |      | (7,886     | ) |  |   |         |  
|Other income (Note 18)         |  |      | 107,668 |      |  |      | (44,873    | ) |  |   | 682,860  |  
|                               |  |      |         |      |  |      |            |   |  |   |          |  
|                               |  | $    | 79,437  |      |  | $    | (1,207,893 | ) |  | $ | 737,957  |  
|                               |  |      |         |      |  |      |            |   |  |   |          |  

11. Parent Company Financial
Information

Parent company financial information is provided
to present the financial position and results of operations of
the Company as if the Partner Companies accounted for under the
consolidation method of accounting were accounted for under the
equity method of accounting for all applicable periods
presented. The Companys share of the consolidated Partner
Companies losses is included in Equity loss in
the Parent Company Statements of Operations for all periods
presented based on the Companys ownership percentage in
each period. The carrying value of the consolidated companies as
of December 31, 2002, 2001 and 2000 is included in
Ownership interests in Partner Companies in the
Parent Company Balance Sheets.

Parent
Company Balance Sheets

|                                     |                                          |                                            |   |               |         |  |   |         |         | 
|------------------------------------ | ---------------------------------------- | ------------------------------------------ | - | ------------- | ------- |  | - | ------- | ------- | 
|                                     |                                          |                                           
|                                     |                                          | As of December 31,                        
|                                     |                                          |                                           
|                                     |                                          | 2002                                       |   | 2001         
|                                     |                                          |                                            |   |              
|                                     |                                          |                                            |   | (as adjusted)
|                                     |                                          |                                           
|                                     |                                          | (in thousands)                            
|Assets                               |                                          |                                            |   |               |         |  |   |        
|                                     | Current assets                           |                                            | $ | 100,968       |         |  | $ | 238,402 |        
|                                     | Ownership interests in Partner Companies |                                            |   | 140,621       |         |  |   | 236,832 |        
|                                     | Available for sale securities and other  |                                            |   | 18,408        |         |  |   | 37,916  |        
|                                     |                                          |                                            |   |               |         |  |   |        
|                                     |                                          | Total assets                               |   | $             | 259,997 |  |   | $       | 513,150 | 
|                                     |                                          |                                            |   |               |         |  |   |        
|Liabilities and stockholders equity |                                          |                                            |   |               |         |  |   |        
|                                     | Current liabilities                      |                                            | $ | 28,529        |         |  | $ | 32,352  |        
|                                     | Convertible subordinated notes           |                                            |   | 283,114       |         |  |   | 446,061 |        
|                                     | Stockholders equity (deficit)           |                                            |   | (51,646       | )       |  |   | 34,737  |        
|                                     |                                          |                                            |   |               |         |  |   |        
|                                     |                                          | Total liabilities and stockholders equity |   | $             | 259,997 |  |   | $       | 513,150 | 
|                                     |                                          |                                            |   |               |         |  |   |        

63



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



11. Parent Company Financial
Information  (Continued)


Parent
Company Statements of Operations

|                                                                    |                              |                             |          |               |          |               |            |        |            |   |          |        |            |  
|------------------------------------------------------------------- | ---------------------------- | --------------------------- | -------- | ------------- | -------- | ------------- | ---------- | ------ | ---------- | - | -------- | ------ | ---------- | -
|                                                                    |                              |                            
|                                                                    |                              | Year Ended December 31,    
|                                                                    |                              |                            
|                                                                    |                              | 2002                        |          | 2001          |          | 2000         
|                                                                    |                              |                             |          |               |          |              
|                                                                    |                              |                             |          | (as adjusted) |          | (as adjusted)
|                                                                    |                              |                            
|                                                                    |                              | (in thousands)             
|Revenue                                                             |                              | $                           |         |               |          | $             |           |        |            | $ |         |       
|                                                                    | Operating Expenses           |                             |          |               |          |               |            |        |            |   |          |        |           
|                                                                    | General and administrative   |                             |          | 34,680        |          |               |            | 51,964 |            |   |          | 85,832 |           
|                                                                    | Impairment related and other |                             |          | 1,499         |          |               |            | 32,862 |            |   |          | 25,919 |           
|                                                                    | Research and development     |                             |          |              |          |               |            |       |            |   |          | 22,548 |           
|                                                                    |                              |                             |          |               |          |               |            |        |            |   |          |       
|Total operating expenses                                            |                              |                             | 36,179   |               |          |               | 84,826     |        |            |   | 134,299  |       
|                                                                    |                              |                             |          |               |          |               |            |        |            |   |          |       
|                                                                    |                              |                             | (36,179  | )             |          |               | (84,826    | )      |            |   | (134,299 | )     
|                                                                    |                              | Other income (expense), net |          |               | 103,993  |               |            |        | (107,703   | ) |          |        | 626,956    |  
|                                                                    |                              | Interest expense, net       |          |               | (18,847  | )             |            |        | (23,791    | ) |          |        | (1,561     | )
|                                                                    |                              |                             |          |               |          |               |            |        |            |   |          |       
|Income (loss) before income taxes and equity
    loss               |                              |                             | 48,967   |               |          |               | (216,320   | )      |            |   | 491,096  |       
|                                                                    |                              | Income taxes                |          |               |         |               |            |        | 12,174     |   |          |        | 318,317    |  
|                                                                    |                              | Equity loss                 |          |               | (151,186 | )             |            |        | (2,126,698 | ) |          |        | (1,475,961 | )
|                                                                    |                              |                             |          |               |          |               |            |        |            |   |          |       
|Loss before cumulative effect of change in
    accounting principle |                              |                             | (102,219 | )             |          |               | (2,330,844 | )      |            |   | (666,548 | )     
|Cumulative effect of change in accounting
    principle             |                              |                             |         |               |          |               | (7,886     | )      |            |   |         |       
|                                                                    |                              |                             |          |               |          |               |            |        |            |   |          |       
|Net loss                                                            |                              | $                           | (102,219 | )             |          | $             | (2,338,730 | )      |            | $ | (666,548 | )     
|                                                                    |                              |                             |          |               |          |               |            |        |            |   |          |       

64



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

11. Parent Company Financial
Information  (Continued)

Parent
Company Statements of Cash Flows

|                                                                               |                                                                     |                                                            |          |               |         |               |            |           |         |   |            |            |            |  
|------------------------------------------------------------------------------ | ------------------------------------------------------------------- | ---------------------------------------------------------- | -------- | ------------- | ------- | ------------- | ---------- | --------- | ------- | - | ---------- | ---------- | ---------- | -
|                                                                               |                                                                     |                                                           
|                                                                               |                                                                     | Year Ended December 31,                                   
|                                                                               |                                                                     |                                                           
|                                                                               |                                                                     | 2002                                                       |          | 2001          |         | 2000         
|                                                                               |                                                                     |                                                            |          |               |         |              
|                                                                               |                                                                     |                                                            |          | (as adjusted) |         | (as adjusted)
|                                                                               |                                                                     |                                                           
|                                                                               |                                                                     | (in thousands)                                            
|Operating Activities                                                           |                                                                     |                                                            |          |               |         |               |            |           |         |   |            |           
|Net loss                                                                       |                                                                     | $                                                          | (102,219 | )             |         | $             | (2,338,730 | )         |         | $ | (666,548   | )         
|Adjustments to reconcile net loss to net cash
    used in operating activities |                                                                     |                                                            |          |               |         |               |            |           |         |   |            |           
|                                                                               | Depreciation and amortization                                       |                                                            |          | 1,741         |         |               |            | 1,872     |         |   |            | 2,442      |           
|                                                                               | Purchased in process research and development                       |                                                            |          |              |         |               |            |          |         |   |            | 11,470     |           
|                                                                               | Impairment related and other                                        |                                                            |          | 1,499         |         |               |            | 9,014     |         |   |            | 25,919     |           
|                                                                               | Stock-based compensation                                            |                                                            |          | 9,525         |         |               |            | 11,764    |         |   |            | 7,104      |           
|                                                                               | Equity loss                                                         |                                                            |          | 151,186       |         |               |            | 2,126,698 |         |   |            | 1,475,961  |           
|                                                                               | Other income (loss)                                                 |                                                            |          | (103,993      | )       |               |            | 107,703   |         |   |            | (626,956   | )         
|                                                                               | Deferred taxes                                                      |                                                            |          |              |         |               |            | (12,174   | )       |   |            | (318,317   | )         
|                                                                               | Cumulative effect of change in accounting
    principle             |                                                            |          |              |         |               |            | 7,886     |         |   |            |           |           
|Change in assets and liabilities, net of effect
    of acquisitions:           |                                                                     |                                                            |          |               |         |               |            |           |         |   |            |           
|                                                                               | Restricted cash                                                     |                                                            |          | 549           |         |               |            | (9,729    | )       |   |            |           |           
|                                                                               | Accounts receivable, net                                            |                                                            |          | 58            |         |               |            | 1,373     |         |   |            | (1,561     | )         
|                                                                               | Prepaid expenses and other assets                                   |                                                            |          | 8,968         |         |               |            | 4,843     |         |   |            | (10,534    | )         
|                                                                               | Accounts payable                                                    |                                                            |          | 40            |         |               |            | (5,976    | )       |   |            | 102        |           
|                                                                               | Accrued expenses                                                    |                                                            |          | (9,025        | )       |               |            | 4,089     |         |   |            | 10,653     |           
|                                                                               | Deferred revenue                                                    |                                                            |          |              |         |               |            |          |         |   |            | 100        |           
|                                                                               | Other liabilities                                                   |                                                            |          |              |         |               |            |          |         |   |            | 180        |           
|                                                                               |                                                                     |                                                            |          |               |         |               |            |           |         |   |            |           
|                                                                               |                                                                     | Net cash used in operating activities                      |          |               | (41,671 | )             |            |           | (91,367 | ) |            |            | (89,985    | )
|                                                                               |                                                                     |                                                            |          |               |         |               |            |           |         |   |            |           
|Investing Activities                                                           |                                                                     |                                                            |          |               |         |               |            |           |         |   |            |           
|                                                                               | Capital expenditures                                                |                                                            |          |              |         |               |            | (658      | )       |   |            | (11,463    | )         
|                                                                               | Proceeds from disposals of fixed assets                             |                                                            |          | 40            |         |               |            | 310       |         |   |            |           |           
|                                                                               | Proceeds from sales of available-for-sale
    securities            |                                                            |          | 87            |         |               |            | 182,500   |         |   |            | 179,606    |           
|                                                                               | Proceeds from sales of ownership interests in
    Partner Companies |                                                            |          | 42,219        |         |               |            | 168,270   |         |   |            | 35,310     |           
|                                                                               | Acquisitions of ownership interests in Partner
    Companies, net   |                                                            |          | (88,781       | )       |               |            | (162,265  | )       |   |            | (1,300,812 | )         
|                                                                               | Purchase of short-term investments                                  |                                                            |          | (1,996        | )       |               |            |          |         |   |            | (10,057    | )         
|                                                                               | Proceeds from maturities of short-term investments                  |                                                            |          | 4,948         |         |               |            | 95        |         |   |            |           |           
|                                                                               |                                                                     |                                                            |          |               |         |               |            |           |         |   |            |           
|                                                                               |                                                                     | Net cash (used in) provided by in investing
    activities |          |               | (43,283 | )             |            |           | 188,252 |   |            |            | (1,107,416 | )
|                                                                               |                                                                     |                                                            |          |               |         |               |            |           |         |   |            |           
|Financing activities                                                           |                                                                     |                                                            |          |               |         |               |            |           |         |   |            |           
|                                                                               | Issuance of common stock, net                                       |                                                            |          |              |         |               |            | 846       |         |   |            | 7,206      |           
|                                                                               | Repurchase of convertible subordinated notes                        |                                                            |          | (48,752       | )       |               |            | (35,456   | )       |   |            |           |           
|                                                                               | Repayment of loans from employees                                   |                                                            |          |              |         |               |            | 3,342     |         |   |            | 13,588     |           
|                                                                               | Other                                                               |                                                            |          |              |         |               |            | 11        |         |   |            |           |           
|                                                                               |                                                                     |                                                            |          |               |         |               |            |           |         |   |            |           
|                                                                               |                                                                     | Net cash (used in) provided by financing
    activities    |          |               | (48,752 | )             |            |           | (31,257 | ) |            |            | 20,794     |  
|                                                                               |                                                                     |                                                            |          |               |         |               |            |           |         |   |            |           
|Net Increase (Decrease) in Cash and Cash
    Equivalents                       |                                                                     |                                                            | (133,706 | )             |         |               | 65,628     |           |         |   | (1,176,607 | )         
|Cash and cash equivalents at beginning at year                                 |                                                                     |                                                            | 215,581  |               |         |               | 149,953    |           |         |   | 1,326,560  |           
|                                                                               |                                                                     |                                                            |          |               |         |               |            |           |         |   |            |           
|Cash and Cash Equivalents at End of
    Year                                   |                                                                     | $                                                          | 81,875   |               |         | $             | 215,581    |           |         | $ | 149,953    |           
|                                                                               |                                                                     |                                                            |          |               |         |               |            |           |         |   |            |           

65



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

12. Stockholders Equity
(Deficit)

During 2000, the Company increased its authorized
capital stock to 2,000,000,000 shares of common stock, par
value $0.001 per share. The holders of common stock are entitled
to one vote per share and are entitled to dividends as declared.

Dividends may be restricted by the inability to
liquidate ownership interests in Partner Companies to fund cash
dividends and may be subject to the preferential rights of the
holders of the Companys preferred stock, if any. No cash
dividends have been declared to date and may not be declared for
the foreseeable future.

The Company may establish one or more classes or
series of preferred stock. The holders of the preferred stock
may be entitled to preferences over common stockholders with
respect to dividends, liquidation, dissolution, or winding up of
the Company, as established by the Companys Board of
Directors. At December 31, 2002 and 2001, 10,000,000 shares
of preferred stock were authorized; no shares have been issued.

Stockholder
Rights Plan

During 2000, the Company enacted a stockholder
rights plan. Under the stockholder rights plan, preferred stock
purchase rights were distributed as a dividend at the rate of
one right for each share of Common Stock outstanding as of the
close of business on December 6, 2000. Each right entitles
the holder to purchase from the Company one ten-thousandth of a
share of Series A Junior Participating Preferred Stock of
the Company at an exercise price of $100 per right. The rights
attached to the Companys Common Stock are not currently
exercisable. The rights become exercisable and will separate
from the Common Stock (1) ten calendar days after a person
or group acquires, or announces the intent to acquire,
beneficial ownership of 15% or more of the Companys Common
Stock, or (2) ten business days (or a later date following
such announcement if determined by the Board of Directors of the
Company in accordance with the plan) after the announcement of a
tender offer or an exchange offer to acquire 15% or more of the
Companys outstanding Common Stock.

The rights are redeemable for $0.0001 per right
at the option of the Companys Board of Directors at any
time prior to the close of business on the tenth business day
after the announcement of a stock acquisition event described
above. If not redeemed, the rights will expire on
November 22, 2010. Prior to the date upon which the rights
would become exercisable under the plan, the Companys
outstanding stock certificates will represent both the shares of
Common Stock and the rights will trade only with the shares of
common stock.

Generally, if the rights become exercisable, then
each stockholder, other than the acquirer, is entitled to
purchase, for the purchase price, that number of shares of
Common Stock that, at the time of the transaction, will have a
market value of three times the exercise price of the rights. In
addition, if, after the rights become exercisable, the Company
is acquired in a merger or other business combination, or 50% or
more of its assets or earning power are sold, each right will
entitle the holder to purchase, at the exercise price of the
rights, that number of shares of common stock of the acquiring
company that, at the time of the transaction, will have a market
value of three times the exercise price of the rights.

Common
Stock Issued for Acquisitions

During 2001 and 2000, the Company issued
2,664,904 and 22,584,094 shares of common stock for
acquisitions of Partner Companies. These transactions resulted
in recording increases to additional paid-in capital of
$2.1 million and $1.6 billion for 2001 and 2000,
respectively. See Note 2.

66



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

13. Stock Option Plans

Incentive or non-qualified stock options may be
granted to Company employees, directors and consultants under
the Membership Profit Interest Plan (MPI Plan), the
1999 Equity Compensation Plan (1999 Plan) or the LGO
Corporation 2001 Equity Compensation Plan (f/k/a Logistics.com
2001 Equity Compensation Plan) (LGO Plan, together
with the MPI Plan and the 1999 Plan, the Plans).
Generally, the grants vest over a two to five year period and
expire eight to ten years after the date of grant. At
December 31, 2002, the Company reserved 9.2 million
shares of common stock under the Plans, for possible future
issuance. Most Partner Companies also maintain their own stock
option plans.

The following table summarizes the activity of
the Companys stock option plans:

|                                 |  |                  |             |                |  |   |       | 
|-------------------------------- |  | ---------------- | ----------- | -------------- |  | - | ----- | 
|                                 |  |                 
|                                 |  | Weighted Average
|                                 |  |                 
|                                 |  | Shares           |             | Exercise Price
|                                 |  |                  |             |               
|Outstanding at December 31, 1999 |  |                  | 5,173,000   |                |  | $ | 23.74 | 
|Options granted                  |  |                  | 30,667,758  |                |  |   | 39.63 | 
|Options exercised                |  |                  | (340,087    | )              |  |   | 3.04  | 
|Options canceled/forfeited       |  |                  | (6,185,636  | )              |  |   | 61.34 | 
|                                 |  |                  |             |                |  |   |       | 
|Outstanding at December 31, 2000 |  |                  | 29,315,035  |                |  |   | 29.47 | 
|Options granted                  |  |                  | 14,420,500  |                |  |   | 1.74  | 
|Options exercised                |  |                  | (663,333    | )              |  |   | 1.27  | 
|Options canceled/forfeited       |  |                  | (17,348,284 | )              |  |   | 41.99 | 
|                                 |  |                  |             |                |  |   |       | 
|Outstanding at December 31, 2001 |  |                  | 25,723,918  |                |  |   | 9.30  | 
|Options granted                  |  |                  | 8,104,446   |                |  |   | 0.42  | 
|Options canceled/forfeited       |  |                  | (11,851,023 | )              |  |   | 12.46 | 
|                                 |  |                  |             |                |  |   |       | 
|Outstanding at December 31, 2002 |  |                  | 21,977,341  |                |  | $ | 4.32  | 
|                                 |  |                  |             |                |  |   |       | 

At December 31, 2002, 2001, and 2000 there
were 7,616,707, 4,898,462 and 8,431,637 options exercisable at a
weighted average exercise price of $7.51, $13.47 and $41.78 per
share under the plans, respectively.

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

|                 |  |             |            |             |  |             |     |             |  |             |            |             |  |  |     |  |  |  |            |  |  |  |     | 
|---------------- |  | ----------- | ---------- | ----------- |  | ----------- | --- | ----------- |  | ----------- | ---------- | ----------- |  |  | --- |  |  |  | ---------- |  |  |  | --- | 
|                 |  |             |            | Weighted    |  |             |     | Weighted    |  |             |            | Weighted   
|                 |  |             |            | Average     |  |             |     | Average     |  |             |            | Average    
|                 |  |             |            | Remaining   |  |             |     | Remaining   |  |             |            | Remaining  
|                 |  | Number      |            | Contractual |  | Number      |     | Contractual |  | Number      |            | Contractual
|                 |  | Outstanding |            | Life        |  | Outstanding |     | Life        |  | Outstanding |            | Life       
|Exercise Price   |  | at 2002     |            | (in Years)  |  | at 2001     |     | (in Years)  |  | at 2000     |            | (in Years) 
|                 |  |             |            |             |  |             |     |             |  |             |            |            
|$ 0.23  $  5.00 |  |             | 19,118,178 |             |  |             | 8.7 |             |  |             | 18,394,137 |             |  |  | 9.1 |  |  |  | 7,765,334  |  |  |  | 9.2 | 
|$ 5.01  $ 15.00 |  |             | 1,574,257  |             |  |             | 7.9 |             |  |             | 3,692,318  |             |  |  | 8.9 |  |  |  | 7,867,950  |  |  |  | 9.6 | 
|$15.01  $ 50.00 |  |             | 1,069,466  |             |  |             | 7.5 |             |  |             | 2,245,589  |             |  |  | 8.5 |  |  |  | 6,726,119  |  |  |  | 9.8 | 
|$50.01  $110.50 |  |             | 215,440    |             |  |             | 7.2 |             |  |             | 1,391,874  |             |  |  | 8.2 |  |  |  | 6,955,632  |  |  |  | 9.9 | 
|                 |  |             |            |             |  |             |     |             |  |             |            |             |  |  |     |  |  |  |            |  |  |  |     | 
|                 |  |             | 21,977,341 |             |  |             |     |             |  |             | 25,723,918 |             |  |  |     |  |  |  | 29,315,035 |  |  |  |     | 
|                 |  |             |            |             |  |             |     |             |  |             |            |             |  |  |     |  |  |  |            |  |  |  |     | 

In 2002 and 2001, the Company issued a total of
10,385,350 shares of restricted stock to employees which vested
in 2002 and vest in 2003. Recipients of restricted stock do not
pay any cash consideration to the Company for the shares, have
the right to vote all shares subject to such grant, and receive
all dividends with respect to such shares, whether or not the
shares have vested. The value of the restricted stock at the
date of grant of $1.2 million and $16.1 million for the
years ended December 31, 2002 and 2001, respectively, was

67



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



13. Stock Option Plans
(Deficit)  (Continued)


recorded as deferred compensation. Compensation
expense totaled $4.5 million and $9.7 million for the
years ended December 31, 2002 and 2001, respectively,
related to this restricted stock. During 2002, 2,204,155 shares
of restricted stock were forfeited upon employee terminations
with deferred compensation totaling $2.0 million being
reversed. There were 3,453,583 shares of restricted stock
subject to vesting at December 31, 2002.

In April through July 1999, the Companys
Compensation Committee of the Board of Directors authorized the
acceptance of full recourse promissory notes totaling
$79.8 million from certain employees and a director as
consideration for exercising all or a portion of their vested
and unvested stock options issued under the 1999 Plan (a total
of 35,991,500 shares of common stock were issued in
connection with these exercises). These notes receivable were
recorded as a reduction of Stockholders Equity. The
Company has the right, but not the obligation, to repurchase
unvested shares under certain circumstances. The exercise of
unvested options by the employees and director and the
acceptance of promissory notes by the Company was in accordance
with the terms of the Companys equity compensation plans
and related option agreements. The Companys Compensation
Committee of the Board of Directors also approved loaning
employees the funds, under the terms of full recourse promissory
notes, to pay the income taxes that became due in connection
with the option exercises. The tax loans totaled approximately
$8.1 million and were included in other assets on the
Companys Consolidated Balance Sheets. In addition, the
Company had been accruing interest on these notes which totaled
approximately $5.4 million. During the fourth quarter of
2002, as the Company was reviewing the recoverability of these
tax loans and interest receivable, it was determined that it was
appropriate to record a provision for a possible loss in the
amount of approximately $5.5 million relating to the tax
loans and the interest receivable. This provision was included
in selling, general and administrative expense on the
Companys Consolidated Statements of Operations during the
year ended December 31, 2002.

In March 2001, the Companys Compensation
Committee of the Board of Directors approved the modification of
certain of the promissory notes from full recourse to 25%
recourse of the original loan principal, the modification of the
interest rate on the notes to the applicable Federal rate as of
the date of modification and extension of the term of the loan
from five years to seven years. These modifications were
communicated to eligible employees shortly after such approval
and were documented during the course of 2001, with the final
documents executed in December 2001. The Company also offered
eligible employees the opportunity to receive accelerated
vesting of restricted stock underlying the loans in exchange for
extended vesting of stock options and/or restricted stock
previously granted in 2001. The 2001 modifications to the notes
resulted in accounting for the notes and underlying stock as
options to purchase common stock. Accordingly, the remaining
principal balances of the notes subject to the modifications of
approximately $26.5 million were reclassified to additional
paid-in capital at December 31, 2001. As of the
modification date, these new options have been treated for
accounting purposes as variable awards The impact of these
variable awards has not been significant through
December 31, 2002.

During the fourth quarter of 2002, the Company
modified the loan recourse for certain stockholder loans for
former employees who had been laid off in 2000 and 2001 from
full recourse to 25% recourse of the original loan principal. In
accordance with EITF Issue No. 00-23, Issues Related
to the Accounting for Stock Compensation under APB Opinion
No. 25 and FASB Interpretation No. 44, the
Company recorded this modification as a treasury stock
transaction for the repurchase of outstanding shares at the fair
value of the stock underlying the notes (which was
$0.6 million at the date of the modification). The
principal balance of the notes of $4.3 million was reduced
and compensation expense of $3.7 million was recorded for
the amount of the note in excess of the repurchase amount.

During 2002 and 2001, the Company exercised its
rights to repurchase a total of 11,763,650 shares of stock
underlying the notes at cost in exchange for cancellation of the
associated promissory notes totaling $30.8 million upon the
termination of the employee noteholders.

68



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



13. Stock Option Plans
(Deficit)  (Continued)


Included in the 2000 option grants are 188,750
stock options to non-employees. The fair value of these options
of $6.7 million was recorded as deferred compensation in
2000 and is being amortized over the vesting period. The fair
value of these options was determined using the Black-Scholes
model assuming a volatility range of approximately 100-150%, a
dividend yield of 0%, a contractual option life of 10 years
and risk-free interest rates ranging from 5.4-5.7%.

14. Income Taxes

Total income tax expense (benefit) was allocated
as follows:

|                                  |       |                         |     |      |  |      |         |         |   |   |          |          |  
|--------------------------------- | ----- | ----------------------- | --- | ---- |  | ---- | ------- | ------- | - | - | -------- | -------- | -
|                                  |       |                        
|                                  |       | Year Ended December 31,
|                                  |       |                        
|                                  |       | 2002                    |     | 2001 |  | 2000
|                                  |       |                         |     |      |  |     
|                                  |       |                        
|                                  |       | (in thousands)         
|Income from continuing operations |       | $                       | 179 |      |  | $    | (12,584 | )       |   | $ | (319,449 | )       
|Discontinued operations           |       |                         |    |      |  |      | (2,917  | )       |   |   | (7,806   | )       
|                                  |       |                         |     |      |  |      |         |         |   |   |          |         
|                                  | Total |                         | $   | 179  |  |      | $       | (15,501 | ) |   | $        | (327,255 | )
|                                  |       |                         |     |      |  |      |         |         |   |   |          |         

The provision for income tax expense (benefit)
consists of:

|         |       |                         |     |      |  |      |         |         |   |   |          |          |  
|-------- | ----- | ----------------------- | --- | ---- |  | ---- | ------- | ------- | - | - | -------- | -------- | -
|         |       |                        
|         |       | Year Ended December 31,
|         |       |                        
|         |       | 2002                    |     | 2001 |  | 2000
|         |       |                         |     |      |  |     
|         |       |                        
|         |       | (in thousands)         
|Current  |       | $                       | 179 |      |  | $    | 49      |         |   | $ | 428      |         
|Deferred |       |                         |    |      |  |      | (15,550 | )       |   |   | (327,683 | )       
|         |       |                         |     |      |  |      |         |         |   |   |          |         
|         | Total |                         | $   | 179  |  |      | $       | (15,501 | ) |   | $        | (327,255 | )
|         |       |                         |     |      |  |      |         |         |   |   |          |         

The current expense consists of foreign income
taxes.

At December 31, 2002, the Company had net
operating loss carry forwards of approximately $705 million
which may be used to offset future taxable income. Approximately
$424 million of these carry forwards are subject to
significant limitations on their utilization due to ownership
changes experienced by certain consolidated Partner Companies.
Additional limitations on the utilization of these carry
forwards may be imposed if the Company experiences a change in
ownership. These carry forwards expire between 2008 and 2022.

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

69



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

14. Income
Taxes  (Continued)

The Companys net deferred tax asset
(liability) consists of the following:

|                                   |  |                    |          |      |  |   |          |  
|---------------------------------- |  | ------------------ | -------- | ---- |  | - | -------- | -
|                                   |  |                   
|                                   |  | As of December 31,
|                                   |  |                   
|                                   |  | 2002               |          | 2001
|                                   |  |                    |          |     
|                                   |  |                   
|                                   |  | (in thousands)    
|Net operating loss carry forward   |  | $                  | 260,922  |      |  | $ | 107,068  |  
|Capital loss carry forward         |  |                    | 137,044  |      |  |   | 94,382   |  
|Tax credit carry forward           |  |                    | 1,233    |      |  |   | 1,233    |  
|Other comprehensive income         |  |                    | (111     | )    |  |   | 182      |  
|Reserves and accruals              |  |                    | 15,479   |      |  |   | 5,077    |  
|Other, net                         |  |                    | 1,470    |      |  |   | 1,735    |  
|Partner Company basis difference   |  |                    | 359,926  |      |  |   | 433,481  |  
|Stock compensation                 |  |                    | (811     | )    |  |   | (1,444   | )
|Intangible assets                  |  |                    | 3,931    |      |  |   | 12,338   |  
|Valuation allowance                |  |                    | (779,083 | )    |  |   | (654,052 | )
|                                   |  |                    |          |      |  |   |          |  
|Net deferred tax asset (liability) |  | $                  |         |      |  | $ |         |  
|                                   |  |                    |          |      |  |   |          |  

The effective tax rate differs from the federal
statutory rate as follows:

|                                               |  |                    |       |      |  |      |       |    |  |  |       |   
|---------------------------------------------- |  | ------------------ | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                               |  |                   
|                                               |  | As of December 31,
|                                               |  |                   
|                                               |  | 2002               |       | 2001 |  | 2000
|                                               |  |                    |       |      |  |     
|Tax benefit at statutory rate                  |  |                    | (35.0 | )%   |  |      | (35.0 | )% |  |  | (35.0 | )%
|Stock-based compensation                       |  |                    | 1.7   | %    |  |      | 0.2   | %  |  |  | 0.6   | % 
|Non-deductible expenses and other              |  |                    | 4.4   | %    |  |      | 0.4   | %  |  |  | 0.8   | % 
|In process research and development            |  |                    |      |      |  |      |      |    |  |  | 0.4   | % 
|Amortization of goodwill and other intangibles |  |                    |      |      |  |      | 4.7   | %  |  |  | 2.5   | % 
|Foreign and state taxes, net                   |  |                    | 0.1   | %    |  |      |      |    |  |  | (1.7  | )%
|Consolidated subsidiaries provision            |  |                    |      |      |  |      |      |    |  |  | (0.2  | )%
|Losses not benefited                           |  |                    |      |      |  |      | 0.9   | %  |  |  |      |   
|Valuation allowance                            |  |                    | 29.0  | %    |  |      | 28.3  | %  |  |  |       |   
|                                               |  |                    |       |      |  |      |       |    |  |  |       |   
|                                               |  |                    | 0.2   | %    |  |      | (0.5  | )% |  |  | (32.6 | )%
|                                               |  |                    |       |      |  |      |       |    |  |  |       |   

15. Related Parties

The Company provides strategic and operational
support to its Partner Companies in the normal course of its
business. These services are generally provided by the
Companys employees, members of its Advisory Board and
Board of Directors and outside consultants. The costs related to
employees are paid by the Company and are reflected by the
Company in general and administrative expenses. Members of the
Companys Advisory Board are generally compensated with
stock options in the Company which are accounted for in
accordance with SFAS No. 123 with any expense related to
these options included in stock-based compensation. Members of
the Companys Board of Directors are generally compensated
with stock options and cash in the Company which are accounted
for in accordance APB No. 25. The costs of outside
consultants are generally paid directly by the Partner Company.

The Company entered into various cost sharing
arrangements with a stockholder, Safeguard Scientifics, during
2002, 2001 and 2000, whereby the Company reimbursed, under fair
market terms, this stockholder for

70



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##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

certain operational expenses. The amounts
incurred for such items were $0.4 million,
$0.6 million and $1.0 million in 2002, 2001 and 2000,
respectively.

The Company paid $11.1 million to a Partner
Company during 2000 for research and development projects
principally relating to the development of a technology platform
to allow market makers to conduct business-to-business
transactions.

The Company provided executive recruiting
services to its Partner Companies in the normal course of
business. These services were provided by the Companys
employees and were billed under fair market terms. During 2001
and 2000, Partner Companies incurred costs of $0.8 million
and $6.2 million, respectively, payable to the Company, and
$0.1 million is included in accounts receivable, net, on
the Companys Consolidated Balance Sheets at
December 31, 2001 related to these services. The Company
discontinued these services in 2001.

The Company has leased one of its executives to
an equity method Partner Company. As of December 31, 2002,
the Company has recorded a receivable totaling $0.2 million
for reimbursement of services.

Also see Note 19.

16. Other supplemental non-cash financing
and investing activities

Interest paid in 2002, 2001 and 2000, was
$21.0 million, $40.7 million and $33.2 million,
respectively.

No income taxes were paid in 2002, 2001 or 2000
as the Company had a net operating loss.

17. Defined Contribution and Benefit
Plans

The Company has defined contribution plans that
cover substantially all employees. Participants may contribute a
percentage of pre-tax compensation, as defined, not to exceed
IRS limitations.

During 2002, one of the Companys
consolidated subsidiaries made matching contributions of
$0.1 million. At December 31, 2002 and 2001, one of
the Companys consolidated subsidiaries maintained a
defined benefit plan covering the majority of its German
employees. At December 31, 2002 and 2001, a liability of
$4.2 million and $3.2 million, respectively, is
included in Other liabilities in the Companys
Consolidated Balance Sheets.

18. Other Income



| |                         
| | ------------------------
| | Other Income (Loss), net

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

71



---



##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

18. Other
Income  (Continued)

|                                                                    |  |                         |         |      |  |      |          |   |  |   |         |  
|------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                                                    |  |                        
|                                                                    |  | Year Ended December 31,
|                                                                    |  |                        
|                                                                    |  | 2002                    |         | 2001 |  | 2000
|                                                                    |  |                         |         |      |  |     
|                                                                    |  |                        
|                                                                    |  | (In thousands)         
|Gain on debt extinguishment (Note 6)                                |  | $                       | 111,423 |      |  | $    | 81,009   |   |  | $ |        |  
|Realized losses on available-for-sale securities                    |  |                         | (7,665  | )    |  |      | (107,459 | ) |  |   | (44,005 | )
|Partner Company impairment charges (Note 2)                         |  |                         | (13,992 | )    |  |      | (64,922  | ) |  |   | (55,904 | )
|Loss on Partner Company warrants (Note 4)                           |  |                         | (905    | )    |  |      | (53,933  | ) |  |   |        |  
|Sales/distributions of ownership interests in
    Partner Companies |  |                         | 4,919   |      |  |      | 24,489   |   |  |   | 480,840 |  
|Issuance of stock by public Partner Companies                       |  |                         | (959    | )    |  |      | 6,267    |   |  |   | 246,055 |  
|Other                                                               |  |                         | 512     |      |  |      | 4,754    |   |  |   | 241     |  
|                                                                    |  |                         |         |      |  |      |          |   |  |   |         |  
|                                                                    |  | $                       | 93,333  |      |  | $    | (109,795 | ) |  | $ | 627,227 |  
|                                                                    |  |                         |         |      |  |      |          |   |  |   |         |  

During the year ended December 31, 2002, the
Company realized $7.7 million in losses related to the
impairment of its holdings in i2 Technologies and divine.
During the years ended December 31, 2001 and 2000, the
Company realized $107.5 and $44.0 million, respectively, in
losses principally related to its sale of available for sale
securities, primarily Ariba and i2 Technologies.

During the years ended December 31, 2002,
2001 and 2000, the Company sold its ownership interests in
various Partner Companies in exchange for cash,
available-for-sale securities, additional ownership interest in
existing Partner Companies and contingent consideration.
Significant gains resulted from the sale of Tradex in exchange
for 2.9 million shares of Ariba ($449.3 million in
2000), the sale of Centrimed.com, Inc. for $30.7 million in
cash and other consideration ($3.1 million in 2001 and
$25.3 million in 2000), the sale of CourtLink Corporation
for $16.2 million ($1.6 million in 2002 and
$14.6 million in 2001), the sale of ServiceSoft
Technologies, Inc. in exchange for 1.3 million shares of
Broadbase Software, Inc. which subsequently merged with KANA
Software, Inc. ($6.5 million in 2000), a distribution in
the form of a dividend from Onvia.com ($4.5 million in
2002) and the sale of buy.co.uk Limited in exchange for
additional ownership in an existing Partner Company
($7.3 million in 2001).

The Companys share of net equity of its
public partner companies changed as a result of the Partner
Company issuing additional shares for acquisitions and other
purposes. These increases/ decreases adjusted the Companys
carrying values and resulted in non-operating gains/ losses for
the periods indicated in accordance with the Companys
accounting policy. The gains were principally from issuances of
stock by Verticalnet and Universal Access.

19. Commitments and
Contingencies

The Company and its consolidated subsidiaries are
involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the
amount of the ultimate liability with respect to these actions
will not materially affect the financial position, results of
operations or cash flows of the Company and its subsidiaries.

As of December 31, 2002, the Company has
approximately $22.7 million of funding and guarantee
commitments related to its partner companies. Of this amount,
$16.0 million is scheduled to be funded in 2003 and
$6.7 million is scheduled to be funded in 2004.

72



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##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

19. Commitments and
Contingencies  (Continued)

The Company and its consolidated subsidiaries
lease their facilities under operating lease agreements expiring
2003 through 2007. Future minimum lease payments as of
December 31, 2002 under the leases are as follows:

|                    |  |                |        | 
|------------------- |  | -------------- | ------ | 
|                    |  | (in thousands)
|2003                |  | $              | 30,467 | 
|2004                |  | $              | 21,405 | 
|2005                |  | $              | 10,209 | 
|2006                |  | $              | 3,253  | 
|2007                |  | $              | 3,058  | 
|2008 and thereafter |  | $              | 3,043  | 

Rent expense under the noncancelable operating
leases was $10.5 million in 2002, $9.1 million in 2001
and $9.5 million in 2000.

Included in the above lease agreements are leases
regarding one Partner Company that leases equipment under
non-cancelable operating leases expiring through February 2006
in which the Partner Company leases equipment and automobiles to
lease to customers. When leasing on behalf of its customers, the
Partner Company simultaneously enters into a lease with the
vendor and a lease with the customer (pass-through
leases). Pass-through lease income and expenses are
recorded on a net basis as revenue in the accompanying
statements of operations. The Partner Company had
$36.6 million in future minimum pass-through leases which
expire in 2006.

Because many of its Partner Companies are not
majority-owned subsidiaries, changes in the value of the
Companys interests in Partner Companies and the income or
loss and revenue attributable to them could require the Company
to register under the Investment Company Act unless it takes
action to avoid being required to register. However, the Company
believes it can take steps to avoid being required to register
under the Investment Company Act, which would not adversely
affect its operations or stockholder value.

If a certain consolidated Partner Company
achieves a fair market value in excess of $1.0 billion, the
Company will be obligated to pay, in cash or the Companys
common stock at the Companys option, 4% of the Partner
Companys fair market value in excess of $1.0 billion,
up to a maximum of $70 million of additional purchase price
consideration to a venture capital firm. The Company and a
significant stockholder of the Company and certain executive
officers of the Company are limited partners of this venture
capital firm. This contingent obligation expires on the earlier
to occur of May 31, 2005 or an unaffiliated company sale if
the valuation milestone is not achieved. Currently, the fair
market value of this Partner Company is well below
$1.0 billion.

73



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##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

20. Net Loss per Share

The calculations of Net Loss per Share were:

|                                                                                                    |  |                                       |          |               |  |               |            |   |  |   |          |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------------------- | -------- | ------------- |  | ------------- | ---------- | - |  | - | -------- | -
|                                                                                                    |  |                                      
|                                                                                                    |  | Year Ended December 31,              
|                                                                                                    |  |                                      
|                                                                                                    |  | 2002                                  |          | 2001          |  | 2000         
|                                                                                                    |  |                                       |          |               |  |              
|                                                                                                    |  |                                       |          | (as adjusted) |  | (as adjusted)
|                                                                                                    |  |                                      
|                                                                                                    |  | (in thousands, except per share data)
|Basic and Diluted:                                                                                  |  |                                       |          |               |  |               |            |   |  |   |          |  
|Loss before discontinued operations and
    cumulative effect of change in accounting principle     |  | $                                     | (93,263  | )             |  | $             | (2,297,955 | ) |  | $ | (659,520 | )
|Loss on discontinued operations, net of gain of
    $10,317 (2002) and tax benefit of $2,917 (2001) |  |                                       | (8,956   | )             |  |               | (32,889    | ) |  |   | (7,028   | )
|Cumulative effect of change in accounting
    principle                                             |  |                                       |         |               |  |               | (7,886     | ) |  |   |         |  
|                                                                                                    |  |                                       |          |               |  |               |            |   |  |   |          |  
|Net loss                                                                                            |  | $                                     | (102,219 | )             |  | $             | (2,338,730 | ) |  | $ | (666,548 | )
|                                                                                                    |  |                                       |          |               |  |               |            |   |  |   |          |  
|Average common shares outstanding                                                                   |  |                                       | 267,998  |               |  |               | 278,353    |   |  |   | 275,044  |  
|                                                                                                    |  |                                       |          |               |  |               |            |   |  |   |          |  
|Basic and diluted loss per share:                                                                   |  |                                       |          |               |  |               |            |   |  |   |          |  
|Loss before discontinued operations and
    cumulative effect of change in accounting principle     |  | $                                     | (0.35    | )             |  | $             | (8.25      | ) |  | $ | (2.40    | )
|Loss on discontinued operations                                                                     |  |                                       | (0.03    | )             |  |               | (0.12      | ) |  |   | (0.02    | )
|Cumulative effect of change in accounting
    principle                                             |  |                                       |         |               |  |               | (0.03      | ) |  |   |         |  
|                                                                                                    |  |                                       |          |               |  |               |            |   |  |   |          |  
|                                                                                                    |  | $                                     | (0.38    | )             |  | $             | (8.40      | ) |  | $ | (2.42    | )
|                                                                                                    |  |                                       |          |               |  |               |            |   |  |   |          |  

The following options and warrants were not
included in the computation of diluted EPS as their effect would
have been anti-dilutive: options to purchase 21,977,341,
25,723,918 and 29,315,035 shares of common stock at average
prices of $4.32, $9.30 and $29.47, respectively, outstanding as
of December 31, 2002, 2001 and 2000; options to purchase
14,873,132 shares of common stock at an average price of
$2.18 that were previously exercised but subsequent
modifications resulted in variable accounting, outstanding as of
December 31, 2002; 3,453,583 and 8,781,100 shares of
unvested restricted stock outstanding as of December 31,
2002 and 2001, respectively; warrants to purchase 1,470,676 and
1,475,775 shares of common stock at $6.00, outstanding as
of December 31, 2001 and 2000, respectively; convertible
subordinated notes convertible into 2,221,547 shares of common
stock as of December 31, 2002, 3,500,151 shares of
common stock at December 31, 2001 and 4,443,267 shares of
common stock outstanding as of December 31, 2000.

21. Selected Quarterly Financial
Information (Unaudited)

The following table sets forth selected quarterly
consolidated financial information for the years ended
December 31, 2002 and 2001. The operating results for any
given quarter are not necessarily indicative of results for any
future period. Certain amounts reported in the 2002 and 2001
Form 10-Qs have been reclassified to conform with the
current presentation. The impact of these changes is not
material and did not affect net income (loss).

74



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##### 



INTERNET CAPITAL GROUP, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

21. Selected Quarterly Financial
Information (Unaudited)  (Continued)

|                                                                                                                             |                                                |                           |         |                           |  |         |         |         |  |         |         |         |  |         |         |         |  |   |            |         |  |   |          |        |  |   |          |        |  |   |         |        | 
|---------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------- | ------- | ------------------------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  | ------- | ------- | ------- |  | - | ---------- | ------- |  | - | -------- | ------ |  | - | -------- | ------ |  | - | ------- | ------ | 
|                                                                                                                             |                                                |                           |         |                          
|                                                                                                                             |                                                | Fiscal 2002 Quarter Ended |         | Fiscal 2001 Quarter Ended
|                                                                                                                             |                                                |                           |         |                          
|                                                                                                                             |                                                |                           |         |                          
|                                                                                                                             |                                                |                           |         | (as adjusted)            
|                                                                                                                             |                                                | Mar. 31                   |         | Jun. 30                   |  | Sep. 30 |         | Dec. 31 |  | Mar. 31 |         | Jun. 30 |  | Sep. 30 |         | Dec. 31
|                                                                                                                             |                                                |                           |         |                           |  |         |         |         |  |         |         |         |  |         |         |        
|                                                                                                                             |                                                |                          
|                                                                                                                             |                                                | (in thousands)           
|Revenue                                                                                                                      |                                                | $                         | 24,819  |                           |  | $       | 25,585  |         |  | $       | 27,338  |         |  | $       | 30,715  |         |  | $ | 26,944     |         |  | $ | 21,882   |        |  | $ | 33,083   |        |  | $ | 33,742  |       
|Operating Expenses                                                                                                           |                                                |                           |         |                           |  |         |         |         |  |         |         |         |  |         |         |         |  |   |            |         |  |   |          |        |  |   |          |        |  |   |         |       
|                                                                                                                             | Cost of revenue                                |                           |         | 18,341                    |  |         |         | 17,267  |  |         |         | 16,557  |  |         |         | 16,930  |  |   |            | 27,633  |  |   |          | 21,485 |  |   |          | 15,577 |  |   |         | 20,123 | 
|                                                                                                                             | Selling, general & administrative              |                           |         | 24,738                    |  |         |         | 22,868  |  |         |         | 18,706  |  |         |         | 25,558  |  |   |            | 87,543  |  |   |          | 66,130 |  |   |          | 53,285 |  |   |         | 37,308 | 
|                                                                                                                             | Research and development                       |                           |         | 6,488                     |  |         |         | 6,931   |  |         |         | 5,548   |  |         |         | 5,133   |  |   |            | 15,317  |  |   |          | 11,243 |  |   |          | 10,725 |  |   |         | 6,503  | 
|                                                                                                                             | Amortization of goodwill and other intangibles |                           |         | 3,100                     |  |         |         | 3,131   |  |         |         | 2,883   |  |         |         | 2,886   |  |   |            | 80,838  |  |   |          | 10,171 |  |   |          | 14,795 |  |   |         | 20,050 | 
|                                                                                                                             | Impairment related and other                   |                           |         | 1,490                     |  |         |         | 7,274   |  |         |         | 2,056   |  |         |         | 1,556   |  |   |            | 752,297 |  |   |          | 72,978 |  |   |          | 14,718 |  |   |         | 11,264 | 
|                                                                                                                             |                                                |                           |         |                           |  |         |         |         |  |         |         |         |  |         |         |         |  |   |            |         |  |   |          |        |  |   |          |        |  |   |         |       
|                                                                                                                             |                                                |                           | (29,338 | )                         |  |         | (31,886 | )       |  |         | (18,412 | )       |  |         | (21,348 | )       |  |   | (936,684   | )       |  |   | (160,125 | )      |  |   | (76,017  | )      |  |   | (61,506 | )     
|Other income (expense) net                                                                                                   |                                                |                           | (5,895  | )                         |  |         | 58,230  |         |  |         | 44,297  |         |  |         | (3,299  | )       |  |   | (145,676   | )       |  |   | (9,498   | )      |  |   | (17,791  | )      |  |   | 63,170  |       
|Interest income                                                                                                              |                                                |                           | 1,398   |                           |  |         | 962     |         |  |         | 1,177   |         |  |         | 561     |         |  |   | 7,046      |         |  |   | 4,937    |        |  |   | 2,740    |        |  |   | 2,503   |       
|Interest expense                                                                                                             |                                                |                           | (7,557  | )                         |  |         | (6,255  | )       |  |         | (5,425  | )       |  |         | (4,618  | )       |  |   | (11,370    | )       |  |   | (9,599   | )      |  |   | (12,870  | )      |  |   | (9,162  | )     
|                                                                                                                             |                                                |                           |         |                           |  |         |         |         |  |         |         |         |  |         |         |         |  |   |            |         |  |   |          |        |  |   |          |        |  |   |         |       
|Income (loss) before income taxes, Minority
    interest and equity loss                                                     |                                                |                           | (41,392 | )                         |  |         | 21,051  |         |  |         | 21,637  |         |  |         | (28,704 | )       |  |   | (1,086,684 | )       |  |   | (174,285 | )      |  |   | (103,938 | )      |  |   | (4,995  | )     
|Income taxes                                                                                                                 |                                                |                           |        |                           |  |         |        |         |  |         |        |         |  |         | (179    | )       |  |   | (25,785    | )       |  |   | 44       |        |  |   | 8,291    |        |  |   | 30,034  |       
|Minority interest                                                                                                            |                                                |                           | 5,717   |                           |  |         | 5,560   |         |  |         | 3,182   |         |  |         | 979     |         |  |   | 40,239     |         |  |   | 41,245   |        |  |   | 18,327   |        |  |   | 8,412   |       
|Equity loss                                                                                                                  |                                                |                           | (20,607 | )                         |  |         | (34,666 | )       |  |         | (7,158  | )       |  |         | (18,683 | )       |  |   | (612,571   | )       |  |   | (220,590 | )      |  |   | (154,208 | )      |  |   | (61,491 | )     
|                                                                                                                             |                                                |                           |         |                           |  |         |         |         |  |         |         |         |  |         |         |         |  |   |            |         |  |   |          |        |  |   |          |        |  |   |         |       
|Net income (loss) before discontinued operations
    and cumulative effect of change in accounting principle                 |                                                |                           | (56,282 | )                         |  |         | (8,055  | )       |  |         | 17,661  |         |  |         | (46,587 | )       |  |   | (1,684,801 | )       |  |   | (353,586 | )      |  |   | (231,528 | )      |  |   | (28,040 | )     
|Loss on discontinued operations                                                                                              |                                                |                           | (5,366  | )                         |  |         | (5,084  | )       |  |         | (4,832  | )       |  |         | 6,326   |         |  |   | (10,966    | )       |  |   | (3,272   | )      |  |   | (6,080   | )      |  |   | (12,571 | )     
|Cumulative effect of change in accounting
    principle                                                                      |                                                |                           |        |                           |  |         |        |         |  |         |        |         |  |         |        |         |  |   | (7,886     | )       |  |   |         |        |  |   |         |        |  |   |        |       
|                                                                                                                             |                                                |                           |         |                           |  |         |         |         |  |         |         |         |  |         |         |         |  |   |            |         |  |   |          |        |  |   |          |        |  |   |         |       
|Net income (loss)                                                                                                            |                                                | $                         | (61,648 | )                         |  | $       | (13,139 | )       |  | $       | 12,829  |         |  | $       | (40,261 | )       |  | $ | (1,703,653 | )       |  | $ | (356,858 | )      |  | $ | (237,608 | )      |  | $ | (40,611 | )     
|                                                                                                                             |                                                |                           |         |                           |  |         |         |         |  |         |         |         |  |         |         |         |  |   |            |         |  |   |          |        |  |   |          |        |  |   |         |       
|Net income (loss) before discontinued operations
    and cumulative effect of change in accounting
    principle  per share |                                                | $                         | (0.20   | )                         |  | $       | (0.03   | )       |  | $       | 0.06    |         |  | $       | (0.17   | )       |  | $ | (6.01      | )       |  | $ | (1.28    | )      |  | $ | (0.83    | )      |  | $ | (0.10   | )     
|                                                                                                                             |                                                |                           |         |                           |  |         |         |         |  |         |         |         |  |         |         |         |  |   |            |         |  |   |          |        |  |   |          |        |  |   |         |       
|Net income (loss)  per share                                                                                                |                                                | $                         | (0.22   | )                         |  | $       | (0.05   | )       |  | $       | 0.05    |         |  | $       | (0.15   | )       |  | $ | (6.07      | )       |  | $ | (1.29    | )      |  | $ | (0.86    | )      |  | $ | (0.15   | )     
|                                                                                                                             |                                                |                           |         |                           |  |         |         |         |  |         |         |         |  |         |         |         |  |   |            |         |  |   |          |        |  |   |          |        |  |   |         |       

75



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##### 



Item
9.Changes in and Disagreements
with Accountants on Accounting and Financial
Disclosures

None.

PART III

Item
10.     Directors and Executive
Officers of the Registrant

We incorporate by reference the information
contained under the captions Election of Directors
(Item 1 on Proxy Card), Section 16(a)
Beneficial Ownership Reporting Compliance and
Executive Officers in our Definitive Proxy Statement
for our 2003 annual meeting of stockholders, to be filed within
120 days after the end of the year covered by this Report
pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended.

Item
11.     Executive
Compensation

We incorporate by reference the information
contained under the captions Executive Compensation,
Compensation Tables and Other Forms of
Compensation in our Definitive Proxy Statement for our
2003 annual meeting of stockholders, to be filed within
120 days after the end of the year covered by this Report
pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended.

Item
12.     Security Ownership of
Certain Beneficial Owners and Management

We incorporate by reference the information
contained under the caption Security Ownership of Certain
Beneficial Owners and Directors and Officers in our
Definitive Proxy Statements for our 2003 annual meeting of
stockholders, to be filed within 120 days after the end of
the year covered by this Report pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended.

Item
13.     Certain Relationships and
Related Transactions

We incorporate by reference the information
contained under the caption Certain Relationships and
Related Transactions in our Definitive Proxy Statement for
our 2003 annual meeting of stockholders, to be filed within 120
days after the end of the year covered by this Report pursuant
to Regulation 14 A under the Securities Exchange Act of
1934, as amended.

Item
14.     Controls and
Procedures

Within 90 days of the filing of this Report,
we carried out an evaluation, under the supervision and with the
participation of management, including the Chief Executive
Officer and Chief Financial Officer, of our disclosure controls
and procedures (as defined in Rules 13a-14 and 15d-14 under
the Securities Exchange Act of 1934). Based upon that
evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
are effective in timely alerting them to material information
required to be included in periodic filings with the SEC.

There were no significant changes in our internal
controls or in other factors that could significantly affect
these internal controls subsequent to the date of our most
recent evaluation.

PART IV

Item
15.     Exhibits, Financial
Statement Schedules and Reports on Form 8-K

1.     Consolidated
Financial Statements

The Consolidated Financial Statements and related
Notes thereto as set forth under Item 8 of this Report are
incorporated herein by reference.

76



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##### 



2.     Financial
Statement Schedule

Report of Independent Auditors

The Board of Directors and Stockholders

Internet Capital Group, Inc.:


Under date of February 20, 2003, we reported
on the consolidated balance sheets of Internet Capital Group,
Inc. and subsidiaries as of December 31, 2002 and 2001, and
the related consolidated statements of operations, cash flows,
stockholders equity (deficit) and comprehensive loss for
each of the years in the three-year period ended
December 31, 2002. In connection with our audits of the
aforementioned consolidated financial statements, we also
audited the related consolidated financial statement schedule.
The consolidated financial statement schedule is the
responsibility of the Companys management. Our
responsibility is to express an opinion on the consolidated
financial statement schedule based on our audits.

In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth
therein.

Our report dated February 20, 2003 contains
an explanatory paragraph that describes Internet Capital Group,
Inc.s change in its method of accounting for goodwill,
discontinued operations, accounting for an investment,
accounting for notes receivable from stockholders and reporting
gains on extinguishment of debt in 2002 and derivatives in 2001.

/s/ KPMG LLP

Philadelphia, Pennsylvania

February 20, 2003


The following financial statement schedule of
Internet Capital Group, Inc. for each of the years ended
December 31, 2002, 2001 and 2000 should be read in
conjunction with our Consolidated Financial Statements and
related notes thereto.

INTERNET CAPITAL GROUP


SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS


Years Ended December 31, 2000, 2001 and 2002


(in thousands)


|                                 |                   |               |   |            |  |            |   |            |     |  |   |        |      |  |   |       | 
|-------------------------------- | ----------------- | ------------- | - | ---------- |  | ---------- | - | ---------- | --- |  | - | ------ | ---- |  | - | ----- | 
|                                 |                   | Balance at    |   | Charged to |  |            |   | Balance at
|                                 |                   | the beginning |   | costs and  |  |            |   | the end of
|                                 |                   | of the year   |   | expenses   |  | Write-offs |   | the year  
|                                 |                   |               |   |            |  |            |   |           
|Allowance for Doubtful Accounts: |                   |               |   |            |  |            |   |            |     |  |   |        |      |  |   |      
|                                 | December 31, 2000 |               | $ | 67         |  |            | $ | 4,707      | (a) |  | $ | (16    | )    |  | $ | 4,758 | 
|                                 | December 31, 2001 |               | $ | 4,758      |  |            | $ | 5,309      | (b) |  | $ | (4,818 | )(c) |  | $ | 5,249 | 
|                                 | December 31, 2002 |               | $ | 5,249      |  |            | $ | 1,748      | (d) |  | $ | (2,742 | )    |  | $ | 4,255 | 




|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|(a) | Reserve of $3,462 established from partner
    companies acquired in 2000 or consolidated during 2000.
|   
|(b) | Reserve of $2,300 was established upon
    acquisitions of partner companies during 2001.             
|   
|(c) | Reserve of $3,512 was eliminated upon
    deconsolidation of partner companies during 2001.           
|   
|(d) | Reserve of $115 was established upon acquisitions
    of partner companies during 2002.               

77



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##### 



3.     List of
Exhibits

The exhibits required by this Item are listed
under Item 14(c).

(a) Reports on Form 8-K

On November 14, 2002, the Company filed a
Current Report on Form 8-K dated November 14, 2002 in
connection with the certifications of our Chief Executive
Officer and Chief Financial Officer required by Section 906
of the Sarbanes-Oxley Act of 2002 which accompanied our
Form 10-Q for the quarter ended September 30, 2002, in
accordance with Regulation FD.

(b) Exhibits

Exhibit Index

The following list of exhibits required by
Item 601 of Regulation S-K filed as part of this
Annual Report. Where so indicated by footnote, exhibits which
were previously filed are incorporated by reference. For
exhibits incorporated by reference, the location of the exhibit
in the previous filing is indicated in parentheses.

|        |        |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | ------ | -------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |         
|Number  |        | Document
|        |        |         
|        | 2.1    |          |  | 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 Registration Statement on Form S-1 filed by the Company
    on May 11, 1999 (Registration No. 333-78193) (the
    IPO Registration Statement))                                                                                                                                                                              
|        | 3.1    |          |  | Restated Certificate of Incorporation
    (incorporated by reference to Exhibit 2.1 to the
    Registration Statement on Form 8-A filed by the Company on
    August 4, 1999 (Registration No. 000-26989) (the
    8-A Registration Statement))                                                                                                                                                                                                                                                               
|        | 3.2    |          |  | Amended and Restated Bylaws (incorporated by
    reference to Exhibit 2.2 to the 8-A Registration Statement)                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 3.3    |          |  | Certificate of Amendment of Restated Certificate
    of Incorporation                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 4.1    |          |  | Specimen Certificate for Internet Capital Group,
    Inc.s Common Stock (incorporated by reference to
    Exhibit 4.1 to Amendment No. 3 to the IPO Registration
    Statement filed by the Company on August 2, 1999
    (Registration No. 333-78193) (the IPO Amendment
    No. 3))                                                                                                                                                                                                                        
|        | 4.2    |          |  | Indenture between Internet Capital Group, Inc.
    and Chase Manhattan Trust Company, National Association, as
    Trustee, for the 5 1/2% Convertible Subordinated Notes due
    2004 (incorporated by reference to Exhibit 4.2 to the
    Companys Annual Report on Form 10-K filed on
    March 16, 2000 (File No. 000-26929) (the 10-K
    Annual Report for 2000))                                                                                                                                      
|        | 4.3    |          |  | Form of 5 1/2% Convertible Subordinated
    Notes due 2004 of Internet Capital Group, Inc. (incorporated by
    reference to Exhibit 4.2 to the 10-K Annual Report for 2000)                                                                                                                                                                                                                                                                                                                                    
|        | 4.4    |          |  | Rights Agreement, dated as of November 22,
    2000, between Internet Capital Group, Inc. and ChaseMellon
    Shareholder Services, L.L.C., as Rights Agent, which includes as
    Exhibit B thereto the Form of Rights Certificate,
    incorporated by reference to Exhibit 1.1 to Internet
    Capital Group, Inc.s Registration Statement on
    Form 8-A, dated December 1, 2000 (incorporated by
    reference to the Companys Current Report on Form 8-K
    filed December 1, 2000 (File No. 0-26929))
|        | 10.1   |          |  | Internet Capital Group, L.L.C. 1998 Equity
    Compensation Plan (incorporated by reference to
    Exhibit 10.1 to the IPO Registration Statement)                                                                                                                                                                                                                                                                                                                                                              
|        | 10.1.1 |          |  | Internet Capital Group, Inc. 1999 Equity
    Compensation Plan as Amended and Restated July 25, 2001
    (the Internet Capital Group, Inc. 1999 Equity Compensation
    Plan) (incorporated by reference to Exhibit 10.1.4 to
    the Companys Annual Report on Form 10-K filed on
    April 1, 2002 (the 10-K Annual Report for 2001))                                                                                                                                                                    

78



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##### 



|        |        |          |  |                                                                                                                                                                                                                                                                                                                               
|------- | ------ | -------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |         
|Number  |        | Document
|        |        |         
|        | 10.1.2 |          |  | Amendment No. 1 to the Internet Capital
    Group, Inc. 1999 Equity Compensation Plan                                                                                                                                                                                                                                         
|        | 10.1.3 |          |  | Amendment No. 2 to the Internet Capital
    Group, Inc. 1999 Equity Compensation Plan                                                                                                                                                                                                                                         
|        | 10.2   |          |  | Internet Capital Group, L.L.C. Option Plan for
    Non-Employee Managers (incorporated by reference to
    Exhibit 10.2 to the IPO Registration Statement)                                                                                                                                                                    
|        | 10.2.1 |          |  | Internet Capital Group, Inc. Directors
    Option Plan (incorporated by reference to Exhibit 10.2.1 to
    the IPO Registration Statement)                                                                                                                                                                                   
|        | 10.2.2 |          |  | Internet Capital Group, Inc. Executive Deferred
    Compensation Plan, amended and restated effective
    September 1, 2002                                                                                                                                                                                                   
|        | 10.3   |          |  | Logistics.com, Inc. 2001 Equity Compensation Plan                                                                                                                                                                                                                                                                             
|        | 10.3.1 |          |  | Amendment No. 1 to the Logistics.com, Inc.
    2001 Equity Compensation Plan                                                                                                                                                                                                                                                  
|        | 10.4   |          |  | Internet Capital Group, L.L.C. Membership Profit
    Interest Plan (incorporated by reference to Exhibit 10.3 to
    the IPO Registration Statement)                                                                                                                                                                          
|        | 10.5   |          |  | Amended and Restated Limited Liability Company
    Agreement of Internet Capital Group, L.L.C., dated
    January 4, 1999 (incorporated by reference to
    Exhibit 10.5.1 to the IPO Registration Statement)                                                                                                                 
|        | 10.6   |          |  | Exchange Offer Agreement dated as of
    February 24, 2000 by and among eCredit.com, Inc., Internet
    Capital Group, Inc. and ICG Holdings, Inc. (incorporated by
    reference to Exhibit 2.2 of the Registrants
    Registration Statement on Form S-4 filed April 13,
    2000 (Registration No. 333-34722) (the S-4))
|        | 10.7   |          |  | Stock Purchase Agreement between Internet Capital
    Group, Inc. and International Business Machines Corporation
    (incorporated by reference to Exhibit 10.23.1 to Amendment
    No. 2 to the IPO Registration Statement filed by the
    Company on July 16, 1999 (Registration No. 333-79193))                          
|        | 10.8   |          |  | Lease dated January 1, 2000 between Bebob
    Associates and Internet Capital Group, Inc. for premises located
    in Wayne, Pennsylvania (incorporated by reference to
    Exhibit 10.3 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2000)                                              
|        | 10.9   |          |  | Amendment to Lease dated February 1, 2000
    between Bebob Associates and Internet Capital Group, Inc. for
    additional space in Wayne, Pennsylvania (incorporated by
    reference to Exhibit 10.4 to the Companys Quarterly Report
    on Form l0-Q for the quarter ended June 30, 2000)                                
|        | 10.10  |          |  | Second Amendment to Lease dated May 9, 2000
    between Bebob Associates, Inc. and Internet Capital Group, Inc.
    (incorporated by reference to Exhibit 10.5 to the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2000)                                                                    
|        | 10.11  |          |  | Third Amendment to Lease dated November 29,
    2000 between Bebob Associates, Inc. and Internet Capital Group,
    Inc. (incorporated by reference to Exhibit 10.26 to the
    10-K Annual Report for 2000)                                                                                                                  
|        | 10.12  |          |  | Assignment and Assumption Agreement dated
    December 31, 2000 among Internet Capital Group, Inc.,
    Internet Capital Group Operations, Inc. and Bebob Associates
    (incorporated by reference to Exhibit 10.27 to the Annual
    Report for 2000)                                                                       
|        | 10.13  |          |  | Lease dated March 27, 2000 between the
    Equitable Life Assurance Society of the United States and
    Internet Capital Group, Inc. for premises located in Boston,
    Massachusetts (incorporated by reference to Exhibit 10.6 to
    the Companys Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2000)

79



---



##### 



|        |       |          |  |                                                                                                                                                                                                                                                                                                                                                                      
|------- | ----- | -------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |         
|Number  |       | Document
|        |       |         
|        | 10.14 |          |  | Form of Promissory Note issued in connection with
    the exercise of Internet Capital Group, Inc.s stock
    options in May, June and July of 1999 (incorporated by reference
    to Exhibit 10.33 to Amendment No. 1 to the IPO
    Registration Statement filed by the Company on June 22,
    1999 (Registration No. 333-78913) (the IPO Amendment
    No. 1))
|        | 10.15 |          |  | Form of Restrictive Covenant Agreement issued in
    connection with the exercise of Internet Capital Groups
    stock options in May, June and July of 1999 (incorporated by
    reference to Exhibit 10.34 to the IPO Amendment No. 1)                                                                                                                            
|        | 10.16 |          |  | Securities Purchase Agreement dated
    October 27, 1999 by and among eMerge Interactive, Inc.,
    J. Technologies, LLC and Internet Capital Group, Inc.
    (incorporated by reference to the Companys Current Report
    on Form 8-K filed November 22, 1999 (File
    No. 0-26929))                                                                             
|        | 10.17 |          |  | Joint Venture Agreement dated October 26,
    1999 by and between Internet Capital Group, Inc. and Safeguard
    Scientifics, Inc. (incorporated by reference to
    Exhibit 10.23 to the Registration Statement filed by the
    Company on November 22, 1999 (Registration
    No. 333-91447))                                                                     
|        | 10.18 |          |  | Purchase Agreement dated December 6, 1999
    between Internet Capital Group, Inc. and AT&T Corp.
    (incorporated by reference to Exhibit 10.25 to the
    Registration Statement filed by the Company on December 6,
    1999 (Registration No. 333-91447) (the Follow-on
    Amendment No. 1))                                                                 
|        | 10.19 |          |  | Purchase Agreement dated December 6, 1999
    between Internet Capital Group, Inc. and Internet Assets, Inc.
    (incorporated by reference to Exhibit 10.26 to the
    Follow-on Amendment No. 1)                                                                                                                                                                   
|        | 10.20 |          |  | Purchase Agreement dated December 6, 1999
    between Internet Capital Group, Inc. and Ford Motor Company
    (incorporated by reference to Exhibit 10.27 to Amendment
    No. 3 to the Registration Statement filed by the Company on
    December 15, 1999 (Registration No. 333-91447))                                                                           
|        | 10.21 |          |  | Severance and Change in Control Agreement dated
    as of January 1, 2001 by and between Internet Capital
    Group, Inc. and Edward H. West (incorporated by reference to
    Exhibit 10.43 to the 10-K Annual Report for 2001)                                                                                                                                     
|        | 10.22 |          |  | Form of Letter Agreement dated September 20,
    2001 between Internet Capital Group, Inc. and certain of its
    officers (the Form Severance Letter Agreement)
    (incorporated by reference to Exhibit 10.44 to the 10-K
    Annual Report for 2001)                                                                                                           
|        | 10.23 |          |  | Separation of Employment Agreement and General
    Release between Nigel Andrews and Internet Capital Group, Inc.
    dated March 2, 2001 (incorporated by reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q for the quarter ending March 31, 2001)                                                                                   
|        | 10.24 |          |  | Separation of Employment Agreement and General
    Release between Ronald W. Hovsepian and Internet Capital Group,
    Inc. dated April 15, 2002 (incorporated by reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2002)                                                                             
|        | 10.25 |          |  | Amendment dated December 11, 2002 to
    Severance Letter Agreement dated as of September 20, 2001
    by and between Internet Capital Group, Inc. and Henry Nassau
    which is substantially in the form of the Form Severance
    Letter Agreement                                                                                                                
|        | 10.26 |          |  | Severance Letter Agreement dated February 4,
    2003 by and between Internet Capital Group, Inc. and Anthony
    Dolanski                                                                                                                                                                                                                                           
|        | 10.27 |          |  | Warrant to Purchase Shares of Common Stock of
    Internet Capital Group, Inc. issued to AT&T Corp., dated
    January 29, 2001 (incorporated by reference to
    Exhibit 10.2 to the Companys Quarterly Report on
    Form 10-Q for the quarter ending March 31, 2001)                                                                                             

80



---



##### 



|        |       |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | ----- | -------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |         
|Number  |       | Document
|        |       |         
|        | 10.28 |          |  | Tender Agreement among Fir Tree Value Fund, L.P.,
    Fir Tree Institutional Value Fund, L.P., Fir Tree Value
    Partners, LDC, Fir Tree Recovery Master Fund, L.P. and Internet
    Capital Group, Inc. dated October 29, 2001 (incorporated by
    reference to the Companys filing on Form SC TO-I/ A
    filed on November 1, 2001 (File No. 005-578-57841))                                                                                                                                                                                                                                                                                                                                               
|        | 10.29 |          |  | First Amendment to Tender Agreement among Fir
    Tree Value Fund, L.P., Fir Tree Institutional Value Fund, L.P.,
    Fir Tree Value Partners, LDC, Fir Tree Recovery Master Fund,
    L.P. and Internet Capital Group, Inc. dated October 31,
    2001 (incorporated by reference to the Companys filing on
    Form SC TO-I/ A filed on November 1, 2001 (File
    No. 005-578-57841))                                                                                                                                                                                                                                                                                                                        
|        | 10.30 |          |  | 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)                                                                                                                                                                                                                                                                                                                                                  
|        | 10.31 |          |  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.32 |          |  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.33 |          |  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 11.1  |          |  | Statement Regarding Computation of Per Share
    Earnings (included herein at Note 1-Significant Accounting
    Policies in the subsection Net Loss Per Share
    to the Consolidated Financial Statements and Note 20 
     Net Loss Per Share to the Consolidated Financial
    Statements)                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 13.1  |          |  | Sections entitled Election of Directors
    (Item 1 on Proxy Card), Section 16(a)
    Beneficial Ownership Reporting Compliance, Executive
    Compensation, Other Forms of Compensation,
    Securities Authorized for Issuance Under Equity
    Compensation Plans, Security Ownership of Certain
    Beneficial Owners and Directors and Officers and
    Certain Relationships and Related Transactions in
    the Companys Definitive Proxy Statement relative to its
    annual meeting of shareholders, to be filed within 120 days
    after the end of the year covered by this Form 10-K Report
    pursuant to Regulation 14A under the Securities Exchange
    Act of 1934, as amended
|        | 21.1  |          |  | Subsidiaries of Internet Capital Group, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 23.1  |          |  | Consent of KPMG LLP regarding Internet Capital
    Group, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

81



---



##### 



SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Security Exchange Act of 1934, the Company has
duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                     |  |                                                                                        
|-------------------- |  | ---------------------------------------------------------------------------------------
|Date: March 31, 2003 |  | INTERNET CAPITAL GROUP, INC.                                                           
|                    
|                     |  | By: /s/ ANTHONY P. DOLANSKIName: Anthony P. Dolanski
    Title: Chief Financial Officer

Pursuant to the requirements of the Securities
Exchange Act of 1934, this Report has been signed below by the
following persons on behalf of the Registrant and in the
capacities set forth above.

|                                                 |  |                                                                                                            
|------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------
|Signature                                        |  | Title                                                                                                      
|                                                 |  |                                                                                                            
|/s/ WALTER W. BUCKLEY, IIIWalter W. Buckley, III |  | Chief Executive Officer, President and Chairman
    of the Board of Directors (Principal Executive Officer)
|                                                
|/s/ ANTHONY P. DOLANSKIAnthony P. Dolanski       |  | Chief Financial Officer (Principal Financial and
    Accounting Officer)                                   
|                                                
|/s/ DAVID J. BERKMANDavid J. Berkman             |  | Director                                                                                                   
|                                                
|/s/ THOMAS P. GERRITYThomas P. Gerrity           |  | Director                                                                                                   
|                                                
|/s/ ROBERT E. KEITH, JR.Robert E. Keith, Jr.     |  | Director                                                                                                   
|                                                
|/s/ WARREN V. MUSSERWarren V. Musser             |  | Director                                                                                                   
|                                                
|/s/ PHILIP J. RINGOPhilip J. Ringo               |  | Director                                                                                                   
|                                                
|/s/ MICHAEL D. ZISMANMichael D. Zisman           |  | Director                                                                                                   

82



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##### 



CERTIFICATION OF CHIEF EXECUTIVE
OFFICER

I, Walter W. Buckley, III, certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Internet Capital Group,
    Inc.;                                                                                                                                                                                                                                                        
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations, and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                      
|
| | 4.     The
    registrants other certifying officer and I are responsible
    for establishing and maintaining disclosure controls and
    procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant, and we have:                                                                                                       



| |                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a.     designed such
    disclosure controls and procedures to ensure that material
    information relating to the registrant, including its
    consolidated subsidiaries, is made known to us by others within
    those entities, particularly during the period in which this
    annual report is being prepared;
|
| | b.     evaluated the
    effectiveness of the registrants disclosure controls and
    procedures as of a date within 90 days prior to the filing
    date of this annual report (the Evaluation Date); and                                                                                                          
|
| | c.     presented in this
    annual report our conclusions about the effectiveness of the
    disclosure controls and procedures based on our evaluation as of
    the Evaluation Date:                                                                                                                                



| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officer and I have disclosed,
    based on our most recent evaluation, to the registrants
    auditors and the audit committee of the registrants board
    of directors (or persons performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a.     all significant
    deficiencies in the design or operation of internal controls
    which could adversely affect the registrants ability to
    record, process, summarize, and report financial data and have
    identified for the registrants auditors any material
    weaknesses in internal controls; and
|
| | b.     any fraud,
    whether or not material, that involves management or other
    employees who have a significant role in the registrants
    internal controls; and                                                                                                                                                 



| |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officer and I have indicated
    in this annual report whether there were significant changes in
    internal controls or in other factors that could significantly
    affect internal controls subsequent to the date of our most
    recent evaluation, including any corrective actions with regard
    to significant deficiencies and material weaknesses.



| |                           
| | --------------------------
| | /s/ WALTER W. BUCKLEY, III
| |                           
| | Walter W. Buckley, III    
| | Chief Executive Officer   

Date: March 31, 2003

83



---



##### 



CERTIFICATION OF CHIEF FINANCIAL
OFFICER

I, Anthony P. Dolanski, certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 10-K of Internet Capital Group,
    Inc.;                                                                                                                                                                                                                                                        
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations, and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                      
|
| | 4.     The
    registrants other certifying officer and I are responsible
    for establishing and maintaining disclosure controls and
    procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant, and we have:                                                                                                       



| |                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a.     designed such
    disclosure controls and procedures to ensure that material
    information relating to the registrant, including its
    consolidated subsidiaries, is made known to us by others within
    those entities, particularly during the period in which this
    annual report is being prepared;
|
| | b.     evaluated the
    effectiveness of the registrants disclosure controls and
    procedures as of a date with 90 days prior to the filing
    date of this annual report (the Evaluation Date); and                                                                                                            
|
| | c.     presented in this
    annual report our conclusions about the effectiveness of the
    disclosure controls and procedures based on our evaluation as of
    the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officer and I have disclosed,
    based on our most recent evaluation, to the registrants
    auditors and the audit committee of the registrants board
    of directors (or persons performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a.     all significant
    deficiencies in the design or operation of internal controls
    which could adversely affect the registrants ability to
    record, process, summarize, and report financial data and have
    identified for the registrants auditors any material
    weaknesses in internal controls; and
|
| | b.     any fraud,
    whether or not material, that involves management or other
    employees who have a significant role in the registrants
    internal controls; and                                                                                                                                                 



| |                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officer and I have indicated
    in this annual report whether there were significant changes in
    internal controls or in other factors that could significantly
    affect internal controls subsequent to the date of our most
    recent evaluation, including any corrective actions with regard
    to significant deficiencies and material weaknesses.



| |                        
| | -----------------------
| | /s/ ANTHONY P. DOLANSKI
| |                        
| | Anthony P. Dolanski    
| | Chief Financial Officer

Date: March 31, 2003

84



---



##### 



EXHIBIT INDEX

The following list of exhibits required by
Item 601 of Regulation S-K filed as part of this
Annual Report. Where so indicated by footnote, exhibits which
were previously filed are incorporated by reference. For
exhibits incorporated by reference, the location of the exhibit
in the previous filing is indicated in parentheses.

|        |       |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- | ----- | -------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |         
|Number  |       | Document
|        |       |         
|        | 2.1   |          |  | 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 Registration Statement on Form S-1 filed by the Company
    on May 11, 1999 (Registration No. 333-78193) (the
    IPO Registration Statement))                                                                                                                                                                              
|        | 3.1   |          |  | Restated Certificate of Incorporation
    (incorporated by reference to Exhibit 2.1 to the
    Registration Statement on Form 8-A filed by the Company on
    August 4, 1999 (Registration No. 000-26989) (the
    8-A Registration Statement))                                                                                                                                                                                                                                                               
|        | 3.2   |          |  | Amended and Restated Bylaws (incorporated by
    reference to Exhibit 2.2 to the 8-A Registration Statement)                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 3.3   |          |  | Certificate of Amendment of Restated Certificate
    of Incorporation                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 4.1   |          |  | Specimen Certificate for Internet Capital Group,
    Inc.s Common Stock (incorporated by reference to
    Exhibit 4.1 to Amendment No. 3 to the IPO Registration
    Statement filed by the Company on August 2, 1999
    (Registration No. 333-78193) (the IPO Amendment
    No. 3))                                                                                                                                                                                                                        
|        | 4.2   |          |  | Indenture between Internet Capital Group, Inc.
    and Chase Manhattan Trust Company, National Association, as
    Trustee, for the 5 1/2% Convertible Subordinated Notes due
    2004 (incorporated by reference to Exhibit 4.2 to the
    Companys Annual Report on Form 10-K filed on
    March 16, 2000 (File No. 000-26929) (the 10-K
    Annual Report for 2000))                                                                                                                                      
|        | 4.3   |          |  | Form of 5 1/2% Convertible Subordinated
    Notes due 2004 of Internet Capital Group, Inc. (incorporated by
    reference to Exhibit 4.2 to the 10-K Annual Report for 2000)                                                                                                                                                                                                                                                                                                                                    
|        | 4.4   |          |  | Rights Agreement, dated as of November 22,
    2000, between Internet Capital Group, Inc. and ChaseMellon
    Shareholder Services, L.L.C., as Rights Agent, which includes as
    Exhibit B thereto the Form of Rights Certificate,
    incorporated by reference to Exhibit 1.1 to Internet
    Capital Group, Inc.s Registration Statement on
    Form 8-A, dated December 1, 2000 (incorporated by
    reference to the Companys Current Report on Form 8-K
    filed December 1, 2000 (File No. 0-26929))
|        | 10.1  |          |  | Internet Capital Group, L.L.C. 1998 Equity
    Compensation Plan (incorporated by reference to
    Exhibit 10.1 to the IPO Registration Statement)                                                                                                                                                                                                                                                                                                                                                              
|        | 10.1. | 1        |  | Internet Capital Group, Inc. 1999 Equity
    Compensation Plan as Amended and Restated July 25, 2001
    (the Internet Capital Group, Inc. 1999 Equity Compensation
    Plan) (incorporated by reference to Exhibit 10.1.4 to
    the Companys Annual Report on Form 10-K filed on
    April 1, 2002 (the 10-K Annual Report for 2001))                                                                                                                                                                    
|        | 10.1. | 2        |  | Amendment No. 1 to the Internet Capital
    Group, Inc. 1999 Equity Compensation Plan                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.1. | 3        |  | Amendment No. 2 to the Internet Capital
    Group, Inc. 1999 Equity Compensation Plan                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.2  |          |  | Internet Capital Group, L.L.C. Option Plan for
    Non-Employee Managers (incorporated by reference to
    Exhibit 10.2 to the IPO Registration Statement)                                                                                                                                                                                                                                                                                                                                                      
|        | 10.2. | 1        |  | Internet Capital Group, Inc. Directors
    Option Plan (incorporated by reference to Exhibit 10.2.1 to
    the IPO Registration Statement)                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.2. | 2        |  | Internet Capital Group, Inc. Executive Deferred
    Compensation Plan, amended and restated effective
    September 1, 2002                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.3  |          |  | Logistics.com, Inc. 2001 Equity Compensation Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.3. | 1        |  | Amendment No. 1 to the Logistics.com, Inc.
    2001 Equity Compensation Plan                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.4  |          |  | Internet Capital Group, L.L.C. Membership Profit
    Interest Plan (incorporated by reference to Exhibit 10.3 to
    the IPO Registration Statement)                                                                                                                                                                                                                                                                                                                                                            
|        | 10.5  |          |  | Amended and Restated Limited Liability Company
    Agreement of Internet Capital Group, L.L.C., dated
    January 4, 1999 (incorporated by reference to
    Exhibit 10.5.1 to the IPO Registration Statement)                                                                                                                                                                                                                                                                                                   



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##### 



|        |       |          |  |                                                                                                                                                                                                                                                                                                                                                                      
|------- | ----- | -------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |         
|Number  |       | Document
|        |       |         
|        | 10.6  |          |  | Exchange Offer Agreement dated as of
    February 24, 2000 by and among eCredit.com, Inc., Internet
    Capital Group, Inc. and ICG Holdings, Inc. (incorporated by
    reference to Exhibit 2.2 of the Registrants
    Registration Statement on Form S-4 filed April 13,
    2000 (Registration No. 333-34722) (the S-4))                                       
|        | 10.7  |          |  | Stock Purchase Agreement between Internet Capital
    Group, Inc. and International Business Machines Corporation
    (incorporated by reference to Exhibit 10.23.1 to Amendment
    No. 2 to the IPO Registration Statement filed by the
    Company on July 16, 1999 (Registration No. 333-79193))                                                                 
|        | 10.8  |          |  | Lease dated January 1, 2000 between Bebob
    Associates and Internet Capital Group, Inc. for premises located
    in Wayne, Pennsylvania (incorporated by reference to
    Exhibit 10.3 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2000)                                                                                     
|        | 10.9  |          |  | Amendment to Lease dated February 1, 2000
    between Bebob Associates and Internet Capital Group, Inc. for
    additional space in Wayne, Pennsylvania (incorporated by
    reference to Exhibit 10.4 to the Companys Quarterly Report
    on Form l0-Q for the quarter ended June 30, 2000)                                                                       
|        | 10.10 |          |  | Second Amendment to Lease dated May 9, 2000
    between Bebob Associates, Inc. and Internet Capital Group, Inc.
    (incorporated by reference to Exhibit 10.5 to the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2000)                                                                                                           
|        | 10.11 |          |  | Third Amendment to Lease dated November 29,
    2000 between Bebob Associates, Inc. and Internet Capital Group,
    Inc. (incorporated by reference to Exhibit 10.26 to the
    10-K Annual Report for 2000)                                                                                                                                                         
|        | 10.12 |          |  | Assignment and Assumption Agreement dated
    December 31, 2000 among Internet Capital Group, Inc.,
    Internet Capital Group Operations, Inc. and Bebob Associates
    (incorporated by reference to Exhibit 10.27 to the Annual
    Report for 2000)                                                                                                              
|        | 10.13 |          |  | Lease dated March 27, 2000 between the
    Equitable Life Assurance Society of the United States and
    Internet Capital Group, Inc. for premises located in Boston,
    Massachusetts (incorporated by reference to Exhibit 10.6 to
    the Companys Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2000)                                       
|        | 10.14 |          |  | Form of Promissory Note issued in connection with
    the exercise of Internet Capital Group, Inc.s stock
    options in May, June and July of 1999 (incorporated by reference
    to Exhibit 10.33 to Amendment No. 1 to the IPO
    Registration Statement filed by the Company on June 22,
    1999 (Registration No. 333-78913) (the IPO Amendment
    No. 1))
|        | 10.15 |          |  | Form of Restrictive Covenant Agreement issued in
    connection with the exercise of Internet Capital Groups
    stock options in May, June and July of 1999 (incorporated by
    reference to Exhibit 10.34 to the IPO Amendment No. 1)                                                                                                                            
|        | 10.16 |          |  | Securities Purchase Agreement dated
    October 27, 1999 by and among eMerge Interactive, Inc.,
    J. Technologies, LLC and Internet Capital Group, Inc.
    (incorporated by reference to the Companys Current Report
    on Form 8-K filed November 22, 1999 (File
    No. 0-26929))                                                                             
|        | 10.17 |          |  | Joint Venture Agreement dated October 26,
    1999 by and between Internet Capital Group, Inc. and Safeguard
    Scientifics, Inc. (incorporated by reference to
    Exhibit 10.23 to the Registration Statement filed by the
    Company on November 22, 1999 (Registration
    No. 333-91447))                                                                     
|        | 10.18 |          |  | Purchase Agreement dated December 6, 1999
    between Internet Capital Group, Inc. and AT&T Corp.
    (incorporated by reference to Exhibit 10.25 to the
    Registration Statement filed by the Company on December 6,
    1999 (Registration No. 333-91447) (the Follow-on
    Amendment No. 1))                                                                 
|        | 10.19 |          |  | Purchase Agreement dated December 6, 1999
    between Internet Capital Group, Inc. and Internet Assets, Inc.
    (incorporated by reference to Exhibit 10.26 to the
    Follow-on Amendment No. 1)                                                                                                                                                                   
|        | 10.20 |          |  | Purchase Agreement dated December 6, 1999
    between Internet Capital Group, Inc. and Ford Motor Company
    (incorporated by reference to Exhibit 10.27 to Amendment
    No. 3 to the Registration Statement filed by the Company on
    December 15, 1999 (Registration No. 333-91447))                                                                           
|        | 10.21 |          |  | Severance and Change in Control Agreement dated
    as of January 1, 2001 by and between Internet Capital
    Group, Inc. and Edward H. West (incorporated by reference to
    Exhibit 10.43 to the 10-K Annual Report for 2001)                                                                                                                                     



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##### 



|        |       |          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------- | ----- | -------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |         
|Number  |       | Document
|        |       |         
|        | 10.22 |          |  | Form of Letter Agreement dated September 20,
    2001 between Internet Capital Group, Inc. and certain of its
    officers (the Form Severance Letter Agreement)
    (incorporated by reference to Exhibit 10.44 to the 10-K
    Annual Report for 2001)                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.23 |          |  | Separation of Employment Agreement and General
    Release between Nigel Andrews and Internet Capital Group, Inc.
    dated March 2, 2001 (incorporated by reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q for the quarter ending March 31, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.24 |          |  | Separation of Employment Agreement and General
    Release between Ronald W. Hovsepian and Internet Capital Group,
    Inc. dated April 15, 2002 (incorporated by reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2002)                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.25 |          |  | Amendment dated December 11, 2002 to
    Severance Letter Agreement dated as of September 20, 2001
    by and between Internet Capital Group, Inc. and Henry Nassau
    which is substantially in the form of the Form Severance
    Letter Agreement                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.26 |          |  | Severance Letter Agreement dated February 4,
    2003 by and between Internet Capital Group, Inc. and Anthony
    Dolanski                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.27 |          |  | Warrant to Purchase Shares of Common Stock of
    Internet Capital Group, Inc. issued to AT&T Corp., dated
    January 29, 2001 (incorporated by reference to
    Exhibit 10.2 to the Companys Quarterly Report on
    Form 10-Q for the quarter ending March 31, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.28 |          |  | Tender Agreement among Fir Tree Value Fund, L.P.,
    Fir Tree Institutional Value Fund, L.P., Fir Tree Value
    Partners, LDC, Fir Tree Recovery Master Fund, L.P. and Internet
    Capital Group, Inc. dated October 29, 2001 (incorporated by
    reference to the Companys filing on Form SC TO-I/ A
    filed on November 1, 2001 (File No. 005-578-57841))                                                                                                                                                                                                                                                                                                                                               
|        | 10.29 |          |  | First Amendment to Tender Agreement among Fir
    Tree Value Fund, L.P., Fir Tree Institutional Value Fund, L.P.,
    Fir Tree Value Partners, LDC, Fir Tree Recovery Master Fund,
    L.P. and Internet Capital Group, Inc. dated October 31,
    2001 (incorporated by reference to the Companys filing on
    Form SC TO-I/ A filed on November 1, 2001 (File
    No. 005-578-57841))                                                                                                                                                                                                                                                                                                                        
|        | 10.30 |          |  | 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)                                                                                                                                                                                                                                                                                                                                                  
|        | 10.31 |          |  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.32 |          |  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.33 |          |  | 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)                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 11.1  |          |  | Statement Regarding Computation of Per Share
    Earnings (included herein at Note 1-Significant Accounting
    Policies in the subsection Net Loss Per Share
    to the Consolidated Financial Statements and Note 20 
     Net Loss Per Share to the Consolidated Financial
    Statements)                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 13.1  |          |  | Sections entitled Election of Directors
    (Item 1 on Proxy Card), Section 16(a)
    Beneficial Ownership Reporting Compliance, Executive
    Compensation, Other Forms of Compensation,
    Securities Authorized for Issuance Under Equity
    Compensation Plans, Security Ownership of Certain
    Beneficial Owners and Directors and Officers and
    Certain Relationships and Related Transactions in
    the Companys Definitive Proxy Statement relative to its
    annual meeting of shareholders, to be filed within 120 days
    after the end of the year covered by this Form 10-K Report
    pursuant to Regulation 14A under the Securities Exchange
    Act of 1934, as amended
|        | 21.1  |          |  | Subsidiaries of Internet Capital Group, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 23.1  |          |  | Consent of KPMG LLP regarding Internet Capital
    Group, Inc.