SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

For the Fiscal Year Ended December 31, 2004

Commission File Number 000-26929

INTERNET CAPITAL GROUP, INC.

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

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

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

     The approximate aggregate market value of common stock held by non-affiliates of the Company was $291.3 million as of June 30, 2004. (For purposes of determining this amount only, the Company has defined affiliates to include, as of June 30, 2004, (a) its executive officers and (b) its directors.)

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

     The number of shares of the Company’s common stock outstanding as of March 7, 2005 was 38,388,004 shares.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive proxy statement (the “Definitive Proxy Statement”) to be filed with the Securities and Exchange Commission (the “SEC”) relative to the Company’s Annual Meeting of Stockholders for the fiscal year ended December 31, 2004 are incorporated by reference into Part III of this Report.

INTERNET CAPITAL GROUP, INC.
FORM 10-K
DECEMBER 31, 2004
INDEX

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INTERNET CAPITAL GROUP, INC.
PARTNER COMPANIES AS OF DECEMBER 31, 2004

Agribuys, Inc. (“Agribuys”)
Anthem/CIC Ventures Fund LP (“Anthem”)
Arbinet — thexchange Inc. (“Arbinet”) (Nasdaq:ARBX)
Axxis, Inc. (f/k/a FuelSpot.com, Inc.) (“Axxis”)
Blackboard, Inc. (“Blackboard”) (Nasdaq:BBBB)
Captive Capital Corporation (f/k/a eMarket Capital, Inc.) (“Captive Capital”)
ClearCommerce Corporation (“ClearCommerce”)
CommerceQuest, Inc. (“CommerceQuest”)
ComputerJobs.com, Inc. (“ComputerJobs.com”)
Co-nect Inc. (f/k/a Simplexis.com) (“Co-nect”)
CreditTrade Inc. (“CreditTrade”)
eCredit.com, Inc. (“eCredit”)
Emptoris, Inc. (“Emptoris”)
Entegrity Solutions Corporation (“Entegrity Solutions”)
Freeborders, Inc. (“Freeborders”)
GoIndustry AG (“GoIndustry”)
ICG Commerce Holdings, Inc. (“ICG Commerce”)
Investor Force Holdings, Inc. (“Investor Force”)
Jamcracker, Inc. (“Jamcracker”)
LinkShare Corporation (“LinkShare”)
Marketron International, Inc. (f/k/a BuyMedia, Inc.) (“Marketron”)
Mobility Technologies, Inc. (f/k/a traffic.com Inc.) (“Mobility Technologies”)
StarCite, Inc. (“StarCite”)
Tibersoft Corporation (“Tibersoft”)
Universal Access Global Holdings Inc. (“Universal Access”)
Verticalnet, Inc. (“Verticalnet”) (Nasdaq:VERT)

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PART I

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

ITEM 1. Business

Business Overview

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

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

     The current market environment creates a substantial opportunity for providers of software and services that improve sales results, reduce costs and increase efficiencies by streamlining business processes both within an enterprise and across the value chain. An increasing number of large enterprises are focusing on their core competencies to drive differentiation and competitive advantage for their firms. This means that these enterprises are looking for ways to outsource non-core or non-strategic processes that cost time and money and distract them from their top priorities of achieving profitability, growing market share and delivering new products or services. Our partner companies deliver software and services to help businesses focus on their core competencies. As of December 31, 2004, our partner company network is made up of 26 companies in which we own interests.

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

     ICG is a successor to a business originally founded as a Delaware limited liability company under the name Internet Capital Group, L.L.C. As a limited liability company, Internet Capital Group, L.L.C. was treated for income tax purposes as a partnership with taxes on the income generated by Internet Capital Group, L.L.C. paid by its members. Internet Capital Group, L.L.C. merged into Internet Capital Group, Inc. on February 2, 1999 with Internet Capital Group, Inc. surviving (the “Reorganization.”) As required by its limited liability company agreement to satisfy the members’ tax liabilities, Internet Capital Group, L.L.C. declared a $10.7 million distribution to its members. Internet Capital Group, Inc. has assumed all liabilities of Internet Capital Group, L.L.C. including the distribution to members of Internet Capital Group, L.L.C. Also as part of the Reorganization, Internet Capital Group, Inc. issued 8,200,555 shares of common stock to the members of Internet Capital Group, L.L.C. The separate existence of Internet Capital Group, L.L.C. ceased in connection with the Reorganization.

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Industry Overview

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

     During 2003 and 2004, the e-commerce market continued a period of development and growth as enterprises of all sizes and across all industries looked for vehicles to help them:

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

Increase efficiency and reduce cost

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

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

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

Expand access to new and existing customers and suppliers

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

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

Our Solution and Strategy

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

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

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

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

Identifying key markets and owning stakes in potential leaders

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

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

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

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

Aggregating companies into a network to promote growth

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

Strategic Guidance. We provide strategic guidance to our partner companies regarding market positioning, business model development and market trends. Our focus on the e-commerce market and the knowledge base of our partner companies, management and our board of directors gives us valuable experience that we share with our partner companies.

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

Exchange of Best Practices and Economies of Scale. One of the principal goals of our network is to promote best practices and economies of scale among our partner companies. We promote and facilitate the information flow among our partner companies and as they follow similar business cycles and challenges, key learnings are leveraged to increase operational efficiencies, accelerate decision-making and promote growth. Importantly, the challenging economic environment has had a significant effect

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on most of our partner companies. The benefits of a network effect has enabled many of these companies to leverage strategies implemented by some companies to cut costs and evolve business models to quickly respond to common challenges.

Prioritize resources to accelerate development of most promising companies

Although we do and will continue to concentrate on providing the operational and strategic support to promote growth and profitability at our partner companies, the market volatility that began in early 2000 necessitated a prioritization of both our human and capital resources toward partner companies believed to have the greatest potential to generate value for our stockholders. Based on our active involvement in the e-commerce market since 1996, we believe that our expertise allows us to identify companies that are positioned to succeed. This enables the prioritization of our resources to accelerate the development of partner companies which we believe offer the greatest value for our stockholders over the long-term. We believe this prioritization and focus will result in the continued streamlining of our partner company network into a smaller but stronger group of companies. We intend to continue to focus on our private partner companies that we believe have the greatest value potential, which we refer to as our private Core partner companies. These private Core partner companies primarily deliver a wide array of software and services to help customers streamline and automate business processes with the goal of reducing costs and increasing efficiencies both within the four walls of the enterprise and across their individual value chains. However, this categorization does not necessarily imply that every one of our private Core partner companies is a de facto success at this time. Rather, it captures those companies that are receiving the majority of management’s time and resources as we consider them our most promising.

     At December 31, 2004 our consolidated Core partner companies consisted of:

CommerceQuest

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

ICG Commerce

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

     At December 31, 2004 our equity Core partner companies consisted of:

CreditTrade

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

eCredit

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

Freeborders

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

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GoIndustry

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

Investor Force

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

LinkShare

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

Marketron

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

StarCite

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

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

Government Regulations and Legal Uncertainties

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

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Proprietary Rights

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

Concentration of Customer Base and Credit Risk

     Approximately 17% and 13% of our revenue for the years ended December 31, 2003 and 2002, respectively, related to one customer of ICG Commerce. During 2003, this customer notified ICG Commerce of the exercise of its right to terminate its arrangement to purchase services from ICG Commerce effective January 1, 2004.

Competition

Competition Facing our Partner Companies

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

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

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

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

Competition From Within our Network

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

Employees

     Our corporate headcount as of March 7, 2005 is 20. Headcount at our consolidated partner companies as of March 7, 2005 is 420. Although we believe our and our consolidated partner companies current staffing levels are adequate to conduct business, we cannot ensure that we and our consolidated partner companies will not need to increase headcount in the future.

Financial Information About Segments and Geographic Areas

     Segment and geographic area information is set forth in Note 10 to our Consolidated Financial Statements included in Item 8 below and incorporated herein by reference.

Availability of Reports and Other Information

     Our internet website address is www.internetcapital.com. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed by us with the Securities and Exchange Commission

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pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are accessible free of charge through our website as soon as reasonably practicable after we electronically file those documents with, or otherwise furnish them to, the Securities and Exchange Commission.

ITEM 2. Properties

     The location and general description of our properties as of March 7, 2005 are as follows:

Corporate Offices

     Our corporate headquarters are located at 690 Lee Road, Suite 310 in an office facility located in Wayne, Pennsylvania, where we lease approximately 7,475 square feet.

Partner Company Properties

     Our consolidated partner companies lease approximately 112,293 square feet of office, administrative, sales and marketing, operations and data center space, principally in California, Colorado, Florida, Georgia, Illinois, New York and Pennsylvania in the United States, and also in Germany and the United Kingdom.

ITEM 3. Legal Proceedings

     In May and June 2001, certain of the Company’s present directors, along with the Company, certain of its former directors, certain of its present and former officers and its underwriters, were named as defendants in nine class action complaints filed in the United States District Court for the Southern District of New York. The plaintiffs and the alleged classes they seek to represent include present and former stockholders of the Company. The complaints generally allege violations of Sections 11 and 12 of the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, based on, among other things, the dissemination of statements allegedly containing material misstatements and/or omissions concerning the commissions received by the underwriters of the initial public offering and follow-on public offering of the Company as well as failure to disclose the existence of purported agreements by the underwriters with some of the purchasers in these offerings to buy additional shares of the Company’s stock subsequently in the open market at pre-determined prices above the initial offering prices. The plaintiffs seek for themselves and the alleged class members an award of damages and litigation costs and expenses. The claims in these cases have been consolidated for pre-trial purposes (together with claims against other issuers and underwriters) before one judge in the Southern District of New York federal court. In April 2002, a consolidated, amended complaint was filed against these defendants which generally alleges the same violations and also refers to alleged misstatements or omissions that relate to the recommendations regarding the Company’s stock by analysts employed by the underwriters. In June and July 2002, defendants, including the Company defendants, filed motions to dismiss plaintiffs’ complaints on numerous grounds. The Company’s motion was denied in its entirety in an opinion dated February 19, 2003. In July 2003, a committee of the Company’s Board of Directors approved a proposed settlement with the plaintiffs in this matter. The settlement would provide for, among other things, a release of the Company and of the individual defendants (who had been previously dismissed without prejudice) for the wrongful conduct alleged in the amended complaint. The Company would agree to undertake other responsibilities under the partial settlement, including agreeing to assign away, not assert, or release certain potential claims the Company may have against its underwriters. Any direct financial impact of the proposed settlement is expected to be borne by the Company’s insurers. The complete terms of the proposed settlement is on file with the Court. The Court overseeing the litigation granted preliminary approval of the settlement in February 2005 subject to a change in the terms to bar cross-claims by defendant underwriters for contribution, but not for indemnification or otherwise. The parties to the settlement are currently negotiating a revised agreement. Assuming that a revised agreement is reached, a fairness hearing on the settlement must be held before the Court can make a final determination regarding approval of the settlement.

     On December 20, 2002, the Company was named as a defendant in an action filed in the United States District Court for the District of Maine. The plaintiffs include former stockholders of Animated Images, Inc. (“Animated Images”), one of the Company’s former partner companies. In addition to the Company, the complaint also named Freeborders, a current partner company, as a defendant, as well as four individual defendants, including former officers of the Company and former Animated Images and Freeborders directors. The complaint generally alleges violations of Section 10(b) of the Securities Exchange Act of 1934 and Section 5(a) of the Securities Act of 1933, fraud, breach of contract, breach of fiduciary duty and civil conspiracy, among other claims, in connection with the merger of Animated Images into Freeborders. In support of these claims, the plaintiffs allege, among other things, that the defendants misrepresented the value of the stock of Freeborders, resulting in

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plaintiffs’ having received less consideration in the merger than that to which they believe they were entitled. In July 2003, the Court granted defendants’ motion to stay the litigation pending arbitration in California of plaintiffs’ claims against Freeborders. In an effort to avoid such arbitration, plaintiffs moved to dismiss Freeborders from the litigation in March 2004. The Court granted this motion and thereafter, plaintiffs filed a motion to compel arbitration of their claims against the Company and certain other defendants. The Court granted plaintiffs’ motion on October 1, 2004, and further ordered a stay of the plaintiffs’ non-arbitrable claims against two individual defendants. The arbitration is currently in a preliminary stage. The Company intends to oppose the arbitration of plaintiffs’ claims on both procedural and substantive grounds.

     On September 30, 2004, Verticalnet and several of its former officers and directors, including an employee of the Company, were named as defendants in a complaint filed in the U.S. District Court for the Eastern District of Pennsylvania. The complaint alleges that in connection with the issuance of Verticalnet stock to plaintiff’s predecessors in interest pursuant to an acquisition, the plaintiff was damaged by the defendants’ delays in registering stock, updating the registration of stock, releasing stock from lock-ups and releasing stock from escrows. The defendants have filed a motion to dismiss the case. The Court has not yet ruled on this motion.

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

     No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of fiscal year 2004.

PART II

ITEM 5. Market For Registrant’s Common Equity and Related Stockholder Matters

(a) Our common stock is currently traded on the Nasdaq National Market under the symbol “ICGE”. We transferred from the Nasdaq National Market to the Nasdaq SmallCap Market effective June 10, 2002 and transferred back to the Nasdaq National Market effective March 3, 2005. Our initial public offering of stock occurred on August 5, 1999 at $120.00 (post split) per share on the Nasdaq National Market. The price range per share reflected in the table below is the highest and lowest sale price for our stock (post split) as reported by the Nasdaq National Market and the Nasdaq SmallCap Market during each quarterly period of our two most recent fiscal years.

     As of March 7, 2005, the last reported sale price for our common stock on the Nasdaq National Market was $8.05 per share.

(b) Holders. As of March 3, 2005, there were approximately 1,595 holders of record of our common stock, although there is a much larger number of beneficial owners.

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

(d) Securities Authorized for Issuance Under Equity Compensation Plans

     Information regarding the Company’s equity compensation plans and the securities authorized for issuance thereunder is set forth in Item 12 below.

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ITEM 6. Selected Consolidated Financial Data

     The following table summarizes certain selected historical consolidated financial information of ICG that has been derived from our audited consolidated financial statements for each of the five years ended December 31, 2004, 2003, 2002, 2001, and 2000. The financial information may not be indicative of our future performance. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and Notes thereto included in this Report.

     The Company has not paid a cash dividend since its inception. In December 1999, the Company declared and paid a 100% stock dividend. In May 2004, the Company implemented a one-for-twenty reverse stock split. All share information in this Report reflects this dividend and this reverse stock split.

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

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

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

Introduction

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

     Internet Capital Group is an information technology company actively engaged in delivering software solutions and services that are designed to enhance business operations by increasing efficiency, reducing costs and improving sales results. We operate through a network of partner companies that deliver those solutions to customers. The various interests that we acquire in our partner companies are accounted for under one of three accounting methods: consolidation, equity method or cost method. The applicable accounting method is generally determined based on our voting interest in a partner company. Generally, if we own more than 50% of the outstanding voting securities of a partner company, and for which other shareholders do not possess the right to affect significant management decisions, a partner company’s accounts are reflected within our consolidated financial statements. Generally, if we own between 20% and 50% of the outstanding voting securities, a partner company’s accounts are not reflected within our consolidated financial statements; however, our share of the earnings or losses of the partner company is reflected in the caption “Equity loss” in our consolidated statements of operations. Partner companies not accounted for under either the consolidation or the equity method of accounting are accounted for under the cost method of accounting. Under this method, our share of the earnings or losses of these companies is not included in our consolidated statements of operations.

     Information for all periods presented below reflects the grouping of ICG partner companies into two segments, consisting of the Core segment and the Emerging segment. The Core operating segment includes those partner companies in which the Company’s management takes a very active role in providing strategic direction and management assistance (“Core”). The Emerging operating segment includes investments in companies that are, in general, managed to provide the greatest near-term stockholder value (“Emerging”). During fiscal 2003, one of our consolidated Core partner companies, OneCoast Network Holdings, Inc. (“OneCoast”) disposed of substantially all of its assets. During fiscal 2002, two of our consolidated Core partner companies, Delphion, Inc. (“Delphion”) and Logistics.com, Inc. (“Logistics.com”) disposed of substantially all of their assets. The historical results of Delphion, Logistics.com and OneCoast are presented as “Discontinued Operations”, in addition to any gain (loss) realized on the transactions. Additionally, during fiscal 2004, 2003 and 2002, eighteen of our Emerging partner companies ceased operations. The partner companies included within the segments as of December 31, 2004 for presentation purposes, are consistently the same 26 partner companies for the 2004, 2003 and 2002 periods.

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     Loss from continuing operations for the year ended December 31, 2004 totaled $138.3 million and included net charges totaling $106.7 million consisting of the following: (i) charges in accordance with Statement of Financial Accounting Standards (“SFAS”) No.84, “Induced Conversions of Convertible Debt,” of $133.2 million relating to our 2004 convertible debt for equity exchanges and other retirements, (ii) gains on the disposition of partner companies and marketable securities of $28.8 million, (iii) charges for the impairment of partner companies/marketable securities of $4.1 million, (iv) gains on partner company warrants/other of $2.6 million and (v) restructuring charges of $0.8 million.

     Loss from continuing operations for 2003 totaled $124.7 million and included net charges totaling $58.3 million consisting of the following: (i) charges in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 84, “Induced Conversions of Convertible Debt,” net of $59.3 million relating to our 2003 convertible debt for equity exchanges and other retirements, (ii) charges for the impairment of partner companies of $5.8 million, (iii) gains on the disposition of partner companies/other of $4.1 million and (iv) net restructuring credits/other of $2.7 million.

     Loss from continuing operations for 2002 totaled $86.9 million and included net benefits totaling $53.0 million consisting of the following: (i) gains on the retirement of debt of $111.4 million, (ii) charges for the impairment of partner companies of $43.5 million, (iii) losses on the disposition of partner companies/other of $4.9 million and (iv) restructuring charges of $10.0 million.

Liquidity and Capital Resources

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

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

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

     At December 31, 2004, as well as the date of this filing, we were not obligated for any significant funding and guarantee commitments to existing partner companies. If ICG Commerce achieves a fair market value in excess of $1.0 billion, we will be obligated to pay, in cash or stock at our option, 4% of ICG Commerce’s fair market value in excess of $1.0 billion, up to $70 million, to a venture capital firm. The Company and one of its executive officers were limited partners of this venture capital firm. The Company retains a contingent economic interest in such firm but the executive officer retains no such interest. A member of our Board of Directors also has an interest in this venture capital firm. The Company’s contingent obligation will expire on the earlier to occur of May 31, 2005 or an unaffiliated company sale, if the valuation milestone is not achieved. Currently, the fair market value of ICG Commerce is well below $1.0 billion.

     We will continue to evaluate acquisition opportunities and may acquire additional ownership interests in new and existing partner companies in the next twelve months; however, such acquisitions will generally be made at our discretion. If we elect to make additional acquisitions, it may become necessary for us to monetize certain assets and/or raise additional funds. We may not be able to monetize certain assets or raise additional capital and failure to do so could have a material adverse effect on our business. If additional funds are raised through the issuance of equity securities, our existing stockholders may experience significant dilution.

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

Summary of Liquidity

Consolidated working capital improved by $201.3 million from December 31, 2003 to December 31, 2004 primarily due to (1) the repurchase and extinguishment of $173.9 million of convertible subordinated notes due December 2004 through the issuance of 15.9 million shares of our common stock and payment of $39.5 million in cash and (2) the issuance of $60.0 million of senior convertible notes due April 2009.

Summary of Statements of Cash Flows

     Net cash used in operating activities was approximately $26.0 million for the year ended December 31, 2004 compared to $38.6 million during the comparable 2003 period. The decrease in cash used in operating activities is primarily the result of the decreased losses at our consolidated partner companies.

     Net cash used in investing activities for the year ended December 31, 2004 was $34.2 million versus net cash provided by investing activities of $6.6 million during the comparable 2003 period. The decrease in cash provided by investing activities is primarily due to net purchases of short-term investments of $57.9 million in 2004 offset by increased proceeds from sales of partner company ownership interests in 2004 versus 2003.

     Net cash provided by financing activities was $14.6 million for the year ended December 31, 2004 versus net cash used in financing activities of $6.8 million during the comparable 2003 period. The increase in cash provided by financing activities is principally the result of the issuance of $60.0 million senior convertible notes offset by $39.5 million used to redeem the remaining balance of convertible subordinated notes due in 2004 and $6.2 million of repayments of long-term debt versus $5.5 million being used to repurchase $12.0 million of principal amount of our convertible subordinated notes in 2003.

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

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Contractual Cash Obligations and Commercial Commitments

     The following table summarizes our contractual cash obligations and commercial commitments as of December 31, 2004:

Off-Balance Sheet Arrangements

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

Our Partner Companies

     As of December 31, 2004, we owned interests in 26 partner companies that are categorized below based on segment and method of accounting.

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Results of Operations

     The following summarizes the unaudited selected financial information related to our segments. Each segment includes the results of our consolidated partner companies and records our share of the earnings and losses of partner companies accounted for under the equity method of accounting. The partner companies included within the segments are consistently the same 26 partner companies for 2004, 2003 and 2002. The method of accounting for any particular partner company may change based on our ownership interest.

     Discontinued operations and dispositions are those partner companies that have been sold or ceased operations and are no longer included in a segment for all periods presented. Corporate expenses represent our general and administrative expenses of supporting the partner companies and operating as a public company. The measure of segment net loss reviewed by us does not include items such as impairment related charges, income taxes and accounting changes, which are reflected in other reconciling items in the information that follows.

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For the Year Ended December 31, 2004 vs. 2003 vs. 2002

Results of Operations — Core Companies

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

Revenue

     Revenue decreased $17.4 million from $69.8 million in 2003 to $52.4 million in 2004. During 2003, a customer of ICG Commerce notified ICG Commerce of its intent to exercise its right to terminate its arrangement to purchase services from ICG Commerce effective January 1, 2004. Revenue from this customer totaled $12.0 million in 2003. The deconsolidation in 2003 of two Core companies, eCredit and Freeborders reduced revenue $3.8 million versus 2003. The residual decrease is primarily due to lower revenue at ICG Commerce’s European subsidiary due to the competitive environment for outsourcing services.

     Revenue decreased $9.2 million from $79.0 million in 2002 to $69.8 million in 2003. As a result of a challenging market for enterprise software sales in 2003, CommerceQuest’s revenue declined $6.6 million in 2003 versus 2002. The deconsolidation in 2003 of two Core companies, eCredit and Freeborders reduced 2003 revenue $4.3 million versus 2002. These decreases were partially offset by an increase of $1.7 million at ICG Commerce.

Operating Expenses

     Operating Expenses decreased $34.5 million from $95.9 million in 2003 to $61.4 million in 2004. Due to the loss of a significant customer at ICG Commerce and further focus at both ICG Commerce and CommerceQuest at containing operating expenses, ICG Commerce and CommerceQuest reduced operating expenses $26.9 million for 2004 versus 2003. The deconsolidation in 2003 of two Core companies, eCredit and Freeborders reduced operating expenses $7.6 million versus 2003.

     Operating expenses decreased $39.9 million from $135.8 million in 2002 to $95.9 million in 2003. As a result of a challenging market for enterprise software sales in 2003 and the subsequent reduction in revenues, CommerceQuest reduced operating expenses $5.9 million in 2003 as compared to 2002. The deconsolidation in 2003 of two Core Companies, eCredit and Freeborders reduced operating expenses $13.7 million. The residual $20.3 million decrease is the result of ICG Commerce significantly reducing operating expenses.

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Equity Loss

     The following table reconciles the components of equity loss for segment reporting purposes to equity loss for consolidated financial statement reporting:

     The total revenue of our eight private Core equity method partner companies improved from $125.2 million in 2002 to $142.4 million in 2003 to $167.5 million in 2004. The improvements are primarily the result of increased revenue at our partner companies involved with affiliate marketing and credit derivatives offset by reduced revenue at our partner companies selling software relating to enterprise applications.

     The total net losses of our eight private Core equity method partner companies in the aggregate improved from $30.5 million in 2002 to $24.8 million in 2003 to $16.7 million in 2004. The improvements are primarily the result of increased revenues as discussed in the previous paragraph offset by increased spending to extend products, services and sales and goodwill impairment charges of approximately $5.8 million at one of our partner companies in 2003. Our share of the net losses of these partner companies increased in 2004 primarily as a result of net increased losses/reduced net income at our partner companies and net increased equity losses as a result of 2004 fundings to our partner companies where our carrying value in 2003 was zero. Our share of the net losses improved in 2003 primarily as a result of the improved net losses compared to 2002. Our share of the net losses in 2003 was also impacted by changes in the methods of accounting for these partner companies.

     Additionally, as of December 31, 2004, two of these eight Core equity method partner companies have carrying values that have been reduced to zero. We may not record our share of these partner companies’ losses in 2005 until such time as we make an additional funding to these partner companies, our share of income equals the unrecorded losses or the partner companies’ equity transactions result in an adjustment of our investment. Our share of the net losses of those companies whose carrying value is zero at December 31, 2004 totaled $1.2 million in 2004.

     Our share of the net losses in 2004 improved as Universal Access and Verticalnet’s ownership levels fell below 20% during the third quarter of 2003; resulting in these partner companies to no longer be accounted for under the equity method for all of 2004. Our share of the net losses in 2003 improved over 2002 as Universal Access and Verticalnet’s net losses improved given their restructuring of operations in 2002.

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Results of Operations – Emerging Companies

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

     The period over period decreases in revenue and operating expenses is primarily a result of deconsolidating Captive Capital during the second quarter of 2003. Equity loss decreased period over period primarily as a result of our carrying value in the partner companies being reduced to zero and changes in the methods of accounting for these partner companies. During 2002, we recorded impairment charges totaling $13.0 million related to these partner companies.

Discontinued Operations and Dispositions

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

     In 2003 and 2002, three of our Core consolidated partner companies sold substantially all of their assets (see Note 9 to our Consolidated Financial Statements). In accordance with Statement of Financial Accounting Standards (“SFAS”) SFAS No. 144, these partner companies have been treated as discontinued operations. Accordingly, the operating results of these three discontinued operations have been presented separately from continuing operations and include the gains or losses recognized on disposition.

     The impact to our consolidated results of equity method partner companies we have disposed of our ownership interest in or have ceased operations during 2004, 2003 and 2002 is also included in the caption “Dispositions” for segment reporting purposes.

     The following table reconciles the components of equity loss for equity method partner companies we disposed of to equity loss for consolidated financial reporting:

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Corporate

General and Administrative

     Our general and administrative expenses decreased $2.4 million from 2003 to 2004 and $18.3 million from 2002 to 2003 primarily due to reduction in stock-based compensation from $15.3 million in 2002 to $2.3 million in 2003 to $1.4 million in 2004 as a result of more restricted stock vesting in 2002, as well as changes recorded relating to certain modifications of certain stockholder loans. The residual decrease is the result of our continued restructuring of our operations. (See “Restructuring” below).

Restructuring (Impairment Related and Other)

     During 2004, 2003 and 2002, we restructured our operations to better align our general and administrative expenses with the reduction in the number of our partner companies. The restructuring resulted in charges of $0.5 million, a credit of $5.1 million and charges of $1.5 million for 2004, 2003 and 2002, respectively. The credit in 2003 is primarily due to our settlement of a lease obligation for $7.0 million less than we had estimated.

Interest Income/Expense

     The decrease in interest expense, net is primarily attributable to the reduction in convertible notes outstanding at December 31, 2004 versus 2003 versus 2002.

Other

Impairment Charges

     We continually evaluate the carrying values of our partner companies. Additionally, we operate in an industry that is rapidly evolving, extremely competitive and where many businesses have experienced difficulty in raising additional capital necessary to fund operating losses. Based on our periodic review of our partner company carrying values, impairment charges of $1.3 million, $5.8 million and $43.5 million were recorded in 2004, 2003 and 2002, respectively. (See Note 4 to our Consolidated Financial Statements).

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Other Income (Loss), Net

     Other income (Loss), net was a loss of $105.4 million in 2004 versus a loss of $56.8 million in 2003 versus income of $107.7 million in 2002. The increase in losses from 2004 versus 2003 is primarily attributable to the 2004 loss of $133.1 million on our debt-for-equity exchanges offset by sales of ownership interests in partner companies of $28.8 million versus the 2003 loss of $59.3 million on our debt-for-equity exchanges, net. The decrease from 2003 versus 2002 is primarily due to the 2003 loss of $59.3 million on our debt-for-equity exchanges, net versus a gain in 2002 of $111.4 million on our cash debt repurchases.

Income Taxes

     Our net deferred tax asset of $628 million at December 31, 2004 consists of deferred tax assets of $646 million, relating primarily to partner company basis differences, capital and net operating loss carry forwards, offset by deferred tax liabilities of $18 million primarily related to unrealized appreciation in available for sale securities. During 2001, we recorded a full valuation allowance against our net assets that was maintained during 2002, 2003 and 2004 (See Note 14 to our Consolidated Financial Statements).

Critical Accounting Policies

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

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

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

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

Revenue

     ICG Commerce may assume all or a part of a customer’s procurement function as part of sourcing arrangements. Typically, in these engagements, ICG Commerce is paid a fee based on a percentage of the amount spent by our customer’s purchasing department in the specified areas ICG Commerce manages, a fixed fee agreed upon in advance, and in many cases ICG Commerce has the opportunity to earn additional fees based on the level of savings achieved for customers. ICG Commerce recognizes fee income as earned and any additional fees as ICG Commerce becomes entitled to them. In these arrangements, ICG Commerce does

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not assume inventory, warranty or credit risk for the goods or services a customer purchases, but ICG Commerce does negotiate the arrangements between a customer and supplier.

     CommerceQuest recognizes license revenue when a signed contract or purchase order exists, the software has been shipped or electronically delivered, the license fee is fixed or determinable, and collection of the resulting receivable is probable. CommerceQuest sells their software direct to end users, as well as through resellers. When contracts contain multiple elements wherein vendor specific objective evidence exists for all undelivered elements, CommerceQuest accounts for the delivered elements in accordance with the “Residual Method” prescribed by Statements of Position No. 98-9 “Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions.”

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

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

Deferred Income Taxes

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

Commitments and Contingencies

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

Recent Accounting Pronouncements

     In December 2004, the Financial Account Standards Board (“FASB”) issued SFAS 123-R, “Share-Based Payment.” SFAS No. 123-R revises SFAS 123, “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. SFAS 123-R will require compensation costs related to share-based payment transactions to be recognized in the financial statements (with limited exceptions). The amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. Compensation cost will be recognized over the period that an employee provides service in exchange for the award. This statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. We estimate that the effect on net income

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and earnings per share in the periods following adoption of SFAS 123-R will be consistent with our proforma disclosure under SFAS No. 123, except that estimated forfeitures will be considered in the calculation of compensation expense under SFAS No. 123-R. However, the actual effect on net income and earnings per share will vary depending upon the number of grants of equity in 2005 compared to prior years. Further, we have not yet determined the actual model we will use to calculate fair value.

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

Risk Factors

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

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

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

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

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

Risks Particular to Internet Capital Group

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

     Numerous external forces, including fear of terrorism, hostilities in the Middle East involving United States armed forces, lack of consumer confidence and interest rate or currency rate fluctuations, could affect the economy. If the economy is

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unfavorable, our partner companies’ customers and potential customers may be unwilling to spend money on technology-related goods or services. If our partner companies are unable to attract new customers or retain existing customers, our ability to grow our business will be adversely affected.

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

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

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

	•	general economic conditions, such as a recession or interest rate or currency rate fluctuations, and the reluctance of enterprises to increase spending on new technologies;
	•	actual or anticipated variations in our quarterly results and those of our partner companies;
	•	changes in the market valuations of our partner companies and other technology and internet companies;
	•	conditions or trends in the information technology and e-commerce industries;
	•	negative public perception of the prospects of information technology companies;
	•	changes in our financial estimates and those of our partner companies by securities analysts;
	•	new products or services offered by us, our partner companies and their competitors;
	•	announcements by our partner companies and their competitors of technological innovations;
	•	announcements by us or our partner companies or our competitors of significant acquisitions, strategic partnerships or joint ventures;
	•	additional sales of our securities;
	•	additions to or departures of our key personnel or key personnel of our partner companies; and
	•	our debt obligations.

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

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

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

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

     If our operating results in one or more quarters do not meet securities analysts’ or investors’ expectations, the price of our common stock could decrease.

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

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

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

     Arbinet, Blackboard, Verticalnet and Universal Access are our publicly-traded partner companies. Fluctuations in the price of Arbinet’s, Blackboard’s, Verticalnet’s and Universal Access’s and other future publicly-traded partner companies’ common stock are likely to affect the price of our common stock. The price of our publicly-traded partner companies common stock has been highly volatile. As of December 31, 2004, the market value of the Company’s interest in these publicly-traded partner companies was $54.1 million.

     The results of operations, and accordingly the price of the common stock, of each of Blackboard, Arbinet, Verticalnet and Universal Access may be adversely affected by the risk factors in its SEC filings, which are publicly available at www.sec.gov.

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

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

	•	fluctuations in the market price of the common stock of Blackboard, Arbinet, Verticalnet and Universal Access, our publicly-traded partner companies, which are likely to affect the price of our common stock;
	•	many of our partner companies have limited operating histories, have not yet attained significant revenues and are operating at or near break-even and may not achieve profitability in the future;
	•	lack of the widespread commercial use of the internet, decreased spending on information technology software and services and elongated sales cycles which may prevent our partner companies from succeeding;
	•	intensifying competition for the products and services our partner companies offer, which could lead to the failure of some of our partner companies; and
	•	the inability of our partner companies to secure additional financing, which may force some of our partner companies to cease or scale back operations.

     Of our $277.6 million in total assets as of December 31, 2004, $49.8 million, or 17.9%, consisted of ownership interests in our private partner companies accounted for under the equity and cost methods of accounting. The carrying value of our partner company ownership interests includes our original acquisition cost, the effect of accounting for certain of our partner companies under the equity method of accounting, the effect of adjustments to our carrying value resulting from certain issuances of equity securities by our partner companies, and the effect of impairment charges recorded for the decrease in value of certain partner companies. The carrying value of our partner companies will be impaired and decrease if one or more of our partner companies do not succeed. This decline would likely affect the price of our common stock. As of December 31, 2004, the value of our publicly-traded partner companies (Blackboard, Arbinet, Verticalnet and Universal Access) was $54.1 million and reflected as “Marketable Securities” in our financial statements. A decline in the market value of our publicly-traded partner companies will likely cause a decline in the price of our common stock.

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

     Most of our partner companies rely on e-commerce markets for the success of their businesses. If widespread commercial use of the internet does not develop, or if the internet does not develop as an effective medium for providing products and services, our partner companies may not succeed.

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

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

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

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

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

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

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

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

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

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

Our partner companies may not be able to successfully compete.

     If our partner companies are unable to compete successfully against their competitors, our partner companies may fail. Competition for information technology and e-commerce products and services is intense. As the markets for information technology and e-commerce grow, we expect that competition will intensify. Barriers to entry are minimal and competitors can offer products and services at a relatively low cost. Our partner companies compete for a share of a customer’s:

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

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

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

Our partner companies may fail to retain significant customers.

     During 2003, a partner company’s customer notified such partner company that it was exercising its right to terminate its arrangement to purchase services from such partner company effective January 1, 2004. This customer may compete with this partner company in the future. Approximately 17% of our consolidated company revenue for the year ended December 31, 2003 related to such customer. If our partner companies are not able to retain significant customers, such partner companies’ and our results of operations and financial position could be adversely affected.

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

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

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

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

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

     If the capital markets’ interest in our industry is depressed, our ability and the ability of our partner companies to grow and access the capital markets will be impaired. This may require us or our partner companies to take other actions, such as borrowing money on terms that may be unfavorable, or divesting of assets prematurely to raise capital. While we attempt to operate our business in such a manner so as to be independent from the capital markets, there is no assurance that we will be successful in doing so. Our partner companies are also dependent on the capital markets to raise capital for their own purposes.

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

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

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have the greatest value proposition. As a result of our limited resources, we will not allocate capital to all of our existing partner companies. Our decision to not provide additional capital support to some of our partner companies could have a material adverse impact on the operations of such partner companies.

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

     When we divest all or part of an interest in a partner company, we may not receive maximum value for our position. We may divest our interests in partner companies to generate cash or for strategic reasons. For partner companies with publicly-traded stock, we may be unable to sell our interest at then-quoted market prices. Because we hold significant stakes of restricted securities in thinly-traded public companies, we may have difficulty selling our interest in such companies and, if we are able to sell our shares, such sales may be subject to volume limitations. Furthermore, for those partner companies that do not have publicly-traded stock, the realizable value of our interests may ultimately prove to be lower than the carrying value currently reflected in our consolidated financial statements. We continually evaluate the carrying value of our ownership interests in and advances to each of our partner companies for possible impairment based on achievement of business plan objectives and milestones, the value of each ownership interest in the partner company relative to carrying value, the financial condition and prospects of the partner company and other relevant factors. We cannot guarantee that we will receive maximum value in connection with the disposition of our stakes in partner companies. Additionally, we may be unable to find buyers for certain of our assets, which could adversely affect our business.

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

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

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

     We believe that we are actively engaged in the businesses of information technology and e-commerce through our network of subsidiaries and companies that we are considered to “control.” Under the Investment Company Act of 1940, as amended (the “Investment Company Act”), a company is considered to control another company if it owns more than 25% of that company’s voting securities and is the largest stockholder of such company. A company may be required to register as an investment company if more than 45% of its total assets consist of, and more than 45% of its income/loss and revenue attributable to it over the last four quarters is derived from, ownership interests in companies that it does not control. Because many of our partner companies are not majority-owned subsidiaries, and because we own 25% or less of the voting securities of a number of our partner companies, changes in the value of our interests in our partner companies and the income/loss and revenue attributable to our partner companies could subject us to regulation under the Investment Company Act unless we take precautionary steps. For example, in order to avoid having excessive income from “non-controlled” interests, we may not sell minority interests we would otherwise want to sell or we may have to generate non-investment income by selling interests in partner companies that we are considered to control. We may also need to ensure that we retain more than 25% ownership interests in our partner companies after any equity offerings. In addition, we may have to acquire additional income or loss generating majority-owned or controlled interests that we might not otherwise have acquired or may not be able to acquire “non-controlling” interests in companies that we would otherwise want to acquire. It is not feasible for us to be regulated as an investment company because the Investment Company Act rules are inconsistent with our strategy of actively managing, operating and promoting collaboration among our network of partner companies. On August 23, 1999, the SEC granted our request for an exemption under Section 3(b)(2) of the Investment Company Act declaring us to be primarily engaged in a business other than that of investing, reinvesting, owning, holding or trading in securities. This exemptive order reduces the risk that we may have to take action to avoid registration as an investment company, but it does not eliminate the risk.

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

     Our accounting estimates with respect to the useful life and ultimate recoverability of our carrying basis, including goodwill, in our partner companies could change in the near term and the effect of such changes on the financial statements could be significant. In the first quarter of 2000, we announced several significant acquisitions that were financed principally with shares

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of our stock and based on the price of our stock at that time, were valued in excess of $1.0 billion. Based on our periodic review of our partner company holdings, we have recorded cumulative impairment charges of $1.3 billion to write off certain partner company holdings. As of December 31, 2004, our recorded amount of carrying basis including goodwill was not impaired, although we cannot assure that our future results will confirm this assessment. We performed our latest annual impairment test during the fourth quarter of 2004 and we will perform our next annual impairment test in the fourth quarter of 2005. It is possible that a significant write-down or write-off of partner company carrying basis, including goodwill, may be required in the future, or that a significant loss will be recorded in the future upon the sale of a partner company. A write-down or write-off of this type could cause a decline in the price of our common stock.

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

     If one or more of our executive officers or key personnel, or our partner companies’ executive officers or key personnel were unable or unwilling to continue in their present positions, or if we or our partner companies were unable to hire qualified personnel, our business and operations could be disrupted and our operating results and financial condition could be seriously harmed. The success of some of our partner companies also depends on their having highly trained technical and marketing personnel. A shortage in the number of trained technical and marketing personnel could limit the ability of our partner companies to increase sales of their existing products and services and launch new product offerings.

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

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

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

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

     Since we allocate our financial resources to certain partner companies, our ownership interests in other partner companies have been and are likely to continue to be diluted due to our decision not to participate in financings. Additionally, in connection with new rounds of financing, our partner companies may create liquidation preferences that are senior to existing preferences. If we do not participate in these rounds, our rights to receive preferences upon a sale of the Company may be diminished at certain valuations. This dilution and the creation of senior liquidation preferences could result in a reduction in the value of our stakes in such partner companies.

Our outstanding indebtedness could negatively impact our future prospects.

     In April 2004, we issued $60.0 million of senior convertible notes due in April 2009. This indebtedness may make it more difficult to obtain additional financing and may inhibit our ability to pursue needed or favorable opportunities.

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We may be unable to maintain our listing on the Nasdaq National Market, which could cause our stock price to fall and decrease the liquidity of our common stock.

     Our common stock is currently listed on the Nasdaq National Market, which has requirements for the continued listing of stock. One of the requirements is that our common stock maintain a minimum bid price of $1.00 per share. If our common stock trades below $1.00 per share or we fail to meet any of the other requirements of the Nasdaq National Market, our common stock may be delisted from the Nasdaq National Market. If our common stock is delisted from the Nasdaq National Market, the trading market for our common stock could decline which could depress our stock price and adversely affect the liquidity of our common stock.

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

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

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

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

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

     The complexity of international trade secret, copyright, trademark and patent law, coupled with the limited resources of our partner companies and the demands of quick delivery of products and services to market, create the risk that our partner companies will be unable to protect their proprietary rights. Further, the nature of internet business demands that considerable detail about their innovative processes and techniques be exposed to competitors, because it must be presented on the websites in order to attract clients. Some of our partner companies also license content from third parties, and it is possible that they could become subject to infringement actions based upon the content licensed from those third parties. Our partner companies generally obtain representations as to the origin and ownership of such licensed content. However, these representations may not adequately protect them. Any claims against our partner companies’ proprietary rights, with or without merit, could subject our partner companies to costly litigation and the diversion of their technical and management personnel. If our partner companies incur costly litigation and their personnel are not effectively deployed, the expenses and losses incurred by our partner companies will increase and their profits, if any, will decrease.

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

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

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

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

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

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

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

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

Our partner companies may be unable to acquire or maintain easily identifiable website addresses or prevent third parties from acquiring website addresses similar to theirs.

     Some of our partner companies hold various website addresses relating to their brands. These partner companies may not be able to prevent third parties from acquiring website addresses that are similar to their addresses, which could adversely affect the use by businesses of our partner companies’ websites. In these instances, our partner companies may not grow as we expect. The acquisition and maintenance of website addresses generally is regulated by governmental agencies and their designees. The regulation of website addresses in the United States and in foreign countries is subject to change. As a result, our partner companies may not be able to acquire or maintain relevant website addresses in all countries where they conduct business. Furthermore, the relationship between regulations governing such addresses and laws protecting trademarks is unclear.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

     We are exposed to equity price risks on the marketable portion of our equity securities. Our public holdings at December 31, 2004 include equity positions in companies in the technology industry sector, including Blackboard, Arbinet, Verticalnet and Universal Access, many of which have experienced significant historical volatility in their stock prices. A 20% adverse change in equity prices, based on a sensitivity analysis of our public holdings as of December 31, 2004, would result in an approximate $10.8 million decrease in the fair value of our public holdings.

     Cash and cash equivalents, accounts receivable and accounts payable are carried at cost which approximates fair value due to the short-term maturity of these instruments. Our interests in public Partner Companies accounted for under the equity method of accounting had a fair value of $10.1 million as of December 31, 2003, compared to a carrying value of $0.4 million. Short-term investments and marketable securities are carried at fair value. Our senior convertible notes had a fair value of approximately $73.3 million at December 31, 2004 versus a carrying value of $60.0 million. Our convertible subordinated notes had a fair value of

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$133.0 million as of December 31, 2003 versus a carrying value of $173.9 million. Fair value of our senior convertible notes and convertible subordinated notes is determined by obtaining thinly traded market quotes.

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

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ITEM 8. Financial Statements and Supplementary Data

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

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
Internet Capital Group, Inc.:

     We have audited the accompanying consolidated balance sheets of Internet Capital Group, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders’ equity (deficit), comprehensive loss and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Internet Capital Group, Inc. and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2004, in conformity with U. S. generally accepted accounting principles.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Internet Capital Group, Inc.’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG LLP

Philadelphia, Pennsylvania
March 15, 2005

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INTERNET CAPITAL GROUP, INC.

See accompanying notes to Consolidated Financial Statements.

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INTERNET CAPITAL GROUP, INC.

See accompanying notes to Consolidated Financial Statements.

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INTERNET CAPITAL GROUP, INC.

See accompanying notes to Consolidated Financial Statements.

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INTERNET CAPITAL GROUP, INC.

See accompanying notes to Consolidated Financial Statements.

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INTERNET CAPITAL GROUP, INC.