Actua (ACTA) 10-Q 2010 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the Quarterly Period Ended September 30, 2010.

or

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

For the Transition Period from                    to                    .

Commission File Number 001-16249

INTERNET CAPITAL GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	23-2996071
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
690 Lee Road, Suite 310, Wayne, PA	19087
(Address of principal executive offices)	(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 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. Yesþ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filero Accelerated filerþ Non-accelerated filero Smaller reporting companyo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

The number of shares of the Company’s Common Stock, $0.001 par value per share, outstanding as of November 8, 2010 was 36,668,431 shares.

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

INDEX

ITEM	PAGE NO.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets—September 30, 2010 (unaudited) and December 31, 2009		6
Consolidated Statements of Operations (unaudited)—Three and Nine Months Ended September 30, 2010 and 2009		7
Consolidated Statements of Cash Flows (unaudited)—Nine Months Ended September 30, 2010 and 2009		8
Notes to Consolidated Financial Statements		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
Item 3. Quantitative and Qualitative Disclosures About Market Risk		46
Item 4. Controls and Procedures		47
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		48
Item 1A. Risk Factors		49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		50
Item 3. Defaults Upon Senior Securities		50
Item 4. (Removed and Reserved)		50
Item 5. Other Information		50
Item 6. Exhibits		51
Signatures		52
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Although we refer in this Quarterly Report on Form 10-Q (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.

Our Internet website address is www.icg.com. Unless this Report explicitly states otherwise, neither the information on our website, nor the information on the website of any of our partner companies, is incorporated by reference into this Report.

Our Annual Reports 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 U.S. Securities and Exchange Commission (the “SEC”) pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 SEC.

The public may read and copy any of the reports that are filed with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

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Forward-Looking Statements

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

Factors that could cause our actual results, levels of activity, performance or achievements to differ materially from those anticipated in forward-looking statements include, but are not limited to:

• economic conditions generally;

• capital spending by our partner companies’ customers;

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

• rapid 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 and our partner companies’ collective ability to retain key personnel;

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

• our ability to maximize value in connection with divestitures; and

• our ability to have continued access to capital and to manage capital resources effectively.

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. For a more detailed discussion of some of the foregoing risks and uncertainties, see Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009, as well as other reports and registration statements filed by us with the SEC.

Our Partner Companies

The results of operations of our partner companies are reported within two segments: the “core” reporting segment and the “venture” (formerly “other holdings”) reporting segment. The core reporting segment includes those partner companies accounted for under the consolidation and equity methods in which ICG owns a principal controlling equity voting interest (54% on average as of September 30, 2010) and in which ICG’s management takes a very active role in providing strategic direction and management assistance. We expect to devote relatively large initial amounts of capital to acquire our core partner companies. The venture reporting segment includes partner companies to which we generally devote less capital than we do to our core companies and, therefore, in which we hold relatively smaller ownership stakes than we do in our core companies (28% on average as of September 30, 2010) and have less influence over their strategic direction and management decisions than we do over those of our core companies.

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At September 30, 2010, our consolidated core partner companies consisted of:

GovDelivery Holdings, Inc. (“GovDelivery”)

GovDelivery is a provider of government-to-citizen communication solutions. GovDelivery’s digital subscription management software-as-a-service (SaaS) platform enables government organizations to provide citizens with access to relevant information by delivering new information through e-mail, mobile text alerts, RSS and social media channels from U.S. and U.K. government entities at the national, state and local levels.

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. (“InvestorForce”)

InvestorForce is a financial software company specializing in the development of online applications for the financial services industry. InvestorForce provides pension consultants and other financial intermediaries with a Web-based enterprise platform that integrates data management with robust analytic and reporting capabilities in support of their institutional and other clients. InvestorForce’s applications provide investment consultants with the ability to conduct real-time analysis and research into client, manager and market movement and to produce timely, automated client reports.

At September 30, 2010, our equity method core partner companies consisted of:

Channel Intelligence, Inc. (“Channel Intelligence”)

Channel Intelligence is a data solutions company that provides innovative suites of services for manufacturers, retailers and publishers that help consumers work with retailers to find and buy products, whether they start at retailer sites, manufacturer sites or destination shopping sites, through the use of Channel Intelligence’s patented optimization technology and data solutions.

Freeborders, Inc. (“Freeborders”)

Freeborders is a provider of technology solutions and outsourcing from China. Freeborders provides industry expertise to North American and European companies specializing in financial services, technology, retail/consumer goods, manufacturing and transportation and logistics. Freeborders’ offerings help companies seeking cost-effective technology solutions.

Metastorm Inc. (“Metastorm”)

Metastorm is a software and service provider of enterprise architecture modeling, business process analysis and business process management software for commercial enterprises and federal and state government organizations. Metastorm’s comprehensive suite of software products enables customers to understand, analyze, automate and continually improve their business processes.

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StarCite, Inc. (“StarCite”)

StarCite provides a comprehensive suite of software applications and services to the meeting and events industry, driving efficiencies and cost savings to both corporate buyers and suppliers. 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.

WhiteFence, Inc. (“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 websites and through its network of exclusive channel partners that integrate the Web services applications into their own business processes and websites.

At September 30, 2010, our venture partner companies consisted of:

Acquirgy, Inc. (“Acquirgy”)

Acquirgy specializes in Search Engine Marketing (SEM) and Direct Response Television (DRTV) services and provides comprehensive account services, as well as creative and production expertise with integrated multichannel software platforms. SEM services include outsourced paid search management, SEM Performance Consulting (SEMpc^TM) for clients managing search internally and search engine optimization. DRTV services include comprehensive script-to-screen DRTV creative, production and media services.

ClickEquations, Inc. (f/k/a Commerce360, Inc.) (“ClickEquations”)

ClickEquations is a software-based search marketing company that improves paid and organic search campaign performance for its clients, which include Internet Retailer 500 and Fortune 100 companies. Its proprietary technology uses advanced mathematics and statistical analysis to optimize campaigns across the entire search chain and deliver improved campaign efficiency and performance.

GoIndustry-DoveBid plc (“GoIndustry”) (LSE.AIM:GOI)

GoIndustry is a leader in auction sales and valuations of used industrial machinery and equipment. GoIndustry combines traditional asset sales experience with innovative e-commerce technology and advanced direct marketing to service the needs of multi-national corporations, insolvency practitioners, dealers and asset-based lenders around the world.

SeaPass Solutions Inc. (“SeaPass”)

SeaPass develops and markets processing solutions that enable insurance carriers, agents and brokers to transmit and receive data in real time by leveraging existing systems to interact automatically. The company’s technology allows access to information in real time, which increases efficiency across all lines of the insurance business.

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INTERNET CAPITAL GROUP, INC.

PART I – FINANCIAL INFORMATION

ITEM 1. Financial Statements

INTERNET CAPITAL GROUP, INC.

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2010			2009
	(Unaudited)
	(in thousands, except per share data)
Assets
Current Assets
Cash and cash equivalents	$	90,738		$	55,481
Restricted cash		151			47
Accounts receivable, net of allowance ($471-2010; $590-2009)		27,381			19,120
Deferred tax assets		7,642			8,147
Income tax receivable		6,314			11,071
Prepaid expenses and other current assets		3,136			2,146
Assets of discontinued operations		—			1,750
Total current assets		135,362			97,762
Marketable securities		—			73,512
Fixed assets, net of accumulated depreciation and amortization ($13,298 - 2010; $13,072 - 2009)		5,283			4,179
Ownership interests in partner companies		85,977			97,777
Goodwill		20,317			20,317
Intangibles, net		14,169			14,789
Deferred tax assets		17,305			20,724
Other assets, net		1,303			1,027
Total Assets	$	279,716		$	330,087
Liabilities
Current Liabilities
Current maturities of long-term debt	$	4,611		$	381
Accounts payable		1,982			1,590
Accrued expenses		3,213			4,463
Accrued compensation and benefits		13,124			12,218
Deferred revenue		10,279			5,668
Liabilities of discontinued operations		—			320
Total current liabilities		33,209			24,640
Long-term debt		16,576			645
Hedges of marketable securities		—			547
Deferred revenue		—			83
Other liabilities		875			1,010
Total Liabilities		50,660			26,925
Equity
Internet Capital Group, Inc.’s 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, 39,017 shares (2010) and 38,796 shares (2009) issued		39			39
Additional paid-in capital		3,540,046			3,573,347
Treasury Stock, at cost, 2,440 shares (2010) and 2,440 shares (2009)		(12,031	)		(12,031	)
Accumulated deficit		(3,305,565	)		(3,351,888	)
Accumulated other comprehensive income		36			71,198
Total Internet Capital Group, Inc.’s Stockholders’ Equity		222,525			280,665
Noncontrolling Interest		6,531			22,497
Total Equity		229,056			303,162
Total Liabilities and Equity	$	279,716		$	330,087

See accompanying Notes to Consolidated Financial Statements.

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INTERNET CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2010			2009			2010			2009
				(in thousands, except per share data)
Revenues	$	30,222		$	22,572		$	82,634		$	66,301
Operating expenses
Cost of revenue		18,056			14,402			52,381			42,205
Selling, general and administrative		9,989			8,347			31,211			26,721
Research and development		2,729			2,178			7,798			7,418
Amortization of intangible assets		342			51			1,020			205
Impairment related and other		1,004			1,244			1,172			5,064
Total operating expenses		32,120			26,222			93,582			81,613
		(1,898	)		(3,650	)		(10,948	)		(15,312	)
Other income (loss), net		9,196			10,226			74,119			11,225
Interest income		56			98			255			338
Interest expense		(123	)		(49	)		(192	)		(206	)
Income (loss) before income taxes, equity loss, discontinued operations and noncontrolling interest		7,231			6,625			63,234			(3,955	)
Income tax (expense) benefit		(2,860	)		(516	)		(3,065	)		(884	)
Equity loss		(2,952	)		(2,761	)		(13,867	)		(10,638	)
Income (loss) from continuing operations		1,419			3,348			46,302			(15,477	)
Income (loss) from discontinued operations, including gain on sale		601			—			802			—
Net income (loss)		2,020			3,348			47,104			(15,477	)
Less: Net income attributable to the noncontrolling interest		229			277			781			1,006
Net income (loss) attributable to Internet Capital Group, Inc.	$	1,791		$	3,071		$	46,323		$	(16,483	)
Amounts attributable to Internet Capital Group, Inc.:
Net income (loss) from continuing operations	$	1,339		$	3,071		$	45,711		$	(16,483	)
Net income (loss) from discontinued operations		452			—			612			—
Net income (loss)	$	1,791		$	3,071		$	46,323		$	(16,483	)
Basic income (loss) per share:
Income (loss) from continuing operations	$	0.04		$	0.08		$	1.25		$	(0.45	)
Income (loss) from discontinued operations		0.01			—			0.02			—
Net income (loss) attributable to Internet Capital Group, Inc.	$	0.05		$	0.08		$	1.27		$	(0.45	)
Shares used in computation of basic income (loss) per share		36,368			36,676			36,340			36,673
Diluted income (loss) per share:
Income (loss) from continuing operations	$	0.04		$	0.08		$	1.24		$	(0.45	)
Income (loss) from discontinued operations		0.01			—			0.02			—
Net income (loss) attributable to Internet Capital Group, Inc.	$	0.05		$	0.08		$	1.26		$	(0.45	)
Shares used in computation of diluted income (loss) per share		36,956			36,740			36,679			36,673

See accompanying Notes to Consolidated Financial Statements.

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INTERNET CAPITAL GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	September 30,
	2010			2009
	(in thousands)
Operating Activities – continuing operations
Net income (loss)	$	47,104		$	(15,477	)
(Income) loss from discontinued operations		(802	)		—
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation and amortization		2,835			1,354
Impairment related and other		1,172			5,064
Equity-based compensation		2,460			3,325
Equity loss		13,867			10,638
Other (income) loss		(74,088	)		(11,225	)
Deferred income taxes		3,924			—
Changes in assets and liabilities, net of effect of acquisitions:
Accounts receivable, net		(8,357	)		89
Tax receivable		4,757			—
Prepaid expenses and other assets		(937	)		(677	)
Accounts payable		322			(44	)
Accrued expenses		(2,086	)		820
Accrued compensation and benefits		93			(891	)
Deferred revenue		4,680			(1,494	)
Other liabilities		(132	)		(48	)
Cash flows provided by (used in) operating activities		(5,188	)		(8,566	)
Investing Activities – continuing operations
Capital expenditures, net		(2,749	)		(1,969	)
Advanced deposits for acquisition of fixed assets		(37	)		(206	)
Change in restricted cash		(104	)		(20	)
Proceeds from sales of marketable securities		74,383			9,533
Proceeds from sales of partner company ownership interests		1,836			2,177
Acquisitions of ownership interests in partner companies		(2,252	)		(12,746	)
Decrease in cash due to sale of subsidiary assets		—			(81	)
Proceeds from sale of discontinued operations		670			—
Cash flows provided by (used in) investing activities		71,747			(3,312	)
Financing Activities – continuing operations
Acquisition of incremental 17% in ICG Commerce		(49,647	)		—
Long-term debt and capital lease obligations, net		19,597			(130	)
Line of credit repayments		—			(115	)
Tax withholdings related to equity-based awards		(312	)		—
Purchase of treasury stock		—			(370	)
Payment of dividend by ICG Commerce		(1,620	)		—
Exercises of stock options at subsidiary		400			—
Other financing activities		1			33
Cash flows provided by (used in) financing activities		(31,581	)		(582	)
Effect of exchange rates on cash		(40	)		393
Discontinued Operations
Cash flows provided by (used in) operating activities		331			—
Cash flows provided by (used in) investing activities		(12	)		—
Cash flows provided by (used in) financing activities		—			—
Net increase (decrease) in cash and cash equivalents from discontinued operations		319			—
Net increase (decrease) in cash and cash equivalents		35,257			(12,067	)
Cash and cash equivalents at beginning of period		55,481			89,295
Cash and cash equivalents at the end of period		90,738		$	77,228

Supplemental noncash investing activities:

A capital lease obligation of $0.6 million was incurred when ICG Commerce entered into a lease for computer software during 2010.

See accompanying Notes to Consolidated Financial Statements.

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INTERNET CAPITAL GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Company

Description of the Company

Internet Capital Group, Inc.(the “Company”) acquires and builds SaaS, technology-enabled business process outsourcing (BPO) and Internet marketing companies that improve the productivity and efficiency of their business customers. Founded in 1996, the Company devotes its expertise and capital to maximizing the success of these companies.

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

2. Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements include the accounts of the Company and its wholly-owned and wholly-controlled subsidiaries. The Consolidated Financial Statements also include the following majority-owned subsidiaries for all or a portion of the periods presented, each of which has been consolidated from the date the Company acquired majority voting control of that subsidiary. 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 year ended December 31, 2009. Results of operations for the three- and nine-month periods ended September 30, 2010 are not necessarily indicative of the results of operations expected for the full year.

The Consolidated Balance Sheets include the financial position of GovDelivery, ICG Commerce and InvestorForce at September 30, 2010 and December 31, 2009.

The Consolidated Statements of Operations include the results of the following majority-owned subsidiaries:

Three and Nine Months Ended September 30,
2010	2009
GovDelivery(1)	ICG Commerce
ICG Commerce	InvestorForce
InvestorForce	Vcommerce(2)

(1)	On December 31, 2009, the Company acquired a controlling equity voting interest in GovDelivery. Accordingly, GovDelivery’s results have been included in the Company’s Consolidated Statements of Operations subsequent to that date. See Note 3, “Ownership Interests in Partner Companies, Goodwill and Intangibles, net.”
(2)	On August 28, 2009, substantially all of Vcommerce’s assets were sold to Channel Intelligence. Accordingly, Vcommerce is not included in the Company’s Consolidated Financial Statements subsequent to that date. See Note 3, “Ownership Interests in Partner Companies, Goodwill and Intangibles, net.”

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INTERNET CAPITAL GROUP, INC.
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 one of 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 generally accounted for under the consolidation method of accounting. Under this method, a partner company’s balance sheet and results of operations are reflected within the Company’s Consolidated Financial Statements, and 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 “Noncontrolling Interest” in the Company’s Consolidated Balance Sheets and Statements of Operations. Noncontrolling 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 generally 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 a reduction of the Company’s ownership interest to below 50% of the outstanding voting securities, the accounting method is generally adjusted to the equity or cost method of accounting, as appropriate, for subsequent periods.

Equity Method.Partner companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to a partner company depends on an evaluation of several factors, including, among others, representation on the partner company’s board of directors and equity ownership level, which is generally between a 20% and a 50% interest in the voting securities of an equity method partner company, as well as voting rights associated with the Company’s holdings in common stock, preferred stock and other convertible instruments in that partner company. Under the equity method of accounting, a partner company’s accounts are not reflected in the Company’s Consolidated Balance Sheets and Statements of Operations. The Company’s share of the earnings or losses of the partner company, as well as any adjustments resulting from prior period finalizations of equity income/losses, are reflected in the caption “Equity loss” in the Company’s Consolidated Statements of Operations. For the three and nine months ended September 30, 2010, those prior period finalizations are not material. The carrying values of the Company’s equity method partner companies are reflected in “Ownership interests in partner companies” in the Company’s Consolidated Balance Sheets.

When the Company’s carrying value 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 has guaranteed obligations of the partner company or has committed to 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 either the consolidation method or equity method of accounting are accounted for under the cost method of accounting. The Company’s share of the earnings or losses of cost method companies is not included in the Company’s Consolidated Balance Sheets or Consolidated Statements of Operations. However, cost method partner company impairment charges are recognized in the Company’s Consolidated Statements of Operations. If circumstances suggest that the value of the partner company has subsequently recovered, such recovery is not recorded.

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

2. Significant Accounting Policies — (Continued)

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 the time of any such retroactive adjustment.

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 guidance for ownership interests in debt and equity securities.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. These estimates include evaluation of the Company’s holdings in its partner companies, holdings in marketable securities, asset impairment, revenue recognition, income taxes and commitments and contingencies. These estimates and assumptions are based on management’s best judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, such as the current economic environment, that management believes to be reasonable under the circumstances. Management adjusts such estimates and assumptions when facts and circumstances dictate. Volatile equity markets and reductions in information technology spending have combined to increase the uncertainty inherent in such estimates and assumptions. It is reasonably possible that the Company’s accounting estimates with respect to the useful life of intangible assets and the ultimate recoverability of ownership interests in partner companies and goodwill could change in the near term and that the effect of such changes on the Company’s financial statements could be material. The Company believes the recorded amounts of ownership interests in partner companies, goodwill and intangibles, net are not impaired at September 30, 2010.

Ownership Interests in Partner Companies, Goodwill and Intangibles, net

The Company evaluates its equity method ownership interests in partner companies continuously to determine whether an other than temporary decline in the value of a partner company exists and should be recognized. The Company considers the achievement of business plan objectives and milestones, the fair value of each ownership interest in the partner company (which, in the case of any partner company listed on a public stock exchange, is the quoted stock price of the relevant ownership interest) relative to carrying value, the financial condition and prospects of the partner company, and other relevant factors. The business plan objectives and milestones the Company considers include, among others, those related to financial performance, such as achievement of planned financial results or completion of capital raising activities, and those that are not primarily financial in nature, such as obtaining key business partnerships or the hiring of key employees. Impairment charges are determined by comparing the estimated fair value of our ownership interest in a partner company with its carrying value. Fair value is determined by using a combination of estimating the cash flows related to the relevant asset, including estimated proceeds on disposition, and an analysis of market price multiples of companies engaged in lines of business similar to the company being evaluated.

The Company tests goodwill for impairment annually during the fourth quarter of each year, or more frequently as conditions warrant, and intangible assets when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. At September 30, 2010, the Company’s carrying value of its ownership interests in partner companies totaled $86.0 million, goodwill totaled $20.3 million, and intangibles, net totaled $14.2 million. At December 31, 2009, the Company’s carrying value of its ownership interests in partner companies totaled $97.8 million, goodwill totaled $20.3 million, and intangibles, net totaled $14.8 million. See Note 3, “Ownership Interest in Partner Companies, Goodwill and Intangibles, net,” for additional information regarding the Company’s ownership interests in partner companies, goodwill and net intangible assets, as well as related impairment charges.

11

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

2. Significant Accounting Policies — (Continued)

Revenue Recognition

During the three and nine months ended September 30, 2010, the Company’s consolidated revenues were attributable to ICG Commerce, GovDelivery and InvestorForce. During the three and nine months ended September 30, 2009, the Company’s consolidated revenues were attributable to ICG Commerce, InvestorForce and Vcommerce.

ICG Commerce generates revenue from strategic sourcing and procurement outsourcing services. Procurement outsourcing services generally include a combination of services and technology designed to help companies achieve unit cost savings and process efficiencies. ICG Commerce earns fees for implementation services, start-up services, content and category management (which may include sourcing as described below), hosting fees, buying center management fees, and certain transaction fees. ICG Commerce estimates the total contract value under these arrangements and generally recognizes revenue under these arrangements, excluding transaction fees and gain-share fees, on a straight-line basis over the term of the contract, which approximates the life of the customer relationship. Additionally, performance-based fees are deferred until the contingency is achieved or it is determined from existing data and past experience that the savings will be achieved, and then generally recognized on a straight-line basis over the life of the contract, which approximates the life of the customer relationship. Sourcing programs are engagements in which ICG Commerce negotiates prices from certain suppliers on behalf of its customers in certain categories in which ICG Commerce has sourcing expertise. Under sourcing programs, either the customer pays a fixed fee or a gain-share amount for use of the negotiated rates. In fixed-fee sourcing arrangements, revenue is recognized on a proportional performance basis, provided that there is no uncertainty as to ICG Commerce’s ability to fulfill its obligations under the contract or other services that are to be rendered under the contract.

GovDelivery revenues generally consist of nonrefundable setup fees and monthly maintenance and hosting fees. These fees are deferred and recognized as the services are performed, which is typically over the service term. Costs related to performing setup services are expensed as incurred.

InvestorForce generates revenue from license fees earned in connection with hosted services, setup fees and support and maintenance fees. Hosted services primarily consist of data aggregation, performance calculation, real-time analysis and automated production of performance reports for the institutional investment community. Generally, a minimum quarterly base fee is charged for hosted services. These minimum fees are recognized on a pro rata basis over the service term. As the volume of client accounts increases, additional fees apply. These additional fees are recognized in the period in which account volumes exceed the contract minimum. Setup and support and maintenance fees are deferred and recognized ratably over the service term.

Vcommerce generated revenue from service fees earned in connection with the development and operation of its clients’ e-commerce businesses. Service fee revenue primarily consisted of transaction fees, implementation fees and professional services, as well as access and maintenance fees. Vcommerce recognized revenue from services provided when the following revenue recognition criteria were met: persuasive evidence of an arrangement existed, services had been rendered, the fee was fixed or determinable and collectibility was reasonably assured. Generally, Vcommerce recognized revenue related to implementation, as well as access and maintenance services, over the term of the customer contract, and it recognized revenue from transaction fees and professional services fees as services were rendered.

12

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

2. Significant Accounting Policies — (Continued)

Concentration of Customer Base and Credit Risk

For the three months ended September 30, 2010, one customer of ICG Commerce, The Hertz Corporation (“Hertz”), represented approximately 10% of the Company’s consolidated revenue. For the nine months ended September 30, 2010, two customers of ICG Commerce, Hertz and Kimberly-Clark Corporation (“Kimberly-Clark”), each represented approximately 11% of the Company’s consolidated revenue. For the three months ended September 30, 2009, Hertz and Kimberly-Clark represented approximately 14% and 13%, respectively, of the Company’s consolidated revenue. For the nine months ended September 30, 2009, those customers each represented approximately 14% of the Company’s consolidated revenue. Accounts receivable from Hertz and Kimberly-Clark as of September 30, 2010 were $2.6 million and $1.1 million, respectively. Accounts receivable from Hertz and Kimberly-Clark as of December 31, 2009 were $1.7 million and $1.5 million, respectively. The accounts receivable balances as of September 30, 2010 for these customers included $0.8 million and $0.1 million, respectively, of unbilled accounts receivable. The accounts receivable balances as of December 31, 2009 for these customers included $0.2 million and $0.1 million, respectively, of unbilled accounts receivable.

Reclassifications

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

Recent Accounting Pronouncements

In February 2010, the FASB issued amended guidance that requires an SEC reporting company to evaluate subsequent events through the date that the financial statements are issued, but no longer requires the SEC reporting company to disclose the date through which subsequent events are evaluated. This guidance became effective for the Company upon issuance and did not have a significant impact on its consolidated financial statements.

In January 2010, the FASB issued amended guidance requiring additional fair value disclosures related to inputs and valuation techniques used to measure fair value as well as disclosures about significant transfers between levels in the hierarchy of fair value measurement. This guidance became effective for the Company beginning on January 1, 2010 and did not have a significant impact on its consolidated financial statements.

In October 2009, the FASB issued accounting guidance related to revenue recognition for transactions with multiple deliverables, which impacts the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. This guidance is effective for the Company beginning on January 1, 2011. The Company is currently evaluating the effect this guidance will have on its consolidated financial statements.

In October 2009, the FASB issued accounting guidance related to certain revenue arrangements that include software elements, which amends the scope of pre-existing software revenue guidance. This guidance is effective for the Company beginning on January 1, 2011. The Company is currently evaluating the effect this guidance will have on its consolidated financial statements.

In June 2009, the FASB issued accounting guidance that requires former “qualifying special-purpose entities” to be evaluated for consolidation, changes the approach to determining a variable interest entity’s primary beneficiary, revises the frequency with which reassessments of this determination should be made and requires additional disclosures related to these items. This guidance became effective for the Company beginning on January 1, 2010 and did not have a significant impact on its consolidated financial statements.

13

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

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

The Company’s ownership interests in partner companies accounted for under the equity method were $86.0 million and $97.8 million as of September 30, 2010 and December 31, 2009, respectively. The Company had no ownership interests in partner companies accounted for under the cost method as of September 30, 2010 and December 31, 2009.

The following table summarizes the Company’s goodwill in consolidated partner companies:

	(in thousands)
Goodwill related to continuing operations as of December 31, 2009	$	20,317
Activity related to continuing operations during the nine months ended September 30, 2010		—
Goodwill as of September 30, 2010	$	20,317

As of September 30, 2010 and December 31, 2009, all of the Company’s goodwill was allocated to the core reporting segment. The Company recorded a reduction to goodwill as of December 31, 2009 of $0.3 million that was attributable to GovDocs, Inc. (“GovDocs”), a subsidiary of GovDelivery, which was sold on August 31, 2010. See Note 12, “Discontinued Operations” for further discussion of this transaction.

The following table summarizes the Company’s intangible assets from continuing operations (in thousands):

		As of September 30, 2010
		Gross Carrying
		Amount Related to		Accumulated			Net Carrying
Intangible Assets	Useful Life	Continuing Operations		Amortization			Amount
Customer relationships	11 years	$	12,759	$	(876	)	$	11,883
Trademarks/trade names	11 years		1,320		(90	)		1,230
Technology	10 years		710		(54	)		656
			14,789		(1,020	)		13,769
Other intellectual property	Indefinite		400		—			400
		$	15,189	$	(1,020	)	$	14,169

		As of December 31, 2009
		Gross Carrying
		Amount Related to		Accumulated		Net Carrying
Intangible Assets	Useful Life	Continuing Operations		Amortization		Amount
Customer relationships	11 years	$	12,759	$	—	$	12,759
Trademarks/trade names	11 years		1,320		—		1,320
Technology	10 years		710		—		710
		$	14,789	$	—	$	14,789

Amortization expense for the three and nine months ended September 30, 2010 was $0.3 million and $1.0 million, respectively. Amortization expense for the three and nine months ended September 30, 2009 was $0.1 million and $0.2 million, respectively. The Company amortizes intangible assets using the straight-line method.

The Company recorded a $1.1 million reduction to the customer relationship intangible asset as of December 31, 2009 that was attributable to the sale of GovDocs on August 31, 2010. The “Gross Carrying Amount Related to Continuing Operations” in the above table has been adjusted to reflect this reduction. See Note 12, “Discontinued Operations,” for further discussion of this transaction.

14

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

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

Remaining estimated amortization expense is as follows:

	(in thousands)
2010 (remaining three months)	$	337
2011		1,351
2012		1,351
2013		1,351
2014		1,351
Thereafter		8,028
Remaining amortization expense	$	13,769

Acquisitions – Consolidated Companies

On December 31, 2009, the Company acquired 89% of the equity of GovDelivery, which was accounted for under the acquisition method. The Company allocated the purchase price to the assets and the liabilities based upon their respective fair values at the date of acquisition, which were as follows:

	GovDelivery
	(in thousands)
Net assets acquired:
Goodwill	$	3,644
Customer lists (11-year life)		13,910
Trademarks/trade names (11-year life)		1,320
Technology (10-year life)		710
Other net assets (liabilities)		1,506
		21,090
Noncontrolling interest(1)		(1,420	)
	$	19,670

⁽¹⁾ The Company determined the fair value of the noncontrolling interest of GovDelivery with consideration of discounts for lack of control and lack of marketability.

On August 31, 2010, GovDelivery sold its GovDocs subsidiary. As a result of that transaction, the Company recorded a reduction to the goodwill and customer list intangible asset established as part of the purchase price allocation for the acquisition of GovDelivery on December 31, 2009. Accordingly, the goodwill and customer list intangible assets included in the above table were reduced from $3.6 million and $13.9 million, respectively, to $3.4 million and $12.8 million, respectively.

On May 5, 2010, the Company acquired an additional 12% equity voting interest in ICG Commerce from an existing stockholder of ICG Commerce for aggregate cash consideration of $35.3 million; the transaction increased the Company’s equity voting interest in ICG Commerce from 64% to 76%. On July 1, 2010, the Company acquired an additional 5% equity voting interest in ICG Commerce for aggregate cash consideration of $14.4 million through a tender offer that the Company made to ICG Commerce stockholders; the tender transaction further increased the Company’s equity voting interest in ICG Commerce to 81% as of the completion of that transaction. Further, during the three-month period ending September 30, 2010 exercises of stock options at ICG Commerce reduced the Company’s equity voting interest in ICG Commerce to 80%.

Since the Company increased its equity voting interest in ICG Commerce, there was a resulting increase in the Company’s controlling interest and a corresponding decrease in noncontrolling interest ownership. Accordingly, for the three and nine months ended September 30, 2010, the Company recorded a decrease of $3.2 million and $10.8 million, respectively, to “Noncontrolling Interest” on the Company’s Consolidated Balance Sheets. The remaining purchase price of $11.2 million and $38.9 million was recorded as a decrease to “Additional paid-in capital” on the Company’s Consolidated Balance Sheets for the three and nine months ended September 30, 2010, respectively. See the “Changes in Equity” subheading in this Note 3 for a detail of the activity related to these changes in equity. The reduction to the Company’s equity voting interest due to stock option exercises at ICG Commerce that occurred during the three months ended September 30, 2010 was accounted for as a disposition of shares, and accordingly, the Company recorded an adjustment of $0.4 million as a decrease to the Company’s carrying value of ICG Commerce and additional paid-in capital in the three-month period. This activity is included in the line item, “Net impact of consolidated partner companies’ equity transactions” in the table within the “Changes in Equity” subheading in this Note 3.

15

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

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

The Company’s equity voting interest in InvestorForce decreased during the three months ended September 30, 2010 due to the issuance of restricted stock awards at InvestorForce. This decrease was accounted for as a disposition of shares, and accordingly, the Company recorded an adjustment of $0.6 million as an increase to the Company’s carrying value of InvestorForce and additional paid-in capital in the three-month period. This activity is included in the line item, “Net impact of consolidated partner companies’ equity transactions” in the table within the “Changes in Equity” subheading in this Note 3.

Dividends – Consolidated Companies

On August 4, 2010, ICG Commerce paid a cash dividend in the aggregate amount of $27.0 million on its Series E and E-1 Preferred Stock. The Company received $25.4 million, its share of the dividend based on its ownership of the Series E and E-1 Preferred Stock; this amount was recorded as a decrease in the Company’s carrying value in ICG Commerce. This dividend, including the equity adjustment to realign both the Company’s carrying value in ICG Commerce as well as the noncontrolling interest ownership that resulted from the disproportionate amounts received, resulted in an increase of $3.5 million to the Company’s additional paid-in capital and a decrease of $5.1 million to the noncontrolling interest. These amounts are included in the line item, “Net impact of consolidated partner companies’ equity transactions” in the table within the “Changes in Equity” subheading in this Note 3.

Subsequent to the payment of the dividend, ICG Commerce completed an equity recapitalization whereby all of ICG Commerce’s preferred stock was converted into common stock. Based on the current equity capitalization structure, the Company would be entitled to receive a ratable portion of any future dividends paid to ICG Commerce stockholders, which, based on the Company’s primary equity ownership interest in ICG Commerce at September 30, 2010, would be 80%.

Discontinued Operations – Consolidated Companies

On August 31, 2010, GovDelivery completed the sale of one of its subsidiaries, GovDocs, for aggregate consideration of $1.8 million. A portion of the purchase price was paid through GovDelivery’s redemption of shares of its Series AA Preferred Stock valued at $0.8 million. This share redemption increased the Company’s equity voting interest in GovDelivery from 89% to 93% as of August 31, 2010 and resulted in a decrease in the Company’s carrying value in GovDelivery of $0.3 million and an offsetting decrease to additional paid-in capital. See the “Changes in Equity” subheading in this Note 3 for a detail of the activity related to changes in equity, including the effects of the equity adjustment related to the change in the Company’s ownership in GovDelivery reflected in the line item “Net impact of consolidated partner companies’ equity transactions.”

In connection with GovDelivery’s sale of GovDocs, the Company recorded a reduction to goodwill and intangibles, net of accumulated amortization, of $0.3 million and $1.1 million, respectively, during the three months ended September 30, 2010. These assets related to the GovDocs business and had been recorded by the Company as part of its purchase accounting for the acquisition of GovDelivery on December 31, 2009. The Company’s Consolidated Balance Sheets as of December 31, 2009 has been adjusted to reduce the goodwill and intangible assets, net balances and reflect these amounts as assets related to discontinued operations. See Note 12, “Discontinued Operations,” for further discussion regarding GovDelivery’s sale of GovDocs.

16

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

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

Changes in Equity

The following table details the activity related to equity attributable to Internet Capital Group, Inc., equity attributable to the noncontrolling interest and total equity for the nine months ended September 30, 2010, including the effects of the changes in the Company’s ownership interests in GovDelivery, ICG Commerce and InvestorForce on the Company’s equity, as well as the August 2010 dividend payment from ICG Commerce.

	Nine months ended September 30, 2010
	Internet Capital
	Group, Inc.’s
	Stockholders’			Noncontrolling			Total
	Equity			Interest			Equity
Balance at December 31, 2009	$	280,665		$	22,497		$	303,162
Net income		46,323			781			47,104
Net reclassification adjustment and unrealized depreciation in marketable securities		(71,170	)		—			(71,170	)
Net equity-based compensation plans activity		1,593			—			1,593
Net impact of ICG Commerce acquisitions		(38,851	)		(10,796	)		(49,647	)
Net impact of consolidated partner companies’ equity transactions		3,986			(5,951	)		(1,965	)
Net impact of other equity transactions		(21	)		—			(21	)
Balance at September 30, 2010	$	222,525		$	6,531		$	229,056

Pro Forma Information — Consolidated Companies

The Company completed its acquisition of GovDelivery on December 31, 2009. Therefore, results of GovDelivery’s operations are not included in the Company’s Consolidated Statements of Operations for the nine months ended September 30, 2009. Additionally, GovDelivery’s redemption of shares of its Series AA Preferred Stock related to the sale of GovDocs on August 31, 2010 increased the Company’s equity voting interest in GovDelivery to 93%.

The Company acquired an additional 12% and 5% equity voting interest in ICG Commerce on May 5, 2010 and July 1, 2010, respectively. Additionally, stock option exercises at ICG Commerce that occurred during the three months ended September 30, 2010 slightly reduced the Company’s equity voting interest in ICG Commerce. As a result of these transactions, the Company’s equity voting interest in ICG Commerce was 80% as of September 30, 2010.

The following table details revenue, net income (loss) attributable to Internet Capital Group, Inc. and net income (loss) per diluted share attributable to Internet Capital Group, Inc. in the relative period, had the Company owned 80% and 93% of ICG Commerce and GovDelivery excluding GovDocs, respectively, for the entire three and nine months ended September 30, 2010, and 80% and 93% of ICG Commerce and GovDelivery excluding GovDocs, respectively, for the three and nine months ended September 30, 2009.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
	(in thousands, except for share data)
Revenue	$	30,222	$	24,352	$	82,634	$	71,258
Net income (loss) attributable to Internet Capital Group, Inc.	$	1,776	$	2,919	$	46,633	$	(16,632	)
Net income (loss) per diluted share attributable to Internet Capital Group, Inc.	$	0.05	$	0.08	$	1.27	$	(0.45	)

17

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

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

Impairments — Consolidated Companies

During the three and nine months ended September 30, 2009, as a result of certain triggering events and the purchase of substantially all of the assets and certain liabilities of Vcommerce by Channel Intelligence, the Company performed its goodwill impairment testing as described in Note 2, “Significant Accounting Policies.” The Company determined that goodwill impairment charges of $1.1 million and $4.9 million were required in the three- and nine-month periods ended September 30, 2009, respectively. These impairment charges are included in the line item “Impairment related and other” on the Company’s Consolidated Statements of Operations in each relevant period. The Company has no future obligation for Vcommerce’s liabilities and does not expect any future proceeds. Subsequent to the transaction, Vcommerce’s residual assets and liabilities are immaterial and are not included on the Company’s Consolidated Balance Sheets at September 30, 2009 or thereafter.

Equity Method Companies

The following unaudited summarized financial information relates to the Company’s partner companies accounted for under the equity method of accounting as of September 30, 2010 and December 31, 2009. This aggregate information has been compiled from the financial statements and capitalization tables of the Company’s individual equity method partner companies.

Balance Sheets (Unaudited) ⁽¹⁾

	September 30, 2010		December 31, 2009
	(in thousands)
Cash, cash equivalents and short-term investments	$	54,835	$	71,963
Other current assets		55,235		59,963
Other non-current assets		156,809		157,639
Total assets	$	266,879	$	289,565
Current liabilities	$	111,993	$	122,096
Non-current liabilities		25,998		12,812
Long-term debt		13,803		13,969
Stockholders’ equity		115,085		140,688
Total liabilities and stockholders’ equity	$	266,879	$	289,565
Total carrying value	$	85,977	$	97,777

⁽¹⁾ Includes Acquirgy (25%), Channel Intelligence (50%), ClickEquations (33%), Freeborders (31%), GoIndustry (26%), Metastorm (33%), SeaPass (26%), StarCite (36%) and WhiteFence (36%) for both periods presented. The Company’s ownership interest in Channel Intelligence is rounded up to 50%. The Company does not consolidate Channel Intelligence because it does not own a majority interest in the partner company and because additional factors support that it does not control the operations of Channel Intelligence.

At September 30, 2010, the Company’s aggregate carrying value in equity method partner companies exceeded the Company’s share of net assets of these equity partner companies by $50.1 million. Of this excess, $38.1 million has been allocated to goodwill, which is not amortized, and $12.0 million has been allocated to intangibles, which are generally amortized over a range of three to seven years. Amortization expense associated with these intangibles was $0.6 million and $2.0 million for the three and nine months ended September 30, 2010, respectively. Amortization expense associated with these intangibles was $0.5 million and $1.5 million for the three and nine months ended September 30, 2009, respectively. This amortization expense is included in the line item “Amortization of intangible assets” in the following table and in the line item “Equity loss” on the Company’s Consolidated Statements of Operations.

18

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

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

Results of Operations (Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010(1)			2009(2)			2010 (1)			2009(2)
	(in thousands)						(in thousands)
Revenue	$	59,655		$	57,003		$	174,445		$	169,618
Net income (loss)	$	(7,932	)	$	(6,541	)	$	(25,974	)	$	(25,010	)
Equity loss excluding impairments and amortization of intangible assets	$	(2,308	)	$	(2,238	)	$	(8,904	)	$	(8,623	)
Impairment charge of GoIndustry		—			—			(2,914	)		(544	)
Amortization of intangible assets		(644	)		(523	)		(2,049	)		(1,471	)
Total equity loss	$	(2,952	)	$	(2,761	)	$	(13,867	)	$	(10,638	)

(1)	Includes Acquirgy, Channel Intelligence, ClickEquations, Freeborders, GoIndustry, Metastorm, SeaPass, StarCite and WhiteFence.
(2)	Includes Acquirgy (from date of acquisition), Channel Intelligence, ClickEquations, Freeborders, GoIndustry, Metastorm, StarCite and White Fence.

Other Equity Company Information

During the three and nine months ended September 30, 2009, the Company deployed a total of $1.9 million and $3.3 million, respectively, in conjunction with financing transactions that resulted in a decrease in our equity interest in GoIndustry from 29% to 26% during the three-month period ended September 30, 2009. Additionally, the issuance of shares of common stock by GoIndustry during the nine months ended September 30, 2010 slightly reduced the Company’s equity interest in GoIndustry. Those reductions in the Company’s equity interest in GoIndustry were accounted for as dispositions of shares and resulted in a dilution loss of $0.4 million in the three months ended September 30, 2009, and dilution losses of $0.1 million and $0.4 million in the nine months ended September 30, 2010 and 2009, respectively; those losses were recorded in “Other income (loss), net” on the Company’s Consolidated Statements of Operations in the relevant period. Adjusting for a 100-for-1 reverse stock split that occurred during 2010, the Company owned 2,546,743 shares of GoIndustry common stock as of September 30, 2010 and December 31, 2009, or 26% of the outstanding GoIndustry shares as of each of those dates.

During the nine months ended September 30, 2010 and 2009, the Company determined that its equity holdings in GoIndustry common stock experienced other-than-temporary declines in fair market value. As a result, the Company recorded impairment charges of $2.9 million and $0.5 million during the nine months ended September 30, 2010 and 2009, respectively, to reduce the Company’s carrying value to GoIndustry’s fair market value based on the fair value “Level 1” observation, as defined in Note 5, “Financial Instruments.” These charges are included in “Equity loss” on the Company’s Consolidated Statements of Operations in the relevant periods. The carrying value of the Company’s equity holdings in GoIndustry was $2.3 million and $5.7 million as of September 30, 2010 and December 31, 2009, respectively.

During the three and nine months ended September 30, 2009, the Company participated in financing transactions related to several other equity method partner companies. These transactions included the acquisition of a 25% equity interest in Acquirgy on July 1, 2009, as well as follow-on fundings for Channel Intelligence, ClickEquations, and StarCite. The total amount of funds deployed in these transactions for the three- and nine-month periods ended September 30, 2009 was $5.3 million and $8.9 million, respectively. The Company completed purchase price allocations for these equity-method acquisitions and will amortize the resulting $3.7 million of definite-lived intangible assets over periods ranging from three to ten years. The remaining purchase price is attributable to goodwill, indefinite-lived intangible assets and additional net tangible assets.

19

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

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

During the three- and nine-month periods ended September 30, 2010, the Company acquired convertible long-term notes from ClickEquations and WhiteFence in separate transactions. The Company paid a total of $1.7 million and $2.1 million in the three and nine months ended September 30, 2010, respectively, for these notes. These note acquisitions did not change the Company’s equity voting interests in those partner companies.

Other

The Company owns approximately 9% of Anthem Ventures Fund, L.P. (“Anthem”), a fund that invests in technology companies. Anthem, formerly eColony, Inc., was acquired by the Company in 2000. The Company currently has no carrying value in Anthem. Accordingly, the receipt of distributions from Anthem, if any, by the Company would result in a gain at the time the Company receives such distributions.

Escrow Information

During the nine months ended September 30, 2010 and 2009, the Company received a distribution of $1.8 million and $1.2 million, respectively, of previously escrowed funds, which distributions related to the sale of the Company’s former partner company, Marketron International, Inc. (“Marketron”). The 2010 distribution constituted the final escrow release related to Marketron and included $0.1 million of interest, which is recorded in “Interest income” on the Company’s Consolidated Statements of Operations. During the nine months ended September 30, 2010, 47,056 shares of IntercontinentalExchange, Inc. (“ICE”) common stock were released from escrow to the Company. These shares related to sale consideration that had been set aside to satisfy potential purchase price adjustments and/or potential indemnity claims in connection with the sale of Creditex Group, Inc. (“Creditex”) to ICE on August 29, 2008. The Company recorded a gain of $5.1 million during the nine months ended September 30, 2010 as a result of the receipt of these shares, which were valued based on the closing price of ICE’s common stock on the dates these shares were released to the Company. Immediately following receipt of the ICE shares from escrow, the Company sold the shares for total proceeds of $5.2 million and recognized an incremental gain of $0.1 million during the nine months ended September 30, 2010. The gains related to these escrow distributions and the incremental gain related to the sale of the ICE common stock are recorded in “Other income (loss), net” on the Company’s Consolidated Statements of Operations.

As of September 30, 2010, the Company had 13,069 outstanding shares of ICE common stock remaining in escrow; the stock was valued at $1.4 million based on the September 30, 2010 closing stock price of ICE’s common stock. Additionally, the Company had outstanding aggregate cash proceeds, subject to indemnity claims, of $1.2 million associated with escrowed proceeds from sales of former equity method partner companies. The release of additional escrowed proceeds, if any, to the Company would result in additional gains at the time the Company is entitled to such proceeds, the amount is fixed or determinable and realization is assured.

4. Marketable Securities and Related Derivatives

Marketable securities represent the Company’s holdings in publicly-traded equity securities accounted for as available-for-sale securities. At September 30, 2010, the Company did not hold interests in any marketable securities. At December 31, 2009, the Company held a noncontrolling interest in Blackboard, Inc. (“Blackboard”), which is traded on the NASDAQ Global Market (NASDAQ: BBBB). The cost, unrealized holding gains/(losses), and fair value of the 1,619,571 shares of Blackboard common stock held by the Company at December 31, 2009 were $2.3 million, $71.2 million and $73.5 million, respectively. The Company’s cost for Blackboard of $2.3 million includes the value of warrants exercised and the carrying value on the date Blackboard common stock became a publicly-traded security.

20

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

4. Marketable Securities and Related Derivatives — (Continued)

During the three and nine months ended September 30, 2010, the Company sold 250,000 shares and 1,619,571 shares, respectively, of Blackboard common stock at average prices per share of $38.00 and $42.87, respectively. The Company received total proceeds of $9.5 million and $69.4 million during the three and nine months ended September 30, 2010, respectively, and recognized a gain on the sale of these securities in the amount of $9.1 million and $67.0 million in those respective periods. During the three and nine months ended September 30, 2009, the Company sold 400,000 shares of Blackboard common stock at an average price of $36.50 per share for total proceeds of $14.6 million. The Company recognized a gain on the sale of those securities in the amount of $14.0 million. The gains on the sales of Blackboard common stock are included in “Other income (loss), net” on the Company’s Consolidated Statements of Operations.

From time to time during the nine months ended September 30, 2010, the Company also held shares of ICE common stock; all of these shares were both obtained and sold during the period. See Note 3, “Ownership Interests in Partner Companies, Goodwill and Intangibles, net.”

5.Financial Instruments

Derivative Financial Instruments

During the three and nine months ended September 30, 2010, ICG Commerce utilized put options and call options to mitigate the risk of currency fluctuations at ICG Commerce’s operations in the United Kingdom and Europe. The net mark-to-market adjustments recognized by ICG Commerce are detailed in the below table and represent the premiums paid for the options by ICG Commerce, as well as the change in value of the options related to the fluctuation of exchange rates during the relevant period.

From February 2006 to July 2010, the Company managed its exposure to and benefits from price fluctuations of Blackboard common stock through the use of cashless collar contracts. Although these instruments were derivative securities, their economic risks were similar to, and managed on the same basis as, the risks associated with the Blackboard common stock held by the Company. As of September 30, 2010, all cashless collar contracts held by the Company expired or were terminated by the Company. As of December 31, 2009, the Company was party to cashless collar contracts to hedge 1,000,000 shares of the total 1,619,571 shares of Blackboard common stock it held at that date. During the nine months ended September 30, 2010, the Company incurred costs of $0.2 million to terminate five cashless collar contracts related to a total of 625,000 shares of Blackboard common stock and recorded a loss in this amount, which is included in “Other income (loss), net” on the Company’s Consolidated Statements of Operations for the 2010 period. Two cashless collar contracts relating to the remaining 375,000 shares of Blackboard common stock expired during the nine months ended September 30, 2010. Since the value of the matured hedges was zero, there was no gain or loss associated with the expiration of those contracts. The cashless collar contracts were marked to market through earnings each period, which impact is detailed in the below table. The income or loss was primarily driven by the change in the closing price of Blackboard common stock from the beginning of the quarter to the end of the quarter. The mark-to-market impact was generally an expense if Blackboard’s stock price rose, or income if Blackboard’s stock price declined, during the relevant quarter.

The following table presents the classifications and fair values of our derivative instruments as of September 30, 2010 and December 31, 2009:

Consolidated Balance Sheets
		September 30,		December 31,
		2010		2009
Derivative	Classification	(in thousands)
Cashless collar contracts	Hedges of marketable securities	$	—	$	(547	)
Foreign exchange put option	Other assets, net	$	1	$	—

21

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

5.Financial Instruments — (Continued)

The following table presents the mark-to-market impact on earnings resulting from our hedging activities for the periods ended September 30, 2010 and 2009:

Consolidated Statements of Operations
		Three months ended						Nine months ended
		September 30,						September 30,
		(in thousands)
Derivatives	Classification	2010			2009			2010			2009
Cashless collar contracts	Other income (loss), net	$	(185	)	$	(3,393	)	$	547		$	(5,950	)
Foreign exchange put options	Other income (loss), net	$	(76	)	$	(5	)	$	(60	)	$	(33	)

Fair Value Measurements

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three levels of inputs that may be used to measure fair value; they are as follows:

Level 1 — Observable inputs such as quoted market prices for identical assets and liabilities in active public markets.

Level 2 — Observable inputs other than Level 1 prices based on quoted prices in markets with insufficient volume or infrequent transactions, or valuations in which all significant inputs are observable for substantially the full term of the asset or liability.

Level 3 — Unobservable inputs to the valuation techniques that are significant to the fair value of the asset or liability.

The fair values of the Company’s financial assets measured at fair value on a recurring basis were as follows:

	Balance at
	September 30,
	2010		Level 1		Level 2			Level 3
	(in thousands)
Cash equivalents (money market accounts)	$	85,859	$	85,859	$	—		$	—
Hedges of foreign currency risk (see Note 5)		1		—		1	(1)		—
	$	85,860	$	85,859	$	1		$	—

	Balance at
	December 31,
	2009			Level 1		Level 2			Level 3
	(in thousands)
Cash equivalents (money market accounts)	$	49,972		$	49,972	$	—		$	—
Marketable securities (see Note 4)		73,512			73,512		—			—
Hedges of marketable securities (see Note 5)		(547	)		—		(547)	(1)		—
	$	122,937		$	123,484	$	(547	)	$	—

⁽¹⁾ The Company’s respective counterparties under these arrangements provided the Company with quarterly statements of the market values of these instruments based on significant inputs that are observable or can be derived principally from, or corroborated by, observable market data for substantially the full term of the relevant asset or liability.

22

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

6. Debt

Long-Term Debt

The Company’s long-term debt of $21.2 million and $1.0 million as of September 30, 2010 and December 31, 2009, respectively, relates to its consolidated partner companies. Long-term debt at September 30, 2010 primarily relates to a term loan originated on August 3, 2010 between ICG Commerce and PNC Bank. The long-term debt as of September 30, 2010 is due as follows: $4.6 million is classified as current and is due within one year, and the remaining $16.6 million is due at various times through 2015. The long-term debt as of December 31, 2009 was due as follows: $0.4 million was classified as current and was due within one year, and the remaining $0.6 million was due at various times through 2013.

Loan and Credit Agreements

In August 2008, ICG Commerce and a number of its wholly-owned subsidiaries entered into a loan agreement with PNC Bank, pursuant to which ICG Commerce and such subsidiaries were able to borrow up to $10.0 million under a revolving line of credit. The original line of credit matured on December 31, 2009 and was subsequently extended to December 31, 2010. On August 3, 2010, the original line of credit was replaced with a new revolving line of credit that provided for, among other things, an increased $15.0 million total available borrowing amount and a new maturity date of August 2, 2013. Also on August 3, 2010, ICG Commerce and the other borrowing companies under the line of credit received a term loan from PNC Bank in the amount of $20.0 million. ICG Commerce paid a nonrefundable $0.2 million commitment fee to PNC Bank upon the consummation of the new line of credit and term loan.

Both the new line of credit and the term loan are secured by a first priority lien on the assets of the borrowing companies. Interest on any outstanding amounts under the line of credit and/or the term loan is computed at a rate to be selected by ICG Commerce from the following three options: (1) the highest of PNC Bank’s prime rate, the sum of the Federal Funds Open Rates plus 0.5% and the sum of the daily LIBOR rate plus 1.0%, (2) a fixed LIBOR rate, as determined two business days prior to a specified period, plus a margin ranging from 1.75% to 2.5%, depending on the then-current debt-to-EBITDA ratio of the borrowing companies and (3) the daily LIBOR rate, plus a margin ranging from 1.75% to 2.5%, depending on the then-current debt-to-EBITDA ratio of the borrowing companies. ICG Commerce has initially selected option (2) with respect to $10.0 million and option (3) with respect to the remaining $10.0 million that it has borrowed under the term loan. Any outstanding principal and interest under the line of credit will become due and payable periodically through August 2, 2013. The principal under the term loan is payable in $0.3 million monthly installments through August 1, 2015, and any outstanding interest under the term loan will become due and payable periodically through August 1, 2015. Both the line of credit and the term loan are subject to a number of financial and other covenants that are specified in the loan documents. The line of credit provides for the issuance by the bank of up to $5.0 million of letters of credit, subject to specified fees and other terms. The line of credit is also subject to a 0.25% per annum unused commitment fee that is payable to the bank quarterly.

There were no amounts (including letters of credit) outstanding under the relevant line of credit agreements as of September 30, 2010 and December 31, 2009. The proceeds from the $20.0 million term loan were used to fund a cash dividend paid to certain stockholders of ICG Commerce, including the Company, on August 4, 2010. See Note 3, “Ownership Interests in Partner Companies, Goodwill and Intangibles, net.”

23

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

6. Debt — (Continued)

On December 18, 2009, the Company entered into an amended and restated loan agreement with Comerica Bank (the “Loan Agreement”) that provides for the issuance of letters of credit of up to $10.0 million, subject to a cash-secured borrowing base as defined by the Loan Agreement. The Loan Agreement expires on December 17, 2010 and replaces the Letter of Credit Agreement, as amended, between the same parties, which expired on December 12, 2009. 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 is also subject to a 0.25% per annum unused commitment fee payable to the bank on a quarterly basis. No amounts were outstanding under these agreements at September 30, 2010 or December 31, 2009.

On May 8, 2008, the Company entered into a series of loan agreements with Credit Suisse Capital LLC. Under these agreements, the Company could, from time to time, borrow funds secured by the cashless collar contracts that the Company previously entered into with respect to its shares of Blackboard common stock. On July 26, 2010, the Company terminated its remaining cashless collar contracts. Accordingly, these loan agreements were also terminated as of that date. The Company did not at any time draw any amounts under these loan agreements.

7. Segment Information

The Company’s reportable segments consist of two reporting segments, the “core” segment and the “venture” segment. All of the Company’s partner companies are included in either the core or venture segment, while companies with respect to which the Company’s equity interests have been designated as marketable securities are considered “corporate” assets. At September 30, 2010, the core segment includes the results of the Company’s consolidated partner companies, records the Company’s share of earnings and losses of certain partner companies accounted for under the equity method of accounting and captures the Company’s basis in the assets of its core segment partner companies. At September 30, 2010, the venture segment records the Company’s share of earnings and losses of certain partner companies accounted for under the equity method of accounting and captures the Company’s basis in the assets of its venture segment partner companies.

The core reporting segment includes those consolidated and equity method partner companies in which ICG owns a principal controlling equity voting interest (54% on average as of September 30, 2010) and in which ICG’s management takes a very active role in providing strategic direction and management assistance. The Company expects to devote relatively large initial amounts of capital to acquire core partner companies. The venture reporting segment includes partner companies in which the Company generally devotes less capital than it does to its core companies and, therefore, in which it holds relatively smaller ownership stakes than it does in its core companies (28% on average as of September 30, 2010) and has less influence over their strategic direction and management decisions than it does over those of its core companies.

Approximately 7% and 8% of the Company’s consolidated revenues for the three and nine months ended September 30, 2010, respectively, relate to sales generated in the United Kingdom. Approximately 10% of the Company’s consolidated revenues for both the three and nine months ended September 30, 2009 relate to sales generated in the United Kingdom. The remaining consolidated revenues for the three and nine months ended September 30, 2010 and 2009 primarily relate to sales generated in the United States. As of September 30, 2010 and December 31, 2009, the Company’s assets were located primarily in the United States.

24

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

7. Segment Information — (Continued)

The following summarizes selected information related to the Company’s segments for the respective periods. All significant intersegment activity has been eliminated. Assets are owned or allocated assets used by each reporting segment.

Segment Information
(in thousands)
										Reconciling Items
							Total			Discontinued							Consolidated
	Core			Venture			Segment			Operations		Corporate			Other(1)		Results
Three Months Ended September 30, 2010
Revenues	$	30,222		$	—		$	30,222		$	—	$	—		$	—	$	30,222
Net income (loss) attributable to Internet Capital Group, Inc.	$	(2,187	)	$	(997	)	$	(3,184	)	$	601	$	(4,375	)	$	8,749	$	1,791
Three Months Ended September 30, 2009
Revenues	$	22,572		$	—		$	22,572		$	—	$	—		$	—	$	22,572
Net income (loss) attributable to Internet Capital Group, Inc.	$	(1,742	)	$	(638	)	$	(2,380	)	$	—	$	(3,366	)	$	8,817	$	3,071
Nine Months Ended September 30, 2010
Revenues	$	82,634		$	—		$	82,634		$	—	$	—		$	—	$	82,634
Net income (loss) attributable to Internet Capital Group, Inc.	$	(9,295	)	$	(3,465	)	$	(12,760	)	$	802	$	(13,514	)	$	71,795	$	46,323
Nine Months Ended September 30, 2009
Revenues	$	66,301		$	—		$	66,301		$	—	$	—		$	—	$	66,301
Net income (loss) attributable to Internet Capital Group, Inc.	$	(6,040	)	$	(2,398	)	$	(8,438	)	$	—	$	(12,057	)	$	4,012	$	(16,483	)

⁽¹⁾ Components of Other

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Corporate other income (loss) (Note 11)	$	8,978		$	10,220		$	74,379		$	10,438
Noncontrolling interest		(229	)		(277	)		(781	)		(1,006	)
Impairment of Vcommerce (Core) (Note 3)		—			(1,126	)		—			(4,876	)
Impairment of GoIndustry (Venture) (Note 3)		—			—			(2,914	)		(544	)
Corporate income tax benefit		—			—			1,111			—
	$	8,749		$	8,817		$	71,795		$	4,012

					Total		Discontinued						Consolidated
	Core		Venture		Segment		Operations		Corporate		Other		Results
Assets as of:
September 30, 2010	$	184,835	$	15,834	$	200,669	$	—	$	79,047	$	—	$	279,716
Assets as of:
December 31, 2009	$	191,036	$	21,832	$	212,868	$	1,750	$	115,469	$	—	$	330,087

25

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

8. 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 September 30, 2010 and December 31, 2009 is included in “Ownership interests in partner companies” in the Parent Company Balance Sheets set forth below.

Parent Company Balance Sheets

	As of September 30, 2010		As of December 31, 2009
	(unaudited)
	(in thousands)
Assets
Cash and cash equivalents	$	70,708	$	29,443
Income tax receivable		6,314		11,071
Other current assets		639		562
Current assets		77,661		41,076
Ownership interests in partner companies		148,167		170,498
Marketable securities		—		73,512
Intangible assets		400		—
Other		986		881
Total assets	$	227,214	$	285,967
Liabilities and stockholders’ equity
Current liabilities	$	4,404	$	4,433
Hedges of marketable securities		—		547
Non-current liabilities		294		350
Stockholders’ equity		222,516		280,637
Total liabilities and stockholders’ equity	$	227,214	$	285,967

Parent Company Statements of Operations

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
	(unaudited)
	(in thousands)
Revenues	$	—		$	—		$	—		$	—
Operating expenses
General and administrative		3,622			3,452			12,943			12,357
Impairment related and other		796			1,126			796			4,876
Total operating expenses		4,418			4,578			13,739			17,233
		(4,418	)		(4,578	)		(13,739	)		(17,233	)
Other income (loss), net*		7,622			10,220			73,023			10,438
Interest income (expense), net		43			86			225			300
Income (loss) before income taxes and equity loss		3,247			5,728			59,509			(6,495	)
Equity loss		(1,456	)		(2,657	)		(14,297	)		(9,988	)
Income tax benefit (expense)		—			—			1,111			—
Net income (loss)	$	1,791		$	3,071		$	46,323		$	(16,483	)

* For purposes of Parent Company reporting, discontinued operations (see Note 12) are included in the “Other income (loss), net” line item.

26

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

8. Parent Company Financial Information — (Continued)

Parent Company Statements of Cash Flows

	Nine Months Ended
	September 30,
	2010			2009
	(unaudited)
	(in thousands)
Operating Activities
Net income (loss)	$	46,323		$	(16,483	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		46			75
Equity-based compensation		1,925			2,782
Equity loss		14,297			9,988
Other (income) loss*		(72,992	)		(10,438	)
Impairment related and other		796			4,876
Changes in assets and liabilities, net of effect of acquisitions:
Income tax receivable		4,757			—
Prepaid expenses and other assets		(77	)		139
Accounts payable		17			(8	)
Accrued expenses		(791	)		(19	)
Accrued compensation and benefits		(72	)		(891	)
Other liabilities		(57	)		(60	)
Cash provided by (used in) operating activities		(5,828	)		(10,039	)
Investing Activities
Capital expenditures, net		(445	)		(20	)
Proceeds from sales of marketable securities		74,383			9,533
Proceeds from sales of ownership interests in partner companies		1,836			2,177
Receipt of cash dividend from ICG Commerce		25,380			—
Acquisitions of ownership interests in partner companies, net		(4,102	)		(18,246	)
Cash provided by (used in) investing activities		97,052			(6,556	)
Financing Activities
Acquisition of noncontrolling interest in subsidiary equity		(49,647	)		—
Tax withholdings related to equity-based awards		(312	)		—
Purchase of treasury stock		—			(370	)
Cash provided by (used in) financing activities		(49,959	)		(370	)
Net increase (decrease) in cash and cash equivalents		41,265			(16,965	)
Cash and cash equivalents at beginning of period		29,443			73,208
Cash and cash equivalents at end of period	$	70,708		$	56,243

* For purposes of Parent Company reporting, discontinued operations (see Note 12) are included in the “Other income (loss), net” line item.

27

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

9. Equity-Based Compensation

Equity-based compensation for the three and nine months ended September 30, 2010 and 2009 is primarily included in “Selling, general and administrative” on the Company’s Consolidated Statements of Operations for the relevant periods. The following table provides additional information related to the Company’s equity-based compensation:

												Weighted
												Average Years
										Unrecognized		Remaining of
										Equity-Based		Equity-Based
	Three Months Ended					Nine Months Ended				Compensation		Compensation
	September 30,					September 30,				at Sept. 30,		Expense at
	2010			2009		2010		2009		2010		Sept. 30, 2010
	(in thousands, except weighted average years)
Stock Appreciation Rights	$	496		$	452	$	1,540	$	2,437	$	5,503		3.3
Stock Options		—			—		—		3		1		2.2
Restricted Stock		(4	)		18		72		53		263		3.3
Deferred Stock Units		54			36		150		138		87		0.4
Equity-Based Compensation	$	546		$	506	$	1,762	$	2,631	$	5,854
Equity-Based Compensation for Consolidated Partner Companies		162			174		535		546		1,130		4.3
Equity-Based Compensation	$	708		$	680	$	2,297	$	3,177	$	6,984

Stock Appreciation Rights (SARs)

SARs represent the right of the holder to receive, upon exercise of each SAR, shares of Common Stock equal to the amount by which the fair market value of a share of common stock on the date of exercise of the SAR exceeds the base price of the SAR. During the nine months ended September 30, 2010, the Company granted 1,406,940 SARs to employees and non-management directors at a weighted-average base price of $6.79 per share and a weighted-average fair value of $3.96 per share. There were no SAR grants during the three or nine months ended September 30, 2009. During the three and nine months ended September 30, 2010, 531,020 and 586,020 SARs were exercised, respectively. There were no SARs exercised in the three or nine months ended September 30, 2009. During the three and nine months ended September 30, 2010, 64,937 SARs were forfeited and compensation cost related to the total number of SARs expected to vest was reduced by less than $0.1 million. There were no forfeitures during the three or nine months ended September 30, 2009. There were 4,726,353 and 3,970,370 SARs outstanding at September 30, 2010 and December 31, 2009, respectively. The aggregate intrinsic values of the SARs outstanding at September 30, 2010 and December, 31, 2009 were $17.2 million and $0, respectively.

SARs Fair Value Assumptions

The following assumptions were used to determine the fair value of SARs granted to employees and non-management directors by the Company:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010			2009
Expected volatility		—		—		60	%		—
Average expected life of SAR (in years)		—		—		2.75-6.25			—
Risk-free interest rate		—		—		1.55-2.92	%		—
Dividend yield		—		—		0.0	%		—

28

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

9. Equity-Based Compensation — (Continued)

The Company estimates the grant date fair value of SARs using the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions. These assumptions include estimating the expected life of the award and the estimated volatility of our stock price over the expected term. Expected volatility is based on historical volatility of our Common Stock over the period commensurate with the expected term of the award. The expected term calculation for SARs granted is based on an average of the SAR vest term and the life of the award. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for an instrument with a maturity that is commensurate with the expected term of the award. Changes in these assumptions, the estimated forfeitures and the requisite service period can materially affect the amount of equity-based compensation recognized in the Company’s Consolidated Statements of Operations.

Stock Options

The fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model. Stock options generally vest over four years. During the three and nine months ended September 30, 2010, 1,000 and 26,626 stock options expired, respectively. During the three and nine months ended September 30, 2009, 40,050 and 85,800 stock options expired, respectively. There were no stock options granted during the three and nine months ended September 30, 2010. During the nine months ended September 30, 2009, the Company granted 250 stock options to employees at a weighted-average base price of $4.30 per share and a weighted-average fair value of $2.47 per share. There were 503,778 and 529,404 stock options outstanding as of September 30, 2010 and December 31, 2009, respectively.

Restricted Stock

During the nine months ended September 30, 2010, the Company granted 25,000 shares of restricted stock to certain employees. These awards vest over four years and were valued at $0.2 million on the date of grant. There were no restricted stock awards granted during the three and nine months ended September 30, 2009. During the three and nine months ended September 30, 2010 and 2009, 525 shares and 3,025 shares of restricted stock vested, respectively. During the three and nine months ended September 30, 2010, 7,500 shares of restricted stock were forfeited and compensation cost related to the total number of restricted stock awards expected to vest was reduced by less than $0.1 million. There were no forfeitures during the three or nine months ended September 30, 2009. There were 49,000 and 34,525 restricted stock awards outstanding at September 30, 2010 and December 31, 2009, respectively.

Deferred Stock Units (DSUs)

During the nine months ended September 30, 2010, the Company issued 36,000 DSUs to the Company’s non-management directors under the Non-Management Director Compensation Plan that will vest in the first quarter of 2011. These DSUs were valued at $0.2 million. During the three and nine months ended September 30, 2010, 4,500 DSUs were forfeited, and compensation cost related to the total number of DSUs expected to vest was reduced by less than $0.1 million. During the nine months ended September 30, 2009, the Company issued 36,000 DSUs to the Company’s non-management directors under the Non-management Director Compensation Plan that vested during the nine months ended September 30, 2010. Those DSUs were valued at $0.1 million.

During the three and nine months ended September 30, 2010, the Company issued 6,543 DSUs and 21,359 DSUs, respectively, to the Company’s non-management directors. During the three and nine months ended September 30, 2009, the Company issued 7,385 DSUs and 27,916 DSUs, respectively, to the Company’s non-management directors. These DSUs were issued in lieu of cash payable to those directors for services provided to the Company’s Board of Directors and its committees and vested immediately. The expense of $0.1 million and $0.2 million for the three and nine months, respectively, ended September 30, 2010 and 2009, associated with the quarterly grants for service is included in “Selling, general and administrative” on the Company’s Consolidated Statements of Operations but is not included in the “Equity-Based Compensation” table above.

29

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

9. Equity-Based Compensation — (Continued)

Consolidated Partner Companies

GovDelivery, ICG Commerce and InvestorForce together recorded total equity-based compensation under their respective equity compensation plans of $0.2 million and $0.5 million during the three and nine months ended September 30, 2010, respectively. ICG Commerce recorded total equity-based compensation under its equity compensation plan of $0.2 million and $0.5 million during the three and nine months ended September 30, 2009, respectively.

Total unrecognized compensation cost related to non-vested equity-based awards granted under the consolidated partner companies’ plans was $1.1 million as of September 30, 2010. As of September 30, 2010, these costs are expected to be recognized over a weighted-average period of 4.3 years.

10. 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						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
	(in thousands)
Realized gains on marketable securities, net of hedge termination costs (Notes 4 and 5)	$	9,155		$	14,004		$	66,952		$	14,178
Unrealized gain (loss) on mark-to-market of hedges (Note 5)		(185	)		(3,393	)		547			(5,950	)
Gain on sale of Creditex (Note 3)		—			—			5,089			430
Gains on sales/distributions of ownership interests in partner companies		—			—			1,836			2,177
Dilution loss on GoIndustry (Note 3)		—			(388	)		(67	)		(388	)
Other		8			(3	)		22			(9	)
		8,978			10,220			74,379			10,438
Total other income (loss) for consolidated partner companies		218			6			(260	)		787
	$	9,196		$	10,226		$	74,119		$	11,225

During the nine months ended September 30, 2010 and 2009, the Company recorded gains of $1.8 million and $2.2 million, respectively, related to distributions of various ownership interests in former partner companies, primarily the escrow releases related to Marketron discussed in Note 3, “Ownership Interests in Partner Companies, Goodwill and Intangibles, net.” These gains are included in “Gains on sales/distributions of ownership interests in partner companies” in the above table.

During the three and nine months ended September 30, 2010, ICG Commerce recorded foreign currency gains of $0.2 million and foreign currency losses of $0.3 million, respectively, related to changes in exchange rates associated with its operations in the United Kingdom and Europe. ICG Commerce recorded foreign currency gains of less than $0.1 million and $0.8 million during the three and nine months ended September 30, 2009, respectively. These foreign currency gains and losses comprise the majority of the other income (loss) for the Company’s consolidated partner companies included in the above table.

30

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

11. Income Taxes

Prior to the Company’s acquisition of an additional 17% of ICG Commerce during the nine months ended September 30, 2010, the Company, InvestorForce and GovDelivery joined in filing a consolidated federal income tax return. As a result of a change in ownership of the Company under Internal Revenue Code Section 382 that occurred in 2004, its net operating loss carryforwards and capital loss carryforwards are subject to an annual limitation. The annual limitation on the utilization of these carryforwards is approximately $14.5 million. This annual limitation can be carried forward if it is not used. The Company did not use the limitation in 2009; therefore, the amount available for 2010 is $29.0 million. Together, excluding the results for the nine months ended September 30, 2010, the Company and InvestorForce have $217.8 million available for these carryforwards. These losses expire in varying amounts between 2010 and 2023. Additionally, the Company and InvestorForce have $25.4 million of net operating loss carryforwards and $3.0 million of capital loss carryforwards that are not subject to the Section 382 annual limitation. The net operating losses expire between 2026 and 2029 and the capital losses expire in 2014.

GovDelivery has approximately $2.8 million of net operating loss carryforwards. The Company’s acquisition of GovDelivery in 2009 constituted a change in ownership under Internal Revenue Code Section 382. As a result, GovDelivery’s net operating losses are limited to approximately $1.0 million per year plus any recognized built-in gains. GovDelivery’s net deferred tax liability after acquisition accounting of $4.8 million reduced the Company’s valuation allowance.

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

The Company recorded a tax benefit of $1.2 million during the nine months ended September 30, 2010. This benefit is attributable to $0.7 million of interest related to a portion of the tax receivable that was paid by the Internal Revenue Service during the three months ended June 30, 2010, as well as a provision to return adjustment of $0.5 million to reflect the actual net operating loss carryback related to the 2009 tax year.

As of December 31, 2009, the Company was entitled to aggregate income tax refunds of $11.1 million, primarily related to the completion of the Internal Revenue Service’s audits of the Company’s federal income tax returns for the years 2005 through 2007, as well as new legislation that expanded the ability of businesses to carryback net operating losses. During the three and nine months ended September 30, 2010, the Company received $0.1 million and $5.3 million, respectively, of this refund. The Company’s income tax receivable as of September 30, 2010 was $6.3 million; the Company expects to receive this payment during 2010.

Prior to the transactions to acquire an additional 17% of ICG Commerce that occurred during the nine months ended September 30, 2010, ICG Commerce filed its own consolidated federal income tax return. Due to ICG Commerce’s prior equity transactions, it experienced a change in ownership under Internal Revenue Code Section 382 in 2003. As a result, its net operating loss carryforwards are subject to an annual limitation. Based on an Internal Revenue Code Section 382 study completed in early 2010, and excluding ICG Commerce’s results for the nine months ended September 30, 2010, approximately $74.0 million of net operating loss carryforwards were expected to be available to ICG Commerce between December 31, 2009 and December 31, 2023. The annual limitation ICG Commerce has on the utilization of its net operating losses was $3.1 million per year. The amount available in 2010 was $34.1 million.

31

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

11. Income Taxes — (Continued)

ICG Commerce maintains a valuation allowance for its state net operating losses and its capital loss carryovers. The valuation allowance on the state net operating loss deferred tax assets is necessary due to the expectation that most will expire unused due to the timing and the amount of taxable income apportioned to these states on a separate company basis. A valuation allowance for the deferred tax asset associated with the capital loss carryovers is appropriate because ICG Commerce does not expect to generate any capital gains before the losses expire.

ICG Commerce recorded tax expense of $2.9 million and $4.3 million for the three and nine months ended September 30, 2010, respectively, representing an effective tax rate of 49.7%. This rate differs from the federal rate of 35% due to foreign and state taxes offset by the increased valuation allowance due to the reduction in available net operating losses discussed below.

As discussed in Note 3, “Ownership Interest in Partner Companies, Goodwill and Intangibles, net,” in July 2010 the Company acquired an additional equity interest in ICG Commerce. As a result of this acquisition, ICG Commerce will join the Company’s consolidated federal tax return. One effect of this transaction was to reduce the amount of Section 382 limited net operating losses available to ICG Commerce by $2.6 million.

12. Discontinued Operations

On August 31, 2010, GovDelivery completed the sale of its GovDocs subsidiary to a former executive of GovDelivery for aggregate consideration of $1.8 million, which consisted of a combination of cash, a redemption of shares of GovDelivery’s Series AA preferred stock and a secured promissory note. GovDelivery received cash of $0.7 million, redeemed Series AA preferred shares valued at $0.8 million, and is the beneficiary of a promissory note in the amount of $0.3 million, that is payable through December 31, 2011. This transaction resulted in a gain on the sale of GovDocs of $0.6 million, which is included in “Income (loss) from discontinued operations” for the three and nine months ended September 30, 2010. As part of the transaction, the Company allocated goodwill and intangibles, net of accumulated amortization, of $0.3 million and $1.1 million, respectively, to the GovDocs business and has reclassified these amounts as “Assets of discontinued operations” on its Consolidated Balance Sheets as of December 31, 2009. These assets had been recorded by the Company as part of its acquisition accounting related to GovDelivery on December 31, 2009. To the extent they relate to GovDocs, amortization expense related to these intangible assets of less than $0.1 million and $0.1 million for the three and nine months ended September 30, 2010, respectively, as well as purchase price adjustments related to deferred revenue of less than $0.1 million and $0.2 million, respectively, have been reclassified and are included in “Income (loss) from discontinued operations” for the relative periods.

Revenue from GovDocs related to the distribution of labor law posters and was recognized upon delivery, provided a purchase order had been received, the price to the buyer was fixed or determinable and collectibility was reasonably assured. Revenues from update and subscription services for labor law posters were deferred and recognized ratably over the service term. GovDocs had revenues of $1.6 million from January 1, 2010 through August 31, 2010. The Company’s share of GovDoc’s net income for that period was $0.4 million. The revenue and operating activities of GovDocs have been removed from the line items in which they were reported in prior periods and the related net income of $0.1 million and $0.5 million is presented in the line item “Income (loss) from discontinued operations” on the Company’s Consolidated Statements of Operations for the three and nine months ended September 30, 2010, respectively. Additionally, the assets and liabilities reported in prior periods related to GovDocs have been presented separately on the Company’s Consolidated Balance Sheet as of December 31, 2009. The results and financial position of GovDocs were reported within the Company’s core segment prior to the sale on August 31, 2010.

32

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

13. Net Income (Loss) per Share

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2010		2009		2010		2009
	(in thousands, except $ per share amounts)
Basic and Diluted:
Income (loss) from continuing operations	$	1,339	$	3,071	$	45,711	$	(16,483	)
Income (loss) from discontinued operations		452		—		612		—
Net income (loss) attributable to Internet Capital Group, Inc.	$	1,791	$	3,071	$	46,323	$	(16,483	)
Basic:
Income (loss) from continuing operations per share	$	0.04	$	0.08	$	1.25	$	(0.45	)
Income (loss from discontinued operations per share		0.01		—		0.02		—
Net income (loss) attributable to Internet Capital Group, Inc. per share	$	0.05	$	0.08	$	1.27	$	(0.45	)
Diluted:
Income (loss) from continuing operations per share	$	0.04	$	0.08	$	1.24	$	(0.45	)
Income (loss) from discontinued operations per share		0.01		—		0.02		—
Net income (loss) attributable to Internet Capital Group, Inc. per share	$	0.05	$	0.08	$	1.26	$	(0.45	)
Shares used in computation of basic income (loss) per share		36,368		36,676		36,340		36,673
Stock options		60		39		40		—
Restricted stock		18		—		10		—
DSUs		19		25		9		—
SARs		491		—		280		—
Shares used in the computation of diluted income (loss) per share		36,956		36,740		36,679		36,673

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

			Weighted Average
	Shares		Price Per Share
Three Months Ended September 30, 2010
SARs		1,995,353	$	7.45
Stock options		299,754		29.81
Restricted stock		—	$	—
Deferred stock units		—	$	—
Nine Months Ended September 30, 2010
SARs		1,995,353	$	7.45
Stock options		299,754	$	29.81
Restricted stock		—	$	—
Deferred stock units		—	$	—
Three Months Ended September 30, 2009
SARs		3,870,370	$	7.65
Stock options		490,183	$	38,41
Restricted stock		137	$	—
Deferred stock units		10,796	$	—
Nine Months Ended September 30, 2009
SARs		3,870,370	$	7.65
Stock options		529,404	$	35.56
Restricted stock		275	$	—
Deferred stock units		36,000	$	—

33

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

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 table summarizes the components of comprehensive loss:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
	(unaudited)
	(in thousands)
Net income (loss)	$	2,020		$	3,348		$	47,104		$	(15,477	)
Other comprehensive income (loss):
Unrealized holding gains (losses) in marketable securities		158			18,980			(4,055	)		24,905
Reclassification adjustments/realized net gains on marketable securities		(9,127	)		(14,004	)		(67,114	)		(14,178	)
Other accumulated other comprehensive income (loss)		(28	)		19			7			(69	)
Comprehensive income (loss)		(6,977	)		8,343			(24,058	)		(4,819	)
Less: Comprehensive income attributable to the noncontrolling interest		203			296			790			937
Comprehensive income (loss) attributable to Internet Capital Group, Inc.	$	(7,180	)	$	8,047		$	(24,848	)	$	(5,756	)

15. Share Repurchase Program

In accordance with the Company’s share repurchase program, the Company may repurchase, from time to time, up to $25.0 million of shares of Common Stock in the open market, in privately negotiated transactions or pursuant to trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act. Since commencement of this program, the Company has repurchased a total of 2,440,400 shares of Common Stock at an average purchase price of $4.89 per share. The Company did not make any repurchases of Common Stock during the nine months ended September 30, 2010. The Company repurchased a total of 92,242 shares of Common Stock at an average purchase price of $3.97 per share during the nine months ended September 30, 2009. All repurchases are reflected in “Treasury stock, at cost” as a reduction of Stockholders’ Equity on the Company’s Consolidated Balance Sheets in the relevant period.

34

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 Consolidated Financial Statements and related Notes thereto included in this Report.

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

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,” “us,” “our,” “ICG,” the “Company” or “Internet Capital Group”), and have been prepared in accordance with U.S. generally accepted accounting principles (GAAP).

Executive Summary

We focus on acquiring and building SaaS, technology-enabled BPO and Internet marketing companies that improve the productivity and efficiency of their business customers. We call these companies our “partner companies.” As of September 30, 2010 and the date of this Report, we hold ownership interests in 12 companies that we consider our partner companies. Additionally, from time to time we hold marketable securities in other companies, which, as of September 30, 2010, consist of ICE common stock held in escrow. The results of operations of our partner companies are reported within two segments: the “core” reporting segment and the “venture” reporting segment. The core reporting segment includes those consolidated and equity method partner companies in which ICG owns a principal controlling equity voting interest (54% on average as of September 30, 2010) and in which ICG’s management takes a very active role in providing strategic direction and management assistance. We expect to devote relatively large initial amounts of capital to acquire our core partner companies. The venture reporting segment includes partner companies in which we generally devote less capital than we do to our core companies and, therefore, in which we hold relatively smaller ownership stakes than we do in our core companies (28% on average as of September 30, 2010) and have less influence over their strategic direction and management decisions than we do over those of our core companies.

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 and 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 other stockholders do not possess the right to affect the significant operational management decisions of that partner company, the partner company’s accounts are reflected in our Consolidated Financial Statements. Generally, if we own between 20% and 50% of the outstanding voting securities of a partner company, that partner company’s accounts are not reflected in our Consolidated Financial Statements, but 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.

35

Because we own significant interests in SaaS, technology-enabled BPO and Internet marketing companies, many of which have generated net losses, we have experienced, and expect to continue to experience, significant volatility in our quarterly results. While many of our partner companies have consistently reported losses, we have recorded net income in certain periods and experienced significant volatility from period-to-period due to 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 included hereto and include dispositions of, changes to and impairment of our partner company ownership interests and dispositions of our holdings of marketable securities.

Liquidity and Capital Resources

The following table summarizes our and our consolidated subsidiaries’ cash and cash equivalents, restricted cash, and marketable securities as of September 30, 2010 and December 31, 2009:

	September 30, 2010						December 31, 2009
			Consolidated						Consolidated
	Corporate		Subsidiaries		Total		Corporate		Subsidiaries		Total
Cash and cash equivalents	$	70,708	$	20,030	$	90,738	$	29,443	$	26,038	$	55,481
Restricted cash		—		151		151		—		47		47
	$	70,708	$	20,181	$	90,889	$	29,443	$	26,085	$	55,528
Marketable securities(1)	$	—	$	—	$	—	$	72,965	$	—	$	72,965

⁽¹⁾ Includes an offsetting liability of $0.5 million at December 31, 2009, related to derivative instruments associated with the Company’s marketable securities.

We believe existing cash and cash equivalents, cash flow from operations, proceeds from the potential sales of all or a portion of our interests in certain partner companies, borrowings, including by our consolidated subsidiaries, and equity issuances to be sufficient to fund our and our consolidated subsidiaries’ cash requirements for the foreseeable future, including any future commitments to partner companies, debt obligations and general operating requirements. As of the date of this filing, we were not obligated for any material funding or 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 during 2010; however, such acquisitions will generally be made at our discretion.

Our consolidated working capital increased $29.0 million from December 31, 2009 to September 30, 2010, due to an increase in cash related to sales of Blackboard common stock, receipt of the dividend payment from ICG Commerce, which was paid from the proceeds of a new $20.0 million term loan at ICG Commerce, and an increase in customer receivables at our consolidated partner companies, partially offset by a decrease in our income tax receivable and increases in both current maturities of long-term debt related to ICG Commerce’s term loan and deferred revenue at GovDelivery.

36

Summary of Statements of Cash Flows — from continuing operations

	Nine Months Ended
	September 30,
	2010			2009
	(in thousands)
Cash provided by (used in) operating activities	$	(5,188	)	$	(8,566	)
Cash provided by (used in) investing activities	$	71,747		$	(3,312	)
Cash provided by (used in) financing activities	$	(31,581	)	$	(582	)

Cash flows used in operating activities from continuing operations decreased $3.4 million from $8.6 million during the nine months ended September 30, 2009 to $5.2 million during the nine months ended September 30, 2010. This is primarily due to an increase in equity loss in the 2010 period related to equity method companies acquired during the second half of 2009, as well as an increase in our compensation and benefit accruals and the net change in the tax receivable outstanding during the nine-month period of $4.8 million.

Cash flows provided by investing activities from continuing operations of $71.7 million during the nine months ended September 30, 2010 represents a change of $75.0 million from cash flows used in investing activities of $3.3 million during the nine months ended September 30, 2009. This change primarily relates to the increase in proceeds from Blackboard sales in the 2010 period.

Cash flows used in financing activities from continuing operations increased $31.0 million from $0.6 million during the nine months ended September 30, 2009 to $31.6 million due to the acquisition of an additional 17% equity voting interest of ICG Commerce from its noncontrolling stockholders, offset by proceeds received from the $20.0 million long-term debt borrowing by ICG Commerce in August 2010.

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 to 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 nine months ended September 30, 2010.

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.

37

Our Partner Companies

As of September 30, 2010, we owned interests in 12 partner companies that are categorized below based on segment and method of accounting.

CORE PARTNER COMPANIES (% Voting Interest)
Consolidated	Equity	Cost
GovDelivery (93%)	Channel Intelligence (50%)(1)	(none)
ICG Commerce (80%)	Freeborders (31%)
InvestorForce (76%)	Metastorm (33%)
	StarCite (36%)
	WhiteFence (36%)

VENTURE PARTNER COMPANIES (% Voting Interest)
Consolidated	Equity	Cost
(none)	Acquirgy (25%)	(none)
	ClickEquations (33%)
	GoIndustry (26%)(2)
	SeaPass (26%)

(1)	Our ownership percentage is rounded up to 50%. We do not consolidate Channel Intelligence because we do not own a majority interest in the partner company and because factors support that we do not exert control over Channel Intelligence. See Note 3, “Ownership Interests in Partner Companies, Goodwill and Intangibles, net,” to our Consolidated Financial Statements.
(2)	As of September 30, 2010 and November 8, 2010, we owned 2,546,743 shares, or approximately 26% of the voting securities, of GoIndustry. GoIndustry’s common stock is traded on the AIM market of the London Stock Exchange under ticker symbol GOI. See Note 3 — “Ownership Interests in Partner Companies and Goodwill” to our Consolidated Financial Statements.

On May 5, 2010, we acquired an additional 12% equity voting interest in ICG Commerce from an existing shareholder of ICG Commerce for aggregate cash consideration of $35.3 million; the transaction increased our equity voting interest in ICG Commerce from 64% to 76%. On July 1, 2010, we acquired an additional 5% equity voting interest in ICG Commerce for aggregate cash consideration of $14.4 million through a tender offer that we made to ICG Commerce stockholders; the tender transaction further increased our equity voting interest in ICG Commerce to 81% as of the completion of that transaction. Stock option exercises that occurred at ICG Commerce during the three months ended September 30, 2010 reduced our equity voting interest to 80% as of September 30, 2010.

Certain of our officers and directors directly or indirectly owned shares of ICG Commerce that we acquired from the Selling Stockholder of ICG Commerce or through the tender offer. The aggregate proceeds received by these individuals represent approximately 4% of the aggregate proceeds paid in these transactions.

38

Results of Operations

The following table summarizes the unaudited selected financial information related to our segments. Each segment includes the results of our consolidated partner companies and records our share of the earnings and losses of partner companies accounted for under the equity method of accounting. The partner companies included within the segments are consistent between periods with the exception of partner company acquisitions and dispositions that occurred during 2009. Core segment results for the three and nine months ended September 30, 2010 include GovDelivery, which was acquired on December 31, 2009. The core segment for the three and nine months ended September 30, 2009 includes Vcommerce, which was a consolidated subsidary from May 2008 through August 2009. Additionally, the venture segment for the three and nine months ended September 30, 2010 includes results from SeaPass, which was acquired during the three months ended December 31, 2009. Acquirgy, a partner company within our venture segment, was acquired during the three months ended September 30, 2009 and is included in our results from the date of acquistion. The method of accounting for any particular partner company may change based on our ownership interest.

“Corporate” expenses represent the general and administrative expenses of our business operations, which include supporting the partner companies and operating as a public company. The “Total Segment” net loss does not include items such as gains on the disposition of partner company ownership interests and marketable securities holdings and impairment charges associated with partner companies, which are reflected in “Other” reconciling items in the information that follows.

Segment Information
(in thousands)
										Reconciling Items
							Total			Discontinued							Consolidated
	Core			Venture			Segment			Operations		Corporate			Other		Results
Three Months Ended September 30, 2010
Revenues	$	30,222		$	—		$	30,222		$	—	$	—		$	—	$	30,222
Net income (loss) attributable to Internet Capital Group, Inc.	$	(2,187	)	$	(997	)	$	(3,184	)	$	601	$	(4,375	)	$	8,749	$	1,791
Three Months Ended September 30, 2009
Revenues	$	22,572		$	—		$	22,572		$	—	$	—		$	—	$	22,572
Net income (loss) attributable to Internet Capital Group, Inc.	$	(1,742	)	$	(638	)	$	(2,380	)	$	—	$	(3,366	)	$	8,817	$	3,071
Nine Months Ended September 30, 2010
Revenues	$	82,634		$	—		$	82,634		$	—	$	—		$	—	$	82,634
Net income (loss) attributable to Internet Capital Group, Inc.	$	(9,295	)	$	(3,465	)	$	(12,760	)	$	802	$	(13,514	)	$	71,795	$	46,323
Nine Months Ended September 30, 2009
Revenues	$	66,301		$	—		$	66,301		$	—	$	—		$	—	$	66,301
Net income (loss) attributable to Internet Capital Group, Inc.	$	(6,040	)	$	(2,398	)	$	(8,438	)	$	—	$	(12,057	)	$	4,012	$	(16,483	)

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For the Three and Nine Months Ended September 30, 2010 and 2009

Results of Operations — Core Partner Companies

The following presentation 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						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
				(in thousands)
Selected data:
Revenues	$	30,222		$	22,572		$	82,634		$	66,301
Cost of revenue		(18,056	)		(14,402	)		(52,381	)		(42,205	)
Selling, general and administrative		(6,367	)		(4,895	)		(18,268	)		(14,364	)
Research and development		(2,729	)		(2,178	)		(7,798	)		(7,418	)
Amortization of intangible assets		(342	)		(51	)		(1,020	)		(205	)
Impairment related and other		(208	)		(118	)		(376	)		(188	)
Operating expenses		(27,702	)		(21,644	)		(79,843	)		(64,380	)
Interest and other		108			(31	)		(422	)		619
Income tax (expenses) benefit		(2,860	)		(516	)		(4,176	)		(884	)
Equity loss		(1,955	)		(2,123	)		(7,488	)		(7,696	)
Net loss	$	(2,187	)	$	(1,742	)	$	(9,295	)	$	(6,040	)

Revenue

Revenue increased $7.6 million, from $22.6 million in the three months ended September 30, 2009 to $30.2 million in the three months ended September 30, 2010. This revenue increase was primarily driven by a 28% increase in revenues at ICG Commerce for the three months ended September 30, 2010 from the comparable period in 2009, as well as a 60% increase in revenues at InvestorForce for the three months ended September 30, 2010 compared to the comparable 2009 period. These increases relate to new customers and increased revenues from existing customers at these partner companies. Revenues related to GovDelivery in the three months ended September 30, 2010 were approximately twice the revenues reported by Vcommerce for the 2009 period through August 28, 2009, the date on which substantially all of its assets and certain liabilities were sold and operations ceased.

Revenue increased $16.3 million, from $66.3 million for the nine months ended September 30, 2009 to $82.6 million for the nine months ended September 30, 2010. Similar to the three-month periods ended September 30, 2010 and 2009, revenues increased 24% and 55% at ICG Commerce and InvestorForce, respectively, due to new customers and increased business with existing customers. Additionally, revenues related to GovDelivery during the nine months ended September 30, 2010 were 18% higher than those reported by Vcommerce for the 2009 period through August 28, 2009.

Operating Expenses

Operating expenses increased $6.1 million, from $21.6 million in the three months ended September 30, 2009 to $27.7 million in the three months ended September 30, 2010. This primarily relates to an increase in the cost of revenues at ICG Commerce and InvestorForce related to the increase in revenue from the 2009 period. Cost of revenues at ICG Commerce increased 23% from the 2009 period primarily due in part to an increase in headcount needed to service new customers and an increase in professional service fees in the three months ended September 30, 2010. Cost of revenues increased 31% at InvestorForce. In addition, operating expenses at GovDelivery for the three months ended September 30, 2010 were more than double the operating expense incurred by Vcommerce during the 2009 period from January 1, 2009 through August 28, 2009.

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Operating expenses for the nine-month period increased $15.4 million, from $64.4 million for the nine months ended September 30, 2009 to $79.8 million for the nine months ended September 30, 2010. The increase for the nine-month period also relates to increased cost of revenues, primarily at ICG Commerce, as well as 49% higher operating costs at GovDelivery than those of Vcommerce in the 2009 period from January 1, 2009 through August 28, 2009.

Equity Loss

A portion of our net results from our core partner 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.”

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
				(in thousands)
Selected data:
Total revenues	$	46,867		$	45,399		$	135,417		$	138,184
Total net loss	$	(4,013	)	$	(3,988	)	$	(16,217	)	$	(16,643	)
Our share of total net loss	$	(1,478	)	$	(1,600	)	$	(5,940	)	$	(6,225	)
Amortization of intangible assets		(477	)		(523	)		(1,548	)		(1,471	)
Equity loss	$	(1,955	)	$	(2,123	)	$	(7,488	)	$	(7,696	)

Aggregate revenue from our core partner companies accounted for under the equity method of accounting increased $1.5 million and decreased $2.8 million during the three and nine months ended September 30, 2010, respectively, from the comparable periods of 2009. The increase in revenue from the three months ended September 30, 2009 to the three months ended September 30, 2010 relates to revenue increases at Metastorm and Channel Intelligence from the 2009 period, partially offset by slight revenue decreases at Freeborders and StarCite from the prior quarter. Aggregate revenue for the nine-month period decreased from 2009 to 2010 due to revenue decreases at Freeborders, StarCite and WhiteFence, partially offset by increased revenues at Channel Intelligence and Metastorm during the nine months ended September 30, 2010. Aggregate net loss and, accordingly, our share of total net loss in the three months ended September 30, 2010 was consistent with the corresponding 2009 period. However, aggregate net loss and our share of total net loss improved slightly in the nine months ended September 30, 2010 from the corresponding 2009 period due to effective cost reductions at our core partner companies during the first quarter of 2010.

Results of Operations — Venture Partner Companies

The following presentation includes our share of the results of our equity method venture partner companies. There are currently no consolidated partner companies that we consider to be part of our venture reporting segment. Accordingly, our share of the results of our venture partner companies is recorded in our Consolidated Statements of Operations under “Equity loss.”

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
				(in thousands)
Selected data:
Our share of total net loss	$	(830	)	$	(639	)	$	(2,964	)	$	(2,398	)
Amortization of intangible assets		(167	)		—			(501	)		—
Equity loss	$	(997	)	$	(639	)	$	(3,465	)	$	(2,398	)

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Equity income (loss) for the three and nine months ended September 30, 2010 relates to our share of Acquirgy’s, ClickEquations’, GoIndustry’s and SeaPass’ results. We acquired Acquirgy during the three months ended September 30, 2009 and SeaPass subsequent to September 30, 2009. Equity income (loss) for the three and nine months ended September 30, 2009 relates to our share of ClickEquations’, GoIndustry’s and Acquirgy’s results.

Results of Operations — Reconciling Items

Discontinued Operations

On August 31, 2010, GovDelivery completed the sale of its GovDocs subsidiary to a former executive of GovDelivery for aggregate consideration of $1.8 million. GovDocs had revenues and net income of $1.6 million and $0.5 million, respectively, from January 1, 2010 through August 31, 2010, which, prior to the sale, had been included in our core segment. GovDocs’ revenue and operating results from that period have been separated from continuing operations and are presented in the single line item, “Income (loss) from discontinued operations, including gain on sale,” on our Consolidated Statements of Operations, as well as shown separately in the “Results of Operations” segment information table.

Corporate

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
				(in thousands)
General and administrative	$	(3,622	)	$	(3,452	)	$	(12,943	)	$	(12,357	)
Impairment related and other		(796	)		—			(796	)		—
Interest income (expense), net		43			86			225			300
Net loss	$	(4,375	)	$	(3,366	)	$	(13,514	)	$	(12,057	)

General and Administrative

Our general and administrative expenses increased $0.1 million, from $3.5 million for the three months ended September 30, 2009 to $3.6 million for the three months ended September 30, 2010, and increased $0.5 million from $12.4 million for the nine months ended September 30, 2009 to $12.9 million for the nine months ended September 30, 2010. The increases for the three-month 2010 period are primarily related to increases in employee-related expenses of $0.3 million, partially offset by decreases in outside services costs of $0.2 million. The increased employee-related expenses of $1.4 million during the nine months ending September 30, 2010 were partially offset by a decrease of $0.9 million in equity-based compensation.

Impairment related and other

Severance costs of $0.8 million were incurred during the three months ended September 30, 2010, related to two employees that no longer provide services to the Company. The majority of these costs will be paid prior to December 31, 2010.

Interest Income/Expense

The interest income (expense), net, was generally consistent between periods due to similar cash balances and economic conditions in both periods.

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Other

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
				(in thousands)
Corporate other income (loss)	$	8,978		$	10,220		$	74,379		$	10,438
Noncontrolling interest		(229	)		(277	)		(781	)		(1,006	)
Impairment of GoIndustry (Venture)		—			—			(2,914	)		(544	)
Impairment of Vcommerce (Core)		—			(1,126	)		—			(4,876	)
Corporate income tax benefit		—			—			1,111			—
Net income (loss)	$	8,749		$	8,817		$	71,795		$	4,012

Corporate Other Income (Loss), Net

Corporate other income for the three months ended September 30, 2010 of $9.0 million relates to gains on the sale of Blackboard common stock of $9.2 million, offset by a loss of $0.2 related to the expiration of the Blackboard cashless collar contracts in the period. Corporate other income for the three months ended September 30, 2009 of $10.2 million relates to gains on the sale of Blackboard common stock of $14.0 million, offset by $3.4 million of loss on the value of the Blackboard cashless collar contracts and $0.4 million dilution loss related to GoIndustry.

Corporate other income in the nine months ended September 30, 2010 of $74.4 million was comprised of a $67.0 million gain on the sale of marketable securities, primarily Blackboard, including a loss of $0.2 million to terminate five of our Blackboard hedges in the period, a $6.9 million gain related to distributions of ownership interests in partner companies and a gain of $0.5 million related to an increase in the value of our Blackboard hedges from December 31, 2009 to September 30, 2010. Corporate other income of $10.4 million during the nine months ended September 30, 2009 relates to gains on the sale of marketable securities, primarily Blackboard, of $14.2 million, as well as a gain of $2.6 million related to consideration received in connection with previous sales of partner companies, partially offset by a $6.0 million loss related to a decrease in the fair value of our Blackboard hedges during the period and a dilution loss of $0.4 million related to GoIndustry.

Impairments

We recorded $2.9 million and $0.5 million of impairment charges related to our basis in GoIndustry during the nine months ended September 30, 2010 and 2009, respectively, related to decreases in the fair market value of our equity holdings in GoIndustry. Additionally, during the three months ended June 30, 2009, the Company concluded that the estimated fair value of Vcommerce had declined. The Company performed its goodwill impairment testing and determined that an impairment of goodwill of $3.8 million was required to reduce the Company’s carrying amount of Vcommerce as of June 30, 2009. In August 2009, following Vcommerce’s sale of substantially all of its assets, the Company recorded an additional impairment charge of $1.1 million to write off the remaining basis of Vcommerce. Accordingly, impairment charges related to Vcommerce of $1.1 million and $4.9 million were recorded during the three and nine months ended September 30, 2009, respectively.

Corporate income taxes

ICG recorded a tax benefit of $1.1 million during the nine months ended September 30, 2010. This benefit is attributable to $0.7 million of interest related to a portion of the tax receivable that was paid by the Internal Revenue Service during the three months ended June 30, 2010, as well as a provision to return adjustment of $0.4 million to reflect the actual net operating loss carryback related to the 2009 tax year.

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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.

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 test goodwill for impairment annually, or more frequently as conditions warrant, and intangible assets when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Additionally, we perform ongoing business reviews to evaluate our ownership interests in partner companies accounted for under the equity and cost methods of accounting to determine whether an other than temporary decline in the value of a partner company should be recognized. We use quantitative and qualitative measures to assess the need to record impairment losses on goodwill, intangible assets and 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 using 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 the 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 Recognition

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 fixed fee agreed upon in advance and/or a fee based on a percentage of the amount spent by its customers’ respective purchasing departments in the specified areas ICG Commerce manages. Additionally, in some cases, ICG Commerce has the opportunity to earn additional fees based on the level of savings achieved for customers. ICG Commerce recognizes revenue and any additional fees as earned, which is typically over the life of the customer contract, which approximates the life of the customer relationship.

GovDelivery revenues generally consist of nonrefundable setup fees and monthly maintenance and hosting fees. These fees are deferred and recognized as the services are performed, which is typically over the service term. Costs related to performing set up services are expensed as incurred.

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InvestorForce generates revenue from license fees earned in connection with hosted services, setup fees and support and maintenance fees. Hosted services primarily consist of data aggregation, performance calculation, real-time analysis and automated production of performance reports for the institutional investment community. Generally, a minimum quarterly base fee is charged for hosted services. These minimum fees are recognized on a pro rata basis over the service term. As the volume of client accounts increases, additional fees apply. These additional fees are recognized in the period in which account volumes exceed the contract minimum. Setup and support and maintenance fees are deferred and recognized ratably over the service term.

Vcommerce was a consolidated company from May 2008, when our ownership stake increased to 53%, through August 2009, at which time it sold substantially all of its assets and liabilities. Vcommerce generated revenue from service fees earned by it in connection with the development and operation of its clients’ e-commerce businesses. Service fee revenue primarily consisted of transaction fees, implementation fees and professional services fees, as well as access and maintenance fees. Vcommerce recognized revenue from services provided in accordance with general revenue recognition criteria either over the term of the customer contract or as services were rendered, depending on the type of revenue.

Equity Income/Loss

We record our share of our partner companies’ net income/loss, which is accounted for under the equity method of accounting as equity income/loss. Since we do not control these companies, this equity income/loss is based on unaudited results of operations of our partner companies and may require adjustment in the future when the audits of our partner companies are complete. The compilation and review of these results of operations require significant judgment and estimates by management.

Deferred Income Taxes

We record a valuation allowance to reduce our net deferred tax assets to an 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, 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.

Fair Value Measurements

Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three levels of inputs that may be used to measure fair value. Our marketable securities are reported at fair value on our Consolidated Balance Sheets based on quoted prices in active markets for identical or comparable assets.

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Recent Accounting Pronouncements

In October 2009, the FASB issued accounting guidance related to revenue recognition for transactions with multiple deliverables, which impacts the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. This guidance becomes effective for us on January 1, 2011. We are currently evaluating the effect this guidance will have on our consolidated financial statements.

In October 2009, the FASB issued accounting guidance related to certain revenue arrangements that include software elements, which amends the scope of pre-existing software revenue guidance. This guidance becomes effective for us on January 1, 2011. We are currently evaluating the effect this guidance will have on our consolidated financial statements.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

ICG Commerce conducts a portion of its business in foreign currencies, primarily those of European countries and may utilize derivative financial instruments, specifically fair value hedges, to manage foreign currency risks. In accordance with GAAP, gains and losses related to fair value hedges are recognized in income along with adjustments of carrying amounts of the hedged items. Therefore, its put option is marked to market, and unrealized gains and losses are included in current period net income. These options provide a predetermined rate of exchange at the time the option is purchased and allows ICG Commerce to minimize the risk of currency fluctuations. In determining the use of its put option, ICG Commerce considers the amount of sales and purchases made in local currencies, the type of currency and the costs associated with the contracts. During the nine months ended September 30, 2010, ICG Commerce purchased a put option to mitigate the risk of currency fluctuations at ICG Commerce’s operations in the United Kingdom. This option is net settled quarterly, resulting in an immaterial gain for the current quarter.

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. Marketable securities are carried at fair value.

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ITEM 4. Controls and Procedures

Controls and Procedures

Management’s Quarterly Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of management, including our 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-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered in this Report. Based upon that evaluation, our 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 effective to provide reasonable assurance that information required to be disclosed in our periodic SEC reports is recorded, processed, summarized and reported within the time periods specified in the relevant SEC rules and forms and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding require disclosure.

Inherent Limitations on Effectiveness of Controls

The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may not deteriorate. Because of their inherent limitations, systems of control may not prevent or detect all misstatements. Accordingly, even effective systems of control can provide only reasonable assurance of achieving their control objectives.

Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the quarter covered by this Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 putative 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, as amended (the “Securities Act”), and Rule 10b-5 promulgated under the Exchange Act, 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, which was preliminarily approved by the District Court overseeing the litigation in February 2005. A final fairness hearing on the settlement was held on April 24, 2006. On December 5, 2006, however, the Second Circuit Court of Appeals reversed the certification of plaintiff classes in six actions related to other issuers that had been designated as test cases with respect to the non-settling defendants in those matters (the “Focus Cases”) and made other rulings that drew into question the legal viability of the claims in the Focus Cases. The Court of Appeals later rejected the plaintiffs’ request that it reconsider that decision. As a result, on June 25, 2007, the District Court approved a stipulation and order terminating the proposed settlement. While the Court of Appeals decision did not automatically apply to the case against the Company, the defendants moved for, and the Court granted, an order that would apply the decision to all cases, including the consolidated action against the Company. On August 14, 2007, the plaintiffs filed an amended “master” complaint containing allegations purportedly common to all defendants in all actions and filed amended complaints containing specific allegations against the six issuer defendants in the Focus Cases. In addition, on September 27, 2007, the plaintiffs again moved to certify classes in each of the Focus Cases. The defendants in the Focus Cases moved to dismiss the amended complaints. Rulings on both the motion to certify the Focus Cases as class actions and to dismiss those cases remain outstanding. The District Court has approved a stipulation extending the time within which the plaintiffs must file amended pleadings containing specific allegations against the other issuer defendants, including the Company, and the time within which those defendants must move, answer or otherwise respond to those specific allegations.

On April 2, 2009, the plaintiffs filed a motion for preliminary approval of a proposed global settlement of all claims asserted in the coordinated class action securities litigation on behalf of the class plaintiffs in the respective actions against the various issuer and underwriter defendants, including all claims asserted against the Company. The motion further seeks certification of settlement classes as to each action against the defendants, including the Company. The Company has assented to the proposed settlement, which does not require any monetary contribution from the Company and would be funded by various underwriter defendants and the defendants’ insurers. On June 10, 2009, the District Court granted preliminary approval of the proposed settlement and of the form of notice of the proposed settlement to be provided to members of the proposed settlement class. The District Court scheduled a hearing for September 10, 2009 to determine whether to approve the proposed settlement.

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The final hearing was held on September 10, 2009. On October 5, 2009, the District Court granted final approval of the proposed global settlement, subject to the rights of the parties to appeal the settlement within 30 days of such approval. Pursuant to the terms of the approved settlement, the Company is not required to make any monetary contribution to fund the required settlement payments, which are being funded by various underwriter defendants and the defendants’ insurers.

On or about October 23, 2009, three members of the settlement class who had been shareholders of an issuer other than the Company filed a petition seeking leave to appeal the District Court’s final approval to the Second Circuit Court of Appeals on an interlocutory basis. No judicial ruling or action has been taken on the motion. On or before November 6, 2009, three notices of appeal were filed with respect to the District Court’s order granting final approval of the global settlement. On December 14, 2009, the District Court entered a final judgment approving and giving effect to the global settlement as it related to the consolidated actions against the Company. The final judgment created a settlement class of plaintiffs comprised of persons who purchased or otherwise acquired the common stock and call options of the Company during the period of August 4, 1999 through December 6, 2000, provided for the distribution of settlement proceeds to the members of the class and approval of attorneys’ fees to class counsel consistent with the terms of the global settlement, barred prosecution of all settled claims by members of the class and their representatives, released the defendants and other protected persons from such claims and dismissed all claims against the Company and other defendants in the consolidated amended action with prejudice.

The appeals referenced in the November 6, 2009 notices of appeal have been docketed in the Court of Appeals for the Second Circuit. By order dated April 7, 2010, the District Court directed that the appealing class members identify the specific class, by company, to which they purport to belong. The District Court’s order further directed the clerk of the court to enter the appealing class members’ notices of appeal only in those cases as to which the appealing class members identify themselves as members of the class certified. No such notice of appeal has been entered in the action against the Company. Separately, on June 17, 2010, the District Court entered an order requiring the appellants to post a bond in the amount of $25,000, jointly and severally, as a condition of pursuing their appeals from the October 5, 2009 order approving the global settlement. The bond has been posted and a briefing schedule with respect to the appeals has been set, with the objecting appellants’ briefs due no later than October 6, 2010 and answering briefs due no later than February 3, 2011. The distribution of settlement proceeds is currently being held in abeyance.

ITEM 1A. Risk Factors

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Item 1A — “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. There have been no material changes with respect to the Company’s risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2009.

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

Issuer Purchases of Equity Securities

In 2008, the Company adopted a share repurchase program under which the Company could repurchase, from time to time, up to $25.0 million of shares of its Common Stock in the open market, in privately negotiated transactions or pursuant to trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act. The table below contains information relating to the repurchases of Company Common Stock that occurred from commencement of this program through the date of the filing of this Report.

					Total Number		Approximate
					of Shares		Dollar Value
					Purchased as		That May Yet
	Total Number		Average		Part of Publicly		Be Purchased
	of Shares		Price Paid		Announced		Under the
Monthly Period	Purchased(1)		per Share(2)		Program(1)		Program
Repurchased as of 12/31/09		2,440,400	$	4.89		2,440,400	$13.1 million
1/1/10 to 1/31/10		0		—		0	$13.1 million
2/1/10 to 2/28/10		0		—		0	$13.1 million
3/1/10 to 3/31/10		0		—		0	$13.1 million
4/1/10 to 4/30/10		0		—		0	$13.1 million
5/1/10 to 5/31/10		0		—		0	$13.1 million
6/1/10 to 6/30/10		0		—		0	$13.1 million
7/1/10 to 7/31/10		0		—		0	$13.1 million
8/1/10 to 8/31/10		0		—		0	$13.1 million
9/1/10 to 9/30/10		0		—		0	$13.1 million
10/1/10 to 10/31/10		0		—		0	$13.1 million
11/1/10 to 11/9/10		0		—		0	$13.1 million
Total		2,440,400	$	4.89		2,440,400	$13.1 million

(1)	All shares purchased in open market transactions.
(2)	Average price paid per share excludes commissions.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. (Removed and Reserved)

ITEM 5. Other Information

None.

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ITEM 6. Exhibits

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.

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SIGNATURES

Pursuant to the requirements 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: November 9, 2010	INTERNET CAPITAL GROUP, INC.
	By:	/s/ R. Kirk Morgan
		Name:	R. Kirk Morgan
		Title:	Chief Financial Officer (Principal Financial and Accounting Officer)

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