Actua (ACTA) 10-Q 2006 Q1 Quarterly report

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended March 31, 2006

Commission File Number 000-26929

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)
690 Lee Road, Suite 310, Wayne, PA (Address of principal executive offices)	19087 (Zip Code)

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes  þ  Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o Accelerated filer  þ Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes  o  No  þ

The number of shares of the Company’s Common Stock outstanding as of May 1, 2006 was 39,177,195 shares.

INTERNET CAPITAL GROUP, INC.
QUARTERLY REPORT ON FORM 10-Q

INDEX

ITEM		PAGE NO.
Item 1.	Financial Statements:
	Consolidated Balance Sheets—March 31, 2006 (unaudited) and December 31, 2005		3
	Consolidated Statements of Operations (unaudited)—Three Months Ended March 31, 2006 and 2005		4
	Consolidated Statements of Cash Flows (unaudited)—Three Months Ended March 31, 2006 and 2005		5
	Notes to Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		37
Item 4.	Controls and Procedures		37
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		38
Item 1A.	Risk Factors		38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		48
Item 3.	Defaults Upon Senior Securities		48
Item 4.	Submission of Matters to a Vote of Security Holders		48
Item 5.	Other Information		48
Item 6.	Exhibits		49
Signatures			50
CERTIFICATION OF CHIEF EXECUTIVE OFFICER REQUIRED BY SECTION 302
CERTIFICATION OF CHIEF FINANCIAL OFFICER REQUIRED BY SECTION 302
CERTIFICATION OF CHIEF EXECUTIVE OFFICER REQUIRED BY SECTION 906
CERTIFICATION OF CHIEF FINANCIAL OFFICER REQUIRED BY SECTION 906

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

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. See the subsection of Part I, Item 2 entitled “Risk Factors” for more information.

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

INTERNET CAPITAL GROUP, INC.
CORE PARTNER COMPANIES AS OF MARCH 31, 2006

Consolidated

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

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

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

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

StarCite, Inc. (“StarCite”)

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

Equity

CreditTrade Inc. (“CreditTrade”)

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

Freeborders, Inc. (“Freeborders”)

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

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

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

Metastorm Inc. (“Metastorm”)

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

Qcorps Residential, Inc. (d/b/a WhiteFence) (“WhiteFence”)

WhiteFence is a web services provider used by household consumers to compare and purchase essential home services such as electricity, natural gas, telephone and cable/satellite television. WhiteFence reaches customers directly through company-owned web sites and through its network of exclusive channel partners who integrate the web services application within their own business processes and web sites.

Vcommerce, Inc. (“Vcommerce”)

Vcommerce provides on-demand commerce and fulfillment solutions for multi-channel retailers and direct-to-consumer companies of all types. Vcommerce offers turn-key solutions and customized features that allow customers to rely on Vcommerce for some or all of their e-commerce functions, from hosting an entire e-commerce site to supporting back-end functions such as managing drop-ship suppliers. As a complete solution, Vcommerce enables retailers, distributors and manufacturers to merchandise products, accept orders from customers, authorize and settle credit card transactions, ship products directly to the consumer, handle returns and manage customer service through the Vcommerce platform with minimal operating overhead and no IT infrastructure. Vcommerce generates revenue primarily through usage-based transaction. For some customers, Vcommerce acts as supplier of record but does not hold inventory.

2

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

INTERNET CAPITAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2006			2005
	(unaudited)
	(in thousands, except per share data)
Assets
Current Assets
Cash and cash equivalents	$	139,380		$	142,659
Restricted cash		249			253
Short term investments		—			5,000
Accounts receivable, net of allowance ($650-2006; $599-2005)		9,964			9,480
Prepaid expenses and other current assets		5,771			15,399
Assets held for sale		—			9,038
Total Current Assets		155,364			181,829
Marketable securities		67,433			63,425
Fixed assets, net		2,336			1,886
Ownership interests in Partner Companies		83,769			71,453
Goodwill		20,859			20,383
Intangibles, net		2,716			3,407
Other		3,735			4,149
Total Assets	$	336,212		$	346,532
Liabilities and Stockholders’ Equity
Current Liabilities
Current portion of senior convertible notes	$	3,500		$	—
Current maturities of other long-term debt		970			1,117
Accounts payable		6,241			6,181
Accrued expenses		9,758			9,552
Accrued compensation and benefits		3,354			7,141
Deferred revenue		12,257			11,190
Liabilities held for sale		—			8,760
Total Current Liabilities		36,080			43,941
Senior convertible notes		33,500			37,000
Other long-term debt		4,255			4,294
Long-term deferred revenue		1,024			1,490
Other liabilities		838			640
Minority interest		2,852			2,922
		78,549			90,287
Stockholders’ Equity
Preferred stock $0.01 par value; 10,000 shares authorized, none issued or outstanding		—			—
Common stock, $0.001 par value; 2,000,000 shares authorized, 39,167 (2006) and 39,314 (2005) issued and outstanding		39			39
Additional paid in capital		3,531,279			3,535,646
Accumulated deficit		(3,337,626	)		(3,332,719	)
Unamortized deferred compensation		—			(6,684	)
Notes receivable-stockholders		(300	)		(300	)
Accumulated other comprehensive income		64,271			60,263
Total Stockholders’ Equity		257,663			256,245
Total Liabilities and Stockholders’ Equity	$	336,212		$	346,532

See accompanying notes to Consolidated Financial Statements.

3

INTERNET CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,
	2006			2005
	(in thousands, except per share data)
Revenue	$	15,893		$	11,891
Operating expenses
Cost of revenue		9,232			6,152
Selling, general and administrative		10,307			9,445
Research and development		2,431			3,150
Amortization of intangibles		557			572
Impairment related and other		93			11
Total operating expenses		22,620			19,330
		(6,727	)		(7,439	)
Other income (loss), net		98			5,056
Interest income		2,532			475
Interest expense		(654	)		(910	)
Income (loss) before income taxes, minority interest and equity loss		(4,751	)		(2,818	)
Income tax (expense) benefit		643			—
Minority interest		(64	)		680
Equity loss		(736	)		(475	)
Income (loss) from continuing operations		(4,908	)		(2,613	)
Income (loss) on discontinued operations		—			(505	)
Net income (loss)	$	(4,908	)	$	(3,118	)
Basic and diluted income (loss) per share:
Income (loss) from continuing operations	$	(0.13	)	$	(0.07	)
Income (loss) on discontinued operations		—			(0.01	)
	$	(0.13	)	$	(0.08	)
Shares used in computation of basic and diluted income (loss) per share		37,401			37,012

See accompanying notes to Consolidated Financial Statements.

4

INTERNET CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Three Months Ended March 31,
	2006			2005
	(in thousands)
Operating Activities
Net income (loss)	$	(4,908	)	$	(3,118	)
Adjustments to reconcile net loss to cash used in operating activities
(Income) loss from discontinued operations		—			505
Depreciation and amortization		949			932
Impairment related and other		93			11
Stock-based compensation		2,114			398
Equity loss		736			475
Other (income) loss		(98	)		(5,088	)
Minority interest		64			(680	)
Changes in assets and liabilities, net of effect of acquisitions:
Restricted cash		14			51
Accounts receivable, net		(395	)		3,369
Prepaid expenses and other assets		8,165			321
Accounts payable		154			(3,247	)
Accrued expenses		(4,475	)		(2,355	)
Deferred revenue		391			165
Other liabilities		266			526
Cash flows from operating activities of discontinued operations		—			(1,412	)
Cash provided by (used) in operating activities		3,070			(9,147	)
Investing Activities
Capital expenditures, net		(848	)		(232	)
Purchases of short-term investments		—			(4,922	)
Proceeds of short-term investments		5,000			28,454
Proceeds from sales of marketable securities		306			4,400
Proceeds from sales of Partner Company ownership interests		124			883
Acquisitions of ownership interests in Partner Companies, net		(12,925	)		(947	)
Increase in cash due to consolidation of Partner Companies		—			610
Cash flows from investing activities of discontinued operations		—			—
Cash provided by (used in) investing activities		(8,343	)		28,246
Financing Activities
Long term debt and capital lease obligations		(193	)		(78	)
Repayment of loans to employees/stockholders		2,151			—
Cash flows from financing activities of discontinued operations		—			—
Cash provided by (used in) financing activities		1,958			(78	)
Net increase (decrease) in Cash and Cash Equivalents		(3,315	)		19,021
Effect of exchange rates on cash		36			25
Cash and Cash Equivalents at beginning of period		142,659			31,586
Cash and Cash Equivalents at March 31,		139,380			50,632
Less Cash and Cash Equivalents of discontinued operations at March 31,		—			1,281
Cash and Cash Equivalents of continuing operations at the end of period	$	139,380		$	49,351

See accompanying notes to Consolidated Financial Statements.

5

INTERNET CAPITAL GROUP, ING.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Company

Description of the Company

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

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

2. Significant Accounting Policies

Basis of Presentation

The accompanying Consolidated Financial Statements are unaudited and, in the opinion of management, include all adjustments consisting only of normal and recurring adjustments necessary for a fair presentation of the results for these interim periods. These Consolidated Financial Statements should be read in connection with the Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005. Results of operations for the three-month period ended March 31, 2006 are not necessarily indicative of the results of operations expected for the full year.

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

Three Months Ended March 31,
2006	2005
ICG Commerce	ICG Commerce
Investor Force	Investor Force
StarCite(1)	CommerceQuest(2)

⁽¹⁾StarCite became a consolidated Partner Company on June 8, 2005.

⁽²⁾In October 2005, CommerceQuest, a consolidated Partner Company, was acquired by Metastorm in exchange for an equity interest in Metastorm. Beginning October 1, 2005, Metastorm was accounted for as an equity method Partner Company.

The Consolidated Balance Sheets include the following majority-owned subsidiaries at March 31, 2006 and December 31, 2005:

ICG Commerce
Investor Force
StarCite

6

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Significant Accounting Policies – (Continued)

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: the consolidation method, the equity method and the cost method. 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, and for which other stockholders do not possess the right to affect significant management decisions, are 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.

Although the Company’s ownership percentage in GoIndustry exceeded 50% at December 31, 2005, the Company did not consolidate its financial statements due to the existence of certain minority voting rights in accordance with Emerging Issues Task Force (“EITF”) No. 96-16, “Investor’s Accounting for an Investee When an Investor Has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights.” At March 31, 2006, the Company owned 37% of GoIndustry (See Note 4).

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 stock, preferred stock 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.

7

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Significant Accounting Policies – (Continued)

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

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

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

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

8

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Significant Accounting Policies – (Continued)

Restricted Cash

The Company considers cash that is legally restricted and cash that is held as a compensating balance for letter of credit arrangements as restricted cash. At March 31, 2006 and December 31, 2005, restricted cash was held primarily in money market accounts. Long-term restricted cash of $0.7 million at March 31, 2006 and December 31, 2005 is included in “Other” assets on the Company’s Consolidated Balance Sheets.

9

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Significant Accounting Policies – (Continued)

Short-term Investments

Short-term investments are debt securities, principally commercial paper and certificates of deposit, maturing in less than one year, are classified as available for sale and are recorded at market value using the specific identification method. Short-term investments consisted of $5.0 million in certificates of deposit at December 31, 2005. All of the short-term investments outstanding at December 31, 2005 matured in 2006.

10

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2. Significant Accounting Policies – (Continued)

Concentration of Customer Base and Credit Risk

Approximately 9% and 16% of the Company’s revenue for the three months ended March 31, 2006 and 2005, related to a single customer of ICG Commerce. Accounts receivable from this customer at March 31, 2006 and December 31, 2005 were $1.4 million and $1.1 million, respectively.

Reclassifications

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

11

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. Equity Based Compensation

Incentive or non-qualified equity compensation may be granted to Company employees, directors and consultants under the 2005 Omnibus Equity Compensation Plan (the “2005 Equity Plan”), the Membership Profit Interest Plan (the “MPI Plan”), the 1999 Equity Compensation Plan (the “1999 Plan”) and the LGO Corporation 2001 Equity Compensation Plan (f/k/a Logistics.com 2001 Equity Compensation Plan) (the “LGO Plan,” together with the 2005 Equity Plan, 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 March 31, 2006, the Company reserved approximately 397,983 shares of common stock under the Plans, for possible future issuance. Most Partner Companies also maintain their own equity compensation plans.

Prior to 2006, the Company accounted for stock-based compensation to employees and directors using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations. Under APB 25, no stock-based compensation expense was recognized on stock options granted to employees or directors, as the exercise price was equal to the market price of the stock on the date of grant.

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), requiring the Company to recognize compensation expense based on the fair value of our stock-based awards. The Company elected the modified prospective transition method as permitted by SFAS No. 123R. Accordingly, results from prior periods have not been restated. Under this transition method, stock-based compensation expense for the three months ended March 31, 2006 includes:

(a)  compensation expense for all stock-based awards granted prior to January 1, 2006, but not yet vested, based on the grant date fair value previously estimated in accordance with the original provisions of SFAS No. 123, and

(b)  compensation expense for all stock-based awards granted, modified or settled subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123R.

Upon the adoption of SFAS No. 123R, the unamortized deferred compensation balance of $6.7 million was reclassified into additional paid-in capital. Consistent with past practice under the disclosure requirements of SFAS No. 123, the Company has elected to recognize compensation expense for stock option awards issued to employees and directors on a straight-line basis over the requisite service period of the award. To satisfy the exercise of options, stock appreciation rights or to issue new restricted stock, the Company normally issues new shares rather than purchase shares on the open market.

Total stock based compensation for the three months ended March 31, 2006 is $2.1 million and is included in “Selling, general and administrative” on the Company’s Statements of Operations.

12

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. Equity Based Compensation – (Continued)

Pursuant to the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation,” the following table illustrates the effect on the Company’s net income (loss) and net income (loss) per share as if the fair value based method had been applied to all outstanding and unvested equity awards for the three months ended March 31, 2005:

	Three Months ended
	March 31, 2005
	(in thousands, except
	per share data)
Net income (loss), as reported	$	(3,118	)
Stock-based employee compensation expense included in reported net income (loss)		404
Total stock-based employee compensation expense determined under fair-value-based method for all awards		(1,597	)
Pro forma net income (loss)	$	(4,311	)
Net income (loss) per basic share, as reported	$	(0.08	)
Pro forma net income (loss) per basic share	$	(0.12	)

In July 2005 and December 2005, the Company issued 3,600,500 and 5,000 stock appreciation rights (“SARs”), respectively. The fair value of each SAR was estimated on the date of the grant using the Black-Scholes option-pricing model. During the three months ended March 31, 2006, the Company recognized $1.1 million of stock-based compensation related to SARs. The SARs vest primarily over four years. The per share weighted-average fair value of SARs issued by the Company during the three months ended March 31, 2006 was $5.79 per share. Unrecognized stock-based compensation of $14.0 million is expected to be recognized over a weighted-average period of 3.3 years related to these SARs.

Changes in SARs for the three months ended March 31, 2006 were as follows:

			Weighted
			Average
	SARs		Grant Price
Issued and unvested at December 31, 2005		3,605,500	$	7.34
SARs Granted		137,600	$	9.50
Issued and unvested at March 31, 2006		3,743,100	$	7.42

					Weighted Average
	SARs		SARs		Remaining Contract Life		Aggregate Intrinsic
Grant Price	Outstanding		Vested		(in years)		Value
$7.34		3,600,500		—		9.3	$	7,489,040
$8.14 — $9.50		142,600		—		9.8		6,400
		3,743,100		—			$	7,495,440

During the three months ended March 31, 2006, the Company recognized $0.2 million of stock-based compensation related to stock options. The fair value of each stock option was estimated on the date of the grant using the Black-Scholes option-pricing model. The weighted-average grant date fair value of stock options issued by the Company during the three months ended March 31, 2005 was $5.16 per share.

Changes in stock options for the three months ended March 31, 2006 were as follows:

				Weighted
				Average
	Shares			Exercise Price
Outstanding at December 31, 2005		726,887		$	37.24
Options cancelled/forfeited		(37,498	)	$	34.90
Outstanding at March 31, 2006		689,389		$	37.37

13

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. Equity Based Compensation – (Continued)

The following table summarizes information about stock options outstanding at March 31, 2006:

					Weighted Average
	Shares		Shares		RemainingContractual Life		Aggregate Intrinsic
Exercise Price	Outstanding		Exercisable		(in Years)		Value
$4.59 — $8.00		137,224		98,342		7.0	$	574,503
$8.01 — $12.00		186,233		166,735		6.8	$	102,774
$12.01 — $20.00		127,199		125,375		5.4	$	—
$20.01 — $2,210.00		238,733		238,728		4.7	$	—
		689,389		629,180			$	677,277

At March 31, 2006 and December 31, 2005, there were 629,180 and 634,948 options exercisable at a weighted-average exercise price of $40.28 and $41.62 per share, respectively. Unrecognized stock-based compensation of $0.5 million is expected to be recognized over a weighted-average period of 11 months.

The following assumptions were used to determine the fair value of stock options and SARs granted to employees by the Company for the three months ended March 31, 2006 and 2005:

	2006			2005
Expected volatility		60	%		70	%
Expected term	6.25 years			6.25 years
Risk-free interest rate		4.55	%		3.91	%
Dividend yield		0.0	%		0.0	%

The Company also included its share of its Partner Companies’ SFAS No. 123 pro forma expense in the Company’s SFAS No. 123 pro forma expense. The method used by the Partner Companies included the minimum value method for private Partner Companies.

During the three months ended March 31, 2006, the Company issued 37,520 shares of restricted stock. Changes in restricted stock for the three months ended March 31, 2006 are shown in the following table:

				Weighted Average	Weighted Average
				Grant Date	Remaining Contract
	Shares			Fair Value	Term
Issued and unvested, January 1, 2006		1,133,065		$7.15	2.7 years
Granted		37,520		$9.50	2.9 years
Vested		(23,863	)	$7.20		—
Issued and unvested, March 31, 2006		1,146,722		$7.23	2.7 years

Recipients of restricted stock did not pay any cash consideration to the Company for the shares, have the right to vote all shares subject to the grant and receive all dividends with respect to the shares, whether or not the shares have vested. The 2004, 2005 and 2006 restricted stock grants were valued at $4.4 million, $6.0 million and $0.4 million, respectively and are being amortized over the vesting period. The 2006 restricted stock grants primarily vest 33% in 2006 and ratably 33% each November through 2008. The 2005 restricted stock grant vested 25% in 2005 and ratably 25% per year each November through 2008. The 2004 restricted stock grant generally vests ratably over four years with acceleration provisions based on certain operating metrics. Stock-based compensation expense for the three months ended March 31, 2006 and 2005 related to restricted stock was $0.7 million and $0.3 million, respectively.

As of March 31, 2006, there was $6.3 million of unrecognized stock-based compensation related to unvested restricted stock awards that is expected to be recognized over a weighted-average period of 2.7 years.

14

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. Equity Based Compensation – (Continued)

During the three months ended March 31, 2006, the Company issued deferred stock units (“DSUs”) to the Company’s non-management directors valued at $0.2 million. Changes in DSUs for the three months ended March 31, 2006 is shown in the following table:

				Weighted Average
				Grant Date	Weighted Average
	DSUs			Fair Value	Remaining Contract Term
Issued and unvested, January 1, 2006		74,062		$7.34	1 month
Granted		31,128		$8.90	10 months
Vested		(83,690	)	$7.44		—
Issued and unvested, March 31, 2006		21,500		$9.20	10 months

The Company issues quarterly compensation payments to non-management directors for Board service that directors can elect to receive in whole or in part in the form of DSUs in lieu of cash under the Internet Capital Group, Inc. Director Deferred Stock Unit Program. The DSUs are issued at a 25% discount. The Company records expense when these DSUs are issued. Compensation expense related to these DSUs was $0.2 million for the three months ended March 31, 2006. As of March 31, 2006, there was $0.1 million of unrecognized stock-based compensation related to unvested DSU awards that is expected to be recognized over a weighted-average period of 10 months.

The loans to a former employee, which were modified in 2001, matured in February 2006. The remaining principal and interest on this employee’s loans totaled $13.6 million at maturity, of which $2.2 million was recourse. At maturity, the recourse portion of the loan was collected. $2.0 million was applied to the principal portion of the tax loan (plus accrued interest) with the balance of $0.2 million applied to additional paid-in capital and the Company foreclosed on the 215,000 shares of Company common stock securing the non-recourse portion.

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

The following table summarizes the Company’s goodwill, other intangibles, and ownership interests in Partner Companies.

	March 31,		December 31,
	2006		2005
	(in thousands)
Goodwill	$	20,859	$	20,383
Intangibles, net	$	2,716	$	3,407
Ownership interests in Partner Companies – Equity Method	$	79,933	$	67,617
Ownership interests in Partner Companies – Cost Method		3,836		3,836
	$	83,769	$	71,453

As of March 31, 2006 and December 31, 2005, all of the Company’s goodwill was allocated to the Core segment, as defined in Note 8 herein.

15

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. Ownership Interests in Partner Companies, Goodwill and Intangibles, net – (Continued)

Intangibles, net are shown in the tables below:

		As of March 31, 2006
		(in thousands)
	Useful	Gross Carrying		Accumulated			Net Carrying
Intangible Assets	Life	Amount		Amortization			Amount
Technology	1.5-5 years	$	18,111	$	(17,532	)	$	579
Customer lists	3 years		2,599		(641	)		1,958
Trade name	Indefinite		179		—			179
		$	20,889	$	(18,173	)	$	2,716

		As of December 31, 2005
		(in thousands)
	Useful	Gross Carrying		Accumulated			Net Carrying
Intangible Assets	Life	Amount		Amortization			Amount
Technology	1.5-5 years	$	18,105	$	(17,229	)	$	876
Customer lists	3 years		2,599		(247	)		2,352
Trade name	Indefinite		179		—			179
		$	20,883	$	(17,476	)	$	3,407

Amortization expense for intangible assets during the three months ended March 31, 2006 and 2005 was $0.6 million and $0.6 million, respectively. Estimated amortization expense for the fiscal year ending December 31, 2006 and succeeding fiscal years is as follows (in thousands):

2006 (remainder)	$	1,170
2007		1,168
2008		199
	$	2,537

Acquisitions

During 2005, the Company acquired majority ownership positions in two Partner Companies, Investor Force (January 2005) and StarCite (June 2005), 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, has been allocated to the assets and the liabilities based upon their fair values at the date of the acquisition. The assets and liabilities for these acquisitions were allocated as follows:

	Investor Force			StarCite
	(in thousands)
Net Assets Acquired:
Goodwill	$	2,589		$	2,102
Customer base		—			2,513
Technology		11			75
Trade name		—			179
Other net assets (liabilities)		(670	)		(1,659	)
	$	1,930		$	3,210

16

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. Ownership Interests in Partner Companies, Goodwill and Intangibles, net – (Continued)

Following is unaudited selected pro forma financial information had the Company consolidated StarCite for the three months ended March 31, 2005. Revenue, net income (loss) and net income (loss) per basic and diluted share would have been $15.5 million, $(3.2) million and $(0.09) per share, respectively. Investor Force was consolidated beginning January 1, 2005.

Equity Method Companies

The following unaudited summarized financial information relates to the Company’s Partner Companies accounted for under the equity method of accounting at March 31, 2006.

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

Balance Sheets (Unaudited)

	As of March 31, 2006
			Other
	Core(1)		Holdings(2)		Total
	(in thousands)
Cash, cash equivalents and short-term investments	$	41,225	$	6,242	$	47,467
Other current assets		29,563		24,319		53,882
Other non-current assets		66,040		45,527		111,567
Total assets	$	136,828	$	76,088	$	212,916
Current liabilities	$	44,322	$	31,236	$	75,558
Non-current liabilities		110		8,735		8,845
Long-term debt		8,189		5,808		13,997
Stockholders’ equity		84,207		30,309		114,516
Total liabilities and stockholders’ equity	$	136,828	$	76,088	$	212,916
Total carrying value	$	79,151	$	782	$	79,933

(1)	Includes (voting ownership): CreditTrade (27%), Freeborders (33%), Marketron (38%), Metastorm (41%) Vcommerce (36%) and WhiteFence (39%).
(2)	Includes ComputerJobs.com, Inc. (“Computer Jobs”) (46%), eCredit.com, Inc. (“eCredit”) (29%) and GoIndustry plc (“GoIndustry”) (37%).

17

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. Ownership Interests in Partner Companies, Goodwill and Intangibles, net – (Continued)

	As of December 31, 2005
			Other
	Core(3)		Holdings(4)		Total
	(in thousands)
Cash, cash equivalents and short-term investments	$	42,633	$	8,525	$	51,158
Other current assets		28,657		26,121		54,778
Other non-current assets		65,010		54,419		119,429
Total assets	$	136,300	$	89,065	$	225,365
Current liabilities	$	50,514	$	38,712	$	89,226
Non-current liabilities		274		1,714		1,988
Long-term debt		5,129		14,147		19,276
Stockholders’equity		80,383		34,492		114,875
Total liabilities and stockholders’ equity	$	136,300	$	89,065	$	225,365
Total carrying value	$	66,678	$	939	$	67,617

(3)	Includes (voting ownership): CreditTrade (27%), Freeborders (33%), Marketron (38%), Metastorm (41%) and WhiteFence (39%).
(4)	Includes ComputerJobs (46%), eCredit (29%) and GoIndustry (54%).

Results of Operations (Unaudited)

	Three Months Ended March 31, 2006
				Other
	Core(5)			Holdings(6)			Total
	(in thousands)
Revenue	$	34,084		$	16,100		$	50,184
Net income (loss)	$	(1,819	)	$	(2,976	)	$	(4,795	)
Total equity income (loss)	$	(579	)	$	(157	)	$	(736	)

(5)	Includes CreditTrade, Freeborders, Marketron, Metastorm and Whitefence.
(6)	Includes ComputerJobs, eCredit and GoIndustry.

	Three Months Ended March 31, 2005
				Other			Dispositions/
	Core(7)			Holdings(8)			Other(9)		Total
	(in thousands)
Revenue	$	26,759		$	10,351		$	15,184	$	52,294
Net income (loss)	$	(616	)	$	(1,984	)	$	1,536	$	(1,064	)
Total equity income (loss)	$	(495	)	$	(680	)	$	700	$	(475	)

(7)	Includes CreditTrade, Freeborders, Marketron and StarCite.
(8)	Includes ComputerJobs, eCredit and GoIndustry.
(9)	Includes primarily Co-nect and LinkShare.

18

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4. Ownership Interests in Partner Companies, Goodwill and Intangibles, net – (Continued)

Other Equity Company Information

During 2005, the Company’s share of the net loss of GoIndustry exceeded the Company’s carrying value of GoIndustry. Accordingly, the Company recorded equity loss to the extent of carrying value. As the Company’s carrying value of GoIndustry is zero at March 31, 2006, no additional equity loss relating to GoIndustry will be recorded by the Company unless the Company funds, commits to fund or guarantees obligations of GoIndustry. Additionally, no equity income will be recorded by the Company until such equity income equals the amount of its share of losses not previously recognized.

In January 2006, GoIndustry, through a reverse merger, listed its securities on the AIM Exchange of the London Stock Exchange and became a publicly-traded Partner Company. The Company holds 69,177,300 shares of GoIndustry common stock valued at approximately $22.0 million as of March 31, 2006 and may receive an additional 11,964,602 shares of GoIndustry common stock as contingent consideration in respect of the reverse merger. The Company is restricted from selling shares of GoIndustry until January 4, 2007.

Warrants

At March 31, 2006 and December 31, 2005, the estimated fair value of warrants owned by the Company was approximately $1.5 million and $1.8 million, respectively, and is included in “Other assets” in the Company’s Consolidated Balance Sheets. The Company recorded losses related to the decrease in the fair value of outstanding warrants of $0.3 million in the three months ended March 31, 2006. These losses are included in “Other income (loss), net” on the Company’s Consolidated Statements of Operations (See Note 11). In April 2006, the Company exercised 78,737 warrants of Traffic.com, Inc. (“Traffic.com”) in a cashless transaction for 70,843 shares of Traffic.com.

5. Marketable Securities

Marketable securities represent the Company’s holdings in equity securities. The cost, unrealized holding gains/(losses), and fair value of marketable securities at March 31, 2006 and December 31, 2005 were as follows:

					Unrealized
	Common Shares				Holding
	Owned		Cost		Gains/(Losses)		Fair Value
	(in thousands, except shares)
March 31, 2006
Blackboard		2,187,060	$	3,162	$	59,250	$	62,412
Traffic.com		595,058		—		4,969		4,969
Other				—		52		52
			$	3,162	$	64,271	$	67,433
December 31, 2005
Blackboard		2,187,060	$	3,162	$	60,219	$	63,381
Other				—		44		44
			$	3,162	$	60,263	$	63,425

19

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. Marketable Securities – (Continued)

During the three months ended March 31, 2005, the Company sold 263,000 shares of Blackboard and received proceeds of $4.3 million. The gains on the Blackboard sales are reflected in “Other income (loss), net” in the Company’s Consolidated Statements of Operations.

The amounts reflected as the Company’s cost for Blackboard and Traffic.com include the Company’s carrying value on the date these Partner Companies converted to marketable securities and the value of warrants exercised.

On January 25, 2006, Traffic.com completed an initial public offering of its common stock. The Company received $0.3 million in February 2006 upon the sale of 27,141 shares related to Traffic.com’s underwriter over-allotment exercise. Pursuant to the terms of a lockup agreement, the Company is restricted from selling the remaining shares prior to July 24, 2006. After the exercise of the Company’s warrants to purchase common stock of Traffic.com in April 2006 (See Note 4), the Company owns 665,901 shares of common stock of Traffic.com.

In February 2006, the Company entered into a cashless collar contract to hedge 500,000 shares of its holdings of Blackboard common stock. Based on the terms of the contract, the cashless collar contract and related shares will be worth a minimum of $11.2 million, or $22.4419 per share, and a maximum of $27.7 million, or $55.4982 per share, at maturity in March 2010. The contract limits the Company’s exposure to and benefits from price fluctuations in the underlying equity securities. The fair value of the Blackboard cashless collar contract was not material at March 31, 2006.

6. Debt

Senior Convertible Notes

In early May 2006, the Company repurchased $3.5 million of face value of its senior convertible notes for $4.3 million in cash. The Company expects to record a $0.8 million loss on the repurchase (including the acceleration of deferred financing fees) during the three months ended June 30, 2006 related to this transaction. As of May 9, 2006, the amount of senior convertible notes outstanding is $33.5 million.

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

Except for certain permitted senior indebtedness and liens created in connection with certain hedging transactions, the notes (i) are senior to all other indebtedness, (ii) prohibit incurring or guaranteeing additional indebtedness, (iii) prohibit liens on Company assets, (iv) prohibit redemptions of the Company’s common stock, except in certain instances, and (v) prohibit the payment of dividends and the distribution of any material assets of the Company to stockholders.

20

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Debt – (Continued)

The Company recorded interest expense of $0.5 million and $0.7 million for the three months ended March 31, 2006 and 2005, respectively related to these notes, including $0.1 million related to the amortization of deferred financing fees in each period. Included in “Other assets” in the accompanying Consolidated Balance Sheets at March 31, 2006 and December 31, 2005 were $0.6 million and $0.7 million, respectively, of deferred financing fees.

Other Long-Term Debt

At March 31, 2006, StarCite has other debt of $3.1 million which primarily consists of notes payable of $3.0 million that bears interest at an annual rate of 6.0% and mature in May 2009.

At March 31, 2006, ICG Commerce has other debt of $1.8 million, of which $0.8 million is due within the next twelve months, which primarily consists of a note payable that bears interest at an annual rate of 5.0%.

Other long-term debt repayments of $1.0 million, $0.7 million, $0.5 million and $3.0 million are due for the remainder of 2006 and 2007, 2008, 2009, respectively.

Loan and Credit Agreements

On September 30, 2002, the Company entered into a loan agreement with Comerica Bank to provide for the issuance of letters of credit (the “Loan Agreement”). The Loan Agreement provided for issuances of letters of credit up to $20 million subject to a cash-secured borrowing base as defined by the Loan Agreement. The Loan Agreement was reduced to $10 million in 2004. In December 2005, the Loan Agreement was extended to December 14, 2006. Issuance fees of 0.50% per annum of the face amount of each letter of credit will be paid to Comerica Bank subsequent to issuance. The Loan Agreement also is subject to a 0.25% per annum unused commitment fee payable to the bank quarterly. No amounts were outstanding at March 31, 2006 and December 31, 2005.

7. Discontinued Operations

In 2005, ICG Commerce entered into an agreement to sell its German subsidiary for nominal consideration. The Company recorded a loss of $2.3 million on this transaction in 2005. The sale closed in January 2006. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” this subsidiary has been treated as discontinued operations. Accordingly, the operating results of this discontinued operation has been presented separately from continuing operations and is included in the line item “Income (loss) on discontinued operations, net” in the Company’s Consolidated Statements of Operations.

ICG Commerce’s German subsidiary had revenues of $2.5 million for the three months ended March 31, 2005. The Company’s share of net losses for ICG Commerce’s German subsidiary was $0.5 million for the three months ended March 31, 2005.

21

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. Segment Information

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

The Core operating segment includes those Partner Companies in which the Company’s management takes a very active role in providing strategic direction and management assistance. The Other Holdings operating segment includes stakes in companies that are, in general, managed to provide the greatest near-term stockholder value.

The following summarizes the 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.

Segment Information
(in thousands)

										Reconciling Items
										Discontinued
				Other			Total			Operations and								Consolidated
	Core			Holdings			Segment			Dispositions		Corporate			Other			Results
Three Months Ended March 31, 2006
Revenues	$	15,893		$	—		$	15,893		$	—	$	—		$	—		$	15,893
Net income (loss)	$	(2,009	)	$	(157	)	$	(2,166	)		—	$	(3,456	)	$	714	*	$	(4,908	)
Assets	$	135,460		$	4,626		$	140,086		$	—	$	196,126		$	—		$	336,212
Capital Expenditures	$	(842	)	$	—		$	(842	)	$	—	$	(6	)	$	—		$	(848	)
Three Months Ended March 31, 2005
Revenues	$	11,891		$	—		$	11,891		$	—	$	—		$	—		$	11,891
Net income (loss)	$	(4,479	)	$	(680	)	$	(5,159	)	$	195	$	(4,021	)	$	5,867	*	$	(3,118	)
Assets	$	115,361		$	6,890		$	122,251		$	27,483	$	126,222		$	—		$	275,956
Capital Expenditures	$	(170	)	$	—		$	(170	)	$	—	$	(62	)	$	—		$	(232	)

	Three Months Ended
	March 31,
*	2006			2005
Other income (loss) (Note 11)	$	135		$	5,187
Taxes		643			—
Minority interest		(64	)		680
	$	714		$	5,867

22

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Parent Company Financial Information

Parent company financial information is provided to present the financial position and results of operations of the Company and its wholly-owned subsidiaries as if the Partner Companies accounted for under the consolidation method of accounting were accounted for under the equity method of accounting for all applicable periods presented. The Company’s share of the consolidated Partner Companies’ losses is included in “Equity loss” in the Parent Company Statements of Operations for all periods presented based on the Company’s ownership percentage in each period. The carrying value of the consolidated companies as of March 31, 2006 and December 31, 2005 is included in “Ownership interests in Partner Companies” in the Parent Company Balance Sheets.

Parent Company Balance Sheets

	As of March 31, 2006		As of December 31, 2005
	(in thousands)
Assets
Cash and cash equivalents	$	122,957		$	129,555
Other current assets		4,205			14,226
Current assets		127,162			143,781
Ownership interests in Partner Companies		107,228			94,639
Marketable securities		67,434			63,425
Other		2,436			2,815
Total assets	$	304,260		$	304,660
Liabilities and stockholders’ equity
Current portion of senior convertible notes	$	3,500		$	—
Current liabilities		9,597			11,415
Senior convertible notes		33,500			37,000
Stockholders’ equity		257,663			256,245
Total liabilities and stockholders’ equity	$	304,260		$	304,660

Parent Company Statements of Operations

	Three Months Ended March 31,
	2006			2005
	(in thousands)
Revenue	$	—		$	—
Operating expenses
General and administrative		5,253			3,574
Total operating expenses		5,253			3,574
		(5,253	)		(3,574	)
Other income (loss), net		135			5,187
Interest income (expense), net		1,797			(447	)
Income (loss) before income taxes and equity loss		(3,321	)		1,166
Income tax benefit (expense)		643			—
Equity loss		(2,230	)		(4,284	)
Net income (loss)	$	(4,908	)	$	(3,118	)

23

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Parent Company Financial Information – (Continued)

Parent Company Statements of Cash Flows

	Three Months Ended March 31,
	2006			2005
	(in thousands)
Operating Activities
Net income (loss)	$	(4,908	)	$	(3,118	)
Adjustments to reconcile net loss to cash used in operating activities
Depreciation and amortization		37			26
Stock-based compensation		2,100			398
Equity loss		2,230			4,284
Other (income) loss		(135	)		(5,187	)
Changes in assets and liabilities, net of effect of acquisitions:
Prepaid expenses and other assets		8,567			570
Accounts payable		(104	)		4
Accrued expenses		(2,285	)		(1,269	)
Cash provided by (used in) operating activities		5,502			(4,292	)
Investing Activities
Capital expenditures, net		(6	)		(62	)
Proceeds from sales of marketable securities		306			4,400
Proceeds from sales of ownership interests in Partner Companies		124			883
Acquisitions of ownership interests in Partner Companies, net		(14,675	)		(3,527	)
Purchase of short-term investments		—			28,454
Proceeds from maturities of short-term investments		—			(4,922	)
Cash provided by (used in) investing activities		(14,251	)		25,226
Financing Activities
Repayment of loans from former employees		2,151			—
Cash provided by (used in) financing activities		2,151			—
Net increase (decrease) in cash and cash equivalents		(6,598	)		20,934
Cash and cash equivalents at beginning of period		129,555			9,345
Cash and cash equivalents at end of period	$	122,957		$	30,279

10. Income Taxes

At December 31, 2005, an income tax receivable of $8.4 million was included in “Prepaid expenses and other current assets” on the Company’s December 31, 2005 Consolidated Balance Sheets. The Company received approximately $8.1 million during the three months ended March 31, 2006, the remaining $0.3 has been applied to the Company’s obligation to pay interest on the portion of the taxable gain from the sale of Linkshare, related to the escrow, that has been deferred to 2006. This interest is being amortized ratably over 2006.

The Company recorded a tax benefit of $0.6 million for the three months ended March 31, 2006 related to the operating loss for that period. This benefit will be realized either through a carryback to 2005 or to offset future taxable income.

Excluding the loss for the three months ended March 31, 2006, the Company had federal net operating loss carry forwards of approximately $422 million that may be used to offset future taxable income. The Company also had capital loss carry forwards of approximately $763 million that may be used to offset future capital gains. The net operating loss carry forwards, as well as certain other deferred tax assets, are subject to significant limitations on their utilization due to ownership changes experienced by the Company and certain consolidated Partner Companies. The annual limitation on the utilization of net operating loss carry forwards is approximately $13 million. These carry forwards expire between 2014 and 2023, and the capital loss carry forwards expire between 2006 and 2010. Additional limitations on the utilization of these carry forwards may be imposed if the Company experiences another change in ownership.

A valuation allowance has been provided for the Company’s net deferred tax asset, excluding the loss for the three months ended March 31, 2006, 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.

24

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. Other Income (Loss)

Other Income (Loss), net

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

	Three Months Ended March 31,
	2006			2005
	(in thousands)
Sales/distributions of ownership interests in Partner Companies	$	124		$	375
Realized gains on marketable securities (Note 4)		306			4,330
Gain (loss) on warrants (Note 4)		(295	)		482
	$	135		$	5,187
Total other income (loss) for Consolidated Partner Companies		(37	)		(131	)
	$	98		$	5,056

In September 2005, the Company sold its ownership interest in LinkShare Corporation (“LinkShare”) for approximately $150.1 million in net consideration. The Company received $135.4 million in 2005, $0.4 million in February 2006 and recorded a gain of $118.8 million in 2005. The residual $14.3 million is being held in escrow until September 2006 and will result in additional gain to the extent received.

12. Commitments and Contingencies

The Company records accruals for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available.

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, one of the Company’s former partner companies. In addition to the Company, the complaint also named Freeborders, a current partner company, as a defendant, as well as four individual defendants, including former officers of the Company and former Animated Images and Freeborders 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. In July 2003, the Court granted defendants’ motion to stay the litigation pending arbitration in California of plaintiffs’ claims against Freeborders. In an effort to avoid such arbitration, plaintiffs moved to dismiss Freeborders from the litigation in March 2004. The Court granted this motion and thereafter, plaintiffs filed a motion to compel arbitration of their claims against the Company and certain other defendants. The Court granted plaintiffs’ motion on October 1, 2004, and further ordered a stay of the plaintiffs’ non-arbitrable claims against two individual defendants. Plaintiffs dismissed their claims against one of the individual defendants, a former Animated Images director. The Company and one of the remaining individual defendants have asserted counterclaims in the arbitration. The plaintiffs and the defendants are in settlement discussions. Included in “Accrued expenses” on the Company’s March 31, 2006 Consolidated Balance Sheets is approximately $2.6 million in anticipated settlement costs and legal fees related to this claim. Included in “Prepaid expenses and other current assets” on the Company’s March 31, 2006 Consolidated Balance Sheets is approximately $1.1 million of estimated reimbursement from insurance carriers as part of an anticipated settlement.

The Company and its consolidated subsidiaries are involved in other 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.

25

INTERNET CAPITAL GROUP, ING.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13. Net Income (Loss) per Share

     The calculations of net income (loss) per share were:

	Three Months Ended March 31,
	2006			2005
	(in thousands, except per share data)
Basic and Diluted:
Income (loss) from continuing operations	$	(4,908	)	$	(2,613	)
Income (loss) on discontinued operations		—			(505	)
Net income (loss)	$	(4,908	)	$	(3,118	)
Basic and Diluted:
Income (loss) from continuing operations per share	$	(0.13	)	$	(0.07	)
Income (loss) on discontinued operations per share		—			(0.01	)
Net income (loss) per share	$	(0.13	)	$	(0.08	)
Basic weighted average common shares outstanding		37,401			37,012

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

			Weighted Average
	Shares		price per share
Three Months Ended March 31, 2006
Stock options		689,389	$	37.37
Stock options (exercised with partial recourse loans)		539,135	$	41.70
Warrants		21,950	$	46.47
SARs		3,743,100	$	7.42
Senior convertible notes		4,062,362	$	9.11
Restricted stock		1,146,722	$	—
Deferred stock units		21,500	$	—
Three Months Ended March 31, 2005
Stock options		777,016	$	36.82
Stock options (exercised with partial recourse loans)		756,128	$	41.70
Restricted stock		603,987	$	—
Senior convertible notes		6,587,621	$	9.11
Warrants		26,521	$	189.27

14 . Comprehensive Income (Loss)

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

	Three Months Ended March 31,
	2006			2005
	(Unaudited)
	(in thousands)
Net loss	$	(4,908	)	$	(3,118	)
Other comprehensive income (loss):
Unrealized holding gains in marketable securities		4,315			3,743
Reclassification adjustments/realized net gains on marketable securities		(306	)		(4,330	)
Other accumulated other comprehensive income		—			73
Comprehensive loss	$	(899	)	$	(3,632	)

26

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

Introduction

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 the related Notes thereto included in this Report.

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

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

Executive Summary

The Company owns and builds Internet software and services companies that drive business productivity and reduce transaction costs between firms. The Company devotes its expertise and capital to maximizing the success of these platform companies that are delivering software and service applications to customers worldwide. We view the Company as primarily having two components: Corporate and our partner companies. Corporate primarily holds the cash, short-term investments, marketable securities, our ownership interests in our partner companies and convertible notes which are due in April 2009. Our partner companies are grouped into two operating segments consisting of the Core segment and the Other Holdings segment. The Core operating segment includes those partner companies in which the Company’s management takes a very active role in providing strategic direction and management assistance (“Core”). The Other Holdings operating segment includes holdings in companies where, in general, we provide less operational support, we do not have a controlling ownership stake and the partner company is managed to provide the greatest near-term stockholder value (“Other Holdings”). From time to time, partner companies are disposed of by ICG or cease operations.

The various interests that we acquire in our partner companies are accounted for under one of three accounting methods: the consolidation method, the equity method or the cost method. The applicable accounting method is generally determined based on our voting interest in a partner company. Generally, if we own more than 50% of the outstanding voting securities of a partner company, and for which other stockholders do not possess the right to affect significant management decisions, a partner company’s accounts are reflected within our Consolidated Financial Statements. Generally, if we own between 20% and 50% of the outstanding voting securities, a partner company’s accounts are not reflected within our Consolidated Financial Statements; however, our share of the earnings or losses of the partner company is reflected in the caption “Equity loss” in our consolidated statements of operations. Partner companies not accounted for under either the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, our share of the earnings or losses of these companies is not included in our consolidated statements of operations.

Because we own significant interests in information technology, on demand software and e-commerce companies, many of which have generated net losses, we have experienced, and expect to continue to experience, significant volatility in our quarterly results. While many of our partner companies have consistently reported losses, we have

27

recorded net income in certain periods and experienced significant volatility from period-to-period due to infrequently occurring transactions and other events relating to our ownership interests in partner companies. These transactions and events are described in more detail in our Notes to Consolidated Financial Statements and include dispositions of, and changes to, our partner company ownership interests, dispositions of our holdings of marketable securities and debt repurchases or debt-for-equity exchanges.

Liquidity and Capital Resources

The following table summarizes our and our consolidated subsidiaries’ cash and cash equivalents, restricted cash, short-term investments, marketable securities and senior convertible notes:

	March 31, 2006								December 31, 2005
				Consolidated								Consolidated
	Corporate			Subsidiaries		Total			Corporate			Subsidiaries		Total
	(in thousands)
Cash and cash equivalents	$	122,957		$	16,423	$	139,380		$	129,555		$	13,104	$	142,659
Restricted Cash(1)		—			249		249			—			253		253
Short-term investments		—			—		—			—			5,000		5,000
	$	122,957		$	16,672	$	139,629		$	129,555		$	18,357	$	147,912
Marketable securities	$	67,433		$	—	$	67,433		$	63,425		$	—	$	63,425
Senior convertible notes due April 2009(2)	$	(37,000	)	$	—	$	(37,000	)	$	(37,000	)	$	—	$	(37,000	)

(1)	Restricted cash at March 31, 2006 and December 31, 2005 does not include $696 of long-term restricted cash included in “Other” assets on the Company’s Consolidated balance sheets.
(2)	In May 2006, we repurchased $3.5 million of principal amount of the senior convertible notes due April 2009 for $4.3 million in cash. The remaining principal balance at May 9, 2006 totals $33.5 million.

We believe existing cash, cash equivalents and short-term investments and proceeds from the potential sales of all or a portion of our interests in certain marketable securities and partner companies to be sufficient to fund our cash requirements for the foreseeable future, including future commitments to partner companies, debt obligations and general operations requirements. At March 31, 2006, as well as the date of this filing, we were not obligated for any significant funding and guarantee commitments to existing partner companies. We will continue to evaluate acquisition opportunities and may acquire additional ownership interests in new and existing partner companies in the next twelve months; however, such acquisitions will generally be made at our discretion.

Consolidated working capital decreased by $18.6 million from December 31, 2005 to March 31, 2006 primarily due to acquisitions of ownership interest in new and existing partner companies.

28

Summary of Statements of Cash Flows

	Three Months Ended March 31,
	2006			2005
	(in thousands)
Cash provided by (used in) operating activities	$	3,070		$	(9,147	)
Cash provided by (used in) investing activities	$	(8,343	)	$	28,246
Cash provided by (used in) financing activities	$	1,958		$	(78	)

The improvement in cash provided by (used in) operating activities from 2005 to 2006 is the primary result of the receipt of a refund in 2006 of $8.1 million in estimated 2005 federal income taxes which were paid by the Company in the fourth quarter of 2005.

The reduction in cash provided by (used in) investing activities from 2005 to 2006 is the result of net acquisition ownership interests in partner companies in 2006 versus the sale of marketable securities in 2005.

The improvement in cash provided by (used in) financing activities from 2005 to 2006 is primarily the result of the repayment of stockholder loans in 2006.

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.

Contractual Cash Obligations and Commercial Commitments

We had no material changes to contractual cash obligations and commercial commitments for the three months ended March 31, 2006.

Off-Balance Sheet Arrangements

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

29

Our Partner Companies

As of March 31, 2006, we owned interests in 21 partner companies that are categorized below based on segment and method of accounting.

CORE PARTNER COMPANIES (%Voting Interest)
Consolidated	Equity	Cost
ICG Commerce (76%)	CreditTrade (27%)
Investor Force (80%)	Freeborders (33%)
StarCite (61%)	Marketron (38%)
	Metastorm (41%)
	Vcommerce (36%)
	WhiteFence (39%)

OTHER HOLDINGS COMPANIES (%Voting Interest)
Consolidated	Equity	Cost
	ComputerJobs.com (46%)	Anthem Ventures Fund, L.P. (9%)
	eCredit (29%)	Blackboard(1)
	GoIndustry (37%)(3)	Captive Capital Corporation (5%)
		Emptoris, Inc. (5%)
		Entegrity Solutions (2%)
		FoodLink Online LLC (“Foodlink Online”) (13%)
		Jamcracker, Inc. (2%)
		Tibersoft Corporation (5%)
		Traffic.com(2)

(1)	As of May 1, 2006, we own 2,187,060 shares of Blackboard (NASDAQ:BBBB) (see “Note 5 - Marketable Securities” to Consolidated Financial Statements.)
(2)	As of May 1, 2006, we own 665,901 shares of Traffic.com (NASDAQ:TRFC) (see “Note 5 - Marketable Securities” to Consolidated Financial Statements.)
(3)	As of May 1, 2006, we own 69,177,300 shares of GoIndustry or 37% of the voting securities. GoIndustry’s common stock is traded on the AIM exchange of the London Stock Exchange under ticker symbol GOI. See “Note 4 – Ownership Interests in Partner Companies, Goodwill and Intangibles, net.”)

Results of Operations

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 for the three months ended March 31, 2006 and 2005 are consistently the same 19 partner companies. Additionally, our new partner companies Vcommerce and WhiteFence are included in the Core segment from the date of their respective acquisitions. The method of accounting for any particular partner company may change based on our ownership interest.

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

30

Segment Information
(in thousands)
										Reconciling Items
										Discontinued
				Other			Total			Operations and							Consolidated
	Core			Holdings			Segment			Dispositions		Corporate			Other		Results
For The Three Months Ended March 31, 2006
Revenues	$	15,893		$	—		$	15,893		$	—	$	—		$	—	$	15,893
Net income (loss)	$	(2,009	)	$	(157	)	$	(2,166	)	$	—	$	(3,456	)	$	714	$	(4,908	)
For The Three Months Ended March 31, 2005
Revenues	$	11,891		$	—		$	11,891		$	—	$	—		$	—	$	11,891
Net income (loss)	$	(4,479	)	$	(680	)	$	(5,159	)	$	195	$	(4,021	)	$	5,867	$	(3,118	)

For the Three Months Ended March 31, 2006 vs. 2005

Results of Operations — Core Companies

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

	Three Months Ended March 31,
Selected data:	2006			2005
	(in thousands)
Revenue	$	15,893		$	11,891
Cost of revenue		(9,232	)		(6,152	)
Selling, general and administrative		(5,054	)		(5,871	)
Research and development		(2,431	)		(3,150	)
Amortization of intangibles		(557	)		(572	)
Impairment related and other		(93	)		(11	)
Operating expenses		(17,367	)		(15,756	)
Interest and other		44			(119	)
Equity loss		(579	)		(495	)
Net loss		(2,009	)	$	(4,479	)

Revenue

Revenue increased $4.0 million from $11.9 million in 2005 to $15.9 million in 2006. The primary driver of the revenue increase is increased revenue at ICG Commerce and the consolidation of StarCite in the second half of 2005 offset by a decrease in revenues due to the deconsolidation of CommerceQuest which occurred in October 2005.

Operating Expenses

Operating expenses increased $1.6 million from $15.8 million in 2005 to $17.4 million in 2006. The primary driver of the operating expense increase is the consolidation of StarCite in the second half of 2005 and increased operating expenses at ICG Commerce offset by reduced operating expenses due to the deconsolidation of CommerceQuest which occurred in October 2005.

31

Equity Loss

A 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 the income or losses of these companies is recorded in our Consolidated Statement of Operations under “Equity loss.”

The total revenue of our Core equity method partner companies improved from $26.8 million in the three months ended March 31, 2005 to $34.1 million in 2006. The improvements are primarily the result of increased revenue at our Core equity method companies involved with offshore IT outsourcing, as well as new acquisitions offset by companies involved with credit derivatives.

Our Core equity method companies reported aggregate net loss in the three months ended March 31, 2006 of $(1.8) million compared to $(0.6) million in the three months ended March 31, 2005. Results for the 2006 period declined versus the 2005 period primarily due to the WhiteFence acquisition and higher spending levels in the current period to deliver product, services and sales. Accordingly, our share of the net income and net losses of Core companies increased to a loss of $(0.6) million in 2006 from $(0.5) million in 2005.

Results of Operations – Other Holdings Companies

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

	Three Months Ended March 31,
Selected data:	2006			2005
	(in thousands)
Revenue	$	—		$	—
Operating expenses		—			—
Interest and other		—			—
Equity loss		(157	)		(680	)
Net loss	$	(157	)	$	(680	)

Equity loss decreased in 2006 versus 2005 primarily due to the decrease in our share of the net loss of GoIndustry in 2006 versus 2005. Our share of GoIndustry’s net loss decreased due to our basis in GoIndustry being reduced to zero in the fourth quarter of 2005 and remaining at zero at March 31, 2006 and December 31, 2005. As a result, we will not record our share of GoIndustry’s results until such time as our share of income equals the unrecorded losses or we fund GoIndustry. Other partner companies in addition to GoIndustry, with a zero or near zero carrying value, may continue to incur losses that may not have an impact on our 2006 reported earnings.

32

Results of Operations – Reconciling Items

Discontinued Operations and Dispositions

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

	Three Months
	Ended March 31,
	2006		2005
	(in thousands)
Loss on discontinued operations	$	—	$	(505	)
Equity income (loss) of partner companies sold/disposed of		—		700
Net income (loss)	$	—	$	195

In 2005, ICG Commerce entered into an agreement to sell its German subsidiary for nominal consideration. In accordance with SFAS No. 144, this operation has been treated as a discontinued operation. Accordingly, the operating results of this discontinued operation was presented separately from continuing operations and includes the loss recognized on disposition. See Note 7 to our Consolidated Financial Statements.

The impact to our consolidated results of equity method partner companies we have sold or disposed of our ownership interest in or have ceased operations during 2005 or 2006, is also included in the caption “Dispositions” for segment reporting purposes. The $0.7 million of income in 2005 relates to LinkShare which was sold in September 2005.

Corporate

	Three Months Ended March 31,
	2006			2005
	(in thousands)
General and administrative	$	(5,253	)	$	(3,574	)
Interest income (expense), net		1,797			(447	)
Net loss	$	(3,456	)	$	(4,021	)

General and Administrative

Our general and administrative expenses increased $1.7 million for 2006 versus 2005 primarily due to an increase in stock-based compensation due to the issuance of restricted stock and SARs in 2005 and the adoption of SFAS No. 123R.

Interest Income/Expense

The improvement in our interest income (expense), net is attributable to an increase in the average cash balance (as a result of the LinkShare sale proceeds) and interest rates during the same period.

33

Other

	Three Months Ended March 31,
	2006			2005
	(in thousands)
Other income (loss) (Note 11)	$	135		$	5,187
Income tax benefit (expense)		643			—
Minority interest		(64	)		680
Net income (loss)	$	714		$	5,867

Other Income (Loss), Net

Other income (Loss), net was income of $0.7 million in 2006 versus $5.9 million in 2005. The income in 2005 is primarily the result of gains on the sales of marketable securities.

Income Tax

Our net deferred tax asset of $617 million at December 31, 2005 consists of deferred tax assets of $638 million, relating primarily to partner company basis differences, capital and net operating loss carry forwards, offset by deferred tax liabilities of $21 million primarily related to unrealized appreciation in available for sale securities. During 2001, we recorded a full valuation allowance against our net deferred tax assets that was maintained through December 31, 2005. (See Note 10 to our Consolidated Financial Statements).

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with GAAP. 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 ongoing basis, we evaluate our estimates, including those related to our interests in our partner companies, marketable securities, revenues, income taxes and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

34

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

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

We perform ongoing business reviews and perform annual goodwill impairment tests in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets” and other impairment tests in accordance with Accounting Principles Board (“APB”) Opinion No. 18 “Equity Method Investments” and SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” and, based on quantitative and qualitative measures, assess the need to record impairment losses on goodwill, intangible assets and our ownership interests in our partner companies when impairment indicators are present. Where impairment indicators are present, we determine the amount of the impairment charge as the excess of the carrying value over the fair value. We determine fair value based on a combination of the discounted cash flow methodology, which is based upon converting expected future cash flows to present value, and the market approach, which includes analysis of market price multiples of companies engaged in lines of business similar to the company being evaluated. The market price multiples are selected and applied to the company based on relative performance, future prospects and risk profile of the company in comparison to the guideline companies. Significant assumptions relating to future operating results must be made when estimating the future cash flows associated with these companies. Significant assumptions relating to achievement of business plan objectives and milestones must be made when evaluating whether impairment indicators are present. Should unforeseen events occur or should operating trends change significantly, additional impairment losses could occur.

Revenue

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

StarCite’s revenues are primarily derived from hotel media marketing packages, attendee management software, site selection and various enabling technologies. Marketing package, attendee management software and enabling technology revenues are recognized over the life of the contract, which approximates the life of the customer relationship. The contract terms typically range from one to three years. Site selection revenues are recognized at the time the meeting occurs, which assumes no significant performance obligation remains.

CommerceQuest was a consolidated company through September 30, 2005, at which time it was acquired by Metastorm and became an equity method company. CommerceQuest recognized revenue from software license fees and services. CommerceQuest sold its software direct to end users, as well as through resellers. Fees from licenses were recognized as revenue upon contract execution, provided all delivery obligations had been met, fees were fixed or determinable, collection was probable, and vendor-specific objective evidence existed for the undelivered 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. Implementation fees, which did not relate to software license fees including start-up fees, were deferred and generally recognized as revenue over the term of the arrangement.

35

Deferred Income Taxes

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

36

ITEM 3. 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 March 31, 2006 include equity positions in companies in the technology industry sector, including Blackboard, GoIndustry and Traffic.com, 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 March 31, 2006, would result in an approximate $17.9 million decrease in the fair value of our public holdings.

Cash and cash equivalents, accounts receivable and accounts payable are carried at cost which approximates fair value due to the short-term maturity of these instruments. Short-term investments and marketable securities are carried at fair value. Our senior convertible notes had a fair value of approximately $45.5 million at March 31, 2006 versus a carrying value of $37.0 million. Fair value of our senior convertible notes is determined by obtaining thinly traded market quotes as well as a repurchase of the senior convertible notes in May 2006.

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.

In February 2006, we entered into a cashless collar contract to hedge 500,000 shares of our holdings of Blackboard common stock. Based on the terms of the contract, the contract and related shares will be worth a minimum of $11.2 million or $22.4419 per share and a maximum of $27.7 million or $55.4982 per share at maturity in March 2010. The contract limits our exposure to and benefits from price fluctuations in the underlying equity securities.

ITEM 4. Controls and Procedures

Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15e and 15d-15e under the Securities Exchange Act of 1934) as of the end of the period covered in this Report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered in this Report, our disclosure controls and procedures have been designed and are being operated in a manner that provides reasonable assurance that information required to be included in the Company’s periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the relevant SEC rules and forms.

37

PART II – OTHER INFORMATION

ITEM 1. 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 claims against 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 an opinion dated February 19, 2003. In July 2003, a committee of the Company’s Board of Directors approved a proposed settlement with the plaintiffs in this matter. The settlement would provide for, among other things, a release of the Company and of the individual defendants (who had been previously dismissed without prejudice) for the wrongful conduct alleged in the amended complaint. The Company would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release certain potential claims the Company may have against its underwriters. Any direct financial impact of the proposed settlement is expected to be borne by the Company’s insurers. The complete terms of the proposed settlement is on file with the Court. The Court overseeing the litigation granted preliminary approval of the settlement in February 2005 subject to a change in the terms to bar cross-claims by defendant underwriters for contribution, but not for indemnification or otherwise. The parties to the settlement have agreed on revised language to effectuate the changes regarding contribution/indemnification claims requested by the Court and such language has been accepted by the Court. A final fairness hearing on the settlement was held on April 24, 2006. The Court has not yet ruled on the settlement.

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 complaint also named Freeborders, a current partner company, as a defendant, as well as four individual defendants, including former officers of the Company and former Animated Images and Freeborders 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. In July 2003, the Court granted defendants’ motion to stay the litigation pending arbitration in California of plaintiffs’ claims against Freeborders. In an effort to avoid such arbitration, plaintiffs moved to dismiss Freeborders from the litigation in March 2004. The Court granted this motion and thereafter, plaintiffs filed a motion to compel arbitration of their claims against the Company and certain other defendants. The Court granted plaintiffs’ motion on October 1, 2004, and further ordered a stay of the plaintiffs’ non-arbitrable claims against two individual defendants. Plaintiffs dismissed their claims against one of the individual defendants, a former Animated Images director. The Company and one of the remaining individual defendants have asserted counterclaims in the arbitration. The plaintiffs and the defendants are in settlement discussions.

38

ITEM 1A. Risk Factors

Forward-looking statements made with respect to our financial condition and results of operations and business in this Quarterly Report on Form 10-Q (“Report”) and those made from time to time by us through our senior management are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on our current expectations and projections about future events but are subject to known and unknown risks, uncertainties and assumptions about us and our partner companies that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements.

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

• development of the e-commerce and information technology markets;

• capital spending by enterprises and customers;

• our partner companies’ collective ability to compete successfully against their respective competitors;

• rapid technological developments in the respective markets in which our partner companies operate and our partner companies’ collective ability to respond to such changes in a timely and effective manner;

• our ability to deploy capital effectively and on acceptable terms;

• our ability to maximize value in connection with divestitures;

• our ability to retain key personnel; and

• our ability to effectively manage existing capital resources.

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

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

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

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

39

We may not be able to deploy capital effectively and on acceptable terms.

Our strategy includes effectively deploying capital by acquiring interests in new partner companies. We may not be able to identify attractive acquisition candidates that fit our strategy and, even if we are able to identify such candidates, we may not be able to reach agreement with potential acquisition candidates to acquire an interest in such companies on acceptable terms.

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

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

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

• general economic conditions, such as a recession or interest rate or currency rate fluctuations, and the reluctance of enterprises to increase spending on new technologies;

• actual or anticipated variations in our quarterly results and those of our partner companies;

• changes in the market valuations of our partner companies and other technology and internet companies;

• conditions or trends in the information technology and e-commerce industries;

• negative public perception of the prospects of information technology companies;

• changes in our financial estimates and those of our partner companies by securities analysts;

• new products or services offered by us, our partner companies and their competitors;

• announcements by our partner companies and their competitors of technological innovations;

• announcements by us or our partner companies or our competitors of significant acquisitions, strategic partnerships or joint ventures;

• additional sales of our securities;

• additions to or departures of our key personnel or key personnel of our partner companies; and

• our debt obligations.

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

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

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

• the operating results of our partner companies;

• significant fluctuations in the financial results of information technology and e-commerce companies generally;

• changes in equity losses or income;

• the acquisition or divestiture of interests in partner companies;

• changes in our methods of accounting for our partner company interests, which may result from changes in our ownership percentages of our partner companies;

• sales of equity securities by our partner companies, which could cause us to recognize gains or losses under applicable accounting rules;

40

• the pace of development or a decline in growth of the information technology and e-commerce markets;

• competition for the goods and services offered by our partner companies; and

• our ability to effectively manage our growth and the growth of our partner companies.

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.

A large number of shares of our common stock could be sold in the public market in connection with the conversion of our senior convertible debt, and future sales of our common stock, or the perception that such future sales May occur, may cause our stock price to decline.

As of May 9, 2006, approximately 3.7 million shares of our common stock could be sold into the public market if the holders of our senior convertible notes due April 2009 elect to convert such notes. The notes are convertible at the option of the holder at any time on or before maturity into shares of our common stock at a conversion price of $9.108 per share. The sale of a large number of shares of our common stock, or the perception that such sales could occur, could materially and adversely affect the market price of our common stock and could impair our ability to obtain capital through an offering of equity securities.

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

Currently, Blackboard, GoIndustry and Traffic.com are our publicly-traded partner companies. Fluctuations in the price of Blackboard’s, GoIndustry’s and Traffic.com’s and other future publicly-traded partner companies’ common stock are likely to affect the price of our common stock. The price of our publicly-traded partner companies common stock has been highly volatile. As of March 31, 2006, the market value of the Company’s interest in our publicly-traded partner companies was $89.4 million. The results of operations, and accordingly the price of the common stock, of Blackboard and Traffic.com may be adversely affected by the risk factors in their SEC filings, which are publicly available at www.sec.gov.

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

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

• fluctuations in the market price of the common stock of Blackboard, GoIndustry and Traffic.com, our publicly-traded partner companies, which are likely to affect the price of our common stock;

• many of our partner companies have limited operating histories, have not yet attained significant revenues and are operating at or near break-even and may not achieve profitability in the future;

• 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 $336.2 million in total assets as of March 31, 2006, $83.8 million, or 24.9% consisted of ownership interests in our private partner companies accounted for under the equity and cost methods of accounting.

41

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 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. This decline would likely affect the price of our common stock. As of March 31, 2006, the value of our publicly-traded partner companies was $67.4 million and reflected as “Marketable Securities” in our Consolidated Financial Statements. A decline in the market value of our publicly-traded partner companies will likely cause a decline in the price of our common stock.

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

Most of our partner companies rely on e-commerce markets for the success of their businesses. 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.

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.

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

We have identified certain partner companies that we believe offer the greatest long-term value proposition as Core partner companies. We cannot ensure that the companies we have identified as Core partner companies are those that actually have the greatest long-term 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 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.

We have had a general 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, such as from the sale of partner companies, we expect to continue incurring operating losses in the future. As a result, we may not have sufficient resources to expand or maintain 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.

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

Certain 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.

42

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.

Our partner companies may not be able to successfully compete.

If our partner companies are unable to compete successfully against their competitors, our partner companies may fail. Competition for information technology and e-commerce products and services is intense. As the markets for information technology and e-commerce grow, 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.

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.

Our partner companies may fail to retain significant customers.

During the three months ended March 31, 2006 and 2005, approximately 9% and 16%, respectively, of our consolidated revenue relates to single customers. If our partner companies are not able to retain significant customers, such partner companies and our results of operation and financial position could be adversely affected.

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

Some of the customers of our partner companies may have inadequate financial resources to meet all their obligations. If one or more significant 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.

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

When we divest all or part of an interest in a partner company, we may not receive maximum value for our position. We may divest our interests in partner companies to generate cash or for strategic reasons. For partner companies with publicly-traded stock, we may be unable to sell our interest at then-quoted market prices. Because we hold significant stakes of restricted securities in 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. 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

43

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. We cannot guarantee that we will receive maximum value in connection with the disposition of our stakes in partner companies. Additionally, we may be unable to find buyers for certain of our assets, which could adversely affect our business.

We may not be able to increase our ownership stakes in select partner companies.

One of our goals is to increase our ownership in a small group of companies that we believe have major growth opportunities. We may not be able to achieve this goal because of limited resources and/or the unwillingness of other stockholders of such companies to enter into a transaction that would result in an increase in our ownership stake.

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

We believe that we are actively engaged in the businesses of information technology and e-commerce through our network of subsidiaries and companies that we are considered to “control.” Under the Investment Company Act of 1940, as amended (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 that 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 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, but it does not eliminate, the risk that we may have to take action to avoid registration as an investment company.

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

Our accounting estimates with respect to the useful life and ultimate recoverability of our carrying basis, including goodwill, in our partner companies could change in the near term and the effect of such changes on the financial statements could be significant. 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, that were valued in excess of $1.0 billion. Based on our periodic review of our partner company holdings, we have recorded cumulative impairment charges of $1.7 billion to write off certain partner company holdings, primarily in 2000, 2001 and 2002. As of March 31, 2006, our recorded amount of carrying basis including goodwill is not impaired, although we cannot assure that our future results will confirm this assessment. We performed our latest annual impairment test during the fourth quarter of 2005 and we will perform our next annual impairment test in the fourth quarter of 2006. In October 2005, in

44

conjunction with the CommerceQuest and Metastorm merger, we reevaluated our carrying value of CommerceQuest goodwill as of September 30, 2005 and recorded a goodwill impairment charge of $1.8 million and a $0.9 million intangible asset charge related to CommerceQuest during the quarter ended September 30, 2005. It is possible that a significant write-down or write-off of partner company carrying basis, including goodwill, may be required in the future, or that a significant loss will be recorded in the future upon the sale of a partner company. A write-down or write-off of this type could cause a decline in the price of our common stock.

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.

If one or more of our executive officers or key personnel, or our partner companies’ executive officers 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 could 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.

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 partner companies, we may not be able to control significant business decisions of our partner companies. In addition, although we currently own a controlling interest in several of our partner companies, we may not maintain this controlling interest. Equity interests in partner companies in which we lack control or share control involve 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 inability 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 capture value on our interests and cause us to recognize losses on our interests in partner companies.

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 certain partner companies, 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. Additionally, in connection with new rounds of financing, our partner companies may create liquidation preferences that are senior to existing preferences. If we do not participate in these rounds, our rights to receive preferences upon a sale of the Company may be diminished at certain valuations. This dilution and the creation of senior liquidation preferences could result in a reduction in the value of our stakes in such partner companies.

45

Our outstanding indebtedness could negatively impact our future prospects.

In April 2004, we issued $60.0 million of senior convertible notes due in April 2009, $37.0 million of which was outstanding at March 31, 2006 and $33.5 million of which is outstanding as of May 9, 2006. This indebtedness may make it more difficult to obtain additional financing and may inhibit our ability to pursue needed or favorable opportunities.

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

We may compete with our partner companies to acquire interests in information technology and e-commerce companies and our partner companies may compete with each other for information technology e-commerce opportunities. This competition may deter companies from partnering with us and may limit our business opportunities.

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

Provisions of our amended 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 amended 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 than 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.

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

The complexity of international trade secret, copyright, trademark and patent law, coupled with the limited resources of our partner companies and the demands of quick delivery of products and services to market, create the risk that our partner companies will be unable to protect their proprietary rights. 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, these representations 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.

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’ respective businesses. 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

46

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 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.

47

If public and private capital markets are not favorable for the information technology and e-commerce sectors, we may not be able to execute on our strategy.

Our success depends on the acceptance by the public and private capital markets of information technology and e-commerce companies in general, including initial public offerings of those companies. The information technology and e-commerce markets have experienced significant volatility and the market for initial public offerings of information technology and e-commerce companies has experienced periods of weakness since 2000. If these markets are weak, we may not be able to create stockholder value by taking our partner companies public. In addition, reduced market interest in our industry may reduce the market value of our publicly-traded partner companies.

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

If the capital markets’ interest in our industry is depressed, our ability and the ability of our partner companies to grow and access the capital markets will be impaired. This may require us or our partner companies to take other actions, such as borrowing money on terms that may be unfavorable, or divesting of assets prematurely to raise capital. 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.

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

If our partner companies are not able to raise capital from other outside sources, then they may need to cease operations. Our allocation of resources to our partner companies is mostly discretionary. Because our resources and our ability to raise capital are limited, we may not commit to provide our partner companies with sufficient capital resources to allow them to reach a cash flow positive position. We allocate our resources to focus on those partner companies that we believe present the greatest potential to increase 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 limited 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.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3 Defaults Upon Senior Securities

None.

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

None.

ITEM 5. Other Information

None.

48

ITEM 6. Exhibits

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

Exhibit Index

Exhibit Number	Document
11.1	Statement Regarding Computation of Per Share Earnings (included herein at Note 13-“Net Income (Loss) per Share” to the Consolidated Financial Statements).
31.1	Certification of Chief Executive Officer required by Section 302 of the Sarbanes-Oxley Act of 2002, as amended.
31.2	Certification of Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002, as amended.
32.1	Certification of the Chief Executive Officer required by Section 906 of the Sarbanes-Oxley Act of 2002. as amended.
32.2	Certification of the Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act of 2002, as amended.

49

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: May 10, 2006	INTERNET CAPITAL GROUP, INC.
	By: /s/ R. KIRK MORGAN
	Name: R. Kirk Morgan
	Title: Chief Financial Officer
	(Principal Financial and Accounting Officer)

50