<PAGE>

     As filed with the Securities and Exchange Commission on April 13, 2000
                                                        Registration No. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                ---------------

                                    FORM S-8

                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

                                ---------------

                          INTERNET CAPITAL GROUP, INC.
             (Exact name of registrant as specified in its charter)

          Delaware                   7389                   23-2996071
      (State or other          (Primary Standard         (I.R.S. Employer
      jurisdiction of             Industrial          Identification Number)
      incorporation or      Classified Code Number)
        organization)
                                ---------------
                             435 Devon Park Drive
                                 Building 600
                              Wayne, Pennsylvania
                                     19087
                             (Address of principal
                              executive offices)
                                  (Zip Code)

                                ---------------

                          INTERNET CAPITAL GROUP, INC.
                         1999 EQUITY COMPENSATION PLAN
                        MEMBERSHIP PROFIT INTEREST PLAN
                           (Full Title of the Plans)

                             Henry N. Nassau, Esq.
                Managing Director, General Counsel and Secretary
                          Internet Capital Group, Inc.
                              435 Devon Park Drive
                                  Building 600
                           Wayne, Pennsylvania 19087
                                 (610) 989-0111
 (Name, address including zip code, and telephone number, including area code,
                             of agent for service)

                                ---------------

                                 With copy to:
                          Christopher G. Karras, Esq.
                             Dechert Price & Rhoads
                            4000 Bell Atlantic Tower
                                1717 Arch Street
                        Philadelphia, Pennsylvania 19103

                                ---------------

                        CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
                                              Proposed        Proposed
 Title of securities to                       maximum          maximum       Amount of
           be              Amount to be    offering price     aggregate     registration
       registered          registered(1)    per share(1)  offering price(1)     fee
----------------------------------------------------------------------------------------
<S>                      <C>               <C>            <C>               <C>
Common Stock, par value
 $.001 per share.......  49,549,199 shares     $52.82      $2,617,188,691     $690,938
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of determining the registration fee in
    accordance with Rule 457(h) and Rule 457(c) promulgated under the
    Securities Act of 1933 on the basis of $52.82 per share, the average of the
    high ($58.63) and low ($47.00) prices of the Common Stock as reported on
    the Nasdaq National Market for April 12, 2000.

--------------------------------------------------------------------------------
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<PAGE>

                                    PART I.

              INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS

      Information required by Part I of Form S-8 to be contained in a
prospectus meeting the requirements of Section 10(a) of the Securities Act of
1933, as amended, is not required to be filed with the Securities and Exchange
Commission and is omitted from this registration statement in accordance with
the explanatory note to Part I of Form S-8 and Rule 428 under the Securities
Act.

      The following reoffer prospectus filed as part of this registration
statement has been prepared in accordance with General Instruction C of Form S-
8 and, pursuant thereto, may be used for reofferings and resales of the shares
of Common Stock registered hereby.

                                       i
<PAGE>

                                                              REOFFER PROSPECTUS

                                                                  April 13, 2000

                               28,375,500 Shares

                          Internet Capital Group, Inc.

                                  Common Stock

                                ---------------

      Employees, directors and certain consultants who have exercised options
to purchase shares of our Common Stock under our 1999 Equity Compensation Plan
may sell up to 28,375,500 shares of our Common Stock. We will not receive any
proceeds from any sale of shares offered by this prospectus.

      The shares offered by this prospectus could be sold in several ways,
including in transactions on the Nasdaq National Market, or otherwise, at
prevailing market prices at the time of sale, or in privately negotiated
transactions at prices agreed upon by the parties.

      Our Common Stock is quoted on the Nasdaq National Market under the symbol
"ICGE."

      Our principal executive office is located at 435 Devon Park Drive,
Building 600, Wayne, Pennsylvania 19087, and our telephone number is (610) 989-
0111.

      Investing in our Common Stock involves risks. See "Risk Factors" starting
on page 2.

      Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<S>                                                                          <C>
Risk Factors................................................................   2
Internet Capital Group, Inc.................................................  16
Use of Proceeds.............................................................  16
Selling Stockholders........................................................  16
Plan of Distribution........................................................  19
Where You Can Find More Information--
Incorporation of Documents By Reference.....................................  19
Special Note on Forward-Looking Statements..................................  21
Interests of Named Experts and Counsel......................................  21
Experts.....................................................................  21
</TABLE>

                                       1
<PAGE>

                                  RISK FACTORS

      Investing in our common stock will provide you with an equity ownership
interest in Internet Capital Group. As one of our shareholders, your investment
will be subject to risks inherent in our business. The price of our Common
Stock may decline. You should carefully consider the following factors as well
as other information contained in this Prospectus before deciding to invest in
shares of our Common Stock.

RISKS PARTICULAR TO INTERNET CAPITAL GROUP

Limited Operating History--We have a limited operating history upon which you
may evaluate us.

      We were formed in March 1996. Although we have grown significantly since
then, we have a limited operating history upon which you may evaluate our
business and prospects. We and our partner companies are among the many
companies that have entered into the emerging business-to-business, or B2B, e-
commerce market. Many of our partner companies are in the early stages of their
development. Our business and prospects must be considered in light of the
risk, expense and difficulties frequently encountered by companies in early
stages of development, particularly companies in new and rapidly evolving
markets such as B2B e-commerce. If we are unable to effectively allocate our
resources and help grow existing partner companies, our stock price may be
adversely affected and we may be unable to execute our strategy of developing a
collaborative network of partner companies.

Dependence on Partner Companies--Our business depends upon the performance of
our partner companies, which is uncertain.

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

     .  fluctuations in the market price of the common stock of
        VerticalNet, Breakaway Solutions, eMerge Interactive, ONVIA.com
        and Universal Access, five of our publicly traded partner
        companies, and other future publicly traded partner companies,
        which are likely to affect the price of our Common Stock;

     .  lack of the widespread commercial use of the Internet, which may
        prevent our partner companies from succeeding; and

     .  intensifying competition for the products and services our partner
        companies offer, which could lead to the failure of some of our
        partner companies.

      Of our $2,050.4 million in total assets as of December 31, 1999, $547.3
million, or 26.7%, consisted of ownership interests in and advances to our
partner companies. On a pro forma basis, adjusted for our acquisitions
subsequent to December 31, 1999 as if they had occurred on December 31, 1999,
our assets on December 31, 1999 were $3,402.3 million, of which $1,400.8
million, or 41.2%, consisted of ownership interests in and advances to our
partner companies. The carrying value of our partner company ownership
interests includes our original acquisition cost, the effect of accounting for
certain of our partner companies under the equity method of accounting, the
effect of adjustments to our carrying value resulting from certain issuances of
equity securities by our partner companies and the effect of impairment charges
recorded for the decrease in value of certain partner companies. The carrying
value of our partner companies will be impaired and decrease if one or more of
our partner companies do not succeed. The carrying value of our partner
companies is not marked to market; therefore a decline in the market value of
one of our publicly traded partner companies may impact our financial position
by not more than the carrying value of the partner company. However, this
decline would likely affect the price of our Common Stock. For example,
VerticalNet, Breakaway Solutions, eMerge Interactive, ONVIA.com and Universal
Access are five of our publicly traded

                                       2
<PAGE>

partner companies and on March 24, 2000 our holdings in VerticalNet, Breakaway
Solutions, Universal Access, ONVIA.com and eMerge Interactive had respective
market values of approximately $2.3 billion, $818 million, $1.2 billion, $536
million and $381 million. A decline in the market value of VerticalNet,
Breakaway Solutions, Universal Access, ONVIA.com and eMerge Interactive will
likely cause a decline in the price of our Common Stock. On April 10, 2000, our
ownership in VerticalNet, Breakaway Solutions, ONVIA.com, eMerge Interactive,
and Universal Access had respective market values of approximately $1.3
billion, $556 million, $266 million, $154 million, and $713 million,
respectively.

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

Unproven Business Model--Our business model is unproven, which could limit our
ability to attract new companies and could adversely affect our business
strategy.

      Our strategy is based on an unproven business model. Our business model
depends on the willingness of companies to join our collaborative network and
the ability of the collaborative network to assist our partner companies. Our
business model depends on our ability to share information within our network
of partner companies. If competition develops among our partner companies, we
may be unable to fully benefit from the sharing of information within our
network of partner companies. If we cannot convince companies of the value of
our business model, our ability to attract new companies will be adversely
affected and our strategy of building a collaborative network may not succeed.

Fluctuations in Quarterly Results--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;

     .  changes in equity losses or income and amortization of goodwill
        related to 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 B2B e-
        commerce market;

     .  intense competition from other potential acquirors of B2B e-
        commerce companies, which could increase our cost of acquiring
        interests in additional companies, and 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 during the anticipated rapid growth of the
        global B2B e-commerce market.

      We believe that period-to-period comparisons of our operating results are
not meaningful. If our operating results in one or more quarters do not meet
securities analysts' or your expectations, the price of our Common Stock could
decrease.

Dependence on Personnel--Our success is dependent on our key personnel and the
key personnel of our partner companies and our business and operations could be
disrupted if they do not continue in their present positions.

      We believe that our success will depend on continued employment by us and
our partner companies of senior management and key technical personnel. Our
success also depends on the continued assistance of our

                                       3
<PAGE>

Advisory Board members, some of whom may from time to time leave our Advisory
Board. If one or more members of our senior management, our partner companies'
senior management or our Advisory Board were unable or unwilling to continue in
their present positions, our business and operations could be disrupted.

      As of March 24, 2000, 15 of our 24 management personnel have worked for
us for less than one year. Our efficiency may be limited while these employees
and future employees are being integrated into our operations. In addition, we
may be unable to find and hire additional qualified management and professional
personnel to help lead us and our partner companies.

      The success of some of our partner companies also depends on their having
highly trained technical and marketing personnel. Our partner companies will
need to continue to hire additional personnel as their businesses grow. 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.

Historical and Future Losses--We have had a history of losses and expect
continued losses in the foreseeable future.

      Our net loss for the year ended December 31, 1999 of $29.8 million
includes gains of $44.2 million, net of deferred taxes, related to the issuance
of stock by VerticalNet and Breakaway Solutions and a $7.7 million deferred tax
benefit related to our conversion from a limited liability company to a taxable
corporation. Without the $51.9 million effect of these items on our net
results, we would have had a net loss of $81.7 million. For the year ended
December 31, 1998, we realized net income of $13.9 million primarily due to
$34.4 million of non-operating gains from the sale of certain minority
interests. In addition, we incurred net losses of $6.6 million in 1997 and $2.1
million in 1996. After giving effect to our acquisitions during 1999 and 2000
as if they had occurred on January 1, 1999, pro forma net loss for the year
ended December 31, 1999 would have increased by $468.1 million. Excluding the
effect of any future non-operating gains, we expect to continue to incur losses
for the foreseeable future and, if we ever have profits, we may not be able to
sustain them. Without the effect of any significant non-operating gains during
the year ending December 31, 2000, we expect to incur a significant net loss
for this period.

      Our expenses will increase as we build an infrastructure to implement our
business model. For example, we expect to hire additional employees, expand
information technology systems and lease more space for our corporate offices.
In addition, we plan to significantly increase our operating expenses to:

     .  broaden our partner company support capabilities;

     .  explore acquisition opportunities and alliances with other
        companies;

     .  facilitate business arrangements among our partner companies; and

     .  expand our business internationally.

Expenses will also increase due to the effect of goodwill amortization and
other charges resulting from completed and future acquisitions. If any of these
and other expenses are not accompanied by increased revenue, our losses will be
greater than we anticipate.

Ability to Manage Partner Company Growth--Our partner companies are growing
rapidly and we may have difficulty assisting them in managing their growth.

      Our partner companies have grown, and we expect them to continue to grow
rapidly, by adding new products and services and hiring new employees. This
growth is likely to place significant strain on their resources and on the
resources we allocate to assist our partner companies. In addition, our
management may

                                       4
<PAGE>

be unable to convince our partner companies to adopt our ideas for effectively
and successfully managing their growth.

Shareholder and Partner Competition--We may compete with some of our
shareholders and 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 some of our shareholders and partner companies for
Internet-related opportunities. As of March 24, 2000, Comcast Corporation and
Safeguard Scientifics, Inc. own 8.3% and 13.7% of our outstanding Common Stock,
respectively. These shareholders may compete with us to acquire interests in
B2B e-commerce companies. Comcast Corporation and Safeguard Scientifics
currently each have a designee as a member of our board of directors and IBM
Corporation and AT&T Corp. each have a right to designate a board observer,
which may give these companies access to our business plan and knowledge about
potential acquisitions. In addition, we may compete with our partner companies
to acquire interests in B2B e-commerce companies, and our partner companies may
compete with each other for acquisitions or other B2B e-commerce opportunities.
In particular, VerticalNet seeks to expand, in part through acquisitions, its
number of B2B communities. VerticalNet, therefore, may seek to acquire
companies that we would find attractive. While we may partner with VerticalNet
on future acquisitions, we have no current contractual obligations to do so. We
do not have any policies, contracts or other understandings with any of our
shareholders or partner companies that would govern the resolution of these
potential conflicts. This competition, and the complications posed by the
designated directors, may deter companies from partnering with us and may limit
our business opportunities.

Capital Provider Competition--We face competition from other potential
acquirors of B2B e-commerce companies which could affect our ability to build
successful partner companies.

      We face competition from other capital providers including publicly-
traded Internet companies, venture capital companies and large corporations.
Many of these competitors have greater financial resources and brand name
recognition than we do. These competitors may limit our opportunity to acquire
interests in new partner companies. If we cannot acquire interests in
attractive companies on reasonable terms, our strategy to build a collaborative
network of partner companies may not succeed.

Global Expansion--Our global expansion exposes us to less developed markets,
currency fluctuations and political instability which could adversely impact
our financial results and our partner companies' ability to conduct business.

      We are pursuing B2B e-commerce opportunities outside the United States.
We recently opened an office in London whose personnel will focus on B2B e-
commerce opportunities in Europe. This international expansion exposes us to
several risks, including the following:

     .  Less Developed Markets. We believe that e-commerce markets outside
        the United States are less developed than the United States e-
        commerce market. If the e-commerce markets outside the United
        States do not continue to mature, any of our partner companies
        outside the United States may not succeed.

     .  Currency Fluctuations. When we purchase interests in non-United
        States partner companies for cash, we will likely have to pay for
        the interests using the currency of the country where the
        prospective partner company is located. Similarly, although it is
        our intention to act as a long-term partner to our partner
        companies, if we sold an interest in a non-United States partner
        company we might receive foreign currency. To the extent that we
        transact in foreign currencies, fluctuations in the relative value
        of these currencies and the United States dollar may adversely
        impact our financial results.


                                       5
<PAGE>

     .  Compliance with Laws. As we expand internationally, we will become
        increasingly subject to the laws and regulations of foreign
        countries. We may not be familiar with these laws and regulations,
        and these laws and regulations may change at any time.

     .  Political Instability. We may purchase interests in foreign
        partner companies that are located, or transact business in, parts
        of the world that experience political instability. Political
        instability may have an adverse impact on the subject country's
        economy, and may limit or eliminate a partner company's ability to
        conduct business.

Substantial Leverage--Our outstanding indebtedness may increase substantially
which would negatively impact our future prospects.

      As of December 31, 1999, we had $569.4 million in long term debt,
including $566.3 million in outstanding convertible subordinated notes. This
indebtedness will impact us in a number of ways:

     .  significantly increase our interest expense and related debt
        service costs;

     .  make it more difficult to obtain additional financing; and

     .  constrain our ability to react quickly in an unfavorable economic
        climate.

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

Access to Capital Markets--Our growth could be impaired by limitations on our
and our partner companies' access to the capital markets.

      We are dependent on the capital markets for access to funds for
acquisitions and other purposes. Our partner companies are also dependent on
the capital markets to raise capital for their own purposes. To date, there
have been a substantial number of Internet-related initial public offerings and
additional offerings are expected to be made in the future. If the market for
Internet-related companies and initial public offerings were to weaken for an
extended period of time, our ability and the ability of our partner companies
to grow and access the capital markets will be impaired.

Divestiture of Partner Company Interests--We may be unable to obtain maximum
value for our partner company interests.

      We have significant positions in our partner companies. While we
generally do not anticipate selling our interests in our partner companies, if
we were to divest all or part of an interest in a partner company, we may not
receive maximum value for this position. For partner companies with publicly-
traded stock, we may be unable to sell our interest at then-quoted market
prices. Furthermore, for those partner companies that do not have publicly-
traded stock, the realizable value of our interests may ultimately prove to be
lower than the carrying value currently reflected in our consolidated financial
statements.

Lack of Opportunities for Future Acquisitions--We may not have opportunities to
acquire interests in additional companies, which would affect our growth
strategy.

      We may be unable to identify companies that complement our strategy, and
even if we identify a company that complements our strategy, we may be unable
to acquire an interest in the company for many reasons, including:

     .  a failure to agree on the terms of the acquisition, such as the
        amount or price of our acquired interest;


                                       6
<PAGE>

     .  incompatibility between us and management of the company;

     .  competition from other acquirors of B2B e-commerce companies;

     .  a lack of capital to acquire an interest in the company; and

     .  the unwillingness of the company to partner with us.

      If we cannot acquire interests in attractive companies, our strategy to
build a collaborative network of partner companies may not succeed.

Limitation of Resources for Future Acquisitions--Our resources and our ability
to manage newly acquired partner companies may be strained as we acquire more
and larger interests in B2B e-commerce companies.

      We have acquired, and plan to continue to acquire, significant interests
in B2B e-commerce companies that complement our business strategy. In the
future, we may acquire larger percentages or larger interests in companies than
we have in the past, or we may seek to acquire 100% ownership of companies. We
may also spend more on individual acquisitions than we have in the past. These
larger acquisitions may place significantly greater strain on our resources,
ability to manage such companies and ability to integrate them into our
collaborative network. Future acquisitions are subject to the following risks:

     .  Our acquisitions may cause a disruption in our ongoing support of
        our partner companies, distract our management and other resources
        and make it difficult to maintain our standards, controls and
        procedures.

     .  We may acquire interests in companies in B2B e-commerce markets in
        which we have little experience.

     .  We may not be able to facilitate collaboration between our partner
        companies and new companies that we acquire.

     .  To fund future acquisitions we may be required to incur debt or
        issue equity securities, which may be dilutive to existing
        shareholders.

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

      We believe that we are actively engaged in the business of B2B e-commerce
through our network of majority-owned subsidiaries and companies that we are
considered to "control." Under the Investment Company Act, a company is
considered to control another company if it owns more than 25% of that
company's voting securities. A company may be required to register as an
investment company if more than 45% of its total assets consists of, and more
than 45% of its income/loss and revenue attributable to it over the last four
quarters is derived from, ownership interests in companies it does not control.
Because many of our partner companies are not majority-owned subsidiaries, and
because we own 25% or less of the voting securities of a number of our partner
companies, changes in the value of our interests in our partner companies and
the income/loss and revenue attributable to our partner companies could subject
us to regulation under the Investment Company Act unless we took 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

                                       7
<PAGE>

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 Securities and Exchange Commission 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.

RISKS PARTICULAR TO OUR PARTNER COMPANIES

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

      VerticalNet, Breakaway Solutions, eMerge Interactive, ONVIA.com and
Universal Access are five of our publicly-traded partner companies. The price
of their common stock has been highly volatile. On February 16, 1999,
VerticalNet completed its initial public offering at a price of $8.00 per share
and its common stock has since traded as high as $296.75 per share, adjusted
for a two for one stock split. On October 6, 1999, Breakaway Solutions
completed its initial public offering at a price of $7.00 per share and its
common stock has since traded as high as $85.50 per share, adjusted for a two
for one stock split. On February 8, 2000, eMerge Interactive completed its
initial public offering at a price of $15.00 per share and its common stock has
traded as high as $70.50 per share. On March 1, 2000, ONVIA.com completed its
initial public offering at a price of $21.00 per share and its common stock has
traded as high as $78.00 per share. On March 17, 2000, Universal Access, Inc.
completed its initial public offering at a price of $14.00 per share and its
common stock has traded as high as $54.63 per share. The market value of our
holdings in these partner companies changes with these fluctuations. Based on
the closing price of VerticalNet's common stock on March 24, 2000 of $183.88,
our holdings in VerticalNet had a market value of approximately $2.3 billion.
Based on the closing price of Breakaway Solutions' common stock on March 24,
2000 of $58.56, our holdings in Breakaway Solutions had a market value of
approximately $818 million. Based on the closing price of eMerge Interactive's
common stock on March 24, 2000 of $47.19, our holdings in eMerge Interactive
had a market value of approximately $381 million. Based on the closing price on
ONVIA.com's common stock on March 24, 2000 of $31.19, our holdings in ONVIA.com
had a market value of approximately $536 million. Based on the closing price of
Universal Access' common stock on March 24, 2000 of $54.63, our holdings in
Universal Access had a market value of approximately $1.2 billion.

      On April 10, 2000, our ownership in VerticalNet, Breakaway Solutions,
ONVIA.com, eMerge Interactive, and Universal Access had market values of
approximately $1.3 billion, $556 million, $266 million, $154 million, and $713
million, respectively. Fluctuations in the price of VerticalNet's, Breakaway
Solutions', eMerge Interactive's, ONVIA.com's and Universal Access' and other
publicly-traded partner companies' common stock are likely to affect the price
of our Common Stock.

      VerticalNet's results of operations, and accordingly the price of its
common stock, may be adversely affected by the following factors:

     .  lack of acceptance of the Internet as an advertising medium;

     .  inability to develop a large base of users of its Web sites who
        possess demographic characteristics attractive to advertisers;

     .  inability to generate significant e-commerce transaction revenues
        from its communities;

     .  lower advertising rates; and

     .  loss of key content providers.

      Breakaway Solutions' results of operations, and accordingly the price of
its common stock, may be adversely affected by the following factors:

     .  growing enterprises' failure to accept e-commerce solutions;

                                       8
<PAGE>

     .  inability to open new regional offices;

     .  loss of money on fixed-fee or performance-based contracts; and

     .  inability to develop brand awareness.

      eMerge Interactive's results of operations, and accordingly the price of
its common stock, may be adversely affected by the following factors:

     .  lack of commercial acceptance of online cattle sales and services;

     .  failure to expand the number of livestock industry participants in
        its network;

     .  failure to obtain access to data from feedlots to adequately meet
        information needs of its customers;

     .  inability to respond to competitive developments; and

     .  failure to achieve brand recognition.

      Onvia.com's results of operations, and accordingly the price of its
common stock, may be adversely affected by the following factors:

     .  small businesses' unwillingness to purchase their business
        services and products online;

     .  a significant number of small businesses' and small business
        service providers' unwillingness to use its emarketplace to buy
        and sell services and products; and

     .  failure of small business customers to provide it data about
        themselves.

      Universal Access' results of operations, and accordingly the price of its
common stock, may be adversely affected by the following factors:

     .  failure of its services to be sufficiently rapid, reliable and
        cost-effective;

     .  unwillingness of clients to outsource the obtaining of circuits;

     .  inability to market its services effectively; and

     .  slow growth of the Internet.

      Our assets as reflected in our balance sheet dated December 31, 1999 were
approximately $2,050 million, of which $128.3 million related to VerticalNet,
Breakaway Solutions, eMerge Interactive, ONVIA.com and Universal Access.
However, we believe that comparisons of the value of our holdings in partner
companies to the value of our total assets are not meaningful because not all
of our partner company ownership interests are marked to market in our balance
sheet.

Dependence on B2B Market--The success of our partner companies depends on the
development of the B2B e-commerce market, which is uncertain.

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

      Our long-term success depends on widespread market-acceptance of B2B e-
commerce. A number of factors could prevent this acceptance, including the
following:

     .  the unwillingness of businesses to shift from traditional
        processes to B2B e-commerce processes;

                                       9
<PAGE>

     .  the network necessary for enabling substantial growth in usage of
        B2B e-commerce may not be adequately developed;

     .  increased government regulation or taxation which may adversely
        affect the viability of B2B e-commerce;

     .  insufficient availability of telecommunication services or changes
        in telecommunication services which could result in slower
        response times for the users of B2B e-commerce; and

     .  concern and adverse publicity about the security of B2B e-commerce
        transactions.

Competitors of Partner Companies--Our partner companies may fail if their
competitors provide superior Internet-related offerings or continue to have
greater resources than our partner companies have.

      Competition for Internet products and services is intense. As the market
for B2B e-commerce grows, we expect that competition will intensify. Barriers
to entry are minimal, and competitors can offer products and services at a
relatively low cost. Our partner companies compete for a share of a customer's:

     .  purchasing budget for services, materials and supplies with other
        online providers and traditional distribution channels;

     .  dollars spent on consulting services with many established
        information systems and management consulting firms; and

     .  advertising budget with online services and traditional off-line
        media, such as print and trade associations.

      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 Internet products or services that are superior to, or have greater
market acceptance than, the solutions offered by our partner companies. If our
partner companies are unable to compete successfully against their competitors,
our partner companies may fail.

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

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

      Our partner companies are inventing new ways of doing business. In
support of this innovation, they will develop proprietary techniques,
trademarks, processes and software. Although reasonable efforts will be taken
to protect the rights to this intellectual property, the complexity of
international trade secret, copyright, trademark and patent law, coupled with
the limited resources of these young companies and the demands of quick
delivery of products and services to market, create risk that their efforts
will prove inadequate. Further, the nature of Internet business demands that
considerable detail about their innovative processes and techniques be exposed
to competitors, because it must be presented on the Web sites in order to
attract clients. Some of our partner companies also license content from third
parties and it is possible that they could become subject to infringement
actions based upon the content licensed from those third parties. Our partner
companies generally obtain representations as to the origin and ownership of
such licensed content; however, this may not

                                       10
<PAGE>

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.

Liabilities from Internet Publications or Distributions--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 Web sites, 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 Web sites is drawn from data compiled by other parties, including
governmental and commercial sources. This data may have errors. If any of our
partner companies' Web site 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.

Failure of Systems--Our partner companies' computer and communications systems
may fail, which may discourage content providers 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' Web sites to be
unavailable to Web browsers may reduce the attractiveness of our partner
companies' Web sites to third party content providers. If third party content
providers are unwilling to use our partner companies' Web sites, 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.

Inability to Upgrade Systems--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' Web sites 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 Web sites. 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 Web sites. 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.

Dependence on Loyal Users of Web Sites--Our partner companies may not be able
to attract a loyal base of users to their Web sites.

      While content is important to all our partner companies' Web sites, our
market maker partner companies are particularly dependent on content to attract
users to their Web sites. Our success depends upon the ability of these partner
companies to deliver compelling Internet content to their targeted users. If
our partner companies are unable to develop Internet content that attracts a
loyal user base, the revenues and

                                       11
<PAGE>

profitability of our partner companies could be impaired. Internet users can
freely navigate and instantly switch among a large number of Web sites. Many of
these Web sites offer original content. Thus, our partner companies may have
difficulty distinguishing the content on their Web sites to attract a loyal
base of users.

Maintenance of Website Addresses--Our partner companies may be unable to
acquire or maintain easily identifiable Web site addresses or prevent third
parties from acquiring Web site addresses similar to theirs.

      Some of our partner companies hold various Web site addresses relating to
their brands. These partner companies may not be able to prevent third parties
from acquiring Web site addresses that are similar to their addresses, which
could adversely affect the use by businesses of our partner companies' Web
sites. In these instances, our partner companies may not grow as we expect. The
acquisition and maintenance of Web site addresses generally is regulated by
governmental agencies and their designees. The regulation of Web site 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
Web site addresses in all countries where they conduct business. Furthermore,
the relationship between regulations governing such addresses and laws
protecting trademarks is unclear.

Dependence on Barter Transactions--Some of our partner companies are dependent
on barter transactions that do not generate cash revenue.

      Our partner companies often enter into barter transactions in which they
provide advertising for other Internet-related companies in exchange for
advertising for the partner company. In a barter transaction the partner
company will reflect the sales of the advertising received as an expense and
the value of the advertising provided, in an equal amount, as revenue. However,
barter transactions also do not generate cash revenue, which may adversely
affect the cash flows of some of our partner companies. Limited cash flows may
adversely affect a partner company's abilities to expand its operations and
satisfy its liabilities. During 1998 and 1999, revenue from barter transactions
constituted a significant portion of some of our partner companies' revenue.
Barter revenue may continue to represent a significant portion of their revenue
in future periods. For example, for the year ended December 31, 1999,
approximately 18% of VerticalNet's revenue was attributable to barter
transactions.

RISKS RELATING TO THE INTERNET INDUSTRY

Confidentiality and Security--Concerns regarding security of transactions and
transmitting confidential information over the Internet may have an adverse
impact on our business.

      We believe that concern regarding the security of confidential
information transmitted over the Internet prevents many potential customers
from engaging in online transactions. If our partner companies that depend on
these types of transactions do not add sufficient security features to their
future product releases, our partner companies' products may not gain market
acceptance or our partner companies may incur additional legal exposure.

      Despite the measures some of our partner companies have taken, their Web
sites remain potentially vulnerable to physical or electronic break-ins,
viruses or similar problems. If a person circumvents the security measures
imposed by any one of our partner companies, he or she could misappropriate
proprietary information or cause interruption in operations of the partner
company. Security breaches that result in access to confidential information
could damage the reputation of any one of our partner companies and expose the
partner company affected to a risk of loss or liability. Some of our partner
companies may be required to make significant investments and efforts to
protect against or remedy security breaches. Additionally, as e-commerce
becomes more widespread, our partner companies' customers will become more
concerned about security. If our partner companies are unable to adequately
address these concerns, they may be unable to sell their goods and services.


                                       12
<PAGE>

Rapid Technological Changes--Rapid technological changes may prevent our
partner companies from remaining current with their technical resources and
maintaining competitive product and service offerings.

      The markets in which our partner companies operate are characterized by
rapid technological change, frequent new product and service introductions and
evolving industry standards. Significant technological changes could render
their existing Web site technology or other products and services obsolete. The
e-commerce market's growth and intense competition exacerbate these conditions.
If our partner companies are unable to successfully respond to these
developments or do not respond in a cost-effective way, our business, financial
condition and operating results will be adversely affected. To be successful,
our partner companies must adapt to their rapidly changing markets by
continually improving the responsiveness, services and features of their
products and services and by developing new features to meet the needs of their
customers. Our success will depend, in part, on our partner companies' ability
to license leading technologies useful in their businesses, enhance their
existing products and services and develop new offerings and technology that
address the needs of their customers. Our partner companies will also need to
respond to technological advances and emerging industry standards in a cost-
effective and timely manner.

Effect of Government Regulations--Government regulations and legal
uncertainties may place financial burdens on our business and the businesses of
our partner companies.

      As of March 24, 2000, there were few laws or regulations directed
specifically at e-commerce. However, because of the Internet's popularity and
increasing use, new laws and regulations may be adopted. These laws and
regulations may cover issues such as the collection and use of data from Web
site visitors and related privacy issues, pricing, content, copyrights, online
gambling, distribution and quality of goods and services. The enactment of any
additional laws or regulations may impede the growth of the Internet and B2B e-
commerce, which could decrease the revenue of our partner companies and place
additional financial burdens on our business and the businesses of our partner
companies.

      Because of the Internet's popularity and increasing use, as well as the
sometimes imperfect fit of traditional legal doctrines to Internet-related
issues, new laws and regulations may be adopted. These laws and regulations may
cover issues such as the collection and use of data from Web site visitors and
related privacy issues, spam, pricing, content, copyrights, online gambling,
distribution and quality of goods and services. The enactment of any additional
laws or regulations may impede the growth of the Internet and B2B e-commerce,
which could decrease the revenue of our partner companies and place additional
financial burdens on our business and the businesses of our partner companies.

      Laws and regulations directly applicable to e-commerce or Internet
communications are becoming more prevalent. For example, the United States
Congress recently enacted laws regarding online copyright infringement and the
protection of information collected online from children. Although these laws
may not have a direct adverse effect on our business or those of our partner
companies, they add to the legal and regulatory burden faced by B2B e-commerce
companies.

      Importantly, the current moratorium on certain Internet taxes expires in
October 2001, and there is some chance that it will not be extended. If not, e-
commerce businesses could be faced with an array of state and local taxes that
could impede the growth prospects of our partner companies.

RISKS RELATING TO OUR SALES OF SECURITIES

Dilution of Common Stock--We may issue securities which may dilute your
ownership interest in the Common Stock.

      In the future, we may issue securities to raise cash for acquisitions,
and we may also pay for interests in additional partner companies by using a
combination of cash and our Common Stock, or just our Common

                                       13
<PAGE>

Stock. Any of these events may dilute your ownership interest in us and have an
adverse impact on the price of our Common Stock. In addition, if we issue
securities convertible into our Common Stock, the conversion of these
securities may dilute your ownership interest and have an adverse impact on the
price of our Common Stock. See "Interests of Significant Shareholders" for a
description of pending issuances.

Future Sales of Shares--Shares eligible for future sale by our current
shareholders may decrease the price of our Common Stock.

      If our shareholders sell substantial amounts of our Common Stock,
including shares issued upon the exercise of outstanding options, in the public
market, then the market price of our Common Stock could fall. Restrictions
under the securities laws and certain repurchase and lock-up agreements limit
the number of shares of Common Stock available for sale in the public market.
Prior to the date of this prospectus, the holders of 131,872,442 shares of our
Common Stock and warrants exercisable for 569,451 shares of our Common Stock
agreed not to sell any of these securities until June 13, 2000 without the
prior written consent of Merrill Lynch. However, Merrill Lynch may, in its sole
discretion, release all or any portion of the securities subject to these lock-
up agreements.

      The holders of 169,683,868 shares of Common Stock and the holders of
warrants to purchase 2,160,817 shares of Common Stock have demand or piggy-back
registration rights. Prior to the date of this prospectus, the holders of
58,507,579 shares of our Common Stock and warrants exercisable for 351,860
shares of our Common Stock that have demand registration rights agreed not to
demand that their securities be registered until June 13, 2000 without the
prior written consent of Merrill Lynch. Common Stock issued upon exercise of
stock options under our benefit plans are eligible for resale in the public
market without restriction. In addition, we may issue and register securities
in connection with acquisitions or other business combinations.

Interests of Significant Shareholders--The interests of certain of our
significant shareholders may conflict with our interests and the interests of
our other shareholders.

      As a result of its ownership of our Common Stock, Safeguard Scientifics
will be in a position to affect significantly our corporate actions such as
mergers or takeover attempts in a manner that could conflict with the interests
of our public shareholders. We have filed a registration statement on Form S-4
that provides for the issuance of up to 23,000,000 shares of our Common Stock
from time to time to pay for acquisitions of partner company interests. Two
potential exchange offers are described in such registration statement. In
connection with these exchange offers, we may issue up to 11,198,142 shares of
our Common Stock. Prior to these exchange offers, Safeguard Scientifics
beneficially owned about 13.7% of our Common Stock.

Anti-Takeover Protections--Anti-takeover provisions and our right to issue
preferred stock could make a third-party acquisition of us difficult.

      Our certificate of incorporation provides that our board of directors may
issue preferred stock without shareholder approval. In addition, our bylaws
provide for a classified board, with each board member serving a three-year
term. The issuance of preferred stock and the existence of a classified board
could make it more difficult for a third-party to acquire us without the
approval of our board.

Price Volatility--Our Common Stock price is highly volatile.

      The market price for our Common Stock has been highly volatile and is
likely to continue to be highly volatile. The trading prices of many technology
and Internet-related company stocks, including ours, have experienced
significant price and volume fluctuations in recent months. These fluctuations
often have been unrelated or disproportionate to the operating performance of
these companies. The trading price of our Common Stock has increased
significantly from our initial public offering price of $6.00 per share, as
adjusted for our 2 for 1 stock split. Any negative change in the public's
perception of the prospects of Internet or e-commerce companies could depress
our stock price regardless of our results.


                                       14
<PAGE>

      The following factors will add to our Common Stock price's volatility:

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

     . new sales formats or new products or services offered by us, our
       partner companies and their competitors;

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

     . changes in the size, form or rate of our acquisitions;

     . conditions or trends in the Internet industry in general and the
       B2B e-commerce industry in particular;

     . 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;

     . changes in the market valuations of our partner companies and other
       Internet companies;

     . our capital commitments;

     . negative changes in the public's perception of the prospects of e-
       commerce companies;

     . general economic conditions such as a recession, or interest rate
       or currency rate fluctuations;

     . additions or departures of our key personnel and key personnel of
       our partner companies; and

     . additional sales of our securities.

      Many of these factors are beyond our control. These factors may decrease
the market price of our Common Stock, regardless of our operating performance.
In the past, securities class action litigation has often been brought against
a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could have a material adverse effect on our
business, operating results and financial condition.

                                       15
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

      Internet Capital Group is an Internet holding company primarily engaged
in managing and operating a network of business-to-business, or B2B, e-commerce
companies. Our goal is to become the premier B2B e-commerce company by
establishing an e-commerce presence in major segments of the economy. For more
detailed information, you should refer to:

     .  the prospectus we filed with the SEC on December 16, 1999 pursuant
        to Rule 424(b) under the Securities Act; and

     .  other reports and information incorporated by reference into this
        prospectus or the registration statement that includes this
        prospectus.

      For information on how we can "incorporate by reference" other filings we
have made or will make with the SEC, and how we can disclose important
information to you in such manner, see "Where You Can Find More Information--
Incorporation of Documents by Reference."

                                USE OF PROCEEDS

      All shares of Common Stock sold pursuant to this prospectus will be sold
by some of our employees, directors and certain consultants and advisors, whom
we refer to as "selling stockholders," for their own accounts.

      We will not receive any of the proceeds from sales covered by this
prospectus.

                              SELLING STOCKHOLDERS

      The selling stockholders may sell from time to time any of the shares of
Common Stock covered by this prospectus. Therefore, we cannot estimate the
number of shares that may be offered for sale under this prospectus at any
given time. Shares of Common Stock may be sold from time to time by the selling
stockholders or by pledgees, donees, transferees or other successors in
interest. The selling stockholder may also loan or pledge the shares registered
hereunder to a broker-dealer and the broker-dealer may sell the shares so
loaned or upon a default the broker-dealer may effect sales of the pledged
shares pursuant to this prospectus.

      The table below sets forth the following information, assuming sale by
the selling stockholders of all shares of Common Stock distributed to them
under the Equity Compensation Plan:

     .  the name of the selling stockholder and the nature of positions,
        or other material relationships, held by the selling stockholder
        within the past three years with our company;

     .  the number of shares of Common Stock and options to purchase
        Common Stock owned by the selling stockholder as of the date of
        this prospectus;

     .  the number of shares of Common Stock offered by this prospectus
        for the account of that selling stockholder;

     .  the number of shares of Common Stock to be owned by the selling
        stockholder if all shares covered by this prospectus held by such
        stockholder are sold; and

     .  the percentage (if more than one percent) of our Common Stock to
        be owned by the selling stockholder if all shares covered by this
        prospectus held by such stockholder are sold, based on the number
        of shares of our Common Stock outstanding as of March 24, 2000.

                                       16
<PAGE>

<TABLE>
<CAPTION>
                                                                                   After Completion of Offering
                                                               Shares &            ------------------------------------
    Name of Selling                 Position in                Options    Shares     Shares           Percentage of
      Stockholder                     Company                   Owned     Offered     Owned           Class Owned(1)
    ---------------                 -----------               ---------- --------- ----------------- ------------------
<S>                      <C>                                  <C>        <C>       <C>               <C>
Douglas A. Alexander....   Managing Director                   5,624,748 3,000,000         2,624,748                *
Douglas A. Alexander
 Qualified Grantor
 Retained Annuity
 Trust..................   Transferee of Douglas A. Alexander    500,000   500,000                --                *
Jeffrey Ballowe ........   Advisor                               224,998   200,000            24,998                *
Walter W. Buckley,
 III ...................   President & CEO                    11,418,000 4,600,000         6,818,000              2.6
Richard S. Devine.......   Managing Director, Executive
                           Recruiting                          2,095,500 2,095,500                --                *
Kenneth A. Fox..........   Managing Director                  11,878,066 4,300,000         7,578,066              2.9
David D. Gathman........   Chief Financial Officer             1,524,999 1,500,000            24,999                *
Gregory W. Haskell......   Managing Director, Operations       2,000,400 2,000,000               400                *
Victor S. Hwang.........   Managing Director, Acquisitions     2,670,000 2,670,000                --                *
Mark J. Lotke...........   Managing Director, Acquisitions     2,050,000 2,050,000                --                *
Henry N. Nassau.........   Managing Director & General         1,230,500 1,200,000            30,500                *
                           Counsel
Nassau Family Trust.....   Transferee of Henry N. Nassau         300,000   300,000                --                *
Robert A. Pollan........   Managing Director, Operations       3,353,166 3,150,000           203,166                *
Robert A. Pollan
 Qualified Grantor
 Retained Annuity
 Trust..................   Transferee of Robert A. Pollan        500,000   500,000                --                *
Yossi Sheffi............   Advisor                               268,332   260,000             8,332                *
John Turillo............   Former Consultant                      50,000    50,000                --                *
</TABLE>
--------
*  Less than one percent.

                                       17
<PAGE>

                              PLAN OF DISTRIBUTION

      The Common Stock offered by this prospectus may be sold from time to time
in one or more transactions through any of several methods, including in
transactions on the Nasdaq National Market, in ordinary brokerage transactions
or block transactions, in negotiated transactions, through underwriters or a
combination of such methods of sale, at market prices prevailing at the time of
sale, at prices relating to such prevailing market prices or at negotiated
prices. The selling stockholders may effect such transactions by selling shares
through a broker or brokers or underwriters, who may act as principal or agent
or both agent and principal, and such brokers or underwriters may receive
compensation from the selling stockholders not to exceed that which is
customary for the particular transactions.

      Any shares of Common Stock covered by this prospectus that qualify for
sale pursuant to Rule 144 of the Securities Act may be sold under that rule
rather than pursuant to this prospectus. We cannot be sure that any of the
selling stockholders will sell any or all of the shares of Common Stock offered
by them under this prospectus.

                     WHERE YOU CAN FIND MORE INFORMATION--
                    INCORPORATION OF DOCUMENTS BY REFERENCE

      Under the Securities Exchange Act of 1934, we are required to file
annual, quarterly and special reports, proxy statements and other information
with the SEC. You may read and copy any document we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information about the public reference
room. The SEC maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. We file electronically with the SEC.

      We have filed a registration statement on Form S-8 with the SEC to
register the shares offered by this prospectus. This prospectus is part of the
registration statement but, as permitted by SEC rules, this prospectus does not
contain all the information that you can find in the registration statement or
the exhibits to the registration statement.

      The SEC allows us to "incorporate by reference" the information that we
file with the SEC. This means we can disclose important information to you by
referring you to those filed documents. The information incorporated by
reference is considered to be a part of this prospectus, except if it is
superseded by information in this prospectus or by later information that we
file with the SEC. Information that is filed with the SEC after the date of
this prospectus will automatically update and supersede the information
contained or incorporate by reference in this prospectus.

      The documents listed below are incorporated by reference in this
prospectus. They contain important information about Internet Capital Group,
Inc. and its financial condition.

     .  The prospectus we filed with the SEC on December 16, 1999 pursuant
        to Rule 424(b) under the Securities Act.

     .  Our annual report on Form 10-K for the year ended December 31,
        1999.

     .  All other reports which we filed with the SEC after December 31,
        1999 under Sections 13(a) or 15(d) of the Securities Exchange Act
        of 1934.

     .  The description of our Common Stock contained in our registration
        statement on Form 8-A (SEC File No. 222-26929), filed August 4,
        1999, which incorporates by reference the section

                                       18
<PAGE>

        entitled "Description of Capital Stock" in our registration
        statement on Form S-1 (SEC File No. 333-78193), filed May 11,
        1999, as amended, and including any amendment or report filed for
        the purpose of updating such description.

      In addition, all documents that we subsequently file with the SEC
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934, as amended, prior to the termination of offerings hereunder shall be
deemed to be incorporated by reference into this prospectus.

      You may request a copy of these filings, excluding all exhibits unless
an exhibit has been specifically incorporated by reference, at no cost, by
writing or telephoning us at:

                      Internet Capital Group, Inc.
                      435 Devon Park Drive
                      Building 600
                      Wayne, Pennsylvania 19087
                      (610) 989-0111
                      Attention: General Counsel

      When you are deciding whether to purchase the shares being offered by
this prospectus, you should rely only on the information incorporated by
reference or provided in this prospectus or any supplement. We have not
authorized anyone else to provide you with different information. This
prospectus is not an offer to sell shares of common stock in any state where
such an offer is not permitted.

                                      19
<PAGE>

                           FORWARD-LOOKING STATEMENTS

      This Prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act, and Section 21E of the Securities Exchange
Act. We have based these forward-looking statements on our current expectations
and projections about future events. These forward-looking statements 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. These factors are discussed in the "Risk
Factors" section beginning on page 2 of this Prospectus, and include, among
other things:

     .  development of an e-commerce market;

     .  our ability to identify trends in our markets and the markets of
        our partner companies and to offer new solutions that address the
        changing needs of these markets;

     .  our ability to successfully execute our business model;

     .  our partner companies' ability to compete successfully against
        direct and indirect competitors;

     .  our ability to acquire interests in additional companies;

     .  our ability to expand our business successfully into international
        markets;

     .  growth in demand for Internet products and services; and

     .  adoption of the Internet as an advertising medium.

      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 Prospectus. 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 Prospectus might not occur.

                                 LEGAL MATTERS

      The validity of the Common Stock offered by us hereby will be passed upon
by Dechert Price & Rhoads, Philadelphia, Pennsylvania. Dechert Price & Rhoads,
Internet Capital Group's counsel, beneficially owns 41,666 shares of our common
stock and warrants exercisable at $6.00 per share to purchase 8,333 shares of
our common stock. Members of and attorneys associated with Dechert Price &
Rhoads beneficially own an aggregate of 12,554 shares of our common stock and
warrants exercisable at $6.00 per share to purchase 1,111 shares of our common
stock.

                                    EXPERTS

      The consolidated financial statements of Internet Capital Group, Inc. as
of December 31, 1998 and 1999 and for each of the years in the three-year
period ended December 31, 1999 have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in auditing and accounting.

      The consolidated financial statements of eMerge Interactive, Inc. as of
December 31, 1997 and 1998 and September 30, 1999 and for each of the years in
the three-year period ended December 31, 1998 and the

                                       20
<PAGE>

nine months ended September 30, 1999 have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in auditing and accounting.

      The financial statements of JusticeLink, Inc. (formerly LAWPlus, Inc.) as
of December 31, 1998 and 1999, and for the two years ended December 31, 1999
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of said firm as experts in auditing and accounting.

      The consolidated financial statements of MetalSite General Partner, LLC
as of December 31, 1998 and for the period from Inception (November 15, 1998)
through December 31, 1998 included in this registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report. Reference is made to
said report which includes an explanatory paragraph with respect to the
uncertainty regarding MetalSite General Partner, LLC's ability to continue as a
going concern as discussed in Note 2 to the consolidated financial statements.

      The financial statement of MetalSite as Component of Weirton Steel
Corporation for the period from January 1, 1998 to November 15, 1998 and for
the year ended December 31, 1997 included in this registration statement has
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.

      The financial statements of Syncra Software, Inc. as of December 31, 1998
and for the period from February 11, 1998 (inception) through December 31, 1998
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

      The financial statements of USgift.com Corporation as of September 30,
1999 and for the period from inception (April 27, 1999) to September 30, 1999
included herein and in the registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.

      The financial statements of RightWorks Corporation as of December 31,
1998 and 1999 and for the three years then ended included in this prospectus
and elsewhere in this registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included in this prospectus in reliance upon the
authority of said firm as experts in given said reports.

      The consolidated financial statements of eCredit.com, Inc. as of December
31, 1998 and 1999 and for the two years ended December 31, 1999 appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth on their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of said firm as experts in auditing and accounting.

      The consolidated statements of operations, of redeemable convertible
preferred stock and stockholders' deficit and of cash flows of eCredit.com,
Inc. for the year ended December 31, 1997 included in this Prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

      The consolidated financial statements of VerticalNet, Inc. as of December
31, 1998 and 1999 and for each of the years in the three-year period ended
December 31, 1999 have been included herein and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting.

                                       21
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>                                                                       <C>
INTERNET CAPITAL GROUP, INC.
Report of Independent Auditors...........................................  F-4

Consolidated Balance Sheets..............................................  F-5

Consolidated Statements of Operations....................................  F-6

Consolidated Statements of Shareholders' Equity..........................  F-7

Consolidated Statements of Comprehensive Income (Loss)...................  F-8

Consolidated Statements of Cash Flows....................................  F-9

Notes to Consolidated Financial Statements............................... F-10

eCREDIT.COM, INC.
Reports of Independent Accountants....................................... F-39

Consolidated Balance Sheets.............................................. F-41

Consolidated Statements of Operations.................................... F-42

Consolidated Statements of Redeemable Convertible Preferred Stock and
 Stockholders' Deficit................................................... F-43

Consolidated Statements of Cash Flows.................................... F-44

Notes to Consolidated Financial Statements............................... F-46

RIGHTWORKS CORPORATION
Report of Independent Public Accountants................................. F-60

Balance Sheets........................................................... F-61

Statements of Operations and Comprehensive Loss.......................... F-62

Statement of Shareholders' Equity........................................ F-63

Statements of Cash Flows................................................. F-64

Notes to Financial Statements............................................ F-65

EMERGE INTERACTIVE, INC.
Independent Auditors' Report............................................. F-76

Consolidated Balance Sheets.............................................. F-77

Consolidated Statements of Operations.................................... F-78

Consolidated Statements of Stockholders' Equity (Deficit)................ F-79

Consolidated Statements of Cash Flows.................................... F-80

Notes to Consolidated Financial Statements............................... F-81

</TABLE>


                                      F-1
<PAGE>

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          -----
<S>                                                                       <C>
JUSTICELINK, INC.
Report of Independent Auditors..........................................   F-95

Balance Sheets..........................................................   F-96

Statements of Operations................................................   F-97

Statements of Mandatory Redeemable Convertible Stock and Other Capital..   F-98

Statements of Cash Flows................................................   F-99

Notes to Financial Statements...........................................  F-100

METALSITE GENERAL PARTNER LLC
Report of Independent Public Accountants................................  F-114

Consolidated Balance Sheets.............................................  F-115

Consolidated Statement of Operations....................................  F-116

Consolidated Statement of Changes in Partners' Capital (Deficit)........  F-117

Consolidated Statement of Cash Flows....................................  F-118

Notes to Consolidated Financial Statements..............................  F-119

METALSITE AS A COMPONENT OF WEIRTON STEEL CORPORATION
Report of Independent Public Accountants................................  F-129

Statements of Costs and Expenses........................................  F-130

Notes to Financial Statements...........................................  F-131

SYNCRA SOFTWARE, INC.
Report of Independent Accountants.......................................  F-132

Balance Sheet...........................................................  F-133

Statement of Operations.................................................  F-134

Statement of Changes in Redeemable Preferred Stock and Stockholders'
 Deficit................................................................  F-135

Statement of Cash Flows.................................................  F-136

Notes to Financial Statements...........................................  F-137

USGIFT, INC.
Report of Independent Public Accountants................................  F-146

Balance Sheet...........................................................  F-147

Statement of Operations and Accumulated Deficit.........................  F-148

Statement of Cash Flows.................................................  F-149

Notes to Financial Statements...........................................  F-150
</TABLE>

                                      F-2
<PAGE>

<TABLE>
<CAPTION>
                                                                         PAGE
                                                                         -----
<S>                                                                      <C>
VERTICALNET, INC.
Independent Auditors' Report............................................ F-155

Consolidated Balance Sheets............................................. F-156

Consolidated Statements of Operations................................... F-157

Consolidated Statements of Shareholders' Equity (Deficit) and
 Comprehensive Loss..................................................... F-158

Consolidated Statements of Cash Flows................................... F-159

Notes to Consolidated Financial Statements.............................. F-160
</TABLE>

                                      F-3
<PAGE>

                         Report of Independent Auditors

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

We have audited the accompanying consolidated balance sheets of Internet
Capital Group, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, shareholders' equity,
comprehensive income (loss) and cash flows for each of the years in the three-
year period ended December 31, 1999. 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 did not audit the financial statements of certain nonsubsidiary
investee companies (ComputerJobs.com, Inc. and Syncra Software, Inc.) as of and
for the year ended December 31, 1998, which Internet Capital Group, Inc.
originally acquired an interest in during 1998. The Company's ownership
interests in and advances to these nonsubsidiary investee companies at December
31, 1998 were $8,392,155, and its equity in net income (loss) of these
nonsubsidiary investee companies was $3,876,148 for the year ended December 31,
1998. We also did not audit the financial statements of a nonsubsidiary
investee company (Onvia.com, Inc.) as of and for the year ended December 31,
1999. The Company's ownership interest and advances to this nonsubsidiary
investee company at December 31, 1999 were $8,753,597 and its equity in net
loss of the nonsubsidiary investee was $9,327,340. The financial statements of
these nonsubsidiary investee companies were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
the amounts included for these nonsubsidiary investee companies as of and for
the years ended December 31, 1998 and 1999, is based solely on the reports of
the other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. 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, based on our audits and the reports of the other auditors, 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, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.

KPMG LLP

Philadelphia, Pennsylvania
March 8, 2000

                                      F-4
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

                          Consolidated Balance Sheets

                     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                           As of December 31,
                                                           -------------------
                                                            1998       1999
                                                           -------  ----------
<S>                                                        <C>      <C>
Assets
Current Assets
  Cash and cash equivalents............................... $26,841  $1,343,459
  Short-term investments..................................     --        3,359
  Accounts receivable, less allowances for doubtful
   accounts ($61--1998; $67--1999)........................   1,842       1,207
  Prepaid expenses and other current assets...............   1,119       6,347
                                                           -------  ----------
  Total current assets....................................  29,802   1,354,372
  Fixed assets, net.......................................   1,151       4,015
  Ownership interests in and advances to Partner
   Companies..............................................  59,492     547,339
  Available-for-sale securities...........................   3,251      46,767
  Intangible assets, net..................................   2,476      23,649
  Deferred taxes..........................................     --       34,388
  Other...................................................     613      39,854
                                                           -------  ----------
Total Assets.............................................. $96,785  $2,050,384
                                                           =======  ==========
Liabilities and Shareholders' Equity
Current Liabilities
  Current maturities of long-term debt.................... $   288  $    3,000
  Line of credit..........................................   2,000         --
  Accounts payable........................................   1,348       6,750
  Accrued expenses........................................   1,823       4,205
  Notes payable to Partner Companies......................   1,713      34,134
  Deferred revenue........................................   2,177         --
  Other...................................................     --          903
                                                           -------  ----------
  Total current liabilities...............................   9,349      48,992
  Long-term debt..........................................     352       3,185
  Other liability (Note 8)................................     --        4,255
  Minority interest.......................................   6,360       7,481
  Convertible subordinated notes (Note 7).................     --      566,250
  Commitments and contingencies (Note 19)
Shareholders' Equity
  Preferred stock, $.01 par value; 10,000 shares
   authorized; none issued................................     --          --
  Common stock, $.001 par value; 300,000 shares
   authorized; 132,087 (1998) and 263,579 (1999) issued
   and outstanding........................................     132         264
  Additional paid-in capital..............................  74,932   1,513,615
  Retained earnings (accumulated deficit).................   5,257     (26,539)
  Unamortized deferred compensation.......................  (1,330)    (11,846)
  Notes receivable-shareholders...........................     --      (79,790)
  Accumulated other comprehensive income..................   1,733      24,517
                                                           -------  ----------
  Total shareholders' equity..............................  80,724   1,420,221
                                                           -------  ----------
Total Liabilities and Shareholders' Equity................ $96,785  $2,050,384
                                                           =======  ==========
</TABLE>

                See notes to consolidated financial statements.

                                      F-5
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

                     Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                  ---------------------------
                                                   1997      1998      1999
                                                  -------  --------  --------
                                                  (in thousands except per
                                                         share data)
<S>                                               <C>      <C>       <C>
Revenue.......................................... $   792  $  3,135  $ 16,536
Operating Expenses
  Cost of revenue................................   1,767     4,643     8,156
  Selling, general and administrative............   5,743    15,514    48,924
                                                  -------  --------  --------
  Total operating expenses.......................   7,510    20,157    57,080
                                                  -------  --------  --------
                                                   (6,718)  (17,022)  (40,544)
                                                  -------  --------  --------
Other income, net (Note 18)......................     --     30,483    67,384
Interest income..................................     264     1,306     9,631
Interest expense.................................    (126)     (381)   (3,897)
                                                  -------  --------  --------
Income (Loss) Before Income Taxes, Minority
 Interest and Equity Income (Loss)...............  (6,580)   14,386    32,574
Income taxes.....................................     --        --     23,722
Minority interest................................    (106)    5,382     6,026
Equity income (loss).............................     106    (5,869)  (92,099)
                                                  -------  --------  --------
Net Income (Loss)................................ $(6,580) $ 13,899  $(29,777)
                                                  =======  ========  ========
Net Income (Loss) Per Share
  Basic.......................................... $ (0.10) $   0.12  $  (0.15)
                                                  =======  ========  ========
  Diluted........................................ $ (0.10) $   0.12  $  (0.15)
                                                  =======  ========  ========
Weighted Average Shares Outstanding
  Basic..........................................  68,198   112,205   201,851
                                                  =======  ========  ========
  Diluted........................................  68,198   112,299   201,851
                                                  =======  ========  ========
Pro Forma Information (Unaudited) (Note 2):
Pro forma net income (loss)......................
  Pretax income (loss)...........................          $ 13,899  $(53,499)
  Pro forma income taxes.........................            (5,143)   16,050
                                                           --------  --------
  Pro forma net income (loss)....................          $  8,756  $(37,449)
                                                           ========  ========
Pro forma net income (loss) per share
  Basic..........................................          $   0.08  $  (0.19)
                                                           ========  ========
  Diluted........................................          $   0.08  $  (0.19)
                                                           ========  ========
Pro forma weighted average shares outstanding
  Basic..........................................           112,205   201,851
                                                           ========  ========
  Diluted........................................           112,299   201,851
                                                           ========  ========
</TABLE>

                See notes to consolidated financial statements.

                                      F-6
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

                Consolidated Statements of Shareholders' Equity

<TABLE>
<CAPTION>
                                                         Retained                              Accumulated
                           Common Stock    Additional    Earnings   Unamortized     Notes         Other
                          ---------------   Paid-In    (Accumulated   Deferred   Receivable-- Comprehensive
                          Shares   Amount   Capital      Deficit)   Compensation Shareholders    Income       Total
                          -------  ------  ----------  ------------ ------------ ------------ ------------- ----------
                                                               (in thousands)
<S>                       <C>      <C>     <C>         <C>          <C>          <C>          <C>           <C>
Balance as of December
 31, 1996...............   51,779  $  52   $   15,762    $ (2,062)   $    (893)   $     --      $    --     $   12,859
Issuance of common
 stock..................   40,275     40       20,097         --           --           --           --         20,137
Issuance of restricted
 stock..................    3,546      4          414         --          (418)         --           --            --
Forfeitures of
 restricted stock.......   (2,033)    (2)        (176)        --           178          --           --            --
Amortization of deferred
 compensation...........      --     --           --          --           218          --           --            218
Net loss................      --     --           --       (6,580)         --           --           --         (6,580)
                          -------  -----   ----------    --------    ---------    ---------     --------    ----------
Balance as of December
 31, 1997...............   93,567     94       36,097      (8,642)        (915)         --           --         26,634
Issuance of common
 stock, net.............   38,520     38       38,167         --           --           --           --         38,205
Issuance of stock
 options to
 non-employees..........      --     --           668         --          (668)         --           --            --
Net unrealized
 appreciation in
 available-for-sale
 securities.............      --     --           --          --           --           --         1,733         1,733
Amortization of deferred
 compensation...........      --     --           --          --           253          --           --            253
Net income..............      --     --           --       13,899          --           --           --         13,899
                          -------  -----   ----------    --------    ---------    ---------     --------    ----------
Balance as of December
 31, 1998...............  132,087    132       74,932       5,257       (1,330)         --         1,733        80,724
Issuance of common
 stock, net.............   78,258     78    1,072,494         --           --           --           --      1,072,572
Issuance of common stock
 and income tax benefit
 upon exercise of
 options................   35,992     36       90,512         --           --       (81,148)         --          9,400
Shareholder loans
 principal payments.....      --     --           --          --           --         1,358          --          1,358
Issuance of common stock
 for acquisitions.......    1,887      2      172,001         --           --           --           --        172,003
Issuance of common stock
 and waiving of accrued
 interest upon
 conversion of
 convertible notes......   15,000     15       91,070         --           --           --           --         91,085
Issuance of common stock
 upon exercise of
 Warrants...............      784      1        3,968         --           --           --           --          3,969
Issuance of warrants in
 connection with line of
 credit.................                        1,030         --           --           --           --          1,030
Issuance of stock
 options to employees
 below estimated fair
 value on date
 of grant...............      --     --        12,731         --       (12,731)         --           --            --
Amortization of deferred
 compensation...........      --     --           --          --         5,699          --           --          5,699
Issuance of stock
 options to
 non-employees..........      --     --         3,691         --        (3,691)         --           --            --
Foreign currency
 adjustment.............      --     --           --          --           --           --            (1)           (1)
Net unrealized
 appreciation in
 available-for-sale
 securities.............      --     --           --          --           --           --        22,785        22,785
LLC termination (Note
 2).....................      --     --        (8,657)      8,657          --           --           --            --
Distribution to former
 LLC members............      --     --           --      (10,676)         --           --           --        (10,676)
Other...................     (429)   --          (157)        --           207          --           --             50
Net loss................      --     --           --      (29,777)         --           --           --        (29,777)
                          -------  -----   ----------    --------    ---------    ---------     --------    ----------
Balance as of December
 31, 1999...............  263,579  $ 264   $1,513,615    $(26,539)   $ (11,846)   $ (79,790)    $ 24,517    $1,420,221
                          =======  =====   ==========    ========    =========    =========     ========    ==========
</TABLE>

                See notes to consolidated financial statements.

                                      F-7
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

             Consolidated Statements of Comprehensive Income (Loss)

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                     -------------------------
                                                      1997     1998     1999
                                                     -------  ------- --------
                                                          (in thousands)
<S>                                                  <C>      <C>     <C>
Net Income (Loss)................................... $(6,580) $13,899 $(29,777)
                                                     -------  ------- --------
Other Comprehensive Income (Loss) Before Tax
  Unrealized holding gains in available-for-sale
   securities.......................................     --     1,733   38,039
  Foreign currency translation adjustment...........     --       --        (1)
  Reclassification adjustments......................     --       --    (2,051)
Tax Related to Comprehensive Income (Loss)
  Unrealized holding gains in available-for-sale
   securities.......................................     --       --   (13,920)
  Reclassification adjustments......................     --       --       717
                                                     -------  ------- --------
Other Comprehensive Income..........................     --     1,733   22,784
                                                     -------  ------- --------
Comprehensive Income (Loss)......................... $(6,580) $15,632 $ (6,993)
                                                     =======  ======= ========
</TABLE>



                See notes to consolidated financial statements.

                                      F-8
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

                     Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                 Year Ended December 31,
                                               ------------------------------
                                                 1997      1998       1999
                                               --------  --------  ----------
                                                      (in thousands)
<S>                                            <C>       <C>       <C>
Operating Activities
Net income (loss)............................. $ (6,580) $ 13,899  $  (29,777)
Adjustments to reconcile to net cash used in
 operating activities:
  Other income................................      --    (30,483)    (67,636)
  Depreciation and amortization...............      446     1,135      12,742
  Equity (income) loss........................     (106)    5,869      92,099
  Minority interest...........................      106    (5,382)     (6,026)
  Deferred taxes..............................      --        --      (23,722)
Changes in assets and liabilities, net of
 effect of acquisitions:
  Accounts receivable, net....................    1,574    (1,183)     (4,278)
  Prepaid expenses and other assets...........     (142)   (1,347)    (28,603)
  Accounts payable............................      566       620       7,194
  Deferred revenue............................      494     1,250         (49)
  Accrued expenses............................      205     1,415       6,700
                                               --------  --------  ----------
    Net cash used in operating activities.....   (3,437)  (14,207)    (41,356)
Investing Activities
  Capital expenditures........................     (272)     (545)     (7,120)
  Proceeds from sales of available-for-sale
   securities.................................      --     36,431       2,496
  Proceeds from sales of Partner Company
   ownership interests........................      --        300       3,506
  Advances to Partner Companies...............   (2,800)  (12,779)     (9,679)
  Repayment of advances to Partner Companies..      950       677       4,581
  Acquisitions of ownership interests in
   Partner Companies..........................  (14,466)  (35,822)   (329,161)
  Other acquisitions (Note 5).................      --     (1,858)     (9,732)
  Other advances..............................      --        --      (12,850)
  Purchase of short-term investments..........      --        --      (22,279)
  Proceeds from maturities of short-term
   investments................................      --        --       18,920
  Reduction in cash due to deconsolidation of
   Partner Companies..........................      --        --      (13,393)
                                               --------  --------  ----------
    Net cash used in investing activities.....  (16,588)  (13,596)   (374,711)
Financing Activities
  Issuance of common stock, net...............   20,138    38,205   1,077,405
  Long-term debt and capital lease
   repayments.................................      (58)     (322)       (448)
  Proceeds from convertible subordinated
   notes......................................      --        --      656,250
  Line of credit borrowings...................    2,500     2,000      25,000
  Line of credit repayments...................       (2)   (2,500)    (25,281)
  Distribution to former LLC members..........      --        --      (10,676)
  Advances to employees.......................      --        --       (8,765)
  Treasury stock purchase by subsidiary.......      --        --       (4,469)
  Issuance of stock by subsidiary.............      200    11,293      23,669
                                               --------  --------  ----------
    Net cash provided by financing
     activities...............................   22,778    48,676   1,732,685
                                               --------  --------  ----------
Net Increase in Cash and Cash Equivalents.....    2,753    20,873   1,316,618
Cash and cash equivalents at beginning of
 period.......................................    3,215     5,968      26,841
                                               --------  --------  ----------
Cash and Cash Equivalents at End of Period.... $  5,968  $ 26,841  $1,343,459
                                               ========  ========  ==========
</TABLE>

                See notes to consolidated financial statements.

                                      F-9
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

                 Notes to the Consolidated Financial Statements

1. Significant Accounting Policies

      Internet Capital Group, Inc. (or the "Company") was formed on March 4,
1996. The Company is an Internet company actively engaged in business-to-
business, or B2B, e-commerce through a network of companies. The Company
defines e-commerce as conducting or facilitating business transactions over the
Internet. As of December 31, 1999, the Company owned interests in 49 companies
engaged in e-commerce, which the Company calls its "Partner Companies". The
Company's goal is to become the premier B2B e-commerce company. The Company's
operating strategy is to integrate its Partner Companies into a collaborative
network that leverages the collective knowledge and resources of the Company
and the network.

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

      Basis of Presentation

      On February 2, 1999, the Company converted from a Limited Liability
Corporation ("LLC") to a Corporation. All shareholder transactions have been
presented as if the conversion occurred on March 4, 1996.

      The consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries, Internet Capital Group Operations, Inc.
(the "Operations Company") and Internet Capital Group (Europe) Limited, and its
majority owned subsidiaries, VerticalNet, Inc. ("VerticalNet") for the years
ended December 31, 1997 and 1998 and Animated Images, Inc., ("Animated
Images"), CyberCrop.com, Inc., ("CyberCrop.com"), EmployeeLife.com, ICG
Commerce, Inc. ("ICG Commerce") and iParts for portions of the year ended
December 31, 1999.

      Additionally, the consolidated financial statements for the year ended
December 31, 1999 reflect Breakaway Solutions' results of operations and cash
flows as a consolidated company from the date of acquisition through September
1999 and accounted for under the equity method for the remainder of the year
due to the decrease in the Company's direct and indirect voting ownership
interest to below 50% in October 1999 as a result of Breakaway Solutions'
initial public offering.

      In December 1999, the Company recorded a two for one stock split effected
as a one hundred percent (100%) stock dividend. The common stock and additional
paid-in capital accounts and all share and per share amounts have been
retroactively restated in these financial statements to give effect to this
stock dividend.

      Principles of Accounting for Ownership Interests in Partner Companies

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

      Consolidation. Partner Companies in which the Company directly or
indirectly owns more than 50% of the outstanding voting securities are
generally accounted for under the consolidation method of accounting. Under
this method, a Partner Company's results of operations are reflected within the
Company's Consolidated Statements of Operations. All significant intercompany
accounts and transactions are eliminated. Participation of other Partner
Company shareholders in the earnings or losses of a consolidated Partner
Company is reflected in the caption "Minority interest" in the Company's
Consolidated Statements of Operations. Minority interest adjusts the Company's
consolidated results of operations to reflect only the Company's share of the
earnings or

                                      F-10
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Significant Accounting Policies (Continued)

losses of the consolidated Partner Company. The results of operations and cash
flows of a Consolidated Partner Company are included through the latest interim
period in which the Company owned a greater than 50% direct or indirect voting
ownership for the entire interim period. Upon dilution of control below 50%,
the accounting method is adjusted to the equity or cost method of accounting,
as appropriate, for subsequent periods.

      In 1999, the Company acquired a controlling majority interest in
Breakaway Solutions, Inc. for $17.2 million and in Animated Images,
CyberCrop.com, EmployeeLife.com, ICG Commerce and iParts ("Other Majority Owned
Subsidiaries") for $29.8 million in the aggregate. Breakaway Solutions'
operations have historically consisted primarily of implementation of customer
relational management systems and custom integration to other related
applications. In 1999, Breakaway Solutions expanded to provide service
offerings in custom web development and application hosting both through
internal expansion and acquisitions. Breakaway Solutions' revenue is generally
recognized upon performance of services. ICG Commerce provides strategic
sourcing consulting and on-line internet purchasing. The Other Majority Owned
Subsidiaries, excluding ICG Commerce, are development stage companies that have
generated negligible revenue since their inception. In connection with the
acquisition of its ownership interest in Breakaway Solutions and the Other
Majority Owned Subsidiaries, the Company recorded the excess of cost over net
assets acquired of $13.0 million and $11.8 million, respectively, as goodwill
which is being amortized over three years. Breakaway Solutions had revenue of
$10.0 million and $25.4 million for the years ended December 31, 1998 and 1999,
respectively. ICG Commerce had revenue of $1.3 million for the year ended
December 31, 1999.

      Direct and indirect voting interest in Animated Images, CyberCrop.com,
EmployeeLife.com, ICG Commerce, and iParts at December 31, 1999 was 50.1%, 80%,
52%, 60%, and 67%, respectively.

      During the periods ended December 31, 1996, 1997 and 1998 the Company
acquired equity ownership interests in VerticalNet for $1.0 million, $2.0
million and $4.0 million, respectively. The excess of cost over net assets
acquired related to the 1996 and 1997 acquisitions was $.7 million and $.8
million, respectively. The Company's carrying value of VerticalNet, including
the excess of cost over net assets acquired related to the 1996 and 1997
acquisitions, was reduced to below zero and became a liability as a result of
consolidating VerticalNet's losses after amounts attributed to Minority
Interest were exhausted. For the same reason, the 1998 acquisition did not
result in an intangible asset. In 1998, the Company made advances in the form
of convertible notes to VerticalNet of $5.0 million. Of this amount, $.8
million was repaid by VerticalNet, $2.1 million was purchased from the Company
by one of its principal shareholders, and $2.1 million was converted into
common stock during the year ended December 31, 1999. The Company's direct and
indirect voting interest in VerticalNet at December 31, 1997 and 1998 was 63%
and 52%, respectively. The consolidated financial statements for the year ended
December 31, 1999, reflect VerticalNet accounted for on the equity method of
accounting due to the decrease in the Company's ownership interest to below 50%
in February 1999 as a result of VerticalNet's initial public offering.

      Equity Method. Partner Companies whose results are not consolidated, but
over whom the Company exercises significant influence, are accounted for under
the equity method of accounting. Whether or not the Company exercises
significant influence with respect to a Partner Company depends on an
evaluation of several factors including, among others, representation on the
Partner Company's Board of Directors and ownership level, which is generally a
20% to 50% interest in the voting securities of the Partner Company, including
voting rights associated with the Company's holdings in common, preferred and
other convertible instruments in the Partner Company. Under the equity method
of accounting, a Partner Company's results of operations are not reflected
within the Company's Consolidated Statements of Operations; however, the
Company's share of the earnings or losses of the Partner Company is reflected
in the caption "Equity income (loss)" in the Consolidated Statements of
Operations.

                                      F-11
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Significant Accounting Policies (Continued)

      The amount by which the Company's carrying value exceeds its share of the
underlying net assets of Partner Companies accounted for under the
consolidation or equity methods of accounting is amortized on a straight-line
basis over three years which adjusts the Company's share of the Partner
Company's earnings or losses. Goodwill amortization of consolidated companies
is included in selling, general, and administrative, while goodwill
amortization of equity method companies is included in equity income (loss).

      Cost Method. Partner Companies not accounted for under the consolidation
or the equity method of accounting are accounted for under the cost method of
accounting. Under this method, the Company's share of the earnings or losses of
such companies is not included in the Consolidated Statements of Operations.
However, cost method Partner Company impairment charges are recognized in the
Consolidated Statement of Operations with the new cost basis not written-up if
circumstances suggest that the value of the Partner Company has subsequently
recovered.

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

      The Company continually evaluates the carrying value of its ownership
interests in and advances to each of its Partner Companies for possible
impairment based on achievement of business plan objectives and milestones, the
value of each ownership interest in the Partner Company relative to carrying
value, the financial condition and prospects of the Partner Company, and other
relevant factors. The business plan objectives and milestones the Company
considers include, among others, those related to financial performance such as
achievement of planned financial results or completion of capital raising
activities, and those that are not primarily financial in nature such as the
launching of a web site or the hiring of key employees. The fair value of the
Company's ownership interests in and advances to privately held Partner
Companies is generally determined based on the value at which independent third
parties have or have committed to invest in its Partner Companies.

      Revenue Recognition

      All of the Company's revenue during 1997 and 1998 was attributable to
VerticalNet.

      VerticalNet's revenue is derived principally from advertising contracts
which include the initial development of storefronts. A storefront is a Web
page posted on one of VerticalNet's trade communities that provides information
on an advertiser's products, links a visitor to the advertiser's Web site and
generates sales inquiries from interested visitors. The advertising contracts
generally do not extend beyond one year. Advertising revenue is recognized
ratably over the period of the advertising contract. Deferred revenue of $2.2
million at December 31, 1998 represents the unearned portion of advertising
contracts for which revenue will be recognized over the remaining period of the
advertising contract.

      VerticalNet also generates revenue through providing educational courses
and selling books. Revenue from educational courses is recognized in the period
in which the course is completed and revenue from the sale of books is
recognized in the period in which the books are shipped.

                                      F-12
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Significant Accounting Policies (Continued)

      Barter transactions are recorded at the lower of estimated fair value of
goods or services received or the estimated fair value of the advertisements
given. Barter revenue is recognized when the VerticalNet advertising
impressions (VNAI) are delivered to the customer and advertising expense is
recorded when the customer advertising impressions (CAI) are received from the
customer. If the CAI are received from the customer prior to VerticalNet
delivering the VNAI, a liability is recorded, and if VerticalNet delivers the
VNAI to the customer prior to receiving the CAI, a prepaid expense is recorded.
For the period March 4, 1996 (inception) through December 31, 1997, VerticalNet
barter transactions were immaterial. For the year ended December 31, 1998,
VerticalNet recognized approximately $.6 million and $.5 million of advertising
revenues and expenses, respectively, from barter transactions. Included in
prepaid expenses and other current assets at December 31, 1998 is approximately
$.2 million relating to barter transactions.

      The Company's 1999 revenue was attributable to its consolidated
subsidiaries, including Animated Images, Breakaway Solutions, and ICG Commerce.
Due to Breakaway Solutions' initial public offering in October 1999, our voting
ownership interest in Breakaway Solutions decreased below 50%, therefore, we
apply the equity method of accounting beginning in October 1999. The Company's
other consolidated entities, CyberCrop.com, EmployeeLife.com, and iParts, have
generated negligible revenue since their inception.

      Animated Images, Breakaway Solutions and ICG Commerce's revenues are
generally recognized as services are rendered.

      Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Certain
amounts recorded to reflect our share of losses of partner companies accounted
for under the equity method are based on unaudited results of operations of
those partner companies and may require adjustments in the future when audits
of these entities are made final.

      Cash and Cash Equivalents

      The Company considers all highly liquid instruments with an original
maturity of 90 days or less at the time of purchase to be cash equivalents.
Cash and cash equivalents at December 31, 1998 and 1999 are invested
principally in money market accounts and commercial paper.

      Short-term Investments

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

      Financial Instruments

      Cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses are carried at cost which approximates fair value due to the
short-term maturity of these instruments. The Company's interests in public
Partner Companies accounted for under the equity method of accounting had a
fair value of $2.6 billion as of December 31, 1999 compared to a carrying value
of $42.6 million. Available-for-sale securities are carried at fair value.
Long-term debt is carried at cost which approximates fair value as the debt
bears interest at rates approximating current market rates. The Company's
convertible subordinated notes had a fair value of $835.2 million as of
December 31, 1999 versus a carrying value of $566.3 million.

                                      F-13
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Significant Accounting Policies (Continued)

      Available-for-Sale Securities

      Available-for-sale securities are reported at fair value, based on quoted
market prices, with the net unrealized gain or loss reported as a component of
"Accumulated other comprehensive income" in shareholders' equity.

      Unrealized gains or losses related to available-for-sale securities are
recorded net of deferred taxes subsequent to February 2, 1999, the date the
Company converted from an LLC to a corporation.

      Intangibles

      Goodwill, the excess of cost over net assets of businesses acquired, and
other intangible assets are amortized on a straight-line basis over three to
five years. Goodwill at December 31, 1998 of $2.5 million, net of accumulated
amortization of $.3 million, was attributable to acquisitions by VerticalNet.
Goodwill and other intangible assets at December 31, 1999 of $23.6 million, net
of accumulated amortization of $1.1 million, is attributable to the Company's
acquisitions of ownership interests in Animated Images, Inc. ($6.6 million),
CyberCrop.com ($0.8 million), EmployeeLife.com ($1.1 million), ICG Commerce
($2.2 million) and iParts ($0.1 million) and ICG Commerce's acquisitions of
Purchasing Group, Inc and Integrated Sourcing, LLC ($12.8 million). Goodwill
related to the acquisition of Breakaway during 1999 was reclassified as of
December 31, 1999 in connection with the deconsolidation of Breakaway. The
carrying value of goodwill is evaluated for possible impairment based on
achievement of business plan objectives and milestones, the fair value of each
ownership interest in and advances to the partner company relative to carrying
value, the financial condition and prospects of the partner company, and other
relevant factors. If impairment exists, the carrying amount of the goodwill
will be reduced by the estimated shortfall of discounted cash flows.

      Fixed Assets

      Fixed assets are carried at cost less accumulated depreciation, which is
based on the estimated useful lives of the assets computed using the straight-
line method. Computer equipment and software, and office equipment have an
estimated useful life of three years, and furniture has an estimated useful
life of seven years. Leasehold improvements are amortized on a straight-line
basis over the lesser of the estimated useful life of the asset or the lease
term.

      Equipment acquired under long-term capital lease arrangements is recorded
at amounts equal to the net present value of the future minimum lease payments
using the interest rate implicit in the lease. Amortization is provided by use
of the straight-line method over the estimated useful lives of the related
assets.

      Income Taxes

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

      From the Company's inception in March 1996 to February 1999, the Company
was not subject to federal and state income taxes (Note 2).

                                      F-14
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Significant Accounting Policies (Continued)

      Net Income (Loss) Per Share

      Net income (loss) per share (EPS) is computed using the weighted average
number of common shares outstanding during each year. Diluted EPS includes
common stock equivalents (unless anti-dilutive) which would arise from the
exercise of stock options and conversion of other convertible securities and is
adjusted, if applicable, for the effect on net income (loss) of such
transactions and for the effect on net income (loss) of the Company's share of
dilution related to Partner Companies which are consolidated or accounted under
the equity method of accounting.

      Pursuant to SEC Staff Accounting Bulletin No. 98, common stock and
convertible preferred stock issued for nominal consideration, prior to the
anticipated effective date of an IPO, are required to be included in the
calculation of basic and diluted net income per share as if they were
outstanding for all periods presented. To date, the Company has not had any
issuances or grants for nominal consideration.

      Gain or Loss on Issuances of Stock By Partner Companies

      Pursuant to SEC Staff Accounting Bulletin No. 84, at the time a Partner
Company accounted for under the consolidation or equity method of accounting
issues its common stock at a price different from the Partner Company's book
value per share, the Company's share of the Partner Company's net equity
changes. If at that time, the Partner Company is not a newly-formed, non-
operating entity, nor a research and development, start-up or development stage
company, nor is there question as to the Company's ability to continue in
existence, the Company records the change in its share of the Partner Company's
net equity as a gain or loss in its Consolidated Statements of Operations.

      Foreign Currency Translation

      The functional currency for the Company's international subsidiary is the
local currency of the country in which it operates. Assets and liabilities are
translated using the exchange rate at the balance sheet date. Revenue,
expenses, gains and losses are translated at the average exchange rate in the
month those elements are recognized. Translation adjustments, which have not
been material to date, are included in other comprehensive income (loss).

      Stock Based Compensation

      The Company has adopted Statement of Financial Accounting No. 123,
Accounting for Stock Based Compensation (SFAS 123). As permitted by SFAS No.
123, the Company measures compensation cost in accordance with Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees
and related interpretations. Accordingly, no accounting recognition is given to
stock options issued to employees that are granted at fair market value until
they are exercised. Stock options issued to non-employees are recorded at fair
value at the date of grant. Fair value is determined using the Black-Scholes
method and the expense is amortized over the vesting period. Upon exercise, net
proceeds, including tax benefits realized, are credited to equity.

      Comprehensive Income (Loss)

      The Company reports and displays comprehensive income (loss) and its
components in the Consolidated Statements of Comprehensive Income (Loss).
Comprehensive income (loss) is the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non-
owner sources. Excluding net income (loss), the Company's sources of
comprehensive income (loss) is from net unrealized appreciation on its
available-for-sale securities and foreign currency translation adjustments;
such

                                      F-15
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Significant Accounting Policies (Continued)

translation adjustments have been negligible through December 31, 1999.
Reclassification adjustments result from the recognition in net income of gains
or losses that were included in comprehensive income (loss) in prior periods.

      Reclassifications

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

      Recent Accounting Pronouncements

      The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flows.

2. Pro Forma Information (Unaudited)

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

      Pro Forma Income Taxes

      The Company's 1998 and 1999 pro forma effective tax rate of 37% and 30%,
respectively, differed from the federal statutory rate of 35% principally due
to non-deductible permanent differences.

      Based upon the cumulative temporary differences (primarily relating to
the difference between the book and tax carrying value of its Partner
Companies), the Company would have recognized a pro forma net deferred federal
and state asset of $8.2 million at December 31, 1998. In the opinion of
management, it is more likely than not that such asset would be realized and
accordingly, a valuation allowance was not considered necessary in calculating
this pro forma amount.

      In 1998, the difference between basic and diluted weighted average shares
outstanding of 94,000 was due to the dilutive effect of stock options.

                                      F-16
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)


3. Net Income (Loss) per Share

      The calculations of Net Income (Loss) per Share were:

<TABLE>
<CAPTION>
                                                     Year Ended December 31,
                                                     -------------------------
                                                      1997     1998     1999
                                                     -------  ------- --------
                                                          (in thousands
                                                         except per share
                                                             amounts)
   <S>                                               <C>      <C>     <C>
   Basic
     Net Income (loss).............................. $(6,580) $13,899 $(29,777)
                                                     -------  ------- --------
     Average common shares outstanding..............  68,198  112,205  201,851
                                                     =======  ======= ========
     Basic.......................................... $ (0.10) $  0.12 $  (0.15)
                                                     =======  ======= ========
   Diluted
     Net Income (loss).............................. $(6,580) $13,899 $(29,777)
                                                     -------  ------- --------
     Average common shares outstanding..............  68,198  112,205  201,851
     Effect of dilutive securities..................     --        94      --
                                                     -------  ------- --------
     Average common shares assuming dilution........  68,198  112,299  201,851
                                                     =======  ======= ========
     Diluted........................................ $ (0.10) $  0.12 $  (0.15)
                                                     =======  ======= ========
</TABLE>

      Options to purchase 188,000 and 5,173,000 shares of common stock at
average prices of $0.50 and $23.74, respectively, were outstanding as of
December 31, 1997 and 1999, but were not included in the computation of diluted
EPS. Warrants to purchase 2,215,717 shares of common stock at $6.00 per share
were outstanding as of December 31, 1999, but were not included in the
computation of diluted EPS. Convertible subordinated notes convertible into
4,443,267 shares of common stock were outstanding as of December 31, 1999, but
were not included in the computation of diluted EPS. An option to convert a
Note Payable into 1,049,426 shares of common stock was outstanding as of
December 31, 1999, but was not included in the computation of diluted EPS.
These options and warrants are not included in diluted EPS as their effect
would have been anti-dilutive.

4. Ownership Interests in and Advances to Partner Companies

      The following summarizes the Company's ownership interests in and
advances to Partner Companies accounted for under the equity method or cost
method of accounting. The ownership interests are classified according to
applicable accounting methods at December 31, 1998 and 1999. Cost basis
represents the Company's original acquisition cost less any impairment charges
in such companies.

<TABLE>
<CAPTION>
                              As of December 31, 1998   As of December 31, 1999
                             ------------------------- -------------------------
                             Carrying Value Cost Basis Carrying Value Cost Basis
                             -------------- ---------- -------------- ----------
                                               (in thousands)
   <S>                       <C>            <C>        <C>            <C>
   Equity Method............    $21,311      $27,588      $491,977     $578,922
   Cost Method..............     38,181       38,181        55,362       55,362
                                -------                   --------
                                $59,492                   $547,339
                                =======                   ========
</TABLE>

      At December 31, 1999 the Company's carrying value in its Partner
Companies accounted for under the equity method of accounting exceeded its
share of the underlying equity in the net assets of such companies by $293.7
million. This excess relates to ownership interests acquired through December
31, 1999 and is being amortized over a three year period. Amortization expense
of $.4 million and $19.8 million is included in

                                      F-17
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

4. Ownership Interests in and Advances to Partner Companies (Continued)

"Equity income (loss)" in the accompanying Consolidated Statements of
Operations for the years ended December 31, 1998 and 1999, respectively.

      During the year ended December 31, 1999 the Company acquired an interest
in a new Partner Company from shareholders of the Partner Company who have an
option, exercisable at any time through August 2000, of electing to receive
cash of $11.3 million or 2,083,334 shares of the Company's common stock. As of
December 31, 1999, $5.6 million of the obligation has been converted into
1,033,908 shares of the Company's common stock.

      During the year ended December 31, 1999 the Company acquired an interest
in a new Partner Company from shareholders of the Partner Company by exchanging
852,631 shares of the Company's common stock, valued at $150.2 million, as
consideration, in addition to cash.

      During the year ended December 31, 1999 the Company acquired an interest
in a new Partner Company by issuing a short-term note payable for $21.2
million, net of imputed interest of $1.8 million, in addition to cash.

      During the year ended December 31, 1999 the Company acquired an interest
in a new Partner Company by committing $7 million in cash consideration to be
paid in 2000, in addition to cash consideration paid in 1999.

      As of December 31, 1999, the Company had $9.6 million in advances to
Partner Companies which mature on various dates through 2004 and bear interest
rates between 5.25% and 12.50% and are convertible into the Partner Companies'
equity.

      The following unaudited summarized financial information for Partner
Companies accounted for under the equity method of accounting at December 31,
1998 and 1999 and for each of the years in the three-year period ending
December 31, 1999 has been compiled from the financial statements of the
respective Partner Companies.

Balance Sheets

<TABLE>
<CAPTION>
                                                                As of December
                                                                     31,
                                                               ----------------
                                                                1998     1999
                                                               ------- --------
                                                                (in thousands)
<S>                                                            <C>     <C>
Current assets................................................ $33,645 $494,745
Non-current assets............................................   7,148  329,133
                                                               ------- --------
  Total assets................................................ $40,793 $823,878
                                                               ------- --------
Current liabilities...........................................  11,712  149,799
Non-current liabilities.......................................     759  268,197
Shareholder's equity..........................................  28,322  405,882
                                                               ------- --------
  Total liabilities and Shareholders' equity.................. $40,793 $823,878
                                                               ======= ========
</TABLE>

Results of Operations

<TABLE>
<CAPTION>
                                                       Year Ended December
                                                    ---------------------------
                                                     1997     1998      1999
                                                    ------- --------  ---------
                                                          (in thousands)
<S>                                                 <C>     <C>       <C>
Revenue............................................ $18,912 $ 21,496  $ 192,759
Net income (loss).................................. $   255 $(14,969) $(254,027)
</TABLE>

                                      F-18
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)


5. Other Acquisitions

      During 1999, the Company expended approximately $29.8 million to acquire
interests in five companies that it owns a direct or indirect interest of more
than 50% of the outstanding voting securities as of December 31, 1999. The
Company accounts for these Partner Companies under the consolidation method of
accounting, and accordingly, the purchase price of these acquisitions has been
allocated to the assets purchased and liabilities assumed based upon their fair
values at the dates of acquisition. The consolidated financial statements
reflect the operations and cash flows of the acquired interests since the
respective acquisition dates. The excess of the purchase price over the fair
value of the net assets acquired of approximately $11.8 million was recorded as
goodwill and is being amortized over three years. Accumulated amortization
relating to this goodwill totaled $1.1 million at December 31, 1999.

      In May 1999, the Company expended approximately $3.9 million in the
acquisition of its interest in EmployeeLife.com, which provides Internet-based
solutions that enable the online procurement and management of employee health
and welfare benefits.

      In June 1999, the Company expended approximately $.8 million in the
acquisition of its interest in iParts, which provides Internet-based sales and
distribution of electronic components.

      In September 1999, the Company expended approximately $3.9 million and
$9.2 million in its acquisitions of its interests in CyberCrop.com and Animated
Images, respectively. Cybercrop.com is developing a system to provide an
Internet-based service for agriculture producers to purchase services and
inputs, as well as market their grain crops that include corn, wheat and
soybeans. Animated Images provides Internet-based design, communication, and
procurement services for the apparel and sewn goods industries.

      In October 1999, the Company expended $12 million in its acquisition of
its interest in ICG Commerce which provides strategic sourcing consulting and
on-line Internet purchasing. In 1999, ICG Commerce acquired all of the
outstanding capital stock of Purchasing Group, Inc. (PGI) and Integrated
Sourcing, LLC (ISL) from two of ICG Commerce's founders for $14.9 million in
cash and notes payable to these founders. These acquisitions were accounted for
using the purchase method of accounting. The excess of purchase price over the
fair value of the net assets acquired of approximately $12.9 million was
recorded as goodwill and is being amortized over 5 years. Accumulated
amortization relating to this goodwill totaled $0.8 million at December 31,
1999.

      The following unaudited pro forma financial information presents the
combined results of operations as if the Company had owned EmployeeLife.com,
iParts, CyberCrop.com, Animated Images, and ICG Commerce since January 1, 1998;
and is if ICG Commerce had owned PGI and ISL since January 1, 1998, after
giving effect to certain adjustments including goodwill and income taxes. The
unaudited pro forma financial information is provided for informational
purposes only and should not be construed to be indicative of the Company's
consolidated results of operations had the acquisitions been consummated on the
dates assumed and do not project the Company's results of operations for any
future period:

<TABLE>
<CAPTION>
                                                                Year Ended
                                                               December 31,
                                                             -----------------
                                                              1998      1999
                                                             -------  --------
                                                               (Unaudited)
                                                              (in thousands)
<S>                                                          <C>      <C>
Revenue..................................................... $11,441  $ 24,477
Pro forma net income (loss)................................. $ 9,788  $(32,486)
Pro forma net income (loss) per share....................... $ (0.09) $  (0.16)
</TABLE>

      These pro forma amounts exclude the impact of 12 acquisitions of equity
method Partner Companies consummated or announced through March 8, 2000.

                                      F-19
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


6. Fixed Assets

      Fixed assets consists of the following:

<TABLE>
<CAPTION>
                                                             As of December
                                                                   31,
                                                             ----------------
                                                              1998     1999
                                                             -------  -------
                                                             (in thousands)
<S>                                                          <C>      <C>
Computer equipment and software, office equipment and
 furniture.................................................. $ 1,877  $ 2,855
Construction in progress....................................     --     1,483
Leasehold improvements......................................      46      354
                                                             -------  -------
                                                               1,923    4,692
Less: accumulated depreciation and amortization.............    (772)    (677)
                                                             -------  -------
                                                             $ 1,151  $ 4,015
                                                             =======  =======
</TABLE>

7. Debt

      Convertible Subordinated Notes

      In May, 1999, the Company issued $90 million of convertible subordinated
notes which converted to 14,999,732 shares of the Company's common stock upon
the completion of the Company's initial public offering in August 1999. The
notes bore interest at an annual rate of 4.99% during the first year and at the
prime rate for the remaining two years. In connection with the conversion of
these notes, all accrued interest was waived and reclassed to additional paid-
in-capital and the Company issued 3,000,000 warrants to purchase the Company's
common stock at $6 per share (the IPO price) through May 2002 which will
increase additional paid-in capital upon exercise. The warrants may also be
exercised by a cashless exercise or net issue, whereby a portion of the
warrants are forfeited based upon an average fair market price in place of
cash. During 1999, 661,434 and 122,849 shares of the Company's common stock
were issued in connection with cash and net issue warrant exercises,
respectively.

      In December, 1999, the Company issued $566.3 million of convertible
subordinated notes. The notes bear interest at an annual rate of 5.5% and
mature in December, 2004. The notes are convertible at the option of the
holder, at any time on or before maturity into shares of the Company's common
stock at a conversion price of $127.44 per share, which is equal to a
conversion rate of 7.8468 shares per $1,000 principal of notes. Additionally,
the notes may be redeemed by the Company if the Company's closing stock price
exceeds 150% of the conversion price then in effect for at least 20 trading
days within a period of 30 consecutive trading days. The conversion rate is
subject to adjustment. The Company recorded interest expense of $1.0 million
relating to these notes during 1999 with the first interest payment due June
21, 2000 and subsequent interest payments due each six months following through
December 21, 2004. Issuance costs of $18.3 million were recorded in other
assets and are being amortized as interest expense over the term of the notes
using the effective interest method.

      Revolving Credit Facilities

      In March 1998, the Company entered into an unsecured $3 million revolving
credit facility. Borrowings under this facility accrued interest at a premium
to prime ranging from .75% to 1.5%. The Company borrowed up to $2 million under
this facility during 1998. No amounts were outstanding at December 31, 1998 and
the facility expired in March 1999.

      In April 1999, the Company entered into a $50 million revolving bank
credit facility. In connection with the facility, the Company issued 400,000
warrants exercisable for seven years at $5 per share. The warrants,

                                      F-20
<PAGE>

                         INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

7. Debt (Continued)

valued at $1.0 million, were recorded as debt issuance costs in other assets
and additional paid-in-capital and are being amortized to interest expense
over the one year term of the credit facility.

      The facility expires in April 2000, is subject to a .25% unused
commitment fee, bears interest, at the Company's option, at prime and/or LIBOR
plus 2.5%, and is secured by substantially all of the Company's assets.
Borrowing availability under the facility is based on the fair market value of
the Company's holdings of publicly traded Partner Companies and the value, as
defined in the facility, of the Company's private Partner Companies. During
year ended December 31, 1999, the Company borrowed and repaid $25 million
under the facility. The Company is currently in negotiations to replace this
line of credit on or before its expiration date.

      EmployeeLife.com has a $1,000,000 revolving credit facility and a
$500,000 equipment line of credit at December 31, 1999. Borrowings under the
credit facility accrue interest at a rate of prime plus .75% and the equipment
line of credit accrues interest at the two year treasury rate plus 1.75%. No
amounts were outstanding at December 31, 1999. The revolving credit facility
expires in March 2001 and the equipment line expires in June 2000.

      Long-Term Debt

      The Company's long-term debt relates to its Consolidated Partner
Companies, is non-recourse to the Company, and consists of the following:

<TABLE>
<CAPTION>
                                                                     As of
                                                                 December 31,
                                                                 --------------
                                                                 1998    1999
                                                                 -----  -------
                                                                      (in
                                                                  thousands)
<S>                                                              <C>    <C>
Term notes with related parties................................. $ --   $ 6,136
Capital leases..................................................   640       49
                                                                 -----  -------
                                                                   640    6,185
Less: current portion...........................................  (288)  (3,000)
                                                                 -----  -------
Long-term debt.................................................. $ 352  $ 3,185
                                                                 =====  =======
</TABLE>

      The term notes with related parties of ICG Commerce and EmployeeLife.com
relate to a secured notes due to shareholders with interest rates ranging from
8.0% to 9.25% at December 31, 1999. These notes will mature through 2001.

      CyberCrop.com has capital leases on its equipment with a lease term of
five years. The interest rate implicit in the leases is 11.0%. At December 31,
1999, the book value of assets held under capital leases was approximately
equal to the principal balance due.

      At December 31, 1999, long-term debt, including capital leases, is
scheduled to mature as follows:

<TABLE>
<CAPTION>
                                                                  (in thousands)
      <S>                                                         <C>
      2000.......................................................     $3,000
      2001.......................................................      3,158
      2002.......................................................         18
      2003.......................................................          6
      2004.......................................................          3
                                                                      ------
        Total....................................................     $6,185
                                                                      ======
</TABLE>

                                     F-21
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


8. Other Liability

      In October 1999, ICG Commerce sold shares of redeemable convertible
preferred stock that are convertible, at the option of the holder, into common
stock. The $4.3 million balance as of December 31, 1999 represents those shares
sold to a holder other than the Company and the related accrued dividend
payable. Upon conversion of this other liability balance by the holder,
minority interest will be increased.

9. Accrued Expenses

      Accrued expenses consists of the following:

<TABLE>
<CAPTION>
                                                                      As of
                                                                  December 31,
                                                                  -------------
                                                                   1998   1999
                                                                  ------ ------
                                                                       (in
                                                                   thousands)
<S>                                                               <C>    <C>
Accrued compensation and benefits................................ $  454 $  868
Accrued interest.................................................    --     952
Accrued marketing costs..........................................    446    --
Other............................................................    923  2,385
                                                                  ------ ------
                                                                  $1,823 $4,205
                                                                  ====== ======
</TABLE>

10. Segment Information

      The Company's reportable segments, using the "management approach",
consist of Partner Company Operations and General ICG Operations. Partner
Company Operations includes the effect of consolidating VerticalNet for the
year ended December 31, 1997 and December 31, 1998 and Animated Images,
Breakaway Solutions, CyberCrop.com, EmployeeLife.com, ICG Commerce, and iParts
for the period from acquisition in 1999 through December 31, 1999, excluding
results of operations subsequent to de-consolidation, if applicable, and
recording the Company's share of earnings and losses of Partner Companies
accounted for under the equity method of accounting. VerticalNet's operations
include creating and operating industry-specific trade communities on the
Internet. Breakaway Solutions' operations include implementation of various
computer applications. Animated Images' operations include software development
and consulting services and ICG Commerce's operations include purchasing
services and consulting services. CyberCrop.com, EmployeeLife.com and iParts
are development stage companies that have generated negligible revenue since
their inception. Partner Companies accounted for under the equity method of
accounting operate in various Internet-related businesses. General ICG
Operations represents the expenses of providing strategic and operational
support to the Internet-related Partner Companies, as well as the related
administrative costs. General ICG Operations also includes the effect of
transactions and other events incidental to the Company's general operations
and the Company's ownership interests in and advances to Partner Companies. The
Company's and Partner Companies' operations were principally in the United
States of America during 1997, 1998 and 1999.

                                      F-22
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

10. Segment Information (Continued)

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

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                                  ----------------------------
                                                   1997      1998      1999
                                                  -------  --------  ---------
                                                        (in thousands)
<S>                                               <C>      <C>       <C>
Partner Company Operations
  Revenue........................................ $   792  $  3,135  $  16,536
                                                  -------  --------  ---------
Operating expenses
  Cost of revenue................................   1,767     4,643      8,156
  Selling, general and administrative............   3,689    12,001     25,535
                                                  -------  --------  ---------
  Total operating expenses.......................   5,456    16,644     33,691
                                                  -------  --------  ---------
                                                   (4,664)  (13,509)   (17,155)
  Other income (expense), net....................     --        --        (258)
  Interest income................................      11       212        243
  Interest expense...............................    (126)     (297)      (175)
                                                  -------  --------  ---------
  Income (loss) before income taxes, minority
   interest and equity income (loss).............  (4,779)  (13,594)   (17,345)
  Income taxes...................................     --        --         --
  Minority interest..............................    (106)    5,382      6,026
  Equity income (loss)...........................     106    (5,869)   (92,099)
                                                  -------  --------  ---------
Loss from Partner Company Operations............. $(4,779) $(14,081) $(103,418)
                                                  =======  ========  =========
General ICG Operations
  General and administrative..................... $ 2,054  $  3,513  $  23,389
                                                  -------  --------  ---------
  Other income, net..............................     --     30,483     67,642
  Interest income................................     253     1,094      9,388
  Interest expense...............................     --        (84)    (3,722)
                                                  -------  --------  ---------
  Income (loss) from General ICG Operations
   before income taxes...........................  (1,801)   27,980     49,919
  Income taxes...................................     --        --      23,722
                                                  -------  --------  ---------
Income (loss) from General ICG Operations........ $(1,801) $ 27,980  $  73,641
                                                  =======  ========  =========
</TABLE>

                                      F-23
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

10. Segment Information (Continued)

<TABLE>
<CAPTION>
                                                             As of December 31,
                                                             ------------------
                                                              1998      1999
                                                             ------- ----------
                                                               (in thousands)
<S>                                                          <C>     <C>
Assets
Partner Company Operations
  Carrying value of equity method Partner Companies......... $21,311 $  491,977
  Other.....................................................  12,343     45,075
                                                             ------- ----------
                                                              33,654    537,052
General ICG Operations
  Cash and cash equivalents.................................  21,178  1,326,560
  Carrying value of cost method Partner Companies...........  38,181     55,362
  Other.....................................................   3,772    131,410
                                                             ------- ----------
                                                              63,131  1,513,332
                                                             ------- ----------
                                                             $96,785 $2,050,384
                                                             ======= ==========
</TABLE>

11. Parent Company Financial Information

      Parent Company financial information is provided to present the financial
position and results of operations of the Company as if VerticalNet, Animated
Images, Breakaway Solutions, CyberCrop.com, EmployeeLife.com, ICG Commerce and
iParts ("consolidated companies") were accounted for under the equity method of
accounting for all periods presented. The Company's share of consolidated
companies' losses is included in "Equity income (loss)" in the Parent Company
Statements of Operations for all periods presented based on the Company's
ownership percentage in each period. The losses recorded in excess of carrying
value of VerticalNet at December 31, 1998 are included in "Non-current
liabilities" and the carrying value of the consolidated companies as of
December 31, 1999 are included in "Ownership interests in and advances to
Partner Companies" in the Parent Company Balance Sheets.

Parent Company Balance Sheets

<TABLE>
<CAPTION>
                                                              As of December 31,
                                                              ------------------
                                                               1998      1999
                                                              ------- ----------
                                                                (in thousands)
<S>                                                           <C>     <C>
Assets
  Current assets............................................. $21,597 $1,332,803
  Ownership interests in and advances to Partner Companies...  59,492    571,706
  Other......................................................   3,354    125,166
                                                              ------- ----------
    Total assets............................................. $84,443 $2,029,675
                                                              ======= ==========
Liabilities and shareholders' equity
  Current liabilities........................................   2,082     43,204
  Non-current liabilities....................................   1,637    566,250
  Shareholders' equity.......................................  80,724  1,420,221
                                                              ------- ----------
    Total liabilities and shareholders' equity............... $84,443 $2,029,675
                                                              ======= ==========
</TABLE>

                                      F-24
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

11. Parent Company Financial Information (Continued)

Parent Company Statements of Operations

<TABLE>
<CAPTION>
                                                  Year ended December 31,
                                                 ----------------------------
                                                  1997      1998      1999
                                                 -------  --------  ---------
                                                       (in thousands)
<S>                                              <C>      <C>       <C>
Revenue......................................... $   --   $    --   $     --
Operating expenses
  General and administrative....................   2,054     3,513     23,389
                                                 -------  --------  ---------
    Total operating expenses....................   2,054     3,513     23,389
                                                 -------  --------  ---------
                                                  (2,054)   (3,513)   (23,389)
Other income, net...............................     --     30,483     67,642
Interest income, net............................     253     1,010      5,666
                                                 -------  --------  ---------
Income (loss) before income taxes and equity
 income (loss)..................................  (1,801)   27,980     49,919
Income taxes....................................     --        --      23,722
Equity income (loss)............................  (4,779)  (14,081)  (103,418)
                                                 -------  --------  ---------
Net income (loss)............................... $(6,580) $ 13,899  $ (29,777)
                                                 =======  ========  =========
</TABLE>

                                      F-25
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

11. Parent Company Financial Information (Continued)

Parent Company Statements of Cash Flows

<TABLE>
<CAPTION>
                                                  Year Ended December 31,
                                                ------------------------------
                                                  1997      1998       1999
                                                --------  --------  ----------
                                                       (in thousands)
<S>                                             <C>       <C>       <C>
Operating Activities
 Net income (loss)............................. $ (6,580) $ 13,899  $  (29,777)
 Adjustments to reconcile to net cash used in
  operating activities:
  Gains included in other income...............      --    (32,552)    (67,636)
  Depreciation and amortization................       55       298       6,558
  Equity (income) loss.........................    4,779    16,150     103,418
  Deferred taxes...............................      --        --      (23,722)
  Changes in assets and liabilities, net of
   effect of acquisitions:
   Accounts receivable, net....................    2,003      (125)        --
   Prepaid expenses and other assets...........        1      (262)    (23,382)
   Accounts payable............................       56        39       5,344
   Accrued expenses............................       70        12       3,844
                                                --------  --------  ----------
    Net cash provided by (used in) operating
     activities................................      384    (2,541)    (25,353)
Investing Activities
 Capital expenditures..........................      (37)      (61)     (3,558)
 Proceeds from sales of available-for-sale
  securities...................................      --     36,431       2,496
 Proceeds from sales of Partner Company
  ownership interests and advances to
  shareholders.................................      --        300       3,506
 Advances to Partner Companies.................   (2,640)  (12,224)    (10,079)
 Repayment of advances to Partner Companies....      950       677       4,581
 Acquisitions of ownership interests in Partner
  Companies....................................  (16,466)  (44,822)   (368,159)
 Other advances................................      --        --      (12,850)
 Purchase of short-term investments............      --        --      (18,920)
 Proceeds from maturities of short-term
  investments..................................      --        --       18,920
                                                --------  --------  ----------
    Net cash provided by (used in) investing
     activities................................  (18,193)  (19,699)   (384,063)
Financing Activities
 Issuance of common stock, net.................   20,138    38,205   1,077,405
 Proceeds from convertible subordinated notes..      --        --      656,250
 Line of credit borrowings.....................      --        --       25,000
 Line of credit repayments.....................      --        --      (25,000)
 Distribution to former LLC members............       (2)      --      (10,676)
 Advances to employees.........................      --        --       (8,181)
                                                --------  --------  ----------
    Net cash provided by financing activities..   20,136    38,205   1,714,798
                                                --------  --------  ----------
Net Increase in Cash and Cash Equivalents......    2,327    15,965   1,305,382
Cash and cash equivalents at beginning of
 period........................................    2,886     5,213      21,178
                                                --------  --------  ----------
Cash and Cash Equivalents at End of Period..... $  5,213  $ 21,178  $1,326,560
                                                ========  ========  ==========
</TABLE>

                                      F-26
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)


12. Shareholders' Equity

      During 1999, the Company increased it's authorized capital stock to
300,000,000 shares of common stock, par value $.001 per share. The holders of
common stock are entitled to one vote per share and are entitled to dividends
as declared.

      Dividends may be restricted by the inability to liquidate ownership
interests in Partner Companies to fund cash dividends and may be subject to the
preferential rights of the holders of the Company's preferred stock, if any. No
cash dividends have been declared to date and may not be declared for the
foreseeable future. As of December 31, 1999, the Company's bank line of credit
agreement precludes dividends.

      The Company may establish one or more classes or series of preferred
stock. The holders of the preferred stock may be entitled to preferences over
common stock or shareholders with respect to dividends, liquidation,
dissolution, or winding up of the Company, as established by the Company's
Board of Directors. At December 31, 1999, 10,000,000 shares of preferred stock
were authorized.

      Certain shareholders were granted registration rights and piggy-back
rights which were effective after completion of the Company's public offering
in August 1999.

      Shareholders' equity contributions are recorded when received. The
Company issued 31,980,000 shares of common stock for net proceeds of $32
million in 1999. These shares had been subscribed at December 31, 1998.

      Initial Public Offering

      In August 1999, the Company completed its initial public offering ("IPO")
of 30,620,000 shares of its common stock at $6.00 per share. Concurrently, the
Company completed a private placement of 7,500,000 shares of its common stock
at $6.00 per share. Net proceeds to the Company from these transactions
aggregated approximately $209.5 million (net of underwriters' commission and
offering expenses of approximately $19.2 million).

      Stock Dividend

      In December 1999, the Company recorded a one hundred percent (100%) stock
dividend effected in the form of a 2 for 1 stock split. The common stock and
additional paid-in capital accounts and all share and per share amounts have
been retroactively restated in these financial statements to reflect this stock
dividend.

      Secondary Offering

      In December 1999, the Company completed its secondary offering of common
stock and convertible subordinated notes (Note 7). The Company sold 6,900,000
shares of its common stock at $108.00 per share. Just prior to and concurrent
with the secondary offering, the Company completed private placements of
609,533 shares and 648,147 shares of its common stock at $82.02 and $108.00 per
share, respectively. Net proceeds to the Company from these transactions
aggregated approximately $831.0 million (net of underwriters' commission and
offering expenses of approximately $34.2 million).

      Issuance of Common Stock Under Equity Compensation Plans

      During 1996 and 1997, 12,054,034 and 1,513,216 shares of restricted
common stock ("restricted stock") were granted, net of forfeitures, to
employees, consultants and advisors at no cost as performance incentives under
the Membership Profit Interest Plan. The restricted stock vests in equal annual
installments over a five year period.

                                      F-27
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

12. Shareholders' Equity (Continued)

      At December 31, 1997 and 1998, the 13,567,250 shares of restricted stock
has been granted at a weighted average fair value of $0.10 per share or an
aggregate of $1.3 million based on independent valuations of the shares. These
independent valuations took into account certain factors, primarily the
restrictions on the ability of restricted shareholders to receive distributions
of dividends or profits and the uncertainty of realization of any return from
these shares. The $1.3 million of deferred compensation is classified as a
reduction of shareholders' equity and is being amortized over the five-year
vesting period. Through 1999, 486,532 shares were forfeited and were available
for grant in the form of restricted stock or stock options. These forfeitures
reduced additional paid-in capital by $0.1 million. Compensation expense
related to the restricted stock totaling $0.2 million, $0.3 million and $0.2
million was recorded in 1997, 1998 and 1999, respectively.

      In April through July 1999 the Company's Board of Directors authorized
the acceptance of full recourse promissory notes totaling $79.8 million from
its employees and a director as consideration for exercising all or a portion
of their vested and unvested stock options issued under the 1999 Equity
Compensation Plan (a total of 35,991,500 shares of common stock were issued in
connection with these exercises). The $79.8 million notes receivable from
employees is recorded as a reduction of Shareholders' Equity at December 31,
1999 to offset the increase in additional paid-in capital as a result of the
common stock issuance. The Company has the right, but not the obligation, to
repurchase unvested shares under certain circumstances. The exercise of
unvested options by the employees and director and the acceptance of promissory
notes by the Company was in accordance with the terms of the Company's equity
compensation plans and related option agreements. The Company's Board of
Directors also approved loaning employees the funds, under the terms of full
recourse promissory notes, to pay the income taxes that become due in
connection with the option exercises. These loans totaled $8.1 million and are
classified as Other Assets. The Company recorded 1999 interest income of $3.3
million related to these loans of which $2.3 million is included in other
current assets as a receivable at December 31, 1999.

      Through December 31, 1999, the Company recorded aggregate unearned
compensation expense of $17.1 million, net of $5.5 million in accumulated
amortization, in connection with the grant of stock options to non-employees
and the grant of stock options to employees, under the 1999 Equity Compensation
Plan, where it was determined that the exercise prices was less than the deemed
fair value on the respective dates of grant.

      Tax Distribution

      In March 1999 the Company made a distribution of $10.7 million to former
LLC members in accordance with the LLC agreements to satisfy the members' tax
liabilities.

13. Stock Option Plans

      Incentive or non-qualified stock options may be granted to Company
employees, directors and consultants under the Membership Profit Interest Plan
("MPI") or the 1999 Equity Compensation Plan ("1999 Plan") (together the
"Plans"). Generally, the options vest over a four to five year period and
expire eight to ten years after the date of grant. At December 31, 1999, the
Company reserved 6,008,500 and 486,532 shares of common stock under the 1999
Plan and MPI Plan, respectively, for possible future issuance. Most Partner
Companies also maintain their own stock option plans.

                                      F-28
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

13. Stock Option Plans (Continued)

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

<TABLE>
<CAPTION>
                                                                     Weighted
                                                                     Average
                                                       Shares     Exercise Price
                                                     -----------  --------------
   <S>                                               <C>          <C>
   Outstanding at January 1, 1997...................         --       $  --
   Options granted..................................     188,000        0.50
                                                     -----------
   Options canceled/forfeited.......................         --          --
   Outstanding at December 31, 1997.................     188,000        0.50
   Options granted..................................  12,144,000        1.00
   Options canceled/forfeited.......................     (94,000)      (0.50)
                                                     -----------
   Outstanding at December 31, 1998.................  12,238,000        1.00
   Options granted..................................  28,995,500        6.82
   Options exercised................................ (35,991,500)       2.26
   Options canceled/forfeited.......................     (69,000)       2.44
                                                     -----------
   Outstanding at December 31, 1999.................   5,173,000      $23.74
                                                     ===========
</TABLE>

      At December 31, 1997, 1998 and 1999 there were 188,000, 12,238,000 and
4,688,000 options exercisable at $0.50, $1.00 and $24.62 per share under the
plans, respectively.

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

<TABLE>
<CAPTION>
                                 Weighted                    Weighted                    Weighted
                    Number        Average       Number        Average       Number        Average
                  Outstanding    Remaining    Outstanding    Remaining    Outstanding    Remaining
                      at        Contractual       at        Contractual       at        Contractual
 Exercise Price      1997     Life (in Years)    1998     Life (in Years)    1999     Life (in Years)
 ---------------  ----------- --------------- ----------- --------------- ----------- ---------------
 <S>              <C>         <C>             <C>         <C>             <C>         <C>
 $ 0.50--$  4.00    188,000         9.0       12,238,000       10.0        2,771,000        9.2
 $ 4.01--$ 50.00        --          --               --         --           606,000        9.6
 $50.01--$ 60.00        --          --               --         --         1,450,000        9.8
 $60.01--$108.13        --          --               --         --           346,000        9.9
                    -------         ---       ----------       ----        ---------        ---
                    188,000         9.0       12,238,000       10.0        5,173,000        9.5
</TABLE>

      Included in the 1998 option grants are 94,000 stock options to non-
employees. The fair value of these options of $.4 million was recorded as
deferred compensation in 1998 and is being amortized over the five year vesting
period. The fair value of these options was determined using the Black-Scholes
method assuming a volatility of 80%, a dividend yield of 0%, an average
expected option life of 5 years, and a risk-free interest rate of 5.2%.

      Included in the 1999 option grants are 1,636,000 stock options to non-
employees. The fair value of these options of $3.7 million was recorded as
deferred compensation in 1999 and is being amortized over the five year vesting
period. The fair value of these options was determined using the Black-Scholes
method assuming a volatility of 80%, a dividend yield of 0%, an average
expected option life of 5 years, and a risk-free interest rate of 5.2%.

      Included in the 1999 option grants are 23,047,500 stock options to
employees issued below market value on the date of grant. The aggregate
difference between the strike price and market value on the date of grant, for
these options granted, of $12.7 million was recorded as deferred compensation
in 1999 and is being amortized over the five year vesting period.

                                      F-29
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

13. Stock Option Plans (Continued)

      The Company applies APB 25 and related interpretations to account for its
stock options plans. Had compensation cost been recognized pursuant to SFAS
123, the Company's net income (loss) would have been as follows:

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                      ----------------------------------------
                                          1997          1998         1999
                                      ------------- --------------------------
                                      (in thousands except per share amounts)
   <S>                                <C>           <C>          <C>
   Net income (loss)
     As reported..................... $     (6,580) $     13,899 $     (29,777)
     SFAS 123 pro forma.............. $     (6,649) $     13,437 $     (41,499)
   Net income (loss) per share
     As reported..................... $       (.10) $        .12 $        (.15)
     SFAS 123 pro forma.............. $       (.10) $        .12 $        (.21)
</TABLE>

      The per share weighted-average fair value of options issued by the
Company during 1997, 1998 and 1999 was approximately $0.11, $0.22 and $3.94,
respectively.

      Prior to its initial public offering, the Company used the minimum value
method to value option grants using a 5.2% to 5.5% risk-free interest rate, an
expected life of 5 years, and no dividend yield. The following assumptions were
used to determine the fair value of stock options granted to employees by the
Company following its initial public offering through December 31, 1999:

<TABLE>
   <S>                                                                   <C>
   Volatility...........................................................  101.5%
   Average expected option life......................................... 5 years
   Risk-free interest rate..............................................    5.5%
   Dividend yield.......................................................    0.0%
</TABLE>

      The Company also includes its shares of its Partner Companies SFAS 123
pro forma expense in the Company's SFAS 123 pro forma expense. The methods used
by the Partner Companies included the minimum value method for private Partner
Companies and the Black-Scholes method for public Partner Companies with
assumptions between 2 to 6 years for average expected option life, 5.0% to 5.5%
for risk-free interest rate, no dividend yield, and volatility up to 100%.

14. Income Taxes

      At December 31, 1999, the Company had a net operating loss carry forward
of approximately $6.0 million which may be used to offset future taxable
income. These carry forwards expire beginning in 2019 and may be limited should
certain changes in the Company's ownership occur.

      Income taxes for the year ended December 31, 1999 comprise a $23.7
million deferred tax benefit relating primarily to differences in the book and
tax basis of ownership interests in Partner Companies.

                                      F-30
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

14. Income Taxes (Continued)

      The Company's net deferred tax assets consist of the following:

<TABLE>
<CAPTION>
                                                                     As of
                                                               December 31, 1999
                                                               -----------------
                                                                (in thousands)
   <S>                                                         <C>
     Net operating loss carryforward..........................     $  2,065
     Partner Company basis difference.........................       37,695
     Stock compensation.......................................        8,283
     Other, net...............................................         (466)
     Other comprehensive income...............................      (13,189)
                                                                   --------
     Net deferred tax asset...................................     $ 34,388
                                                                   ========
</TABLE>

      The Company's deferred tax asset includes approximately $15.0 million of
additional Partner Company basis difference generated from the conversion of
1,033,908 shares of the Company's common stock (Note 4).

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

<TABLE>
<CAPTION>
                                                                  Year ended
                                                               December 31, 1999
                                                               -----------------
   <S>                                                         <C>
     Tax benefit at statutory rate............................       (35.0)%
     Change in tax status.....................................       (14.5)%
     Stock-based compensation.................................         3.0 %
     Non-deductible expenses and other........................         2.2 %
                                                                     -----
                                                                     (44.3)%
                                                                     =====
</TABLE>

15. Related Parties

      The Company provides strategic and operational support to its Partner
Companies in the normal course of its business. These services are generally
provided by the Company's employees, members of its Advisory Board and Board of
Directors and outside consultants. The costs related to employees are paid by
the Company and are reflected by the Company in general and administrative
expenses of the General ICG Operations segment. Members of the Company's
Advisory Board and Board of Directors are generally compensated with stock
options in the Company which are accounted for in accordance with Statement of
Financial Accounting Standards No. 123 with any expense related to these
options included in general and administrative expenses of the General ICG
Operations segment. The cost of outside consultants are generally paid directly
by the Partner Company.

      The Company entered into various cost sharing arrangements with the same
principal shareholder during 1997, 1998 and 1999, whereby the Company
reimbursed, under fair market terms, this shareholder for certain operational
expenses. The amounts incurred for such items were $0.1 million, $0.2 million
and $0.3 million in 1997, and 1998 and 1999, respectively.

      The Company loaned an officer $.1 million during 1998, evidenced by a
term note with an interest rate of prime plus 1% (8.75% at December 31, 1998)
to purchase a portion of the Company's interest in a Partner Company at the
Company's cost. This note was repaid in January 1999 and is included in other
current assets in the December 31, 1998 Consolidated Balance Sheet.

      In September 1998 the Company entered into a $.2 million one-year
consulting contract with a Partner Company.

                                      F-31
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)


15. Related Parties (Continued)

      The Company shares certain acquisition rights with certain of its
principal shareholders whereby these shareholders have the ability to purchase
a portion of the Company's interest in certain Partner Companies. During 1998
and 1999, one shareholder exercised this right and acquired a portion of the
Company's interest in or advances to three Partner Companies for cash of $3.0
million and assumption of $.4 million of a payable to a Partner Company. At the
time of the transactions, there was no difference between the consideration
received and the Company's cost basis of the ownership interest or advance
sold. These rights terminated upon our initial public offering in August 1999.

      The Company loaned an officer $0.6 million during 1999, evidenced by a
term note with an interest rate of 4.98% to purchase the Company's stock in the
initial public offering. This note was repaid in 1999.

      Certain executives of the Company and its Partner Companies have the
option to purchase a portion of the Company's ownership interest in various
Partner Companies at the Company's cost.

16. Other supplemental non-cash financing and investing activities

      During the years ended December 31, 1997, 1998 and 1999, the Company
converted $1.4 million, $1.8 million and $2.8 million, respectively, of
advances to Partner Companies into ownership interests in Partner Companies.

      During the year ended December 31, 1998, the Company exchanged all of its
holdings in Matchlogic and Wisewire for shares of Excite and Lycos,
respectively (Note 18).

      Interest paid in the periods ended December 31, 1998 and 1999 was $0.2
million and $0.1 million, respectively.

      The Company paid no income taxes in 1997 and 1998 due to its tax status
as an LLC. No income taxes were paid in 1999 as the Company had a net operating
loss.

      In 1998, the Company acquired an ownership interest in a Partner Company
in exchange for a $1.7 million note payable. The note was payable in two equal
installments through June 1999, did not bear interest and was secured with the
acquired stock of the Partner Company. In March 1999, a shareholder of the
Company assumed $.4 million of this note. This note was paid in 1999.

17. Defined Contribution Plan

      In 1997, the Company established a defined contribution plan that covers
all of its employees. Participants may contribute 1% to 15% of pre-tax
compensation, as defined. The Company may make discretionary contributions to
the plan but has never done so.

                                      F-32
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)


18. Other Income

      Other income consists of the following:

<TABLE>
<CAPTION>
                                                                 Year Ended
                                                                December 31,
                                                               ----------------
                                                                1998     1999
                                                               -------  -------
                                                               (in thousands)
   <S>                                                         <C>      <C>
     Issuance of stock by VerticalNet......................... $   --   $50,717
     Issuance of stock by Breakaway Solutions.................     --    17,304
     Sale of SMART Technologies to i2 Technologies............     --     2,942
     Sale of Matchlogic to Excite.............................  12,822      --
     Sales of Excite holdings.................................  16,814    2,051
     Sale of Excite to @Home Corporation......................     --     2,719
     Sale of WiseWire to Lycos................................   3,324      --
     Sales of Lycos holdings..................................   1,472      --
     Partner company impairment charges.......................  (3,949)  (8,097)
     Other....................................................     --      (252)
                                                               -------  -------
                                                               $30,483  $67,384
                                                               =======  =======
</TABLE>

      Gains on sales of Partner Companies' and available-for-sale securities
are determined using average cost.

      As a result of VerticalNet completing its initial public offering in
February 1999 and issuing additional shares for acquisitions in 1999, the
Company's share of VerticalNet's net equity increased by $50.7 million. This
increase adjusts the Company's carrying value in VerticalNet and results in a
non-operating gain of $50.7 million, before deferred taxes of $17.7 million, in
the year ended December 31, 1999. As a result of Breakaway Solutions completing
its initial public offering in October 1999, the Company's share of Breakaway
Solutions' net equity increased by $17.3 million. This increase adjusts the
Company's carrying value in Breakaway Solutions and results in a non-operating
gain of $17.3 million, before deferred taxes of $6.1 million, in the year ended
December 31, 1999. These gains were recorded in accordance with SEC Staff
Accounting Bulletin No. 84 and the Company's accounting policy with respect to
such transactions.

      In August 1999, the Company divested its ownership interest in SMART
Technologies, Inc. due to the agreement of merger of SMART Technologies, Inc.
and i2 Technologies, Inc. Upon completion of this merger, during the three
months ended September 30, 1999, the Company's ownership interest in and
advances to SMART Technologies, Inc. were converted into cash, common stock and
warrants to purchase common stock of i2 Technologies, Inc. The Company's non-
operating gain before taxes from this transaction was $2.9 million.

      In February 1998, the Company exchanged all of its holdings of
Matchlogic, Inc. for 763,820 shares of Excite, Inc. The $14.3 million market
value of the Excite shares received on the date of exchange was used to
determine the gain of $12.8 million. Throughout the remainder of 1998, the
Company sold 716,082 shares of Excite, which resulted in $30.2 million of
proceeds and $16.8 million of gains. During 1999, the Company sold 23,738
shares of Excite, which resulted in $2.5 million of proceeds and $2.1 million
of gains.

      In May 1999, @Home Corporation announced it would exchange its shares for
all of the outstanding stock of Excite. As part of this merger, the Company
received shares of @Home Corporation in exchange for its shares in Excite,
resulting in a non-operating gain before taxes of $2.7 million.

                                      F-33
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)


18. Other Income (Continued)

      In April 1998, the Company exchanged all of its holdings of WiseWire for
191,922 shares of Lycos, Inc. The $5.3 million market value of the Lycos shares
received on the date of exchange was used to determine
the gain of $3.3 million. Throughout the remainder of 1998, the Company sold
169,548 shares of Lycos which resulted in $6.2 million of proceeds and $1.5
million of gains.

      The Company's remaining holdings of @Home Corporation, Lycos, and i2
Technologies at December 31, 1999 are accounted for as available-for-sale
securities and are marked to market, with the difference between carrying value
and market value, net of deferred taxes, recorded in "Accumulated other
comprehensive income" in the shareholders' equity section of its Consolidated
Balance Sheets in accordance with Statement of Financial Accounting Standards
No. 115.

      In December 1998, the Company recorded an impairment charge of $1.9
million for the decrease in value of one of its partner companies accounted for
under the cost method of accounting as a result of selling the partner company
interest below its carrying value. The Company had acquired its ownership
interest in the partner company during 1996 and 1997. In December 1998, the
partner company agreed to be acquired by an independent third party. The
transaction was completed in January 1999. The impairment charge it recorded
was determined by calculating the difference between the proceeds it received
from the sale and its carrying value.

      For the years ended December 31, 1998 and 1999, the Company recorded
impairment charges of $2 million and $8.1 million, respectively, for the other
than temporary decline in the fair value of a cost method partner company. From
the date the Company initially acquired an ownership interest in this partner
company through December 31, 1999, its funding to this partner company
represented all of the outside capital the company had available to fund its
net losses and capital asset requirements. During the year ended December 31,
1999 the Company fully guaranteed the partner company's new bank loan and
agreed to provide additional funding. The Company acquired additional non-
voting convertible debentures of this partner company for $8 million in 1999.
The impairment charges the Company recorded were determined by the decrease in
net book value of the partner company caused by its net losses, which were
funded entirely based on the Company's funding and bank guarantee. Given its
continuing losses, the Company will continue to determine and record impairment
charges in a similar manner for this partner company until the status of its
financial position improves.

19. Commitments and Contingencies

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

      In connection with its ownership interests in certain Partner Companies
as of December 31, 1999, the Company guaranteed $5.5 million of bank loan and
other commitments and has committed capital of $9.2 million to existing Partner
Companies to be funded in 2000.

                                      F-34
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)


19. Commitments and Contingencies (Continued)

      The Company and its consolidated subsidiaries, Animated Images,
CyberCrop.com, Breakaway Solutions, EmployeeLife.com, ICG Commerce and iParts,
lease their facilities under operating lease agreements expiring through 2004.
Future minimum lease payments as of December 31, 1999 under the leases are as
follows:

<TABLE>
<CAPTION>
                                           (in thousands)
            <S>                            <C>
            2000..........................    $ 1,640
            2001..........................      1,641
            2002..........................      1,531
            2003..........................      1,329
            2004..........................      1,161
            Thereafter....................     10,205
</TABLE>

      Rent expense under the noncancelable operating leases was approximately
$.1 million in 1997, $.3 million in 1998 and $.4 million in 1999.

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

      Animated Images, CyberCrop.com, EmployeeLife.com, and ICG Commerce have
entered into employment agreements with certain employees. The agreements are
cancelable, but require severance upon termination. As of December 31, 1999,
Animated Images, CyberCrop.com, EmployeeLife.com, and ICG Commerce would be
required to pay up to $1.3 million in aggregate severance in the event that
these employment agreements are cancelled.

                                      F-35
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)


20. Selected Quarterly Financial Information (Unaudited)

      The following table sets forth selected quarterly financial and stock
price information for the years ended December 31, 1998 and 1999. The operating
results for any given quarter are not necessarily indicative of results for any
future period.

<TABLE>
<CAPTION>
                            Fiscal 1998 Quarter Ended            Fiscal 1999 Quarter Ended
                         ----------------------------------  -------------------------------------
                         Mar. 31  Jun.30   Sep. 30  Dec. 31  Mar. 31  Jun. 30   Sep. 30   Dec. 31
                         -------  -------  -------  -------  -------  --------  --------  --------
                                                   (in thousands)
<S>                      <C>      <C>      <C>      <C>      <C>      <C>       <C>       <C>
Revenue................. $   377  $   587  $   897  $ 1,273  $ 3,111  $  4,480  $  7,192  $  1,753
Cost of revenue.........     628    1,075    1,195    1,744    1,553     2,450     3,421       731
Selling, general and
 administrative.........   2,459    3,220    4,151    5,684    3,848     9,428    17,727    17,922
                         -------  -------  -------  -------  -------  --------  --------  --------
                          (2,710)  (3,708)  (4,449)  (6,155)  (2,290)   (7,398)  (13,956)  (16,900)
Other income, net.......  12,322   11,727     (534)   6,969   28,677     2,397    15,927    20,382
Interest income.........      56      247      443      559      310       975     2,892     5,454
Interest expense........    (110)    (108)     (15)    (148)     (14)     (953)     (803)   (2,125)
                         -------  -------  -------  -------  -------  --------  --------  --------
                           9,558    8,158   (4,555)   1,225   26,683    (4,979)    4,060     6,811
Income taxes............     --       --       --       --       663     5,134     7,044    10,882
Minority interest.......     --       976    1,723    2,682      146     1,302     2,685     1,893
Equity income (loss)....    (290)  (2,390)  (1,289)  (1,899)  (7,413)  (12,667)  (29,063)  (42,958)
                         -------  -------  -------  -------  -------  --------  --------  --------
Net income (loss)....... $ 9,268  $ 6,744  $(4,121) $ 2,008  $20,079  $(11,210) $(15,274) $(23,372)
                         =======  =======  =======  =======  =======  ========  ========  ========
</TABLE>

      The selected quarterly financial information includes the accounts of the
Company, its wholly owned subsidiary, Internet Capital Group Operations, Inc.
and its majority owned subsidiaries, VerticalNet, for each of the quarters in
the year ended December 31, 1998; Breakaway Solutions for the period from
January 1, 1999 through October 4, 1999 (the date of Breakaway's initial public
offering); EmployeeLife.com and iParts for each of the quarters in the year
ended December 31, 1999; CyberCrop.com for the quarters ended September 30,
1999 and December 31, 1999; and Animated Images, Inc. and ICG Commerce for the
quarter ended December 31, 1999, all of which were consolidated from their date
of acquisition.

      During the period January 1 through March 8, 2000, the Company has issued
150,000 shares of common stock for an acquisition, is contingently obligated to
issue up to 11,197,238 shares of common stock for acquisitions, and has granted
options to purchase 6,766,000 shares of common stock at an average exercise
price of $110.50 per share.

21. Fiscal 2000 Events (Unaudited)

      In February 2000, eMerge Interactive completed its initial public
offering (IPO), selling 7,200,000 newly issued shares of its common stock at
$15 per share. The Company's ownership following the offering was approximately
22%.

      In March 2000, Onvia.com, Inc. completed its IPO, selling 8,000,000 newly
issued shares of its common stock at $21 per share, including 2,666,666 shares
sold to the Company at the IPO price in a concurrent private placement. The
Company's ownership following the offering was approximately 22%.

                                      F-36
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Nonsolidated Financial Statements--(Continued)


21. Fiscal 2000 Events (Unaudited) (Continued)

      In March, 2000, Universal Access completed its initial public offering
(IPO), selling 11,000,000 newly issued shares of its common stock at $14 per
share. The Company's ownership following the offering was approximately 25%.

      During the period from January 1, 2000 through March 24, 2000 we utilized
$387.6 million to acquire interests in or make advances to new and existing
partner companies. These companies included: Arbinet Communications,
AsseTRADE.com, AUTOVIA, Benchmarking Partners, BuyMedia, Centrimed,
ClearCommerce, Collabria, Commerce Quest, ComputerJobs.com, CourtLink, e-
Chemicals, Entegrity Solutions, eumediX, Eu Supply, FarmingOnLine, FreeBorders,
Industrial America, Internet Healthcare Group, iSky, LinkShare, Logistics.com,
Inc., eMetra, NetVendor, ONVIA.com, Servicesoft Technologies, Simplexis,
StarCite!, TALPX, TeamOn, Universal Access, and Vivant!

      During January 2000, we acquired an additional interest in an existing
partner company from a shareholder of the partner company for 150,000 shares of
our common stock valued at $26.6 million.

      During the year ended December 31, 1999, Ariba, Inc. announced its
intention to acquire all of the outstanding stock of one of our partner
companies, TRADEX Technologies, in exchange for approximately $2.0 billion in
Ariba stock. Ariba closed its acquisition of TRADEX Technologies on March 9,
2000. Based on Ariba's closing price of $320.88 on March 9, 2000, we will
record a non-operating gain of approximately $290 million during the quarter
ended March 31, 2000. Our holdings of Ariba after the transaction will be
accounted for as available-for-sale securities and will be marked to market,
with the difference between carrying value and market value, net of deferred
taxes, recorded in "Accumulated other comprehensive income" in the
shareholders' equity section of our Consolidated Balance Sheets in accordance
with Statement of Financial Accounting Standards No. 115.

      During the year ended December 31, 1999, VerticalNet acquired all of the
outstanding stock of NECX Exchange LLC in exchange for $70 million in
convertible notes, $10 million in cash and the assumption of debt and certain
other liabilities. Upon conversion of the $70 million in convertible notes
(expected in the first quarter of 2000), our voting ownership in VerticalNet
will decrease from 35% to approximately 34%. In addition, we expect to record a
non-operating gain due to the increase in our share of VerticalNet's net equity
as a result of their issuance of shares.

      In January, 2000, Breakaway Solutions announced it had signed a
definitive agreement to acquire EggRock Partners for 3,636,000 shares of
Breakaway Solutions common stock valued at $250 million at the date of signing
of the definitive agreement. Consummation of the transaction is subject to
customary closing conditions and is expected to close in April 2000. Upon
closing, our voting ownership in Breakaway Solutions will decrease from 40% to
approximately 33%. In addition, we expect to record a non-operating gain due to
the increase in our share of Breakaway Solutions' net equity as a result of
their issuance of shares.

      In February 2000, the Company entered into an agreement to form a joint
venture with DuPont named CapSpan. CapSpan will provide management, growth
capital, financial, technical and infrastructure capabilities designed to
accelerate the development of B2B e-commerce.

      In February, 2000, the Company entered into an agreement to acquire a
significant interest in eCredit.com, a leading provider of Internet based
financing. We will issue common stock worth approximately $450 million to
eCredit.com shareholders. We expect the transaction to close in the quarter
ending June 30, 2000.

                                      F-37
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

          Notes to the Nonsolidated Financial Statements--(Continued)


21. Fiscal 2000 Events (Unaudited) (Continued)

      In March, 2000, the Company entered into an agreement to acquire a
majority interest in RightWorks, a leading provider of e-procurement software
for B2B exchanges. We will issue approximately $635 million in Internet Capital
Group common stock (valued at $111.48 per share) to tendering RightWorks'
preferred shareholders (subject to adjustment based on the number of
RightWorks' shares tendered) and also will purchase newly issued RightWorks
shares for $22 million in cash. We expect the transaction to close in the
quarter ending June 30, 2000.

      In March 2000, the Company entered into an agreement to acquire a
majority interest in Harbour Ring International Holdings, which will be renamed
ICG AsiaWorks Limited, with Hutchison Whampoa Ltd., a Hong Kong based multi-
national conglomerate, to facilitate our entrance into the Asian e-commerce
markets. Upon completion of the acquisition, and under the terms of a separate
agreement, a third party affiliated with Hutchison Whampoa Ltd. would, at the
request of ICG and subject to the approval by the Stock Exchange of Hong Kong
Limited and the Securities & Futures Commission, be required to purchase the
operating subsidiaries of ICG AsiaWorks Limited at a fixed price for a two-year
period from the closing date of the acquisition, including assets and
liabilities arising subsequent to the closing date of the acquisition. We will
expend approximately $117 million upon the closing of this transaction which is
expected to take place in the quarter ending June 30, 2000.

      In March 2000, VerticalNet announced it had signed a definitive agreement
to acquire Tradeum, Inc. approximately for 2,000,000 shares of VerticalNet
common stock valued at approximately $500 million at the date of signing of the
definitive agreement. Consummation of the transaction is subject to customary
closing conditions and is expected to close in the second quarter of 2000. Upon
closing, our voting ownership of VerticalNet will decrease from 33% to
approximately 31%. In addition, we expect to record a non-operating gain due to
the increase in our share of VerticalNet's net equity as a result of their
issuance of shares.

      In March, 2000, the Company entered into an agreement to increase the
amount available under our bank credit facility to $250 million.

      During the period January 1 through March 8, 2000, the Company has issued
150,000 shares of common stock for an acquisition, is contingently obligated to
issue up to 11,197,238 shares of common stock for acquisitions, and has granted
options to purchase 6,766,000 shares of common stock at an average exercise
price of $110.50 per share.

                                      F-38
<PAGE>

                       Report of Independent Accountants

To the Board of Directors and
Stockholders of eCredit.com, Inc.

We have audited the accompanying consolidated balance sheets of eCredit.com,
Inc. and subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of operations, redeemable convertible preferred stock
and stockholders' deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the 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 eCredit.com, Inc.
and subsidiaries at December 31, 1998 and 1999 and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

                                          Ernst & Young LLP

March 6, 2000
Boston, Massachusetts

                                      F-39
<PAGE>

                       Report of Independent Accountants

To the Board of Directors and
Stockholders of eCredit.com, Inc.

      In our opinion, the accompanying consolidated statements of operations,
of redeemable convertible preferred stock and stockholders' deficit and of cash
flows present fairly, in all material respects, the results of operations and
cash flows of eCredit.com, Inc. and its subsidiary for the year ended December
31, 1997, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above. We have
not audited the consolidated financial statements of eCredit.com, Inc. for any
period subsequent to December 31, 1997.

PricewaterhouseCoopers LLP

Boston, Massachusetts
September 30, 1998

                                      F-40
<PAGE>

                               eCredit.com, Inc.
                          Consolidated Balance Sheets
                       (In Thousands, except share data)

<TABLE>
<CAPTION>
                                                                     Pro Forma
                                                   December 31      December 31
                                                  1998      1999       1999
                                                 -------  --------  -----------
                                                                    (unaudited)
<S>                                              <C>      <C>       <C>
Assets
Current assets:
 Cash and cash equivalents...................... $ 2,312  $ 35,210   $ 38,870
 Accounts receivable, net of allowance for
  doubtful accounts of $36 at December 31, 1998
  and 1999......................................   1,154     4,196      4,196
 Prepaid expenses...............................      16        55         55
 Other current assets...........................      37       940        940
                                                 -------  --------   --------
Total current assets............................   3,519    40,401     44,061
Fixed assets, net...............................     581     2,762      2,762
Capitalized software costs......................     --        681        681
Notes receivable from officers..................     --      1,302      1,302
Other assets....................................      96       668        668
                                                 -------  --------   --------
Total assets.................................... $ 4,196  $ 45,814   $ 49,474
                                                 =======  ========   ========
Liabilities, redeemable preferred stock and
 stockholders' deficit
Current liabilities:
 Current portion of note payable................     --   $    461   $    461
 Current portion of capital lease............... $   112        76         76
 Accounts payable...............................     192     3,008      3,008
 Accrued expenses...............................     661     3,199      3,199
 Deferred revenue...............................     442       907        907
 Billings in excess of cost and estimated
  earnings on uncompleted contracts.............     351       787        787
                                                 -------  --------   --------
Total current liabilities.......................   1,758     8,438      8,438
Capital lease obligations, net of current por-
 tion...........................................      99        69         69
Notes payable, net of current portion...........     --      1,172      1,172
                                                 -------  --------   --------
Total liabilities...............................   1,857     9,679      9,679
Commitments and contingencies
Redeemable convertible preferred stock:
 Series A Redeemable convertible preferred
  stock, $.001 par value; 946,808 shares
  authorized, issued and outstanding at December
  31, 1998 and 1999 issued for $2,225...........   5,597    68,171        --
 Series B Redeemable convertible preferred
  stock, $.001 par value; 184,432 shares
  authorized, issued and outstanding at December
  31, 1998 and 1999 issued for $1,540...........   1,639    19,923        --
 Series C Redeemable convertible preferred
  stock, $.001 par value; 1,297,076 shares
  authorized, 757,156 issued and outstanding at
  December 31, 1998 and 1999 issued for $6,205..   7,421    90,410        --
 Series D Redeemable convertible preferred
  stock, $.001 par value; 6,695,618 shares
  authorized, issued and outstanding at December
  31, 1999 issued for $23,876...................     --    160,695        --
 Series E Redeemable convertible preferred
  stock, $.001 par value; 1,914,053 shares
  authorized, 1,435,535 issued and outstanding
  at December 31, 1999 issued for $23,899.......     --     34,453        --
 Common stock, $.001 par value; 16,935,842 and
  33,962,013 shares authorized at December 31,
  1998 and 1999, respectively, 2,550,000 and
  6,513,648 shares issued at December 31, 1998
  and 1999, respectively, 2,100,000, 6,063,648
  and 23,212,123 shares outstanding at December
  31 1998, 1999 and 1999 Pro Forma,
  respectively..................................       3         7         31
 Additional paid-in capital.....................     394    41,844    905,390
 Accumulated deficit............................ (12,490) (341,042)  (836,125)
 Notes receivable...............................     --     (3,095)    (3,095)
 Deferred compensation..........................     --    (35,006)   (26,181)
 Common stock held in treasury, 450,000 shares
  at cost.......................................    (225)     (225)      (225)
                                                 -------  --------   --------
Total stockholders' equity (deficit)............ (12,318) (337,517)    39,795
                                                 -------  --------   --------
Total liabilities, redeemable preferred stock
 and stockholders' equity (deficit)............. $ 4,196  $ 45,814   $ 49,474
                                                 =======  ========   ========
</TABLE>
See accompanying notes.

                                      F-41
<PAGE>

                               eCredit.com, Inc.
                     Consolidated Statements of Operations
                (In Thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                    Pro Forma
                                           December 31             December 31
                                  -------------------------------  -----------
                                    1997       1998       1999        1999
                                  ---------  ---------  ---------  -----------
                                                                   (unaudited)
<S>                               <C>        <C>        <C>        <C>
Revenues
 Software licenses and related
  implementation................. $   3,358  $   3,763  $   6,702  $    6,702
 Services and software support...       585      1,061      1,699       1,699
                                  ---------  ---------  ---------  ----------
Total revenues...................     3,943      4,824      8,401       8,401
                                  ---------  ---------  ---------  ----------
Cost of revenues
 License and related
  implementation (1999 and Pro
  Forma excludes $351 and $17,371
  stock compensation,
  respectively)..................     2,153      1,987      5,230       5,230
 Services (1999 and Pro Forma
  excludes $72 and $3,563 stock
  compensation, respectively)....       440        708      1,195       1,195
                                  ---------  ---------  ---------  ----------
Total cost of revenues...........     2,593      2,695      6,425       6,425
                                  ---------  ---------  ---------  ----------
Gross profit.....................     1,350      2,129      1,976       1,976
Operating expenses
 Selling and marketing (1999 and
  Pro Forma excludes $613 and
  $30,339 stock compensation,
  respectively)..................     1,151      2,262     11,225      11,225
 Research and development (1999
  and Pro Forma excludes $23 and
  $1,138 stock compensation,
  respectively)..................       419        472        823         823
 General and administrative (1999
  and Pro Forma excludes $1,227
  and $60,724 stock compensation,
  respectively)..................     1,598      1,802      4,159       4,159
 Stock compensation..............       --         --       2,286     113,135
                                  ---------  ---------  ---------  ----------
Total operating expenses.........     3,168      4,536     18,493     129,342
                                  ---------  ---------  ---------  ----------
Loss from operations.............    (1,818)    (2,407)   (16,517)   (127,366)
Interest income..................       --          27        185         185
Interest expense.................      (128)      (147)       (72)        (72)
Other income.....................       --         --          31          31
                                  ---------  ---------  ---------  ----------
Net loss.........................    (1,946)    (2,527)   (16,373)   (127,222)
Accretion of preferred stock.....       --      (5,081)  (312,179)        --
                                  ---------  ---------  ---------  ----------
Net loss attributable to common
 stockholders.................... $  (1,946) $  (7,608) $(328,552) $ (127,222)
                                  =========  =========  =========  ==========
Basic and diluted net loss per
 share........................... $   (0.93) $   (3.62) $ (110.02) $    (5.48)
                                  =========  =========  =========  ==========
Weighted average shares used in
 computing basic and diluted net
 loss per common share........... 2,100,000  2,100,000  2,986,305  23,212,123
                                  =========  =========  =========  ==========
</TABLE>

See accompanying notes.

                                      F-42
<PAGE>

                                        F-43
                               eCredit.com, Inc.
     Consolidated Statements of Redeemable Convertible Preferred Stock and
                             Stockholders' Deficit
                       (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                     Series A        Series B        Series C          Series D          Series E
                    Redeemable      Redeemable      Redeemable        Redeemable        Redeemable
                    Convertible     Convertible     Convertible      Convertible        Convertible
                     Preferred       Preferred       Preferred        Preferred          Preferred
                       Stock           Stock           Stock            Stock              Stock        Common         Additional
                  --------------- --------------- --------------- ------------------ -----------------   Stock    Par   Paid-in
                  Shares  Amount  Shares  Amount  Shares  Amount   Shares    Amount   Shares   Amount   Shares   value  capital
                  ------- ------- ------- ------- ------- ------- --------- -------- --------- ------- --------- ----- ----------
<S>               <C>     <C>     <C>     <C>     <C>     <C>     <C>       <C>      <C>       <C>     <C>       <C>   <C>
Balance,
December 31,
1996              946,808 $ 2,225                                                                      2,550,000  $ 3
Issuance of
 Series B
 redeemable
 convertible
 preferred
 stock..........                  184,432 $ 1,540
Net loss........
Balance,
 December 31,
 1997             946,808   2,225 184,432   1,540                                                      2,550,000    3
Issuance of
 Series C
 convertible
 preferred stock
 with warrants,
 net of issuance
 costs of $117..                                  757,156 $ 5,811
Issuance of
 warrants.......                                                                                                        $   394
Accretion of
 redeemable
 preferred stock
 to redemption
 value..........            3,372              99           1,610
Net loss........
Balance,
 December 31,
 1998             946,808   5,597 184,432   1,639 757,156   7,421                                      2,550,000    3       394
Issuance of
 Series D
 convertible
 preferred
 stock, net of
 issuance costs
 of $124........                                                  6,695,618 $ 23,876
Issuance of
 Series E
 convertible
 preferred stock
 with warrants,
 net of issuance
 costs of $102..                                                                     1,435,535 $22,940
Issuance of
 warrants.......                                                                                                            959
Issuance of
 restricted
 stock to
 officers and
 directors......                                                                                       3,924,273    4     3,152
Issuance of
 common stock in
 connection with
 the exercise of
 stock options..                                                                                          39,375             47
Expenses
 associated with
 remeasurement
 of employee
 stock option...                                                                                                            111
Deferred
 compensation
 related to
 stock awards
 and option
 grants.........                                                                                                         37,181
Amortization of
 deferred
 compensation...
Repayment of
 officers
 notes..........
Accretion of
 redeemable
 preferred stock
 to redemption
 value..........           62,574          18,284          82,989            136,819            11,513
Net loss........
                  ------- ------- ------- ------- ------- ------- --------- -------- --------- ------- ---------  ---   -------
Balance,
 December 31,
 1999             946,808 $68,171 184,432 $19,923 757,156 $90,410 6,695,618 $160,695 1,435,535 $34,453 6,513,648  $ 7   $41,844
                  ======= ======= ======= ======= ======= ======= ========= ======== ========= ======= =========  ===   =======
<CAPTION>
                                                                   Total
                  Accumulated   Notes      Deferred   Treasury Stockholders'
                    deficit   receivable compensation  stock      deficit
                  ----------- ---------- ------------ -------- -------------
<S>               <C>         <C>        <C>          <C>      <C>
Balance,
December 31,
1996               $  (2,936)                          $(225)    $  (3,158)
Issuance of
 Series B
 redeemable
 convertible
 preferred
 stock..........
Net loss........      (1,946)                                       (1,946)
Balance,
 December 31,
 1997                 (4,882)                           (225)       (5,104)
Issuance of
 Series C
 convertible
 preferred stock
 with warrants,
 net of issuance
 costs of $117..
Issuance of
 warrants.......                                                       394
Accretion of
 redeemable
 preferred stock
 to redemption
 value..........      (5,081)                                       (5,081)
Net loss........      (2,527)                                       (2,527)
Balance,
 December 31,
 1998                (12,490)                           (225)      (12,318)
Issuance of
 Series D
 convertible
 preferred
 stock, net of
 issuance costs
 of $124........
Issuance of
 Series E
 convertible
 preferred stock
 with warrants,
 net of issuance
 costs of $102..
Issuance of
 warrants.......                                                       959
Issuance of
 restricted
 stock to
 officers and
 directors......               $(3,104)                                 52
Issuance of
 common stock in
 connection with
 the exercise of
 stock options..                                                        47
Expenses
 associated with
 remeasurement
 of employee
 stock option...                                                       111
Deferred
 compensation
 related to
 stock awards
 and option
 grants.........                           $(37,181)                     -
Amortization of
 deferred
 compensation...                              2,175                  2,175
Repayment of
 officers
 notes..........                      9                                  9
Accretion of
 redeemable
 preferred stock
 to redemption
 value..........    (312,179)                                     (312,179)
Net loss........     (16,373)                                      (16,373)
                  ----------- ---------- ------------ -------- -------------
Balance,
 December 31,
 1999              $(341,042)  $ (3,095)   $(35,006)   $(225)    $(337,517)
                  =========== ========== ============ ======== =============
</TABLE>

See accompanying notes.
<PAGE>

                               eCredit.com, Inc.
                     Consolidated Statements of Cash Flows
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                      Year ended December 31
                                                     --------------------------
                                                      1997     1998      1999
                                                     -------  -------  --------
<S>                                                  <C>      <C>      <C>
Cash flows provided by (used in) operating activi-
 ties
Net loss...........................................  $(1,946) $(2,527) $(16,373)
Depreciation and amortization......................      173      221       479
Amortization of stock compensation.................      --       --      2,286
Loss on disposal of fixed assets...................       10      --          4
Changes in assets and liabilities
 Accounts receivable...............................       13     (135)   (3,042)
 Prepaid expenses and other current assets.........      129       (4)     (942)
 Other assets......................................      --       (64)     (572)
 Accounts payable..................................      382     (306)    2,816
 Accrued expenses..................................      344     (192)    2,538
 Deferred revenue..................................        6      263       465
 Billings in excess of cost and estimated earnings
  on uncompleted contracts.........................     (413)     324       436
                                                     -------  -------  --------
Net cash used in operating activities..............   (1,302)  (2,420)  (11,905)
                                                     -------  -------  --------
Cash flows used in investing activities
Purchases of fixed assets..........................     (157)    (369)   (2,601)
Capitalized software additions.....................      --       --       (681)
                                                     -------  -------  --------
Net cash used in investing activities..............     (157)    (369)   (3,282)
                                                     -------  -------  --------
Cash flows provided by (used in) financing activi-
 ties
Borrowings under bridge financing arrangement from
 stockholders......................................      --     1,300     3,000
Proceeds received from note payable................      --       --      1,655
Principal payments made on note payable............      (13)    (974)      (22)
Notes receivable from officers.....................      --       --     (1,302)
Proceeds on repayment of officer notes receivable..      --       --          9
Payments on capital lease obligations..............     (104)    (140)     (129)
Proceeds from issuance of Series B redeemable con-
 vertible preferred stock, net of issuance costs...    1,540      --        --
Proceeds from issuance of Series C redeemable con-
 vertible preferred stock and preferred stock war-
 rants, net of issuance costs......................      --     4,905       --
Proceeds from issuance of Series D redeemable con-
 vertible preferred stock, net of issuance costs...      --       --     20,876
Proceeds from issuance of Series E redeemable con-
 vertible preferred stock and common stock war-
 rants, net of issuance costs......................      --       --     23,899
Proceeds from exercise of stock options............      --       --         47
Proceeds from issuance of restricted stock.........      --       --         52
                                                     -------  -------  --------
Net cash provided by financing activities..........    1,423    5,091    48,085
                                                     -------  -------  --------
</TABLE>


See accompanying notes.

                                      F-44
<PAGE>

                               eCredit.com, Inc.
               Consolidated Statements of Cash Flows (continued)
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                        Year ended December 31
                                                        -----------------------
                                                        1997    1998     1999
                                                        -------------- --------
<S>                                                     <C>    <C>     <C>
Net increase (decrease) in cash and cash equivalents... $ (36) $ 2,302 $ 32,898
Cash and cash equivalents, beginning of period.........    46       10    2,312
                                                        -----  ------- --------
Cash and cash equivalents, end of period............... $  10  $ 2,312 $ 35,210
                                                        =====  ======= ========
Supplemental disclosure of cash flow information:
 Cash paid for interest................................ $ 128  $   147 $     72
Supplemental disclosure of non-cash investing and fi-
 nancing activities:
  Additions to capital lease obligations for purchases
   of fixed assets..................................... $ 214  $    96 $     63
  Conversion of note payable to stockholders into
   redeemable convertible preferred stock..............   --     1,300    3,000
</TABLE>

See accompanying notes


                                      F-45
<PAGE>

                               eCredit.com, Inc.

                   Notes to Consolidated Financial Statements

                               December 31, 1999

1. Nature of Business

      eCredit.com, Inc. (the "Company" or "eCredit") is a provider of Internet
and client server-based credit management and financing solutions for business-
to-business and business-to-consumer commerce. The Company's principal market
is the United States. The Company manages its business as a single segment.

      The Company is subject to risks common to technology-based companies
including, but not limited to, the development of new technology, development
of markets and distribution channels, and dependence on key personnel.

      The Company has experienced operating losses since inception and through
December 31, 1999. Such losses resulted from the Company's lack of substantial
revenue in addition to costs incurred in the development of the Company's
services and in the establishment of the Company's market presence. For the
foreseeable future the Company expects to continue to experience significant
growth in its operating expenses in order to execute its business plan,
particularly engineering and development, and sales and general and
administrative expenses.

      eCredit expects to seek additional financing through further rounds of
private equity financing or an initial public offering. In the event that the
Company were to be unable to raise further financing to meet its anticipated
cash needs for working capital and capital expenditures, eCredit would reduce
its current growth plans. Management believes, if required, it is able to
reduce its cost structure and therefore meet its working capital requirements
for the next 12 months.

2. Summary of Significant Accounting Policies

Principles of Consolidation

      The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries, SRR Solutions (India) Private Limited, a
company incorporated under the laws of India and eCredit.com Limited, a company
incorporated in the United Kingdom. At December 31, 1999, the Company owned 99%
and 100% of the subsidiaries, respectively; amounts pertaining to the minority
interest are insignificant. All intercompany accounts and transactions have
been eliminated in consolidation.

Cash and Cash Equivalents

      The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents include money market funds at December 31, 1998 and 1999. The
carrying value of these instruments approximates their fair values.

Advertising Expenses

      The Company expenses advertising costs as incurred. Advertising costs
were approximately $82,000, $92,000 and $2,940,000 for the years ended December
31, 1997, 1998 and 1999, respectively.

                                      F-46
<PAGE>

                               eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

2. Summary of Significant Accounting Policies--(continued)

Fixed Assets

      Fixed assets are recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the related assets. Equipment held
under capital lease is stated at the lower of the fair value of the equipment
or the present value of the minimum lease payments at the inception of the
lease and is amortized on a straight-line basis over the shorter of the
estimated lives of the related assets or the lease term.

Stock Split

      On October 1, 1999, the Company authorized a three-for-one stock split of
its common stock. As a result, all common stock share data included in the
accompanying consolidated financial statements and notes have been
retroactively restated for this split.

Research and Development

      The Company's products are highly technical in nature and require a large
and continuing research and development effort. All research and development
costs are expensed as incurred.

      Costs associated with the development of computer software that is to be
sold to customers are accounted for in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed" (FAS 86) and are expensed as incurred
prior to establishing technological feasibility. Technological feasibility is
demonstrated by a working model. Software development costs are capitalized
thereafter until the product is available for general release. Software
development costs qualifying for capitalization under FAS 86 were not
significant during the years ended December 31, 1997, 1998, and 1999.

Capitalized Software Development Costs

      Capitalized software costs consist of costs incurred in the development
of the Company's internet-based technology. Such costs consist of salaries and
personnel costs for the design, deployment and enhancement of the Company's
technology. The Company capitalizes such costs under Statement of Position 98-
1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). Under SOP 98-1, costs of internal use software are
expensed during the preliminary project and post- implementation stages. Costs
are capitalized during the application development stage. Capitalization ends
when the project is substantially complete and the software is ready for its
intended use. The Company adopted SOP 98-1 on January 1, 1999. There has been
no amortization of cost to date.

      The carrying value of the Company's software costs are reviewed on a
quarterly basis for the existence of facts and circumstances both internally
and externally that may suggest impairment. If an impairment is indicated, the
Company will adjust the carrying value of its capitalized software costs,
accordingly.

Revenue Recognition

      The Company's software systems are sold for a one-time perpetual license
fee. The license fee is recognized upon the delivery of the software when the
system does not require significant customization, modification, integration or
installation services (collectively, "related implementation services"), and
fees for

                                      F-47
<PAGE>

                               eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

2. Summary of Significant Accounting Policies--(continued)
services are recognized as the services are performed provided that the related
contract is executed, fees are fixed and determinable and collection is
probable. When significant implementation services are required, the license
fee and fees for these services are recognized as the services are performed
utilizing the percentage of completion method based on cost incurred in
relation to expected total cost upon completion. Service revenues consist of
consulting fees not related to initial deliveries of systems and revenues for
software support contracts. Consulting fees are recognized as the services are
performed. Revenues from software support contracts are deferred and recognized
on a straight-line basis over the contract period, which is typically one year.

Stock-Based Compensation

      The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), and related interpretations. Accordingly, compensation
expense is recorded for stock options awarded to employees and directors to the
extent that the option exercise prices are less than the common stock's fair
market value on the date of grant, where the number of shares and exercise
price are fixed. The difference between the fair value of the Company's common
stock and the exercise price of the stock option, if any, is recorded as
deferred compensation and is amortized to compensation expense over the vesting
period of the underlying stock option. The Company follows the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123). All stock-based awards to
non-employees are accounted for at their fair value in accordance with FAS 123.

Net Loss Per Share

      The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS 128
requires the calculation and presentation of basic and diluted earnings per
share. Basic earnings per share is calculated based on the weighted-average
number of common shares outstanding, and excludes any dilutive effects of
warrants, stock options, or other types of securities. Diluted earnings per
share is calculated based on the weighted-average number of common shares
outstanding and the dilutive effect of stock options, warrants, and related
securities. Dilutive securities are excluded from the diluted earnings per
share calculation if their effect is antidilutive.

Concentration of Credit Risk and Major Customers

      Financial instruments which potentially subject the Company to
concentrations of credit risk include cash, cash equivalents and accounts
receivable. The Company invests its excess cash in money market funds of major
financial institutions that, in management's opinion, are subject to minimal
credit and market risk.

      The Company sells its products primarily to Fortune 500 corporate
customers located domestically. Concentrations of credit risk with respect to
trade receivables are limited due to the stability of the customers comprising
the Company's customer base. The Company performs ongoing evaluations of its
customers' financial condition and, consistent with industry practice, does not
generally require collateral. The Company monitors its accounts receivable
credit risk as a matter of policy, and losses on accounts receivable have
historically been within the Company's estimates. At December 31, 1998, three
customers accounted for 14%, 13%, and 12% of the Company's accounts receivable.
At December 31, 1999, one customer accounted for 63% of the Company's accounts
receivable.


                                      F-48
<PAGE>

                               eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

2. Summary of Significant Accounting Policies--(continued)
      For the year ended December 31, 1997, two customers accounted for 25% and
15% of the Company's total revenue. For the year ended December 31, 1998, one
customer accounted for 11% of the Company's total revenue. For the year ended
December 31, 1999, one customer accounted for 45% of the Company's total
revenue.

Foreign Currency Translation

      The functional currency for the Company's foreign operations is the U.S.
dollar. Assets and liabilities of the Company's foreign operations are
translated into U.S. dollars at exchange rates in effect as of the balance
sheet date and nonmonetary assets and liabilities are translated at historical
exchange rates. Results of operations are translated at the average exchange
rates for the period. Foreign exchange gains and losses, which are
insignificant, are included in the Company's results of operations.

Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Components particularly subject to
estimation include revenue recognized under the percentage-of-completion method
and the corresponding deferred revenue amount. Actual results could differ from
these estimates.

Fair Value of Financial Instruments

      The carrying value of the Company's financial instruments, which include
cash and cash equivalents accounts receivable, notes receivable, accounts
payable, accrued expenses and notes payable approximate their fair values at
December 31, 1998 and 1999.

Accounts Receivable

      At December 31, 1998 and 1999, accounts receivable included unbilled
amount of approximately $79,000 and $477,000, respectively.

Notes Receivable from Officers

      Notes receivable from officers are full-recourse notes with certain of
the Company's executive officers. The notes bear interest at market rates and
are due on December 30, 2005.

Income Taxes

      Deferred taxes are determined based on the difference between financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. Valuation
allowances are provided, if, based upon the weight of available evidence, it is
more likely than not some or all of the deferred tax assets will not be
realized.


                                      F-49
<PAGE>

                               eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

2. Summary of Significant Accounting Policies--(continued)
Segment Reporting

      In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (FAS 131). This statement requires
companies to report information about operating segments consistent with
management's internal view of the Company. The Company adopted FAS 131
effective for its fiscal year ended December 31, 1998. The Company operates in
a single segment: retail domestic sales and related services. As of December
31, 1999, the Company has no organizational structure dictated by product
lines, geography or customer type.

Comprehensive Income

      In June 1997, the FASB issued Statement of Financial Accounting Standard
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in financial statements. The adoption of FAS 130 did not impact the
Company's financial statements as the Company had no items of other
comprehensive income during the years ended December 31, 1997, 1998 and 1999.

Recent Accounting Pronouncements

      In March 1998, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants issued Statement of
Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". SOP 98-1 provides guidance regarding
when software developed or obtained for internal use should be capitalized. SOP
98-1 is effective for fiscal years beginning after December 15, 1998.
eCredit.com adopted SOP 98-1 on January 1, 1999, resulting in capitalization of
$681,000 through December 31, 1999 related to the Global Financing Network.

      In December 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position 98-9 (SOP 98-9), "Modification of SOP No. 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
amends SOP 97-2 (as amended by SOP 98-4) to require recognition of revenue
using the "residual method" in circumstances outlined in SOP 98-9. Under the
residual method, revenue is recognized as follows: (1) the total fair value of
undelivered elements, as indicated by vendor specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections
of SOP 97-2 and (2) the difference between the total arrangement fee and the
amount deferred for the undelivered elements is recognized as revenue related
to the delivered elements. SOP 98-9 is effective for transactions entered into
in fiscal years beginning after March 15, 1999 (calendar 2000 for the Company).

      Also, the provisions of SOP 97-2 that were deferred by SOP 98-4 will
continue to be deferred until the date SOP 98-9 becomes effective. The Company
does not expect that the adoption of SOP 98-9 will have a significant impact on
its results of operations or financial position.

      In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," (FAS
133) which establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company, to date, has
not engaged in derivative and hedging activities, and accordingly does not
believe that

                                      F-50
<PAGE>

                               eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

2. Summary of Significant Accounting Policies--(continued)
the adoption of FAS 133 will have a material impact on its financial reporting
and related disclosures. The Company will adopt FAS 133 as required by FAS 137,
"Deferral of the Effective Date of the FASB Statement No. 133," in fiscal year
2001.

      In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 (SAB101), "Revenue Recognition in Financial
Statements." SAB101 summarizes the application of generally accepted accounting
principles to revenue recognition in financial statements. On March 24, 2000,
the SEC issued an amendment to SAB101 delaying the effective date for certain
companies. The Company will adopt SAB101 in the second quarter of fiscal 2000
and is presently analyzing the impact that SAB101 will have on its financial
statements. Based on the Company's review to date, SAB101 is not expected to
materially impact the Company's financial position or operating results.

3. Fixed Assets

      Fixed assets consist of the following:

<TABLE>
<CAPTION>
                                                     Estimated    December 31
                                                    useful life  --------------
                                                      (years)     1998   1999
                                                   ------------- --------------
                                                                 (in thousands)
<S>                                                <C>           <C>    <C>
Furniture and fixtures............................      5-7      $  166 $   607
Computer equipment................................      3-5       1,096   2,971
Leasehold improvements............................ Term of lease     87     427
                                                                 ------ -------
                                                                  1,349   4,005
Less accumulated depreciation and amortization....                  768   1,243
                                                                 ------ -------
                                                                 $  581 $ 2,762
                                                                 ====== =======
</TABLE>

      At December 31, 1998 and 1999, assets held under capital lease totaled
approximately $626,000 and $677,000, respectively. Amortization expense of
equipment held under capital lease approximated $97,000, $120,000 and $112,000
for the years ended December 31, 1997, 1998, and 1999 respectively. Related
accumulated amortization of assets held under capital lease totaled
approximately $427,000 and $538,000 at December 31, 1998 and 1999,
respectively.

4. Accrued Expenses

      Accrued liabilities consists of the following at December 31:

<TABLE>
<CAPTION>
                                                                 1998    1999
                                                                ---------------
                                                                (in thousands)
<S>                                                             <C>    <C>
Consulting and professional.................................... $  110 $  1,225
Legal..........................................................     33      549
Vacation.......................................................    246      458
Bonus..........................................................    162      443
Other..........................................................    110      524
                                                                ------ --------
Total.......................................................... $  661 $  3,199
                                                                ====== ========
</TABLE>

                                      F-51
<PAGE>

                               eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

5. Note Payable and Lines-of-Credit

      On October 31, 1997 borrowings under a prior line-of-credit were replaced
by a $1,000,000 demand note payable (the "Note") secured by the Company's
accounts receivable and intangible assets. The Note originally expired on
December 31, 1997 and was extended to June 30, 1998. In May 1998, the Company
entered into a line-of-credit agreement (the "Line") with another bank to
provide maximum borrowings of $1,500,000; borrowings under the Line were used
to repay the Note in the amount of $973,800. The Line was scheduled to expire
in January 2000. At December 31, 1998, there were no borrowings outstanding
under the Line. In July 1999 the Company amended and restated its Line entered
into in May 1998. The amended facility provides for maximum borrowings of
$2,500,000 under a revolving line and $500,000 under an equipment line of
credit, subject to a limit of $1,500,000 until the Company closes equity
financing. In November 1999, as a result of equity financing, the Company
amended its line-of-credit entered into in July 1999. The amended facility
provides maximum borrowings of $3,000,000 under a revolving line and $2,000,000
under an equipment line. The ability to draw on the revolving line and the
equipment line expires in July 2000 and September 2000, respectively. Repayment
of amounts drawn on the lines occurs based on the maturity schedule as defined
in the agreement, through 2003. Interest is payable monthly at the prime rate
plus 0.75% for the revolving line and at the prime rate plus 1.0% for the
equipment line. The Company is required to comply with certain financial
covenants including maintaining certain financial statement ratios. At December
31 1999, there were no borrowings outstanding under the revolving line-of-
credit and $1,633,000 outstanding under the equipment line. Borrowing under the
revolving line-of-credit and equipment line are secured by substantially all
business assets.

      Scheduled principal repayments on long-term debt are as follows:

<TABLE>
<CAPTION>
                                                                  (in thousands)
<S>                                                               <C>
Year end December 31:
2000.............................................................     $  461
2001.............................................................        568
2002.............................................................        531
2003.............................................................         73
                                                                      ------
                                                                      $1,633
                                                                      ======
</TABLE>

6. Redeemable Convertible Preferred Stock

      In September 1993, the Company issued 425,532 shares of Series A
redeemable convertible preferred stock (the "Series A preferred stock") at a
price of $2.35 per share for total cash proceeds of $1,000,000. In June 1995,
bridge loans totaling $650,000 were converted into 276,595 shares of Series A
preferred stock, and 244,681 shares of Series A preferred stock were sold for
total cash proceeds of $575,000.

      In May 1997, the Company issued 184,432 shares of Series B redeemable
convertible preferred stock (the "Series B preferred stock") at a price of
$8.35 per share for total cash proceeds of $1,540,000.

      In September 1998, the Company issued 598,802 shares of Series C
redeemable convertible preferred stock (the "Series C preferred stock") at a
price of $8.35 per share for total cash proceeds of $4,905,000. In addition,
bridge loans issued during 1998 totaling $1,300,000 were converted into 158,354
shares of Series C preferred stock at a price of $8.35 per share. In
conjunction with the issuance of Series C preferred stock, the Company issued
warrants for the purchase of 539,920 additional shares of Series C preferred
stock at a price of $8.35 per share. The Company ascribed a value of $394,000
to these warrants which is included in additional

                                      F-52
<PAGE>

                               eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

6. Redeemable Convertible Preferred Stock--(continued)
paid in capital at December 31, 1999. The warrants expire on the earlier of
September 21, 2003 or the date on which the Company completes a qualifying
public offering of its common stock, as defined in the agreement.

      On October 22, 1999 and November 12, 1999, the Company issued 3,989,473
and 1,869,192 shares, respectively, of Series D redeemable convertible
preferred stock (the "Series D preferred stock") at a price of $3.58 per share
for net proceeds of $20,876,000. Also, on October 22, 1999, the Company issued
836,953 shares of Series D preferred in exchange for the conversion of a
$3,000,000 bridge note payable.

      On December 22, 1999, the Company issued 1,435,535 shares of Series E
Redeemable convertible preferred stock (the "Series E preferred stock") at a
price of $16.72 per share for net proceeds of $23,899,000. In conjunction with
the Series E preferred stock issuance, the Company issued warrants for the
purchase of 191,378 shares of its common stock at a price of $25.08 per share.
The Company ascribed a value of $959,000 to these warrants, which is included
in additional paid in capital at December 31, 1999. These warrants expire on
the earlier of December 22, 2001 or the sale of the Company. In conjunction
with the issuance of Series C preferred stock, certain rights of the Series A
and Series B preferred stock were conformed with the Series C preferred stock.
The Series A, Series B, Series C, Series D and Series E preferred stock have
the following characteristics:

Conversion Rights

      The Series A, Series B, Series C, Series D and Series E preferred stock
is convertible into the Company's common stock, at any time, at the rate of
3.0, 4.5, 5.0, 1.0 and 1.0 shares of common stock, respectively, for each share
of preferred stock, adjustable for certain dilutive events, as defined by the
agreement.

      The Series A, Series B, Series C, Series D and Series E preferred stock
is automatically converted into 3.0, 4.5, 5.0, 1.0 and 1.0 shares of common
stock, respectively, upon the closing of an initial public offering in which
proceeds to the Company equal or exceed $20,000,000 and in which the price to
the public is at least $8.35 per common share.

Liquidation Preference

      Upon liquidation of the Company, the Series E preferred stockholders
shall first be entitled to $16.72 per share. The Series D preferred
stockholders, which as a shareholder class are subordinate to the Series E
preferred stockholders, are entitled to $3.58 per share. The Series A, Series
B, and Series C preferred stockholders, which as a class are subordinate to the
Series D and Series E preferred stockholders, are entitled to $2.35, $8.35, and
$8.35, respectively, per share. If any net assets are remaining after the
preferred stock payments, they shall be distributed pro-rata among preferred
and common stockholders.

Voting Rights

      The holders of the preferred stock are entitled to the number of votes
equal to the number of shares of common stock into which the shares of
preferred stock could be converted at the time the vote is taken.

Protective Provisions

      As long as at least 50% of the collective initially issued shares of
Series A, Series B, Series C, Series D and Series E preferred stock remain
outstanding, consent of the holders of at least two-thirds of the Series A,

                                      F-53
<PAGE>

                               eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

6. Redeemable Convertible Preferred Stock--(continued)
Series B, Series C, Series D and Series E preferred stock, voting together as
a single class, will be required for the approval of certain events relating
to the sale, merger, liquidation or winding up of the Company, the issuance of
additional preferred stock or significant borrowings, as defined by the
agreement.

Dividend Rights

      No dividend will accrue or be paid on preferred stock unless declared by
the Board of Directors.

Redemption

      Two-thirds of the Series A, Series B, Series C, Series D and Series E
preferred stock, voting together as a single class, may require the Company to
redeem the Series A, Series B Series C, Series D and Series E preferred stock
in two equal annual installments commencing on December 22, 2004, at a
redemption price equal to the greater of the fair market value or the original
purchase price per share of each Series plus any accrued and unpaid dividends.

7. Common Stock

      Each share of common stock entitles the holder to one vote on all
matters submitted to a vote of the Company's stockholders. As long as the
preferred stock is outstanding, no dividends shall be paid on the common
stock.

      At December 31, 1999, the Company had 24,573,132 shares of its common
stock reserved for issuance upon conversion of preferred stock and exercise of
warrants and options.

      In conjunction with the issuance of restricted common stock, the Company
received full recourse notes receivable from officers of the Company in the
amount of $2,841,000, from Advisory Directors in the amount of $100,000, and
made advances to Directors in the amount of $154,000. The notes bear interest
at 6.02% and are payable in full by October 19, 2005.

8. Stock Option Plan

      In September 1993, the Company adopted the 1993 Stock Option Plan (the
"1993 Plan"). The 1993 Plan provides for issuance of nonqualified stock
options, awards of restricted stock, and direct stock purchase opportunities
to directors, officers, employees and consultants of the Company. At December
31, 1999 the total number of shares which could be issued under the 1993 Plan
was 712,941. As of December 31, 1999 no options were available for future
grant under the 1993 Plan. Nonqualified options may be granted at an exercise
price less than, equal to or greater than the fair market value on the date of
grant, as determined by the Board of Directors. Vesting of the options is over
a four year period.

      In September 1998, the Company adopted the 1998 Stock Option Plan (the
"1998 Plan"). The 1998 Plan provides for issuance of incentive stock options
to employees of the Company and non-qualified stock options, awards of
restricted stock, and direct stock purchase opportunities to directors,
officers, employees and consultants of the Company. The total number of shares
which may be issued under the 1998 Plan is 9,338,184. At December 31, 1999,
there were 4,570,236 options outstanding under the 1998 Plan and 843,675
available for future grant. Incentive stock options may not be granted at less
than the fair market value of the Company's common stock at the date of grant
and for a term not to exceed ten years. For holders of 10% or more of the

                                     F-54
<PAGE>

                               eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

8. Stock Option Plan--(continued)
Company's outstanding common stock, options may not be granted at less than
110% of the fair market value of the common stock at the date of grant and the
option term may not exceed five years. Incentive stock options and nonqualified
stock options vest over a four year period.

      A restricted stock award, as allowed by the 1993 Plan and 1998 Plan,
provides for the issuance of common stock to directors, officers, consultants
and other key personnel at prices determined by the Board of Directors.
Participants unvested shares are subject to repurchase by the Company at the
original purchase price plus interest accrued for up to four years.

      A summary of the activity under the Company's 1993 Plan and 1998 Plan as
of December 31, 1999, and changes during the three years then ended is
presented below:

<TABLE>
<CAPTION>
                                                                    Weighted-
                                                      Number of      average
                                                        Shares    exercise price
                                                      ----------  --------------
<S>                                                   <C>         <C>
Outstanding--December 31, 1996.......................    439,800      $0.78
 Granted (exercise price equal to fair value)........    375,870       1.18
 Canceled............................................    (11,400)      0.78
                                                      ----------      -----
Outstanding--December 31, 1997.......................    804,270       0.97
 Granted (exercise price equal to fair value)........    338,250       1.19
 Granted (exercise price below fair value)...........    141,000        .78
 Canceled............................................    (64,500)      0.97
                                                      ----------      -----
Outstanding--December 31, 1998.......................  1,219,020       1.01
 Granted (exercise price below fair value)...........  8,473,509       1.77
 Exercised........................................... (3,963,648)      0.81
 Canceled............................................   (445,704)      0.84
                                                      ----------      -----
Outstanding--December 31, 1999.......................  5,283,177      $2.35
                                                      ==========      =====
</TABLE>

      There were 327,450, 458,961 and 624,100 stock options that were
exercisable at December 31, 1997, 1998 and 1999, respectively.

      The following table summarizes information about stock options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
                              Weighted-
                               average
                              remaining
                  Options    contractual    Options
                outstanding life in years exercisable
Exercise price  ----------- ------------- -----------
<S>             <C>         <C>           <C>
$0.78            3,307,680       9.0        534,663
 1.19              235,875       8.2         89,437
 5.50            1,739,622       9.9              -
                 ---------                  -------
                 5,283,177                  624,100
                 =========                  =======
</TABLE>

      FAS 123 encourages but does not require companies to record compensation
cost for stock-based employee compensation at fair value. The Company has
chosen to account for stock-based compensation granted to employees using the
intrinsic value method prescribed in APB 25 and related interpretations.
Accordingly, deferred compensation cost for restricted stock awards and stock
options granted to employees is measured as the excess, if any, of the fair
value of the Company's stock at the date of the grant over the

                                      F-55
<PAGE>

                               eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

8. Stock Option Plan--(continued)
amount that must be paid to acquire the stock. From January 1, 1999 through
December 31, 1999, the Company recorded approximately $37,181,000 in deferred
compensation for restricted stock awards and options to purchase common stock
granted at exercise prices subsequently determined to be below the fair value
of the common stock on the date of grant. Compensation expense of approximately
$2,175,000 was recognized during 1999.

      Option valuation models have been developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. Such models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The fair value
of each option grant is estimated on the date of grant using the minimum value
method. The following assumptions were made for grants in 1997, 1998, and 1999,
respectively:

<TABLE>
<CAPTION>
                                                    1997    1998        1999
                                                    ---- ----------- -----------
<S>                                                 <C>  <C>         <C>
Dividend yield.....................................  0%      0%          0%
Expected lives of options (years)..................  5        5           5
Risk-free interest rate............................ 6.2% 4.41%-5.46% 5.25%-6.24%
Volatility......................................... --       --          --
</TABLE>

      The fair value of the options granted during 1997 is estimated to be
$0.22. The fair value of the options granted during 1998 is estimated to be
$0.28 for options granted with exercise prices equal to the common stock fair
value and $1.10 for options granted with exercise prices below the common stock
fair value. The fair value of the options granted during 1999 is estimated to
be $4.73. Had the Company accounted for stock options to employees under the
fair value method prescribed under FAS 123, pro forma net losses attributable
to common stockholders, and basic diluted net loss per share would have been as
follows (the effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts):

<TABLE>
<CAPTION>
                                         1997         1998          1999
                                      ------------ ------------ -------------
                                      (in thousands except per share data)
<S>                                   <C>          <C>          <C>
Net loss attributable to common
 stockholders (as reported).......... $    (1,946) $    (7,608) $    (328,552)
Stock compensation...................         (18)        (114)        (2,583)
                                      -----------  -----------  -------------
Pro forma net loss attributable to
 common stockholders................. $    (1,964) $    (7,722) $    (331,135)
                                      ===========  ===========  =============
Pro forma basic and diluted net loss
 per share........................... $     (0.94) $     (3.68) $     (110.88)
</TABLE>

                                      F-56
<PAGE>

                               eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

9. Income Taxes

      A reconciliation of the Company's income tax provision to the statutory
federal provision is as follows:

<TABLE>
<CAPTION>
                                                      Year ended December 31
                                                       1997    1998     1999
                                                      ------- ------- --------
                                                          (in thousands)
<S>                                                   <C>     <C>     <C>
Statutory federal income tax provision............... $ (662) $ (860) $ (5,567)
State income taxes net of federal tax benefit........   (121)   (157)   (1,136)
Change in deferred tax asset valuation allowance.....    778   1,010     7,617
Stock compensation expense...........................    --      --       (970)
Other................................................      5       7        56
                                                      ------  ------  --------
Income tax provision................................. $  --   $  --   $    --
                                                      ======  ======  ========
</TABLE>

      At December 31, 1999, the Company had unused net operating loss
carryforwards of approximately $24,956,000 available to reduce federal and
state taxable income, these loss carryforwards expire through 2019. Due to the
degree of uncertainty related to the use of the loss carryforwards, the Company
has fully reserved this tax benefit. Additionally, the future utilization of
the net operating loss carryforwards may be subject to limitations under the
change in stock ownership rules of the Internal Revenue Service.

      Significant components of the Company's deferred tax assets are as
follows:

<TABLE>
<CAPTION>
                                                                 1998    1999
                                                                ------  -------
                                                                (in thousands)
<S>                                                             <C>     <C>
Deferred tax assets:
 Net operating loss carryforwards.............................. $2,670  $ 9,975
 Other.........................................................      7      338
 Tax credit carryforwards......................................    153      134
                                                                ------  -------
Total deferred tax assets......................................  2,830   10,447
Valuation allowance............................................ (2,830) (10,447)
                                                                ------  -------
Net deferred tax assets........................................ $  --   $   --
                                                                ======  =======
</TABLE>

      The valuation allowance increased by $1,010,000 and $7,617,000 during
1998 and 1999, respectively, due primarily to the increase in net operating
loss carryforwards.

10. Employee Benefit Plan

      In 1995, the Company established a savings plan for its employees which
is designed to be qualified under Section 401(k) of the Internal Revenue Code.
Eligible employees are permitted to contribute to the 401(k) plan within
statutory and plan limits. The Company has not contributed to the savings plan
to date.

                                      F-57
<PAGE>

                               eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

11. Commitments

Leases

      The Company leases its operating facilities and certain computer
equipment and furniture and fixtures under noncancelable operating and capital
lease agreements. Rent expense for the years ended December 31 1997, 1998 and
1999 was $137,000, $311,000, and $505,000, respectively. Future minimum lease
commitments at December 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                                               Operating Capital
                                                                 Lease   Leases
Year ending December 31:                                       --------- -------
                                                                (in thousands)
<S>                                                            <C>       <C>
2000..........................................................  $1,111    $ 97
2001..........................................................     559      39
2002..........................................................     556      21
2003..........................................................     556      21
2004..........................................................     555      11
Thereafter....................................................   1,657     --
                                                                ------    ----
Total minimum lease payments..................................  $4,994     189
                                                                ======
Less amount represent interest................................             (44)
                                                                          ----
Present value of minimum lease payments.......................            $145
                                                                          ====
</TABLE>

      The Company's obligations on one of its operating leases is
collateralized by a $780,000 letter-of-credit with a commercial bank. The
letter of credit is collateralized by a $520,000 certificate of deposit held by
eCredit. The certificate of deposit has been classified as a component of Other
Assets at December 31, 1999.

Employment Agreements

      During 1994, the Company entered into a separation agreement with an
officer and stockholder. Pursuant to the terms of the separation agreement, the
Company repurchased 450,000 shares of common stock for $225,000 and entered
into a stock call option agreement. Pursuant to the stock call option, the
Company may purchase an additional 300,000 shares held by the former officer at
fair market value on the date of exercise. The call option terminates upon the
earlier of June 26, 2000 or immediately subsequent to a public offering of
common stock, or a sale, liquidation or merger of the Company, as defined by
the agreement.

      In April 1999, the Company entered into a separation agreement with an
officer of the Company. Pursuant to the terms of the separation agreement, the
Company repriced the then vested options to allow the officer to acquire 81,666
shares of common stock at $0.78 per share. Accordingly, under the Proposed
Interpretation of APB 25, the Company will be required to recognize
compensation expense on July 1, 2000 for the effect of the repricing.

                                      F-58
<PAGE>

                               eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)


12. Subsequent Events--Pro Forma Balance Sheet, Statement of Operations and Net
Loss Per Share (Unaudited)

      On February 24, 2000 the Company signed a definitive exchange offer
agreement with Internet Capital Group, Inc ("ICG"). ICG will offer to purchase
from existing stockholders 30% of eCredit common stock, including authorized
but unallocated options, on a fully diluted basis. Upon the closing of the
exchange offer, ICG will exchange that number of shares of ICG common stock
equal to $450,000,000 divided by the average closing share price of ICG common
stock on the three consecutive days preceding the second trading day preceding
the close of the transaction. The implied price per eCredit common share is
$48.68. Prior to the expiration of the exchange offer, eCredit preferred stock
will convert into common stock.

      eCredit will grant ICG a warrant to purchase up to 5% of eCredit common
stock on a fully-diluted basis, which is exercisable over a period of 48 months
following an initial public offering at an aggregate price of $300,000,000
during the first 18 months and $400,000,000 thereafter until expiration. The
value of the warrant approximates $40,000,000.

      The unaudited pro forma balance sheet is stated as if the transaction
occurred at December 31, 1999, the unaudited pro forma statement of operations
is stated as if the transaction occurred at January 1, 1999. The pro forma
balance sheet and statement of operations reflect the following:

*  Conversion of all its outstanding shares of preferred stock into a total of
   15,568,622 shares of common stock

*  Acceleration and exercise of 1,579,853 common stock options at a weighted
   average exercise price of $2.32. Such acceleration and exercise, in
   conjunction with the issuance of the warrant results in a stock compensation
   charge of $62,000,000, and acceleration of deferred compensation of
   $8,800,000. This assumes an implied price per eCredit common share of
   $48.68.

*  Issuance of warrants to ICG, valued at approximately $40,000,000, in
   connection with the purchase of eCredit's shares. Such warrants are
   exercisable upon an initial public offering of shares of eCredit.


                                      F-59
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To RightWorks Corporation:

We have audited the accompanying balance sheets of RightWorks Corporation (a
California corporation) as of December 31, 1999 and 1998, and the related
statements of operations and comprehensive loss, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of RightWorks Corporation as of
December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.

                                          /s/ ARTHUR ANDERSEN LLP
San Jose, California
April 11, 2000

                                      F-60
<PAGE>

                             RIGHTWORKS CORPORATION
                                 Balance Sheets
<TABLE>
<CAPTION>
                                                            December 31,
                                                       -----------------------
                                                          1999         1998
                                                       -----------  ----------
<S>                                                    <C>          <C>
                       Assets
Current Assets:
 Cash and cash equivalents...........................  $11,921,721  $3,948,840
 Accounts receivable, net of allowance for doubtful
  accounts of $30,000 and $0, respectively...........    3,162,920      58,500
 Prepaid expenses and other current assets...........      128,960      44,930
 Deferred debt costs, current portion................       41,779          --
                                                       -----------  ----------
  Total current assets...............................   15,255,380   4,052,270
 Property and Equipment, net.........................      412,683     175,515
 Other Assets........................................       24,432      27,825
 Deferred debt costs, less current portion...........       76,596          --
                                                       -----------  ----------
  Total assets.......................................  $15,769,091  $4,255,610
                                                       ===========  ==========
        Liabilities And Shareholders' Equity
Current Liabilities:
 Accounts payable....................................  $   634,518  $  204,196
 Accrued payroll.....................................      866,094     250,682
 Accrued professional services.......................      317,155          --
 Deferred revenue....................................    1,760,583      58,500
 Other current liabilities...........................      273,780          --
 Capital leases, current portion.....................      106,471          --
 Notes payable, current portion......................      576,706          --
                                                       -----------  ----------
  Total current liabilities..........................    4,535,307     513,378
Capital leases, less current portion.................      206,111          --
Notes payable, less current portion..................    2,423,294          --
                                                       -----------  ----------
  Total liabilities..................................    7,164,712     513,378
                                                       -----------  ----------
Commitments (Note 4)
Shareholders' Equity:
 Convertible preferred stock, $0.001 par value;
 Series A:
  Authorized--3,000,000 shares
  Outstanding--3,000,000 shares in 1999 and 1998;
   liquidation preference of $150,000................        3,000       3,000
 Series B:
  Authorized--4,946,000 shares
  Outstanding--4,946,000 shares in 1999 and 1998;
   liquidation preference of $525,018................        4,946       4,946
 Series C:
  Authorized--9,139,485 shares
  Outstanding--9,139,485 shares in 1999 and 1998;
   liquidation preference of $1,902,110..............        9,139       9,139
 Series D:
  Authorized--7,838,085 shares
  Outstanding--7,838,085 shares in 1999 and 1998;
   liquidation preference of $2,250,000..............        7,838       7,838
 Series E:
  Authorized--14,417,093 shares
  Outstanding--12,700,370 shares in 1999 and 1998;
   liquidation preference of $1,831,012..............       12,701      12,701
 Series F:
  Authorized--35,000,000 shares
  Outstanding--34,681,280 shares in 1999 and 1998;
   liquidation preference of $5,000,000..............       34,681      34,681
 Series G:
  Authorized--1,000,000 shares
  Outstanding--935,616 shares in 1999 and no shares
   in 1998; liquidation preference of $748,493.......          936          --
 Series H:
  Authorized--8,428,935 shares
  Outstanding--5,845,938 shares in 1999 and no shares
   in 1998; liquidation preference of $13,094,901....        5,846          --
 Series H-1:
  Authorized--6,621 shares
  Outstanding--no shares in 1999 and 1998; liquida-
   tion preference of $0.............................           --          --
 Series I:
  Authorized--3,500,000 shares
  Outstanding--162,179 shares in 1999 and no shares
   in 1998; liquidation preference of $501,663.......          162          --
Common stock, $0.001 par value:
  Authorized--100,000,000 shares
  Outstanding--4,409,885 shares in 1999 and 1,855,152
   shares in 1998....................................        4,410       1,855
Warrants.............................................      567,495     161,293
Additional paid-in capital...........................   28,946,240  11,583,708
Notes receivable from shareholders...................     (367,667)         --
Deferred compensation................................   (3,239,420)         --
Accumulated deficit..................................  (17,385,928) (8,076,929)
                                                       -----------  ----------
Total shareholders' equity...........................    8,604,379   3,742,232
                                                       -----------  ----------
Total liabilities and shareholders' equity...........  $15,769,091  $4,255,610
                                                       ===========  ==========
</TABLE>
   The accompanying notes are an integral part of these financial statements.

                                      F-61
<PAGE>

                             RIGHTWORKS CORPORATION

                Statements Of Operations And Comprehensive Loss

<TABLE>
<CAPTION>
                                              Year Ended December 31,
                                        -------------------------------------
                                           1999         1998         1997
                                        -----------  -----------  -----------
<S>                                     <C>          <C>          <C>
Revenues:
  Product license...................... $ 2,149,757  $        --  $        --
  Services.............................     273,667       75,000       19,160
  Discount related to warrant..........    (271,887)          --           --
                                        -----------  -----------  -----------
    Total revenue......................   2,151,537       75,000       19,160
Cost of Revenue........................     429,960           --           --
                                        -----------  -----------  -----------
    Gross Profit.......................   1,721,577       75,000       19,160
                                        -----------  -----------  -----------
Operating Expenses:
  Research and development.............   3,344,721    2,262,607    1,200,707
  Sales and marketing..................   6,061,872    2,261,838      312,691
  General and administrative...........   1,543,769    1,036,573      551,936
  Amortization of deferred compensa-
   tion................................     150,578           --           --
                                        -----------  -----------  -----------
    Total operating expenses...........  11,100,940    5,561,018    2,065,334
                                        -----------  -----------  -----------
Loss from operations...................  (9,379,363)  (5,486,018)  (2,046,174)
Interest and Other Income (Expense),
 net...................................      70,364     (135,547)      29,337
                                        -----------  -----------  -----------
Net Loss and Comprehensive Loss........ $(9,308,999) $(5,621,565) $(2,016,837)
                                        ===========  ===========  ===========
Basic and diluted net loss per common
 share................................. $     (5.05) $     (3.48) $     (1.44)
                                        ===========  ===========  ===========
Shares used in computing basic and di-
 luted net loss per common share.......   1,845,000    1,615,000    1,402,000
                                        ===========  ===========  ===========
</TABLE>




   The accompanying notes are an integral part of these financial statements.

                                      F-62
<PAGE>

                             RIGHTWORKS CORPORATION

                       Statement of Shareholders' Equity
<TABLE>
<CAPTION>
                     Convertible
                   Preferred Stock     Common Stock
                  ------------------ -----------------
                                                                                 Notes
                                                                 Additional    Receivable
                                                                   Paid-In        From       Deferred    Accumulated
                    Shares   Amount   Shares    Amount  Warrants   Capital    Shareholders Compensationt   Deficit       Total
----------------  ---------- ------- ---------  ------  -------- -----------  ------------ ------------- ------------  ----------
<S>               <C>        <C>     <C>        <C>     <C>      <C>          <C>          <C>           <C>           <C>
Balances at
 December 31,
 1996...........   7,946,000 $ 7,946 1,289,833  $1,290  $     -- $   688,648   $      --    $        --  $   (438,527) $  259,357
Issuance of
 Series C
 convertible
 preferred,
 net............   9,139,485   9,139       --      --        --    1,892,161         --             --            --    1,901,300
Exercise of
 stock options..         --      --    226,555     227       --        9,192         --             --            --        9,418
Exercise of
 options issued
 in conjunction
 with bridge
 financing......         --      --    152,000     152       --        7,448         --             --            --        7,600
Net loss........         --      --        --      --        --          --          --             --     (2,016,837) (2,016,837)
                  ---------- ------- ---------  ------  -------- -----------   ---------    -----------  ------------  ----------
Balances at
 December 31,
 1997...........  17,085,485  17,085 1,668,388   1,668       --    2,597,449         --             --     (2,455,364)    160,838
Issuance of
 Series D
 convertible
 preferred
 stock, net.....   7,838,085   7,838       --      --        --    2,225,559         --             --            --    2,233,437
Issuance of
 Series E
 convertible
 preferred,
 net............  12,700,370  12,701       --      --        --    1,802,423         --             --            --    1,815,124
Issuance of
 Series F
 convertible
 preferred,
 net............  34,681,280  34,681       --      --        --    4,926,529         --             --            --    4,961,210
Issuance of
 warrants to
 purchase Series
 E convertible
 preferred
 stock..........         --      --        --      --    161,293         --          --             --            --      161,293
Exercise of
 stock options..         --      --    263,564     264       --       35,471         --             --            --       35,735
Repurchase of
 common stock...         --      --    (76,800)    (77)      --       (3,763)        --             --            --       (3,840)
Net loss........         --      --        --      --        --          --          --             --     (5,621,565) (5,621,565)
                  ---------- ------- ---------  ------  -------- -----------   ---------    -----------  ------------  ----------
Balances at
 December 31,
 1998...........  72,305,220  72,305 1,855,152   1,855   161,293  11,583,708         --             --     (8,076,929)  3,742,232
Issuance of
 Series G
 convertible
 preferred stock
 in exchange for
 technology.....     935,616     936       --      --        --      133,952         --             --            --      134,888
Issuance of
 Series H
 convertible
 preferred
 stock, net.....   5,845,938   5,846       --      --        --   13,018,440     (16,667)           --            --   13,007,619
Issuance of
 Series I
 convertible
 preferred
 stock, net.....     162,179     162       --      --        --      432,163         --             --            --      432,325
Issuance of
 warrants to
 purchase
 convertible
 preferred
 stock..........         --      --        --      --    406,202         --          --             --            --      406,202
Exercise of
 stock options..         --      --    254,907     255       --       43,758         --             --            --       44,013
Repurchase of
 common stock...         --      --    (40,174)    (40)      --       (4,439)        --             --            --       (4,479)
Exercise of
 options via
 promissory
 note...........         --      --  2,340,000   2,340       --      348,660    (351,000)           --            --          --
Deferred
 Compensation...         --      --        --      --        --    3,389,998         --      (3,389,998)          --          --
Amortization of
 deferred
 compensation...         --      --        --      --        --          --          --         150,578           --      150,578
Net loss........         --      --        --      --        --          --          --             --     (9,308,999) (9,308,999)
                  ---------- ------- ---------  ------  -------- -----------   ---------    -----------  ------------  ----------
Balances at
 December 31,
 1999...........  79,248,953 $79,249 4,409,885  $4,410  $567,495 $28,946,240   $(367,667)   $(3,239,420) $(17,385,928) $8,604,379
                  ========== ======= =========  ======  ======== ===========   =========    ===========  ============  ==========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-63
<PAGE>

                             RIGHTWORKS CORPORATION

                            Statements Of Cash Flows

<TABLE>
<CAPTION>
                                                Year Ended December 31,
                                          -------------------------------------
                                             1999         1998         1997
                                          -----------  -----------  -----------
<S>                                       <C>          <C>          <C>
Cash Flows from Operating Activities:
 Net loss...............................  $(9,308,999) $(5,621,565) $(2,016,837)
 Adjustments to reconcile net loss to
  net cash used in operating activities:
  Provision for bad debt................       30,000           --           --
  Depreciation and amortization.........      306,048      100,490       59,948
  Conversion of accrued interest to pre-
   ferred stock.........................           --       26,012           --
  Warrants issued in conjunction with
   bridge financing.....................           --      161,293           --
  Valuation of warrants issued in
   connection with revenue contracts and
   lease lines..........................      406,202           --           --
  Write off of abandoned technology
   exchanged for preferred stock........      134,888           --           --
  Changes in operating assets and lia-
   bilities:
   Accounts receivable..................   (3,134,420)     (58,500)      34,457
   Prepaid expenses and other current
    assets..............................      (84,030)     (44,689)       6,825
   Other assets.........................        3,393           --      (23,623)
   Deferred debt costs..................     (118,325)          --           --
   Accounts payable and accrued liabili-
    ties................................    1,636,669      244,565      192,089
   Deferred revenue.....................    1,702,083       58,500      (10,000)
                                          -----------  -----------  -----------
    Net cash used in operating activi-
     ties...............................   (8,426,541)  (5,133,894)  (1,757,141)
                                          -----------  -----------  -----------
Cash Flows from Investing Activities:
 Purchase of property and equipment.....      (60,817)    (120,550)    (142,246)
                                          -----------  -----------  -----------
    Net cash used in investing activi-
     ties...............................      (60,817)    (120,550)    (142,246)
                                          -----------  -----------  -----------
Cash Flows from Financing Activities:
 Advances from related party............           --           --      500,000
 Proceeds from bridge financing.........           --    1,650,000           --
 Proceeds from issuance of common
  stock.................................       44,013       35,735       17,018
 Repurchase of common stock.............       (4,479)      (3,840)          --
 Proceeds from issuance of preferred
  stock, net............................   13,439,944    6,833,759    1,901,300
 Repayments of capital lease obliga-
  tions.................................      (19,239)          --           --
 Proceeds from issuance of note pay-
  able..................................    3,000,000           --           --
                                          -----------  -----------  -----------
    Net cash provided by financing ac-
     tivities...........................   16,460,239    8,515,654    2,418,318
                                          -----------  -----------  -----------
Net Increase In Cash and Cash Equiva-
 lents..................................    7,972,881    3,261,210      518,931
Cash and Cash Equivalents, Beginning of
 Period.................................    3,948,840      687,630      168,699
                                          -----------  -----------  -----------
Cash and Cash Equivalents, End of Peri-
 od.....................................  $11,921,721  $ 3,948,840  $   687,630
                                          ===========  ===========  ===========
Supplemental Schedule of Noncash Financ-
 ing Activities:
 Warrants issued in conjunction with
  bridge financing......................  $        --  $   161,293  $        --
                                          ===========  ===========  ===========
 Write off of abandoned technology ex-
  changed for preferred stock...........  $   134,888  $        --  $        --
                                          ===========  ===========  ===========
 Notes receivable from officer in ex-
  change for preferred stock............  $    16,667  $        --  $        --
                                          ===========  ===========  ===========
 Notes receivable from officers for
  exercise of common stock options......  $   351,000  $        --  $        --
                                          ===========  ===========  ===========
 Equipment purchased under capital
  leases................................  $   331,821  $        --  $        --
                                          ===========  ===========  ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                      F-64
<PAGE>

                             RIGHTWORKS CORPORATION

                         Notes to Financial Statements

1. Organization:

      RightWorks Corporation (the "Company" or "RightWorks") was incorporated
in California in September 1994 to develop and market Web-based enterprise-
class electronic procurement solutions.

      The Company has financed its operations primarily through the sale of
convertible preferred stock. In February 1999, the Company released and shipped
the production version of its initial product and emerged from the development
stage. However, the Company continues to be subject to the risks and challenges
associated with companies in a comparable stage of development, including:
dependence on key employees for technology development and support, dependence
on a limited number of customers, rapidly changing technology, potential
competition from larger, more established companies, the successful development
and marketing of its products and the ability to obtain adequate financing to
support its growth.

      The Company incurred a net loss of $9.3 million for the year ended
December 31, 1999 and, as of December 31, 1999, has an accumulated deficit of
$17.4 million. During February 2000 the Company raised approximately $7.1
million in gross proceeds from the sale of its Series I preferred stock. In
March 2000, Internet Capital Group entered into an agreement, with tendering
preferred shareholders of the Company, to acquire a majority interest in the
Company. The Company expects to incur additional losses in the future.
Management anticipates funding future operations through additional equity
financing, as required, and successful operations; however, there is no
assurance that such efforts will be successful.

2. Significant Accounting Policies:

    Use of Estimates in the Preparation of Financial Statements

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

    Statements of Cash Flows

      For purposes of the statements of cash flows, RightWorks considers all
highly liquid investments purchased with original maturities of three months or
less to be cash equivalents. Cash equivalents consist of amounts on deposit at
a commercial bank.

    Concentration of Credit Risk and Significant Customers

      Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses which, to date, have not been material.

      Receivables due from significant customers as a percentage of total
accounts receivable were as follows:

<TABLE>
<CAPTION>
                                                                    As of
                                                                December 31,
                                                                ---------------
                                                                 1999     1998
                                                                ------   ------
     <S>                                                        <C>      <C>
     Customer A................................................      *      100%
     Customer B................................................     56%       *
     Customer C................................................     13%       *
</TABLE>

      * Represents less than 10% for the indicated period.

                                      F-65
<PAGE>

                             RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)


      Sales to significant customers as a percentage of total revenues were as
follows:

<TABLE>
<CAPTION>
                                                                   Years Ended
                                                                   December 31,
                                                                  ----------------
                                                                  1999  1998  1997
                                                                  ----  ----  ----
     <S>                                                          <C>   <C>   <C>
     Customer B..................................................  86%    *     *
     Customer D..................................................   *     *    49%
     Customer E..................................................   *     *    51%
     Customer F..................................................   *    67%    *
     Customer G..................................................   *    33%    *
</TABLE>
    --------
      * Represents less than 10% for the indicated period.

    Property and Equipment

      Property and equipment is stated at cost. Depreciation is computed using
the straight-line method based on estimated useful lives of the assets, which
is generally three years. Depreciation expense is included in operating
expenses.

      Property and equipment consists of the following at December 31:

<TABLE>
<CAPTION>
                                                             1999       1998
                                                           ---------  ---------
     <S>                                                   <C>        <C>
     Computer equipment................................... $ 592,240  $ 279,062
     Furniture and fixtures...............................   136,933     69,370
     Purchased software...................................    24,397     12,500
                                                           ---------  ---------
                                                             753,570    360,932
     Accumulated depreciation and amortization............  (340,887)  (185,417)
                                                           ---------  ---------
     Property and equipment, net.......................... $ 412,683  $ 175,515
                                                           =========  =========
</TABLE>

    Software Development Costs

      Under the criteria set forth in Statement of Financial Accounting
Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed," capitalization of software development
costs begins upon the establishment of technological feasibility of the
product, which the Company defines as establishment of a working model and is
further defined as a beta version of the software. The period of time
commencing when a product achieves beta status and ending when a product is
offered for sale is typically very short. Accordingly, amounts that could have
been capitalized under SFAS No. 86 after consideration of the above factors and
overall recoverability of capitalizable amounts were immaterial and, therefore,
no software development costs have been capitalized by the Company to date.

    Stock-Based Compensation

      The Financial Accounting Standards Board ("FASB") issued SFAS No. 123,
"Accounting for Stock-Based Compensation," in October 1995. This accounting
standard permits the use of either a fair value based method of accounting or
the method defined in Accounting Principles Board Opinion 25 ("APB 25"),
"Accounting for Stock Issued to Employees" to account for stock-based
compensation arrangements. Companies that elect to employ the method prescribed
by APB 25 are required to disclose the pro forma net income (loss) that would
have resulted from the use of the fair value based method. RightWorks has
elected to

                                      F-66
<PAGE>

                             RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)

continue to account for its stock-based compensation arrangements under the
provisions of APB 25, and accordingly, has included in Note 6 the pro forma
disclosures required under SFAS No. 123.

    Revenue Recognition

      The Company did not complete development of its principal product until
February 1999 and, accordingly, had no product revenue in 1998. Revenue
recognized in the years ended December 31, 1998 and 1997 related to royalties
and services.

      RightWorks' revenues for 1999 are derived from two sources; license fees
and services. Services include software maintenance and support, training and
system implementation consulting.

      Fees from licenses are recognized as revenue upon contract execution,
provided all shipment obligations have been met, fees are fixed or
determinable, collection is probable, and vendor specific objective evidence
exists to allocate the total fee between all elements of the arrangement. If an
acceptance period is required, revenue is recognized upon the earlier of
customer acceptance or the expiration of the acceptance period.

      Maintenance revenue is recognized ratably over the term of the
maintenance contract, which is typically twelve months. If maintenance is
included in an arrangement which includes a license agreement, amounts related
to maintenance are unbundled from the license fee based on vendor specific
objective evidence. Consulting and training revenue is recognized when the
services are performed.

      Cost of revenue consists of compensation and related overhead costs for
persons engaged in consulting, training and maintenance for our customers.

    Advertising Costs

      The Company expenses all advertising costs as incurred. The Company does
not incur any direct-response advertising costs.

    Comprehensive Income (Loss)

      In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which RightWorks adopted beginning on January 1, 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The objective
of SFAS No. 130 is to report a measure of all changes in equity of an
enterprise that result from transactions and other economic events of the
period other than transactions with shareholders ("comprehensive income").
Comprehensive income is the total of net income and all other non-owner changes
in equity. For each of the three years ended December 31, 1999, RightWorks'
comprehensive loss was equal to net loss.

                                      F-67
<PAGE>

                             RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)


    Computation of Basic and Diluted Net Loss Per Share

      Basic and diluted net loss per common share are presented in conformity
with SFAS No. 128, "Earnings Per Share," for all periods presented. In
accordance with SFAS No. 128, basic net loss per common share has been computed
using the weighted average number of shares of common stock outstanding during
the period, less shares subject to repurchase (in thousands, except per share
amounts).

<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                                  ----------------------------
                                                    1999      1998      1997
                                                  --------  --------  --------
<S>                                               <C>       <C>       <C>
Net loss......................................... $ (9,309) $ (5,622) $ (2,017)
                                                  --------  --------  --------
Basic and diluted:
  Weighted average shares of common stock out-
   standing......................................    2,511     1,852     1,534
Less: Weighted average shares subject to repur-
 chase...........................................     (666)     (224)     (133)
                                                  --------  --------  --------
  Weighted average shares used in computing basic
   and diluted net loss per common share.........    1,845     1,615     1,402
                                                  --------  --------  --------
Basic and diluted net loss per common share...... $  (5.05) $  (3.48) $  (1.44)
                                                  ========  ========  ========
</TABLE>

      RightWorks has excluded all convertible preferred stock, warrants for
convertible preferred stock, outstanding stock options, and shares subject to
repurchase from the calculation of diluted net loss per common share because
all such securities are antidilutive for all periods presented. The total
number of shares excluded from the calculations of diluted net loss per share
were approximately 84,500,000, 75,100,000, and 17,500,000 for the years ended
December 31, 1999, 1998 and 1997, respectively. See notes 5 and 6 for further
information on these securities.

    Segment Reporting

      During 1998, RightWorks adopted SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 requires a new basis of
determining reportable business segments (i.e., the management approach). This
approach requires that business segment information used by management to
assess performance and manage company resources be the source for segment
information disclosure. On this basis, Rightworks is organized and operates as
one business segment; the design, development, and marketing of software
solutions.

      During the years ended December 31, 1999, 1998 and 1997, Rightworks did
not generate revenues in foreign countries and had no assets in foreign
countries.

    Recent Accounting Pronouncements

      In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires companies to record
derivative financial instruments on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. In June 1999, the
FASB issued SFAS No. 137, "Accounting For Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133," which
amends SFAS No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000 (or January 1, 2001 for RightWorks). Management
believes that this statement will not have a material impact on the financial
condition or results of the operations of RightWorks.

                                      F-68
<PAGE>

                            RIGHTWORKS CORPORATION

                  Notes to Financial Statements--(Continued)


      In December 1998, the AICPA issued Statement of Position ("SOP") 98-9,
"Modification of SOP97-2, Software Revenue Recognition, with Respect to
Certain Transactions." SOP 98-9 amends SOP 97-2 and SOP 98-4 by extending the
deferral of the application of certain provisions of SOP 97-2 amended by SOP
98-4 through fiscal years beginning on or before March 15, 1999. All other
provisions of SOP 98-9 are effective for transactions entered into in fiscal
years beginning after March 15, 1999. RightWorks does not anticipate that this
statement will have a material impact on its statement of operations.

      In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the application of generally accepted
accounting principles to revenue recognition in financial statements. On March
24, 2000, the SEC issued an amendment to SAB 101 delaying the effective date
for certain companies. The Company will adopt SAB 101 in the second quarter of
fiscal 2000 and is presently analyzing the impact that SAB 101 will have on
its financial statements. Based on the Company's review to date, SAB 101 is
not expected to materially impact the Company's financial position or
operating results.

3. Borrowings:

      In June 1999, the Company entered into a convertible subordinated note
agreement with a financing company totaling $3,000,000, secured by the assets
of the Company. The note bears interest at 10%, is payable, initially, in
twelve monthly installments of interest only. Beginning July 2000, principal
and interest is payable in twenty-four equal monthly installments. The Company
is required to maintain compliance with certain financial covenants, including
minimum tangible net worth and liquidity coverage. Until 45 days prior to an
initial public offering of the Company's common stock, 30% of the note is
convertible into preferred stock of the Company at a conversion rate equal to
the lower of the price per share of preferred stock representing a $20 million
valuation or the price per share of preferred stock at the next financing
round. None of the note was converted during the year ended December 31, 1999.
In conjunction with the agreement, the Company issued a warrant to purchase
143,916 shares of Series H preferred stock at an exercise price of $2.24 per
share (see note 5).

      Future maturities of principal on these note agreements as of December
31, 1999 are as follows:

<TABLE>
     <S>                                                              <C>
     2000............................................................ $  576,706
     2001............................................................  1,485,761
     2002............................................................    937,533
                                                                      ----------
                                                                      $3,000,000
                                                                      ==========
</TABLE>

      In June 1999, the Company entered into a note payable agreement with a
leasing company. The note accrues interest monthly at 3.09 % and matures in
June 2002. The note is secured by the equipment acquired with the proceeds
from this note. The principal amount outstanding at December 31, 1999 under
this note is $312,582. In conjunction with the agreement, the Company issued a
warrant to purchase 23,986 shares of Series H preferred stock at an exercise
price of $2.24 per share (see note 5).

      Included in property and equipment are assets acquired under capital
leases. Future minimum lease payments on capital leases are as follows at
December 31, 1999:

<TABLE>
<CAPTION>
     Years Ending December 31,
     -------------------------
     <S>                                                              <C>
     2000............................................................ $ 139,088
     2001............................................................   139,088
     2002............................................................   119,877
                                                                      ---------
     Total minimum lease payments....................................   398,053
     Less: Imputed interest (7.0%)...................................   (85,471)
                                                                      ---------
     Present value of payments under capital lease...................   312,582
     Less: Current portion...........................................  (106,471)
                                                                      ---------
     Long-term capital lease obligations............................. $ 206,111
                                                                      =========
</TABLE>

                                     F-69
<PAGE>

                             RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)


4. Commitments:

      RightWorks leases its facilities under operating lease agreements. The
facility leases expire at various dates in 2000. As of December 31, 1999,
future minimum payments required under RightWorks' operating leases in 2000
were $130,810.

      In April 2000, RightWorks entered into an operating lease agreement for a
new office facility. the term of the lease is eight years and expires in March
2008. Future minimum lease payments under the lease are as follows:

<TABLE>
     <S>                                                              <C>
     2000............................................................ $  914,359
     2001............................................................  1,044,732
     2002............................................................  1,044,732
     2003............................................................  1,044,732
     2004............................................................  1,044,732
     Thereafter......................................................  3,395,379
                                                                      ----------
                                                                      $8,488,666
                                                                      ==========
</TABLE>

      Rent expense was $240,898, $197,470 and $112,030 for the years ended
December 31, 1999, 1998 and 1997, respectively.

5. Preferred Stock:

      At December 31, 1999, the Company has authorized 87,276,219 shares of
preferred stock, of which 3,000,000 shares have been designated as Series A
Preferred Stock ("Series A"); 4,946,000 shares have been designated Series B
Preferred Stock ("Series B"); 9,139,485 shares have been designated as Series C
Preferred Stock ("Series C"); 7,838,085 shares have been designated as Series D
Preferred Stock ("Series D"); 14,417,093 shares have been designated as Series
E Preferred Stock ("Series E"); 35,000,000 shares have been designated as
Series F Preferred Stock ("Series F"); 1,000,000 shares have been designated as
Series G Preferred Stock ("Series G"); 8,435,556 shares have been designated as
Series H Preferred Stock ("Series H"); and 3,500,000 shares have been
designated as Series I Preferred Stock ("Series I"). Significant rights,
restrictions and preferences of the preferred stock are as follows:

    .  Each share of preferred stock is entitled to receive dividends at a
       rate of $0.005 to $0.3083 per share, payable in preference and
       priority to payment of any dividend on common stock, when, and if,
       declared by the board of directors of the Company. The right to
       dividends on the preferred stock shall not be cumulative. No
       dividends have been declared as of December 31, 1999.

    .  In the event of liquidation, dissolution, or winding up of the
       Company, either voluntary or involuntary, the holders of preferred
       stock shall be entitled to receive, pari passu with each other and in
       preference to any distribution to holders of common stock, an amount
       per share ranging from $0.05 to $3.083. If the assets and funds are
       not sufficient to permit the payment of these amounts, then the
       entire assets and funds of the corporation shall be distributed
       ratably among the holders of preferred stock in proportion to the
       number of shares of each series of preferred stock held by each such
       holder. Any remaining assets will be distributed proportionally among
       the holders of common stock and preferred stock on an as-converted
       basis.

       Each share of preferred stock is convertible at the option of the
       holder into one share of common stock (subject to adjustments for
       events of dilution). The shares will be converted into common shares
       immediately prior to the closing of a public stock offering which
       meets certain criteria. The shares will also be automatically
       converted into common shares upon written consent of the holders of
       not less than 66.67% of the then outstanding preferred shares.

                                      F-70
<PAGE>

                             RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)


    .  Each share of preferred stock is entitled to vote in an amount
       equivalent to the number of common shares into which it is
       convertible.

    Series G Preferred Stock

      In 1999, the Company entered into an agreement with another company to
exchange certain technology for Series G. In conjunction with this agreement,
the Company agreed to issue 935,616 shares of Series G, valued at $134,888,
which has similar rights and preferences as other series of preferred stock as
noted above. The Company anticipated using the technology to incorporate into
their product to sell to companies desiring to purchase an internal procurement
software product. During 1999, the Company abandoned the use of the technology
as it re-focused its efforts on selling software to companies establishing
digital marketplaces on the internet. The write-off of the technology is
included in research and development in the accompanying statements of
operations.

    Series I Preferred Stock

      In January 2000, the Company issued an additional 2,287,228 shares of
Series I at $3.083 per share. Total proceeds from the additional issuance
amounted to approximately $4,700,000.

    Warrants

      In August and October 1998, the Company issued $1,150,000 and $500,000,
respectively, of Convertible Promissory Notes (the "Notes") pursuant to Note
and Warrant Purchase Agreements. The Notes bore interest at 8.5%, and the
principal of $1,650,000 and accrued interest of $26,012 were converted into
Series E Preferred Stock at a conversion price of $0.14417.

      In conjunction with this bridge financing, the Company issued warrants to
purchase 1,716,723 shares of Series E Preferred Stock at an exercise price of
$0.14417. The warrants were exercisable after the closing of the Series E
financing and expire in August 2003. The fair value of the warrants on the date
of grant was estimated using the Black-Scholes model using the following
assumptions: risk-free interest rate of 5.46%, expected life of 5 years, and
expected volatility of 75%, and was determined to be $161,293. This amount has
been recognized as additional interest expense in the accompanying statement of
operations.

      In conjunction with four software and value added reseller arrangements,
the Company issued warrants to purchase 2,400,536 shares of the Company's
preferred stock at exercise prices ranging from $2.24 to $3.083 per share, the
fair value of the underlying preferred stock on the dates of the agreements.
The warrants have terms ranging from December 31, 2002 to December 31, 2004 and
will be earned over their terms as certain performance milestones are achieved.
Warrants for 150,000 shares were earned during 1999 and the fair value of these
warrants was determined to be approximately $281,000 and was estimated using
the Black-Scholes option pricing model with the following assumptions: risk-
free interest rate of 6%; expected lives of three to five years; and expected
volatility of 70%. This amount was recognized as a reduction of revenue on the
accompanying statements of operations and comprehensive loss. The residual
2,250,536 warrants were unearned at December 31, 1999.

      In conjunction with the note agreements (see note 3), the Company issued
167,902 warrants to purchase series H preferred stock at exercise prices of
$2.24 per share which are exercisable until either June 25, 2006 or three years
from the Company's initial public offering. The fair value of these warrants
was

                                      F-71
<PAGE>

                             RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)

determined to be approximately $125,000 and was estimated using the Black-
Scholes option pricing model with the following assumptions: risk-free interest
rate of 6%; expected life of seven years; and expected volatility of 70%. This
amount, net of amortization for 1999, was recorded as debt issuance costs in
other assets and is being amortized to interest expense over the one year term
of the agreement.

6. Common Stock:

    Reserved for Future Issuance

      As of December 31, 1999, the Company has reserved the following shares of
authorized but unissued common stock:

<TABLE>
     <S>                                                              <C>
     Series A........................................................  3,000,000
     Series B........................................................  4,946,000
     Series C........................................................  9,139,485
     Series D........................................................  7,838,085
     Series E........................................................ 12,700,370
     Series F........................................................ 34,681,280
     Series G........................................................    935,616
     Series H........................................................  5,845,938
     Series I........................................................    162,179
     Warrants to purchase preferred stock............................  4,285,160
     Stock options...................................................  4,372,667
                                                                      ----------
                                                                      87,906,780
                                                                      ==========
</TABLE>

    Stock-Based Compensation

      In connection with the grant of certain stock options to employees during
the year ended December 31, 1999, the Company recorded deferred compensation of
$3,389,998, representing the difference between the deemed value of the common
stock for accounting purposes and the option exercise price or stock sale price
at the date of the option grant or stock sale. Such amount is presented as a
reduction of shareholders' equity and amortized over the vesting period of the
applicable options. Approximately $150,578 was expensed during the year ended
December 31, 1999. Compensation expense is decreased in the period of
forfeiture for any accrued but unvested compensation arising from the early
termination of an option holder's services.

    1996 Stock Option Plan

      In August 1996, the board of directors approved the 1996 Stock Option
Plan (the "Plan"). Under the Plan, incentive and nonqualified stock options to
purchase up to 7,258,093 shares of common stock may be granted to employees,
directors, and consultants to the Company. The option price per share shall not
be less than the fair value, as determined by the board of directors, for
incentive stock option grants or not less than 85% of the fair value for
nonqualified stock options. Any options granted to a shareholder with more than
10% of the voting power (a "ten-percent owner") shall not have an option price
of less than 110% of the fair value. Options become exercisable as determined
by the board of directors, which is generally over four years. Options
generally expire ten years after the date of grant, or five years for greater
than ten-percent owners.

                                      F-72
<PAGE>

                             RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)


      The following table summarizes stock option activity under the Plan:

<TABLE>
<CAPTION>
                              Year Ending          Year Ending        Year Ending
                           December 31, 1999    December 31, 1998  December 31, 1997
                          --------------------- ------------------ ------------------
                                       Weighted           Weighted           Weighted
                                       Average            Average            Average
                                       Exercise           Exercise           Exercise
                            Shares      Price    Shares    Price    Shares    Price
                          ----------   -------- --------  -------- --------  --------
<S>                       <C>          <C>      <C>       <C>      <C>       <C>
Outstanding at beginning
 of year................      887,763   $0.25    300,865   $0.05    116,459   $0.05
  Granted...............    5,710,835   $0.17    917,287   $0.25    381,006   $0.10
  Exercised.............  (2,594,907)   $0.15   (263,564)  $0.15   (126,555)  $0.05
  Cancelled.............  (1,291,348)   $0.21    (66,825)  $0.30    (70,045)  $0.05
                          ----------            --------           --------
Outstanding at end of
 year...................    2,712,343   $0.18    887,763   $0.25    300,865   $0.05
                          ==========            ========           ========
Exercisable at end of
 year...................      260,157   $0.13    275,830   $0.10    205,828   $0.05
                          ==========            ========           ========
</TABLE>

      RightWorks accounts for its stock option plans pursuant to APB 25 whereby
the difference between the exercise price and the fair value at the date of
grant is recognized as compensation expense. Had compensation expense for stock
option plans been determined consistent with SFAS No. 123, net losses would
have increased to the following pro forma amounts (in thousands, except per
share amounts):

<TABLE>
<CAPTION>
                                             Years Ended December 31,
                                                  ----------------------------
                                                    1999      1998      1997
                                                  --------  --------  --------
<S>                                               <C>       <C>       <C>
Net loss as reported............................. $ (9,309) $ (5,622) $ (2,017)
Net loss pro forma............................... $ (9,378) $ (5,626) $ (2,082)
Net loss per common share as reported............  $ (5.05) $  (3.48) $  (1.44)
Net loss per common share pro forma..............  $ (5.08) $  (3.48) $  (1.49)
</TABLE>

      The weighted average fair value of options granted during the years ended
1999, 1998, and 1997 was $0.05, $0.05 and $0.02, respectively. The fair value
of each option grant was estimated on the date of grant using the Black-Scholes
option pricing model using the following assumptions: risk-free interest rates
ranging from 4.22% to 5.99%; expected dividend yield of zero percent for all
three periods; an average expected life of 2.5 years; and expected volatility
of 0.001% for all periods.

      The following table summarizes the stock options outstanding and
exercisable as of December 31, 1999:

<TABLE>
<CAPTION>
                                                                 Options Vested
                                       Options Outstanding      And Exercisable
                                   ---------------------------- ----------------
                                             Weighted  Weighted         Weighted
               Range of                       Average  Average          Average
               Exercise                      Remaining Exercise         Exercise
                Prices              Number     Years    Price   Number   Price
               --------            --------- --------- -------- ------- --------
     <S>                           <C>       <C>       <C>      <C>     <C>
     $0.05........................    61,671    6.9     $0.05    54,658  $0.05
     $0.10........................    98,003    7.6     $0.10    82,837  $0.10
     $0.15........................ 1,342,412    5.9     $0.15    75,879  $0.15
     $0.22........................ 1,175,435    9.8     $0.22    36,393  $0.22
     $0.50........................    34,822    7.9     $0.50    10,390  $0.50
                                   ---------                    -------
                                   2,712,343                    260,157
                                   =========                    =======
</TABLE>

                                      F-73
<PAGE>

                            RIGHTWORKS CORPORATION

                  Notes to Financial Statements--(Continued)


    Non-Plan Stock Options

     In October 1995, non-qualified stock options for a total of 99,600 shares
of common stock were granted to an employee at an exercise price of $0.025 per
share. These options are fully vested and expire ten years from the date of
grant.

    Stock Split

     On June 2, 1999, Rightworks' board of directors approved a 5-for-1
reverse stock split of Rightworks' outstanding common stock. All share and per
share information relating to common stock included in these financial
statements has been retroactively adjusted to reflect this reverse stock
split.

7. Income Taxes:

     The Company accounts for income taxes pursuant to the provisions of SFAS
No. 109, "Accounting for Income Taxes," which provides for an asset and
liability approach under which deferred income taxes are provided based upon
enacted tax laws and rates applicable to the periods in which the taxes become
payable. The Company has not had any taxable income or related tax liabilities
for any period. A valuation allowance has been recorded for the total deferred
tax assets as a result of uncertainties regarding realization of the assets
based upon the limited operating history of the Company, the lack of
profitability to date, and the uncertainty of future profitability.

     The components of the deferred income tax asset as of December 31, 1999
and 1998 were as follows:

<TABLE>
<CAPTION>
                                                            1999        1998
                                                         ----------  ----------
<S>                                                      <C>         <C>
Net operating loss carryforwards........................ $4,057,314  $2,101,786
Temporary differences...................................    646,679      46,586
Capitalized Start Up Costs..............................  2,217,234   1,888,655
Research and development credits........................    321,239     210,324
                                                         ----------  ----------
                                                          7,244,466   4,247,351
Valuation allowance..................................... (7,244,466) (4,247,351)
                                                         ----------  ----------
Net deferred income tax asset........................... $       --  $       --
                                                         ==========  ==========
</TABLE>

     As of December 31, 1999, the Company has Federal and State net deferred
tax assets of approximately $7,244,000 consisting primarily of net operating
loss carryforwards. The Company has established a valuation allowance equal to
this net deferred tax asset. The Company has research and development credits
of approximately $287,000 and $34,000 to offset future Federal and State
taxable income, respectively. Additionally, the Company has capitalized start-
up costs of approximately $5,430,000 and has net operating loss carryforwards
of approximately $9,954,000 to offset future Federal and State taxable income.
The net operating loss carryforwards expire at various dates through the year
2019. The Tax Reform Act of 1986 contains provisions which may limit the net
operating loss and credit carryforwards to be used in any given year upon the
occurrence of certain events, including a significant change in ownership
interest.

8. Related Party Transactions:

     On December 31, 1997 the Company received a $500,000 advance payment from
a shareholder in conjunction with the Series D financing which closed in
January 1998. Upon closure of the financing, the advance was converted into
1,741,796 shares of Series D.

                                     F-74
<PAGE>

                             RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)


      During 1999, an officer of the Company was given a loan to purchase
11,121 shares of Series H at $2.24 per share and certain other officers were
given loans, with full recourse, to exercise 2,340,000 common stock options at
$0.15 per share. In April 2000, the loan for Series H was paid-in-full. The
loans for the option exercises bear interest at 6% and are due in four years.



                                      F-75
<PAGE>

                          Independent Auditors' Report

To the Board of Directors of
eMerge Interactive, Inc.:

We have audited the accompanying consolidated balance sheets of eMerge
Interactive, Inc. as of December 31, 1997 and 1998 and September 30, 1999 and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1998, and for the nine months ended September 30, 1999. 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 generally accepted auditing
standards. 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 eMerge Interactive,
Inc. at December 31, 1997 and 1998 and September 30, 1999 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, and for the nine months ended September 30,
1999 in conformity with generally accepted accounting principles.

                                          KPMG LLP

Orlando, Florida
December 6, 1999

                                      F-76
<PAGE>

                            EMERGE INTERACTIVE, INC.

                          Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                         Proforma
                                                                       September 30,
                             December 31,  December 31,  September 30,     1999
                                 1997          1998          1999       (note 1(b))
                             ------------  ------------  ------------- -------------
                                                                        (unaudited)
<S>                          <C>           <C>           <C>           <C>
Assets
Current assets:
 Cash......................  $       400   $       268    $ 1,650,134   $ 1,650,134
 Trade accounts
  receivable...............           --       368,421      2,790,427     2,790,427
 Inventories (note 3)......      635,963       706,557        655,129       655,129
 Cattle deposits...........           --            --        489,760       489,760
 Prepaid expenses..........       33,642        27,837        103,242       103,242
 Net assets of discontinued
  operations (note 12).....    1,066,804     2,285,341        390,336       390,336
                             -----------   -----------    -----------   -----------
 Total current assets......    1,736,809     3,388,424      6,079,028     6,079,028
Property and equipment, net
 (note 4)..................      428,140       513,837      1,711,404     1,711,404
Capitalized offering
 costs.....................           --            --        341,967       341,967
Investment in Turnkey
 Computer Systems, Inc.
 (note 5)..................           --            --      1,822,833     1,822,833
Intangibles, net (note 6)..           --     2,699,828      6,273,309     6,273,309
                             -----------   -----------    -----------   -----------
   Total assets............  $ 2,164,949   $ 6,602,089    $16,228,541   $16,228,541
                             ===========   ===========    ===========   ===========
Liabilities and
 Stockholders' Equity
 (Deficit)
Current liabilities:
 Current installments of
  capital lease obligation
  with related party (note
  10)......................  $        --   $    79,852    $    83,917   $    83,917
 Note payable (note 5).....           --            --        500,000       500,000
 Accounts payable..........      725,369       423,946      1,633,132     1,633,132
 Accrued liabilities:
 Salaries and benefits.....      175,597       283,103        908,271       908,271
 Other.....................       98,704       319,989      1,435,987     1,435,987
 Advanced payments from
  customers................           --            --        619,270       619,270
 Due to related parties
  (note 10)................    8,040,304     5,187,334     13,405,957    13,405,957
                             -----------   -----------    -----------   -----------
 Total current
  liabilities..............    9,039,974     6,294,224     18,586,534    18,586,534
Capital lease obligation
 with related party,
 excluding current
 installments (note 10)....           --       305,018        242,673       242,673
Note payable (note 5)......           --            --        900,000       900,000
                             -----------   -----------    -----------   -----------
 Total liabilities.........    9,039,974     6,599,242     19,729,207    19,729,207
                             -----------   -----------    -----------   -----------
Commitments and
 contingencies (notes 6, 10
 and 13)
Redeemable Class A common
 stock, issued and
 outstanding. No shares
 issued and outstanding in
 1997 and 1998, 62,500
 shares issued and
 outstanding in 1999. No
 shares issued and
 outstanding pro forma
 (note 5).....................        --            --        406,000            --
                             -----------   -----------    -----------   -----------
Stockholders' equity
 (deficit) (notes 7, 9 and
 14):
 Preferred stock, $.01 par
  value, authorized
  15,000,000 shares:
 Series A preferred stock,
  (aggregate involuntary
  liquidation preference
  of $6,741,954 in 1997,
  $7,386,314 in 1998 and
  $7,545,198 in 1999),
  designated 6,500,000
  shares, issued and
  outstanding 6,443,606
  shares in 1997, 1998 and
  1999. No shares
  designated, issued and
  outstanding pro forma....       64,436        64,436         64,436            --
 Series B junior preferred
  stock, (aggregate
  involuntary liquidation
  preference of $-0- in
  1997, $4,801,315 in 1998
  and $4,919,671 in 1999),
  designated 2,400,000
  shares, issued and
  outstanding -0- shares
  in 1997, 2,400,000
  shares in 1998 and 1999.
  No shares designated,
  issued and outstanding
  pro forma................           --        24,000         24,000            --
 Series C preferred stock,
  designated 1,300,000
  shares, issued and
  outstanding -0- shares
  in 1997 and 1998 and
  1,100,000 shares in
  1999. No shares
  designated, issued and
  outstanding pro forma....           --            --         11,000            --
 Series D preferred stock,
  designated 4,555,556
  shares, no shares issued
  and outstanding in 1997,
  1998 and 1999. No shares
  designated, issued and
  outstanding pro forma....           --            --             --            --
 Common stock, $.008 par
  value, authorized
  100,000,000 shares:
 Class A common stock,
  designated 92,711,110
  shares, issued and
  outstanding 3,258,125
  shares in 1997,
  5,845,625 shares in 1998
  and 6,957,694 shares in
  1999 and 19,449,702
  shares pro forma.........       26,065        46,765         55,662       155,723
 Class B common stock,
  designated 7,288,890
  shares; no shares issued
  and outstanding in 1997,
  1998, 1999 or pro
  forma....................           --            --             --            --
 Additional paid-in
  capital..................    1,982,986    16,648,286     23,454,170    23,859,545
 Accumulated deficit.......   (8,948,512)  (16,780,640)   (27,452,825)  (27,452,825)
 Unearned compensation.....           --            --        (63,109)      (63,109)
                             -----------   -----------    -----------   -----------
   Total stockholders'
    equity (deficit).......   (6,875,025)        2,847     (3,906,666)   (3,500,666)
                             -----------   -----------    -----------   -----------
   Total liabilities and
    stockholders' equity
    (deficit)..............  $ 2,164,949   $ 6,602,089    $16,228,541   $16,228,541
                             ===========   ===========    ===========   ===========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-77
<PAGE>

                            EMERGE INTERACTIVE, INC.

                     Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                    Nine Months Ended
                               Years Ended December 31,               September 30,
                          -------------------------------------  -------------------------
                             1996         1997         1998         1998          1999
                          -----------  -----------  -----------  -----------  ------------
                                                                 (unaudited)
<S>                       <C>          <C>          <C>          <C>          <C>
Revenue.................  $        --  $        --  $ 1,792,471  $ 1,106,452  $ 18,338,645
Cost of revenue
 (including $0, $0,
 $511,000, $388,000 and
 $255,000 to related
 parties--note 10)......           --           --    2,623,447    1,628,757    18,282,330
                          -----------  -----------  -----------  -----------  ------------
    Gross profit
     (loss).............           --           --     (830,976)    (522,305)       56,315
                          -----------  -----------  -----------  -----------  ------------
Operating expenses:
  Selling, general and
   administrative
   (including $0,
   $219,000, $627,000,
   $507,000, and
   $600,000 to related
   parties--note 10)....           --      627,606    3,659,810    2,427,944     7,539,689
  Research and
   development
   (including $0,
   $51,000, $119,000,
   $95,000 and $171,000
   to related parties--
   note 10).............           --      727,753    1,109,382      759,434     2,756,262
                          -----------  -----------  -----------  -----------  ------------
    Total operating
     expenses...........           --    1,355,359    4,769,192    3,187,378    10,295,951
                          -----------  -----------  -----------  -----------  ------------
Profit (loss) from
 continuing operations..           --   (1,355,359)  (5,600,168)  (3,709,683)  (10,239,636)
Related party interest
 expense (note 10)......           --     (141,167)    (331,594)    (231,000)     (458,624)
Other income............           --           --           --           --        15,655
                          -----------  -----------  -----------  -----------  ------------
    Profit (loss) from
     continuing
     operations before
     income taxes.......           --   (1,496,526)  (5,931,762)  (3,940,683)  (10,682,605)
                          -----------  -----------  -----------  -----------  ------------
Income tax expense
 (benefit) (note 8).....           --           --           --           --            --
    Profit (loss) from
     continuing
     operations.........           --   (1,496,526)  (5,931,762)  (3,940,683)  (10,682,605)
Discontinued operations
 (note 12):
  Income (loss) from
   operations of
   discontinued
   transportation
   segment (including
   $468,000, $814,000,
   $370,000, $287,000,
   and $171,000 to
   related parties--note
   10)..................   (1,719,492)  (3,987,097)  (1,808,951)  (1,721,060)       10,420
  Loss on disposal of
   transportation
   segment..............           --           --      (91,415)          --            --
                          -----------  -----------  -----------  -----------  ------------
Net profit (loss).......  $(1,719,492) $(5,483,623) $(7,832,128) $(5,661,743) $(10,672,185)
                          ===========  ===========  ===========  ===========  ============
Profit (loss) from
 continuing operations
 per common share--basic
 and diluted............  $        --  $     (3.91) $     (1.36) $     (0.67) $      (1.59)
                          ===========  ===========  ===========  ===========  ============
Net profit (loss) per
 common share--basic and
 diluted................  $     (9.24) $    (14.34) $     (1.80) $     (0.97) $      (1.59)
                          ===========  ===========  ===========  ===========  ============
Weighted average number
 of common shares
 outstanding--basic and
 diluted................      186,096      382,273    4,356,926    5,845,625     6,709,854
                          ===========  ===========  ===========  ===========  ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-78
<PAGE>

                           EMERGE INTERACTIVE, INC.

           Consolidated Statements of Stockholders' Equity (Deficit)

<TABLE>
<CAPTION>
                   Preferred Stock   Preferred Stock   Preferred Stock  Preferred Stock       Common Stock    Common Stock
                      Series A          Series B          Series C         Series D              Class A         Class B
                  ----------------- ----------------- ----------------- -----------------   ----------------- -------------
                   Shares   Amount   Shares   Amount   Shares   Amount  Shares    Amount     Shares   Amount  Shares Amount
                  --------- ------- --------- ------- --------- ------- -------   -------   --------- ------- ------ ------
<S>               <C>       <C>     <C>       <C>     <C>       <C>     <C>       <C>       <C>       <C>     <C>    <C>
Balances at
December 31,
1995............         -- $    --        -- $    --        -- $    --       --   $    --      1,250 $    10   --    $--
Issuance of
common stock to
XL Vision, Inc.,
for cash at
$.008 per
share...........         --      --        --      --        --      --       --        --    248,750   1,990   --     --
Issuance of
common stock for
cash at $.008
per share.......         --      --        --      --        --      --       --        --    175,000   1,400   --     --
Exercise of
stock options
for cash at
$.008 per
share...........         --      --        --      --        --      --       --        --     25,000     200   --     --
Net profit
(loss)..........         --      --        --      --        --      --       --        --         --      --   --     --
                  --------- ------- --------- ------- --------- -------  -------   -------  --------- -------  ---    ---
Balances at
December 31,
1996............         --      --        --      --        --      --       --        --    450,000   3,600   --     --
Issuance of
common stock to
XL Vision, Inc.,
for cash at
$.008 per
share...........         --      --        --      --        --      --       --        --  2,808,125  22,465   --     --
Sale of Series A
preferred stock
for cash at
$1.00 per share
(note 7)........  6,443,606  64,436        --      --        --      --       --        --         --      --   --     --
Transfer of
technology by XL
Vision, Inc.
(note 10).......         --      --        --      --        --      --       --        --         --      --   --     --
Net profit
(loss)..........         --      --        --      --        --      --       --        --         --      --   --     --
                  --------- ------- --------- ------- --------- -------  -------   -------  --------- -------  ---    ---
Balances at
December 31,
1997............  6,443,606  64,436        --      --        --      --       --        --  3,258,125  26,065   --     --
Contribution of
debt to equity
by XL Vision,
Inc. (note 10)..         --      --        --      --        --      --       --        --         --      --   --     --
Issuance of
Series B
preferred stock
in exchange for
contribution of
debt to equity
by XL Vision,
Inc. at $2.00
per share (notes
7 and 10).......         --      -- 2,400,000  24,000        --      --       --        --         --      --   --     --
Issuance of
common stock in
connection with
Nutri-Charge
transaction at
$0.80 per share
(note 6)........         --      --        --      --        --      --       --        --  2,587,500  20,700   --     --
Contribution of
put rights by XL
Vision, Inc.
(note 6)........         --      --        --      --        --      --       --        --         --      --   --     --
Net profit
(loss)..........         --      --        --      --        --      --       --        --         --      --   --     --
                  --------- ------- --------- ------- --------- -------  -------   -------  --------- -------  ---    ---
Balances at
December 31,
1998............  6,443,606  64,436 2,400,000  24,000        --      --       --        --  5,845,625  46,765   --     --
Exercise of
stock options
for cash at
$0.80 per
share...........         --      --        --      --        --      --       --        --    112,069     897   --     --
Issuance of
common stock in
connection with
CIN transaction
at $0.96 per
share (note 6)..         --      --        --      --        --      --       --        --    750,000   6,000   --     --
Issuance of
common stock in
connection with
Cyberstockyard
transaction at
$1.80 per share
(note 6)........         --      --        --      --        --      --       --        --    250,000   2,000   --     --
Issuance of
Series C
preferred stock
at $5.00 per
share (note 7)..         --      --        --      -- 1,100,000  11,000       --        --         --      --   --     --
Accretion to
redemption value
of Class A
common stock
issued in
connection with
the Turnkey
Computer
Systems, Inc.
(note 5)........         --      --        --      --        --      --       --        --         --      --   --     --
Net profit
(loss)..........         --      --        --      --        --      --       --        --         --      --   --     --
Unearned
compensation
(note 9)........         --      --        --      --        --      --       --        --         --      --   --     --
Amortization of
unearned
compensation
(note 9)........         --      --        --      --        --      --       --        --         --      --   --     --
                  --------- ------- --------- ------- --------- -------  -------   -------  --------- -------  ---    ---
Balances at
September 30,
1999............  6,443,606 $64,436 2,400,000 $24,000 1,100,000 $11,000       --   $    --  6,957,694 $55,662   --    $--
                  ========= ======= ========= ======= ========= =======  =======   =======  ========= =======  ===    ===
<CAPTION>
                  Additional
                    Paid-in    Accumulated     Unearned
                    Capital      Deficit     Compensation    Total
                  ------------ ------------- ------------ ------------
<S>               <C>          <C>           <C>          <C>
Balances at
December 31,
1995............  $     3,816  $ (1,745,397)   $     --   $(1,741,571)
Issuance of
common stock to
XL Vision, Inc.,
for cash at
$.008 per
share...........           --            --          --         1,990
Issuance of
common stock for
cash at $.008
per share.......           --            --          --         1,400
Exercise of
stock options
for cash at
$.008 per
share...........           --            --          --           200
Net profit
(loss)..........           --    (1,719,492)         --    (1,719,492)
                  ------------ ------------- ------------ ------------
Balances at
December 31,
1996............        3,816    (3,464,889)         --    (3,457,473)
Issuance of
common stock to
XL Vision, Inc.,
for cash at
$.008 per
share...........           --            --          --        22,465
Sale of Series A
preferred stock
for cash at
$1.00 per share
(note 7)........    6,379,170            --          --     6,443,606
Transfer of
technology by XL
Vision, Inc.
(note 10).......   (4,400,000)           --          --    (4,400,000)
Net profit
(loss)..........           --    (5,483,623)         --    (5,483,623)
                  ------------ ------------- ------------ ------------
Balances at
December 31,
1997............    1,982,986    (8,948,512)         --    (6,875,025)
Contribution of
debt to equity
by XL Vision,
Inc. (note 10)..    7,500,000            --          --     7,500,000
Issuance of
Series B
preferred stock
in exchange for
contribution of
debt to equity
by XL Vision,
Inc. at $2.00
per share (notes
7 and 10).......    4,776,000            --          --     4,800,000
Issuance of
common stock in
connection with
Nutri-Charge
transaction at
$0.80 per share
(note 6)........    2,049,300            --          --     2,070,000
Contribution of
put rights by XL
Vision, Inc.
(note 6)........      340,000            --          --       340,000
Net profit
(loss)..........           --    (7,832,128)         --    (7,832,128)
                  ------------ ------------- ------------ ------------
Balances at
December 31,
1998............   16,648,286   (16,780,640)         --         2,847
Exercise of
stock options
for cash at
$0.80 per
share...........       88,758            --          --        89,655
Issuance of
common stock in
connection with
CIN transaction
at $0.96 per
share (note 6)..      714,000            --          --       720,000
Issuance of
common stock in
connection with
Cyberstockyard
transaction at
$1.80 per share
(note 6)........      448,000            --          --       450,000
Issuance of
Series C
preferred stock
at $5.00 per
share (note 7)..    5,489,000            --          --     5,500,000
Accretion to
redemption value
of Class A
common stock
issued in
connection with
the Turnkey
Computer
Systems, Inc.
(note 5)........       (6,000)           --          --        (6,000)
Net profit
(loss)..........           --   (10,672,185)         --   (10,672,185)
Unearned
compensation
(note 9)........       72,126            --     (72,126)           --
Amortization of
unearned
compensation
(note 9)........           --            --       9,017         9,017
                  ------------ ------------- ------------ ------------
Balances at
September 30,
1999............  $23,454,170  $(27,452,825)   $(63,109)  $(3,906,666)
                  ============ ============= ============ ============
</TABLE>

         See accompanying notes to consolidated financial statements.

                                      F-79
<PAGE>

                            EMERGE INTERACTIVE, INC.

                     Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                    Nine Months ended
                               Years ended December 31,               September 30,
                          -------------------------------------  -------------------------
                             1996         1997         1998         1998          1999
                          -----------  -----------  -----------  -----------  ------------
                                                                 (Unaudited)
<S>                       <C>          <C>          <C>          <C>          <C>
Cash flows from
 operating activities:
Net profit (loss).......  $(1,719,492) $(5,483,623) $(7,832,128) $(5,661,743) $(10,672,185)
Adjustments to reconcile
 net profit (loss) to
 net cash used in
 operating activities:
 Depreciation and
  amortization..........        1,503      122,486      438,576      230,964     1,176,431
 Amortization of
  unearned
  compensation..........           --           --           --           --         9,017
 Changes in operating
  assets and
  liabilities:
 Trade accounts
  receivable, net.......           --           --     (368,421)    (138,705)   (2,405,456)
 Inventories............           --     (635,963)     (70,594)     (30,741)       51,428
 Cattle deposits........           --           --           --           --      (489,760)
 Prepaid expenses and
  other assets..........       (1,304)     (32,338)       5,805      (77,079)      (75,405)
 Net assets of
  discontinued
  operations............      (96,209)    (853,501)  (1,140,425)  (1,477,150)           --
 Accounts payable.......        5,675      719,694     (301,423)     (32,037)    1,038,877
 Accrued liabilities....       75,542      198,759      328,791      151,016       214,739
 Advanced payments from
  customers.............           --           --           --           --       619,270
                          -----------  -----------  -----------  -----------  ------------
  Net cash used by
   operating
   activities...........   (1,734,285)  (5,964,486)  (8,939,819)  (7,035,475)  (10,533,044)
                          -----------  -----------  -----------  -----------  ------------
Cash flows from
 investing activities:
Business combinations,
 net of cash acquired of
 $737...................           --           --           --           --    (1,799,263)
Purchases of property
 and equipment..........      (56,861)    (506,540)    (460,290)    (269,831)   (1,228,432)
Purchase of
 intangibles............     (100,000)          --     (431,923)    (431,923)           --
Proceeds from
 discontinued
 operations.............           --           --           --           --     1,825,407
Investment in Turnkey
 Computer Systems, Inc..           --           --           --           --       (22,833)
                          -----------  -----------  -----------  -----------  ------------
  Net cash used by
   investing
   activities...........     (156,861)    (506,540)    (892,213)    (701,754)   (1,225,121)
                          -----------  -----------  -----------  -----------  ------------
Cash flows from
 financing activities:
Net borrowings from
 related parties........    1,889,101        3,810    9,447,030    7,737,227     8,218,623
Proceeds from capital
 lease financing with
 related party..........           --           --      440,832           --            --
Payments on capital
 lease obligations......           --           --      (55,962)          --       (58,280)
Offering costs..........           --           --           --           --      (341,967)
Sale of preferred
 stock..................           --    6,443,606           --           --     5,500,000
Sale of common stock....        3,590       22,465           --           --        89,655
                          -----------  -----------  -----------  -----------  ------------
  Net cash provided by
   financing
   activities...........    1,892,691    6,469,881    9,831,900    7,737,227    13,408,031
                          -----------  -----------  -----------  -----------  ------------
  Net increase
   (decrease) in cash...        1,545       (1,145)        (132)          (2)    1,649,866
Cash--beginning of
 period.................           --        1,545          400          400           268
                          -----------  -----------  -----------  -----------  ------------
Cash--end of period.....  $     1,545  $       400  $       268  $       398  $  1,650,134
                          ===========  ===========  ===========  ===========  ============
Supplemental
 disclosures:
Cash paid for interest..  $        --  $        --  $    23,594  $    13,517  $     20,628
Non-cash investing and
 financing activities:
 Transfer of technology
  by XL Vision, Inc.
  (note 10).............           --    4,400,000           --           --            --
 Contribution of debt to
  equity by XL Vision,
  Inc. (note 10)........           --           --    7,500,000           --            --
 Issuance of preferred
  stock in exchange for
  contribution of debt
  to equity by XL
  Vision, Inc. (note
  10)...................           --           --    4,800,000           --            --
 Non-cash issuance of
  Class A common stock
  in connection with
  Nutri-Charge
  transaction (note 6)..           --           --    2,070,000    2,070,000            --
 Contribution of put
  rights by XL Vision,
  Inc. (note 6).........           --           --      340,000      340,000            --
 Issuance of Class A
  common stock in
  connection with CIN
  transaction (note 6)..           --           --           --           --       720,000
 Issuance of Class A
  common stock with
  Cyberstockyard
  transaction (note 6)..           --           --           --           --       450,000
 Issuance of redeemable
  Class A common stock
  with Turnkey Computer
  Systems, Inc.
  transaction (note 5)..           --           --           --           --       400,000
 Issuance of note
  payable to Turnkey
  Computer Systems, Inc.
  (note 5)..............           --           --           --           --     1,400,000
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-80
<PAGE>

                           EMERGE INTERACTIVE, INC.

                  Notes to Consolidated Financial Statements
  (Information insofar as it relates to September 30, 1998 or the nine months
                                     ended
                       September 30, 1998 is unaudited)

(1) Organization

    (a) Overview

      eMerge Interactive, Inc. (the "Company") is a Delaware corporation that
was incorporated on September 12, 1994 as Enhanced Vision Systems, a wholly
owned subsidiary of XL Vision, Inc. ("XL Vision"). The Company's name was
changed to eMerge Vision Systems, Inc. on July 16, 1997 and to eMerge
Interactive, Inc. on June 11, 1999.

      The Company was incorporated to develop and commercialize infrared
technology focused on the transportation segment. In 1997, the Company entered
a new business segment, animal sciences, by developing an infrared camera
system for use primarily by veterinarians. The Company further expanded its
operations in 1998 by licensing NutriCharge and infrared technology (see note
5) for commercialization. In December 1998, the Company's Board of Directors
decided to dispose of the transportation segment. The Company's AMIRIS thermal
imaging system, which was the sole product sold by the transportation segment,
was sold on January 15, 1999.

    (b) Basis of Presentation

      The consolidated financial statements include the accounts of eMerge
Interactive, Inc. and its wholly-owned subsidiaries, STS Agriventures, Ltd.
("STS"), a Canadian corporation and Cyberstockyard, Inc. ("Cyberstockyard").

      All significant intercompany balances and transactions have been
eliminated upon consolidation.

      The pro forma balance sheet as of September 30, 1999 assumes the
conversion of all preferred stock to Class A common stock upon the Company's
planned initial public offering ("IPO").

    (c) Management's Plans

      As of September 30, 1999, the Company had a working capital deficiency
of $12,507,506 and stockholders' deficit of $3,906,666. Management expects
additional working capital requirements as the Company continues its marketing
and development efforts for its products. Subsequent to September 30, 1999,
the Company obtained equity financing (see note 14). The Company also plans an
IPO. Although management believes that its IPO will be successful, there can
be no assurances that it will be completed.

(2) Summary of Significant Accounting Policies

    (a) Revenue Recognition

      The Company recognizes revenue in accordance with the terms of the sale
or contract, generally as products are shipped or services are provided. The
Company bears both the inventory and credit risk with respect to sales of all
of its products. In cattle sales transactions, the Company purchases cattle
from the seller, takes title at shipment and records the cattle as inventory
until delivered to and accepted by the buyer, typically a 24 to 48 hour
period. In both cattle auction and resale transactions, the Company acts as a
principal in purchasing cattle from suppliers and sales to customers so that
the Company recognizes revenue equal to the amount paid by customers for the
cattle.

                                     F-81
<PAGE>

                           EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)


    (b) Inventories

     Inventories are stated at standard cost which approximates the lower of
first-in, first-out cost or market.

    (c) Property and Equipment

     Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Amortization of equipment under capital lease is computed
over the shorter of the lease term or the estimated useful life of the related
assets.

    (d) Intangibles

     Intangibles are stated at amortized cost. Amortization is computed using
the straight-line method over the estimated useful lives of the assets.

    (e) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
    Of

     The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of". This Statement requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower
of their carrying amount or fair value less costs to sell.

    (f) Income Taxes

     The Company accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

    (g) Stock-Based Compensation

     Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB Opinion No. 25") and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.

                                     F-82
<PAGE>

                            EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)


    (h) Use of Estimates

      The preparation of the Company's consolidated financial statements, in
conformity with generally accepted accounting principles, requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.

    (i) Net Profit (Loss) Per Share

      Net profit (loss) per share is computed in accordance with SFAS No. 128,
"Earnings Per Share," by dividing the net profit (loss) allocable to common
stockholders (net profit (loss) less accretion related to redeemable Class A
common stock) by the weighted average number of shares of common stock
outstanding less the 62,500 shares of redeemable Class A common stock. The
Company's stock options (338,125 at December 31, 1997, 1,632,500 at December
31, 1998 and 2,488,494 at September 30, 1999) and convertible preferred stock
(6,443,606 at December 31, 1997, 8,843,606 at December 31, 1998 and 9,943,606
at September 30, 1999), have not been used in the calculation of diluted net
profit (loss) per share because to do so would be anti-dilutive. As such, the
numerator and the denominator used in computing both basic and diluted net
profit (loss) per share allocable to common stockholders are equal.

      Pursuant to Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 98 and SEC staff policy, all common stock and common stock
equivalents issued for nominal consideration during the periods presented
herein and through the filing of the registration statement for the IPO are to
be reflected in a manner similar to a stock split or stock dividend for which
retroactive treatment is required in the calculation of net profit (loss) per
share; the Company did not have any such issuances.

    (j) Estimated Fair Value of Financial Instruments

      The carrying value of cash, trade accounts receivable, accounts payable,
accrued liabilities and amounts due to related parties reflected in the
consolidated financial statements approximates fair value due to the short-term
maturity of these instruments.

    (k) Interim Financial Information

      The consolidated financial statements for the period ended September 30,
1998 are unaudited but reflect only normal and recurring adjustments which are,
in the opinion of management, necessary for the fair presentation of financial
position and results of operations. Operating results for the nine months ended
September 30, 1999 and 1998 are not necessarily indicative of the results that
may be expected for the full year.

(3) Inventories

      Inventories consist of:

<TABLE>
<CAPTION>
                                                   December 31,
                                                 ----------------- September 30,
                                                   1997     1998       1999
                                                 -------- -------- -------------
      <S>                                        <C>      <C>      <C>
      Raw materials............................. $346,335 $424,130   $594,337
      Work-in-process...........................  289,628  282,427     60,792
                                                 -------- --------   --------
                                                 $635,963 $706,557   $655,129
                                                 ======== ========   ========
</TABLE>

                                      F-83
<PAGE>

                            EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)


(4) Property and Equipment

      Property and equipment consists of:

<TABLE>
<CAPTION>
                                    December 31,
                                  ----------------- September 30,  Estimated
                                    1997     1998       1999      useful lives
                                  -------- -------- ------------- ------------
     <S>                          <C>      <C>      <C>           <C>
     Engineering and
      manufacturing equipment.... $258,082 $366,150  $  634,625     5 years
     Office and computer
      equipment..................  179,315  259,462   1,532,298     3 years
     Furniture and fixtures......   67,282  104,706     112,122     7 years
     Leasehold improvements......   46,865   46,865      80,430     7 years
     Automobiles.................       --       --      54,717     5 years
                                  -------- --------  ----------
                                   551,544  777,183   2,414,192
     Less accumulated
      depreciation and
      amortization...............  123,404  263,346     702,788
                                  -------- --------  ----------
     Property and equipment,
      net........................ $428,140 $513,837  $1,711,404
                                  ======== ========  ==========
</TABLE>

      Assets under capital lease amounted to $-0-, $440,832 and $440,832 as of
December 31, 1997, 1998 and September 30, 1999, respectively. Accumulated
amortization for assets under capital lease totaled approximately $-0-,
$152,300 and $217,500 as of December 31, 1997, 1998 and September 30, 1999,
respectively.

(5) Investment in Turnkey Computer Systems, Inc.

      On August 16, 1999, the Company acquired 19% of the common stock of
Turnkey Computer Systems, Inc. ("Turnkey") for $1,822,833. The purchase price
consisted of 62,500 shares of the Company's redeemable Class A common stock
valued at $400,000, $1,400,000 in cash and $22,833 of transaction costs. The
$1,400,000 is payable upon the earlier of the completion of the Company's IPO
or $500,000 at December 31, 1999, $500,000 at December 31, 2000 and $400,000 at
December 31, 2001. This investment is carried on the cost method since the
Company does not have significant influence over Turnkey. The common stock
purchase agreement with Turnkey contains a put right which allows Turnkey to
have a one time right to put to the Company its 62,500 redeemable Class A
common shares with a fixed purchase price of $500,000. The put right can only
be exercised upon a change in control or after December 31, 2001, if the
Company has not completed an IPO. This redeemable Class A common stock is
classified outside of stockholders' equity (deficit). The difference between
the carrying amount and the redemption amount of $500,000 is being accreted to
redeemable Class A common stock as a charge to additional paid-in capital from
issuance to December 31, 2001 using the effective interest method.

                                      F-84
<PAGE>

                            EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)


(6) Intangibles

      Intangibles consists of:

<TABLE>
<CAPTION>
                                        December 31,                  Estimated
                                      ----------------- September 30,  useful
                                       1997     1998        1999        life
                                      ------ ---------- ------------- ---------
     <S>                              <C>    <C>        <C>           <C>
     NutriCharge license............  $   -- $2,273,538  $2,273,538   10 years
     Infrared technology license....      --    568,385     568,385    5 years
     Goodwill--CIN..................      --         --   2,076,368    5 years
     Non-compete agreement--CIN.....      --         --     100,000    5 years
     Goodwill--Cyberstockyard.......      --         --     427,274    3 years
     Non-compete agreement--
      Cyberstockyard................      --         --     100,000    3 years
     Goodwill--PCC..................      --         --   1,487,791    5 years
     Non-compete agreement--PCC.....      --         --     100,000    4 years
                                      ------ ----------  ----------   --------
                                          --  2,841,923   7,133,356
     Less accumulated amortization..      --    142,095     860,047
                                      ------ ----------  ----------
     Intangibles, net...............  $   -- $2,699,828  $6,273,309
                                      ====== ==========  ==========
</TABLE>

      On July 29, 1998, the Company acquired licenses for NutriCharge and
infrared technology. The purchase price of $2,841,923 (consisting of $300,000
in cash, 2,587,500 of the Company's Class A common shares valued at $0.80 per
share, $131,923 in acquisition costs and the estimated fair value of put rights
granted by XL Vision) was allocated to the acquired NutriCharge and infrared
technology licenses based on estimated fair values determined by estimated cash
flows from the underlying licensed product. In connection with the transaction,
XL Vision granted a put right that allows the sellers to require XL Vision to
purchase up to 1,250,000 shares of the Company's Class A common stock at $3.00
per share. The fair value of the put was estimated to be $340,000 and was
credited to additional paid-in capital. The put right may only be exercised
thirty days prior to or after the fourth anniversary of the agreement. The
ultimate amount payable under the put agreement is reduced by the amount, if
any, of indemnification obligations related to the transaction. The estimated
fair value of the put was determined with the assistance of an independent,
third party valuation expert by calculating the net present value (at 10%
interest) of the product of the $2,000,000 intrinsic value of the put adjusted
for the 25% probability that the put would be exercised.

      On February 24, 1999, the Company acquired substantially all of the
tangible and intangible assets of CIN, LLC d/b/a/ Cattlemen's Information
Network ("CIN") for $2,296,610. The purchase price for the assets consisted of
750,000 shares of the Company's Class A common stock valued at $720,000, the
assumption of $812,021 of liabilities, a cash payment due in October 1999 of
$357,816, and an agreement to pay the first $350,000 from Internet sales of
third party products over the Company's Web site and transaction costs of
$56,773. CIN is in the business of selling access to its cattle feedlot
performance measurements database. Immediately after the closing, CIN changed
its name to Lost Pelican, L.L.C.

      On March 29, 1999, the Company acquired 100% of the stock of
Cyberstockyard, Inc. for $542,265. The purchase price consisted of 250,000
shares of the Company's Class A common stock valued at $450,000, the assumption
of $89,972 of liabilities and transaction costs of $2,293. Cyberstockyard, Inc.
is in the business of selling cattle through its proprietary auction software
over the Internet.

      On May 19, 1999, the Company acquired substantially all of the tangible
and intangible assets of PCC, LLC d/b/a Professional Cattle Consultants, L.L.C.
("PCC") for $1,827,861. The purchase price consists of a

                                      F-85
<PAGE>

                            EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

cash payment of $1,800,000 and an assumption of $2,861 of liabilities and
transaction costs of $25,000. PCC is in the business of providing comparative
analysis and market information for the feedlot industry. Immediately after the
closing, PCC changed its name to QDD Investment Company, L.L.C.

      Each acquisition was accounted for as a purchase and the results of
operations of the acquired companies is included in the statement of operations
since the respective date of acquisition.

      The aggregate purchase price of the above acquisitions was approximately
$4,666,736, which included related acquisition costs of approximately $84,000
and was allocated as follows:

<TABLE>
      <S>                                                            <C>
      Goodwill...................................................... $3,991,433
      Non-compete agreements........................................    300,000
      Equipment.....................................................    358,016
      Current assets, including cash acquired of $737...............     17,287
                                                                     ----------
                                                                     $4,666,736
                                                                     ==========
</TABLE>

      Unaudited pro forma information for the Company as if the acquisitions
above had been consummated as of January 1, 1998 and 1999 follows:

<TABLE>
<CAPTION>
                                             Nine months ended September 30,
                                             ---------------------------------
                                                  1998              1999
                                             ---------------  ----------------
      <S>                                    <C>              <C>
      Revenue............................... $     1,687,077  $     18,560,565
                                             ===============  ================
      Net profit (loss)..................... $    (4,987,862) $    (11,097,329)
                                             ===============  ================
      Net profit (loss) per common share.... $         (0.97) $          (1.61)
                                             ===============  ================
</TABLE>

(7) Equity

    Common Stock

      As of September 30, 1999, the Company had authorized the issuance of
100,000,000 shares of common stock.

      Class A--In 1999, the Company designated 92,711,110 shares as Class A
common stock.

      Class B--In 1999, the Company designated 7,288,890 shares as Class B
common stock. Holders of Class B common stock are entitled to two and one-half
votes for each share. The shares of Class A and Class B are identical in all
other respects.

    Preferred Stock

      As of September 30, 1999, the Company had authorized the issuance of
15,000,000 shares of preferred stock and had designated 6,500,000 as Series A
shares, and 2,400,000 as Series B shares, 1,300,000 as Series C shares and
4,555,556 as Series D shares. Each share of preferred stock is convertible into
1.25 shares of Class A common stock at the option of the holder or upon the
vote of holders of two-thirds of the respective preferred stock class
outstanding except for Series D shares which is convertible at the offering
price into 1.25 shares Class B common stock. Preferred stock is automatically
converted into common stock upon a qualified

                                      F-86
<PAGE>

                            EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

IPO of at least $10 million with a Company valuation of at least $30 million or
upon a public rights offering of the Company to shareholders of Safeguard
Scientifics, Inc.

      Series A--The Series A shares are entitled to a liquidation preference
before any distribution to common stockholders equal to the greater of (a)
$1.00 per share plus an additional $.10 per year (pro rated for partial years)
from July 16, 1997 or (b) the amount which would be distributed if all of the
preferred stock of the Company were converted to Class A common stock prior to
liquidation. The holders of Series A preferred stock are entitled to vote as a
separate class to elect two directors to the Board of Directors of the Company.

      Series B--Series B shares are entitled to a liquidation preference before
any distribution to common stockholders equal to the greater of (a) $2.00 per
share plus an additional $.20 for each year (pro rated for partial years) from
December 31, 1998 or until the date of distribution of available assets or (b)
the amount which would be distributed if all of the preferred stock of the
Company were converted to Class A common stock prior to liquidation. Series B
shares are junior to Series A, C and D shares.

      Series C--Series C shares are entitled to a liquidation preference before
any distribution to common stockholders equal to the greater of (a) $5.00 per
share plus an additional $.50 for each year (pro rated for partial years) from
April 15, 1999 or until the date of distribution of available assets or (b) the
amount which would be distributed if all of the preferred stock of the Company
were converted to Class A common stock prior to liquidation. Series C shares
are on parity with Series A and D shares except as to voting rights.

      Series D--Series D shares are entitled to a liquidation preference before
any distribution to common stockholders equal to the greater of (a) $9.00 per
share plus an additional $1.00 for each year (pro rated for partial years) from
October 27, 1999 or until the date of distribution of available assets or (b)
the amount which would be distributed if all the preferred stock of the Company
were converted to Class B common stock prior to liquidation. Series D shares
are on parity with Series A and C shares except as to voting rights. Series D
stockholders are entitled to two and one-half votes per share.

(8) Income Taxes

      Deferred income taxes reflect the net tax effects of temporary difference
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets and liability are as follows:

<TABLE>
<CAPTION>
                                               December 31,
                                           ---------------------- September 30,
                                              1997        1998        1999
                                           ----------  ---------- -------------
     <S>                                   <C>         <C>        <C>
     Deferred tax assets:
       Net operating loss carryforwards..  $3,237,000  $5,967,000  $ 8,057,000
       Amortization of acquired
        technology from XL Vision (note
        10)..............................   1,829,000   1,704,000    1,704,000
       Research and experimentation tax
        credits..........................     294,000     448,000      718,000
       Other.............................     125,000     596,000    1,524,000
                                           ----------  ----------  -----------
                                            5,485,000   8,715,000   12,003,000
       Less valuation allowance..........   5,370,000   8,715,000   12,003,000
                                           ----------  ----------  -----------
         Net deferred tax assets.........     115,000          --           --
     Deferred tax liability:
       Imputed interest..................    (115,000)         --           --
                                           ----------  ----------  -----------
         Net deferred tax asset
          (liability)....................  $       --  $       --  $        --
                                           ==========  ==========  ===========
</TABLE>


                                      F-87
<PAGE>

                            EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

      The Company has available at September 30, 1999 for federal income tax
purposes, unused net operating loss carryforwards of approximately $21,000,000
which may be applied against future taxable income and expires in years
beginning in 2010. The Company also has approximately $718,000 in research and
experimentation credits carryforwards. The research and experimentation
credits, which begin to expire in 2010, can also be used to offset future
regular tax liabilities. A valuation allowance for deferred tax assets is
provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized.

      The difference between the "expected" tax benefit (computed by applying
the federal corporate income tax rate of 34% to the loss before income taxes)
and the actual tax benefit is primarily due to the effect of the valuation
allowance.

(9) Stock Plan

      In January 1996, the Company adopted an equity compensation plan (the
"1996 Plan") pursuant to which the Company's Board of Directors may grant
shares of common stock or options to acquire common stock to certain directors,
advisors and employees. The Plan authorizes grants of shares or options to
purchase up to 2,168,750 shares of authorized but unissued common stock. Stock
options granted have a maximum term of ten years and have vesting schedules
which are at the discretion of the Compensation Committee of the Board of
Directors and determined on the effective date of the grant.

      In May 1999, the Company's stockholders approved the 1999 Equity
Compensation Plan (the "1999 Plan"). Under the 1999 Plan, an additional
1,250,000 shares of authorized, unissued shares of common stock of the Company
are reserved for issuance to employees, advisors and for non-employee members
of the Board of Directors. Option terms under the 1999 Plan may not exceed 10
years.

      A summary of option transactions follows:

<TABLE>
<CAPTION>
                                                                  Weighted
                                      Range of                     average
                                      exercise     Weighted       remaining
                                     prices per    average       contractual
                           Shares      share    exercise price life (in years)
                          ---------  ---------- -------------- ---------------
<S>                       <C>        <C>        <C>            <C>
Balance outstanding, De-
 cember 31, 1996.........     3,125  $     0.80     $0.80           4.85
                                                                    ====
  Granted................   335,000        0.80      0.80
                          ---------  ----------     -----
Balance outstanding, De-
 cember 31, 1997.........   338,125        0.80      0.80           9.64
                                                                    ====
  Granted................ 1,692,500   0.80-1.60      0.84
  Canceled...............  (398,125)       0.80      0.80
                          ---------  ----------     -----
Balance outstanding, De-
 cember 31, 1998......... 1,632,500   0.80-1.60       .84           9.48
                                                                    ====
  Granted................ 1,010,250   1.60-7.20      2.58
  Exercised..............  (112,069)       0.80      0.80
  Canceled...............   (42,187)  0.80-1.60      1.04
                          ---------  ----------     -----
Balance outstanding,
 September 30, 1999...... 2,488,494  $0.80-7.20     $1.54           9.08
                          =========  ==========     =====           ====
</TABLE>

      At December 31, 1997, 1998 and September 30, 1999, there were 76,719,
414,375 and 716,369 shares exercisable, respectively at weighted average
exercise prices of $0.80, $0.82 and $1.06, respectively.

                                      F-88
<PAGE>

                            EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)


      At December 31, 1997 and 1998 and September 30, 1999, 99,375, 511,250 and
747,250 shares were available for grant, respectively.

      The per share weighted-average fair value of stock options granted was $0
in 1996, $0 in 1997, $0.08 in 1998 and $0.84 in 1999 on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                         1996  1997  1998  1999
                                                         ----  ----  ----  ----
      <S>                                                <C>   <C>   <C>   <C>
      Volatility........................................    0%    0%    0%    0%
      Dividend paid.....................................    0%    0%    0%    0%
      Risk-free interest rate........................... 6.35% 6.11% 4.73% 4.99%
      Expected life in years............................ 5.77  6.75  5.57  6.75
</TABLE>

      No volatility was assumed due to the use of the Minimum Value Method of
computation for options issued by the Company as a private entity as prescribed
by SFAS No. 123.

      All stock options granted, except as noted in the paragraph below, have
been granted to directors or employees with an exercise price equal to the fair
value of the common stock at the date of grant. The Company applies APB Opinion
No. 25 for issuances to directors and employees in accounting for its Plan and,
accordingly, no compensation cost has been recognized in the consolidated
financial statements through December 31, 1998.

      On March 19, 1999, the Company granted 360,625 stock options with an
exercise price of $1.60 and a fair value of $1.80. The Company recorded $72,126
of unearned compensation at the date of grant and is amortizing the unearned
compensation over the vesting period. Compensation expense amounted to $9,017
for the nine months ended September 30, 1999.

      Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's net loss
would have increased to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                  1996         1997         1998          1999
                               -----------  -----------  -----------  ------------
      <S>                      <C>          <C>          <C>          <C>
      Net loss as reported.... $(1,719,492) $(5,483,623) $(7,832,128) $(10,672,185)
                               ===========  ===========  ===========  ============
      Pro forma net loss...... $(1,719,492) $(5,483,623) $(7,865,031) $(10,887,665)
                               ===========  ===========  ===========  ============
      Net loss per share, as
       reported:
        Basic and diluted..... $     (9.24) $    (14.34) $     (1.80) $      (1.59)
                               ===========  ===========  ===========  ============
      Pro forma net loss per
       share:
        Basic and diluted..... $     (9.24) $    (14.34) $     (1.81) $      (1.62)
                               ===========  ===========  ===========  ============
</TABLE>

                                      F-89
<PAGE>

                            EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)


(10) Related Party Transactions

    Due to Related Parties

      Due to related parties consist of:

<TABLE>
<CAPTION>
                                               December 31,
                                           --------------------- September 30,
                                              1997       1998        1999
                                           ---------- ---------- -------------
      <S>                                  <C>        <C>        <C>
      XL Vision........................... $8,029,995 $5,158,436  $ 6,057,978
      Safeguard Scientifics, Inc. and
       Safeguard Delaware, Inc............     10,309     28,898    7,347,979
                                           ---------- ----------  -----------
                                           $8,040,304 $5,187,334  $13,405,957
                                           ========== ==========  ===========
</TABLE>

    Amounts Due to XL Vision

      Amounts due to XL Vision consist of:

<TABLE>
      <S>                                                          <C>
      Balance as of December 31, 1996............................  $ 3,636,494
        Allocation of costs and funding of working capital to the
         Company.................................................    6,318,405
        Technology transfer fee..................................    4,400,000
        Interest charges on technology transferred...............      141,167
        Proceeds from Series A Preferred Stock...................   (6,443,606)
        Issuance of Class A common stock.........................      (22,465)
                                                                   -----------
      Balance as of December 31, 1997............................    8,029,995
        Allocation of costs and funding of working capital to the
         Company.................................................    9,120,441
        Interest charges on technology transferred...............      308,000
        Contribution of debt to equity...........................   (7,500,000)
        Contribution of debt to equity in exchange for Series B
         Preferred Stock.........................................   (4,800,000)
                                                                   -----------
      Balance as of December 31, 1998............................    5,158,436
        Allocation of costs and funding of working capital to the
         Company.................................................      668,542
        Interest charges on technology transferred...............      231,000
                                                                   -----------
      Balance as of September 30, 1999...........................  $ 6,057,978
                                                                   ===========
</TABLE>

      The average outstanding balance due to XL Vision was approximately
$2,690,900 in 1996, $6,239,600 in 1997, $12,782,400 in 1998 and $7,342,435 in
1999.

      On January 1, 1999, the Company signed a revolving promissory note with
XL Vision for up to $3,000,000. The revolving promissory note bears interest at
the prime rate plus 1% and is due in full when the Company completes an IPO or
sells all of its assets or stock.

    Note Payable to Safeguard Delaware, Inc.

      On July 21, 1999, the Company obtained a $3,000,000 revolving note
payable from Safeguard Delaware, Inc ("Safeguard"). The revolving note payable,
as amended, bears interest payable monthly at the prime rate plus 1% and is due
December 31, 1999.

                                      F-90
<PAGE>

                            EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)


      In August, September and October 1999, the Company signed demand notes
with interest payable monthly at the prime rate plus 1% with Safeguard for
$2,500,000, $2,000,000 and $2,500,000, respectively. These notes were cancelled
in October 1999, in exchange for a $7,050,000 note due in full on October 25,
2000, the repayment of a promissory note issued concurrently with the sale of
Series D preferred stock or an IPO, whichever is earlier.

    Technology Fee

      On July 15, 1997, the Company entered into an agreement with XL Vision
for the transfer of certain technology that is used by the Company in the sale
of its products for a $4,400,000 note payable. The transfer was accounted for
as a distribution to XL Vision as it represented amounts paid for an asset to
an entity under common control in excess of the cost of such asset. The note
payable bears interest at 7% per annum. Interest expense was $141,167 in 1997,
$308,000 in 1998 and $231,000 in 1999.

    Direct Charge Fee

      Prior to April 1, 1997 personnel, and other services were provided by XL
Vision and the costs were allocated to the Company. The Company believes that
the allocation method used by XL Vision was reasonable. Effective April 1,
1997, the Company entered into a direct charge fee agreement with XL Vision
which allows for cost-based charges based upon actual hours incurred. Costs
allocated by or service fees charged by XL Vision were approximately $468,000
in 1996, $720,000 in 1997, $460,000 in 1998 and $390,000 in 1999. A portion of
the fees in 1998 and 1999 and all of the costs and fees in 1996 and 1997 were
allocated to the discontinued transportation segment.

    Administrative Services Fee

      Effective December 15, 1997, the Company entered into an agreement which
requires accrual of an administrative services fee based upon a percentage of
gross revenues. The fee for administrative support services, including
management consultation, investor relations, legal services and tax planning,
is payable monthly to XL Vision and Safeguard Scientifics, Inc., the largest
shareholder of XL Vision, based upon an aggregate of 1.5% of gross revenues
with such service fees to be not more than $300,000 annually. Effective August
17, 1999, the agreement was amended such that the administrative services fee
is applied to net contribution margin on cattle sales and gross revenue for all
other sales. The fee is accrued monthly but is only payable in months during
which the Company has achieved positive cash flow from operations. The
agreement extends through December 31, 2002 and continues thereafter unless
terminated by any party. Administrative service fees were approximately $10,300
in 1997, $37,200 in 1998 and $43,500 in 1999.

    Leases

      The Company leases equipment under a capital lease, effective April 20,
1998, with an affiliated entity, XL Realty, Inc. Future minimum lease payments,
including imputed interest at 7.53%, are $79,852 in 1999, $85,765 in 2000,
$92,684 in 2001, $100,154 in 2002 and $26,415 in 2003. Interest expense was
$23,594 in 1998 and $20,627 in 1999.

      The Company rents its facility from XL Vision. Rent expense varies based
on space occupied by the Company and includes charges for base rent, repairs
and maintenance, telephone and networking expenses, real estate taxes and
insurance. Rent expense is approximately $68,000 in 1996, $354,000 in 1997,
$1,129,000 in 1998, and $528,000 in 1999.

    License Agreement with XL Vision, Inc.

      In February 1999, the Company signed a license agreement with XL Vision,
granting XL Vision a license to use Company software for the limited purpose of
evaluating whether the software could provide the

                                      F-91
<PAGE>

                            EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

basis for a new company that would operate in the agricultural industry. The
license agreement terminated on November 30, 1999. If XL Vision forms a new
company, the Company will negotiate a long-term license agreement. In addition,
XL Vision is obligated to give the Company at least 25% of the new company. The
Company is obligated to transfer all amounts up to 25% of the company to Lost
Pelican, LLC.

(11) Segment Information

      In 1998, the Company adopted SFAS No. 131, which requires the reporting
of segment information using the "management approach" versus the "industry
approach" previously required. The management approach requires the Company to
report certain financial information related to continuing operations that is
provided to the Company's chief operating decision-maker. The Company's chief
operating decision-maker receives revenue and contribution margin (revenue less
direct costs and excluding overhead) by source, and all other statement of
operations data and balance sheet on a consolidated basis. The Company's
reportable segments consist of cattle sales and animal sciences products and
services. While the Company operates entirely in the animal science
marketplace, the contribution margin associated with cattle sales and the
related prospects for this portion of the Company's business differ from the
rest of the Company's product offerings.

      The following summarizes revenue, cost of revenue and gross profit and
contribution margin information related to the Company's two operating
segments:

<TABLE>
<CAPTION>
                                                          Nine months ended
                                                      -------------------------
                                       Year ended     September 30,  September
                                    December 31, 1998     1998       30, 1999
                                    ----------------- ------------- -----------
                                                       (Unaudited)
<S>                                 <C>               <C>           <C>
Revenue:
  Cattle...........................    $        --     $        --  $17,022,862
  Animal sciences..................      1,792,471       1,106,452    1,315,783
                                       -----------     -----------  -----------
  Total............................    $ 1,792,471     $ 1,106,452  $18,338,645
                                       ===========     ===========  ===========
Cost of revenue:
  Direct costs:
    Cattle.........................    $        --     $        --  $16,860,452
    Animal sciences................        900,824         603,410      492,115
                                       -----------     -----------  -----------
    Total direct costs.............        900,824         603,410   17,352,567
  Unallocated overhead.............      1,722,623       1,025,347      929,763
                                       -----------     -----------  -----------
  Total............................    $ 2,623,447     $ 1,628,757  $18,282,330
                                       ===========     ===========  ===========
Gross profit (loss):
  Contribution margin:
    Cattle.........................    $        --     $        --  $   162,410
    Animal sciences................        891,647         503,042      823,668
                                       -----------     -----------  -----------
    Total..........................        891,647         503,042      986,078
  Unallocated overhead.............     (1,722,623)     (1,025,347)    (929,763)
                                       -----------     -----------  -----------
  Gross profit (loss)..............    $  (830,976)    $  (522,305) $    56,315
                                       ===========     ===========  ===========
</TABLE>

      The Company's assets, and other statement of operations data are not
allocated to a segment.

                                      F-92
<PAGE>

                            EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)


(12) Discontinued Operations

      In December 1998, the Company's Board of Directors decided to dispose of
its transportation segment. The Company's AMIRIS thermal imaging system, which
was the sole product sold in the transportation segment, was sold on January
15, 1999 to Sperry Marine, Inc. for approximately $1,900,000. The Company
received $200,000 of cash at closing and collected an additional $1,388,000
through September 30, 1999. The remaining balance of approximately $312,000 is
expected to be collected by December 31, 1999. The Company is entitled to a
royalty of 8% of net AMIRIS system sales, up to a maximum royalty of $4.3
million over a four year period or up to a maximum royalty of $5.0 million, if
$4.3 million is not received within four years.

      Net assets of the discontinued transportation segment consist of:

<TABLE>
<CAPTION>
                                              December 31,
                                          ----------------------  September 30,
                                             1997        1998         1999
                                          ----------  ----------  -------------
<S>                                       <C>         <C>         <C>
Accounts receivable...................... $  145,500  $  381,435    $ 419,784
Inventory, net...........................  1,076,043   2,020,625      123,093
Property and equipment, net..............     22,650     134,098           --
Intangibles, net.........................     94,444      61,108       36,106
Accounts payable.........................   (271,833)    (80,510)     (63,647)
Accrued liabilities including provision
 for operating loss during phase out
 period of $72,667 in 1998 and $18,748 in
 1999....................................         --    (231,415)    (125,000)
                                          ----------  ----------    ---------
    Net assets........................... $1,066,804  $2,285,341    $ 390,336
                                          ==========  ==========    =========
</TABLE>

(13) Commitments and Contingencies

    Voluntary Employee Savings 401(k) Plan

      The Company established a voluntary employee savings 401(k) plan in 1997
which is available to all full time employees 21 years or older. The plan
provides for a matching by the Company of the employee's contribution to the
plan for 50% of the first 6% of the employee's annual compensation. The
Company's matching contributions were $6,300 in 1996, $38,195 in 1997, $62,108
in 1998 and $54,229 in 1999.

    Royalties

      In connection with the NutriCharge license, the Company is obligated to a
royalty of 5% of gross revenues from the sale of NutriCharge products and
infrared technology related to the Company's Canadian license agreement.

      The Company is also obligated to a royalty of 6% of net revenues from
product or services related to technology patented by Iowa State University.

(14) Subsequent Events

    Sale of Series D Preferred Stock

      On October 27, 1999, the Company agreed to issue 4,555,556 shares of
Series D preferred stock and a warrant to acquire 1,138,889 shares of Class B
common stock. Each share of Series D preferred stock is convertible into 1.25
shares of Class B common stock at any time at the option of the holder or
immediately

                                      F-93
<PAGE>

                            EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

upon an IPO. The warrant is exercisable at the Company's IPO price. In the
event the Company does not complete an IPO, the warrant is exercisable at $9.00
after November 16, 2000 or earlier if the Company has an equity financing of
not less that $20,000,000 from private investors. The warrant expires on
November 16, 2002. In return for these instruments, the Company received
$18,000,000 of cash in November 1999 and a $23,000,000 non-interest, bearing
note receivable due on October 27, 2000. Imputed interest at 9.5% amounts to
$2,185,000 over the life of the note.

      The net consideration of $38,815,000 was allocated to the warrant and
preferred stock as follows. The warrant was valued at $3,325,553 using the
Black-Scholes method and assuming a strike price of $11.20, expiration of three
years, 90% volatility, and 5.8% interest. The remaining proceeds were allocated
to preferred stock and amounted to $7.79 per preferred share ($6.23 per common
share). The beneficial conversion feature was calculated as the difference
between the conversion price ($6.23) and the fair value of the common stock
($7.20) multiplied by the number of Class B common shares into which the
preferred stock is convertible (5,694,445) and amounts to $5,523,612.

      The note receivable will be shown as a reduction of stockholders' equity,
net of imputed interest. Interest income will be accreted over the life of the
note using the effective interest method. The value of the warrant will be
credited to additional paid-in capital. The beneficial conversion feature will
be credited to preferred stock with a corresponding charge to additional paid-
in capital at issuance. The beneficial conversion feature will reduce net
income available to common shareholders.

    Stock Split

      On December 6, 1999, the Board of Directors of the Company authorized a
five-for-four stock split. The stock split has been reflected in these
financial statements as if it had occurred on the first day of the first period
presented.

    Legal Proceeding (Unaudited)

      The Company has been named as a defendant in a lawsuit filed by Central
Biotech, Inc. on January 12, 2000 in the Queen's Bench Judicial Centre of
Regina, Providence of Saskatchewan, Canada. The complaint alleges that eMerge
and E-Y laboratories, Inc. were each subject to confidentiality agreements with
the plaintiff, and subsequently engaged in discussions concerning a potential
business arrangement in violation of such agreements. The complaint asserts
damages, including punitive damages, from the defendants in the aggregate
amount of $18,000,000 (Canadian dollars), as well as injunctive relief.
Although the Company has not yet completed its assessment of these claims, the
Company believes that there are a number of substantive and procedural defenses
that exist and intends to defend these claims vigorously.

    Initial Public Offering (Unaudited)

      On February 17, 2000, the Company closed on its IPO and a concurrent
private placement of common stock and raised net proceeds of approximately
$107,400,000. Approximately $12,800,000 of the proceeds were used to pay
amounts due to related parties and $900,000 was paid to Turnkey.

                                      F-94
<PAGE>

                         Report of Independent Auditors

Board of Directors and Stockholders
JusticeLink, Inc.
(formerly LAWPlus, Inc.)

We have audited the balance sheets of JusticeLink, Inc. (formerly LAWPlus,
Inc.) as of December 31, 1999 and 1998, and the related statements of
operations, mandatory redeemable convertible stock and other capital
(deficiency) and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of JusticeLink, Inc. (formerly
LAWPlus, Inc.) at December 31, 1999 and 1998, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.

Ernst & Young

Dallas, Texas
February 18, 2000, except for the third
paragraph of Note 10, for which is March 30, 2000

                                      F-95
<PAGE>

                               JusticeLink, Inc.
                            (formerly LAWPlus, Inc.)

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                                December 31,
                                                               ----------------
                                                                1999     1998
                                                               -------  -------
                                                               (In thousands)
<S>                                                            <C>      <C>
Assets
Current assets:
  Cash and cash equivalents..................................  $12,163  $    14
  Accounts receivable--trade.................................       68       74
  Prepaids...................................................       29       27
                                                               -------  -------
  Total current assets.......................................   12,260      115
Property and equipment, net..................................    2,218      747
Notes receivable, affiliates.................................       --      135
Deposits.....................................................       49      106
Debt issuance cost, net......................................       --       91
Goodwill and other intangible assets, net of accumulated
 amortization of $844........................................    5,547       --
Other........................................................       --        4
                                                               -------  -------
Total assets.................................................  $20,074  $ 1,198
                                                               =======  =======
Liabilities, Mandatory Redeemable Convertible Stock and Other
 Capital (Deficiency)
Current liabilities:
  Accounts payable trade.....................................  $   463  $   763
  Accrued liabilities........................................      669      401
  Accrued lease cancellation fees............................       --      161
  Deferred compensation......................................       80      546
  Current portion of capital lease obligations...............      592      375
  Notes payable and current portion of long-term debt........    4,992      243
                                                               -------  -------
Total current liabilities....................................    6,796    2,489
Capital lease obligations, less current portion..............      406      125
Long-term debt, less current portion.........................    1,000    4,927
Notes payable, long-term debt and accrued interest converted
 to Series B mandatory redeemable convertible preferred stock
 during 1999.................................................       --    7,563
Commitments and contingencies
Mandatory Redeemable Convertible Stock
  Series B mandatory redeemable convertible preferred stock,
   par value $.01 per share, 10,000,000 shares authorized,
   9,461,468 shares issued and outstanding...................   19,353       --
  Series C mandatory redeemable convertible preferred stock,
   par value $.01 per share, 7,200,000 shares authorized,
   7,108,707 shares issued and outstanding...................   14,337       --
Other Capital (Deficiency)
  Series A convertible preferred stock, $.01 par value,
   15,000,000 shares authorized, 3,200,000 shares issued and
   outstanding ($3,809,536 aggregate liquidation value)......       --       32
  Common stock, $.05 par value, 25,000,000 shares authorized,
   10,000 shares in 1999 and 683,242 shares in 1998 issued
   and outstanding...........................................        1       34
  Additional capital.........................................    7,942    6,157
  Accumulated deficit........................................  (29,761) (20,129)
                                                               -------  -------
Total other capital (deficiency).............................  (21,818) (13,906)
                                                               -------  -------
Total liabilities, mandatory redeemable convertible stock and
 other capital...............................................  $20,074  $ 1,198
                                                               =======  =======
</TABLE>

                            See accompanying notes.

                                      F-96
<PAGE>

                               JusticeLink, Inc.
                            (formerly LAWPlus, Inc.)

                            Statements of Operations

<TABLE>
<CAPTION>
                                                     Year ended December 31,
                                                     -------------------------
                                                        1999          1998
                                                     -----------  ------------
                                                          (in thousands)
<S>                                                  <C>          <C>
Revenue............................................. $       277  $        272
Operating expenses:
  Selling and customer support......................       2,875         2,179
  Product development...............................         909         2,004
  Operations........................................       1,613         1,824
  General and administrative........................       1,726         2,249
  Depreciation and amortization.....................       1,744           693
                                                     -----------  ------------
                                                           8,867         8,949
                                                     -----------  ------------
Loss from operations................................      (8,590)       (8,677)
Interest income.....................................          71            --
Interest expense....................................      (1,113)       (1,578)
                                                     -----------  ------------
Net loss............................................ $    (9,632) $    (10,255)
                                                     ===========  ============
</TABLE>




                            See accompanying notes.

                                      F-97
<PAGE>

                               JusticeLink, Inc.
                            (formerly LAWPlus, Inc.)

     Statements of Mandatory Redeemable Convertible Stock and Other Capital
                                  (Deficiency)

<TABLE>
<CAPTION>
                             Mandatory Redeemable
                               Convertible Stock                               Other Capital
                         ----------------------------- -----------------------------------------------------------------
                            Series B       Series C       Series A
                           Preferred      Preferred      Convertible         Common
                             Stock          Stock      Preferred Stock        Stock
                         -------------- -------------- -----------------  -------------- Additional Accumulated
                         Shares Amount  Shares Amount  Shares    Amount   Shares  Amount  Capital     Deficit    Total
                         ------ ------- ------ ------- --------  -------  ------  ------ ---------- ----------- --------
                                                               (In thousands)
<S>                      <C>    <C>     <C>    <C>     <C>       <C>      <C>     <C>    <C>        <C>         <C>
Balance at January 1,
 1998...................                                  3,200   $   32     687   $ 34    $5,744    $ (9,874)  $ (4,064)
Issuance of warrants
 attached to Revolving
 Note guarantee and 1998
 Bridge Loans...........                                    --       --      --     --        503         --         503
Other...................                                    --       --       (4)   --        (90)        --         (90)
Net loss and
 comprehensive loss.....                                    --       --      --     --        --      (10,255)   (10,255)
                                                       --------   ------  ------   ----    ------    --------   --------
Balance at December 31,
 1998...................                                  3,200       32     683     34     6,157     (20,129)   (13,906)
Exercise of warrants
 issued in connection
 with the 1998 and 1999
 Bridge Loans...........                                    --       --    7,754    388       --          --         388
Recapitalization of
 LAWPlus, Inc........... 3,462  $ 6,925                  (3,200)     (32) (8,437)  (422)    2,994         --       2,540
Series B mandatory
 redeemable preferred
 stock issued in
 connection with the
 acquisition of
 JusticeLink, Inc....... 1,187    2,375                     --       --      --     --        --          --         --
Series B mandatory
 redeemable preferred
 stock issued in
 exchange for 1999
 Bridge Loans and
 accrued interest....... 1,114    2,228                     --       --      --     --        --          --         --
Sale of Series B
 mandatory redeemable
 preferred stock, net... 2,398    4,795                     --       --      --     --       (583)        --        (583)
Issuance of Series B
 mandatory redeemable
 preferred stock in
 connection with Lexis-
 Nexis agreement........ 1,300    2,600                     --       --      --     --        --          --         --
Sale of Series C
 mandatory redeemable
 preferred stock, net...   --       --  7,109  $14,217      --       --      --     --        (80)        --         (80)
Accrued dividends on
 Series B and C
 mandatory redeemable
 preferred stock........   --       430   --       120      --       --      --     --       (550)        --        (550)
Exercise of employee
 stock options..........                  --       --       --       --       10      1         4         --           5
Net loss and
 comprehensive loss.....   --       --    --       --       --       --      --     --        --       (9,632)    (9,632)
                         -----  ------- -----  ------- --------   ------  ------   ----    ------    --------   --------
Balance at December 31,
 1999................... 9,461  $19,353 7,109  $14,337      --    $  --       10   $  1    $7,942    $(29,761)  $(21,818)
                         =====  ======= =====  ======= ========   ======  ======   ====    ======    ========   ========
</TABLE>


                            See accompanying notes.

                                      F-98
<PAGE>

                               JusticeLink, Inc.
                            (formerly LAWPlus, Inc.)

                            Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                 Year ended
                                                                December 31,
                                                              -----------------
                                                               1999      1998
                                                              -------  --------
                                                               (in thousands)
<S>                                                           <C>      <C>
Operating Activities
Net loss....................................................  $(9,632) $(10,255)
Adjustments to reconcile net loss to net cash used in
 operating activities:
  Depreciation and amortization.............................    1,744       693
  Amortization of debt issuance costs.......................       91        26
  Loss on disposal of property and equipment................       --       434
  Interest related to warrants attached to debt.............       --       503
  Non-cash interest expense.................................       --       563
  Bad debt expense..........................................        5        --
  Write-off of note receivable--affiliates..................      135        --
  Changes in operating assets and liabilities, net of
   effects of an acquired business in 1999:
    Accounts receivable trade...............................        1       (52)
    Prepaids, deposits and other............................       53       (57)
    Notes receivable, affiliates............................      --        115
    Accounts payable and accrued liabilities................     (294)      489
                                                              -------  --------
      Net cash used in operating activities.................   (7,897)   (7,541)
Investing Activities
  Cash acquired from merger with JusticeLink, Inc...........        1        --
  Merger costs..............................................     (474)       --
  Purchases of property and equipment.......................   (1,269)     (154)
                                                              -------  --------
    Net cash used in investing activities...................   (1,742)     (154)
Financing Activities
  Proceeds from the exercise of warrants for LAWPlus, Inc.
   common stock.............................................      388        --
  Proceeds from the exercise of stock options...............        5        --
  Net proceeds from sale of Series B and Series C preferred
   stock....................................................   18,349        --
  Proceeds from issuance of notes payable and long-term
   debt.....................................................    3,762     6,375
  Payments on notes payable and long-term debt..............     (250)     (591)
  Payments on capital lease obligations.....................     (466)     (361)
  Other.....................................................       --       (90)
                                                              -------  --------
    Net cash provided by financing activities...............   21,788     5,333
                                                              -------  --------
Increase (decrease) in cash and cash equivalents............   12,149    (2,362)
Cash and cash equivalents at beginning of year..............       14     2,376
                                                              -------  --------
Cash and cash equivalents at end of year....................  $12,163  $     14
                                                              =======  ========
Supplemental Cash Flow Information
Cash paid for interest......................................  $ 1,581  $    527
Significant Noncash Investing and Financing Activities
Common stock, Series A preferred stock and debt converted to
 Series B preferred stock (including accrued interest of
 $928,000)..................................................  $11,693  $     --
Series B preferred stock issued in connection with the
 merger with JusticeLink, Inc...............................  $ 2,375  $     --
Series B preferred stock issued in connection with the
 Lexis-Nexis agreement......................................  $ 2,600  $     --
Property and equipment acquired with capital leases.........  $   967  $     --
Additional capital allocated to Series B and C preferred
 stock for dividends........................................  $   550  $     --
</TABLE>

                            See accompanying notes.

                                      F-99
<PAGE>

                               JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                         Notes to Financial Statements
                               December 31, 1999

1. Organization and Description of Business

      LAWPlus, LLC, a Texas limited liability corporation was formed on April
20, 1995 (inception) and was 94% owned by COREPlus LLC. At the commencement of
operations on July 16, 1997, the members of LAWPlus, LLC exchanged their
membership units for shares of common stock of LAWPlus, Inc., a Delaware
corporation incorporated on July 9, 1997, and COREPlus, LLC transferred assets
of $25,000 and liabilities of $2,701,000, recorded at their historical basis,
to LAWPlus, Inc.

      On May 25, 1999, LAWPlus, Inc. acquired all of the outstanding common
stock of JusticeLink, Inc. in exchange for 1,187,495 shares of Series B
Preferred Stock. Additionally, LAWPlus, Inc. acquired assets of $180,000 and
assumed a note payable of $1,072,000. Effective with the merger, the Company
changed its name to JusticeLink, Inc. The merger has been accounted for using
the purchase method of accounting and, accordingly, results of the acquired
operations of JusticeLink, Inc. are included in the Company's statements of
operations from the date of its acquisition. The pro forma effects on the
Company's operations for the years ended December 31, 1999 and 1998, assuming
that JusticeLink was acquired as of September 1, 1998 (its inception), would be
to increase the net loss by $1,456,000 and $1,843,000, respectively.
JusticeLink had no net revenues during either period.

      The Company provides electronic document transmission and storage
services to court systems, attorneys and litigants accessed via the Internet.
The Company has executed service agreements with court systems and law firms
participating within certain court systems in the states of Texas, California,
Colorado, Alabama, and Georgia. The Company continues to pursue opportunities
to expand its services throughout the United States.

2. Summary of Significant Accounting Policies

      Revenue Recognition

      The Company recognizes revenue as services are provided.

      Cash and Cash Equivalents

      The Company considers short-term investments with original maturity dates
of 90 days or less at the date of purchase to be cash equivalents.

      Property and Equipment

      Property and equipment are recorded at cost. Property and equipment are
depreciated using the straight-line method over the estimated useful lives of
the related assets which range from three to five years. Leasehold improvements
and assets under capital leases are amortized over the lesser of the base lease
term or estimated useful life of the respective asset and included in
depreciation expense.

      Product Development Costs

      In 1998, the Company expensed all product development costs as incurred.
Product development costs represent the internal and external costs associated
with developing the Company's electronic internet applications.

                                     F-100
<PAGE>

                               JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)


      In March 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP is effective for all
fiscal years beginning after December 15, 1998 and requires the capitalization
of certain costs incurred in connection with developing or obtaining internal
use software. SOP 98-1 does not require restatement of prior year financial
statements upon adoption. As of December 31, 1999, the Company has capitalized
$1,311,000 in connection with developing internal use software of which
$754,000 has been placed in service as of December 31, 1999. Amortization
expense for internally developed software was $84,000 for the year ended
December 31, 1999.

      Intangibles

      Intangible assets consist of goodwill, trademarks, customer lists,
technological capabilities and strategic relationships and are amortized using
the straight-line method over the estimated useful lives of three years.

      Impairment of Long-Lived Assets

      The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.

      Debt Issuance Costs

      Debt issuance costs were carried at cost of $130,000 less accumulated
amortization of $39,000 as of December 31, 1998 which was calculated using the
interest method over the term of the debt, and are included in other assets.
During 1999, the remaining unamortized balance of $33,000 was written off in
connection with the Company's recapitalization (see Note 7).

      Income Taxes

      Deferred tax assets and liabilities are determined based on the temporary
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities. Valuation allowances are provided against deferred
tax assets when the realization of the assets is not reasonably assured.

      Use of Estimates

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

      Concentration of Credit Risk

      Financial instruments that potentially subject the Company to
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are held primarily with one financial
institution and exceed federally insured amounts. The Company has not incurred
any losses relating to such concentration and none are expected. The Company's
accounts receivable are comprised of small balances due from a large number of
customers for which collateral is generally not required. The allowance for
doubtful

                                     F-101
<PAGE>

                               JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)

accounts as of December 31, 1999 was $5,000 and no allowance was necessary as
of December 31, 1998. Losses on accounts receivable have historically been
within management's expectation.

      Recent Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging
activities. SFAS 133, as amended by SFAS 137, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000, with earlier
application encouraged. The Company has not completed a thorough review of all
its contracts for embedded derivatives and, accordingly, the effects, if any,
upon adoption of SFAS 133 on its financial position or results of operations
have not been determined.

3. Property and Equipment

      Property and equipment consisted of the following:

<TABLE>
<CAPTION>
                                                                December 31,
                                                               ----------------
                                                                1999     1998
                                                               -------  -------
                                                               (in thousands)
     <S>                                                       <C>      <C>
     Computer and data network equipment...................... $ 2,313  $ 1,513
     Software.................................................   1,783      261
     Office and other equipment...............................     197      154
                                                               -------  -------
                                                                 4,293    1,928
     Less accumulated depreciation............................  (2,075)  (1,181)
                                                               -------  -------
     Property and equipment, net.............................. $ 2,218  $   747
                                                               =======  =======
</TABLE>

      Included within property and equipment are assets under capital leases of
$998,000 and $1,250,000 and related accumulated amortization of $261,000 and
$556,000 at December 31, 1999 and 1998, respectively.

                                     F-102
<PAGE>

                               JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)


4. Notes Payable and Long-Term Debt

      Notes payable and long-term debt consisted of the following:

<TABLE>
<CAPTION>
                                                               December 31,
                                                              ----------------
                                                               1999     1998
                                                              -------  -------
                                                              (in thousands)
<S>                                                           <C>      <C>
Note payable................................................. $ 1,072  $    --
Revolving Note...............................................   3,500    3,500
Senior Note..................................................      84      334
12% Subordinated Notes.......................................      --    3,440
1998 Bridge Loans ...........................................      --    2,500
12% Senior Subordinated Notes ...............................      --    1,060
Subordinated Note ...........................................   1,000    1,000
8% Senior Subordinated Note..................................     336      336
                                                              -------  -------
                                                                5,992   12,170
Less current portion not converted to Series B mandatory
 redeemable convertible preferred stock .....................  (4,992)    (243)
Less, in 1998, notes payable and long-term debt converted to
 Series B mandatory redeemable convertible preferred stock
 during 1999.................................................      --   (7,000)
                                                              -------  -------
Long-term debt, less current portion......................... $ 1,000  $ 4,927
                                                              =======  =======
</TABLE>

      In connection with the recapitalization of LAWPlus, Inc. and the merger
with JusticeLink, Inc. in May 1999, the Company's outstanding 12% Senior
Subordinated Notes, 12% Subordinated Notes and the 1998 Bridge Loans were
converted to Series B Convertible Preferred Stock (See Note 7). These amounts
totaling $7,000,000 plus accrued interest of $563,000 at December 31, 1998 are
shown separately on the balance sheet at December 31, 1998 as Notes payable,
long-term debt and accrued interest converted to Series B mandatory redeemable
convertible preferred stock during 1999.

      In July 1997, the Company assumed 12% Senior Subordinated Notes totaling
$1,060,000, a Subordinated Note of $1,000,000, and an 8% Senior Subordinated
Note of $450,000 from COREP1us, LLC.

      The 12% Senior Subordinated Notes of $1,060,000 bore interest at 12%
which was payable quarterly. The principal of the notes was originally due and
payable on July 1, 2001, however, in conjunction with the 1999 recapitalization
of LAWPlus, Inc. and the merger with JusticeLink, Inc., the Senior Subordinated
Notes of $1,060,000 were converted to Series B Preferred Stock (see Note 7).

      The $1,000,000 Subordinated Note is unsecured and due on March 31, 2001.
Interest accrues at prime plus 1% (9.50% at December 31, 1999) and is payable
quarterly.

      The 8% Senior Subordinated Note between the Company and Southeast Texas
NETPlus, Inc. (an entity owned by stockholders who were former directors or
officers of the Company) accrues interest at 8% with principal and interest
payable quarterly. On November 20, 1997 and May 4, 1998, the terms of the 8%
Senior Subordinated Note for the then remaining principal of $436,000 and
$386,000, respectively were

                                     F-103
<PAGE>

                               JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)

amended to provide that interest will accrue at 8% per annum. Payment of such
interest is deferred until the closing of a private placement equity financing
at which time all such deferred interest payments shall be paid and interest
would then be paid monthly. All deferred interest was paid in connection with
the equity financing on July 1, 1999 described in Note 7. In addition, the
Company made a required principal payment of $50,000 in connection with the May
4, 1998 amendment. As of December 31, 1999 and 1998, $336,000 principal was
outstanding which is due on October 16, 2000.

      In July and November 1997, the Company issued 12% Subordinated Notes to
venture capitalists for $3,440,476. The notes were originally due on June 30,
2002 with interest payable quarterly. However, in conjunction with the 1999
recapitalization of LAWPlus, Inc. and the merger with JusticeLink, Inc. (see
Note 7) the Subordinated Notes were converted to Series B Preferred Stock. As
permitted by the terms of the 12% Subordinated Notes, accrued interest was
added to the unpaid principal balance of the notes prior to the conversion.

      In May 1998, the Company entered into a Substitute Revolving Note (the
"Revolving Note") with a bank under which it has borrowed $3,500,000 bearing
interest at the bank's prime rate (8.50% at December 31, 1999). Interest is
payable monthly with all outstanding principal due July 31, 2000. The
borrowings under the Revolving Note are collateralized by substantially all the
assets of the Company. In addition, the Revolving Note is guaranteed by two
investment fund limited partnerships, which held all of the Company's Series A
Preferred Stock, $5,940,000 in debt and had representatives on the Board of
Directors of the Company at December 31, 1998, in return for 435,000 warrants
to purchase an equal number of shares of common stock with an exercise price of
$.05 per share through May 4, 2008. The fair value of the warrants at the date
of grant, as determined by management, of $218,000 was recorded as additional
capital and amortized to interest expense over the period to the original
maturity date of the Revolving Note on August 31, 1998. The guarantee by the
two investment fund limited partnerships may be reduced to $1,000,000 upon
meeting conditions as to the size and valuation of an initial public offering.

      In December 1997, the Company entered into a term note (the "Senior
Note") agreement with a commercial bank for $500,000 due on December 5, 2000.
Interest accrues at prime plus 2% (10.50% at December 31, 1999). Principal
payments, beginning January 5, 1998, were due in equal monthly installments of
approximately $14,000 plus interest. The Senior Note agreement contains a
penalty for prepayments and restricts the Company's ability to declare or pay
any dividends during the term of the loan. A provision of the Senior Note
required the Company to raise $10,000,000 in junior capital by March 31, 1998,
The March 31, 1998 deadline was subsequently extended to September 30, 1998. In
November 1998, the Company and the commercial bank agreed to renegotiate the
terms of the agreement which resulted in a requirement for monthly payments of
approximately $14,000 until March 5, 1999 (subsequently extended to August 5,
1999), at which time all unpaid principal and interest was due and payable. In
September 1999, the Company and the commercial bank renegotiated the Senior
Note as a six-month installment note, with monthly payments including principal
and interest of approximately $46,000, maturing on February 5, 2000. The Senior
Note is collateralized by specific equipment. This note was paid in full on
February 1, 2000.

      To fund operations in 1998, the Company entered into a series of bridge
loans (the "1998 Bridge Loans") aggregating $2,500,000 at December 31, 1998.
The 1998 Bridge Loans bore interest at 9% per annum with all principal and
interest due at maturity of November 30, 1998 or March 15, 1999. In addition,
the Company issued to the lenders 3,812,160 warrants expiring May 4, 2008 for
an equal number of shares of common stock with an exercise price of $0.05 per
share. Warrants for 641,180 shares were immediately exercisable. Warrants for
1,000,000 shares became exercisable on each of December 15, 1998, January 15,

                                     F-104
<PAGE>

                               JUSTICELINK, INC.
                           (Formerly LAWPlus, Inc.)

                  Notes to Financial Statements--(Continued)

1999 and February 15, 1999 and 171,080 became exercisable on January 12, 1999.
If the 1998 Bridge Loans had been repaid by each of these dates or had the
Company obtained third party financing, some or all of the warrants would have
been voided. The fair value of the warrants at the date of grant, as
determined by management, of $285,000, was recorded as additional capital and
amortized to interest expense over the period from issue to the original
maturity date of the 1998 Bridge Loans.

     To fund operations during 1999, the Company entered into additional
bridge loans (the "1999 Bridge Loans") for an aggregate of $3,762,000 of
borrowings, under substantially the same terms as the 1998 Bridge Loans
including immediately exercisable warrants expiring on May 4, 2008 for an
aggregate of 10,342,160 shares of common stock at an exercise price of $0.05
per share. The value of the warrants was determined by management to be
nominal.

     In connection with the 1999 recapitalization of LAWPlus, Inc. and the
merger with JusticeLink, Inc. the $2,500,000 of 1998 Bridge Loans and
$1,862,000 of 1999 Bridge Loans were converted to Series B Preferred Stock
(see Note 7). Additionally, on July 1, 1999, $1,900,000 of 1999 Bridge Loans
were converted to Series B Preferred Stock at a ratio of $2.00 per share (see
Note 7).

     On May 25, 1999 in connection with the merger with JusticeLink, the
Company assumed a $1,072,000 note payable to an entity which became a Series B
Preferred stockholder in the Company. The note payable bore interest at 8% per
annum. Principal and interest was due at maturity on March 12, 2000. At
December 31, 1999, $1,072,000 was outstanding with accrued interest payable of
$51,691. On February 11, 2000, the note payable was settled for $850,000 in
cash plus certain equipment and software (see Note 10).

     Maturities of notes payable and long-term debt at December 31, 1999, are
as follows (in thousands):

<TABLE>
     <S>                                                                  <C>
     2000................................................................ $4,992
     2001................................................................  1,000
                                                                          ------
         Total........................................................... $5,992
                                                                          ======
</TABLE>

5. Income Taxes

     No provision for income taxes has been provided for the years ended
December 31, 1999 and 1998 due to the Company's operating losses.

     The differences between the actual income tax benefit and the amount
computed by applying the statutory federal tax rate to the loss before income
taxes are as follows:

<TABLE>
<CAPTION>
                                                               December 31
                                                             ----------------
                                                              1999     1998
                                                             -------  -------
                                                             (In thousands)
     <S>                                                     <C>      <C>
     Benefit computed at federal statutory rate............. $(3,275) $(3,487)
     Permanent differences..................................     260        9
     State income tax benefit, net of federal tax effect at
      state statutory rate..................................    (263)    (304)
     Increase in valuation reserve..........................   3,278    3,782
                                                             -------  -------
         Total.............................................. $    --  $    --
                                                             =======  =======
</TABLE>

                                     F-105
<PAGE>

                               JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)


      The components of the deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                                 December 31
                                                                ---------------
                                                                 1999    1998
                                                                ------  -------
                                                                (In thousands)
<S>                                                             <C>     <C>
Deferred tax assets--net operating loss carryforwards.......... $9,444  $ 5,714
Valuation allowance for deferred tax assets.................... (8,959)  (5,681)
                                                                ------  -------
Deferred tax assets, net of valuation allowance................    485       33
Deferred tax liabilities
  Software development costs...................................   (454)      --
  Other, net...................................................    (31)     (33)
                                                                ------  -------
Total deferred tax liabilities.................................   (485)     (33)
                                                                ------  -------
Deferred income taxes, net..................................... $   --  $    --
                                                                ======  =======
</TABLE>

      At December 31, 1999, the Company has approximately $25.6 million of
federal net operating loss carryforwards which begin to expire in 2012. The
Company has approximately $25.6 million of state net operating losses as of
December 31, 1999.

      At December 31, 1999 and 1998, the Company has recorded a valuation
allowance against its net deferred tax assets because management believes that,
after considering all the available objective evidence, the realization of the
assets is not reasonably assured.

6. Commitments and Contingencies

      Leases

      The Company has operating and capital lease commitments for office space
and equipment with lease terms ranging from three to five years. The office
space lease agreement includes an escalation clause and renewal option to
extended the term by three years.

      Capital leases require monthly payments over periods ranging from 18 to
36 months with implicit interest rates ranging from 8% to 25%.

                                     F-106
<PAGE>

                               JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)


      Future minimum lease payments under noncancelable capital and operating
leases at December 31, 1999 were as follows:

<TABLE>
<CAPTION>
                                                               Capital Operating
                                                               Leases   Leases
                                                               ------- ---------
                                                                (in thousands)
<S>                                                            <C>     <C>
  2000........................................................  $ 592    $649
  2001........................................................    424     172
  2002........................................................    198      18
  2003........................................................     --       8
                                                                -----    ----
    Total minimum lease payments..............................  1,214    $847
                                                                         ====
Less amount representing interest.............................    216
                                                                -----
Present value of minimum capital lease payments...............    998
Less current portion..........................................    592
                                                                -----
Capital lease obligations, less current portion...............  $ 406
                                                                =====
</TABLE>

      Rent expense for noncancelable operating leases was approximately
$542,000 and $317,000 for the years ended December 31, 1999 and 1998,
respectively.

      In February 1998, the Company entered into an outsourcing agreement with
a third party to provide data processing and related information technology
services for the Company's production operating system. Amounts paid to the
third party in 1998 were approximately $322,000. The agreement was terminated
in December 1998 and termination costs of approximately $161,000 were accrued.

      Legal

      From time to time, the Company is a party to various claims, legal
actions and complaints arising in the ordinary course of business. In the
opinion of management, the disposition of these claims, legal actions and
complaints will not have a material effect on the Company's financial position
or result of operations.

7. Recapitalization of LAWPlus, Inc.

      Effective May 25, 1999, LAWPlus, Inc. recapitalized as a condition of
closing the merger with JusticeLink, Inc. In the recapitalization, LAWPlus,
Inc. issued 3,462,461 shares of Series B Preferred Stock in exchange for all of
the 12% Senior Subordinated Notes, the 12% Subordinated Notes, the 1998 Bridge
Loans, $1,862,000 of 1999 Bridge Loans, accrued interest of $600,000 on the
1998 and 1999 Bridge Loans, and all of the outstanding shares of Series A
Preferred Stock and common stock at conversion rates negotiated by the
stockholders.

      The recapitalization resulted in approximately $6,925,000 being allocated
to Series B Preferred Stock at $2.00 per share and the remainder as an increase
to additional capital.

      Additionally, outstanding stock options as of December 31, 1998 covering
593,068 shares were converted to options to purchase 226,223 shares of common
stock at $1.3108 per share. These options were rescinded by the board of
directors and were replaced by the June 8, 1999 stock option grant for shares
in the merged Company, described in Note 8 under "Stock Options."

                                     F-107
<PAGE>

                               JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)


8. Capital Stock

      Reverse Stock Split

      On October 29, 1998, LAWPlus, Inc. amended its Articles of Incorporation
to convert each share of its $.01 par value common stock into one-fifth of one
share of common stock, $.05 par value (reverse split). All common stock,
options and warrants to purchase common shares outstanding on October 29, 1998
were adjusted to reflect the reverse split. The impact of the reverse split has
been retroactively reflected in the accompanying financial statements.

      Series A Convertible Preferred Stock

      Each share of Series A Convertible Preferred Stock (the "Series A
Preferred Stock") was convertible into one share of common stock. The Series A
Preferred Stock would automatically convert to common stock upon closing of an
initial public offering of common stock in which aggregate proceeds received by
the Company would have been at least $25 million and which represented a
valuation of the total common equity of the Company of at least $60 million.
Holders of Series A Preferred Stock were not entitled to receive dividends
prior, or in preference, to common shareholders. Holders of Series A Preferred
Stock were to receive dividends upon declaration or payment of any dividend or
distribution to common shareholders. Holders of Series A Preferred Stock had
the right to vote with common shareholders on the basis of one vote per share
of Series A Preferred Stock held. The liquidation preference of the Series A
Preferred Stock was $1.19048 per share.

      In connection with the recapitalization of LAWPlus, Inc. and merger with
JusticeLink, Inc., all of the issued and outstanding Series A Preferred Stock
was exchanged for Series B Preferred Stock (see below).

      Series B Mandatory Redeemable Convertible Preferred Stock

      On July 1, 1999, the Company completed a sale of 2,397,500 shares of
Series B Convertible Preferred Stock (the "Series B Preferred Stock") at $2.00
per share. The Company received proceeds of $4,212,000, net of $583,000 of
offering costs. Offering costs of $583,000 have been recorded against
additional capital. In connection with arranging the offering, 234,250
immediately exercisable 10 year warrants to purchase common stock were issued
to the underwriter with a $2.00 per share exercise price.

      Concurrently, on July 1, 1999, $1,900,000 of the 1999 Bridge Loans plus
accrued interest of approximately $328,000 were converted to 1,114,017 shares
of Series B Preferred Stock at $2.00 per share.

      Each share of Series B Preferred Stock is convertible into the number of
shares of common stock that results from dividing the liquidation value
(initially $2.00 per share) of the Series B Preferred Stock by the conversion
price (initially $2.00 per share) for Series B Preferred Stock plus the number
of shares that results from dividing the amount of any accrued and unpaid
dividends divided by the amount equal to the fair value of the common stock.
The holders of Series B Preferred Stock will be entitled to receive cumulative
dividends at the rate of 5.0% of the original purchase price, which will be
converted into common shares upon conversion of the Series B Preferred Stock at
a conversion price equal to the fair market value of the common stock at the
time of conversion. The Series B Preferred Stock automatically converts to
common stock upon 1) the election of the holders of at least two-thirds of the
issued and outstanding Series B and Series C Preferred Stocks or 2) the closing
of an initial public offering of common stock in which aggregate proceeds are
at least $20,000,000.

                                     F-108
<PAGE>

                               JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)

Holders of Series B Preferred Stock vote with common shareholders on the basis
of one vote per share of Series B Preferred Stock held. In the event of
liquidation, dissolution or winding up of the Company, either voluntarily or
involuntarily, the holders of the Series B Preferred Stock have a liquidation
preference in an amount equal to three times the liquidation value of $2.00 per
share or their pro rata share if the assets of the Company are insufficient to
pay in full the respective preferential amounts (see adjustment to liquidation
preference upon issuance of Series C Preferred Stock described below).

      On October 28, 1999, the Company amended the Certificate of Designation
for the Series B Preferred Stock making the Series B Preferred Stock
mandatorily redeemable upon the vote of two thirds of the combined holders of
Series B and Series C (see below) Preferred Stock. The redemption would be one
third of the shares on each of July 1, 2004, 2005 and 2006 at liquidation value
plus accrued unpaid dividends.

      As of December 31, 1999, $429,776 representing the pro-rata portion of
the cumulative 5% dividend has been recorded to Series B Preferred Stock and
charged to additional capital in the absence of positive retained earnings.

      Series C Mandatory Redeemable Preferred Stock

      On October 28, 1999, the Company's Board of Directors authorized
7,200,000 shares of Series C Preferred Stock (the "Series C Preferred Stock")
with a par value of $0.01. The Series C Preferred Stock has essentially the
same rights and preferences as the amended Series B Preferred Stock, except in
the event of a liquidation. In the event of a liquidation where the assets
available are insufficient for payment of the entire preferred liquidation
preference, plus any cumulative but unpaid dividends, first, until the holders
of the Series C Preferred Stock have received an amount per share equal to the
liquidation value ($2.00 per share), plus any accrued dividends, sixty percent
of such assets will be allocated ratably to Series C Preferred Stock holders
and forty percent of such assets will be allocated ratably among the holders of
Series B Preferred Stock. The holders of the Series B and C Preferred Stocks
then share ratably until the holders have received an amount of three times the
liquidation value, plus any cumulative but unpaid dividends.

      The Series C Preferred Stock is mandatorily redeemable upon the vote of
two-thirds of the combined holders of Series B and C Preferred Stocks. The
redemption would be one-third of the shares on each of July 1, 2004, 2005 and
2006 at liquidation value plus accrued unpaid dividends.

      In November 1999, the Company sold 6,415,422 shares of Series C Preferred
Stock at $2.00 per share to Internet Capital Group, Inc. and a private
investment banking firm. The Company received gross proceeds of $12,831,000
from these offerings. The terms of the Series C Preferred Stock offering
restricted the use of the proceeds from paying debt and allowed existing
stockholders of the Company to acquire up to 750,000 shares at $2.00 per share
of which 693,285 shares have been sold as of December 31, 1999. As of December
31, 1999, the Company paid $80,000 of offering costs, which have been recorded
against additional capital.

      As of December 31, 1999, $119,422 representing the pro-rata portion of
the cumulative 5% dividend has been recorded to Series C Preferred Stock and
charged to additional capital in the absence of positive retained earnings.

                                     F-109
<PAGE>

                               JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)


      Agreement with Lexis-Nexis

      On November 1, 1999, the Company and Lexis-Nexis Group, a division of
Reed Elsevier Inc. (Lexis) entered into a strategic alliance whereby the
Company will become the exclusive court electronic filing solutions partner of
Lexis. In the agreement the Company issued 1,300,000 shares of Series B
Preferred Stock in exchange for the right to pursue certain Lexis customers for
e-filing services and entering into a joint marketing agreement. The joint
marketing agreement relates to co-branding and promoting each Company's
services and listing the Company as Lexis' exclusive e-filing services
provider. Lexis will use its best efforts to transition the specified customers
to the Company's system. The shares issued are not contingent upon future
performance or services. The Company agreed to issue additional common stock to
Lexis contingent upon the level of revenue generated from these specified Lexis
former customers, if they are converted to be Company customers, for a thirty-
month period beginning after the transition period, which is expected to occur
no earlier than March 31, 2000.

      Additionally, in connection with the agreement with Lexis, the Company
issued immediately exercisable 10 year warrants for 150,000 shares of common
stock at an exercise price of $2.50 per share to certain shareholders for
services performed during the transaction. The value assigned to the warrants
was nominal. The Company has recorded the $2.6 million of consideration to
intangible assets at December 31, 1999. Any additional consideration given to
Lexis related to future revenues will be charged to expense based on the fair
value of the stock to be given as of the date of the resolution of the
contingency.

      Stock Warrants

      As of December 31, 1999 and 1998, warrants to purchase 393,875 and
4,247,160 shares of common stock with an exercise price of $2.50 and $0.05,
respectively, were outstanding. All of the warrants outstanding at December 31,
1999 were exercisable. The warrants expire from May 4, 2008 through November 1,
2009.

      In March 1999, 7,753,979 warrants of the 14,589,320 warrants issued in
connection with the 1998 and 1999 Bridge Loans were exercised as a part of the
recapitalization of LAWPlus, Inc. (see Note 7). Proceeds from the exercise
approximated $388,000. The remaining warrants issued in connection with the
1998 and 1999 Bridge Loans were voided as a condition of the merger with
JusticeLink, Inc.

      Employee Stock Options

      As of December 31, 1998, fully vested options granted prior to the
incorporation of LAWPlus, Inc. to purchase 15,000 shares of common stock were
outstanding with an exercise price of $0.0165 per share, exercisable through
December 31, 2010. Subsequently, with the 1999 recapitalization of LAWPlus,
Inc. and the merger with JusticeLink, Inc., these options were converted to
options to purchase 9,246 shares of common stock with an exercise price of
$0.0268 with the original expiration date.

      In October 1998, the stockholders of the Company approved an Employee
Stock Option Plan authorizing 1,000,000 shares of the Company's common stock to
be reserved for the granting of incentive stock options. Stock option grants
for 593,068 shares with an exercise price of $0.50, representing the estimated
fair value at the date of grant were awarded during 1998 and subsequently
rescinded by the board of directors in December 1999. Generally, the options
vested at six to twelve months from the date of grant at a rate of 25% of the
initial grant and then pro rata each month thereafter until all options vest
four years from the date of grant. As of December 31, 1998, 66,261 options were
exercisable.

                                     F-110
<PAGE>

                               JUSTICELINK, INC.
                           (Formerly LAWPlus, Inc.)

                  Notes to Financial Statements--(Continued)


      In October 1998 and June 1999, the Company increased the number of
shares available for grant under its Employee Stock Option Plan to 1,700,000
shares. During 1999, stock option grants covering 1,722,000 shares at an
exercise price of $0.50 per share were awarded by the Company, with terms
similar to the existing options with the vesting beginning from either their
original hire date or October 28, 1998. As of December 31, 1999, 180,797
shares are available for grant under the plan.

      Data with respect to stock options of the Company are as follows:

<TABLE>
<CAPTION>
                                  Options Outstanding      Exercisable Options
                                ------------------------- ----------------------
                                              Weighted               Weighted
                                              Average                Average
                                 Shares    Exercise Price Shares  Exercise Price
                                ---------  -------------- ------- --------------
<S>                             <C>        <C>            <C>     <C>
January 1, 1998................     9,246       $.03        9,246     $ .03
Granted........................   593,068        .50
                                ---------       ----
December 31, 1998..............   602,314        .49       66,261     $(.43)
Granted........................ 1,722,000        .50
Exercised......................   (10,000)       .50
Rescinded......................  (593,068)       .50
Forfeitures....................  (212,043)       .50
                                ---------       ----
December 31, 1999.............. 1,509,203       $.50      331,354     $ .49
                                =========       ====
</TABLE>

      Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, requires pro forma information regarding the
Company's net loss determined as if the Company has accounted for its employee
stock options under the fair value method. The fair value of the Company's
options estimated at the dates of grant during 1999 and 1998 using a "minimum
value" option pricing model was insignificant. Accordingly, the fair value
method results in substantially the same net loss for the years ended December
31, 1999 and 1998 as that shown in the statements of operations.

      Reserved Shares

      Shares of common stock reserved for future issuance as of December 31,
1999 were as follows:

<TABLE>
   <S>                                                               <C>
   Conversion of Series B Mandatory Redeemable Preferred Stock......  9,461,468
   Conversion of Series C Mandatory Redeemable Preferred Stock......  7,108,707
   Warrants.........................................................    393,875
   Employee Stock Option Plan.......................................  1,700,000
                                                                     ----------
                                                                     18,664,050
                                                                     ==========
</TABLE>

9. Related Party Transactions

      On October 28, 1999, the Company's Board of Directors approved a
settlement agreement (the "Agreement") between the Company and a former
officer and shareholder, whereby the Company agreed to pay the former officer
deferred compensation of $118,000, which is included in the deferred
compensation liability at December 31, 1998. The amount will be payable in ten
monthly installments of $10,000 and twelve monthly installments of $1,500
beginning November 1, 1999. As part of this Agreement, the Company wrote off
the $135,000 note receivable from this former officer and shareholder.

                                     F-111
<PAGE>

                               JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)


      An officer and director of the Company owns a facility from which the
Company relocated effective December 1998. The Company incurred approximately
$67,000 in rental expense related to this facility during the year ended
December 31, 1998.

      Equipment is leased from a company in which a director of the Company has
an ownership interest. During the year ended December 31, 1999 and 1998, the
Company made approximately $397,000 and $266,000 in capital lease payments to
this company.

      A partner of the Company's former outside legal counsel is also an equity
owner in the Company. The Company incurred approximately $18,000 in legal
expenses with the law firm during the year ended December 31, 1998.

      In February 1998, the Company entered into a third-party development
contract for the design, engineering and development of a significant portion
of the Company's electronic filing application. Certain shareholders and
directors of the Company hold equity interests in the third party and serve on
its board of directors. For the year ended December 31, 1999 and 1998, the
Company made contract payments to this entity of approximately $816,000 and
$515,000, respectively. This agreement expired in September of 1999.

10. Subsequent Events

      Note Payable Agreement

      On February 11, 2000, the Company reached an agreement with Series B
Preferred stockholder which held the Note Payable in the amount of $1,072,000
(plus accrued interest of $62,000 as of February 11, 2000). Under the terms of
the agreement, the Company will pay $850,000 and transfer certain tangible and
intangible assets acquired in the merger with JusticeLink on May 25, 1999 to
the stockholder by March 10, 2000 in full settlement of the note. As of
December 31, 1999, the net book value of the tangible asset included in
property and equipment was $97,721. As a result of the agreement goodwill and
accrued interest will be reduced by $145,000 and $51,000, respectively.

      Letter of Intent

      On February 2, 2000, the Company signed a Letter of Intent for a proposed
merger with Data West Corporation, d.b.a. CourtLink. Tentatively, the agreement
calls for all of the outstanding equity securities of the Company to be
converted into CourtLink securities representing 42% of the combined entity.
Currently, the Company's operations are expected to remain in Dallas; however,
Corporate personnel are expected to relocate to Seattle, Washington. The
effects of the proposed merger have not been reflected in the accompanying
financial statements.

      Asset Purchase Agreement

      On March 30, 2000, the Company entered into an asset purchase agreement
with a software development company whereby the Company will purchase certain
assets, including software for $4.0 million and a 1.5% common stock interest in
the newly formed entity to be formed as a result of the planned merger with
CourtLink. The Company must pay $2.0 million within thirty days of closing and
$2.0 million on or before November 15, 2000.

      Also the Company entered into a cooperative marketing and limited grant
license agreement with the software development company.

                                     F-112
<PAGE>

                               JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)


11. Year 2000 (Unaudited)

      The Company, in conjunction with its third-party technology developers
and other third parties and key suppliers, completed an assessment of its
internal information systems and the electronic filing application and has
developed or modified portions of these information systems so that they would
function properly with respect to dates in the Year 2000 and thereafter. The
Company also modified the internet application underlying its electronic filing
service so that the occurrence of the date January 1, 2000, would not, by
itself, cause the current version of the JusticeLink system, owned and
developed by the Company and licensed for use by the Company to its customers
in the regular course of business, to materially fail to operate in accordance
with published specifications.

      The Company did not experience any significant failures as a direct
result of Year 2000, and management does not believe that there is any
remaining exposure related to the Year 2000. Additionally, the Company
continuously monitors the activity of the internet application and has standing
operating procedures to address Year 2000 related failures should they occur.
The Company has expensed a nominal amount in 1999 related to Year 2000
compliance, which was included in product development expense.

                                     F-113
<PAGE>

                    Report of Independent Public Accountants

To the Partners of
MetalSite General Partner, LLC:

      We have audited the accompanying consolidated balance sheet of MetalSite
General Partner, LLC (a Delaware limited liability company) as of December 31,
1998 and the related consolidated statements of operations, partners' capital
and cash flows for the period from Inception (November 15, 1998) through
December 31, 1998. These financial statements are the responsibility of
MetalSite General Partner, LLC's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

      We conducted our audit in accordance with auditing standards generally
accepted in the 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 audit provides a
reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
MetalSite General Partner, LLC as of December 31, 1998, and the consolidated
results of its operations and its cash flows for the period from Inception
(November 15, 1998) through December 31, 1998 in conformity with accounting
principles generally accepted in the United States.

      The accompanying consolidated financial statements have been prepared
assuming that MetalSite General Partner, LLC will continue as a going concern.
As discussed in Note 2 to the consolidated financial statements, it is
uncertain as to whether the Partnership will generate sufficient cash flows
from operations. This factor raises substantial doubt about the Partnership's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

                                          Arthur Andersen LLP

Pittsburgh, Pennsylvania
January 12, 2000

                                     F-114
<PAGE>

                         METALSITE GENERAL PARTNER, LLC

                          Consolidated Balance Sheets
                    September 30, 1999 and December 31, 1998

<TABLE>
<CAPTION>
                                                      (Unaudited)
                                                     September 30, December 31,
                                                         1999          1998
                                                     ------------- ------------
<S>                                                  <C>           <C>
                       Assets
Current Assets:
  Cash and cash equivalents.........................  $1,196,301    $1,129,323
  Trade accounts receivable.........................     395,894           789
  Other receivables.................................       5,516            --
  Prepaid service arrangement, net of accumulated
   amortization of $41,667 and $0, respectively.....     458,333            --
  Prepaid expenses..................................      47,427         2,194
                                                      ----------    ----------
    Total current assets............................   2,103,471     1,132,306
Fixed Assets:
  Furniture and fixtures............................       2,000         1,967
  Computer equipment and hardware...................     759,495       428,553
  Accumulated depreciation..........................    (276,193)      (30,293)
                                                      ----------    ----------
    Total fixed assets, net.........................     485,302       400,227
                                                      ==========    ==========
Other Assets:
  Notes receivable from employees...................     113,323            --
  Deposits..........................................      18,669        25,100
  Software and development costs, net of accumulated
   amortization of $1,141,668 and $65,400,
   respectively.....................................     564,306     1,189,965
                                                      ----------    ----------
    Total other assets..............................     696,298     1,215,065
                                                      ----------    ----------
Total Assets........................................  $3,285,071    $2,747,598
                                                      ==========    ==========
    Liabilities And Partners' Capital (Deficit)
Current Liabilities:
  Current portion of capital lease obligation.......  $  118,589    $       --
  Accounts payable..................................      67,295       594,502
  Accrued incentives................................     271,876            --
  Accrued interest..................................     222,548         4,652
  Other accrued liabilities.........................     709,161       345,041
  Deferred revenue..................................         450            --
                                                      ----------    ----------
    Total current liabilities.......................   1,389,919       944,195
Long-term Liabilities:
  Long-term portion of capital lease obligation.....     130,282           --
  Loans from partners...............................   4,826,566     1,826,566
                                                      ----------    ----------
    Total long-term liabilities.....................   4,956,848     1,826,566
                                                      ----------    ----------
Minority Interest in Limited Partnership............   1,115,794            --
Partners' Capital (Deficit).........................  (4,177,490)      (23,163)
                                                      ----------    ----------
Total Liabilities and Partners' Capital (Deficit)...  $3,285,071    $2,747,598
                                                      ==========    ==========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                     F-115
<PAGE>

                         METALSITE GENERAL PARTNER, LLC

                     Consolidated Statements Of Operations

      For the Nine Months Ended September 30, 1999 and for the Period from
            inception (November 15, 1998) through December 31, 1998

<TABLE>
<CAPTION>
                                             (Unaudited)
                                             Nine Months     From Inception
                                                Ended     (November 15, 1998)
                                            September 30, through December 31,
                                                1999              1998
                                            ------------- --------------------
<S>                                         <C>           <C>
Revenues...................................  $ 1,022,216       $     789
  Cost of revenues.........................      442,728         121,250
                                             -----------       ---------
  Gross profit (loss)......................      579,488        (120,461)
                                             -----------       ---------
Operating Expenses:
  Product development......................    1,785,115         456,079
  Sales and marketing......................    1,369,137         255,000
  General and administrative...............    2,264,400         168,103
  Partnership interest based compensation..       65,200              --
                                             -----------       ---------
  Total operating expenses.................    5,483,852         879,182
                                             -----------       ---------
  Loss from operations.....................   (4,904,364)       (999,643)
                                             -----------       ---------
Interest expense, net......................      213,537           4,652
                                             -----------       ---------
Minority interest in loss of limited
 partnership...............................     (949,406)       (930,913)
                                             -----------       ---------
Net Loss...................................  $(4,168,495)      $ (73,382)
                                             ===========       =========
</TABLE>



  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                     F-116
<PAGE>

                         METALSITE GENERAL PARTNER, LLC

             Consolidated Statements of Partners' Capital (Deficit)

      For the Nine Months Ended September 30, 1999 (Unaudited) and for the
      Period from inception (November 15, 1998) through December 31, 1998

<TABLE>
<S>                                                                <C>
Partners' Capital (Deficit),
 beginning balance at Inception (November 15, 1998)............... $       --
  Contributions...................................................      50,219
  Net loss........................................................     (73,382)
                                                                   -----------
Partners' Capital (Deficit),
 December 31, 1998................................................     (23,163)
                                                                   -----------
  Contributions...................................................      14,168
  Net loss........................................................  (4,168,495)
                                                                   -----------
Partners' Capital (Deficit),
 September 30, 1999............................................... $(4,177,490)
                                                                   ===========
</TABLE>




  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                     F-117
<PAGE>

                         METALSITE GENERAL PARTNER, LLC

                     Consolidated Statements of Cash Flows

      For the Nine Months Ended September 30, 1999 and for the Period from
            inception (November 15, 1998) through December 31, 1998

<TABLE>
<CAPTION>
                                              (Unaudited)
                                              Nine Months    From Inception
                                                 Ended     (November 15, 1998)
                                             September 30,       through
                                                 1999       December 31, 1998
                                             ------------- -------------------
<S>                                          <C>           <C>
Cash Flows From Operating Activities:
Net loss....................................  $(4,168,495)     $   (73,382)
Adjustments to reconcile net loss to net
 cash provided (used) by operating
 activities--
  Depreciation and amortization.............    1,284,401           95,693
  Minority interest in loss of Limited
   Partnership..............................     (949,406)        (930,913)
  Amortization of deferred compensation.....       65,200              --
Changes in assets and liabilities--
  Accounts receivable.......................     (395,105)            (789)
  Other receivables.........................       (5,516)             --
  Prepaid expenses..........................      (45,233)          (2,194)
  Other assets..............................     (106,892)             --
  Accounts payable..........................     (527,207)         594,502
  Accrued expenses..........................      853,892          349,693
  Deferred revenue..........................          450              --
                                              -----------      -----------
    Net cash (used) provided by operating
     activities.............................   (3,993,911)          32,610
                                              -----------      -----------
Cash Flows From Investing Activities:
  Additions to fixed assets, software, and
   development costs........................      453,279        1,685,885
  Deposits..................................          --            25,100
                                              -----------      -----------
    Cash used in investing activities.......     (453,279)      (1,710,985)
                                              -----------      -----------
Cash Flows From Financing Activities:
  General Partners' cash contributions......       14,168           50,219
  Limited Partners' cash contributions......    1,500,000          930,913
  Loans from partners.......................    3,000,000        1,826,566
                                              -----------      -----------
Cash provided by financing activities.......    4,514,168        2,807,698
                                              -----------      -----------
    Net increase in cash....................       66,978        1,129,323
                                              -----------      -----------
Cash and cash equivalents, beginning of
 period.....................................    1,129,323              --
                                              -----------      -----------
Cash and cash equivalents, end of period....  $ 1,196,301      $ 1,129,323
                                              ===========      ===========
Non-Cash Transactions:
  Purchase of equipment through capital
   lease....................................  $   248,871      $       --
  Contribution of prepaid service
   arrangement for Limited Partnership
   Interest.................................  $   500,000      $       --
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                     F-118
<PAGE>

                         METALSITE GENERAL PARTNER, LLC

                   Notes to Consolidated Financial Statements

      For the Nine Months Ended September 30, 1999 (Unaudited) and for the
      Period from Inception (November 15, 1998) through December 31, 1998

1. Organization and Partnership Agreement:

      MetalSite General Partner, LLC ("MGP" or the "general partner") a
Delaware limited liability company owns a 1% interest in MetalSite, L.P. (the
"Partnership" or "MetalSite") a Delaware Limited Partnership and through the
provisions of the Third Amended and Restated Operating Agreement of MGP (the
"Agreement") controls MetalSite. MetalSite is a leading provider of business-
to- business electronic commerce solutions to the metals industry. MetalSite's
Internet-based marketplace permits raw material suppliers, integrated and mini-
mill producers, service centers, distributors, toll processors, brokers,
fabricators and original equipment manufacturers to efficiently buy and sell
metals products. The Partnership was in the development stage for the period
from Inception (November 15, 1998) through the first half of 1999.

      Weirton Steel Corporation ("WSC"), LTV Steel Company ("LTV") and Steel
Dynamics, Inc. ("SDI") purchased their respective general partner and
Partnership interests on November 15, 1998. LTV and SDI were also granted
warrants allowing them to purchase additional limited partnership interests
under specified terms (see Note 8). As the period from the time of respective
Partnership interest purchase to December 31, 1998 is one and a half months,
comparison to the nine-month period ending September 30, 1999 is not
meaningful.

      For purposes of determining the ownership percentage of the Partnership,
the cost incurred by WSC prior to the initial capitalization of the
Partnership, for early development of the technology and intellectual property
that supports the Partnership's business, was included as a component of WSC
("Predecessor") and was credited towards WSC's initial Partnership interest. To
the extent that the expenditures composing this investment included assets
contributed to the Partnership, these assets were accounted for using the net
book value of the assets transferred from WSC's books. For financial reporting
purposes, however, the amount contained in WSC's capital account excludes those
costs that WSC expensed prior to the initial capitalization of the Partnership.

      On September 1, 1999, Ryerson Tull, Inc. ("RTI") purchased its respective
general partner and Partnership interests in exchange for cash and intellectual
property (see Note 2). Additionally on September 1, 1999, Bethlehem Steel
Corporation ("BSC") purchased its respective general partner and Partnership
interests in exchange for cash.

      As of December 31, 1998, WSC, LTV and SDI were collectively the limited
partners of MetalSite. As of September 30, 1999, WSC, LTV, SDI, RTI, and BSC
were collectively the limited partners of MetalSite (the "Limited Partners").

      The Limited Partnership Agreement provides, among other things, for the
following:

      Management

      The affairs of the Partnership are managed by MGP, its general partner.

                                     F-119
<PAGE>

                         METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)


      Right of First Refusal

      Pursuant to the Limited Partnership Agreement of MetalSite L.P., a Class
A Partner (the "Selling Partner") shall have the right to sell all (but not
less than all) of its Class A interest in MetalSite ("Offered Interest") to a
bonafide third party provided that the Selling Partner first gives the
Partnership and the other Class A Partners (the "Non-Selling Partners") the
opportunity to purchase the Offered Interest. The Selling Partner shall give
written notice of any bona fide offer (the "Offer Notice") to MGP and each of
the Non-Selling Partners. Within 60 days following receipt of the Offer Notice,
the Partnership shall have the right to elect to purchase, at the same price
and on the same terms and conditions specified in the Offer Notice, the Offered
Interest.

      Term and Dissolution

      Pursuant to the Agreement of MGP, the Limited Partners shall not take
part in the control, direction or operation of the affairs of MGP other than to
exercise rights specifically provided in the Agreement, nor may the limited
partners act for or bind the MGP. At all times the sole control of the
Partnership shall rest exclusively with the general partner. Additionally, no
prior consent or approval of a limited partner is required for any act or
transaction to be taken by the general partner.

      The term of the Partnership will continue until there is either (a) a
sale or distribution of all of MetalSite's assets, (b) a superceding of the
original partnership agreement or (c) a termination by dissolution.

2. Summary of Significant Accounting Policies:

      Principles of Consolidation

      The accompanying consolidated financial statements are those of the
general partner and include the accounts of MGP and the Partnership. All
significant intercompany transactions have been eliminated in consolidation.

      Basis of Presentation and Management's Plans

      The accompanying consolidated financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and
settlement of liabilities in the ordinary course of business. Through September
30, 1999, MGP has incurred a cumulative net loss of $4,241,877 and has yet to
generate significant revenues. Management anticipates that additional losses
will be incurred while MetalSite's website aggregates sufficient commercial
activity to cover its operating costs. Any substantial delay in the
implementation of management's plans or substantial unanticipated costs
associated with its plans (including delays in achieving sufficient commercial
activity) could have an adverse effect on MGP's financial condition. As such,
it is uncertain as to whether MetalSite will generate sufficient cash flows
from operations. These factors raise substantial doubt about MGP's ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

      Management's plans include achieving sufficient commercial activity to
cover its operating costs. Until this is achieved, the Partnership is dependent
on the continued funding of its Limited Partners. On September 1, 1999,
management obtained a Partnership Loan Facility from the Limited Partners to
provide up to a maximum of $6,000,000 to fund Partnership operations (see Note
4).

                                     F-120
<PAGE>

                        METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)


      Minority Interest

      Minority interest includes the Limited Partner's Class A partnership
interests in MetalSite, the value of warrants issued to two of the Limited
Partners (see Note 8) and deferred compensation associated with the Class B
partnership interests that were issued to certain members of the Partnership's
management under a Restricted Partnership Interest Plan (the "RPIP"). Losses
are allocated pro-rata to the Limited Partners until the minority interest
balance is reduced to zero. At that time, all remaining losses are allocated
to the general partner.

      Below is a reconciliation of the minority interest in the Limited
Partnership at September 30, 1999:

<TABLE>
<S>                                                                  <C>
Minority interest in Limited Partnership--December 31, 1998......... $       --
Limited Partners' cash contributions................................  1,500,000
Contribution of prepaid service arrangement for capital.............    500,000
Amortization of deferred compensation...............................     65,200
Minority interest in loss of Limited Partnership....................   (949,406)
                                                                     ----------
Minority interest in Limited Partnership--September 30, 1999........ $1,115,794
                                                                     ==========
</TABLE>

      Cash and Cash Equivalents

      Cash and cash equivalents include cash on hand and money market funds.
All cash equivalents are recorded at cost, which approximates fair value.

      Fixed Assets

      Fixed assets are stated at cost. Depreciation is computed using the
straight- line method to charge the cost of significant assets to income over
their useful lives. For purposes of this computation, the useful lives are
assumed to be as follows:

<TABLE>
<CAPTION>
                                                              From Inception
                                                           (November 15, 1998)
                                                           to December 31, 1998
                                                           --------------------
<S>                                                        <C>
Hardware and Software.....................................      3-5 years
Furniture and Fixtures....................................        5 years
</TABLE>

      Based upon the Partnership reassessment of hardware and software's
useful life, effective August 1, 1999, the Partnership changed the depreciable
life of the above assets as follows:

<TABLE>
<S>                                                                    <C>
Internally Developed or Capitalized Software Costs.................... 1.5 years
Externally Developed or Acquired Software and Hardware................   2 years
</TABLE>

      The effect of the change in depreciable lives was an additional charge
of $399,660 to the statement of operations during the nine months ended
September 30, 1999.

      Capitalized Software Costs

      The Partnership capitalizes in accordance with SOP 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use",
certain internal and external development costs that relate

                                     F-121
<PAGE>

                         METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)

to the development of internal use software that will provide benefits to
future periods. These costs are amortized over the shorter of their estimated
useful life or 1.5 years.

      Prepaid Service Agreement

      In connection with the sale of Class A partnership interest to RTI, MGP,
RTI and MetalSite have agreed that RTI shall provide certain of its consultants
to MetalSite to perform analysis, design, consulting, and/or support for one-
year from the date of RTI's investment. The consultants, in performing
services, provide MetalSite with their knowledge, experiences, expertise,
ideas, know-how, concepts and understandings, whether written or oral, to
assist MetalSite with the further development of its catalog technology. The
fair value of this prepaid service agreement ($500,000) is being amortized over
the life of the agreement (one-year).

      Revenue Recognition

      MetalSite recognizes revenue from three types of occurrences conducted on
or over its website: (1) fixed transaction fees for items with a set selling
price at the time the seller accepts the buyer's order, (2) auction transaction
fees derived from the highest bid received above seller specific reserve prices
at the time an auction is closed and (3) advertising fees for posted customer
advertisements at the time the service is performed. The specific reserve price
in (2) above is defined as the bid price that must be received from the buyer
before MetalSite is entitled to revenue. The seller, prior to placing a product
for auction on the site, sets the reserve price.

      Cost of Revenues

      Cost of revenues consist primarily of the costs for hosting services
provided by MetalSite's internet service provider for daily use of its server
and employee costs.

      Income Taxes

      No provision for income taxes has been made in the financial statements
as MGP is not subject to income tax. The tax effects of MGP and the
Partnership's operations accrue to its Partners.

      Use of Estimates

      The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

3. Notes Receivable from Employees:

      In connection with the Class B partnership interests that were issued at
a discount to certain members of the Partnership's management under the RPIP,
the Partnership recorded $113,323 in nonrecourse loans to these employees for
tax payments the Partnership remitted to the government upon Class B
partnership interest grant. The interest on these loans is recourse. These
loans bear interest at 5% and are due in four equal annual installments
beginning April 17, 2000 (see Note 10).

                                     F-122
<PAGE>

                         METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)


4. Related Party Transactions:

      Revenues

      As of December 31, 1998, the Partnership's exclusive revenue provider was
WSC, a Limited Partner. As a result, the trade receivable recorded as of
December 31, 1998 was solely from WSC. Subsequent to December 31, 1998, the
Partnership began facilitating the sale of metal for other Limited Partners and
new sellers recording transaction fee revenue and the resultant trade
receivables from these sellers.

      Note Payable to WSC

      The Partnership received $1,826,566 in loans from WSC during the period
from Inception (November 15, 1998) through December 31, 1998. The loans bear
interest at an 8% fixed rate per annum and provide for the liquidation of
principal balances on December 31, 2001. These loans are secured by a lien on
the assets of the Partnership and are subordinated to the Partnership Loan
Facility discussed below. Among other restrictions, the Partnership will be
deemed to be in an "Event of Default" under the agreement if principal,
interest, or other indebtedness under the note payable agreement with WSC is
not paid when due. Included in the accompanying consolidated balance sheets
related to the WSC loans is accrued interest of $113,947 and $4,652 as of
September 30, 1999 and December 31, 1998, respectively. Interest expense for
the nine months ended September 30, 1999 and the period from Inception
(November 15, 1998) through December 31, 1998, was $109,295 and $4,652,
respectively.

      Partnership Loan Facility

      On September 1, 1999, the Limited Partners established a Partnership Loan
Facility (the "Facility") to provide working capital to fund the Partnership's
operations. Under the terms of this Facility, the Partnership can borrow up to
a maximum of $6,000,000. The Facility provides that upon the request of the
Partnership, each Limited Partner will make loans to the Partnership in
proportion to their respective ownership interests. These loans bear interest
at the PNC Bank prime interest rate plus 1%. Accrued interest and principal
balances are payable at maturity, which is March 26, 2001. Loans made under
this facility are secured by a lien on accounts receivable and fixed assets of
the Partnership and are subordinated to future bank borrowings. The amount
outstanding under the facility at September 30, 1999 was $3,000,000. Among
other restrictions, the Partnership will be deemed to be in an "Event of
Default" under the Facility if principal, interest, or other indebtedness under
the agreement is not paid when due. Additionally, the accompanying September
30, 1999 consolidated balance sheet includes accrued interest of $108,601 for
outstanding amounts due under the Facility. This also represents the amount of
interest expense incurred for the nine months ended September 30, 1999.

      Warrants

      Upon the earlier of (1) the date by which both LTV and SDI shall have
exercised their warrants to purchase Partnership interest or (2) April 1, 2001,
if a warrant in the Partnership previously expires without being exercised, WSC
shall be required to make an additional capital contribution equal to the
appraised value of the Partnership as of December 31, 1998, minus any capital
contributions made by any of the Limited Partners through such date to the
extent such appraised value of the Partnership exceeds the aggregate capital
contributions made to the Partnership. As of September 30, 1999 and December
31, 1998, no additional capital contributions were required.

                                     F-123
<PAGE>

                         METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)


      Leases

      From its Inception (November 15, 1998) through September 30, 1999, the
Partnership occupied facilities which were leased by WSC. WSC's monthly lease
payment was recorded as a payable to WSC on the Partnership's balance sheet. On
July 12, 1999, this lease was assigned to the Partnership and the Partnership
began making payments directly to the lessor (see Note 7). WSC has remained a
guarantor of this lease agreement.

      WSC has guaranteed a lease facility that the Partnership has used to
purchase furniture for its offices. The maximum credit that will be extended
under this facility is $175,000. As of September 30, 1999 and December 31,
1998, the Partnership had leased office furniture under this facility totaling
approximately $175,000 and $83,000, respectively. This lease facility is
accounted for as an operating lease by the Partnership.

5. Technology License Agreement:

      WSC developed the intellectual property and business processes
("Intellectual Property") that support the MetalSite website. Because this
information is critical to the Partnership's operation, WSC has entered into a
technology licensing agreement with the Partnership. This license allows the
Partnership worldwide, royalty free and irrevocable usage of WSC's Intellectual
Property in the metals industry. Upon a Transfer Event, as defined, WSC shall
automatically assign all right, title and interest in and to the Intellectual
Property to the Partnership free and clear of any claim, suit, proceedings,
security interest, pledge or lien or encumbrance of any kind or nature. A
Transfer Event, as defined by the technology licensing agreement is the earlier
of (1) an initial public offering of securities by MetalSite; or (2) two years
from the effective date of the agreement which is August 27, 1999.

6. Employee Benefit and Incentive Plans:

      The Partnership has established a 401(K) retirement program to provide
the opportunity for substantially all employees to invest pretax earnings
towards their retirement. The Partnership's program provides for the
possibility of matching contributions up to a specified limit based on the
extent to which the Partnership achieves financial and operating goals. No
matching contributions were made to this Program during the nine months ended
September 30, 1999 or the period from Inception (November 15, 1998) through
December 31, 1998.

      The Partnership has also established various incentive bonus plans for
its employees during 1999. No payments were made under these plans during the
nine months ended September 30, 1999. MetalSite accrued $271,876 for these
plans at September 30, 1999.

                                     F-124
<PAGE>

                         METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)


7. Leases:

      The Partnership leases certain office space and office furniture under
operating leases. The following is a schedule of future minimum rental payments
required under non-cancelable operating leases:

<TABLE>
<CAPTION>
                                                                   September 30,
                                                                       1999
                                                                   -------------
   <S>                                                             <C>
   1999...........................................................   $115,000
   2000...........................................................    510,000
   2001...........................................................    226,000
   2002...........................................................     19,000
                                                                     --------
     Total........................................................   $870,000
                                                                     ========
</TABLE>

      Rental expense for all operating leases was approximately $237,000 and
$33,000 for the nine months ended September 30, 1999 and the period from
Inception (November 15, 1998) through December 31, 1998, respectively. Future
minimum lease payments include facility lease payments for office space
subleased from WSC subsequent to December 31, 1998 (see Note 4).

      In August 1999, MetalSite entered into a capital lease with Exodus, an
internet service provider, for a website server and related hardware. Under the
terms of the lease, MetalSite is required to make twenty-four monthly payments
of $14,364 through October 31, 2001. An asset and corresponding obligation were
recorded for an amount equal to the present value of minimum lease payments at
the beginning of the lease term, excluding that portion of the payments
representing executory costs to be paid by the lessor. Payments were discounted
using a 9% interest rate, which approximated MetalSite's incremental borrowing
rate at the time the lease was executed. The principal balance outstanding
under this lease agreement was $248,871 at September 30, 1999.

      Future minimum payments by year and in the aggregate, under capital
leases consist of the following at September 30, 1999:

<TABLE>
   <S>                                                                <C>
   1999.............................................................. $  28,728
   2000..............................................................   172,368
   2001..............................................................   143,640
                                                                      ---------
     Total minimum lease payments....................................   344,736
   Less--Amounts for executory costs.................................   (51,110)
   Less--Amounts representing interest...............................   (44,755)
                                                                      ---------
   Present value of net minimum lease payments.......................   248,871
   Less--Amounts due within one year.................................  (118,589)
                                                                      ---------
   Long-term capital lease obligations............................... $ 130,282
                                                                      =========
</TABLE>

8. Warrants Outstanding:

      In connection with their purchase of an initial Partnership interest, two
of the Partnership's limited partners, LTV and SDI obtained nontransferable
warrants to purchase additional partnership interests. These warrants allow LTV
and SDI to acquire additional partnership interests sufficient to double their
initial Partnership interests. These warrants may be exercised at any time
between January 1, 1999 and March 31,

                                     F-125
<PAGE>

                         METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)

2001 and allow the additional interests to be purchased for a price based upon
a valuation of the Partnership as of December 31, 1998. The warrants entitle
the holder to a discount on their exercise price ("Discount") based on tonnage
the holder sells over the MetalSite website during the twelve months preceding
the exercise. As of September 30, 1999 and December 31, 1998, these warrants
remain unexercised. Additionally, as of December 31, 1998, neither LTV nor SDI
met the tonnage requirements to receive a Discount. At the point in time that
it becomes probable that LTV and SDI will achieve the tonnage targets,
MetalSite will begin to accrete the Discount with a charge to transaction fee
discount expense and a corresponding credit to warrants outstanding. At
September 30, 1999 and December 31, 1998, warrants outstanding totaled $74,250.

9. Fair Value of Financial Instruments and Market Risks:

      Statement of Financial Accounting Standards No. 107 "Fair Value of
Financial Instruments" requires disclosures about fair value for all financial
statements. The $1,826,566 in loans from WSC bears interest at an 8% fixed rate
per annum, with principal paid at maturity. The $3,000,000 outstanding from the
Partnership Loan Facility bears interest at the PNC Bank prime rate plus 1%,
with principal paid at maturity. The variable rate debt approximates current
rates available to MetalSite for such debt, and accordingly the fair value of
such floating rate debt approximates the current carrying amount. At September
30, 1999 and December 31, 1998, it is not practicable to determine the fair
value of the fixed rate debt.

10. Management Ownership Plan:

      During 1999, the Partnership established a Management Ownership Plan
("MOP") to provide incentive to key employees of the Partnership to (i) achieve
high levels of performance, and (ii) increase earnings and value of the
Partnership. The MOP seeks to accomplish these goals by providing a means
whereby such employees may acquire Class B interests in the Partnership through
the grant of Class B interests or the exercise of Class B options.

      The grant of a Class B interest by the Partnership or the purchase of a
Class B interest pursuant to the exercise of a Class B option under the MOP
shall cause WSC's percentage interest in MetalSite (and a proportionate amount
of their capital account) to decrease by the same amount as the grant or
purchase of such Class B interest.

      To the extent that the Limited Partners are allowed to sell any Class A
interests in MetalSite, or other securities into which the Class A interests
may convert in a registered offering, the Class B Partners shall have the right
to convert their respective Class B interest, or other securities into which
the Class B interest may convert, into Class A securities and sell in the same
registered offering, on the same terms as the Limited Partners. Each Class B
Partner's right to sell pursuant to the foregoing shall be in proportion to the
percentage of all Class A securities held by all Class B Partners that such
Class B Partner holds. If the Partnership engages in an initial public offering
("IPO") of securities other than the Class B interests, the Class B Interests
shall convert into the security being offered in the IPO immediately prior to
the IPO.

      Under the provisions of the MOP, ownership interests totaling up to 10%
will be transferred to employees. On April 17, 1999 the Class B partnership
interests totaling 5% were issued to certain members of the Partnership's
management under the RPIP, which is a component of the MOP. The RPIP provides
for ownership of the Partnership interests to vest over a four-year period,
with the potential for accelerated vesting under certain circumstances. The
Class B partnership interests were recorded as deferred compensation at the
appraised value on the date of grant ($250,000) in the accompanying
consolidated statements of partners' capital (deficit). The deferred
compensation is being amortized over the four-year vesting period. The total

                                     F-126
<PAGE>

                         METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)

compensation cost recognized in the accompanying consolidated statement of
operations for the nine months ended September 30, 1999 was $65,200.

      Under the Class B Option Award Plan (the "Plan"), which is a component of
the MOP, the Partnership may grant options for up to 1,000,000 units. The
Partnership's Board of Directors or its designee determines the option price
and vesting requirements. During the nine months ended September 30, 1999, the
Partnership granted 374,500 options at a price of $0.50 per unit. Under the
Plan, the option exercise price equals the unit's appraised value on the date
of grant. The Class B option granted under the Plan may only be exercised in
its entirety and only after the end of the applicable Plan Period, as defined
in each Class B Option Award Agreement, while the recipient is employed by the
Partnership, but in no event greater than 10 years from the award date.

      1999 activity under the Class B Option Award Plan is summarized below:

<TABLE>
<CAPTION>
                                                                Weighted Average
                                                         Units   Exercise Price
                                                        ------- ----------------
<S>                                                     <C>     <C>
Options outstanding at January 1, 1999.................      --      $  --
Granted--Class B Option Award Plan..................... 374,500       0.50
Forfeited..............................................      --         --
Exercised..............................................      --         --
                                                        -------      -----
Outstanding at September 30, 1999...................... 374,500      $0.50
Exercisable at September 30, 1999......................      --         --
Weighted Average fair vale of option granted...........      --      $0.13
</TABLE>

      The Partnership accounts for the Class B Option Award Plan by application
of APB No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations. Had compensation cost for the Class B Option Plan been
determined based upon the fair value at the grant dates consistent with SFAS
No. 123, "Accounting for Stock Based Compensation", the Partnership would have
recorded additional compensation expense in the amount of $50,322.

      The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1999:

<TABLE>
<CAPTION>
                                             9/29/99  9/27/99  9/15/99   9/2/99
                                             -------- -------- -------- --------
<S>                                          <C>      <C>      <C>      <C>
Risk free interest rate.....................    5.68%    5.62%    5.67%    5.74%
Expected dividend yield.....................       0%       0%       0%       0%
Expected life of options.................... 2 years  2 years  2 years  2 years
Expected volatility rate....................      40%      40%      40%      40%
</TABLE>

11. New Accounting Pronouncements:

      In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"). Statement 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. In June 1999, the FASB issued Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133", which amends Statement 133 to be
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000.

                                     F-127
<PAGE>

                         METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)

Management does not believe that the adoption of Statement 133 will have a
material impact on MGP's financial position or its results of operations.

      On December 3, 1999 the SEC staff released Staff Accounting Bulletin No.
101, "Revenue Recognition" ("SAB No. 101"), to provide guidance on the
recognition, presentation and disclosure of revenue in financial statements.
SAB No. 101 explains the SEC staff's general framework for revenue recognition,
stating that four criteria need to be met in order to recognize revenue. The
four criteria, all of which must be met, are:

      .There must be persuasive evidence of an arrangement;

      .Delivery must have occurred or services must have been rendered;

      .The selling price must be fixed or determinable; and

      .Collectibility must be reasonably assured.

      SAB No. 101 does not change existing literature on revenue recognition.
SAB No. 101 states that changes in accounting to apply the guidance contained
therein may be accounted for as a change in accounting principle under APB
Opinion No. 20, "Accounting Changes". The new standard did not require
management to change existing revenue recognition policies and therefore had no
impact on reported financial position and results of operations.

12. Subsequent Events:

      On December 29, 1999, Internet Capital Group, Inc. ("ICG") purchased its
respective general partner and Partnership interests from WSC, pursuant to a
Securities Purchase Agreement (the "Purchase Agreement") between ICG and WSC.
Pursuant to the Purchase Agreement, ICG acquired a Class A limited partner
interest in MetalSite representing a 44.42% interest on a basic per unit basis
and a 35.35% interest on a diluted per unit basis. ICG also acquired a
Membership Interest in the general partner representing a 47.26% interest on a
basic per unit basis and a 39.72% interest on a diluted per unit basis.

      In addition, pursuant to the Purchase Agreement, ICG has been granted
options to purchase additional interests in MetalSite and the general partner
from WSC upon the occurrence of certain events, as defined in the Purchase
Agreement. Further, ICG will have the right to appoint two voting members of
the Board of Directors of the general partner.

                                     F-128
<PAGE>

                    Report of Independent Public Accountants

To the Board of Directors of
Weirton Steel Corporation:

      We have audited the accompanying statements of costs and expenses of
MetalSite as a Component of Weirton Steel Corporation for the period from
January 1, 1998 to November 15, 1998 and for the year ended December 31, 1997.
These financial statements are the responsibility of Weirton Steel
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the 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 statements of costs and expenses referred to above
present fairly, in all material respects, the costs and expenses of MetalSite
as a Component of Weirton Steel Corporation for the period from January 1, 1998
to November 15, 1998 and for the year ended December 31, 1997, in conformity
with accounting principles generally accepted in the United States.

                                          /s/ Arthur Andersen LLP

Pittsburgh, Pennsylvania
January 12, 2000

                                     F-129
<PAGE>

                          METALSITE AS A COMPONENT OF
                           WEIRTON STEEL CORPORATION

                        Statements of Costs and Expenses
          For the Period from January 1, 1998 to November 15, 1998 and
                      For the Year Ended December 31, 1997

<TABLE>
<CAPTION>
                                                      Period From
                                                    January 1, 1998
                                                    To November 15, December 31,
                                                         1998           1997
                                                    --------------- ------------
<S>                                                 <C>             <C>
Costs And Expenses:
  Product Development..............................   $2,110,563      $805,111
  Sales and Marketing..............................      324,753        80,053
  General and Administrative.......................      655,918       109,475
                                                      ----------      --------
    Total Costs and Expenses.......................   $3,091,234      $994,639
                                                      ==========      ========
</TABLE>






   The accompanying notes are an integral part of these financial statements.

                                     F-130
<PAGE>

                          METALSITE AS A COMPONENT OF
                           WEIRTON STEEL CORPORATION

                         Notes to Financial Statements

          For the Period From January 1, 1998 to November 15, 1998 and
                      For the Year Ended December 31, 1997

1. Basis of Presentation:

      The accompanying financial statements represent the financial information
of MetalSite as a Component of Weirton Steel Corporation (the "Component"). The
costs and expenses of the Component were funded by Weirton Steel Corporation
and accordingly, no balance sheets or statements of cash flows are presented
for the Component. The statements of costs and expenses represent the
Component's share of total spending by Weirton Steel Corporation on behalf of
the Component for the respective periods presented. There was no activity
related to the Component prior to January 1, 1997.

      On November 15, 1998, Weirton Steel Corporation, LTV Steel Company and
Steel Dynamics, Inc. purchased their respective interests in MetalSite General
Partner, LLC and MetalSite, L.P., at which time, the Component ceased to exist.

2. Research and Development:

      The costs incurred for the Component primarily represent research and
development type expenditures related to the creation of the infrastructure of
the Component and were incurred prior to the establishment of technical
feasibility and were therefore expensed as incurred.

                                     F-131
<PAGE>

                       Report of Independent Accountants

To the Board of Directors and Stockholders of
Syncra Software, Inc.

      In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in redeemable preferred stock and stockholders'
deficit and of cash flows present fairly, in all material respects, the
financial position of Syncra Software, Inc. (a development stage enterprise) at
December 31, 1998 and the results of its operations and its cash flows for the
period from inception (February 11, 1998) through December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.

                                          PricewaterhouseCoopers LLP

Boston, Massachusetts
April 29, 1999

                                     F-132
<PAGE>

                             SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                                 Balance Sheet

<TABLE>
<CAPTION>
                                                                                  (Unaudited)
                                                                    December 31,   March 31,
                                                                        1998          1999
                                                                    ------------  ------------
<S>                                                                 <C>           <C>
Assets
Current Assets:
  Cash and cash equivalents........................................ $ 1,700,370   $    176,953
  Prepaid expenses.................................................     185,506        149,366
  Other current assets.............................................      22,704         19,991
                                                                    -----------   ------------
  Total current assets.............................................   1,908,580        346,310
Fixed assets, net..................................................     351,752        342,690
Deposits...........................................................     136,998        136,998
                                                                    -----------   ------------
                                                                    $ 2,397,330   $    825,998
                                                                    ===========   ============
Liabilities, Redeemable Preferred Stock and Stockholders' Deficit
Current Liabilities:
  Accounts payable................................................. $   233,281   $    226,688
  Accrued expenses.................................................     316,918        347,771
  Notes payable to stockholders....................................   3,926,370             --
                                                                    -----------   ------------
  Total current liabilities........................................   4,476,569        574,459
                                                                    -----------   ------------

Redeemable Preferred Stock:
  Series A redeemable convertible preferred stock, $0.001 par value
   Authorized: 2,941,031 and 2,586,207 shares at December 31, 1998
   and March 31, 1999 (unaudited), respectively; issued and
   outstanding: 2,586,207 shares at December 31, 1998 and March 31,
   1999 (unaudited) plus accrued dividends of $334,652 and $454,513
   at December 31, 1998 and March 31, 1999 (unaudited),
   respectively; liquidation value of $6,334,651 and $6,454,512 at
   December 31, 1998 and March 31, 1999 (unaudited), respectively
   ................................................................   6,334,651      6,454,512
  Series B redeemable convertible preferred stock, $0.001 par value
   Authorized: 3,737,602 shares; subscribed and issued and
   outstanding: 3,287,602 shares at March 31, 1999 (unaudited);
   liquidation value of $13,150,408 at March 31, 1999 (unaudited)..          --     13,150,408
  Subscriptions receivable (unaudited).............................          --     (9,000,000)
  Preferred stock warrants.........................................     120,000        120,000
  Redeemable non-voting, non-convertible preferred stock, $0.001
   par value Authorized: 150,000 and 130,000 shares at December 31,
   1998 and March 31, 1999 (unaudited), respectively; issued and
   outstanding: 130,000 shares at December 31, 1998 and March 31,
   1999 (unaudited) plus accrued dividends of $89,468 and $116,001
   at December 31, 1998 and March 31, 1999 (unaudited),
   respectively; liquidation value of $1,389,468 and $1,416,001 at
   December 31, 1998 and March 31, 1999 (unaudited), respectively..   1,389,468      1,416,001
                                                                    -----------   ------------
  Total redeemable preferred stock.................................   7,844,119     12,140,921
                                                                    -----------   ------------

Stockholders' Deficit:
  Common stock, $0.001 par value; 10,000,000 shares authorized;
   396,000 shares issued and outstanding at December 31, 1998 and
   March 31, 1999 (unaudited)......................................         396            396
  Deficit accumulated during the development stage.................  (9,923,754)   (11,889,778)
                                                                    -----------   ------------
  Total stockholders' deficit......................................  (9,923,358)   (11,889,382)
                                                                    -----------   ------------
Commitments (Note 14)..............................................
                                                                    -----------   ------------
                                                                    $ 2,397,330   $    825,998
                                                                    ===========   ============
</TABLE>
   The accompanying notes are an integral part of these financial statements

                                     F-133
<PAGE>

                             SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                            Statement of Operations

<TABLE>
<CAPTION>
                                     For the Period         (Unaudited)
                                     from Inception        For the Three
                                      (February 11,   Months Ended March 31,
                                      1998) through   ------------------------
                                    December 31, 1998    1998         1999
                                    ----------------- -----------  -----------
<S>                                 <C>               <C>          <C>
Costs and Expenses:
  Research and development.........    $ 1,501,267    $   235,127  $   480,701
  Selling and marketing............      2,425,532        271,723      767,148
  General and administrative.......      1,950,153        685,788      355,164
  Impairment charge for intangible
   assets..........................      1,312,500             --           --
  Settlement charge................      1,795,333             --           --
                                       -----------    -----------  -----------
Loss from operations...............     (8,984,785)    (1,192,638)  (1,603,013)
Interest expense, net..............        (90,430)        (2,565)    (156,617)
                                       -----------    -----------  -----------
Net loss...........................    $(9,075,215)   $(1,195,203) $(1,759,630)
                                       ===========    ===========  ===========
</TABLE>




   The accompanying notes are an integral part of these financial statements

                                     F-134
<PAGE>

                             SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

  Statement of Changes in Redeemable Preferred Stock and Stockholders' Deficit

<TABLE>
<CAPTION>
                                                     Series A Redeemable   Series B Redeemable                  Preferred
                                                       Preferred Stock       Preferred Stock                  Stock Warrants
                                                    --------------------- ---------------------               --------------
                                                               Carrying              Carrying   Subscriptions    Carrying
                                                     Shares      Value     Shares      Value     Receivable       Value
                                                    --------- ----------- --------- ----------- ------------- --------------
<S>                                                 <C>       <C>         <C>       <C>         <C>           <C>
Issuance of
 common stock to
 founders.......
Issuance of
 redeemable non-
 voting, non-
 convertible
 preferred
 stock..........
Issuance of
 Series A
 redeemable
 convertible
 preferred
 stock, issuance
 costs of
 $170,752:
 Initial
  closing.......                                      948,276 $ 2,200,000
 Second
  closing.......                                      646,551   1,500,000
 Third closing..                                      991,380   2,299,999
Repurchase and
 retirement of
 common stock...
Redemption of
 redeemable non-
 voting, non-
 convertible
 preferred
 stock..........
Series A
 redeemable
 convertible
 preferred stock
 warrants.......                                                                                                 $120,000
Accrual of
 cumulative
 dividends on
 redeemable
 preferred
 stock..........                                                  334,652
Net loss........
                                                    --------- ----------- --------- -----------  -----------     --------
Balance at
 December 31,
 1998...........                                    2,586,207   6,334,651                                         120,000
Issuance of
 Series B
 redeemable
 convertible
 preferred
 stock, issuance
 costs of
 $60,000
 (Unaudited)....                                                          3,287,602 $13,150,408  $(9,000,000)
Accrual of
 cumulative
 dividends on
 redeemable
 preferred stock
 (Unaudited)....                                                  119,861
Net loss
 (Unaudited)....
                                                    --------- ----------- --------- -----------  -----------     --------
Balance at March
 31, 1999
 (Unaudited)....                                    2,586,207 $ 6,454,512 3,287,602 $13,150,408  $(9,000,000)    $120,000
                                                    ========= =========== ========= ===========  ===========     ========
<CAPTION>
                                                     Redeemable Non-
                                                          voting
                                                     Non-convertible                             Deficit
                                                     Preferred Stock         Common stock      Accumulated
                                                    -------------------- ---------------------    During
                                                              Carrying                         Development
                                                    Shares     Value       Shares    Par Value    Stage         Total
                                                    -------- ----------- ----------- --------- ------------- -------------
<S>                                                 <C>      <C>         <C>         <C>       <C>           <C>
Issuance of
 common stock to
 founders.......                                                          1,396,000   $1,396                 $      1,396
Issuance of
 redeemable non-
 voting, non-
 convertible
 preferred
 stock..........                                    150,000  $1,500,000
Issuance of
 Series A
 redeemable
 convertible
 preferred
 stock, issuance
 costs of
 $170,752:
 Initial
  closing.......
 Second
  closing.......
 Third closing..                                                                               $   (170,752)     (170,752)
Repurchase and
 retirement of
 common stock...                                                         (1,000,000)  (1,000)      (249,000)     (250,000)
Redemption of
 redeemable non-
 voting, non-
 convertible
 preferred
 stock..........                                    (20,000)   (204,667)
Series A
 redeemable
 convertible
 preferred stock
 warrants.......
Accrual of
 cumulative
 dividends on
 redeemable
 preferred
 stock..........                                                 94,135                            (428,787)     (428,787)
Net loss........                                                                                 (9,075,215)   (9,075,215)
                                                    -------- ----------- ----------- --------- ------------- -------------
Balance at
 December 31,
 1998...........                                    130,000   1,389,468     396,000      396     (9,923,754)   (9,923,358)
Issuance of
 Series B
 redeemable
 convertible
 preferred
 stock, issuance
 costs of
 $60,000
 (Unaudited)....                                                                                    (60,000)      (60,000)
Accrual of
 cumulative
 dividends on
 redeemable
 preferred stock
 (Unaudited)....                                                 26,533                            (146,394)     (146,394)
Net loss
 (Unaudited)....                                                                                 (1,759,630)   (1,759,630)
                                                    -------- ----------- ----------- --------- ------------- -------------
Balance at March
 31, 1999
 (Unaudited)....                                    130,000  $1,416,001     396,000   $  396   $(11,889,778) $(11,889,382)
                                                    ======== =========== =========== ========= ============= =============
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                     F-135
<PAGE>

                             SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                            Statement of Cash Flows

<TABLE>
<CAPTION>
                                    For the Period         (Unaudited)
                                    From Inception    For the Three Months
                                     (February 11,       Ended March 31,
                                     1998) Through   ------------------------
                                   December 31, 1998    1998         1999
                                   ----------------- -----------  -----------
<S>                                <C>               <C>          <C>
Cash flows from operating
 activities:
Net loss..........................    $(9,075,215)   $(1,195,203) $(1,759,630)
Adjustments to reconcile net loss
 to net cash used for operating
 activities:......................
  Depreciation....................         58,537            506       28,522
  Amortization and impairment of
   intangible assets..............      1,500,000        125,000           --
  Amortization of discounts on
   notes payable..................         46,370             --       73,630
  Changes in assets and
   liabilities:
    Prepaid expenses..............       (185,506)            --       36,140
    Other current assets..........        (22,704)       (54,333)       2,713
    Accounts payable..............        233,281          1,691       (6,593)
    Accrued expenses..............        316,918        126,233      121,261
                                      -----------    -----------  -----------
    Net cash used for operating
     activities...................     (7,128,319)      (996,106)  (1,503,957)
                                      -----------    -----------  -----------
Cash flows from investing
 activities:
Purchases of fixed assets.........       (410,289)       (28,543)     (19,460)
Increase in deposits..............       (136,998)            --           --
                                      -----------    -----------  -----------
    Net cash used for investing
     activities...................       (547,287)       (28,543)     (19,460)
                                      -----------    -----------  -----------
Cash flows from financing
 activities:
Proceeds from issuance of notes
 payable to stockholders..........      4,000,000             --           --
Proceeds from Series A redeemable
 convertible preferred stock, net
 of issuance costs................      5,829,247      1,829,248           --
Proceeds from issuance of common
 stock............................          1,396          1,396           --
Redemption of non-voting, non-
 convertible redeemable preferred
 stock and related dividends......       (204,667)            --           --
Repurchase of common stock........       (250,000)            --           --
                                      -----------    -----------  -----------
    Net cash provided by financing
     activities...................      9,375,976      1,830,644           --
                                      -----------    -----------  -----------
Net increase (decrease) in cash
 and cash equivalents.............      1,700,370        805,995   (1,523,417)
Cash and cash equivalents,
 beginning of period..............             --             --    1,700,370
                                      -----------    -----------  -----------
Cash and cash equivalents, end of
 period...........................    $ 1,700,370    $   805,995  $   176,953
                                      ===========    ===========  ===========
Non-cash investing and financing
 activities:
Software acquired in exchange for
 150,000 shares of non-voting,
 non-convertible redeemable
 preferred stock..................    $ 1,500,000    $ 1,500,000  $        --
                                      ===========    ===========  ===========
Conversion of notes payable to
 stockholders plus accrued
 interest of $150,408 into
 1,037,602 shares of Series B
 Preferred Stock..................    $        --    $        --  $ 4,150,408
                                      ===========    ===========  ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements

                                     F-136
<PAGE>

                             SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                         Notes to Financial Statements

1. Nature of the Business

      Syncra Software, Inc. ("Syncra" or the "Company") was incorporated in
Delaware on February 11, 1998. Syncra was formed to design, develop, produce
and market supply chain collaboration software and solutions. Since its
inception, Syncra has devoted substantially all of its efforts to business
planning, research and development, recruiting management and technical staff,
acquiring operating assets, raising capital, marketing and business
development. Accordingly, Syncra is considered to be in the development stage
as defined in Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises".

      Syncra is subject to risks and uncertainties common to growing
technology-based companies, including rapid technological changes, growth and
commercial acceptances of the Internet, dependence on principal products and
third party technology, new product development and performance, new product
introductions and other activities of competitors, dependence on key personnel,
development of a distribution channel, international expansion, lengthy sales
cycles and limited operating history.

2. Summary of Significant Accounting Policies

    Cash and Cash Equivalents

      Syncra considers all highly liquid instruments with an original maturity
of three months or less at the time of purchase to be cash equivalents.
Included in cash and cash equivalents at December 31, 1998 is approximately
$1.6 million in money market accounts.

    Financial Instruments

      The carrying amount of Syncra's financial instruments, principally cash,
notes payable, and redeemable preferred stock, approximates their fair values
at December 31, 1998.

    Fixed Assets

      Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Repairs and maintenance costs are
expensed as incurred.

    Research and Development and Software Development Costs

      Costs incurred in the research and development of Syncra's products are
expensed as incurred, except for certain research and development costs. Costs
associated with the development of computer software are expensed prior to the
establishment of technological feasibility, as defined by SFAS No. 86,
"Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed." Costs incurred subsequent to the establishment of technological
feasibility and prior to the general release of the products are capitalized.
During the period ended December 31, 1998, costs eligible for capitalization
were immaterial.

    Accounting for Impairment of Long Lived Assets

      In accordance with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of", the Company records
impairment of losses on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.

                                     F-137
<PAGE>

                             SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)


    Stock-Based Compensation

      Syncra accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for options issued to
employees in fixed amounts and with fixed exercise prices at least equal to the
fair market value of Syncra's Common Stock at the date of grant. Syncra has
adopted the provisions of SFAS No. 123, " Accounting for Stock-Based
Compensation", through disclosure only (Note 11). All stock-based awards to
non-employees are accounted for at their fair value in accordance with SFAS No.
123.

    Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

    Unaudited Interim Financial Statements

      The financial statements as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 are unaudited. In the opinion of Syncra's
management, the March 31, 1998 and 1999 unaudited interim financial statements
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial position and results of operation for
that period. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results of operations to be expected
for the year ending December 31, 1999.

3. Prepaid Expenses

      Prepaid expenses consist of the following at December 31, 1998:

<TABLE>
     <S>                                                               <C>
     Trade shows and other marketing prepayments...................... $135,774
     Others...........................................................   49,732
                                                                       --------
                                                                       $185,506
                                                                       ========
</TABLE>

4. Fixed Assets

      Fixed assets consist of the following:

<TABLE>
<CAPTION>
                                                         Estimated
                                                        useful life December 31,
                                                          (years)       1998
                                                        ----------- ------------
   <S>                                                  <C>         <C>
   Computer equipment..................................       3       $246,631
   Office equipment....................................       5         71,783
   Furniture and fixtures..............................       7         91,875
                                                                      --------
                                                                       410,289
   Less: accumulated depreciation......................                 58,537
                                                                      --------
                                                                      $351,752
                                                                      ========
</TABLE>

                                     F-138
<PAGE>

                             SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)


5. Impairment of Intangible Assets

      In accordance with SFAS No. 121, Syncra reviews for impairment of long-
lived assets when events or changes in circumstances indicate that an asset's
carrying value may not be recoverable. In connection with the organization of
Syncra in February 1998, Syncra purchased the rights to certain software from
Benchmarking Partners, Inc. ("Benchmarking") in exchange for the issuance of
150,000 shares of Syncra's non-voting, non-convertible Redeemable Preferred
Stock (Note 8). Syncra did not obtain an independent valuation of the
technology and the fair value of the Redeemable Preferred Stock was not
objectively determinable. Therefore, Syncra recorded the technology based upon
the amount of the Redeemable Preferred Stock as determined by Syncra's Board of
Directors. Syncra expected to use the acquired software as a core technology in
its product development. In May 1998, management reassessed the status of
Syncra's product development and the additional features and functionality
planned to be included in Syncra's products. As a result of this re-evaluation,
management concluded that the core technology acquired from Benchmarking would
not be able to support Syncra's planned products. Accordingly, management
decided to restart Syncra's product development activities without the use of
the acquired software. An impairment charge of $1,312,500 was recognized in the
December 31, 1998 statement of operations.

6. Notes Payable to Stockholders

      During 1998, the Company received aggregate cash proceeds totaling
$4,000,000 pursuant to the issuance of convertible promissory notes (the
"Notes") payable to certain of its stockholders. No repayments of principal or
interest (which accrues at a rate of 9% per annum) were made during the year.
The Note holders were also issued 344,828 warrants to purchase Series A
Preferred Stock ("Preferred Stock Warrants") at $2.32 per share in 1998. The
aggregate value of the Preferred Stock Warrants issued to all Note holders was
estimated to be $120,000, which was accounted for as discount on the Notes and
Preferred Stock Warrants. The discount is being amortized over the term of the
Notes. Upon closing of the Series B Preferred Stock financing, each Note holder
is entitled to a number of warrants equal to 20% of the face value of the Note
held by such holder divided by the price per share of Series B Preferred Stock.
As a result of the Series B Preferred Stock financing in 1999, the Notes were
converted into shares of Series B Preferred Stock. Additionally, the Preferred
Stock Warrants were converted to the equivalent number of warrants for Series B
Preferred Stock totaling 200,000 shares at $4.00 per share (Note 7). The
Preferred Stock Warrants have a term of ten years.

7. Redeemable Convertible Preferred Stock

      At December 31, 1998, the Company had authorized preferred stock of
5,000,000 shares, $.001 par value per share, of which 2,941,031 shares were
designated as redeemable convertible Series A Preferred Stock ("Series A
Preferred Stock") and 150,000 shares of which were designated as Redeemable
Preferred Stock (the "Redeemable Preferred Stock").

      On March 31, 1999, the Company's authorized Preferred Stock was increased
to 6,453,809 shares with a par value of $.001 per share of which 2,586,207
shares were designated as redeemable convertible Series A Preferred Stock,
3,737,602 shares as redeemable convertible Series B Preferred Stock ("Series B
Preferred Stock") and 130,000 shares as Redeemable Preferred Stock. Of the
designated Series B Preferred Stock, the Company issued 3,287,602 shares on
March 31, 1999 in exchange for net cash proceeds of $9.0 million received on
April 1, 1999 and the conversion of all principal and accrued interest due on
the Notes (Note 6).

                                     F-139
<PAGE>

                             SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)


      The Series A and B Preferred Stock have the following characteristics:

    Voting

      Holders of Series A and B Preferred Stock are entitled to that number of
votes equal to the number of shares of common stock into which the shares of
Series A and B Preferred Stock are then convertible.

    Dividends

      Holders of Series A and B Preferred Stock are entitled to receive out of
funds legally available, cumulative dividends at the rate of 8% per share per
annum on the Base Amount of each share. The Base Amount of each share is equal
to the price paid for each share of Series A and B Preferred Stock of $2.32 and
$4.00, respectively, plus unpaid dividends which accrue commencing on the date
of original issuance of the Series A and B Preferred Stock. In the event that
the full amount of dividends is not paid in any twelve-month period, the Base
Amount will be increased by the amount of the unpaid dividend. After payment of
all dividends owing to the holders of Series A and B Preferred Stock, such
holders will not participate in any other dividends thereafter paid on
Redeemable Preferred Stock or Common Stock.

    Liquidation

      In the event of any liquidation, dissolution or winding-up of the affairs
of the Company, the holders of Series A and B Preferred Stock are entitled to
receive, prior to and in preference to holders of both Redeemable Preferred
Stock and Common Stock, an amount equal to $2.32 and $4.00 per share,
respectively, plus all unpaid cumulative dividends on each share. After full
payment of (i) the foregoing amounts and (ii) amounts to be paid to the holders
of Redeemable Preferred Stock pursuant to the terms thereof (Note 8), the
remaining assets of the Company will be distributed ratably among the holders
of Common Stock.

    Conversion

      Each share of Series A and B Preferred Stock may be converted at any
time, at the option of the stockholder, into one share of Common Stock, subject
to certain anti-dilution adjustments, as defined in the terms of the Series A
and B Preferred Stock.

      The Series A and B Preferred Stock will automatically convert into shares
of Common Stock upon (i) a public offering of Syncra's Common Stock which
results in gross proceeds to Syncra of at least $10,000,000, at a price per
share of the Common Stock of at least three times the Series B Preferred Stock
original purchase price per share (as adjusted for stock splits, stock
dividends, combinations, reorganizations, reclassifications or similar events)
or (ii) upon approval of the two-thirds of the outstanding Series A and B
Preferred Stockholders, voting separately, to convert all outstanding shares of
Series A and B Preferred Stock to Common Stock.

    Redemption

      Any time after March 31, 2004, at the option of the holders of the Series
A and B Preferred Stock, Syncra shall redeem all, but not less than all of such
holder's shares of Series A and B Preferred Stock, at a redemption price equal
to the original purchase price of $2.32 and $4.00 per share, respectively, plus
all unpaid dividends thereon which have accrued through and including the
redemption date.

                                     F-140
<PAGE>

                             SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)


    Accretion

      The issuance cost incurred by the Company was accreted in full in 1998
and at March 31, 1999 as an adjustment to the carrying value of redeemable
convertible Series A and B Preferred Stock.

8. Non-voting, Non-convertible Redeemable Preferred Stock

      As described in Note 5, Syncra's Redeemable Preferred Stock was issued in
a non-cash exchange with Benchmarking for certain software. Subsequent to the
issuance of the Redeemable Preferred Stock to Benchmarking, Syncra repurchased
20,000 shares of its Redeemable Preferred Stock from Benchmarking at a price
per share of $10.00 plus accrued dividends of $4,667. In a separate
transaction, Benchmarking transferred the remaining 130,000 shares of the
Redeemable Preferred Stock to Internet Capital Group, Inc. ("ICG"), an existing
stockholder of Syncra in exchange for a $1.3 million note, bearing interest at
8% per annum. At December 31, 1998, ICG continued to hold the 130,000 shares of
Redeemable Preferred Stock. ICG is also a stockholder of Benchmarking.

      The Redeemable Preferred Stock has the following characteristics:

    Voting

      Except as required by law, holders of Redeemable Preferred Stock are not
entitled to vote on any matters submitted to a vote of the stockholders of
Syncra, including the election of directors.

    Dividends

      Holders of Redeemable Preferred Stock are entitled to receive out of
funds legally available, cumulative dividends at the rate of 8% per share per
annum on the Base Amount of each share. The Base Amount of each share is equal
to purchase price paid for such share of Redeemable Preferred Stock ($10.00)
plus unpaid dividends which accrue commencing on the date of original issuance
of the Redeemable Preferred Stock. In the event that the full amount of
dividends is not paid in any twelve- month period, the Base Amount will be
increased by the amount of the unpaid dividends. After payment of all dividends
owing to the holders of Redeemable Preferred Stock, such holders will not
participate in any other dividends thereafter paid on the Series A and B
Preferred Stock or the Common Stock.

    Liquidation

      In the event of any liquidation, dissolution or winding-up of the affairs
of Syncra, the holders of Redeemable Preferred Stock are entitled to receive,
prior to and in preference to any holders of Common Stock, but after all
distribution or payments required to be made to the holders of Series A and B
Preferred Stock, an amount equal to $10.00 per share plus accrued but unpaid
dividends. After payment in full of the amounts owed to holders of the
Redeemable Preferred Stock, such holders are not entitled to share in the
distribution of the remaining assets of Syncra.

    Redemption

      At any time after March 31, 2004, each holder may require Syncra to
redeem all or any portion of such holder's shares at a redemption price equal
to the original issuance price per share ($10.00) plus all unpaid dividends
thereon which have accrued through and including the redemption date.

                                     F-141
<PAGE>

                             SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)


      At any time, and from time to time, Syncra may elect to redeem all, or
any portion of the outstanding shares of its Redeemable Preferred Stock, at a
redemption price equal to the original issuance price per share ($10.00) plus
all unpaid dividends thereon which have accrued through and including the
redemption date.

      Redeemable Preferred Stock is also redeemable by Syncra upon the earlier
of (i) a public offering of Syncra's Common Stock which results in gross
proceeds to Syncra of at least $10,000,000, at a price per share of the Common
Stock of at least three times the Series B Preferred Stock original purchase
price per share (as adjusted for stock splits, stock dividends, combinations,
reclassifications, reorganizations or other similar events); or (ii) the
consummation of a sale of all or substantially all of Syncra's assets or
capital stock, either through a direct sale, merger, reorganization or other
form of business combination in which control of Syncra is transferred and as a
result holders of Series A and B Preferred Stock receive at least three times
the Series B Preferred Stock original purchase price per share (as adjusted for
stock splits, stock dividends, combination, reorganizations, reclassifications
or other similar events).

9. Common Stock

      Each share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of Syncra's stockholders. Common stockholders are entitled
to receive dividends, if any, as may be declared by the Board of Directors,
subject to the preferential dividend rights of the holders of the Series A and
B Preferred Stock and the Redeemable Preferred Stock.

    Restricted Stock Agreements

      Syncra has entered into agreements with certain of its employee
stockholders providing for restrictions on transfers of the shares subject to
such agreement. Each agreement provides Syncra with a right to repurchase the
shares held by such individual, in the event that the Company terminates the
employment of the individual. The number of shares which may be repurchased by
the Company and the price at which such shares may be repurchased differs per
individual and is contingent on whether such individual's termination is for
"cause' (as defined in the agreement) or other than for "cause'. At December
31, 1998, none of the restricted shares were subject to repurchase due to the
restrictions contained in these agreements.

      Pursuant to a stockholders' agreement, as amended and restated on March
31, 1999, all of the outstanding capital stock (including the Common Stock,
Series A and B Preferred Stock and Redeemable Preferred Stock) of the Company
is subject to certain restrictions as to sale or transfer of such shares
pursuant to a stockholders' agreement. The Company and its non-founder
stockholders also hold rights of first refusal, under certain circumstances, on
shares offered by a stockholder for sale to third parties, at the price per
share to be paid by such third party.

    Reserved Shares

      At December 31, 1998, 2,833,857 shares were reserved for issuance upon
conversion of the Series A Preferred Stock and exercise of outstanding options.

10. Repurchase of Common Stock and Redemption of Preferred Stock

      On June 5, 1998, the Company repurchased 1,000,000 shares of Common Stock
and redeemed 20,000 shares of its Redeemable Preferred Stock from Benchmarking,
one of the original founders in exchange for

                                     F-142
<PAGE>

                             SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)

$2,250,000. The transaction was financed through the sale of additional Series
A Preferred Stock to certain of the existing holders of Series A Preferred
Stock. Of the 150,000 shares of Redeemable Preferred Stock originally issued to
Benchmarking, the remaining 130,000 shares were transferred by Benchmarking to
ICG (see Note 8).

      In addition to the shares acquired, the withdrawal of Benchmarking as a
stockholder eliminated a potential conflict of interest for Syncra and its
other stockholders with Benchmarking and its customers. The transaction also
settled potential claims by Benchmarking against Syncra with respect to the
transfer of technical talent from Benchmarking to Syncra and other potential
claims by Benchmarking against the potential future value of Syncra.

      The difference between the total amount paid to Benchmarking and the
aggregate of the redemption value of the Redeemable Preferred Stock plus
accrued dividends of $204,667 and the fair value of the Common Stock of
$250,000 was treated as settlement charge in the statement of operations.

11. Stock Option Plan

      In 1998, the Company adopted the 1998 Stock Option Plan (the "1998 Plan")
which provides for the grant of incentive stock options and non-qualified stock
options, stock awards and stock purchase rights for the purchase of up to
1,000,000 shares of the Company's Common Stock by officers, employees,
consultants, and directors of the Company. The Board of Directors is
responsible for administration of the 1998 Plan. The Board determines the term
of each option, the option exercise price, the number of shares for which each
option is granted, the rate at which each option is exercisable and the vesting
period (generally ratably over four to five years). Incentive stock options may
be granted to any officer or employee at an exercise price of not less than the
fair value per common share on the date of the grant (not less than 110% of the
fair value in the case of holders of more than 10% of the Company's voting
stock) and with a term not to exceed ten years from the date of the grant (five
years for incentive stock options granted to holders of more than 10% of the
Company's voting stock). Non-qualified stock options may be granted to any
officer, employee, consultant, or director at an exercise price per share of
not less than the book value per share.

      During the period from inception (February 11, 1998) through December 31,
1998, Syncra granted options aggregating 803,300 shares with a weighted average
exercise price of $0.87 per share. Of the total options granted, 99,374 shares
were exercisable at December 31, 1998. None of these vested options were
exercised during the period. Options totaling 196,700 were available for future
grant at December 31, 1998. The weighted-average remaining contractual life of
the options outstanding is 9.5 years. No compensation expense has been
recognized for employee stock-based compensation in 1998.

      The exercise price of the options is more than the fair market value of
the common stock, therefore, the weighted average grant date fair value per
share of the options granted during the year using the Black-Scholes option-
pricing model is zero at December 31, 1998. As a result, had compensation
expense been determined based on the fair value of the options granted to
employees at the grant date consistent with the provision of SFAS No. 123, the
Company's pro forma net loss would have been the same. The impact on the pro
forma net loss is not necessarily indicative of the effects on future results
of operations because the Company expects to grant options in future years.

      For purposes of pro forma disclosure of net loss, the fair value of each
option grant was estimated on the date of grant using the Black-Scholes option-
pricing model with the following assumptions for grants in 1998; zero dividend
yield; zero volatility; risk-free interest rate of 4.55%, and expected life of
five years.

                                     F-143
<PAGE>

                             SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)


12. Income Taxes

      Deferred tax assets consist of the following at December 31, 1998:

<TABLE>
     <S>                                                             <C>
     Net operating loss carryforward................................ $2,386,619
     Fixed and intangible assets....................................    482,690
     Research and development credit carryforwards..................     90,891
     Accrued vacation...............................................     35,687
                                                                     ----------
     Net deferred tax assets........................................  2,995,887
     Deferred tax asset valuation allowance.........................  2,995,887
                                                                     ----------
                                                                     $       --
                                                                     ==========
</TABLE>

      The Company has provided a valuation allowance for the full amount of its
net deferred tax assets since realization of any future benefit from deductible
temporary differences and net operating loss and tax credit carryforwards
cannot be sufficiently assured at December 31, 1998.

      At December 31, 1998, the Company has federal and state net operating
loss carryforwards of approximately $5.9 million available to reduce future
taxable income, which will expire in 2019. The Company also has federal and
state research and development tax credit carryforwards of approximately
$72,490 and $27,881, respectively, available to reduce future tax liabilities.

      Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may limit the amount of net operating loss
carryforwards and research and development credit carryforwards which could be
utilized annually to offset future taxable income and taxes payable.

13. 401(k) Savings Plan

      The Company has established a retirement savings plan under Section
401(k) of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan covers
substantially all employees of the Company who meet minimum age and service
requirements, and allows participants to defer a portion of their annual
compensation on a pre-tax basis. Company contributions to the 401(k) Plan may
be made at the discretion of the Board of Directors. The Company has not made
any contributions to the 401(k) Plan through December 31, 1998.

                                     F-144
<PAGE>

                             SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)


14. Commitments

      The Company leases its office space and certain office equipment under
noncancelable operating leases. Total rent expense under these operating leases
was approximately $134,000 for the period ended December 31, 1998.

      Future minimum lease commitments at December 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                                                Operating Leases
Year ending December 31,                                        ----------------
<S>                                                             <C>
  1999.........................................................    $  272,328
  2000.........................................................       254,728
  2001.........................................................       254,728
  2002.........................................................       254,728
  Thereafter...................................................       127,364
                                                                   ----------
                                                                   $1,163,876
                                                                   ==========
</TABLE>

15. Related Party Transactions

      In the normal course of business, Syncra had transactions with
Benchmarking during the period from inception until May 1998 for certain
operating expenses such as organizational costs, payroll, marketing, legal and
other expenses. The total expenses reimbursed by Syncra to Benchmarking
amounted to $496,344. Furthermore, Syncra also paid Benchmarking a management
fee totaling $80,000 during the same period.

      In addition to the above transactions, Syncra also reimbursed ICG
$500,000 related to professional services provided by Benchmarking to Syncra
that originally were funded by ICG.

16. Subsequent Events

      In April 1999, Syncra issued 250,000 shares of Series B Preferred Stock
for $1.0 million to a new investor.

                                     F-145
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To USgift.com Corporation:

We have audited the accompanying balance sheet of USgift.com Corporation (a
Georgia corporation and wholly owned subsidiary of OneCoast Network Corporation
in the development stage) as of September 30, 1999 and the related statements
of operations and accumulated deficit and cash flows for the period from
inception (April 27, 1999) to September 30, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USgift.com Corporation as of
September 30, 1999 and the results of its operations and its cash flows for the
period from inception (April 27, 1999) to September 30, 1999 in conformity with
generally accepted accounting principles.

                                          Arthur Andersen LLP
Atlanta, Georgia
December 3, 1999

                                     F-146
<PAGE>

                             USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                     Stage)


                                 BALANCE SHEET

                               SEPTEMBER 30, 1999

Assets

<TABLE>
<S>                                                                     <C>
Cash................................................................... $   204
Property and equipment, net............................................ 154,922
                                                                        -------
</TABLE>
<TABLE>
<S>                                                                    <C>
                                                                       $155,126
                                                                       ========

Liabilities and Stockholders' Deficit

Current Liabilities:
 Due to OneCoast...................................................... $645,774
 Accounts payable and accrued liabilities.............................  147,529
                                                                       --------
   Total current liabilities..........................................  793,303
                                                                       --------
Contingencies (Note 4)
Stockholders' Deficit:
</TABLE>

<TABLE>
<S>                                                                   <C>
 Common stock, no par value; 100,000,000 shares authorized, 0 shares
  issued and outstanding.............................................        0
 Deficit accumulated during the development stage.................... (638,177)
                                                                      --------
   Total stockholders' deficit....................................... (638,177)
                                                                      --------
                                                                      $155,126
                                                                      ========
</TABLE>



       The accompanying notes are an integral part of this balance sheet.

                                     F-147
<PAGE>

                             USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                     Stage)


                Statement of Operations and Accumulated Deficit

                         For the Period from Inception

                     (April 27, 1999) to September 30, 1999

<TABLE>
<S>                                                                  <C>
Sales............................................................... $       0
                                                                     ---------
Costs and expenses:
 General and administrative.........................................   636,609
 Depreciation and amortization......................................     1,568
                                                                     ---------
   Total costs and expenses.........................................   638,177
                                                                     ---------
Net loss............................................................  (638,177)
Accumulated Deficit:
 Beginning of period................................................         0
                                                                     ---------
 End of period...................................................... $(638,177)
                                                                     =========
</TABLE>




         The accompanying notes are an integral part of this statement.

                                     F-148
<PAGE>

                             USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                     Stage)


                            Statement of Cash Flows

                         For the Period from Inception

                     (April 27, 1999) to September 30, 1999

<TABLE>
<S>                                                                  <C>
Cash Flows from Operating Activities:
 Net loss........................................................... $(638,177)
 Adjustments to reconcile net loss to net cash provided by operating
  activities:
  Depreciation and amortization.....................................     1,568
  Changes in operating assets and liabilities:
   Due to OneCoast..................................................   645,774
   Accounts payable and accrued liabilities.........................   147,529
                                                                     ---------
    Net cash provided by operating activities.......................   156,694
                                                                     ---------
Cash Flows from Investing Activities:
 Purchases of property and equipment................................  (156,490)
                                                                     ---------
Change in Cash and Cash Equivalents.................................       204
Cash and Cash Equivalents, beginning of period......................         0
                                                                     ---------
Cash and Cash Equivalents, end of period............................ $     204
                                                                     =========
Supplemental Disclosures of Cash Flow Information:
 Interest paid...................................................... $       0
                                                                     =========
 Taxes paid......................................................... $       0
                                                                     =========
</TABLE>



         The accompanying notes are an integral part of this statement.

                                     F-149
<PAGE>

                             USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                     Stage)


                         Notes to Financial Statements

                               September 30, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Business

      USgift.com Corporation ("USgift" or the "Company") is a development stage
enterprise organized by OneCoast Network Corporation ("OneCoast") under the
laws of the state of Georgia on April 27, 1999. The Company did not issue any
stock until November 10, 1999, and accordingly, has no outstanding capital
stock at September 30, 1999. The Company was formed for the purpose of pursuing
business to business e-Commerce solutions related to the ongoing business of
OneCoast. OneCoast is a manufacturers' representative agency which solicits
sales of home and gift accessories through various methods of retail
distribution, including gift shops, merchandise marts, and catalogs throughout
the United States.

      The Company's absence of operating history makes it difficult to predict
future operating results. The Company's budgeted expense levels are based, in
part, on its expectations of future growth. If revenue levels are below
expectations or if the Company is unable to reduce expenses proportionately,
operating results will be adversely affected. There is no assurance that the
Company will be profitable. The Company's prospects must be considered in light
of the risks, expenses, and difficulties frequently encountered by companies in
their early stages of development. While the Company believes that their
business to business e-Commerce solutions will become a viable commercial
operation, there can be no assurance in that regard. Accordingly, their
business processes may not work as the Company expects, and to the extent that
the Company is unable to make necessary adjustments to the business processes,
the operating results of the Company may be adversely affected.

  History of Operating Losses

      The Company has incurred net losses since its formation. The Company will
need to generate significant revenues to achieve and maintain profitability
which cannot be assured. The Company plans to significantly increase its sales
and marketing, research and development, and general and administrative
expenses throughout the remainder of calendar year 1999. Advances from OneCoast
as of September 30, 1999 were approximately $646,000. Subsequent to September
30, 1999, USgift became further indebted to OneCoast in the form of a
promissory note totaling approximately $10.3 million (Note 5). This note
matures upon the earlier of demand by OneCoast or proceeds from a qualified
debt or equity financing. OneCoast has represented they will not demand payment
of the note prior to the Company receiving adequate financing.

  Use of Estimates

      The preparation of the accompanying financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

  Cash and Cash Equivalents

      From inception (April 27, 1999) through September 30, 1999, OneCoast
maintained a centralized cash management function; accordingly, the Company did
not maintain a separate operating cash account, and its cash disbursements were
settled by OneCoast. The cash balance at September 30, 1999 relates to petty
cash.

                                     F-150
<PAGE>

                             USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                     Stage)

                   Notes to Financial Statements--(Continued)


  Fair Value of Financial Instruments

      The book values of trade accounts payable approximate its fair value
principally because of the short-term maturities of this instrument.

  Property and Equipment

      Property and equipment are stated at cost and are depreciated and
amortized using the straight-line method over the estimated useful lives of
three years.

<TABLE>
    <S>                                                                <C>
    Computer software and equipment................................... $129,091
    Machinery and equipment...........................................   27,399
                                                                       --------
                                                                        156,490
    Less accumulated depreciation.....................................   (1,568)
                                                                       --------
                                                                       $154,922
                                                                       ========
</TABLE>

      The Company records impairment losses on property and equipment used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.

  Comprehensive Income

      The Company currently has no other comprehensive income items as defined
by Statement of Financial Accounting Standard ("SFAS") No. 130 "Reporting
Comprehensive Income."

  Segment Information

      USgift operates solely in one operating segment, business to business e-
Commerce solutions for the gift and home accessories wholesale industry.

  Recent Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
USgift will be required to adopt for the year ending December 31, 2001. This
statement establishes a new model for accounting for derivatives and hedging
activities. SFAS No. 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. Because USgift currently holds no derivative
financial instruments and does not currently engage in hedging activities, the
adoption of SFAS No. 133 is expected to have no material impact on USgift's
financial condition or results of operations.

2. PAYABLE TO ONECOAST

      The payable to OneCoast consists primarily of expenses incurred by
OneCoast on behalf of USgift. These expenses include allocations of amounts
estimated by management and the actual operating expenses of USgift. Advances
through September 30, 1999 of $645,774 plus additional advances of $182,630 are
included in the $10.3 million note payable discussed in Note 5.

                                     F-151
<PAGE>

                             USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                     Stage)

                   Notes to Financial Statements--(Continued)


      Allocations of certain corporate expenses primarily relating to officer
and corporate administration salaries and benefits and occupancy expense for
corporate headquarters has been included as a component of general and
administrative expense. Because specific identification of such expense was not
practicable, a proportionate cost allocation was utilized to allocate these
expenses to USgift based on management's estimate of officer and corporate
administration's time incurred or total square footage utilized in relation to
OneCoast's total corporate headquarters' square footage. Allocated expenses
totaled approximately $208,000 for the period from inception (April 27, 1999)
to September 30, 1999. Management has determined that such allocations are a
practical and reasonable method of allocation. However, these financial
statements are not necessarily indicative of the financial position that would
have occurred if the Company had been an independent company. The amounts that
would have been incurred on a stand-alone basis could differ significantly from
the allocated amounts due to economies of scale, differences in management and
operational practices, or other factors.

3. INCOME TAXES

      For the period from inception (April 27, 1999) to September 30, 1999, the
Company's results were included in the federal and state income tax returns of
OneCoast. For the purpose of these financial statements, the income tax
provision has been determined on a basis as if the Company were a separate
taxpayer. Due to the history of losses incurred by the Company, the net
deferred tax asset resulting from temporary differences is not considered
probable of realization and therefore is offset in all periods presented by a
valuation allowance. Net operating loss carryforwards generated by USgift
through November 10, 1999 will not be available to offset income taxes
subsequent to the spin-off. A reconciliation of the provision of income taxes
to the amount computed by applying the statutory federal income tax rate to
income before income taxes is as follows for the period from inception (April
27, 1999) to September 30, 1999:

<TABLE>
    <S>                                                                   <C>
    Statutory federal tax rate...........................................  34.0%
    State tax rate, net of federal tax benefit...........................   4.0
    Valuation allowance.................................................. (38.0)
                                                                          -----
                                                                            0.0%
                                                                          =====
</TABLE>

4. CONTINGENCIES

      For the period from inception (April 27, 1999) to August 31, 1999, the
Company shared office space with OneCoast and was allocated total rent expense
of $4,348. Commencing September 1, 1999, the Company entered into a lease
agreement for separate office space with an obligation of $5,986 per month and
is cancelable upon 30 days notice.

5. SUBSEQUENT EVENTS

  Agreement and Plan of Reorganization and Corporate Separation

      On April 27, 1999, the Company was organized under the laws of the state
of Georgia. On September 9, 1999, OneCoast notified its shareholders of a spin-
off of USgift whereby one share of USgift common stock would be distributed to
each holder of (or the right to hold) one share of OneCoast common stock. On
November 10, 1999, OneCoast subscribed to 1,634,096 shares of common stock of
USgift, all the then outstanding shares of USgift common stock, for $16,341 for
purposes of effecting the spin-off. Also on

                                     F-152
<PAGE>

                            USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                    Stage)

                  Notes to Financial Statements--(Continued)

November 10, 1999, pursuant to an agreement and plan of reorganization and
corporate separation, OneCoast and USgift effected the following:

    Transfer of Assets

     OneCoast transferred certain assets with a nominal net book value to
USgift in exchange for 10,178,152 shares of USgift common stock.

    Distribution of USgift Stock to OneCoast Shareholders

     OneCoast distributed all 10,178,152 shares of USgift common stock
acquired above to each holder of OneCoast stock of any class, subject to the
receipt by USgift of such shareholder's signature to the USgift shareholders
agreement.

    Distribution of USgift Stock to OneCoast Warrant Holders

     At the direction of OneCoast, USgift reserved 2,081,428 shares of common
stock for future issuance to holders of OneCoast warrants to purchase common
stock.

    Purchase and Sale of OneCoast Assets

     USgift purchased certain tangible assets from OneCoast for an estimated
net book value of $160,000.

    Reimbursement of Start-up and Transaction Costs; Loan to USgift

     In consideration of certain prior services provided by OneCoast, advances
of $828,404 through October 31, 1999, an anticipated loan of approximately
$1.6 million and tangible assets with a net book value of $160,000, USgift
promised to pay OneCoast approximately $10.3 million in the form of a
promissory note. The note bears interest at 13.33% per annum, payable
quarterly. Principal is payable on demand or from any proceeds from any debt
or equity financing. The note is secured by substantially all of the assets of
USgift. The Company will account for monies due under the note in excess of
assets received as a capital transaction.

  Shareholders Agreement and Registration Rights Agreement

     All recipients of USgift common stock and equivalents were required to
sign the USgift shareholders agreement. The shareholders agreement, as
amended, provides for the appointment of seven board members, one of which
will be independent. The agreement requires any shareholder wishing to sell
common stock to first offer the shares to the Company and existing
shareholders prior to any sales to third parties. The agreement also grants
certain investors rights to co-sale in the event of a sale to a third party.

     A significant portion of shareholders are also party to a registration
rights agreement which requires the Company to effect a registration of common
stock upon the earlier of October 8, 2000 or 180 days after the effective date
of an initial public offering, as defined.

  License Agreement

     On November 10, 1999, One Coast and USgift entered into a 20-year license
agreement. Pursuant to the agreement, OneCoast licensed certain technology and
derivative works, including an electronic catalog and

                                     F-153
<PAGE>

                             USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                     Stage)

                   Notes to Financial Statements--(Continued)

electronic order processing system and certain data about OneCoast
manufacturers and their products and OneCoast retailers, to USgift on a royalty
free basis. USgift is required to share all derivative works with OneCoast for
a period of four years.

  Strategic Alliance Agreement

      On November 10, 1999, OneCoast and USgift entered into a strategic
alliance agreement. Pursuant to the agreement, OneCoast will use its best
efforts to encourage OneCoast manufacturers and retailers to conduct business
with and through USgift. In return, USgift agrees to pay OneCoast a percentage
of its revenues through 2004. The percentage is 1.5% of revenues for calendar
year 2000 and decreases .3% each year through 2004.

  Stock Option Plans

      On November 10, 1999, the board of directors of USgift approved the
adoption of the 1999 USgift Stock Option and Incentive Plan (the "1999 Plan")
and the 2000 USgift Stock Option and Incentive Plan (the "2000 Plan"). USgift
reserved 2,447,286 shares of common stock for issuance under the 1999 Plan and
6,573,105 shares of common stock for issuance under the 2000 Plan
(collectively, the "Plans"). The Plans provide for the granting of either
incentive or nonqualified stock options to purchase shares of common stock and
for other stock-based awards to employees, directors, consultants, and
independent contractors.

      On November 10, 1999, the Company issued options to purchase 2,447,286
shares of common stock under the 1999 Plan, all with an exercise price of $.01
per share. The vesting of the options was immediate for 1,933,120 options and
ratable over four years for the remaining 514,166 options. Certain of the
options which vested immediately may be repurchased for $.01 by the Company if
employment is terminated prior to December 1, 2000. The Company anticipates
recording a compensation charge related to the issuance of these options.

      On November 10, 1999, the Company entered into agreements to issue
options to purchase 2,592,378 shares of common stock under the 2000 Plan. The
options were issued in connection with the preferred stock offering discussed
below. The exercise price of the options is $2.21 per share and vest upon the
attainment of certain goals, including effecting an exit transaction, as
defined, or obtaining certain revenue goals for USgift. The Company anticipates
recording a compensation charge related to the issuance of these options.

  Preferred Stock Offering

      On November 19, 1999, the Company amended its articles of incorporation
whereby the authorized capital stock was increased to 113,000,000 shares of
which 13,000,000 shares were designated as Series A Preferred Stock. Dividends
are payable annually in cash or securities at a rate of 8% per annum. The
preferred shares, together with any accrued and unpaid dividends, are
convertible into an equal number of common shares and automatically convert
upon the earlier of a public offering, as defined, or at the election of a two-
thirds majority of the preferred shareholders. The shares are mandatorily
redeemable five years from issuance at the greater of $2.21 per share or fair
market value. The shares have a liquidation preference of $2.21 per share.

      On November 24, 1999, the Company sold 12,265,198 shares of Series A
Preferred for consideration of $27.1 million, plus an earnout. A portion, $7
million, of the consideration is not payable until March 31, 2000.
Additionally, an earnout of $7 million is payable if the Company's revenues for
its fiscal year ended December 31, 2000 are not less than $25 million or the
Company effects a public offering of its common stock, as defined, prior to
December 31, 2000.

      A portion of the proceeds from the offering were used to repay the note
payable to OneCoast.

                                     F-154
<PAGE>

                          Independent Auditors' Report

To the Board of Directors and
Shareholders of VerticalNet, Inc.:

      We have audited the accompanying consolidated balance sheets of
VerticalNet, Inc. and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, shareholders' equity (deficit)
and comprehensive loss and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion these consolidated financial statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. 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
VerticalNet, Inc. and subsidiaries as a December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles.

                                          KPMG LLP

January 28, 2000
Philadelphia, Pennsylvania

                                     F-155
<PAGE>

                               VERTICALNET, INC.

                          Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                    December 31,  December 31,
                                                        1999          1998
                                                    ------------  ------------
<S>                                                 <C>           <C>
Assets
Current assets:
  Cash and cash equivalents........................ $ 14,253,828  $  5,662,849
  Short-term investments...........................   44,131,135            --
  Accounts receivable, net of allowance for
   doubtful accounts of $2,084,573 in 1999 and
   $61,037 in 1998.................................   45,776,520     1,794,728
  Inventory........................................    5,509,525            --
  Prepaid expenses and other assets................    5,964,422       747,951
                                                    ------------  ------------
    Total current assets...........................  115,635,430     8,205,528
                                                    ------------  ------------
Cash-restricted....................................    4,789,261            --
Property and equipment, net........................   13,147,628     1,072,063
Goodwill, net of accumulated amortization of
 $7,322,829 in 1999 and $282,990 in 1998...........  159,253,441     2,451,991
Other intangibles, net of accumulated amortization
 of $779,513 in 1999...............................   18,670,487            --
Long-term investments..............................   16,885,183            --
Other investments (Note 7).........................    6,700,000            --
Other assets.......................................    5,823,062       613,393
                                                    ------------  ------------
    Total assets................................... $340,904,492  $ 12,342,975
                                                    ============  ============
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
  Current portion of long-term debt................ $  1,372,255  $    288,016
  Line of credit...................................           --     2,000,000
  Accounts payable.................................   14,515,309     1,220,562
  Accrued expenses.................................   20,101,348     1,582,038
  Deferred revenues................................    9,768,394     2,176,585
                                                    ------------  ------------
    Total current liabilities......................   45,757,306     7,267,201
                                                    ------------  ------------
Long-term debt, net of current portion.............    1,749,935       351,924
                                                    ------------  ------------
Convertible notes (Note 10)........................  115,000,000     5,000,000
Commitments and contingencies (Note 11)
Shareholders' Equity (Deficit):
  Preferred stock $.01 par value, 10,000,000 shares
   authorized, 7,805,667 shares issued and
   outstanding in 1998.............................           --        78,057
  Common stock $.01 par value, 90,000,000 shares
   authorized, 72,120,866 shares issued in 1999 and
   10,537,516 shares issued in 1998................      721,208       105,374
  Common stock to be issued (Note 2)...............   99,545,663            --
  Additional paid-in capital.......................  151,874,747    19,487,338
  Deferred compensation............................     (600,942)     (594,033)
  Accumulated other comprehensive loss.............     (218,671)           --
  Accumulated deficit..............................  (72,772,767)  (19,292,886)
                                                    ------------  ------------
                                                     178,549,238      (216,150)
  Treasury stock at cost, 649,936 shares in 1999
   and 645,156 shares in 1998......................     (151,987)      (60,000)
                                                    ------------  ------------
    Total shareholders' equity (deficit)...........  178,397,251      (276,150)
                                                    ------------  ------------
    Total liabilities and shareholders' equity..... $340,904,492  $ 12,342,975
                                                    ============  ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                     F-156
<PAGE>

                               VERTICALNET, INC.

                     Consolidated Statements Of Operations

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                        ---------------------------------------
                                            1999          1998         1997
                                        ------------  ------------  -----------
<S>                                     <C>           <C>           <C>
Revenues:
  Exchange transaction sales..........  $ 16,500,781  $         --  $        --
  Cost of exchange transaction sales..    14,171,345            --           --
                                        ------------  ------------  -----------
    Net exchange revenues.............     2,329,436            --           --
  Advertising and e-commerce
   revenues...........................    18,428,485     3,134,769      791,822
                                        ------------  ------------  -----------
    Combined revenues.................    20,757,921     3,134,769      791,822
Costs and Expenses:
  Editorial and operational...........     8,611,317     3,237,971    1,055,725
  Product development.................     7,396,316     1,404,557      711,292
  Sales and marketing.................    26,268,370     7,894,662    2,300,365
  General and administrative..........    11,886,681     3,823,593    1,388,123
  Amortization expense................     7,819,351       282,990           --
  In-process research and development
   charge (Note 3)....................    13,600,000            --           --
                                        ------------  ------------  -----------
    Operating loss....................   (54,824,114)  (13,509,004)  (4,663,683)
                                        ------------  ------------  -----------
Interest and dividend income..........     3,448,034       212,130       10,999
Interest expense......................    (2,103,801)     (297,401)    (126,105)
                                        ------------  ------------  -----------
Interest, net.........................     1,344,233       (85,271)    (115,106)
                                        ------------  ------------  -----------
Net loss..............................  $(53,479,881) $(13,594,275) $(4,778,789)
                                        ============  ============  ===========
Basic and diluted net loss per share..  $      (0.86) $      (1.32) $     (0.47)
                                        ============  ============  ===========
Weighted average shares outstanding
 used in basic and diluted per-share
 calculation..........................    62,391,416    10,282,200   10,107,460
                                        ============  ============  ===========
</TABLE>



          See accompanying notes to consolidated financial statements.

                                     F-157
<PAGE>

                               VERTICALNET, INC.

  Consolidated Statement of Shareholders' Equity (Deficit) and Comprehensive
                                     Loss

<TABLE>
<CAPTION>
                      Preferred              Common                                                Accumulated
                        Stock                 Stock          Common     Additional                    Other
                  -------------------  ------------------- Stock to be   Paid-In       Deferred   Comprehensive Accumulated
                    Shares    Amount     Shares    Amount    Issued      Capital     Compensation     Loss        Deficit
                  ----------  -------  ---------- -------- ----------- ------------  ------------ ------------- ------------
<S>               <C>         <C>      <C>        <C>      <C>         <C>           <C>          <C>           <C>
Balance, January
1, 1997.........     512,821  $ 5,128  10,107,460 $101,074 $        -- $    978,884   $      --     $      --   $   (919,822)
Issuance of
Series B
preferred
stock...........   2,579,580   25,796          --       --          --    1,974,204          --            --             --
Issuance of
Series C
preferred
stock...........     154,861    1,549          --       --          --      198,451          --            --             --
Issuance of
warrants in
connection with
debt financing..          --       --          --       --          --       50,000          --            --             --
Net loss........          --       --          --       --          --           --          --            --     (4,778,789)
                  ----------  -------  ---------- -------- ----------- ------------   ---------     ---------   ------------
Balance,
December 31,
1997............   3,247,262   32,473  10,107,460  101,074          --    3,201,539          --            --     (5,698,611)
                  ----------  -------  ---------- -------- ----------- ------------   ---------     ---------   ------------
Issuance of
Series D
preferred stock,
net of issuance
costs...........   4,558,405   45,584          --       --          --   15,089,770          --            --             --
Issuance of
common stock as
consideration
for private
placement fees..          --       --     227,920    2,280          --      147,720          --            --             --
Issuance of
fully vested
options to non
employees.......          --       --          --       --          --       19,096          --            --             --
Shares issued as
consideration
for
acquisitions....          --       --     193,416    1,932          --      158,362          --            --             --
Exercise of
employee stock
options.........          --       --       8,720       88          --        1,311          --            --             --
Unearned
compensation....          --       --          --       --          --      669,540    (669,540)           --             --
Amortization of
unearned
compensation....          --       --          --       --          --           --      75,507            --             --
Issuance of
warrants in
connection with
debt financing..          --       --          --       --          --      200,000          --            --             --
Net loss........          --       --          --       --          --           --          --            --    (13,594,275)
                  ----------  -------  ---------- -------- ----------- ------------   ---------     ---------   ------------
Balance,
December 31,
1998............   7,805,667   78,057  10,537,516  105,374          --   19,487,338    (594,033)           --    (19,292,886)
                  ----------  -------  ---------- -------- ----------- ------------   ---------     ---------   ------------
Comprehensive
loss:
Conversion to
common stock....  (7,805,667) (78,057) 38,939,384  389,396          --     (311,339)         --            --             --
Sale of common
stock in initial
public offering
(Note 1)........          --       --  16,100,000  161,000          --   58,126,314          --            --             --
Common stock to
be issued (Note
2)..............          --       --          --       --  99,545,663           --          --            --             --
Notes converted
to common
stock...........          --       --   1,250,000   12,500          --    4,987,500          --            --             --
Exercise of
options.........          --       --   2,214,908   22,148          --    1,358,259          --            --             --
Shares issued
through employee
stock purchase
plan............          --       --     143,122    1,430          --      571,068          --            --             --
Shares issued as
consideration
for
acquisitions....          --       --   2,787,640   27,876          --   67,127,029          --            --             --
Exercise of
warrants........          --       --     148,296    1,484          --       90,503          --            --             --
Unearned
compensation....          --       --          --       --          --      438,075    (494,855)           --             --
Amortization of
unearned
compensation....          --       --          --       --          --           --     487,946            --             --
Net loss........          --       --          --       --          --           --          --            --    (53,479,881)
Unrealized loss
on securities...          --       --          --       --          --           --          --      (218,671)            --
Comprehensive
loss............
                  ----------  -------  ---------- -------- ----------- ------------   ---------     ---------   ------------
Balance,
December 31,
1999............          --  $    --  72,120,866 $721,208 $99,545,663 $151,874,747   $(600,942)    $(218,671)  $(72,772,767)
                  ==========  =======  ========== ======== =========== ============   =========     =========   ============
<CAPTION>
                                 Total
                             Shareholders'  Comprehensive
                  Treasury      Equity         Income
                    Stock      (Deficit)       (Loss)
                  ---------- -------------- --------------
<S>               <C>        <C>            <C>
Balance, January
1, 1997.........  $ (60,000) $    105,264
Issuance of
Series B
preferred
stock...........         --     2,000,000
Issuance of
Series C
preferred
stock...........         --       200,000
Issuance of
warrants in
connection with
debt financing..         --        50,000
Net loss........         --    (4,778,789)
                  ---------- -------------- --------------
Balance,
December 31,
1997............    (60,000)   (2,423,525)
                  ---------- -------------- --------------
Issuance of
Series D
preferred stock,
net of issuance
costs...........         --    15,135,354
Issuance of
common stock as
consideration
for private
placement fees..         --       150,000
Issuance of
fully vested
options to non
employees.......         --        19,096
Shares issued as
consideration
for
acquisitions....         --       160,294
Exercise of
employee stock
options.........         --         1,399
Unearned
compensation....         --            --
Amortization of
unearned
compensation....         --        75,507
Issuance of
warrants in
connection with
debt financing..         --       200,000
Net loss........         --   (13,594,275)
                  ---------- -------------- --------------
Balance,
December 31,
1998............    (60,000)     (276,150)
                  ---------- -------------- --------------
Comprehensive
loss:
Conversion to
common stock....         --            --
Sale of common
stock in initial
public offering
(Note 1)........         --    58,287,314
Common stock to
be issued (Note
2)..............         --    99,545,663
Notes converted
to common
stock...........         --     5,000,000
Exercise of
options.........         --     1,380,407
Shares issued
through employee
stock purchase
plan............         --       572,498
Shares issued as
consideration
for
acquisitions....         --    67,154,905
Exercise of
warrants........    (91,987)           --
Unearned
compensation....         --       (56,780)
Amortization of
unearned
compensation....         --       487,946
Net loss........         --   (53,479,881)
Unrealized loss
on securities...         --      (218,671)  $(53,479,881)
Comprehensive
loss............                                (218,671)
                  ---------- -------------- --------------
Balance,
December 31,
1999............  $(151,987) $178,397,251   $(53,698,552)
                  ========== ============== ==============
</TABLE>

         See accompanying notes to consolidated financial statements.

                                     F-158
<PAGE>

                               VERTICALNET, INC.

                     Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                             Year ended December 31,
                                      ----------------------------------------
                                          1999           1998         1997
                                      -------------  ------------  -----------
<S>                                   <C>            <C>           <C>
Net loss............................  $ (53,479,881) $(13,594,275) $(4,778,789)
Adjustments to reconcile net loss to
 net cash used in operating
 activities:
 Loss from disposal of fixed
  assets............................         30,912            --        3,278
 Depreciation, amortization and
  other noncash charges.............      9,790,278       837,724      388,058
 In-process research and
  development charge................     13,600,000            --           --
 Change in assets net of effect of
  acquisitions:
 Accounts receivable................     (8,031,734)   (1,058,461)    (428,669)
 Inventory..........................      1,894,778            --           --
 Prepaid expenses and other
  assets............................     (1,944,568)   (1,085,213)    (143,420)
 Change in liabilities net of
  effect of acquisitions:
 Accounts payable...................      1,818,386       581,536      509,434
 Accrued expenses...................     12,486,254     1,403,491      135,057
 Deferred revenues..................      7,032,955     1,249,624      493,960
                                      -------------  ------------  -----------
   Net cash used in operating
    activities......................    (16,802,620)  (11,665,574)  (3,821,091)
                                      -------------  ------------  -----------
Cash flows from investing
 activities:
 Acquisitions, net of cash
  acquired..........................    (64,334,532)   (1,858,389)          --
 Loan to Informatrix prior to
  acquisition.......................             --      (550,914)          --
 Purchase of investments............   (195,042,538)           --           --
 Proceeds from sale and redemption
  of investments....................    133,782,760            --           --
 Restricted cash....................     (3,719,097)           --           --
 Loan receivable....................             --        (4,086)    (160,000)
 Bridge financing to Isadra prior
  to acquisition....................       (965,319)           --           --
 Purchase of equity investments.....     (6,700,000)
 Capital expenditures...............     (5,403,196)     (484,408)    (235,671)
                                      -------------  ------------  -----------
   Net cash used investing
    activities......................   (142,381,922)   (2,897,797)    (395,671)
                                      -------------  ------------  -----------
Cash flows from financing
 activities:
 Borrowings under line of credit....             --     2,000,000    2,500,000
 Repayment of line of credit........     (2,000,000)   (2,500,000)          --
 Loans from ICG.....................             --     6,550,000    1,600,000
 Repayment of loans from ICG........             --            --     (950,000)
 Repayment of loans from related
  parties...........................             --      (100,000)          --
 Principal payments on obligations
  under capital leases..............       (903,428)     (189,005)     (48,834)
 Repayment of long-term debt........       (603,261)      (32,852)      (9,139)
 Net proceeds from issuance of
  preferred stock...................             --    13,741,962    1,550,000
 Net proceeds from issuance of
  common stock in initial public
  offering..........................     58,459,305            --           --
 Net proceeds from convertible debt
  issuance..........................    110,870,000            --           --
 Proceeds from exercise of stock
  options and employee stock
  purchase plan.....................      1,952,905         1,399           --
                                      -------------  ------------  -----------
   Net cash provided by financing
    activities......................    167,775,521    19,471,504    4,642,027
                                      -------------  ------------  -----------
Net increase in cash................      8,590,979     4,908,133      425,265
Cash and cash equivalents--beginning
 of period..........................      5,662,849       754,716      329,451
                                      -------------  ------------  -----------
Cash and cash equivalents--end of
 period.............................  $  14,253,828  $  5,662,849  $   754,716
                                      =============  ============  ===========
Supplemental disclosure of cash flow
 information:
Cash paid during the period for
 interest...........................  $     300,806  $    199,016  $    52,925
                                      =============  ============  ===========
Supplemental schedule of noncash
 investing and financing activities:
 Equipment acquired under capital
  leases............................  $   3,120,292  $    383,816  $   415,195
 Issuance of common stock as
  consideration for acquisitions....  $  67,154,905  $    160,294  $        --
 Common stock to be issued as
  consideration for acquisitions....  $  99,545,663  $         --  $        --
 Issuance of common stock as
  consideration for private
  placement fees....................  $          --  $    150,000  $        --
 Issuance of warrants in connection
  with debt financing...............  $          --  $    200,000  $    50,000
 Warrant exercises..................  $      91,987  $         --  $        --
 Liabilities assumed in conjunction
  with acquisitions.................  $  18,671,532  $         --  $        --
 Loans from ICG converted to
  preferred stock...................  $          --  $  1,550,000  $   650,000
 Notes converted to common stock....  $   5,000,000  $         --  $        --
 Financing agreement for directors
  and officers liability
  insurance.........................  $     235,214  $         --  $        --
</TABLE>

          See accompanying notes to consolidated financial statements.

                                     F-159
<PAGE>

                               VERTICALNET, INC.

                   Notes to Consolidated Financial Statements

(1) Summary of Significant Accounting Policies

Description of Company

      VerticalNet, Inc. ("VerticalNet" or the "Company") owns and operates
vertical trade communities, which are targeted business-to-business communities
of commerce on the Internet. The Company's vertical trade communities are Web
sites that act as industry-specific comprehensive sources of information,
interaction and electronic commerce. Vertical trade communities combine product
information; industry news; requests for proposals; directories; classifieds;
job listings; discussion forums; a variety of electronic commerce opportunities
for buyers and sellers; and other services, such as online professional
education courses and virtual trade shows. Each trade community is individually
branded, focuses on one business sector and caters to individuals with similar
professional interests. The virtual trade communities are designed to attract
technical and purchasing professionals with highly specialized product and
specification requirements and purchasing authority or influence. The Company
was founded on July 28, 1995 and as of March 15, 2000 operates 55 vertical
trade communities in eleven major industry groups: advanced technologies;
communications; environmental; food and packaging; food service/hospitality;
healthcare and science; manufacturing and metals; process; public sector;
service; textiles and apparel.

      Through the December 16, 1999 acquisition of NECX.com LLC ("NECX"), a
business-to-business market maker for the electronic components and hardware
market, the Company is also engaged in the sale of electronic hardware and
components. NECX acts as a third party intermediary, purchasing electronic
hardware and components from various vendors for resale to foreign and domestic
companies. NECX also has overseas subsidiaries in Sweden and Ireland that serve
as sales offices to European exchange customers. NECX's functional currency is
US dollars.

      On February 17, 1999, the Company completed its initial public offering
(the "IPO") of 16,100,000 shares of its common stock at $4.00 per share (on a
post-split basis). Net proceeds to the Company were approximately $58.3 million
(net of underwriters' commission and offering expenses of $6.1 million).

      On July 21, 1999, the Board of Directors of the Company approved a two-
for-one stock split of the Company's common stock. Shares resulting from the
split were distributed on August 20, 1999 to shareholders of record at the
close of business on August 9, 1999.

      On January 20, 2000, the Board of Directors of the Company approved a
two-for-one stock split of the Company's common stock to be distributed in the
form of a stock dividend, payable on or about March 31, 2000 for shareholders
of record at the close of business on March 17, 2000.

      All references in the consolidated financial statements to shares, share
prices and per share amounts have been adjusted retroactively for these splits.

Principles of Consolidation

      The consolidated financial statements include the financial statements of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

                                     F-160
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)


Revenue and Editorial and Operational Expenses

      Prior to the acquisition of NECX, the Company generated substantially all
of its revenue from Internet advertising including the development of
"storefronts" (Web pages that focus on advertisers' products and provide a link
to the advertisers' Web sites). The advertising contracts generally do not
extend beyond one year, although certain contracts are for multiple years.
Advertising revenues are recognized ratably over the period of the advertising
contract. In 1999, we also entered into a number of strategic co-marketing
agreements where the Company is responsible for creating co-branded sites.
Revenues from the development of these sites are recognized as earned.
Additional revenues from advertising and maintenance services are recognized as
earned over the term of the contract. Revenues from educational courses are
recognized in the period in which the course is completed and revenues from the
sale of books are recognized in the period in which the books are shipped.
Auction revenues related to transaction fees are recognized at the time that
the auction is successfully concluded. Web hosting revenues are recognized
ratably over the period of service and web development fees are recognized as
earned. All e-commerce revenues, whether transaction fees, a percentage of sale
fee or a minimum guaranteed fee, are recognized when earned. Approximately $3.0
million and $1.0 million at December 31, 1999 and 1998, respectively, included
in the accounts receivable balance, is unbilled due to customer payment terms.

      Gross exchange transaction sales are comprised of product sales, net of
returns and allowances. Product sales typically involve electronic components,
computer products and connectivity equipment. Revenue is recognized when the
products are shipped to customers. The Company reflects the gross revenue and
related product costs of exchange transactions in its consolidated financial
statements since it takes title to the products exchanged in such transactions
and is exposed to both inventory and credit risk related to the execution of
the transactions. However, management believes that the amount of net revenue,
resulting from exchange transactions is an important performance measure for
the exchange business and has presented this amount as a subtotal in the
consolidated statements of operations. Net exchange revenues as shown in the
Company's consolidated financial statements are gross exchange transaction
sales less exchange transaction costs primarily consisting of resale inventory
purchases and freight charges. The Company records a reserve for exchange sales
returns at the time of shipment, based on estimated return rates.

      Barter transactions are recorded at the lower of estimated fair value of
the goods or services received or the estimated fair value of the
advertisements given based on historical cash transactions. Barter revenue is
recognized when the advertising impressions are delivered to the customer and
advertising expense is recorded when the advertising impressions or other
advertising services are received from the customer. If the advertising
impressions are received from the customer prior to the Company delivering the
advertising impressions a liability is recorded, and if the Company delivers
the advertising impressions to the customer prior to receiving the advertising
impressions or other advertising a prepaid expense is recorded. For the year
ended December 31, 1999 and 1998, the Company recognized approximately $3.8
million and $650,000 of advertising revenues and $3.0 million and $498,000 of
advertising expenses from barter transactions, respectively. For the year ended
December 31, 1997, barter transactions were immaterial. The Company has
recorded approximately $968,000 and $175,000 in prepaid expenses related to
barter transactions as of December 31, 1999 and 1998, respectively.

      Editorial and operational expenses primarily consist of Internet
connection charges, depreciation, purchased content, salaries and benefits of
operating and editorial personnel and other related operating costs and are
recorded as incurred.


                                     F-161
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

Product Development

      Product development costs consist principally of salaries and related
costs, which are charged to expense as incurred.

Advertising Costs

      The Company charges advertising costs to expense as incurred. Advertising
expense, exclusive of barter advertising discussed above, was approximately
$4.3 million, $1.9 million and $198,000 for the years ended December 31, 1999,
1998 and 1997, respectively.

Cash and Cash Equivalents

      Cash and cash equivalents include cash, money market investments and
other highly liquid investments with original maturities of three months or
less.

Restricted Cash

      Restricted cash represents certificates of deposit held pursuant to a
building lease agreement and standby letters of credit.

Investments

      The Company accounts for investments in accordance with Statement of
Financial Accounting Standard ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company's marketable investments
are classified as available-for-sale as of the balance sheet date and are
reported at fair value, with unrealized gains and losses, net of tax, recorded
in shareholders' equity (deficit). Realized gains or losses and permanent
declines in value, if any, on available-for-sale securities will be reported in
other income or expense, as incurred.

      The Company holds equity instruments of privately held companies for
business and strategic purposes. These investments are included in other
investments and are accounted for under the cost method since ownership is less
than 20% and the Company does not have the ability to exercise significant
influence over the investees. For these non-quoted investments, the Company's
policy is to regularly review the assumptions underlying the operating
performance and cash flow forecasts in assessing the carrying values. The
Company identifies and records impairment losses on long-lived assets when
events and circumstances indicate that such assets might be impaired. To date,
no such impairment has been recorded.

      The Company has investments in companies whose results are not
consolidated, but over whom the Company exercises significant influence, these
investments are accounted for under the equity method of accounting. Whether or
not the Company exercises significant influence with respect to an investment
depends on an evaluation of several factors including, among others,
representation on the investee's board of directors and ownership level, which
is generally a 20% to 50% interest in the voting securities of the investee,
including voting rights associated with the Company's holdings in common,
preferred and other convertible instruments in the investee. Under the equity
method of accounting, the Company's share of the earnings or losses of the
investee is reflected in the Company's consolidated statements of operations.

                                     F-162
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)


Inventory

      Inventory consists of NECX merchandise purchased for resale and is
recorded at the lower of cost or market with the cost determined on the first-
in, first-out basis.

Property and Equipment

      Property and equipment are stated at cost, net of accumulated
amortization and depreciation. Leasehold improvements are amortized on a
straight-line basis over the lesser of the estimated useful life of the asset
or the lease term. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets as follows:

<TABLE>
      <S>                                                              <C>
      Computer equipment and purchased software....................... 3-5 years
      Office equipment and furniture.................................. 5-7 years
      Trade show equipment............................................   7 years
      Leasehold improvements..........................................   3 years
</TABLE>

Internal Use Software

      Under the provisions of Statement of Position ("SOP") 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use, the
Company capitalizes costs associated with internally developed and/or purchased
software systems for new products and enhancements to existing products that
have reached the application stage and meet recoverability tests. Capitalized
costs include external direct costs of materials and services utilized in
developing or obtaining internal-use software, payroll and payroll related
expenses for employees who are directly associated with and devote time to the
internal-use software project and interest costs incurred, if material, while
developing internal-use software. Capitalization of such costs begins when the
preliminary project stage is complete and ceases no later than the point at
which the project is substantially complete and ready for its intended purpose.
The carrying value of the software is regularly reviewed and a loss is
recognized if the value of estimated undiscounted cash flow benefit related to
the asset falls below the unamortized cost. As of December 31, 1999,
capitalized costs are not yet being amortized since projects are still in
process.

Goodwill and Intangible Assets

      Goodwill is amortized using the straight-line method from the date of
acquisition over the period of the expected benefits, which ranges from three
to five years. Other intangible assets resulting from the Company's
acquisitions, including covenants not-to-compete, acquired technology,
strategic relationships and acquired workforce, are also amortized using the
straight-line method from the date of acquisition over the period of the
expected benefits, ranging from at two to four years. The Company periodically
assesses the recoverability of goodwill, as well as other long-lived assets,
based upon expectations of future undiscounted cash flows.

Debt Issuance Costs

      Specific costs related to the convertible debt offering were capitalized
upon issuance and are being amortized to interest expense using the effective
interest rate method over five years. As of December 31, 1999, the remaining
debt issuance costs are $3.7 million, classified in other assets on the balance
sheet.

                                     F-163
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)


Income Taxes

      The Company records income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and the tax effect of net operating loss carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is recorded against deferred
tax assets if it is more likely than not that such assets will not be realized.

Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Accounting for Impairment of Long-Lived Assets

      The Company assesses impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
future cash flows estimated to be generated by those assets are less than the
assets' carrying amount. The amount of the impairment, if any, is measured
based on projected discounted future cash flows.

Financial Instruments

      In accordance with the requirements of SFAS No. 107, Disclosure about
Fair Value of Financial Instruments, the Company has determined the estimated
fair value of its financial instruments using available market information and
valuation methodologies. The Company's financial instruments consist of cash,
accounts receivable, accounts payable, capital leases and convertible notes.
Considerable judgment is required to develop the estimates of fair value; thus,
the estimates are not necessarily indicative of the amounts that could be
realized in a current market exchange. However, the Company believes the
carrying values of these assets and liabilities, with the exception of the
convertible notes, is a reasonable estimate of their fair market values at
December 31, 1999 and 1998 due to the short maturities of such items. Based on
their quoted market value as of December 31, 1999, the convertible notes are
estimated to have an aggregate fair market value of approximately $487.6
million.

Concentration of Credit Risk

      Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents in
bank deposits accounts, marketable securities and trade receivables. The
Company has not experienced significant losses related to cash and cash
equivalents and marketable securities and does not believe it is exposed to any
significant credit risks relating to its cash and cash equivalents. The
Company's trade receivables from exchange sales are derived primarily from
sales of electronic hardware products to a large number of customers worldwide.
The Company establishes the allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical

                                     F-164
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

trends and other information. At December 31, 1999 less than 1% of receivables
(denominated in U.S. dollars) is due from exchange customers whose economies
are considered highly inflationary. The Company does not anticipate any losses
from these receivables in excess of the provided allowances. No single customer
accounted for greater than 10% of total revenues during the years ended
December 31, 1999, 1998 and 1997.

Self Insurance

      The Company is self-insured for certain losses related to employee
medical benefits as of December 1999. The Company has purchased stop-loss
coverage in order to limit its exposure. Self insurance losses are accrued
based upon the Company's estimates of the aggregate liability for uninsured
claims incurred using certain actuarial assumptions followed in the insurance
industry. At December 31, 1999, the accrued liability for self-insured losses
included in other accrued expenses is $171,000.

Stock Options

      Stock-based compensation is recognized using the intrinsic value method
in accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB No. 25"). For disclosure purposes, pro forma
net loss and loss per share data are provided in accordance with SFAS 123,
Accounting for Stock-Based Compensation as if the fair value method had been
applied.

Computation of Historical Net Loss Per Share and Pro Forma Net Loss Per Share

      Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Dilutive net loss per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
potentially could include the incremental common shares issuable upon the
exercise of stock options and warrants (using the treasury stock method) and
the incremental common shares issuable upon the conversion of the convertible
preferred stock (using the if-converted method) and the Company's convertible
debt. Common equivalent shares are excluded from the calculation if their
effect is anti-dilutive. Common stock to be issued upon the conversion of the
convertible note given as consideration for the purchase of NECX was included
in the calculation from the date of acquisition in December 1999 since the
related securities were accounted for as equity.

      Pro forma net loss per share is computed using the weighted average
number of shares of common stock outstanding, including common equivalent
shares from the convertible preferred stock (using the if-converted method),
which automatically converted into common stock upon the completion of the IPO
as if converted at the original date of issuance, for both basic and diluted
net loss per share, even though inclusion is anti-dilutive.

      The following table sets forth the reconciliation between the weighted
average shares outstanding for basic and diluted and pro forma net loss per
share computations:

<TABLE>
<CAPTION>
                                                   Year Ended December 31,
                                               --------------------------------
                                                  1999       1998       1997
                                               ---------- ---------- ----------
<S>                                            <C>        <C>        <C>
Weighted average shares outstanding basic and
 diluted.....................................  62,391,416 10,282,200 10,107,460
Effect of convertible preferred stock........   4,267,326 32,259,756 14,629,844
                                               ---------- ---------- ----------
Pro forma weighted average shares
 outstanding.................................  66,658,742 42,541,956 24,737,304
                                               ========== ========== ==========
</TABLE>


                                     F-165
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

      The following table sets forth the computation of net loss per share:

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                        ---------------------------------------
                                            1999          1998         1997
                                        ------------  ------------  -----------
<S>                                     <C>           <C>           <C>
Basic and diluted net loss per share
Numerator: Net loss.................... $(53,479,881) $(13,594,275) $(4,778,789)
Denominator:
  Weighted average shares outstanding
   basic and diluted...................   62,391,416    10,282,200   10,107,460
Basic and diluted net loss per share... $      (0.86) $      (1.32) $     (0.47)
                                        ============  ============  ===========
Pro forma net loss per share
Numerator: Net loss.................... $(53,479,881) $(13,594,275) $(4,778,789)
Denominator:
  Pro forma weighted average shares
   outstanding basic and diluted.......   66,658,742    42,541,956   24,737,304
Basic and diluted net loss per share... $      (0.80) $      (0.32) $     (0.19)
                                        ============  ============  ===========
</TABLE>

      The conversion of outstanding options, warrants and subordinated
convertible debt resulting in 17,583,787, 2,704,474 and 1,464,292 common stock
equivalents would have been anti-dilutive and were excluded from the
calculations for the years ended December 31, 1999, 1998 and 1997,
respectively.

Recent Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivatives and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. SFAS No. 133, as
amended by SFAS No. 137, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. As we do not currently engage or plan to engage
in derivative or hedging activities, it is not anticipated that there will be
any impact on our results of operations, financial position or cash flows upon
the adoption of this standard.

      In October 1999, the Chief Accountant of the Securities and Exchange
Commission (the "SEC") requested that the Financial Accounting Standards Board
Emerging Issues Task Force (the "EITF") address a number of accounting and
financial reporting issues that the SEC believes had developed with respect to
Internet businesses. The SEC identified twenty issues for which they believed
some form of standard setting or guidance may be appropriate either because (1)
there appeared to be diversity in practice or (2) the issues are not
specifically addressed in current accounting literature or (3) the SEC Staff is
concerned that developing practice may be inappropriate under generally
accepted accounting principles. Many of the issues identified by the SEC,
including those which address barter and revenue recognition, are potentially
applicable to the Company. Although the EITF has begun to deliberate these
issues, formal guidance has not been issued to date for the majority of them.
In addition, in December 1999, the SEC issued Staff Accounting Bulletin ("SAB")
No. 101, Revenue Recognition in Financial Statements, which is required to be
implemented in the quarter ended March 31, 2000. The Company is currently
analyzing the potential impact of SAB No. 101 on its revenue recognition
policies. Although the Company believes its historical accounting policies and
practices conform with generally accepted accounting principles, there can be
no assurance that final consensuses reached by the EITF on the Internet issues
referred to above, or other actions by standard setting bodies, or the
Company's formal implementation of SAB No. 101, will not result in changes to
the Company's historical accounting policies and practices or to the manner in
which certain transactions are presented and disclosed in the Company's
consolidated financial statements.

                                     F-166
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)


(2) Acquisitions

      In September 1998, the Company acquired all of the outstanding capital
stock of Boulder Interactive Technology Services Company ("BITC") for $1.8
million in cash. BITC operates a vertical trade community for professionals in
the radio frequency and wireless communications industry. The acquisition was
accounted for as a purchase and the excess of the purchase price over the fair
value of the net assets acquired of approximately $1.9 million was recorded as
goodwill and is being amortized over 36 months.

      In September 1998, the Company acquired all of the outstanding capital
stock of Informatrix Worldwide, Inc. ("Informatrix") for 184,616 shares of the
Company's common stock valued at $153,000. The acquisition was accounted for as
a purchase and the excess of the purchase price over the fair value of the net
assets acquired of approximately $903,000 was recorded as goodwill and is being
amortized over 36 months. The purchase agreement also provided for the Company
to issue up to 46,152 additional shares of the Company's common stock to the
Informatrix shareholders in the event that Informatrix achieved certain sales
targets through December 1998. Through December 31, 1998, the former
shareholders of Informatrix earned, and the Company recorded, the issuance of
14,952 shares of common stock which was valued at $32,000. The additional
consideration was accounted for as additional goodwill. Informatrix operates a
vertical community in the property and casualty insurance industry that caters
to risk managers, agents, brokers and other professionals in the insurance
industry.

      In January 1999, the Company acquired certain assets, including the
Safety Online Web site, and assumed certain liabilities from Coastal Video
Communications ("Coastal"). The Company paid $260,000 in cash, issued a $50,000
note, to be paid within 90 days of the closing of the purchase, and provided
the seller an advertising commitment on the Company's Web site valued at
$160,000. As of December 31, 1999, the Company has paid the note to Coastal and
has fulfilled approximately $104,000 of its advertising commitment to the
seller. The acquisition was accounted for as a purchase and the estimated
excess of the purchase price over the fair value of the net assets acquired of
approximately $550,000 was recorded as goodwill and is being amortized over 36
months. The results of operations from Safety Online are not material to the
Company's consolidated financial position or results of operations. Safety
Online is a vertical trade community serving professionals in the occupational
and safety industry.

      In June 1999, the Company acquired certain assets, including the Oillink
Web site, and assumed certain liabilities of a sole proprietor. The Company
paid $225,000 in cash and issued 11,684 shares of its common stock valued at
$250,000. The acquisition was accounted for as a purchase and the estimated
excess of the purchase price over the fair value of the net assets acquired of
approximately $504,000 was recorded as goodwill and is being amortized over 36
months. The results of operations from Oillink are not material to the
Company's consolidated financial position or results of operations. Oillink is
a vertical trade community for professionals in the global oil and gas
community, offering industry news, information and a number of on-line
services.

      In June 1999, the Company acquired certain assets, including the
ElectricNet Web site, and assumed certain liabilities of a sole proprietor. The
Company paid $975,000 in cash and issued 42,252 shares of its common stock
valued at $825,000. The acquisition was accounted for as a purchase and the
estimated excess of the purchase price over the fair value of the net assets
acquired of approximately $1.9 million was recorded as goodwill and is being
amortized over 36 months. The results of operations from ElectricNet are not
material to the Company's consolidated financial position or results of
operations. ElectricNet is a leading destination for electrical power industry
professionals, offering information for the power transmission and distribution
industry.


                                     F-167
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

      In June 1999, the Company acquired all of the outstanding capital stock
of Techspex, Inc. ("Techspex") for $211,000 in cash and 179,988 shares of
common stock valued at $3.0 million. The acquisition was accounted for as a
purchase and the estimated excess of the purchase price over the fair value of
the net assets acquired of approximately $3.3 million was recorded as goodwill
and is being amortized over 36 months. Techspex was the owner and operator of a
vertical trade community in the machine tools industry. The Web site acts as a
comprehensive source of information, interaction and electronic commerce for
the machine tool industry providing a searchable database of machine tools,
dealers and tooling and accessory suppliers.

      In July 1999, the Company acquired all of the outstanding capital stock
of LabX Technologies Inc. ("LabX") for $1.6 million in cash and 139,588 shares
of common stock valued at $2.8 million. The common stock given as consideration
was reduced by an illiquidity discount of 10% based on restrictions detailed in
the lock up agreements signed by the individuals receiving the stock. The
acquisition was accounted for as a purchase and the estimated excess of the
purchase price over the fair value of the net assets acquired of approximately
$4.6 million was allocated to a covenant not-to-compete, existing technology
and goodwill of approximately $350,000, $500,000 and $3.75 million,
respectively. The covenant not-to-compete is being amortized on a straight-line
basis over 24 months, the term of the covenant, while the existing technology
and goodwill are being amortized on a straight-line basis over 36 months. LabX
was the owner and operator of an Internet trading community focused on
facilitating electronic commerce of scientific equipment on the Internet.
LabX's Web site community allows participants to communicate their buying and
selling requirements for laboratory equipment.

      In August 1999, the Company acquired all of the outstanding capital stock
of CertiSource Inc. ("CertiSource") for $476,000 in cash and 167,424 shares of
common stock valued at $2.7 million. The acquisition was accounted for as a
purchase and the estimated excess of the purchase price over the fair value of
the net assets acquired of approximately $3.4 million was allocated to a
covenant not-to-compete and goodwill of approximately $500,000 and $2.9
million, respectively. Both the covenant not-to-compete and goodwill are being
amortized on a straight-line basis over 36 months. CertiSource provides
registration services for technical and educational training courses, as well
as related training products, consulting services and software. CertiSource
also uses an Internet Web site to provide large corporations training
management services including reporting and the coordination of private
training events.

      In August 1999, the Company acquired certain assets, including the
Surface Finishing Web site, and assumed certain liabilities from Industry On
Line, Inc. ("Industry On Line"). The Company paid $150,000 in cash and issued
13,592 shares of its common stock valued at approximately $251,000. The Company
has also agreed to provide the seller an advertising commitment on the
Company's Web site valued at $140,000. As of December 31, 1999, the Company has
fulfilled approximately $67,000 of its advertising commitment to the seller.
The acquisition was accounted for as a purchase and the estimated excess of the
purchase price over the fair value of the net assets acquired of approximately
$604,000 was recorded as goodwill and is being amortized over 36 months. The
results of operations from Industry On Line are not material to the Company's
consolidated financial position or results of operations. Industry On Line is
the owner and operator of a vertical trade community in the metal finishing
industry.

      In August 1999, the Company acquired all of the outstanding capital stock
of Isadra, Inc. ("Isadra") for $2.4 million in cash, 2,000,000 shares of common
stock valued at $37.8 million and 81,526 options to purchase VerticalNet common
stock valued at $1.5 million at the date of acquisition using the Black-Sholes
model. The common stock given as consideration was reduced by an illiquidity
discount ranging from 5% to 20% based on restrictions detailed in the lock up
agreements signed by the individuals receiving the stock. In

                                     F-168
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

connection with this transaction, the Company agreed to lend up to $1.0 million
to Isadra prior to the closing of this transaction. As of the acquisition date,
the Company had advanced Isadra $965,000. The acquisition was accounted for as
a purchase and the estimated excess of the purchase price over the fair value
of the net assets acquired of approximately $43.9 million was allocated to in-
process research and development, existing technology, assembled work force and
goodwill of approximately $13.6 million, $2.1 million, $500,000 and $27.7
million, respectively. The $13.6 million was charged to expense as a non-
recurring charge upon consummation of the acquisition since the in-process
research and development has not yet reached feasibility and had no alternative
future use (see Note 3). The existing technology and assembled work force are
being amortized on a straight-line basis over 24 months, while goodwill is
being amortized on a straight-line basis over 36 months. Isadra has developed
e-commerce software for vertical industries.

      In December 1999, the Company acquired substantially all of the assets
and liabilities of NECX for approximately $14.1 million cash and $70.0 million
of notes convertible into common stock. The notes were valued at the estimated
fair value of the shares into which they are convertible, based on the average
of the stock price for a few days before and after the transaction was
announced on November 16, 1999. On the date of the definitive agreement,
November 16, 1999, the notes were convertible into 2,008,738 shares of
VerticalNet common stock valued at $99.5 million. Since the notes are required
to be paid in common stock and it is the Company's intention to convert the
notes once a registration statement is declared effective, the notes have been
accounted for as common stock to be issued. Additionally, the Company assumed
certain liabilities including, $10.0 million in debt and a $22.0 million line
of credit which were paid in cash upon the transaction closing.

      NECX was a privately held leader in buying and selling semiconductors,
electronic components, computer products and networking equipment. The
acquisition was accounted for as a purchase and the estimated excess of the
purchase price over the fair value of the net assets acquired of approximately
$120.0 million was allocated to strategic relationships, including customer and
vendor lists, assembled workforce and goodwill in the amounts of approximately
$13.0 million, $2.5 million and $104.5 million respectively. The assembled
workforce is being amortized on a straight-line basis over 48 months, while
strategic relationships and goodwill are being amortized on a straight-line
basis over 60 months.

      In December 1999, the Company acquired certain assets, including the
GovCon Web site, and assumed certain liabilities from GovCon, Inc. ("GovCon").
The Company issued 150,000 shares of its common stock valued at approximately
$12.0 million. The acquisition was accounted for as a purchase and the
estimated excess of the purchase price over the fair value of the net assets
acquired of approximately $12.0 million was recorded as goodwill and is being
amortized over 36 months. The results of operations from GovCon are not
material to the Company's consolidated financial position or results of
operations. GovCon is a Web site community for bidders on federal government
contracts.

      In December 1999, the Company acquired certain assets, including the
TextileWeb Web site, and assumed certain liabilities from TextileWeb, Inc.
("TextileWeb"). The Company issued 76,600 shares of its common stock valued at
approximately $6.1 million. The acquisition was accounted for as a purchase and
the estimated excess of the purchase price over the fair value of the net
assets acquired of approximately $6.3 million was recorded as goodwill and is
being amortized over 36 months. The results of operations from TextileWeb are
not material to the Company's consolidated financial position or results of
operations. TextileWeb is a vertical trade community in the textile industry.

                                     F-169
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)


      The following unaudited pro forma financial information presents the
combined results of operations of VerticalNet, BITC, Informatrix, Techspex,
LabX, CertiSource, Isadra and NECX as if the acquisitions occurred on January
1, 1998, after giving effect to certain adjustments including amortization of
goodwill. The unaudited pro forma financial information does not necessarily
reflect the results of operations that would have occurred had VerticalNet,
BITC, Informatrix, Techspex, LabX, CertiSource, Isadra and NECX constituted a
single entity during such periods.

<TABLE>
<CAPTION>
                                                      Year ended December 31,
                                                     --------------------------
                                                         1999          1998
                                                     ------------  ------------
<S>                                                  <C>           <C>
Combined revenues................................... $ 55,349,732  $ 42,625,594
Net loss............................................  (89,180,374)  (47,005,966)
Net loss per share..................................        (1.35)        (3.15)
</TABLE>

(3) In-Process Research and Development

      The write-off of in-process research and development ("IPR&D") related to
the acquisition of Isadra (discussed in Note 2) totaled $13.6 million which was
expensed as a one time non recurring charge. The allocation of $13.6 million
represents the estimated fair value related to incomplete projects based on
risk-adjusted cash flows. At the date of the acquisition, the projects
associated with the IPR&D efforts had not yet reached technological feasibility
and had no alternative future uses. Accordingly, these costs were expensed. At
the acquisition date, Isadra was conducting development, engineering and
testing activities associated with the completion of the following next
generation technologies: i) CatSmart Business; ii) Business Publisher; and iii)
C2 Hub/Server. The projects under development, at the valuation date, are
expected to address emerging market demands for business-to-business e-
commerce.

      At the acquisition date, the technologies under development were between
70 and 80 percent complete, based on project man-months and costs. Isadra had
spent approximately $3.0 million on the IPR&D and expected to spend
approximately $1.0 million to complete the IPR&D projects. Isadra anticipated
that research and development related to these projects would be completed by
early to mid-2000, after which time Isadra is expected to begin generating
economic benefits from the value of the completed IPR&D.

      In allocating the purchase price, the Company considered present value
calculations of income, an analysis of project accomplishments and completion
costs, an assessment of overall contributions, as well as project risks.

      The values assigned to IPR&D were determined by estimating the costs to
develop the purchased technology into commercially viable products, estimating
the resulting net cash flows from each project, excluding the cash flows
related to the portion of each project that was incomplete at the acquisition
date, and discounting the resulting net cash flows to their present value. Each
of the project forecasts were based upon future discounted cash flows, taking
into account the state of development of each in-process project, the cost to
complete that project, the expected income stream, the life cycle of the
product ultimately developed and the associated risks.

      Aggregate revenue attributable to the IPR&D projects was estimated to
peak, as a percentage of total revenue, in 2000 and decline thereafter through
2003, the end of the estimated life of the IPR&D, as new product technologies
are expected to be introduced by Isadra. For the projects under development,
risk-adjusted discount rates of 50 percent were utilized to discount projected
cash flows.

                                     F-170
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)


(4) Property and Equipment

<TABLE>
<CAPTION>
                                                             December 31,
                                                        -----------------------
                                                           1999         1998
                                                        -----------  ----------
<S>                                                     <C>          <C>
Computer equipment and purchased software.............. $10,295,624  $1,475,773
Office equipment and furniture.........................   2,695,007     225,658
Trade show equipment...................................      40,587      40,587
Leasehold improvements.................................   2,147,368      45,864
                                                        -----------  ----------
                                                         15,178,586   1,787,882
Less: accumulated depreciation and amortization........  (2,030,958)   (715,819)
                                                        -----------  ----------
Property and equipment, net............................ $13,147,628  $1,072,063
                                                        ===========  ==========
</TABLE>

      Amortization applicable to property and equipment under capital leases is
included in depreciation expense.

(5) Intangible Assets

      Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                            December 31,
                                                       ------------------------
                                                           1999         1998
                                                       ------------  ----------
<S>                                                    <C>           <C>
Goodwill.............................................. $166,576,270  $2,734,981
Covenant not-to-compete...............................      850,000          --
Existing technology...................................    2,600,000          --
Assembled workforce...................................    3,000,000          --
Strategic relationships...............................   13,000,000          --
                                                       ------------  ----------
                                                        186,026,270   2,734,981
Less: accumulated amortization........................   (8,102,342)   (282,990)
                                                       ------------  ----------
Intangible assets, net................................ $177,923,928  $2,451,991
                                                       ============  ==========
</TABLE>

      Amortization expense was $7.8 million and $282,990 for the year ended
December 31, 1999 and 1998, respectively.

                                     F-171
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)


(6) Investments

      Investments are categorized as available-for-sale securities and
summarized as follows:

<TABLE>
<CAPTION>
                                              Gross      Gross
                                            Unrealized Unrealized
                                             Holding    Holding      Market
                                   Cost       Gains      Losses       Value
                                ----------- ---------- ----------  -----------
<S>                             <C>         <C>        <C>         <C>
Corporate Debt Obligations--
 maturity less than 1 year..... $23,221,249    $--     $ (30,694)  $23,190,555
Corporate Debt Obligations--
 maturity between 1 and 5
 years.........................  10,004,764     --       (64,131)    9,940,633
U.S. Government & Government
 Agency Obligations--maturity
 less than 1 year..............  21,008,976     --       (68,396)   20,940,580
U.S. Government & Government
 Agency Obligations--maturity
 between 1 and 5 years.........   7,000,000     --       (55,450)    6,944,550
                                -----------    ---     ---------   -----------
                                $61,234,989    $--     $(218,671)  $61,016,318
                                ===========    ===     =========   ===========
</TABLE>

      Investments are classified on the balance sheet as current assets of
$44,131,135 and non-current assets of $16,885,183.

      There were no investments held at December 31, 1998.

      Proceeds from sales of securities available for sale were approximately
$133.8 million for the year ended December 31, 1999. Gross losses were
approximately $25,000 for the year ended December 31, 1999. Realized gains and
losses are computed on a specific identification basis.

(7) Joint Ventures & Equity Investments

Joint Ventures

      With the acquisition of NECX, the Company acquired an ownership interest
in Electronic Commodity Exchange Asia Pte., Ltd. ("NECX Asia") and Asia
Business Venture Holdings Pte., Ltd. ("Asia Business Venture"), both of which
are joint ventures engaged in the distribution of electronic hardware. The
following is a summary of the joint ventures:

<TABLE>
<CAPTION>
                                                       Balance in
                                        Original     Other Assets at  Ownership
                                      Investment(1) December 31, 1999 Percentage
                                      ------------- ----------------- ----------
<S>                                   <C>           <C>               <C>
NECX Asia............................   $542,610        $542,610          50%
Asia Business Venture................    937,592         937,592           6
</TABLE>
--------
(1) Original investment is based on fair value assumed on the date of the
    acquisition of NECX on December 16, 1999.

      The Company accounts for its ownership in NECX Asia under the equity
method. NECX Asia's total assets are approximately 2% of the Company's total
assets at December 31, 1999 and its net loss is less than 2% of the Company's
net loss for year ended December 31, 1999. The Company accounts for its
minority

                                     F-172
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

interest in Asia Business Venture using the cost method and believes that there
has been no impairment of its investment at December 31, 1999.

Equity Investments

      In July 1999, the Company acquired 414,233 shares of the Series C
preferred stock of Tradex Technologies, Inc. ("Tradex") at a cost of $1.0
million. In December 1999, Tradex entered into an Agreement and Plan of
Reorganization with Ariba, Inc. On March 10, 2000, Ariba announced that it had
completed the acquisition of Tradex. Pursuant to the terms of the Agreement and
Plan of Reorganization, the Company's investment in Tradex will be exchanged
into approximately 283,153 shares of Ariba's common stock (unaudited).

      In October 1999, the Company acquired 352,112 shares of Neoforma's
("Neoforma") Series E preferred stock at a cost of $2.0 million. Additionally
the Company entered into a co-marketing strategic alliance with Neoforma which
includes a $2.0 million payment to the Company over the term of the agreement.
In January 2000, Neoforma successfully consummated an initial public offering
of its common stock, at which time our preferred stock holdings were converted
to common stock on a one-for-one basis. The Company executed a six month lock
up agreement in connection with Neoforma's IPO.

      In November 1999, the Company acquired 630 shares of Zillacast Series A
preferred stock at a cost of $1.5 million. Additionally the Company entered
into a co-marketing strategic alliance with ZillaCast which includes a $750,000
payment to the Company over the term of the agreement.

      In December 1999, the Company invested $1.4 million in BioSupplies.com
("BioSupplies"). The investment is held in escrow and will convert into equity
of BioSupplies upon the terms defined in the agreement. Additionally the
Company entered into a co-marketing strategic alliance with BioSupplies which
includes a $890,000 payment to the Company over the term of the agreement.

      In December 1999, the Company acquired 177,778 shares of Community of
Science ("COS") Series A convertible preferred stock at a cost of $800,000.
Additionally, the Company entered into a co-marketing strategic alliance with
COS which includes a $725,000 payment to the Company over the term of the
agreement. The Company has also purchased advertising services from COS for
$200,000.

      These investments are included in other investments in the accompanying
financial statements and are accounted for under the cost method since the
Company's ownership is less than 20% and the Company does not have the ability
to exercise significant influence over the investee.

(8) Line of Credit

      As of June 1998, the Company reduced its line of credit with the bank
from $2.5 million to $500,000. On November 25, 1998, the agreement was
additionally amended allowing the Company to execute a $2.0 million note with
the bank. The note had an interest rate of prime plus 1.5% and matured at the
earlier of March 31, 1999 or the completion of the Company's next financing. In
connection with the loan, the Company issued warrants to purchase 82,052 shares
of the Company's common stock at an exercise price of $4 per share with an
estimated fair value of $40,000 based on the Black-Scholes model. As of
December 31, 1998, the outstanding balance for borrowings under this facility
was $2,000,000 and the weighted average interest rate for the year ended
December 31, 1998 was 10%.

                                     F-173
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)


      Upon the completion of the IPO in February 1999, the line of credit was
reduced back to $500,000 and subsequently expired on June 30, 1999.

      In February 2000, NECX entered into a $33.0 million revolving line of
credit. Under the terms of the loan agreement, NECX is required to satisfy
certain financial covenants, which include: minimum tangible net worth, limits
on capital expenditures and the maintenance of a minimum cash or short term
investment balance of $20.0 million required by the Company. The line of credit
is guaranteed by the Company and is secured by a pledge of the Company's
ownership in NECX and a security interest in the assets of NECX. Interest on
any outstanding balances will be paid monthly at an annual rate equal to the
prime rate, which, as of March 15, 2000, was 8.75%. The commitment fee to
originate the loan was $165,000. NECX must pay an additional fee of .375% per
annum on any unused portion of the line (unaudited).

(9) Accrued Expenses

<TABLE>
<CAPTION>
                                                             December 31,
                                                        ----------------------
                                                           1999        1998
                                                        ----------- ----------
<S>                                                     <C>         <C>
Accrued compensation and related costs................. $ 5,775,700 $  454,230
Accrued professional fees..............................     950,042    269,500
Accrued marketing costs................................          --    446,334
Accrued acquisition and debt offering costs............   7,692,824         --
Accrued payable to training suppliers..................     767,889         --
Accrued interest payable on convertible notes..........   1,587,945         --
Accrued withholding on employee exercise of non
 qualified stock options...............................   1,010,171         --
Other..................................................   2,316,777    411,974
                                                        ----------- ----------
                                                        $20,101,348 $1,582,038
                                                        =========== ==========
</TABLE>

(10) Long-term Debt and Convertible Notes

<TABLE>
<CAPTION>
                                                            December 31,
                                                       ------------------------
                                                           1999         1998
                                                       ------------  ----------
<S>                                                    <C>           <C>
Capital leases........................................ $  3,122,190  $  639,940
Convertible notes.....................................  115,000,000   5,000,000
                                                       ------------  ----------
                                                        118,122,190   5,639,940
Less: current portion.................................   (1,372,255)   (288,016)
                                                       ------------  ----------
Long-term debt........................................ $116,749,935  $5,351,924
                                                       ============  ==========
</TABLE>

      On September 27, 1999, the Company completed the sale of $100.0 million
of 5 1/4% convertible subordinated debentures in a private placement
transaction pursuant to Section 4(2) of the Securities Act of 1933, resulting
in net proceeds of $96.3 million. Additionally, on October 12, 1999, the over-
allotment option on the convertible debt offering was exercised in full,
resulting in additional convertible debt of $15.0 million and net proceeds of
$14.6 million to the Company. The debentures have a maturity date of September
27, 2004 with semi-annual interest payments due on March 27 and September 27 of
each year beginning March 27, 2000. The debentures are convertible into shares
of the Company's common stock at an initial conversion price of $20 per share,
subject to adjustment under certain circumstances. On February 11, 2000, the
Company filed a registration statement with the Securities and Exchange
Commission covering the convertible subordinated debentures and the shares of
its common stock underlying the debentures. Once the registration statement is

                                     F-174
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

declared effective, the Company may redeem the debentures if the price of the
Company's common stock is above $34 per share for at least 20 trading days
during the 30-day trading period ending on the trading day before the Company
mails notice that the Company intends to redeem the debentures. If the Company
redeems the debentures, the Company must redeem at a price equal to 101.3125%
of the principal amount, pay any accrued but unpaid interest and make an
interest make-whole payment equal to the present value of the interest that
would have accrued from the redemption date through September 26, 2002.

      If the Company were to redeem the debentures on March 31, 2000, the
Company would be required to make an aggregate payment of $13.7 million,
excluding the semi-annual interest payment of $3.0 million the Company made on
March 27, 2000.

      In addition, the Company would write off the debt issuance costs carried
on the balance sheet as a loss on the date of redemption. This amount
approximated $3.7 million at December 31, 1999.

      In February, March and April 1998, Internet Capital Group lent an
aggregate of $1,550,000 to the Company, also at a rate of 9.5%. These amounts
were converted to Series D preferred stock in May 1998 (Note 12).

      In May 1998, the Company repaid their outstanding term note with the bank
and three unsecured term notes due to shareholders.

      On November 25, 1998, Internet Capital Group lent and certain holders of
the Series D preferred stock (the note holders) lent the Company $5.0 million
in the form of convertible notes. The note holders converted the $5.0 million
in convertible notes at the initial public offering into 1,250,000 shares of
common stock. In connection with the notes, the Company issued warrants to
purchase 328,204 shares of the Company's common stock with an estimated fair
value of $160,000 based on the Black-Scholes model at an exercise price of
$4.00 per share.

      The Company has several capital leases with various financial
institutions for computer and communications equipment used in operations with
lease terms ranging from three to five years. Additionally, the Company has an
insurance premium financing agreement for directors and officers liability
insurance. The interest rates under the leases and insurance premium financing
agreement range from 8% to 20%. At December 31, 1999 and 1998, the book value
of assets held under capital leases were approximately $2.8 million and
$518,000, respectively, and the aggregate remaining minimum lease and financing
agreement payments at December 31, 1999 were approximately $3.5 million
including interest of approximately $417,000.

      At December 31, 1999, long-term debt will mature as follows:

<TABLE>
      <S>                                                           <C>
      2000......................................................... $  1,372,255
      2001.........................................................    1,145,113
      2002.........................................................      588,952
      2003.........................................................        5,898
      2004.........................................................  115,006,760
      2005.........................................................        3,212
                                                                    ------------
        Total...................................................... $118,122,190
                                                                    ============
</TABLE>

                                     F-175
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)


(11) Commitments and Contingencies

      In January 1999, the Company entered into a one-year agreement with
Compaq Computer Corporation ("Compaq") and its Internet Web site known as
AltaVista. The agreement provides for the Company and AltaVista to sponsor and
promote 31 co-branded Web pages. The agreement requires the Company to pay
Compaq $1.0 million over the term of the agreement based on the number of
advertising impressions delivered. Such amount will be charged to expense as
AltaVista provides the advertising impressions. As of December 31, 1999, no
payments have been made to AltaVista. In addition, each company will provide
the other with $300,000 in barter advertising during the term of the agreement.
Both parties have satisfied their barter advertising obligation under this
agreement. In October 1999, the agreement with AltaVista was terminated and the
Company was relieved of further obligations.

      In August 1999, the Company entered into a one-year agreement with Lycos.
The agreement provides for the Company and Lycos to sponsor and promote co-
branded sites. The agreement requires the Company to pay Lycos $1.0 million
over the term of the agreement based on agreed upon dates and impressions
delivered. As of December 31, 1999, the Company has made a payment of $500,000
to Lycos. In addition, each company committed to provide the other with $1.0
million in barter advertising during the term of the agreement. With the
exception of approximately $17,000 in services due to Lycos, both parties have
satisfied their barter advertising obligation under this agreement as of
December 31, 1999. In January 2000, the contract was modified to increase the
barter advertising during the term of the agreement to $3.0 million.

      In November 1999, the Company entered into a marketing contract with
RealNames Corporation ("RealNames") which requires the Company to pay a $10
million platform license fee in equal quarterly payments over a two year
contact period. An additional fee of $.10 per visit is also required if
aggregate visits reach specified levels. In November 1999 RealNames also
entered into a two-year contract with the Company for $8 million in newsletter
advertising. RealNames will pay the contracted amount in equal monthly payments
over the contract life. For the year ended December 31, 1999, the Company
recognized $333,000 of revenue and $513,000 of expense related to the RealNames
contracts.

      The Company has entered into non-cancelable obligations with several
content service providers and Internet search engines. Under these agreements,
exclusive of the Lycos and RealNames agreements discussed above, the Company's
commitments are as follows:

<TABLE>
      <S>                                                               <C>
      2000............................................................. $560,500
      2001.............................................................  123,500
      2002.............................................................   50,000
</TABLE>

      In April 1999, the Company entered into a 10 year lease for its
headquarters commencing in July 1999. According to the terms of the lease
agreement, the Company is required to maintain certificates of deposit for an
agreed upon amount in an escrow account. The certificates of deposit with an
aggregate balance of $1,220,261 were issued in June 1999 and will mature in
five equal installments of $244,052 on August 1, 2000 and the four subsequent
years thereafter. The certificates of deposit are classified as a long-term
asset included in cash restricted on the accompanying consolidated balance
sheet.

                                     F-176
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)


      Future minimum lease payments as of December 31, 1999 for the Company's
facility leases are as follows:

<TABLE>
      <S>                                                             <C>
      2000........................................................... $2,700,000
      2001...........................................................  2,700,000
      2002...........................................................  2,300,000
      2003...........................................................  2,100,000
      2004...........................................................  2,100,000
      Thereafter.....................................................  4,300,000
</TABLE>

      Rent expense under noncancelable operating leases was approximately $1.3
million, $336,000 and $81,000, for the years ended December 31, 1999, 1998 and
1997, respectively.

      The Company is a party to various legal proceedings and claims, which
arise in the ordinary course of business. In the opinion of management, the
amount of any ultimate liability with respect to these actions will not
materially affect the financial position, results of operations or cash flows
of the Company.

(12) Capital Stock

      At December 31, 1999, the Company's restated Articles of Incorporation
provides the Company with the authority to issue 90,000,000 shares of common
stock and 10,000,000 shares of blank check preferred stock.

Preferred Stock

      In September 1996, the Company sold 512,821 shares of Series A preferred
stock (Series A) for $1.0 million. In July 1997, the Company sold 2,579,580
shares of Series B preferred stock (Series B) for $2.0 million. In October
1997, the Company sold 154,861 shares of Series C preferred stock (Series C)
for $200,000.

      On May 11, 1998 and June 10, 1998, the Company sold 3,988,604 and 569,801
shares of Series D preferred stock (Series D), respectively, for an aggregate
amount of approximately $15.2 million.

      Holders of preferred stock had the option to convert such shares into
shares of common stock on a 1:1 ratio, except for the Series A preferred stock
which converted on a ratio of 4.7619:1. Mandatory conversion occurred upon the
closing of the Company's IPO. The preferred stock voted on an as if converted
basis. The Series A, Series B and Series C, together had the right to elect two
directors of the Company and the Series D holders have the right to elect two
directors of the Company. The holders of preferred stock had no right to elect
or appoint directors after the shares convert into common stock upon the
closing of an IPO.

      Preferred stock consisted of the following at December 31, 1998:

<TABLE>
<CAPTION>
                                                                    December 31,
                                              Per share                 1998
                                             liquidation             Issued and
Preferred Class                                 value    Authorized Outstanding
---------------                              ----------- ---------- ------------
<S>                                          <C>         <C>        <C>
Series A....................................    $1.95      512,821     512,821
Series B....................................      .78    2,615,385   2,579,580
Series C....................................     1.31      205,128     154,861
Series D....................................     3.51    4,615,385   4,558,405
                                                         ---------   ---------
                                                         7,948,719   7,805,667
                                                         =========   =========
</TABLE>


                                     F-177
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

      On February 17, 1999, in connection with the closing of the Company's
IPO, all of the preferred stock converted into 38,939,384 shares of common
stock.

Warrants

      Outstanding warrants as of December 31, 1999 were:

<TABLE>
<CAPTION>
                                                Number of Exercise  Expiration
Date Granted                                    Warrants   Price       Date
------------                                    --------- -------- -------------
<S>                                             <C>       <C>      <C>
April 1997.....................................   15,480   $0.19      April 2007
November 1998..................................  364,672    0.88   November 2008
November 1998..................................  410,264    4.00   November 2008
</TABLE>

Stock Option Plans

      In December 1996, the Company's Board of Directors adopted the 1996
Equity Compensation Plan (the "Plan"). Employees, key advisors and non-employee
directors of the Company are eligible to receive awards under the Plan. As of
January 1999, a total of 14.4 million shares of common stock were reserved for
issuance under this Plan.

      In August 1999, the Company's Board of Directors adopted the 1999 Equity
Compensation Plan. A total of 1.2 million shares of common stock were reserved
for issuance to employees of the Company and its subsidiaries.

      In October 1999, the Company's Board of Directors adopted the Equity
Compensation Plan for Employees (1999). A total of 2.8 million shares of common
stock were reserved for issuance to employees of VerticalNet and its
subsidiaries. The plan was amended and restated in November 1999 to increase
the shares of common stock authorized for issuance to 5.8 million.

      The exercise price for the options is determined by the Board of
Directors, but shall not be less than 100% of the fair market value of the
common stock on the date the option is granted. Generally, the options vest
over a four-year period after the date of grant and expire ten years after the
date of grant. Option holders that terminate their employment with the Company
generally forfeit all non-vested options.

      The following table summarizes the activity for the Company's stock
option plans:

<TABLE>
<CAPTION>
                                                                Weighted average
                                                      Shares     exercise price
                                                    ----------  ----------------
<S>                                                 <C>         <C>
Outstanding at January 1, 1997.....................         --       $   --
Options granted....................................  2,220,852         0.16
Options cancelled..................................         --           --
                                                    ----------       ------
Outstanding at December 31, 1997...................  2,220,852         0.16
Options granted....................................  6,655,608         0.83
Options exercised..................................     (8,720)        0.05
Options cancelled..................................   (532,296)        0.53
                                                    ----------       ------
Outstanding at December 31, 1998...................  8,335,444         0.67
Options granted....................................  9,928,620        30.46
Options exercised.................................. (2,214,908)        0.63
Options cancelled..................................   (544,140)        4.35
                                                    ----------       ------
Outstanding at December 31, 1999................... 15,505,016       $19.58
                                                    ==========       ======
</TABLE>


                                     F-178
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

      The following table summarizes information about stock options
outstanding at December 31, 1999:

<TABLE>
<CAPTION>
                        Options Outstanding              Options Exercisable
                 -------------------------------------  -----------------------
                                Weighted
                                 Average     Weighted                 Weighted
   Range of        Number       Remaining    Average      Number      Average
   Exercise      Outstanding   Contractual   Exercise   Exercisable   Exercise
    Prices       at 12/31/99      Life        Price     at 12/31/99    Price
   --------      -----------   -----------   --------   -----------   --------
<S>              <C>           <C>           <C>        <C>           <C>
$ 0.07 -  0.08      248,460        7.3        $ 0.07        65,190     $ 0.07
$ 0.20 -  0.25    2,698,220        7.9        $ 0.20     1,488,542     $ 0.20
$ 0.66 -  0.83    2,376,604        8.5        $ 0.69       598,130     $ 0.68
$ 1.42 -  1.42       42,430        9.0        $ 1.42         3,302     $ 1.42
$ 4.00 -  4.00    1,272,602        9.0        $ 4.00       147,464     $ 4.00
$14.17 - 20.00    4,938,700        9.6        $18.18        15,000     $15.58
$22.38 - 25.88      900,600        9.7        $24.09            --         --
$34.57 - 48.00      189,800        9.9        $41.05        10,000     $47.32
$58.00 - 82.82    2,837,600       10.0        $62.33            --         --
                 ----------                              ---------     ------
                 15,505,016                              2,327,628     $ 0.87
                 ==========                              =========     ======
</TABLE>

      The Company applies APB No. 25 and related interpretations in accounting
for its stock option plan. Had compensation cost been recognized pursuant to
SFAS No. 123, the Company's net loss would have been increased to the pro
forma amounts indicated below:

<TABLE>
<CAPTION>
                                               Year Ended December 31,
                                        ---------------------------------------
                                            1999          1998         1997
                                        ------------  ------------  -----------
<S>                                     <C>           <C>           <C>
Net loss:
  As reported.......................... $(53,479,881) $(13,594,275) $(4,778,789)
  Pro forma............................ $(54,926,120) $(13,776,554) $(4,785,358)
Pro forma loss per share:
  As reported.......................... $      (0.86) $      (1.32) $     (0.47)
  Pro forma............................ $      (0.88) $      (1.34) $     (0.47)
</TABLE>

      The per share weighted-average fair value of options issued by the
Company during 1999, 1998 and 1997 was $30.46, $0.26 and $0.05, respectively.

      The following range of assumptions were used by the Company to determine
the fair value of stock options granted (the minimum value method was used for
1998 and 1997):

<TABLE>
<CAPTION>
                                                      1999       1998     1997
                                                   ----------- -------- --------
<S>                                                <C>         <C>      <C>
Dividend yield....................................          0%       0%       0%
Expected volatility...............................        100%       0%       0%
Average expected option life...................... 4.09 years  5 years  5 years
Risk-free interest rate...........................        5.7%     5.3%     5.9%
</TABLE>

Employee Stock Purchase Plan

      In January 1999, the Board adopted an Employee Stock Purchase Plan for
all employees meeting eligibility criteria. Under the Plan, eligible employees
may purchase shares of the Company's common stock,

                                     F-179
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

subject to certain limitations, at 85 percent of the market value. Purchases
are limited to 10 percent of an employee's eligible compensation, up to a
maximum of 4,000 shares per purchase period. At December 31, 1999 approximately
1,056,878 remain available under the Plan. During the year ended 1999, 143,122
shares were issued to or purchased on the open market for employees at the IPO
price of $4 per share since the plan was effective on the date of the IPO.
Subsequent plan periods are for six months, the first of which began on October
31, 1999.

(13) Defined Contribution Plan

      In 1997, the Company established a defined contribution plan for
qualified employees as defined under the plan. Participants may contribute 1%
to 15% of pre-tax compensation, as defined. Under the plan, the Company can
make discretionary contributions. To date, the Company has not made any
contributions to the plan.

(14) Income Taxes

      The components of the net deferred tax assets as of December 31, 1998 and
1999 consist of the following:

<TABLE>
<CAPTION>
                                                      December 31,  December 31,
                                                          1999          1998
                                                      ------------  ------------
<S>                                                   <C>           <C>
Deferred Tax Assets:
Net operating losses.................................  33,567,221     6,730,622
Reserves.............................................   1,245,503        27,398
Depreciation & amortization..........................     141,773        26,588
Deferred revenue and other...........................   4,284,956       881,682
                                                      -----------    ----------
                                                       39,239,453     7,666,290
Valuation allowance.................................. (39,239,453)   (7,666,290)
                                                      ===========    ==========
Net deferred tax asset...............................          --            --
                                                      ===========    ==========
</TABLE>

      Deferred income taxes reflect the net effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which temporary
differences representing net future deductible amounts become deductible. Due
to the uncertainty on the Company's ability to realize the benefit of the
deferred tax assets, the deferred tax assets are fully offset by a valuation
allowance at December 31, 1999 and 1998. The net change in the valuation
allowance for deferred tax assets at December 31, 1999 and 1998 was an increase
of $31.6 million and $5.6 million, respectively.

      As of December 31, 1999, the Company has approximately $76.0 million of
net operating loss carryforwards for federal income tax purposes. These
carryforwards will begin expiring in 2011 if not utilized. In addition, the
Company has net operating loss carryforwards of approximately $76.0 million in
certain states with various expiration periods beginning in 2002. The majority
of state net operating losses are subject to a $2.0 million annual limitation
and begin expiring in 2006.

                                     F-180
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)


      Under the Tax Reform Act of 1986, the utilization of a corporation's net
operating loss carryforward is limited following a greater than 50% change in
ownership within a three year period. Due to the Company's prior and current
equity transactions, a portion of the company's net operating loss
carryforwards are subject to an annual limitation. At December 31, 1999, the
Company had consolidated pre-limitation net operating loss carryforwards
available for future use of approximately $23.9 million. This amount is subject
to an annual limitation of approximately $20.9 million.

      Included in the pre-limitation net operating loss carryforwards are
losses that were generated by companies acquired in 1999. The losses generated
by acquired companies prior to their acquisition generally are available to
offset future taxable income of the acquiring company. However, upon the
acquisition of these companies in 1999, their net operating losses of
approximately $3.5 million became subject to an annual limitation of
approximately $1.0 million.

      Additionally, at December 31, 1999, approximately $14.0 million of the
net deferred tax asset will reduce equity and approximately $1.8 million of the
deferred tax asset will reduce goodwill to the extent such assets are reduced
and reduce future taxable income.

(15) Segment Information

      Based on the manner in which the Company is managed and its resources are
allocated by management, the Company operates in two segments which are
vertical trade communities and exchange operations. The vertical trade
communities operating segment includes all revenue generating activities
associated with the vertical sites, such as advertising, e-commerce, auctions
and education. Exchange operations include market making activities for
computer and electronic equipment resulting from the acquisition of NECX in mid
December 1999.

      The reporting segments follow the same accounting policies used for the
Company's consolidated financial statements and described in the summary of
significant accounting policies. Management primarily evaluates the segments'
performance based upon the operating income (loss) before interest,
amortization and other non-cash charges. The exchange segment performance is
additionally evaluated on gross profit margin of sales which in the table is
reflected as net revenues under the exchange segment.

<TABLE>
<CAPTION>
                                            Year Ended December 31, 1999
                                      -----------------------------------------
                                      Vertical Trade
                                       Communities     Exchange       Totals
                                      -------------- ------------  ------------
<S>                                   <C>            <C>           <C>
Exchange transactions sales.........   $         --  $ 16,500,781  $ 16,500,781
Cost of exchange transaction sales..             --    14,171,345    14,171,345
Net revenues........................     18,428,485     2,329,436    20,757,921
Operating income (loss) before
 interest, amortization and
 in-process research & development
 charge.............................    (33,518,667)      113,904   (33,404,763)
Interest and dividend income........      3,447,665           369     3,448,034
Interest expense....................     (2,103,801)                 (2,103,801)
Amortization expense................      6,814,547     1,004,804     7,819,351
In-process research & development
 charge.............................     13,600,000            --    13,600,000
Net loss............................    (52,589,350)     (890,531)  (53,479,881)
Capital expenditures................      5,052,066       351,130     5,403,196
Segment assets......................    161,889,953   179,014,539   340,904,492
Equity investments..................             --       542,610       542,610
</TABLE>

                                     F-181
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)


      Prior to the acquisition of NECX, the Company's operations were conducted
solely in the vertical trade communities segment. Accordingly, no segment
information has been presented for 1998 or 1997.

      Approximate exchange sales by country, denominated in U.S. dollars were
as follows, based on the location to which the products were shipped (in
thousands):

<TABLE>
<CAPTION>
                                                   Ended December 31, 1999
                                             -----------------------------------
                                                 Exchange             Net
                                             Transaction Sales Exchange Revenues
                                             ----------------- -----------------
<S>                                          <C>               <C>
United States...............................      $12,425           $1,770
Hong Kong...................................          768               43
Germany.....................................          523               94
Russia......................................          427               54
Singapore...................................          316                8
United Kingdom..............................          257               51
Sweden......................................          244               69
Canada......................................          193               32
Other.......................................        1,348              208
                                                  -------           ------
Total.......................................      $16,501           $2,329
                                                  =======           ======
</TABLE>

      The only significant foreign sales made by the Company other than the
exchange operations was approximately $581,000 to South Africa in relation to
the Metropolis agreement. This transaction related to the vertical trade
communities segment.

(16) Summarized Quarterly Data (Unaudited)

      Following is a summary of the quarterly results of operations for the
years ended December 31, 1999 and December 31, 1998:

<TABLE>
<CAPTION>
                                           Quarter Ended
                         -----------------------------------------------------
                                                    September
                          March 31,    June 30,        30,        December 31,
                         -----------  -----------  ------------   ------------
<S>                      <C>          <C>          <C>            <C>
1999
Combined net revenues... $ 1,933,779  $ 3,551,180  $  5,182,495   $ 10,090,467
Loss from operations....  (5,756,404)  (7,475,444)  (26,296,357)   (15,295,909)
Net loss................  (5,608,758)  (6,760,711)  (25,826,811)*  (15,283,601)
Net loss per share--
 basic and diluted......       (0.14)       (0.10)        (0.38)         (0.21)
1998
Combined net revenues... $   377,371  $   587,422  $    897,006   $  1,272,970
Loss from operations....  (2,008,935)  (2,885,803)   (3,454,845)    (5,159,421)
Net loss................  (2,084,869)  (2,871,512)   (3,378,036)    (5,259,858)
Net loss per share--
 basic and diluted......       (0.21)       (0.28)        (0.33)         (0.50)
</TABLE>
--------
*  Includes $13.6 million in-process research and development charge resulting
   from the Isadra acquisition.

                                     F-182
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)


(17) Subsequent Events (Unaudited)

      In January 2000, the Company announced plans to form a joint venture with
Softbank Commerce Corp. ("Softbank"), a wholly-owned subsidiary of Softbank
Corporation. The goal of the new company, to be called VerticalNet Japan, is to
develop, maintain and operate Japanese language vertical trade communities in
Japan.

      On January 17, 2000, the Company entered into a binding letter agreement
with Microsoft Corporation with respect to a strategic relationship. Under the
terms of the letter agreement, the Company agreed with Microsoft to a three-
year commercial relationship and an equity investment by Microsoft in
VerticalNet.

      On March 29, 2000, the Company entered into a definitive agreement with
Microsoft with respect to the commercial relationship. The commercial
relationship with Microsoft has a three-year term during which Microsoft will
purchase from the Company and then distribute to third party businesses at
least 80,000 of the Company's storefronts and e-commerce centers. The Company
will assist Microsoft in distributing 30,000 of these storefronts and e-
commerce centers. Microsoft will pay the Company a minimum of approximately
$161.9 million in the aggregate over the term for the storefronts and e-
commerce centers. Microsoft will provide the storefronts and e-commerce centers
it purchases from the Company to business customers for the 12 month
subscription period. For each customer, the Company will build the storefront
or e-commerce center on one of the Company's vertical trade communities. The
Company will pay Microsoft an aggregate of $60 million during the term for
advertising and promotional placements in The Microsoft Network and on
Microsoft's bCentral website and, if the pace of Microsoft's distribution of
storefronts and e-commerce centers does not meet agreed upon goals, additional
amounts for advertising and promotional placements not to exceed $15 million in
the aggregate.

      Microsoft will pay the Company an aggregate of $60 million during the
term for advertising and promotional placements in our vertical trade
communities. The Company will pay Microsoft an aggregate of $18.5 million over
the term to be directed toward the development and enhancement of products and
services relating to the business-to-business marketplace and database software
technology.

      The Company will use commercially reasonably efforts during the term to
adopt and use Microsoft products to operate the Company's vertical trade
communities when appropriate and feasible. The Company will pay Microsoft an
aggregate of $56.5 million over the term towards the licensing of Microsoft
products and provision of Microsoft services.

      In connection with the strategic relationship, and in accordance with the
letter agreement dated January 17, 2000, Microsoft will make an initial $100
million equity investment in VerticalNet through the purchase of shares of the
Company's Series A 6% convertible redeemable preferred stock, which would be
convertible into 1,151,080 shares of the Company's common stock. Microsoft will
be entitled to registration rights and will receive the right to nominate one
member of VerticalNet's board of directors. In addition, Microsoft will receive
warrants entitling Microsoft to purchase 1,500,000 shares of the Company's
common stock at an exercise price of $69.50 per share. The share numbers and
the exercise price mentioned in this paragraph (along with other information in
these notes) are adjusted to reflect the split of our common stock to be
effected on or about March 31, 2000. The Company expects that the equity
investment by Microsoft in the Company will close in late March or April of
2000.

      In February 2000, the Company announced the formation of VerticalNet
Europe, a joint venture with British Telecommunications, plc ("BT") and ICG.
The Company will be the majority shareholder in the joint

                                     F-183
<PAGE>

                               VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

venture which has been funded with $107 million in cash from the three
partners. The Company is contributing to the joint venture $7 million in cash
and intellectual property for the operations of vertical trade communities
within Europe. Additionally VerticalNet Europe and BT have agreed to create
VerticalNet UK Ltd. as part of the joint venture.

      In February 2000, the Company signed an agreement to acquire RW
Electronics for $10.0 million of cash and 720,642 shares of the Company common
stock. Based on the average closing price of the Company's common stock between
February 16, 2000 and the day immediately preceding the date that a
registration statement covering the common stock is declared effective by the
Securities and Exchange Commission, the Company may be required to issue up to
366,702 additional shares of its common stock. The Company also agreed to
assume indebtedness of RW Electronics, including a line of credit estimated as
of March 15, 2000 to be approximately $21.0 million. RW Electronics operates an
exchange in the electronic hardware market. The consummation of this
transaction is subject to certain closing conditions. The acquisition will be
accounted for as a purchase and the estimated excess of the purchase price over
the fair value of the net assets acquired will be allocated to strategic
relationships, including customer and vendor lists, assembled workforce and
goodwill.

      In March 2000, the Company acquired Tradeum, Inc. through a merger of
VERT Acquisition Corp., a wholly-owned subsidiary of the Company, with and into
Tradeum. In connection with the merger, the Company issued approximately 4.0
million shares of its common stock for all of the outstanding shares and
options in Tradeum. The merger will be accounted for as a purchase transaction.
Tradeum is a development-stage company located in San Francisco, California and
is engaged principally in the development of information technology designed to
enable the building and hosting of business-to-business exchanges, auctions and
sourcing activities.

      In March 2000, the Company announced the formation of
PaintandCoatings.com Inc., a joint venture with Eastman Chemical Company, to
transform the Company's Paint and Coatings vertical trade community into a one-
stop, independent Internet marketplace for the paint and coatings industry. The
Company will be the minority shareholder in the joint venture, which was funded
with $1.5 million from the two partners. In addition to the Company's $600,000
cash contribution, the Company will provide administrative and other support
services and will license intellectual property related to the maintenance and
operation of the Web site.

      To accommodate the Company's split of its common stock to be effected on
or about March 31, 2000, the Company filed, on March 29, 2000, an amendment to
its restated Articles of Incorporation to increase the number of shares of its
authorized common stock by 36,787,533 to 126,787,533 shares. The amendment was
filed to increase the number of authorized shares of common stock by the number
of outstanding shares of common stock as of March 17, 2000, the record date for
the Company's split of its common stock.

                                     F-184
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

               Pro Forma Condensed Combined Financial Statements
                             Basis of Presentation
                                  (Unaudited)

      During 1999 and 2000, Internet Capital Group, Inc. acquired significant
minority ownership interests in 38 partner companies accounted for under the
equity method of accounting. In February 2000, we agreed to acquire a
significant minority ownership interest in eCredit.com for total purchase
consideration of approximately $450 million in stock. In March 2000, we agreed
to acquire a majority ownership interest in RightWorks for approximately $635
million in stock and $22 million in cash. In addition, we deconsolidated
Breakaway Solutions, Inc. subsequent to September 30, 1999 due to the decrease
in our voting ownership percentage in the company from above to below 50%.

      The unaudited pro forma condensed combined statement of operations for
the year ended December 31, 1999 gives effect to the acquisition of a
significant minority ownership interest in eCredit.com, the acquisition of a
majority ownership interest in RightWorks, the 1999 and 2000 acquisitions of
significant minority ownership interests in 38 equity method partner companies,
and the acquisition of our ownership interest in Breakaway Solutions, Inc. as a
company accounted for under the equity method as if the transactions had
occurred on January 1, 1999. As VerticalNet, Inc. was deconsolidated in the
first quarter of 1999, no pro forma adjustments to the consolidated statement
of operations for the year ended December 31, 1999 are necessary to reflect its
deconsolidation.

      The unaudited pro forma condensed combined balance sheet as of December
31, 1999 gives effect to the acquisition of a significant minority ownership
interest in eCredit.com, the acquisition of a majority ownership interest in
RightWorks, and the acquisitions during the period from January 1, 2000 through
March 24, 2000 of significant minority ownership interests in 13 new and 13
existing equity method partner companies as if the transactions had occurred on
December 31, 1999.

      The unaudited pro forma condensed combined financial statements have been
prepared by the management of Internet Capital Group, Inc. and should be read
in conjunction with our historical consolidated financial statements contained
elsewhere herein, and the historical consolidated financial statements of
eCredit.com and RightWorks which are included elsewhere herein. Since the
unaudited pro forma financial statements which follow are based upon the
financial condition and operating results of eCredit.com, RightWorks and the
equity method partner companies acquired during periods when they were not
under the control or management of Internet Capital Group, Inc., the
information presented may not be indicative of the results which would have
actually been obtained had the acquisitions been completed on the pro forma
dates reflected nor are they indicative of future financial or operating
results. The unaudited pro forma financial information does not give effect to
any synergies that may occur due to the integration of Internet Capital Group,
Inc. with eCredit.com, RightWorks, and the other equity method partner
companies.

      The effects of the acquisitions have been presented using the purchase
method of accounting and accordingly, the purchase price was allocated to the
assets and liabilities assumed based upon management's best preliminary
estimate of fair value with any excess purchase price being allocated to
goodwill, other identifiable intangibles and in-process research and
development costs (if any). We have not determined the amount of any in-process
research and development costs associated with the eCredit.com and RightWorks
acquisitions. The preliminary allocation of the purchase price will be subject
to further adjustments as we finalize our allocation of purchase price in
accordance with generally accepted accounting principles.

                                       28
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

     Unaudited Pro Forma Condensed Combined Balance Sheet December 31, 1999

                                 (In thousands)

<TABLE>
<CAPTION>
                          Internet
                          Capital
                           Group,    Pro Forma        Sub-    eCredit.com  RightWorks   Pro Forma
                            Inc.    Adjustments      Total    Acquisition  Acquisition   Combined
                         ---------- -----------    ---------- -----------  -----------  ----------
<S>                      <C>        <C>            <C>        <C>          <C>          <C>
Assets
Current Assets
 Cash and cash
  equivalents........... $1,343,459  $(376,891) c  $  966,568        --     $(10,078)b  $  956,490
 Short-term
  investments...........      3,359         --          3,359        --           --         3,359
 Accounts receivable,
  less allowance for
  doubtful accounts.....      1,207         --          1,207        --        3,163 b       4,370
 Prepaid expenses and
  other current assets..      6,347         --          6,347        --          129 b       6,476
                         ----------  ---------     ----------  --------     --------    ----------
 Total current assets...  1,354,372   (376,891)       977,481        --       (6,786)      970,695
 Fixed assets, net......      4,015                     4,015        --          413 b       4,428
 Ownership interests in
  and advances to
  Partner Companies.....    547,339    403,488 c,d    950,827  $450,000 a         --     1,400,827
 Available-for-sale
  securities............     46,767         --         46,767        --           --        46,767
 Intangible assets,
  net...................     23,649         --         23,649        --      881,780 b     905,429
 Deferred taxes.........     34,388         --         34,388        --           --        34,388
 Other..................     39,854         --         39,854        --           --        39,854
                         ----------  ---------     ----------  --------     --------    ----------
Total Assets............ $2,050,384  $  26,597     $2,076,981  $450,000     $875,407    $3,402,388
                         ==========  =========     ==========  ========     ========    ==========
Liabilities and
 Shareholders' Equity
Current Liabilities
 Current maturities of
  long-term debt........ $    3,000         --     $    3,000        --           --    $    3,000
 Accounts payable.......      6,750         --          6,750        --     $  3,959 b      10,709
 Accrued expenses.......      4,205         --          4,205        --           --         4,205
 Notes payable to
  Partner Company.......     34,134         --         34,134        --           --        34,134
 Other..................        903         --            903        --           --           903
                         ----------  ---------     ----------  --------     --------    ----------
 Total current
  liabilities...........     48,992         --         48,992        --        3,959        52,951
 Long-term debt.........      3,185         --          3,185        --        2,456 b       5,641
 Subordinated debt......    566,250         --        566,250        --           --       566,250
 Other liability........      4,255         --          4,255        --           --         4,255
 Deferred taxes.........         --         --             --        --      229,950 b     229,950
 Minority interest......      7,481         --          7,481        --        4,042 b      11,523
Shareholders' Equity
 Total shareholders'
  equity................  1,420,221  $  26,597 d    1,446,818  $450,000 a    635,000 b   2,531,818
                         ----------  ---------     ----------  --------     --------    ----------
Total Liabilities and
 Shareholders' Equity... $2,050,384  $  26,597     $2,076,981  $450,000     $875,407    $3,402,388
                         ==========  =========     ==========  ========     ========    ==========
</TABLE>


    See notes to unaudited pro forma condensed combined financial statements

                                       29
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

  Unaudited Pro Forma Condensed Combined Statement of Operations for the Year
                            Ended December 31, 1999

                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                          Internet
                          Capital
                           Group,      Breakaway     Pro Forma                eCredit.com RightWorks   Pro Forma
                            Inc.    Deconsolidation Adjustments    Sub-Total  Acquisition Acquisition  Combined
                          --------  --------------- -----------    ---------  ----------- -----------  ---------
<S>                       <C>       <C>             <C>            <C>        <C>         <C>          <C>
Revenue                   $ 16,536     $(14,743)     $   7,941 f   $   9,734          --   $   2,152 h $  11,886
                          --------     --------      ---------     ---------   ---------   ---------   ---------
Operating Expenses
 Cost of revenue........     8,156       (7,038)            --         1,118          --         430 h     1,548
 Selling, general and
  administrative........    48,924      (14,722)         6,234 f,j    40,436          --     305,100 h   345,536
                          --------     --------      ---------     ---------   ---------   ---------   ---------
 Total operating
  expenses..............    57,080      (21,760)         6,234        41,554          --     305,530     347,084
                          --------     --------      ---------     ---------   ---------   ---------   ---------
                           (40,544)       7,017          1,707       (31,820)         --    (303,378)   (335,198)
Other income, net.......    67,384          (28)           329 f      67,685          --          70 h    67,755
Interest income.........     9,631          (59)            --         9,572          --          --       9,572
Interest expense........    (3,897)          54             --        (3,843)         --          --      (3,843)
                          --------     --------      ---------     ---------   ---------   ---------   ---------
Income (Loss) Before
 Income Taxes, Minority
 Interest and Equity
 Income (Loss)..........    32,574        6,984          2,036        41,594          --    (303,308)h  (261,714)
Income taxes............    23,722           --         93,550 i     117,272   $  54,352     102,900 h   274,524
Minority interest.......     6,026           --         (3,993)f,j     2,033          --       4,189 h     6,222
Equity income (loss)....   (92,099)          --       (269,547)g,j  (361,646)   (155,292)         --    (516,938)
                          --------     --------      ---------     ---------   ---------   ---------   ---------
Net Income (Loss).......  $(29,777)    $  6,984      $(177,954)    $(200,747)  $(100,940)  $(196,219)  $(497,906)
                          ========     ========      =========     =========   =========   =========   =========
Net Income (Loss) per
 Share
 Basic..................  $  (0.15)                                                                    $   (2.34)
 Diluted................  $  (0.15)                                                                    $   (2.34)
Weighted Average Shares
 Outstanding
 Basic..................   201,851                                                                       213,199 k
 Diluted................   201,851                                                                       213,199 k
</TABLE>


   See notes to unaudited pro forma condensed combined financial statements.

                                       30
<PAGE>

                          INTERNET CAPITAL GROUP, INC.

           Notes to Pro Forma Condensed Combined Financial Statements
                                  (Unaudited)

1 . Basis of Presentation

      The unaudited pro forma condensed combined balance sheet as of December
31, 1999 gives effect to the acquisition of a significant minority ownership
interest in eCredit.com, the acquisition of a majority ownership interest in
RightWorks, and the acquisition of significant minority ownership interests in
13 new and 13 existing equity method partner companies as if the transactions
had occurred on December 31, 1999.

      The unaudited pro forma condensed combined statement of operations for
the year ended December 31, 1999 gives effect to the acquisition of a
significant minority ownership interest in eCredit.com, the acquisition of a
majority ownership interest in RightWorks, the deconsolidation of Breakaway
Solutions, Inc., the 1999 and 2000 acquisitions of significant minority
ownership interests in 38 equity method partner companies and the acquisition
of our ownership interest in Breakaway Solutions, Inc. as a company accounted
for under the equity method, as if the transactions had occurred on January 1,
1999.

      The effects of the acquisitions have been presented using the purchase
method of accounting and accordingly, the aggregate purchase price of these
acquisitions was allocated to the assets and liabilities assumed based upon
management's best preliminary estimate of fair value with any excess purchase
price being allocated to goodwill, other identifiable intangibles and in-
process research and development (if any). We have not determined the amount of
any in-process research and development costs associated with the eCredit.com
and RightWorks' acquisitions. The preliminary allocation of the purchase price
will be subject to further adjustments as we finalize our allocations of
purchase price in accordance with generally accepted accounting principles.

2. Pro Forma Balance Sheet Adjustments

      The pro forma balance sheet adjustments as of December 31, 1999 reflect:

    (a) The acquisition of a significant minority ownership interest in
        eCredit.com for approximately $450 million in our common stock.

    (b) The acquisition of a majority ownership interest in RightWorks for
        approximately $635 million in our common stock and $22 million in
        cash. The total RightWorks purchase price of approximately $657
        million was allocated as follows: cash -- $11.9 million, net
        receivables -- $3.2 million, fixed and other assets -- $0.6 million,
        accounts payable and accruals -- $4.0 million, long-term debt --
        $2.5 million, minority interest -- $4.0 million, $230.0 million
        deferred tax liability and goodwill and intangibles -- $881.8
        million.

    (c) The acquisition during the period from January 1, 2000 through March
        24, 2000 of new and additional significant minority ownership
        interests in equity method partner companies for aggregate cash
        consideration of $377 million.

    (d) The acquisition in January 2000 of a new significant minority
        ownership interest in an equity method partner company for
        approximately $26.6 million in our common stock.

                                       31
<PAGE>

                         INTERNET CAPITAL GROUP, INC.

    Notes to Pro Forma Condensed Combined Financial Statements--(Continued)
                                  (Unaudited)

3. Pro Forma Statement of Operations Adjustments

     The pro forma statement of operations adjustments for the year ended
December 31, 1999 consist of:

    (e) Equity income (loss) has been adjusted to reflect our acquisition of
        a significant minority ownership interest in eCredit.com and the
        related interest in the income (loss) and amortization of the
        difference in our carrying value and ownership interest in the
        underlying net equity of eCredit.com over an estimated useful life of
        three years. For the year ended December 31, 1999, equity income
        (loss) of $155.3 million includes $5.3 million of equity income
        (loss), and $150 million in amortization of the difference between
        cost and equity in net assets. For the year ended December 31, 1999,
        income tax benefit has been adjusted $54.3 million to reflect the tax
        effect of the eCredit.com pro forma adjustments.

    (f) Reflects additional revenue of $7.9 million, general and
        administrative expenses of $8.4 million, other income of $0.3
        million, and minority interest of $0.5 million related to the
        acquisitions of Animated Images, Purchasing Group, Inc. and
        Integrated Sourcing, LLC. Included in general and administrative
        expenses is approximately $2.4 million of goodwill amortization
        during the year ended December 31, 1999, relating to these
        acquisitions.

    (g) Equity income (loss) has been adjusted by $267.3 million to reflect
        our ownership interests in the income (loss) of the 38 equity method
        partner company acquisitions in 1999 and 2000 and the amortization of
        the difference in our carrying value in the partner companies and our
        ownership interest in the underlying net equity of the partner
        companies over an estimated useful life of three years. For the year
        ended December 31, 1999, equity income (loss) includes $25.5 million
        of equity income (loss) and $241.7 million in amortization of the
        difference between cost and equity in net assets.

    (h) Reflects additional revenue of $2.2 million, cost of revenue of $0.4
        million, general and administrative expenses of $305.1 million, other
        income of approximately $.1 million, income tax benefit of $102.9
        million related to the amortization of goodwill, and minority
        interest of $4.2 million related to the acquisition of a majority
        interest in RightWorks. Included in general and administrative
        expenses is approximately $294 million of goodwill amortization
        during the year ended December 31, 1999, relating to this
        acquisition.

    (i) Income tax benefit has been adjusted $93.6 million for the year ended
        December 31, 1999 to reflect the tax effect of the pro forma
        adjustments.

    (j) Reflects elimination of $3.4 million for the year ended December 31,
        1999 related to Breakaway Solutions, Inc. upon its deconsolidation,
        and the reclass of $2.2 million of amortization of goodwill related
        to our acquisition of Breakaway Solutions, Inc. from selling, general
        and administrative expense to equity income (loss) upon its
        deconsolidation.

    (k) Reflects the issuance of 150,000 shares related to the acquisition of
        e-Chemicals, Inc. in January 2000, and the issuance of 6.5 million
        shares related to the RightWorks acquisition and 4.7 million shares
        related to the eCredit.com acquisition as if the issuances occurred
        on January 1, 1999.

                                      32
<PAGE>

                                    PART II.

              INFORMATION REQUIRED IN THE REGISTRATION STATEMENT.

Item 3. Incorporation of Documents by Reference

      The following documents, which we have filed with the SEC, are
incorporated by reference into this registration statement:

          (a) The prospectus we filed with the SEC on December 16, 1999
    pursuant to Rule 424(b) under the Securities Act;

          (b) Our annual report on Form 10-K for the year ended December 31,
    1999;

          (c) All other reports filed with the SEC pursuant to Section 13(a)
    or 15(d) of the Securities Exchange Act of 1934 since December 31, 1999;
    and

          (d) The description of our Common Stock contained in our
    registration statement on Form 8-A (SEC File No. 222-26929), filed
    August 4, 1999, which incorporates by reference the section entitled
    "Description of Capital Stock" in our registration statement on Form S-1
    (SEC File No. 333-78193), filed May 11, 1999, as amended, and including
    any amendment or report filed for the purpose of updating such
    description.

      In addition, all documents that we subsequently file with the SEC
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act
of 1934 prior to the filing with the SEC of a post-effective amendment to this
registration statement that (1) indicates that all shares of Common Stock
registered on this registration statement have been sold or (2) effects the
deregistration of the balance of such shares then remaining unsold shall be
deemed to be incorporated in this registration statement by reference and to be
a part of this registration statement from the date of filing of such
documents.

Item 4. Description of Securities.

      Not applicable.

Item 5. Interests of Named Experts and Counsel.

      Dechert Price & Rhoads, Internet Capital Group's counsel, beneficially
owns 41,666 shares of our common stock and warrants exercisable at $6.00 per
share to purchase 8,333 shares of our common stock. Members of and attorneys
associated with Dechert Price & Rhoads beneficially own an aggregate of 12,554
shares of our common stock and warrants exercisable at $6.00 per share to
purchase 1,111 shares of our common stock.

Item 6. Indemnification of Directors and Officers.

      Under Section 145 of the General Corporation Law of the State of
Delaware, Internet Capital Group has broad powers to indemnify its directors
and officers against liabilities they may incur in such capacities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). Internet Capital Group's bylaws also provide for mandatory
indemnification of its directors and executive officers, and permissive
indemnification of its employees and agents, to the fullest extent permissible
under Delaware law.

      Internet Capital Group's certificate of incorporation provides that the
liability of its directors for monetary damages shall be eliminated to the
fullest extent permissible under Delaware law. Pursuant to Delaware law, this
includes elimination of liability for monetary damages for breach of the
directors' fiduciary

                                      II-1
<PAGE>

duty of care to Internet Capital Group and its shareholders. These provisions
do not eliminate the directors' duty of care and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available under Delaware law. In addition, each director will
continue to be subject to liability for breach of the director's duty of
loyalty to Internet Capital Group, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision also does not affect a
director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.

      Prior to the effective date of the Registration Statement, Internet
Capital Group entered into agreements with its directors and certain of its
executive officers that require Internet Capital Group to indemnify such
persons against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred (including expenses of a derivative action) in
connection with any proceeding, whether actual or threatened, to which any such
person may be made a party by reason of the fact that such person is or was a
director or officer of Internet Capital Group or any of its affiliated
enterprises, provided such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of
Internet Capital Group and, with respect to any criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The
indemnification agreements also set forth certain procedures that will apply in
the event of a claim for indemnification thereunder.

      Internet Capital Group has obtained a policy of directors' and officers'
liability insurance that insures the Company's directors and officers against
the cost of defense, settlement or payment of a judgment under certain
circumstances.

Item 7. Exemption From Registration Claimed.

      The sale and issuance of restricted securities registered for resale
hereunder were exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act as transactions by an issuer not involving a
public offering, where the purchasers were sophisticated investors who
represented their intention to acquire securities for investment only and not
with a view to distribution and received or had access to adequate information
about the Registrant and in reliance on rule 701 promulgated under the
Securities Act.

      Appropriate restrictive legends were affixed to the stock certificates
issued in the above transactions. Similar legends were imposed in connection
with any subsequent sales of any such securities. No underwriters were employed
in any of the above transactions.

                                      II-2
<PAGE>

Item 8. Exhibits

<TABLE>
<CAPTION>
 Exhibit
 Number  Description
 ------- -----------
 <C>     <S>
  4.1    Restated Certificate of Incorporation of the Registrant (incorporated
         by reference to Exhibit 3.1 to the Registrant's Registration Statement
         on Form S-1 (Reg. No. 333-78193). (the "Registration Statement")

  4.2    Amended and Restated Bylaws of the Registrant (incorporated reference
         to Exhibit 3.2 to the Registration Statement)

  5      Opinion of Dechert Price & Rhoads

 23.1    Consent of KPMG LLP regarding Internet Capital Group, Inc.

 23.2    Consent of Ernst & Young LLP regarding eCredit.com, Inc.
 23.3    Consent of PricewaterhouseCoopers LLP regarding eCredit.com, Inc.
 23.4    Consent of KPMG LLP regarding eMerge Interactive, Inc.
 23.5    Consent of Ernst & Young LLP regarding JusticeLink, Inc. (formerly
         LawPlus, Inc.)
 23.6    Consent of Arthur Andersen LLP regarding MetalSite as a Component of
         Weirton Steel Corporation
 23.7    Consent of Arthur Andersen LLP regarding MetalSite General Partner,
         LLC
 23.8    Consent of Arthur Andersen LLP regarding RightWorks
 23.9    Consent of PricewaterhouseCoopers LLP regarding Syncra Software, Inc.
 23.10   Consent of Arthur Andersen LLP regarding USgift.com Corporation
 23.11   Consent of KPMG LLP regarding VerticalNet, Inc.
 23.12   Consent of Dechert Price & Rhoads (included in Exhibit 5)
</TABLE>

                                      II-3
<PAGE>

Item 9. Undertakings.

      (a) The undersigned registrant hereby undertakes:

                  (1) To file, during any period in which offers or sales are
            being made, a post-effective amendment to this registration
            statement:

                        (i) To include any prospectus required by section
                  10(a)(3) of the Securities Act of 1933;

                        (ii) To reflect in the prospectus any facts or events
                  arising after the effective date of the registration
                  statement (or the most recent post-effective amendment
                  thereof), which, individually or in the aggregate, represent
                  a fundamental change in the information set forth in the
                  registration statement. Notwithstanding the foregoing, any
                  increase or decrease in volume of securities offered (if the
                  total dollar value of securities offered would not exceed
                  that which was registered) and any deviation from the low or
                  high end of the estimated maximum offering range may be
                  reflected in the form of prospectus filed with the SEC
                  pursuant to Rule 424(b) if, in the aggregate, the changes in
                  volume and price represent no more than a 20% change in the
                  maximum aggregate offering price set forth in the
                  "Calculation of Registration Fee" table in the effective
                  registration statement;

                        (iii) To include any material information with respect
                  to the plan of distribution not previously disclosed in the
                  registration statement or any material change to such
                  information in the registration statement;

                        Provided, however, that paragraphs (a)(1)(i) and
                  (a)(1)(ii) above do not apply if the information required to
                  be included in a post-effective amendment by those
                  paragraphs is contained in periodic reports filed with or
                  furnished to the SEC by the registrant pursuant to Section
                  13 or Section 15(d) of the Securities Exchange Act of 1934
                  that are incorporated by reference in this registration
                  statement.

                  (2) That, for the purpose of determining any liability under
            the Securities Act, each such post-effective amendment shall be
            deemed to be a new registration statement relating to the
            securities offered therein, and the offering of such securities at
            that time shall be deemed to be the initial bona fide offering
            thereof.

                  (3) To remove from registration by means of a post-effective
            amendment any of the securities being registered which remain
            unsold at the termination of the offering.

      (b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

      (c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the

                                      II-4
<PAGE>

successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.

           [The remainder of this page is left blank intentionally.]

                                      II-5
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on
this 13th day of April, 2000.

                                          Internet Capital Group, Inc.

                                                   Walter W. Buckley, III
                                          By: _________________________________
                                                   Walter W. Buckley, III
                                               President and Chief Executive
                                                          Officer

                               POWER OF ATTORNEY

      KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Walter W. Buckley, III and David D.
Gathman and each of them, individually, his attorneys-in-fact, with full power
of substitution and resubstitution, for him in any and all capacities, to sign
any or all amendments or post-effective amendments to this registration
statement and to file the same with the Securities and Exchange Commission,
granting unto each of such attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that each such attorney-in-fact, or his agent or substitutes, may do or
cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
        Walter W. Buckley, III         President, Chief Executive   April 13, 2000
______________________________________  Officer, and Director
        Walter W. Buckley, III          (principal executive
                                        officer)

           David D. Gathman            Chief Financial Officer      April 13, 2000
______________________________________  and Treasurer (principal
           David D. Gathman             financial and accounting
                                        officer)

          Julian A. Brodsky            Director                     April 13, 2000
______________________________________
          Julian A. Brodsky

            Kenneth A. Fox             Director                     April 13, 2000
______________________________________
            Kenneth A. Fox

        Dr. Thomas P. Gerrity          Director                     April 13, 2000
______________________________________
        Dr. Thomas P. Gerrity
</TABLE>

                                      II-6
<PAGE>

<TABLE>
<CAPTION>
              Signature                          Title                   Date
              ---------                          -----                   ----

<S>                                    <C>                        <C>
         Warren V. Musser              Director                     April 13, 2000
______________________________________
           Warren V. Musser

         Peter A. Solvik               Director                     April 13, 2000
______________________________________
           Peter A. Solvik
</TABLE>

                                      II-7
<PAGE>

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit
 Number  Document
 ------- --------
 <C>     <S>
  4.1    Restated Certificate of Incorporation of the Registrant (incorporated
         by reference to Exhibit 3.1 to the Registrant's Registration Statement
         on Form S-1 (Reg. No. 333-78193). (the "Registration Statement")

  4.2    Amended and Restated Bylaws of the Registrant (incorporated reference
         to Exhibit 3.2 to the Registration Statement)

  5      Opinion of Dechert Price & Rhoads

 23.1    Consent of KPMG LLP regarding Internet Capital Group, Inc.
 23.2    Consent of Ernst & Young LLP regarding eCredit.com, Inc.
 23.3    Consent of PricewaterhouseCoopers LLP regarding eCredit.com, Inc.
 23.4    Consent of KPMG LLP regarding eMerge Interactive, Inc.
 23.5    Consent of Ernst & Young LLP regarding JusticeLink, Inc.
 23.6    Consent of Arthur Andersen LLP regarding MetalSite as a Component of
         Weirton Steel Corporation
 23.7    Consent of Arthur Andersen LLP regarding MetalSite General Partner,
         LLC
 23.8    Consent of Arthur Andersen LLP regarding RightWorks Corporation
 23.9    Consent of PricewaterhouseCoopers LLP regarding Syncra Software, Inc.
 23.10   Consent of Arthur Andersen LLP regarding USgift.com
 23.11   Consent of KPMG LLP regarding VerticalNet, Inc.
 23.12   Consent of Dechert Price & Rhoads (included in Exhibit 5)
</TABLE>
[{"type": "S-8", "sequence": "1", "description": "INTERNET CAPITAL GROUP, INC FORM S-8", "secsgml_size_bytes": 794317}]
{"company-data": {"conformed-name": "INTERNET CAPITAL GROUP INC", "cik": "0001085621", "assigned-sic": "7389", "irs-number": "232996071", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-8", "act": "33", "file-number": "333-34736", "film-number": "600632"}, "business-address": {"street1": "800 SAFEGUARD BUILDING", "street2": "435 DEVON PARK DRIVE", "city": "WAYNE", "state": "PA", "zip": "19087", "phone": "6109890111"}, "mail-address": {"street1": "800 SAGEGUARD BUILDING", "street2": "435 DEVON PARK DRIVE", "city": "WAYNE", "state": "PA", "zip": "19087"}}
As filed with the Securities and Exchange Commission on April 13, 2000
                                                        Registration No. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                ---------------

                                    FORM S-8

                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

                                ---------------

                          INTERNET CAPITAL GROUP, INC.
             (Exact name of registrant as specified in its charter)

          Delaware                   7389                   23-2996071
      (State or other          (Primary Standard         (I.R.S. Employer
      jurisdiction of             Industrial          Identification Number)
      incorporation or      Classified Code Number)
        organization)
                                ---------------
                             435 Devon Park Drive
                                 Building 600
                              Wayne, Pennsylvania
                                     19087
                             (Address of principal
                              executive offices)
                                  (Zip Code)

                                ---------------

                          INTERNET CAPITAL GROUP, INC.
                         1999 EQUITY COMPENSATION PLAN
                        MEMBERSHIP PROFIT INTEREST PLAN
                           (Full Title of the Plans)

                             Henry N. Nassau, Esq.
                Managing Director, General Counsel and Secretary
                          Internet Capital Group, Inc.
                              435 Devon Park Drive
                                  Building 600
                           Wayne, Pennsylvania 19087
                                 (610) 989-0111
 (Name, address including zip code, and telephone number, including area code,
                             of agent for service)

                                ---------------

                                 With copy to:
                          Christopher G. Karras, Esq.
                             Dechert Price & Rhoads
                            4000 Bell Atlantic Tower
                                1717 Arch Street
                        Philadelphia, Pennsylvania 19103

                                ---------------

                        CALCULATION OF REGISTRATION FEE

----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Proposed        Proposed
 Title of securities to                       maximum          maximum       Amount of
           be              Amount to be    offering price     aggregate     registration
       registered          registered(1)    per share(1)  offering price(1)     fee
----------------------------------------------------------------------------------------
Common Stock, par value
 $.001 per share.......  49,549,199 shares     $52.82      $2,617,188,691     $690,938
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
(1) Estimated solely for purposes of determining the registration fee in
    accordance with Rule 457(h) and Rule 457(c) promulgated under the
    Securities Act of 1933 on the basis of $52.82 per share, the average of the
    high ($58.63) and low ($47.00) prices of the Common Stock as reported on
    the Nasdaq National Market for April 12, 2000.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART I.

              INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS

      Information required by Part I of Form S-8 to be contained in a
prospectus meeting the requirements of Section 10(a) of the Securities Act of
1933, as amended, is not required to be filed with the Securities and Exchange
Commission and is omitted from this registration statement in accordance with
the explanatory note to Part I of Form S-8 and Rule 428 under the Securities
Act.

      The following reoffer prospectus filed as part of this registration
statement has been prepared in accordance with General Instruction C of Form S-
8 and, pursuant thereto, may be used for reofferings and resales of the shares
of Common Stock registered hereby.

                                       i
REOFFER PROSPECTUS

                                                                  April 13, 2000

                               28,375,500 Shares

                          Internet Capital Group, Inc.

                                  Common Stock

                                ---------------

      Employees, directors and certain consultants who have exercised options
to purchase shares of our Common Stock under our 1999 Equity Compensation Plan
may sell up to 28,375,500 shares of our Common Stock. We will not receive any
proceeds from any sale of shares offered by this prospectus.

      The shares offered by this prospectus could be sold in several ways,
including in transactions on the Nasdaq National Market, or otherwise, at
prevailing market prices at the time of sale, or in privately negotiated
transactions at prices agreed upon by the parties.

      Our Common Stock is quoted on the Nasdaq National Market under the symbol
"ICGE."

      Our principal executive office is located at 435 Devon Park Drive,
Building 600, Wayne, Pennsylvania 19087, and our telephone number is (610) 989-
0111.

      Investing in our Common Stock involves risks. See "Risk Factors" starting
on page 2.

      Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
TABLE OF CONTENTS
Risk Factors................................................................   2
Internet Capital Group, Inc.................................................  16
Use of Proceeds.............................................................  16
Selling Stockholders........................................................  16
Plan of Distribution........................................................  19
Where You Can Find More Information--
Incorporation of Documents By Reference.....................................  19
Special Note on Forward-Looking Statements..................................  21
Interests of Named Experts and Counsel......................................  21
Experts.....................................................................  21
1
RISK FACTORS

      Investing in our common stock will provide you with an equity ownership
interest in Internet Capital Group. As one of our shareholders, your investment
will be subject to risks inherent in our business. The price of our Common
Stock may decline. You should carefully consider the following factors as well
as other information contained in this Prospectus before deciding to invest in
shares of our Common Stock.

RISKS PARTICULAR TO INTERNET CAPITAL GROUP

Limited Operating History--We have a limited operating history upon which you
may evaluate us.

      We were formed in March 1996. Although we have grown significantly since
then, we have a limited operating history upon which you may evaluate our
business and prospects. We and our partner companies are among the many
companies that have entered into the emerging business-to-business, or B2B, e-
commerce market. Many of our partner companies are in the early stages of their
development. Our business and prospects must be considered in light of the
risk, expense and difficulties frequently encountered by companies in early
stages of development, particularly companies in new and rapidly evolving
markets such as B2B e-commerce. If we are unable to effectively allocate our
resources and help grow existing partner companies, our stock price may be
adversely affected and we may be unable to execute our strategy of developing a
collaborative network of partner companies.

Dependence on Partner Companies--Our business depends upon the performance of
our partner companies, which is uncertain.

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

     .  fluctuations in the market price of the common stock of
        VerticalNet, Breakaway Solutions, eMerge Interactive, ONVIA.com
        and Universal Access, five of our publicly traded partner
        companies, and other future publicly traded partner companies,
        which are likely to affect the price of our Common Stock;

     .  lack of the widespread commercial use of the Internet, which may
        prevent our partner companies from succeeding; and

     .  intensifying competition for the products and services our partner
        companies offer, which could lead to the failure of some of our
        partner companies.

      Of our $2,050.4 million in total assets as of December 31, 1999, $547.3
million, or 26.7%, consisted of ownership interests in and advances to our
partner companies. On a pro forma basis, adjusted for our acquisitions
subsequent to December 31, 1999 as if they had occurred on December 31, 1999,
our assets on December 31, 1999 were $3,402.3 million, of which $1,400.8
million, or 41.2%, consisted of ownership interests in and advances to our
partner companies. The carrying value of our partner company ownership
interests includes our original acquisition cost, the effect of accounting for
certain of our partner companies under the equity method of accounting, the
effect of adjustments to our carrying value resulting from certain issuances of
equity securities by our partner companies and the effect of impairment charges
recorded for the decrease in value of certain partner companies. The carrying
value of our partner companies will be impaired and decrease if one or more of
our partner companies do not succeed. The carrying value of our partner
companies is not marked to market; therefore a decline in the market value of
one of our publicly traded partner companies may impact our financial position
by not more than the carrying value of the partner company. However, this
decline would likely affect the price of our Common Stock. For example,
VerticalNet, Breakaway Solutions, eMerge Interactive, ONVIA.com and Universal
Access are five of our publicly traded

                                       2
partner companies and on March 24, 2000 our holdings in VerticalNet, Breakaway
Solutions, Universal Access, ONVIA.com and eMerge Interactive had respective
market values of approximately $2.3 billion, $818 million, $1.2 billion, $536
million and $381 million. A decline in the market value of VerticalNet,
Breakaway Solutions, Universal Access, ONVIA.com and eMerge Interactive will
likely cause a decline in the price of our Common Stock. On April 10, 2000, our
ownership in VerticalNet, Breakaway Solutions, ONVIA.com, eMerge Interactive,
and Universal Access had respective market values of approximately $1.3
billion, $556 million, $266 million, $154 million, and $713 million,
respectively.

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

Unproven Business Model--Our business model is unproven, which could limit our
ability to attract new companies and could adversely affect our business
strategy.

      Our strategy is based on an unproven business model. Our business model
depends on the willingness of companies to join our collaborative network and
the ability of the collaborative network to assist our partner companies. Our
business model depends on our ability to share information within our network
of partner companies. If competition develops among our partner companies, we
may be unable to fully benefit from the sharing of information within our
network of partner companies. If we cannot convince companies of the value of
our business model, our ability to attract new companies will be adversely
affected and our strategy of building a collaborative network may not succeed.

Fluctuations in Quarterly Results--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;

     .  changes in equity losses or income and amortization of goodwill
        related to 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 B2B e-
        commerce market;

     .  intense competition from other potential acquirors of B2B e-
        commerce companies, which could increase our cost of acquiring
        interests in additional companies, and 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 during the anticipated rapid growth of the
        global B2B e-commerce market.

      We believe that period-to-period comparisons of our operating results are
not meaningful. If our operating results in one or more quarters do not meet
securities analysts' or your expectations, the price of our Common Stock could
decrease.

Dependence on Personnel--Our success is dependent on our key personnel and the
key personnel of our partner companies and our business and operations could be
disrupted if they do not continue in their present positions.

      We believe that our success will depend on continued employment by us and
our partner companies of senior management and key technical personnel. Our
success also depends on the continued assistance of our

                                       3
Advisory Board members, some of whom may from time to time leave our Advisory
Board. If one or more members of our senior management, our partner companies'
senior management or our Advisory Board were unable or unwilling to continue in
their present positions, our business and operations could be disrupted.

      As of March 24, 2000, 15 of our 24 management personnel have worked for
us for less than one year. Our efficiency may be limited while these employees
and future employees are being integrated into our operations. In addition, we
may be unable to find and hire additional qualified management and professional
personnel to help lead us and our partner companies.

      The success of some of our partner companies also depends on their having
highly trained technical and marketing personnel. Our partner companies will
need to continue to hire additional personnel as their businesses grow. 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.

Historical and Future Losses--We have had a history of losses and expect
continued losses in the foreseeable future.

      Our net loss for the year ended December 31, 1999 of $29.8 million
includes gains of $44.2 million, net of deferred taxes, related to the issuance
of stock by VerticalNet and Breakaway Solutions and a $7.7 million deferred tax
benefit related to our conversion from a limited liability company to a taxable
corporation. Without the $51.9 million effect of these items on our net
results, we would have had a net loss of $81.7 million. For the year ended
December 31, 1998, we realized net income of $13.9 million primarily due to
$34.4 million of non-operating gains from the sale of certain minority
interests. In addition, we incurred net losses of $6.6 million in 1997 and $2.1
million in 1996. After giving effect to our acquisitions during 1999 and 2000
as if they had occurred on January 1, 1999, pro forma net loss for the year
ended December 31, 1999 would have increased by $468.1 million. Excluding the
effect of any future non-operating gains, we expect to continue to incur losses
for the foreseeable future and, if we ever have profits, we may not be able to
sustain them. Without the effect of any significant non-operating gains during
the year ending December 31, 2000, we expect to incur a significant net loss
for this period.

      Our expenses will increase as we build an infrastructure to implement our
business model. For example, we expect to hire additional employees, expand
information technology systems and lease more space for our corporate offices.
In addition, we plan to significantly increase our operating expenses to:

     .  broaden our partner company support capabilities;

     .  explore acquisition opportunities and alliances with other
        companies;

     .  facilitate business arrangements among our partner companies; and

     .  expand our business internationally.

Expenses will also increase due to the effect of goodwill amortization and
other charges resulting from completed and future acquisitions. If any of these
and other expenses are not accompanied by increased revenue, our losses will be
greater than we anticipate.

Ability to Manage Partner Company Growth--Our partner companies are growing
rapidly and we may have difficulty assisting them in managing their growth.

      Our partner companies have grown, and we expect them to continue to grow
rapidly, by adding new products and services and hiring new employees. This
growth is likely to place significant strain on their resources and on the
resources we allocate to assist our partner companies. In addition, our
management may

                                       4
be unable to convince our partner companies to adopt our ideas for effectively
and successfully managing their growth.

Shareholder and Partner Competition--We may compete with some of our
shareholders and 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 some of our shareholders and partner companies for
Internet-related opportunities. As of March 24, 2000, Comcast Corporation and
Safeguard Scientifics, Inc. own 8.3% and 13.7% of our outstanding Common Stock,
respectively. These shareholders may compete with us to acquire interests in
B2B e-commerce companies. Comcast Corporation and Safeguard Scientifics
currently each have a designee as a member of our board of directors and IBM
Corporation and AT&T Corp. each have a right to designate a board observer,
which may give these companies access to our business plan and knowledge about
potential acquisitions. In addition, we may compete with our partner companies
to acquire interests in B2B e-commerce companies, and our partner companies may
compete with each other for acquisitions or other B2B e-commerce opportunities.
In particular, VerticalNet seeks to expand, in part through acquisitions, its
number of B2B communities. VerticalNet, therefore, may seek to acquire
companies that we would find attractive. While we may partner with VerticalNet
on future acquisitions, we have no current contractual obligations to do so. We
do not have any policies, contracts or other understandings with any of our
shareholders or partner companies that would govern the resolution of these
potential conflicts. This competition, and the complications posed by the
designated directors, may deter companies from partnering with us and may limit
our business opportunities.

Capital Provider Competition--We face competition from other potential
acquirors of B2B e-commerce companies which could affect our ability to build
successful partner companies.

      We face competition from other capital providers including publicly-
traded Internet companies, venture capital companies and large corporations.
Many of these competitors have greater financial resources and brand name
recognition than we do. These competitors may limit our opportunity to acquire
interests in new partner companies. If we cannot acquire interests in
attractive companies on reasonable terms, our strategy to build a collaborative
network of partner companies may not succeed.

Global Expansion--Our global expansion exposes us to less developed markets,
currency fluctuations and political instability which could adversely impact
our financial results and our partner companies' ability to conduct business.

      We are pursuing B2B e-commerce opportunities outside the United States.
We recently opened an office in London whose personnel will focus on B2B e-
commerce opportunities in Europe. This international expansion exposes us to
several risks, including the following:

     .  Less Developed Markets. We believe that e-commerce markets outside
        the United States are less developed than the United States e-
        commerce market. If the e-commerce markets outside the United
        States do not continue to mature, any of our partner companies
        outside the United States may not succeed.

     .  Currency Fluctuations. When we purchase interests in non-United
        States partner companies for cash, we will likely have to pay for
        the interests using the currency of the country where the
        prospective partner company is located. Similarly, although it is
        our intention to act as a long-term partner to our partner
        companies, if we sold an interest in a non-United States partner
        company we might receive foreign currency. To the extent that we
        transact in foreign currencies, fluctuations in the relative value
        of these currencies and the United States dollar may adversely
        impact our financial results.

                                       5
.  Compliance with Laws. As we expand internationally, we will become
        increasingly subject to the laws and regulations of foreign
        countries. We may not be familiar with these laws and regulations,
        and these laws and regulations may change at any time.

     .  Political Instability. We may purchase interests in foreign
        partner companies that are located, or transact business in, parts
        of the world that experience political instability. Political
        instability may have an adverse impact on the subject country's
        economy, and may limit or eliminate a partner company's ability to
        conduct business.

Substantial Leverage--Our outstanding indebtedness may increase substantially
which would negatively impact our future prospects.

      As of December 31, 1999, we had $569.4 million in long term debt,
including $566.3 million in outstanding convertible subordinated notes. This
indebtedness will impact us in a number of ways:

     .  significantly increase our interest expense and related debt
        service costs;

     .  make it more difficult to obtain additional financing; and

     .  constrain our ability to react quickly in an unfavorable economic
        climate.

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

Access to Capital Markets--Our growth could be impaired by limitations on our
and our partner companies' access to the capital markets.

      We are dependent on the capital markets for access to funds for
acquisitions and other purposes. Our partner companies are also dependent on
the capital markets to raise capital for their own purposes. To date, there
have been a substantial number of Internet-related initial public offerings and
additional offerings are expected to be made in the future. If the market for
Internet-related companies and initial public offerings were to weaken for an
extended period of time, our ability and the ability of our partner companies
to grow and access the capital markets will be impaired.

Divestiture of Partner Company Interests--We may be unable to obtain maximum
value for our partner company interests.

      We have significant positions in our partner companies. While we
generally do not anticipate selling our interests in our partner companies, if
we were to divest all or part of an interest in a partner company, we may not
receive maximum value for this position. For partner companies with publicly-
traded stock, we may be unable to sell our interest at then-quoted market
prices. Furthermore, for those partner companies that do not have publicly-
traded stock, the realizable value of our interests may ultimately prove to be
lower than the carrying value currently reflected in our consolidated financial
statements.

Lack of Opportunities for Future Acquisitions--We may not have opportunities to
acquire interests in additional companies, which would affect our growth
strategy.

      We may be unable to identify companies that complement our strategy, and
even if we identify a company that complements our strategy, we may be unable
to acquire an interest in the company for many reasons, including:

     .  a failure to agree on the terms of the acquisition, such as the
        amount or price of our acquired interest;

                                       6
.  incompatibility between us and management of the company;

     .  competition from other acquirors of B2B e-commerce companies;

     .  a lack of capital to acquire an interest in the company; and

     .  the unwillingness of the company to partner with us.

      If we cannot acquire interests in attractive companies, our strategy to
build a collaborative network of partner companies may not succeed.

Limitation of Resources for Future Acquisitions--Our resources and our ability
to manage newly acquired partner companies may be strained as we acquire more
and larger interests in B2B e-commerce companies.

      We have acquired, and plan to continue to acquire, significant interests
in B2B e-commerce companies that complement our business strategy. In the
future, we may acquire larger percentages or larger interests in companies than
we have in the past, or we may seek to acquire 100% ownership of companies. We
may also spend more on individual acquisitions than we have in the past. These
larger acquisitions may place significantly greater strain on our resources,
ability to manage such companies and ability to integrate them into our
collaborative network. Future acquisitions are subject to the following risks:

     .  Our acquisitions may cause a disruption in our ongoing support of
        our partner companies, distract our management and other resources
        and make it difficult to maintain our standards, controls and
        procedures.

     .  We may acquire interests in companies in B2B e-commerce markets in
        which we have little experience.

     .  We may not be able to facilitate collaboration between our partner
        companies and new companies that we acquire.

     .  To fund future acquisitions we may be required to incur debt or
        issue equity securities, which may be dilutive to existing
        shareholders.

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

      We believe that we are actively engaged in the business of B2B e-commerce
through our network of majority-owned subsidiaries and companies that we are
considered to "control." Under the Investment Company Act, a company is
considered to control another company if it owns more than 25% of that
company's voting securities. A company may be required to register as an
investment company if more than 45% of its total assets consists of, and more
than 45% of its income/loss and revenue attributable to it over the last four
quarters is derived from, ownership interests in companies it does not control.
Because many of our partner companies are not majority-owned subsidiaries, and
because we own 25% or less of the voting securities of a number of our partner
companies, changes in the value of our interests in our partner companies and
the income/loss and revenue attributable to our partner companies could subject
us to regulation under the Investment Company Act unless we took 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

                                       7
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 Securities and Exchange Commission 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.

RISKS PARTICULAR TO OUR PARTNER COMPANIES

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

      VerticalNet, Breakaway Solutions, eMerge Interactive, ONVIA.com and
Universal Access are five of our publicly-traded partner companies. The price
of their common stock has been highly volatile. On February 16, 1999,
VerticalNet completed its initial public offering at a price of $8.00 per share
and its common stock has since traded as high as $296.75 per share, adjusted
for a two for one stock split. On October 6, 1999, Breakaway Solutions
completed its initial public offering at a price of $7.00 per share and its
common stock has since traded as high as $85.50 per share, adjusted for a two
for one stock split. On February 8, 2000, eMerge Interactive completed its
initial public offering at a price of $15.00 per share and its common stock has
traded as high as $70.50 per share. On March 1, 2000, ONVIA.com completed its
initial public offering at a price of $21.00 per share and its common stock has
traded as high as $78.00 per share. On March 17, 2000, Universal Access, Inc.
completed its initial public offering at a price of $14.00 per share and its
common stock has traded as high as $54.63 per share. The market value of our
holdings in these partner companies changes with these fluctuations. Based on
the closing price of VerticalNet's common stock on March 24, 2000 of $183.88,
our holdings in VerticalNet had a market value of approximately $2.3 billion.
Based on the closing price of Breakaway Solutions' common stock on March 24,
2000 of $58.56, our holdings in Breakaway Solutions had a market value of
approximately $818 million. Based on the closing price of eMerge Interactive's
common stock on March 24, 2000 of $47.19, our holdings in eMerge Interactive
had a market value of approximately $381 million. Based on the closing price on
ONVIA.com's common stock on March 24, 2000 of $31.19, our holdings in ONVIA.com
had a market value of approximately $536 million. Based on the closing price of
Universal Access' common stock on March 24, 2000 of $54.63, our holdings in
Universal Access had a market value of approximately $1.2 billion.

      On April 10, 2000, our ownership in VerticalNet, Breakaway Solutions,
ONVIA.com, eMerge Interactive, and Universal Access had market values of
approximately $1.3 billion, $556 million, $266 million, $154 million, and $713
million, respectively. Fluctuations in the price of VerticalNet's, Breakaway
Solutions', eMerge Interactive's, ONVIA.com's and Universal Access' and other
publicly-traded partner companies' common stock are likely to affect the price
of our Common Stock.

      VerticalNet's results of operations, and accordingly the price of its
common stock, may be adversely affected by the following factors:

     .  lack of acceptance of the Internet as an advertising medium;

     .  inability to develop a large base of users of its Web sites who
        possess demographic characteristics attractive to advertisers;

     .  inability to generate significant e-commerce transaction revenues
        from its communities;

     .  lower advertising rates; and

     .  loss of key content providers.

      Breakaway Solutions' results of operations, and accordingly the price of
its common stock, may be adversely affected by the following factors:

     .  growing enterprises' failure to accept e-commerce solutions;

                                       8
.  inability to open new regional offices;

     .  loss of money on fixed-fee or performance-based contracts; and

     .  inability to develop brand awareness.

      eMerge Interactive's results of operations, and accordingly the price of
its common stock, may be adversely affected by the following factors:

     .  lack of commercial acceptance of online cattle sales and services;

     .  failure to expand the number of livestock industry participants in
        its network;

     .  failure to obtain access to data from feedlots to adequately meet
        information needs of its customers;

     .  inability to respond to competitive developments; and

     .  failure to achieve brand recognition.

      Onvia.com's results of operations, and accordingly the price of its
common stock, may be adversely affected by the following factors:

     .  small businesses' unwillingness to purchase their business
        services and products online;

     .  a significant number of small businesses' and small business
        service providers' unwillingness to use its emarketplace to buy
        and sell services and products; and

     .  failure of small business customers to provide it data about
        themselves.

      Universal Access' results of operations, and accordingly the price of its
common stock, may be adversely affected by the following factors:

     .  failure of its services to be sufficiently rapid, reliable and
        cost-effective;

     .  unwillingness of clients to outsource the obtaining of circuits;

     .  inability to market its services effectively; and

     .  slow growth of the Internet.

      Our assets as reflected in our balance sheet dated December 31, 1999 were
approximately $2,050 million, of which $128.3 million related to VerticalNet,
Breakaway Solutions, eMerge Interactive, ONVIA.com and Universal Access.
However, we believe that comparisons of the value of our holdings in partner
companies to the value of our total assets are not meaningful because not all
of our partner company ownership interests are marked to market in our balance
sheet.

Dependence on B2B Market--The success of our partner companies depends on the
development of the B2B e-commerce market, which is uncertain.

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

      Our long-term success depends on widespread market-acceptance of B2B e-
commerce. A number of factors could prevent this acceptance, including the
following:

     .  the unwillingness of businesses to shift from traditional
        processes to B2B e-commerce processes;

                                       9
.  the network necessary for enabling substantial growth in usage of
        B2B e-commerce may not be adequately developed;

     .  increased government regulation or taxation which may adversely
        affect the viability of B2B e-commerce;

     .  insufficient availability of telecommunication services or changes
        in telecommunication services which could result in slower
        response times for the users of B2B e-commerce; and

     .  concern and adverse publicity about the security of B2B e-commerce
        transactions.

Competitors of Partner Companies--Our partner companies may fail if their
competitors provide superior Internet-related offerings or continue to have
greater resources than our partner companies have.

      Competition for Internet products and services is intense. As the market
for B2B e-commerce grows, we expect that competition will intensify. Barriers
to entry are minimal, and competitors can offer products and services at a
relatively low cost. Our partner companies compete for a share of a customer's:

     .  purchasing budget for services, materials and supplies with other
        online providers and traditional distribution channels;

     .  dollars spent on consulting services with many established
        information systems and management consulting firms; and

     .  advertising budget with online services and traditional off-line
        media, such as print and trade associations.

      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 Internet products or services that are superior to, or have greater
market acceptance than, the solutions offered by our partner companies. If our
partner companies are unable to compete successfully against their competitors,
our partner companies may fail.

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

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

      Our partner companies are inventing new ways of doing business. In
support of this innovation, they will develop proprietary techniques,
trademarks, processes and software. Although reasonable efforts will be taken
to protect the rights to this intellectual property, the complexity of
international trade secret, copyright, trademark and patent law, coupled with
the limited resources of these young companies and the demands of quick
delivery of products and services to market, create risk that their efforts
will prove inadequate. Further, the nature of Internet business demands that
considerable detail about their innovative processes and techniques be exposed
to competitors, because it must be presented on the Web sites in order to
attract clients. Some of our partner companies also license content from third
parties and it is possible that they could become subject to infringement
actions based upon the content licensed from those third parties. Our partner
companies generally obtain representations as to the origin and ownership of
such licensed content; however, this may not

                                       10
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.

Liabilities from Internet Publications or Distributions--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 Web sites, 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 Web sites is drawn from data compiled by other parties, including
governmental and commercial sources. This data may have errors. If any of our
partner companies' Web site 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.

Failure of Systems--Our partner companies' computer and communications systems
may fail, which may discourage content providers 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' Web sites to be
unavailable to Web browsers may reduce the attractiveness of our partner
companies' Web sites to third party content providers. If third party content
providers are unwilling to use our partner companies' Web sites, 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.

Inability to Upgrade Systems--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' Web sites 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 Web sites. 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 Web sites. 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.

Dependence on Loyal Users of Web Sites--Our partner companies may not be able
to attract a loyal base of users to their Web sites.

      While content is important to all our partner companies' Web sites, our
market maker partner companies are particularly dependent on content to attract
users to their Web sites. Our success depends upon the ability of these partner
companies to deliver compelling Internet content to their targeted users. If
our partner companies are unable to develop Internet content that attracts a
loyal user base, the revenues and

                                       11
profitability of our partner companies could be impaired. Internet users can
freely navigate and instantly switch among a large number of Web sites. Many of
these Web sites offer original content. Thus, our partner companies may have
difficulty distinguishing the content on their Web sites to attract a loyal
base of users.

Maintenance of Website Addresses--Our partner companies may be unable to
acquire or maintain easily identifiable Web site addresses or prevent third
parties from acquiring Web site addresses similar to theirs.

      Some of our partner companies hold various Web site addresses relating to
their brands. These partner companies may not be able to prevent third parties
from acquiring Web site addresses that are similar to their addresses, which
could adversely affect the use by businesses of our partner companies' Web
sites. In these instances, our partner companies may not grow as we expect. The
acquisition and maintenance of Web site addresses generally is regulated by
governmental agencies and their designees. The regulation of Web site 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
Web site addresses in all countries where they conduct business. Furthermore,
the relationship between regulations governing such addresses and laws
protecting trademarks is unclear.

Dependence on Barter Transactions--Some of our partner companies are dependent
on barter transactions that do not generate cash revenue.

      Our partner companies often enter into barter transactions in which they
provide advertising for other Internet-related companies in exchange for
advertising for the partner company. In a barter transaction the partner
company will reflect the sales of the advertising received as an expense and
the value of the advertising provided, in an equal amount, as revenue. However,
barter transactions also do not generate cash revenue, which may adversely
affect the cash flows of some of our partner companies. Limited cash flows may
adversely affect a partner company's abilities to expand its operations and
satisfy its liabilities. During 1998 and 1999, revenue from barter transactions
constituted a significant portion of some of our partner companies' revenue.
Barter revenue may continue to represent a significant portion of their revenue
in future periods. For example, for the year ended December 31, 1999,
approximately 18% of VerticalNet's revenue was attributable to barter
transactions.

RISKS RELATING TO THE INTERNET INDUSTRY

Confidentiality and Security--Concerns regarding security of transactions and
transmitting confidential information over the Internet may have an adverse
impact on our business.

      We believe that concern regarding the security of confidential
information transmitted over the Internet prevents many potential customers
from engaging in online transactions. If our partner companies that depend on
these types of transactions do not add sufficient security features to their
future product releases, our partner companies' products may not gain market
acceptance or our partner companies may incur additional legal exposure.

      Despite the measures some of our partner companies have taken, their Web
sites remain potentially vulnerable to physical or electronic break-ins,
viruses or similar problems. If a person circumvents the security measures
imposed by any one of our partner companies, he or she could misappropriate
proprietary information or cause interruption in operations of the partner
company. Security breaches that result in access to confidential information
could damage the reputation of any one of our partner companies and expose the
partner company affected to a risk of loss or liability. Some of our partner
companies may be required to make significant investments and efforts to
protect against or remedy security breaches. Additionally, as e-commerce
becomes more widespread, our partner companies' customers will become more
concerned about security. If our partner companies are unable to adequately
address these concerns, they may be unable to sell their goods and services.

                                       12
Rapid Technological Changes--Rapid technological changes may prevent our
partner companies from remaining current with their technical resources and
maintaining competitive product and service offerings.

      The markets in which our partner companies operate are characterized by
rapid technological change, frequent new product and service introductions and
evolving industry standards. Significant technological changes could render
their existing Web site technology or other products and services obsolete. The
e-commerce market's growth and intense competition exacerbate these conditions.
If our partner companies are unable to successfully respond to these
developments or do not respond in a cost-effective way, our business, financial
condition and operating results will be adversely affected. To be successful,
our partner companies must adapt to their rapidly changing markets by
continually improving the responsiveness, services and features of their
products and services and by developing new features to meet the needs of their
customers. Our success will depend, in part, on our partner companies' ability
to license leading technologies useful in their businesses, enhance their
existing products and services and develop new offerings and technology that
address the needs of their customers. Our partner companies will also need to
respond to technological advances and emerging industry standards in a cost-
effective and timely manner.

Effect of Government Regulations--Government regulations and legal
uncertainties may place financial burdens on our business and the businesses of
our partner companies.

      As of March 24, 2000, there were few laws or regulations directed
specifically at e-commerce. However, because of the Internet's popularity and
increasing use, new laws and regulations may be adopted. These laws and
regulations may cover issues such as the collection and use of data from Web
site visitors and related privacy issues, pricing, content, copyrights, online
gambling, distribution and quality of goods and services. The enactment of any
additional laws or regulations may impede the growth of the Internet and B2B e-
commerce, which could decrease the revenue of our partner companies and place
additional financial burdens on our business and the businesses of our partner
companies.

      Because of the Internet's popularity and increasing use, as well as the
sometimes imperfect fit of traditional legal doctrines to Internet-related
issues, new laws and regulations may be adopted. These laws and regulations may
cover issues such as the collection and use of data from Web site visitors and
related privacy issues, spam, pricing, content, copyrights, online gambling,
distribution and quality of goods and services. The enactment of any additional
laws or regulations may impede the growth of the Internet and B2B e-commerce,
which could decrease the revenue of our partner companies and place additional
financial burdens on our business and the businesses of our partner companies.

      Laws and regulations directly applicable to e-commerce or Internet
communications are becoming more prevalent. For example, the United States
Congress recently enacted laws regarding online copyright infringement and the
protection of information collected online from children. Although these laws
may not have a direct adverse effect on our business or those of our partner
companies, they add to the legal and regulatory burden faced by B2B e-commerce
companies.

      Importantly, the current moratorium on certain Internet taxes expires in
October 2001, and there is some chance that it will not be extended. If not, e-
commerce businesses could be faced with an array of state and local taxes that
could impede the growth prospects of our partner companies.

RISKS RELATING TO OUR SALES OF SECURITIES

Dilution of Common Stock--We may issue securities which may dilute your
ownership interest in the Common Stock.

      In the future, we may issue securities to raise cash for acquisitions,
and we may also pay for interests in additional partner companies by using a
combination of cash and our Common Stock, or just our Common

                                       13
Stock. Any of these events may dilute your ownership interest in us and have an
adverse impact on the price of our Common Stock. In addition, if we issue
securities convertible into our Common Stock, the conversion of these
securities may dilute your ownership interest and have an adverse impact on the
price of our Common Stock. See "Interests of Significant Shareholders" for a
description of pending issuances.

Future Sales of Shares--Shares eligible for future sale by our current
shareholders may decrease the price of our Common Stock.

      If our shareholders sell substantial amounts of our Common Stock,
including shares issued upon the exercise of outstanding options, in the public
market, then the market price of our Common Stock could fall. Restrictions
under the securities laws and certain repurchase and lock-up agreements limit
the number of shares of Common Stock available for sale in the public market.
Prior to the date of this prospectus, the holders of 131,872,442 shares of our
Common Stock and warrants exercisable for 569,451 shares of our Common Stock
agreed not to sell any of these securities until June 13, 2000 without the
prior written consent of Merrill Lynch. However, Merrill Lynch may, in its sole
discretion, release all or any portion of the securities subject to these lock-
up agreements.

      The holders of 169,683,868 shares of Common Stock and the holders of
warrants to purchase 2,160,817 shares of Common Stock have demand or piggy-back
registration rights. Prior to the date of this prospectus, the holders of
58,507,579 shares of our Common Stock and warrants exercisable for 351,860
shares of our Common Stock that have demand registration rights agreed not to
demand that their securities be registered until June 13, 2000 without the
prior written consent of Merrill Lynch. Common Stock issued upon exercise of
stock options under our benefit plans are eligible for resale in the public
market without restriction. In addition, we may issue and register securities
in connection with acquisitions or other business combinations.

Interests of Significant Shareholders--The interests of certain of our
significant shareholders may conflict with our interests and the interests of
our other shareholders.

      As a result of its ownership of our Common Stock, Safeguard Scientifics
will be in a position to affect significantly our corporate actions such as
mergers or takeover attempts in a manner that could conflict with the interests
of our public shareholders. We have filed a registration statement on Form S-4
that provides for the issuance of up to 23,000,000 shares of our Common Stock
from time to time to pay for acquisitions of partner company interests. Two
potential exchange offers are described in such registration statement. In
connection with these exchange offers, we may issue up to 11,198,142 shares of
our Common Stock. Prior to these exchange offers, Safeguard Scientifics
beneficially owned about 13.7% of our Common Stock.

Anti-Takeover Protections--Anti-takeover provisions and our right to issue
preferred stock could make a third-party acquisition of us difficult.

      Our certificate of incorporation provides that our board of directors may
issue preferred stock without shareholder approval. In addition, our bylaws
provide for a classified board, with each board member serving a three-year
term. The issuance of preferred stock and the existence of a classified board
could make it more difficult for a third-party to acquire us without the
approval of our board.

Price Volatility--Our Common Stock price is highly volatile.

      The market price for our Common Stock has been highly volatile and is
likely to continue to be highly volatile. The trading prices of many technology
and Internet-related company stocks, including ours, have experienced
significant price and volume fluctuations in recent months. These fluctuations
often have been unrelated or disproportionate to the operating performance of
these companies. The trading price of our Common Stock has increased
significantly from our initial public offering price of $6.00 per share, as
adjusted for our 2 for 1 stock split. Any negative change in the public's
perception of the prospects of Internet or e-commerce companies could depress
our stock price regardless of our results.

                                       14
The following factors will add to our Common Stock price's volatility:

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

     . new sales formats or new products or services offered by us, our
       partner companies and their competitors;

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

     . changes in the size, form or rate of our acquisitions;

     . conditions or trends in the Internet industry in general and the
       B2B e-commerce industry in particular;

     . 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;

     . changes in the market valuations of our partner companies and other
       Internet companies;

     . our capital commitments;

     . negative changes in the public's perception of the prospects of e-
       commerce companies;

     . general economic conditions such as a recession, or interest rate
       or currency rate fluctuations;

     . additions or departures of our key personnel and key personnel of
       our partner companies; and

     . additional sales of our securities.

      Many of these factors are beyond our control. These factors may decrease
the market price of our Common Stock, regardless of our operating performance.
In the past, securities class action litigation has often been brought against
a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert management's
attention and resources, which could have a material adverse effect on our
business, operating results and financial condition.

                                       15
INTERNET CAPITAL GROUP, INC.

      Internet Capital Group is an Internet holding company primarily engaged
in managing and operating a network of business-to-business, or B2B, e-commerce
companies. Our goal is to become the premier B2B e-commerce company by
establishing an e-commerce presence in major segments of the economy. For more
detailed information, you should refer to:

     .  the prospectus we filed with the SEC on December 16, 1999 pursuant
        to Rule 424(b) under the Securities Act; and

     .  other reports and information incorporated by reference into this
        prospectus or the registration statement that includes this
        prospectus.

      For information on how we can "incorporate by reference" other filings we
have made or will make with the SEC, and how we can disclose important
information to you in such manner, see "Where You Can Find More Information--
Incorporation of Documents by Reference."

                                USE OF PROCEEDS

      All shares of Common Stock sold pursuant to this prospectus will be sold
by some of our employees, directors and certain consultants and advisors, whom
we refer to as "selling stockholders," for their own accounts.

      We will not receive any of the proceeds from sales covered by this
prospectus.

                              SELLING STOCKHOLDERS

      The selling stockholders may sell from time to time any of the shares of
Common Stock covered by this prospectus. Therefore, we cannot estimate the
number of shares that may be offered for sale under this prospectus at any
given time. Shares of Common Stock may be sold from time to time by the selling
stockholders or by pledgees, donees, transferees or other successors in
interest. The selling stockholder may also loan or pledge the shares registered
hereunder to a broker-dealer and the broker-dealer may sell the shares so
loaned or upon a default the broker-dealer may effect sales of the pledged
shares pursuant to this prospectus.

      The table below sets forth the following information, assuming sale by
the selling stockholders of all shares of Common Stock distributed to them
under the Equity Compensation Plan:

     .  the name of the selling stockholder and the nature of positions,
        or other material relationships, held by the selling stockholder
        within the past three years with our company;

     .  the number of shares of Common Stock and options to purchase
        Common Stock owned by the selling stockholder as of the date of
        this prospectus;

     .  the number of shares of Common Stock offered by this prospectus
        for the account of that selling stockholder;

     .  the number of shares of Common Stock to be owned by the selling
        stockholder if all shares covered by this prospectus held by such
        stockholder are sold; and

     .  the percentage (if more than one percent) of our Common Stock to
        be owned by the selling stockholder if all shares covered by this
        prospectus held by such stockholder are sold, based on the number
        of shares of our Common Stock outstanding as of March 24, 2000.

                                       16
After Completion of Offering
                                                               Shares &            ------------------------------------
    Name of Selling                 Position in                Options    Shares     Shares           Percentage of
      Stockholder                     Company                   Owned     Offered     Owned           Class Owned(1)
    ---------------                 -----------               ---------- --------- ----------------- ------------------
Douglas A. Alexander....   Managing Director                   5,624,748 3,000,000         2,624,748                *
Douglas A. Alexander
 Qualified Grantor
 Retained Annuity
 Trust..................   Transferee of Douglas A. Alexander    500,000   500,000                --                *
Jeffrey Ballowe ........   Advisor                               224,998   200,000            24,998                *
Walter W. Buckley,
 III ...................   President & CEO                    11,418,000 4,600,000         6,818,000              2.6
Richard S. Devine.......   Managing Director, Executive
                           Recruiting                          2,095,500 2,095,500                --                *
Kenneth A. Fox..........   Managing Director                  11,878,066 4,300,000         7,578,066              2.9
David D. Gathman........   Chief Financial Officer             1,524,999 1,500,000            24,999                *
Gregory W. Haskell......   Managing Director, Operations       2,000,400 2,000,000               400                *
Victor S. Hwang.........   Managing Director, Acquisitions     2,670,000 2,670,000                --                *
Mark J. Lotke...........   Managing Director, Acquisitions     2,050,000 2,050,000                --                *
Henry N. Nassau.........   Managing Director & General         1,230,500 1,200,000            30,500                *
                           Counsel
Nassau Family Trust.....   Transferee of Henry N. Nassau         300,000   300,000                --                *
Robert A. Pollan........   Managing Director, Operations       3,353,166 3,150,000           203,166                *
Robert A. Pollan
 Qualified Grantor
 Retained Annuity
 Trust..................   Transferee of Robert A. Pollan        500,000   500,000                --                *
Yossi Sheffi............   Advisor                               268,332   260,000             8,332                *
John Turillo............   Former Consultant                      50,000    50,000                --                *
--------
*  Less than one percent.

                                       17
PLAN OF DISTRIBUTION

      The Common Stock offered by this prospectus may be sold from time to time
in one or more transactions through any of several methods, including in
transactions on the Nasdaq National Market, in ordinary brokerage transactions
or block transactions, in negotiated transactions, through underwriters or a
combination of such methods of sale, at market prices prevailing at the time of
sale, at prices relating to such prevailing market prices or at negotiated
prices. The selling stockholders may effect such transactions by selling shares
through a broker or brokers or underwriters, who may act as principal or agent
or both agent and principal, and such brokers or underwriters may receive
compensation from the selling stockholders not to exceed that which is
customary for the particular transactions.

      Any shares of Common Stock covered by this prospectus that qualify for
sale pursuant to Rule 144 of the Securities Act may be sold under that rule
rather than pursuant to this prospectus. We cannot be sure that any of the
selling stockholders will sell any or all of the shares of Common Stock offered
by them under this prospectus.

                     WHERE YOU CAN FIND MORE INFORMATION--
                    INCORPORATION OF DOCUMENTS BY REFERENCE

      Under the Securities Exchange Act of 1934, we are required to file
annual, quarterly and special reports, proxy statements and other information
with the SEC. You may read and copy any document we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information about the public reference
room. The SEC maintains a Web site at http://www.sec.gov that contains reports,
proxy and information statements, and other information regarding issuers that
file electronically with the SEC. We file electronically with the SEC.

      We have filed a registration statement on Form S-8 with the SEC to
register the shares offered by this prospectus. This prospectus is part of the
registration statement but, as permitted by SEC rules, this prospectus does not
contain all the information that you can find in the registration statement or
the exhibits to the registration statement.

      The SEC allows us to "incorporate by reference" the information that we
file with the SEC. This means we can disclose important information to you by
referring you to those filed documents. The information incorporated by
reference is considered to be a part of this prospectus, except if it is
superseded by information in this prospectus or by later information that we
file with the SEC. Information that is filed with the SEC after the date of
this prospectus will automatically update and supersede the information
contained or incorporate by reference in this prospectus.

      The documents listed below are incorporated by reference in this
prospectus. They contain important information about Internet Capital Group,
Inc. and its financial condition.

     .  The prospectus we filed with the SEC on December 16, 1999 pursuant
        to Rule 424(b) under the Securities Act.

     .  Our annual report on Form 10-K for the year ended December 31,
        1999.

     .  All other reports which we filed with the SEC after December 31,
        1999 under Sections 13(a) or 15(d) of the Securities Exchange Act
        of 1934.

     .  The description of our Common Stock contained in our registration
        statement on Form 8-A (SEC File No. 222-26929), filed August 4,
        1999, which incorporates by reference the section

                                       18
entitled "Description of Capital Stock" in our registration
        statement on Form S-1 (SEC File No. 333-78193), filed May 11,
        1999, as amended, and including any amendment or report filed for
        the purpose of updating such description.

      In addition, all documents that we subsequently file with the SEC
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934, as amended, prior to the termination of offerings hereunder shall be
deemed to be incorporated by reference into this prospectus.

      You may request a copy of these filings, excluding all exhibits unless
an exhibit has been specifically incorporated by reference, at no cost, by
writing or telephoning us at:

                      Internet Capital Group, Inc.
                      435 Devon Park Drive
                      Building 600
                      Wayne, Pennsylvania 19087
                      (610) 989-0111
                      Attention: General Counsel

      When you are deciding whether to purchase the shares being offered by
this prospectus, you should rely only on the information incorporated by
reference or provided in this prospectus or any supplement. We have not
authorized anyone else to provide you with different information. This
prospectus is not an offer to sell shares of common stock in any state where
such an offer is not permitted.

                                      19
FORWARD-LOOKING STATEMENTS

      This Prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act, and Section 21E of the Securities Exchange
Act. We have based these forward-looking statements on our current expectations
and projections about future events. These forward-looking statements 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. These factors are discussed in the "Risk
Factors" section beginning on page 2 of this Prospectus, and include, among
other things:

     .  development of an e-commerce market;

     .  our ability to identify trends in our markets and the markets of
        our partner companies and to offer new solutions that address the
        changing needs of these markets;

     .  our ability to successfully execute our business model;

     .  our partner companies' ability to compete successfully against
        direct and indirect competitors;

     .  our ability to acquire interests in additional companies;

     .  our ability to expand our business successfully into international
        markets;

     .  growth in demand for Internet products and services; and

     .  adoption of the Internet as an advertising medium.

      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 Prospectus. 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 Prospectus might not occur.

                                 LEGAL MATTERS

      The validity of the Common Stock offered by us hereby will be passed upon
by Dechert Price & Rhoads, Philadelphia, Pennsylvania. Dechert Price & Rhoads,
Internet Capital Group's counsel, beneficially owns 41,666 shares of our common
stock and warrants exercisable at $6.00 per share to purchase 8,333 shares of
our common stock. Members of and attorneys associated with Dechert Price &
Rhoads beneficially own an aggregate of 12,554 shares of our common stock and
warrants exercisable at $6.00 per share to purchase 1,111 shares of our common
stock.

                                    EXPERTS

      The consolidated financial statements of Internet Capital Group, Inc. as
of December 31, 1998 and 1999 and for each of the years in the three-year
period ended December 31, 1999 have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in auditing and accounting.

      The consolidated financial statements of eMerge Interactive, Inc. as of
December 31, 1997 and 1998 and September 30, 1999 and for each of the years in
the three-year period ended December 31, 1998 and the

                                       20
nine months ended September 30, 1999 have been included herein and in the
registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in auditing and accounting.

      The financial statements of JusticeLink, Inc. (formerly LAWPlus, Inc.) as
of December 31, 1998 and 1999, and for the two years ended December 31, 1999
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of said firm as experts in auditing and accounting.

      The consolidated financial statements of MetalSite General Partner, LLC
as of December 31, 1998 and for the period from Inception (November 15, 1998)
through December 31, 1998 included in this registration statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report. Reference is made to
said report which includes an explanatory paragraph with respect to the
uncertainty regarding MetalSite General Partner, LLC's ability to continue as a
going concern as discussed in Note 2 to the consolidated financial statements.

      The financial statement of MetalSite as Component of Weirton Steel
Corporation for the period from January 1, 1998 to November 15, 1998 and for
the year ended December 31, 1997 included in this registration statement has
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.

      The financial statements of Syncra Software, Inc. as of December 31, 1998
and for the period from February 11, 1998 (inception) through December 31, 1998
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

      The financial statements of USgift.com Corporation as of September 30,
1999 and for the period from inception (April 27, 1999) to September 30, 1999
included herein and in the registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said report.

      The financial statements of RightWorks Corporation as of December 31,
1998 and 1999 and for the three years then ended included in this prospectus
and elsewhere in this registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included in this prospectus in reliance upon the
authority of said firm as experts in given said reports.

      The consolidated financial statements of eCredit.com, Inc. as of December
31, 1998 and 1999 and for the two years ended December 31, 1999 appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth on their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of said firm as experts in auditing and accounting.

      The consolidated statements of operations, of redeemable convertible
preferred stock and stockholders' deficit and of cash flows of eCredit.com,
Inc. for the year ended December 31, 1997 included in this Prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

      The consolidated financial statements of VerticalNet, Inc. as of December
31, 1998 and 1999 and for each of the years in the three-year period ended
December 31, 1999 have been included herein and in the registration statement
in reliance upon the report of KPMG LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting.

                                       21
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
                                                                          ----
INTERNET CAPITAL GROUP, INC.
Report of Independent Auditors...........................................  F-4

Consolidated Balance Sheets..............................................  F-5

Consolidated Statements of Operations....................................  F-6

Consolidated Statements of Shareholders' Equity..........................  F-7

Consolidated Statements of Comprehensive Income (Loss)...................  F-8

Consolidated Statements of Cash Flows....................................  F-9

Notes to Consolidated Financial Statements............................... F-10

eCREDIT.COM, INC.
Reports of Independent Accountants....................................... F-39

Consolidated Balance Sheets.............................................. F-41

Consolidated Statements of Operations.................................... F-42

Consolidated Statements of Redeemable Convertible Preferred Stock and
 Stockholders' Deficit................................................... F-43

Consolidated Statements of Cash Flows.................................... F-44

Notes to Consolidated Financial Statements............................... F-46

RIGHTWORKS CORPORATION
Report of Independent Public Accountants................................. F-60

Balance Sheets........................................................... F-61

Statements of Operations and Comprehensive Loss.......................... F-62

Statement of Shareholders' Equity........................................ F-63

Statements of Cash Flows................................................. F-64

Notes to Financial Statements............................................ F-65

EMERGE INTERACTIVE, INC.
Independent Auditors' Report............................................. F-76

Consolidated Balance Sheets.............................................. F-77

Consolidated Statements of Operations.................................... F-78

Consolidated Statements of Stockholders' Equity (Deficit)................ F-79

Consolidated Statements of Cash Flows.................................... F-80

Notes to Consolidated Financial Statements............................... F-81
F-1
PAGE
                                                                          -----
JUSTICELINK, INC.
Report of Independent Auditors..........................................   F-95

Balance Sheets..........................................................   F-96

Statements of Operations................................................   F-97

Statements of Mandatory Redeemable Convertible Stock and Other Capital..   F-98

Statements of Cash Flows................................................   F-99

Notes to Financial Statements...........................................  F-100

METALSITE GENERAL PARTNER LLC
Report of Independent Public Accountants................................  F-114

Consolidated Balance Sheets.............................................  F-115

Consolidated Statement of Operations....................................  F-116

Consolidated Statement of Changes in Partners' Capital (Deficit)........  F-117

Consolidated Statement of Cash Flows....................................  F-118

Notes to Consolidated Financial Statements..............................  F-119

METALSITE AS A COMPONENT OF WEIRTON STEEL CORPORATION
Report of Independent Public Accountants................................  F-129

Statements of Costs and Expenses........................................  F-130

Notes to Financial Statements...........................................  F-131

SYNCRA SOFTWARE, INC.
Report of Independent Accountants.......................................  F-132

Balance Sheet...........................................................  F-133

Statement of Operations.................................................  F-134

Statement of Changes in Redeemable Preferred Stock and Stockholders'
 Deficit................................................................  F-135

Statement of Cash Flows.................................................  F-136

Notes to Financial Statements...........................................  F-137

USGIFT, INC.
Report of Independent Public Accountants................................  F-146

Balance Sheet...........................................................  F-147

Statement of Operations and Accumulated Deficit.........................  F-148

Statement of Cash Flows.................................................  F-149

Notes to Financial Statements...........................................  F-150
F-2
PAGE
                                                                         -----
VERTICALNET, INC.
Independent Auditors' Report............................................ F-155

Consolidated Balance Sheets............................................. F-156

Consolidated Statements of Operations................................... F-157

Consolidated Statements of Shareholders' Equity (Deficit) and
 Comprehensive Loss..................................................... F-158

Consolidated Statements of Cash Flows................................... F-159

Notes to Consolidated Financial Statements.............................. F-160
F-3
Report of Independent Auditors

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

We have audited the accompanying consolidated balance sheets of Internet
Capital Group, Inc. and subsidiaries as of December 31, 1998 and 1999, and the
related consolidated statements of operations, shareholders' equity,
comprehensive income (loss) and cash flows for each of the years in the three-
year period ended December 31, 1999. 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 did not audit the financial statements of certain nonsubsidiary
investee companies (ComputerJobs.com, Inc. and Syncra Software, Inc.) as of and
for the year ended December 31, 1998, which Internet Capital Group, Inc.
originally acquired an interest in during 1998. The Company's ownership
interests in and advances to these nonsubsidiary investee companies at December
31, 1998 were $8,392,155, and its equity in net income (loss) of these
nonsubsidiary investee companies was $3,876,148 for the year ended December 31,
1998. We also did not audit the financial statements of a nonsubsidiary
investee company (Onvia.com, Inc.) as of and for the year ended December 31,
1999. The Company's ownership interest and advances to this nonsubsidiary
investee company at December 31, 1999 were $8,753,597 and its equity in net
loss of the nonsubsidiary investee was $9,327,340. The financial statements of
these nonsubsidiary investee companies were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
the amounts included for these nonsubsidiary investee companies as of and for
the years ended December 31, 1998 and 1999, is based solely on the reports of
the other auditors.

We conducted our audits in accordance with generally accepted auditing
standards. 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, based on our audits and the reports of the other auditors, 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, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.

KPMG LLP

Philadelphia, Pennsylvania
March 8, 2000

                                      F-4
INTERNET CAPITAL GROUP, INC.

                          Consolidated Balance Sheets

                     (in thousands, except per share data)
As of December 31,
                                                           -------------------
                                                            1998       1999
                                                           -------  ----------
Assets
Current Assets
  Cash and cash equivalents............................... $26,841  $1,343,459
  Short-term investments..................................     --        3,359
  Accounts receivable, less allowances for doubtful
   accounts ($61--1998; $67--1999)........................   1,842       1,207
  Prepaid expenses and other current assets...............   1,119       6,347
                                                           -------  ----------
  Total current assets....................................  29,802   1,354,372
  Fixed assets, net.......................................   1,151       4,015
  Ownership interests in and advances to Partner
   Companies..............................................  59,492     547,339
  Available-for-sale securities...........................   3,251      46,767
  Intangible assets, net..................................   2,476      23,649
  Deferred taxes..........................................     --       34,388
  Other...................................................     613      39,854
                                                           -------  ----------
Total Assets.............................................. $96,785  $2,050,384
                                                           =======  ==========
Liabilities and Shareholders' Equity
Current Liabilities
  Current maturities of long-term debt.................... $   288  $    3,000
  Line of credit..........................................   2,000         --
  Accounts payable........................................   1,348       6,750
  Accrued expenses........................................   1,823       4,205
  Notes payable to Partner Companies......................   1,713      34,134
  Deferred revenue........................................   2,177         --
  Other...................................................     --          903
                                                           -------  ----------
  Total current liabilities...............................   9,349      48,992
  Long-term debt..........................................     352       3,185
  Other liability (Note 8)................................     --        4,255
  Minority interest.......................................   6,360       7,481
  Convertible subordinated notes (Note 7).................     --      566,250
  Commitments and contingencies (Note 19)
Shareholders' Equity
  Preferred stock, $.01 par value; 10,000 shares
   authorized; none issued................................     --          --
  Common stock, $.001 par value; 300,000 shares
   authorized; 132,087 (1998) and 263,579 (1999) issued
   and outstanding........................................     132         264
  Additional paid-in capital..............................  74,932   1,513,615
  Retained earnings (accumulated deficit).................   5,257     (26,539)
  Unamortized deferred compensation.......................  (1,330)    (11,846)
  Notes receivable-shareholders...........................     --      (79,790)
  Accumulated other comprehensive income..................   1,733      24,517
                                                           -------  ----------
  Total shareholders' equity..............................  80,724   1,420,221
                                                           -------  ----------
Total Liabilities and Shareholders' Equity................ $96,785  $2,050,384
                                                           =======  ==========
See notes to consolidated financial statements.

                                      F-5
INTERNET CAPITAL GROUP, INC.

                     Consolidated Statements of Operations
Year Ended December 31,
                                                  ---------------------------
                                                   1997      1998      1999
                                                  -------  --------  --------
                                                  (in thousands except per
                                                         share data)
Revenue.......................................... $   792  $  3,135  $ 16,536
Operating Expenses
  Cost of revenue................................   1,767     4,643     8,156
  Selling, general and administrative............   5,743    15,514    48,924
                                                  -------  --------  --------
  Total operating expenses.......................   7,510    20,157    57,080
                                                  -------  --------  --------
                                                   (6,718)  (17,022)  (40,544)
                                                  -------  --------  --------
Other income, net (Note 18)......................     --     30,483    67,384
Interest income..................................     264     1,306     9,631
Interest expense.................................    (126)     (381)   (3,897)
                                                  -------  --------  --------
Income (Loss) Before Income Taxes, Minority
 Interest and Equity Income (Loss)...............  (6,580)   14,386    32,574
Income taxes.....................................     --        --     23,722
Minority interest................................    (106)    5,382     6,026
Equity income (loss).............................     106    (5,869)  (92,099)
                                                  -------  --------  --------
Net Income (Loss)................................ $(6,580) $ 13,899  $(29,777)
                                                  =======  ========  ========
Net Income (Loss) Per Share
  Basic.......................................... $ (0.10) $   0.12  $  (0.15)
                                                  =======  ========  ========
  Diluted........................................ $ (0.10) $   0.12  $  (0.15)
                                                  =======  ========  ========
Weighted Average Shares Outstanding
  Basic..........................................  68,198   112,205   201,851
                                                  =======  ========  ========
  Diluted........................................  68,198   112,299   201,851
                                                  =======  ========  ========
Pro Forma Information (Unaudited) (Note 2):
Pro forma net income (loss)......................
  Pretax income (loss)...........................          $ 13,899  $(53,499)
  Pro forma income taxes.........................            (5,143)   16,050
                                                           --------  --------
  Pro forma net income (loss)....................          $  8,756  $(37,449)
                                                           ========  ========
Pro forma net income (loss) per share
  Basic..........................................          $   0.08  $  (0.19)
                                                           ========  ========
  Diluted........................................          $   0.08  $  (0.19)
                                                           ========  ========
Pro forma weighted average shares outstanding
  Basic..........................................           112,205   201,851
                                                           ========  ========
  Diluted........................................           112,299   201,851
                                                           ========  ========
See notes to consolidated financial statements.

                                      F-6
INTERNET CAPITAL GROUP, INC.

                Consolidated Statements of Shareholders' Equity
Retained                              Accumulated
                           Common Stock    Additional    Earnings   Unamortized     Notes         Other
                          ---------------   Paid-In    (Accumulated   Deferred   Receivable-- Comprehensive
                          Shares   Amount   Capital      Deficit)   Compensation Shareholders    Income       Total
                          -------  ------  ----------  ------------ ------------ ------------ ------------- ----------
                                                               (in thousands)
Balance as of December
 31, 1996...............   51,779  $  52   $   15,762    $ (2,062)   $    (893)   $     --      $    --     $   12,859
Issuance of common
 stock..................   40,275     40       20,097         --           --           --           --         20,137
Issuance of restricted
 stock..................    3,546      4          414         --          (418)         --           --            --
Forfeitures of
 restricted stock.......   (2,033)    (2)        (176)        --           178          --           --            --
Amortization of deferred
 compensation...........      --     --           --          --           218          --           --            218
Net loss................      --     --           --       (6,580)         --           --           --         (6,580)
                          -------  -----   ----------    --------    ---------    ---------     --------    ----------
Balance as of December
 31, 1997...............   93,567     94       36,097      (8,642)        (915)         --           --         26,634
Issuance of common
 stock, net.............   38,520     38       38,167         --           --           --           --         38,205
Issuance of stock
 options to
 non-employees..........      --     --           668         --          (668)         --           --            --
Net unrealized
 appreciation in
 available-for-sale
 securities.............      --     --           --          --           --           --         1,733         1,733
Amortization of deferred
 compensation...........      --     --           --          --           253          --           --            253
Net income..............      --     --           --       13,899          --           --           --         13,899
                          -------  -----   ----------    --------    ---------    ---------     --------    ----------
Balance as of December
 31, 1998...............  132,087    132       74,932       5,257       (1,330)         --         1,733        80,724
Issuance of common
 stock, net.............   78,258     78    1,072,494         --           --           --           --      1,072,572
Issuance of common stock
 and income tax benefit
 upon exercise of
 options................   35,992     36       90,512         --           --       (81,148)         --          9,400
Shareholder loans
 principal payments.....      --     --           --          --           --         1,358          --          1,358
Issuance of common stock
 for acquisitions.......    1,887      2      172,001         --           --           --           --        172,003
Issuance of common stock
 and waiving of accrued
 interest upon
 conversion of
 convertible notes......   15,000     15       91,070         --           --           --           --         91,085
Issuance of common stock
 upon exercise of
 Warrants...............      784      1        3,968         --           --           --           --          3,969
Issuance of warrants in
 connection with line of
 credit.................                        1,030         --           --           --           --          1,030
Issuance of stock
 options to employees
 below estimated fair
 value on date
 of grant...............      --     --        12,731         --       (12,731)         --           --            --
Amortization of deferred
 compensation...........      --     --           --          --         5,699          --           --          5,699
Issuance of stock
 options to
 non-employees..........      --     --         3,691         --        (3,691)         --           --            --
Foreign currency
 adjustment.............      --     --           --          --           --           --            (1)           (1)
Net unrealized
 appreciation in
 available-for-sale
 securities.............      --     --           --          --           --           --        22,785        22,785
LLC termination (Note
 2).....................      --     --        (8,657)      8,657          --           --           --            --
Distribution to former
 LLC members............      --     --           --      (10,676)         --           --           --        (10,676)
Other...................     (429)   --          (157)        --           207          --           --             50
Net loss................      --     --           --      (29,777)         --           --           --        (29,777)
                          -------  -----   ----------    --------    ---------    ---------     --------    ----------
Balance as of December
 31, 1999...............  263,579  $ 264   $1,513,615    $(26,539)   $ (11,846)   $ (79,790)    $ 24,517    $1,420,221
                          =======  =====   ==========    ========    =========    =========     ========    ==========
See notes to consolidated financial statements.

                                      F-7
INTERNET CAPITAL GROUP, INC.

             Consolidated Statements of Comprehensive Income (Loss)
Year Ended December 31,
                                                     -------------------------
                                                      1997     1998     1999
                                                     -------  ------- --------
                                                          (in thousands)
Net Income (Loss)................................... $(6,580) $13,899 $(29,777)
                                                     -------  ------- --------
Other Comprehensive Income (Loss) Before Tax
  Unrealized holding gains in available-for-sale
   securities.......................................     --     1,733   38,039
  Foreign currency translation adjustment...........     --       --        (1)
  Reclassification adjustments......................     --       --    (2,051)
Tax Related to Comprehensive Income (Loss)
  Unrealized holding gains in available-for-sale
   securities.......................................     --       --   (13,920)
  Reclassification adjustments......................     --       --       717
                                                     -------  ------- --------
Other Comprehensive Income..........................     --     1,733   22,784
                                                     -------  ------- --------
Comprehensive Income (Loss)......................... $(6,580) $15,632 $ (6,993)
                                                     =======  ======= ========
See notes to consolidated financial statements.

                                      F-8
INTERNET CAPITAL GROUP, INC.

                     Consolidated Statements of Cash Flows
Year Ended December 31,
                                               ------------------------------
                                                 1997      1998       1999
                                               --------  --------  ----------
                                                      (in thousands)
Operating Activities
Net income (loss)............................. $ (6,580) $ 13,899  $  (29,777)
Adjustments to reconcile to net cash used in
 operating activities:
  Other income................................      --    (30,483)    (67,636)
  Depreciation and amortization...............      446     1,135      12,742
  Equity (income) loss........................     (106)    5,869      92,099
  Minority interest...........................      106    (5,382)     (6,026)
  Deferred taxes..............................      --        --      (23,722)
Changes in assets and liabilities, net of
 effect of acquisitions:
  Accounts receivable, net....................    1,574    (1,183)     (4,278)
  Prepaid expenses and other assets...........     (142)   (1,347)    (28,603)
  Accounts payable............................      566       620       7,194
  Deferred revenue............................      494     1,250         (49)
  Accrued expenses............................      205     1,415       6,700
                                               --------  --------  ----------
    Net cash used in operating activities.....   (3,437)  (14,207)    (41,356)
Investing Activities
  Capital expenditures........................     (272)     (545)     (7,120)
  Proceeds from sales of available-for-sale
   securities.................................      --     36,431       2,496
  Proceeds from sales of Partner Company
   ownership interests........................      --        300       3,506
  Advances to Partner Companies...............   (2,800)  (12,779)     (9,679)
  Repayment of advances to Partner Companies..      950       677       4,581
  Acquisitions of ownership interests in
   Partner Companies..........................  (14,466)  (35,822)   (329,161)
  Other acquisitions (Note 5).................      --     (1,858)     (9,732)
  Other advances..............................      --        --      (12,850)
  Purchase of short-term investments..........      --        --      (22,279)
  Proceeds from maturities of short-term
   investments................................      --        --       18,920
  Reduction in cash due to deconsolidation of
   Partner Companies..........................      --        --      (13,393)
                                               --------  --------  ----------
    Net cash used in investing activities.....  (16,588)  (13,596)   (374,711)
Financing Activities
  Issuance of common stock, net...............   20,138    38,205   1,077,405
  Long-term debt and capital lease
   repayments.................................      (58)     (322)       (448)
  Proceeds from convertible subordinated
   notes......................................      --        --      656,250
  Line of credit borrowings...................    2,500     2,000      25,000
  Line of credit repayments...................       (2)   (2,500)    (25,281)
  Distribution to former LLC members..........      --        --      (10,676)
  Advances to employees.......................      --        --       (8,765)
  Treasury stock purchase by subsidiary.......      --        --       (4,469)
  Issuance of stock by subsidiary.............      200    11,293      23,669
                                               --------  --------  ----------
    Net cash provided by financing
     activities...............................   22,778    48,676   1,732,685
                                               --------  --------  ----------
Net Increase in Cash and Cash Equivalents.....    2,753    20,873   1,316,618
Cash and cash equivalents at beginning of
 period.......................................    3,215     5,968      26,841
                                               --------  --------  ----------
Cash and Cash Equivalents at End of Period.... $  5,968  $ 26,841  $1,343,459
                                               ========  ========  ==========
See notes to consolidated financial statements.

                                      F-9
INTERNET CAPITAL GROUP, INC.

                 Notes to the Consolidated Financial Statements

1. Significant Accounting Policies

      Internet Capital Group, Inc. (or the "Company") was formed on March 4,
1996. The Company is an Internet company actively engaged in business-to-
business, or B2B, e-commerce through a network of companies. The Company
defines e-commerce as conducting or facilitating business transactions over the
Internet. As of December 31, 1999, the Company owned interests in 49 companies
engaged in e-commerce, which the Company calls its "Partner Companies". The
Company's goal is to become the premier B2B e-commerce company. The Company's
operating strategy is to integrate its Partner Companies into a collaborative
network that leverages the collective knowledge and resources of the Company
and the network.

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

      Basis of Presentation

      On February 2, 1999, the Company converted from a Limited Liability
Corporation ("LLC") to a Corporation. All shareholder transactions have been
presented as if the conversion occurred on March 4, 1996.

      The consolidated financial statements include the accounts of the
Company, its wholly owned subsidiaries, Internet Capital Group Operations, Inc.
(the "Operations Company") and Internet Capital Group (Europe) Limited, and its
majority owned subsidiaries, VerticalNet, Inc. ("VerticalNet") for the years
ended December 31, 1997 and 1998 and Animated Images, Inc., ("Animated
Images"), CyberCrop.com, Inc., ("CyberCrop.com"), EmployeeLife.com, ICG
Commerce, Inc. ("ICG Commerce") and iParts for portions of the year ended
December 31, 1999.

      Additionally, the consolidated financial statements for the year ended
December 31, 1999 reflect Breakaway Solutions' results of operations and cash
flows as a consolidated company from the date of acquisition through September
1999 and accounted for under the equity method for the remainder of the year
due to the decrease in the Company's direct and indirect voting ownership
interest to below 50% in October 1999 as a result of Breakaway Solutions'
initial public offering.

      In December 1999, the Company recorded a two for one stock split effected
as a one hundred percent (100%) stock dividend. The common stock and additional
paid-in capital accounts and all share and per share amounts have been
retroactively restated in these financial statements to give effect to this
stock dividend.

      Principles of Accounting for Ownership Interests in Partner Companies

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

      Consolidation. Partner Companies in which the Company directly or
indirectly owns more than 50% of the outstanding voting securities are
generally accounted for under the consolidation method of accounting. Under
this method, a Partner Company's results of operations are reflected within the
Company's Consolidated Statements of Operations. All significant intercompany
accounts and transactions are eliminated. Participation of other Partner
Company shareholders in the earnings or losses of a consolidated Partner
Company is reflected in the caption "Minority interest" in the Company's
Consolidated Statements of Operations. Minority interest adjusts the Company's
consolidated results of operations to reflect only the Company's share of the
earnings or

                                      F-10
INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Significant Accounting Policies (Continued)

losses of the consolidated Partner Company. The results of operations and cash
flows of a Consolidated Partner Company are included through the latest interim
period in which the Company owned a greater than 50% direct or indirect voting
ownership for the entire interim period. Upon dilution of control below 50%,
the accounting method is adjusted to the equity or cost method of accounting,
as appropriate, for subsequent periods.

      In 1999, the Company acquired a controlling majority interest in
Breakaway Solutions, Inc. for $17.2 million and in Animated Images,
CyberCrop.com, EmployeeLife.com, ICG Commerce and iParts ("Other Majority Owned
Subsidiaries") for $29.8 million in the aggregate. Breakaway Solutions'
operations have historically consisted primarily of implementation of customer
relational management systems and custom integration to other related
applications. In 1999, Breakaway Solutions expanded to provide service
offerings in custom web development and application hosting both through
internal expansion and acquisitions. Breakaway Solutions' revenue is generally
recognized upon performance of services. ICG Commerce provides strategic
sourcing consulting and on-line internet purchasing. The Other Majority Owned
Subsidiaries, excluding ICG Commerce, are development stage companies that have
generated negligible revenue since their inception. In connection with the
acquisition of its ownership interest in Breakaway Solutions and the Other
Majority Owned Subsidiaries, the Company recorded the excess of cost over net
assets acquired of $13.0 million and $11.8 million, respectively, as goodwill
which is being amortized over three years. Breakaway Solutions had revenue of
$10.0 million and $25.4 million for the years ended December 31, 1998 and 1999,
respectively. ICG Commerce had revenue of $1.3 million for the year ended
December 31, 1999.

      Direct and indirect voting interest in Animated Images, CyberCrop.com,
EmployeeLife.com, ICG Commerce, and iParts at December 31, 1999 was 50.1%, 80%,
52%, 60%, and 67%, respectively.

      During the periods ended December 31, 1996, 1997 and 1998 the Company
acquired equity ownership interests in VerticalNet for $1.0 million, $2.0
million and $4.0 million, respectively. The excess of cost over net assets
acquired related to the 1996 and 1997 acquisitions was $.7 million and $.8
million, respectively. The Company's carrying value of VerticalNet, including
the excess of cost over net assets acquired related to the 1996 and 1997
acquisitions, was reduced to below zero and became a liability as a result of
consolidating VerticalNet's losses after amounts attributed to Minority
Interest were exhausted. For the same reason, the 1998 acquisition did not
result in an intangible asset. In 1998, the Company made advances in the form
of convertible notes to VerticalNet of $5.0 million. Of this amount, $.8
million was repaid by VerticalNet, $2.1 million was purchased from the Company
by one of its principal shareholders, and $2.1 million was converted into
common stock during the year ended December 31, 1999. The Company's direct and
indirect voting interest in VerticalNet at December 31, 1997 and 1998 was 63%
and 52%, respectively. The consolidated financial statements for the year ended
December 31, 1999, reflect VerticalNet accounted for on the equity method of
accounting due to the decrease in the Company's ownership interest to below 50%
in February 1999 as a result of VerticalNet's initial public offering.

      Equity Method. Partner Companies whose results are not consolidated, but
over whom the Company exercises significant influence, are accounted for under
the equity method of accounting. Whether or not the Company exercises
significant influence with respect to a Partner Company depends on an
evaluation of several factors including, among others, representation on the
Partner Company's Board of Directors and ownership level, which is generally a
20% to 50% interest in the voting securities of the Partner Company, including
voting rights associated with the Company's holdings in common, preferred and
other convertible instruments in the Partner Company. Under the equity method
of accounting, a Partner Company's results of operations are not reflected
within the Company's Consolidated Statements of Operations; however, the
Company's share of the earnings or losses of the Partner Company is reflected
in the caption "Equity income (loss)" in the Consolidated Statements of
Operations.

                                      F-11
INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Significant Accounting Policies (Continued)

      The amount by which the Company's carrying value exceeds its share of the
underlying net assets of Partner Companies accounted for under the
consolidation or equity methods of accounting is amortized on a straight-line
basis over three years which adjusts the Company's share of the Partner
Company's earnings or losses. Goodwill amortization of consolidated companies
is included in selling, general, and administrative, while goodwill
amortization of equity method companies is included in equity income (loss).

      Cost Method. Partner Companies not accounted for under the consolidation
or the equity method of accounting are accounted for under the cost method of
accounting. Under this method, the Company's share of the earnings or losses of
such companies is not included in the Consolidated Statements of Operations.
However, cost method Partner Company impairment charges are recognized in the
Consolidated Statement of Operations with the new cost basis not written-up if
circumstances suggest that the value of the Partner Company has subsequently
recovered.

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

      The Company continually evaluates the carrying value of its ownership
interests in and advances to each of its Partner Companies for possible
impairment based on achievement of business plan objectives and milestones, the
value of each ownership interest in the Partner Company relative to carrying
value, the financial condition and prospects of the Partner Company, and other
relevant factors. The business plan objectives and milestones the Company
considers include, among others, those related to financial performance such as
achievement of planned financial results or completion of capital raising
activities, and those that are not primarily financial in nature such as the
launching of a web site or the hiring of key employees. The fair value of the
Company's ownership interests in and advances to privately held Partner
Companies is generally determined based on the value at which independent third
parties have or have committed to invest in its Partner Companies.

      Revenue Recognition

      All of the Company's revenue during 1997 and 1998 was attributable to
VerticalNet.

      VerticalNet's revenue is derived principally from advertising contracts
which include the initial development of storefronts. A storefront is a Web
page posted on one of VerticalNet's trade communities that provides information
on an advertiser's products, links a visitor to the advertiser's Web site and
generates sales inquiries from interested visitors. The advertising contracts
generally do not extend beyond one year. Advertising revenue is recognized
ratably over the period of the advertising contract. Deferred revenue of $2.2
million at December 31, 1998 represents the unearned portion of advertising
contracts for which revenue will be recognized over the remaining period of the
advertising contract.

      VerticalNet also generates revenue through providing educational courses
and selling books. Revenue from educational courses is recognized in the period
in which the course is completed and revenue from the sale of books is
recognized in the period in which the books are shipped.

                                      F-12
INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Significant Accounting Policies (Continued)

      Barter transactions are recorded at the lower of estimated fair value of
goods or services received or the estimated fair value of the advertisements
given. Barter revenue is recognized when the VerticalNet advertising
impressions (VNAI) are delivered to the customer and advertising expense is
recorded when the customer advertising impressions (CAI) are received from the
customer. If the CAI are received from the customer prior to VerticalNet
delivering the VNAI, a liability is recorded, and if VerticalNet delivers the
VNAI to the customer prior to receiving the CAI, a prepaid expense is recorded.
For the period March 4, 1996 (inception) through December 31, 1997, VerticalNet
barter transactions were immaterial. For the year ended December 31, 1998,
VerticalNet recognized approximately $.6 million and $.5 million of advertising
revenues and expenses, respectively, from barter transactions. Included in
prepaid expenses and other current assets at December 31, 1998 is approximately
$.2 million relating to barter transactions.

      The Company's 1999 revenue was attributable to its consolidated
subsidiaries, including Animated Images, Breakaway Solutions, and ICG Commerce.
Due to Breakaway Solutions' initial public offering in October 1999, our voting
ownership interest in Breakaway Solutions decreased below 50%, therefore, we
apply the equity method of accounting beginning in October 1999. The Company's
other consolidated entities, CyberCrop.com, EmployeeLife.com, and iParts, have
generated negligible revenue since their inception.

      Animated Images, Breakaway Solutions and ICG Commerce's revenues are
generally recognized as services are rendered.

      Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. Certain
amounts recorded to reflect our share of losses of partner companies accounted
for under the equity method are based on unaudited results of operations of
those partner companies and may require adjustments in the future when audits
of these entities are made final.

      Cash and Cash Equivalents

      The Company considers all highly liquid instruments with an original
maturity of 90 days or less at the time of purchase to be cash equivalents.
Cash and cash equivalents at December 31, 1998 and 1999 are invested
principally in money market accounts and commercial paper.

      Short-term Investments

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

      Financial Instruments

      Cash and cash equivalents, accounts receivable, accounts payable and
accrued expenses are carried at cost which approximates fair value due to the
short-term maturity of these instruments. The Company's interests in public
Partner Companies accounted for under the equity method of accounting had a
fair value of $2.6 billion as of December 31, 1999 compared to a carrying value
of $42.6 million. Available-for-sale securities are carried at fair value.
Long-term debt is carried at cost which approximates fair value as the debt
bears interest at rates approximating current market rates. The Company's
convertible subordinated notes had a fair value of $835.2 million as of
December 31, 1999 versus a carrying value of $566.3 million.

                                      F-13
INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Significant Accounting Policies (Continued)

      Available-for-Sale Securities

      Available-for-sale securities are reported at fair value, based on quoted
market prices, with the net unrealized gain or loss reported as a component of
"Accumulated other comprehensive income" in shareholders' equity.

      Unrealized gains or losses related to available-for-sale securities are
recorded net of deferred taxes subsequent to February 2, 1999, the date the
Company converted from an LLC to a corporation.

      Intangibles

      Goodwill, the excess of cost over net assets of businesses acquired, and
other intangible assets are amortized on a straight-line basis over three to
five years. Goodwill at December 31, 1998 of $2.5 million, net of accumulated
amortization of $.3 million, was attributable to acquisitions by VerticalNet.
Goodwill and other intangible assets at December 31, 1999 of $23.6 million, net
of accumulated amortization of $1.1 million, is attributable to the Company's
acquisitions of ownership interests in Animated Images, Inc. ($6.6 million),
CyberCrop.com ($0.8 million), EmployeeLife.com ($1.1 million), ICG Commerce
($2.2 million) and iParts ($0.1 million) and ICG Commerce's acquisitions of
Purchasing Group, Inc and Integrated Sourcing, LLC ($12.8 million). Goodwill
related to the acquisition of Breakaway during 1999 was reclassified as of
December 31, 1999 in connection with the deconsolidation of Breakaway. The
carrying value of goodwill is evaluated for possible impairment based on
achievement of business plan objectives and milestones, the fair value of each
ownership interest in and advances to the partner company relative to carrying
value, the financial condition and prospects of the partner company, and other
relevant factors. If impairment exists, the carrying amount of the goodwill
will be reduced by the estimated shortfall of discounted cash flows.

      Fixed Assets

      Fixed assets are carried at cost less accumulated depreciation, which is
based on the estimated useful lives of the assets computed using the straight-
line method. Computer equipment and software, and office equipment have an
estimated useful life of three years, and furniture has an estimated useful
life of seven years. Leasehold improvements are amortized on a straight-line
basis over the lesser of the estimated useful life of the asset or the lease
term.

      Equipment acquired under long-term capital lease arrangements is recorded
at amounts equal to the net present value of the future minimum lease payments
using the interest rate implicit in the lease. Amortization is provided by use
of the straight-line method over the estimated useful lives of the related
assets.

      Income Taxes

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

      From the Company's inception in March 1996 to February 1999, the Company
was not subject to federal and state income taxes (Note 2).

                                      F-14
INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Significant Accounting Policies (Continued)

      Net Income (Loss) Per Share

      Net income (loss) per share (EPS) is computed using the weighted average
number of common shares outstanding during each year. Diluted EPS includes
common stock equivalents (unless anti-dilutive) which would arise from the
exercise of stock options and conversion of other convertible securities and is
adjusted, if applicable, for the effect on net income (loss) of such
transactions and for the effect on net income (loss) of the Company's share of
dilution related to Partner Companies which are consolidated or accounted under
the equity method of accounting.

      Pursuant to SEC Staff Accounting Bulletin No. 98, common stock and
convertible preferred stock issued for nominal consideration, prior to the
anticipated effective date of an IPO, are required to be included in the
calculation of basic and diluted net income per share as if they were
outstanding for all periods presented. To date, the Company has not had any
issuances or grants for nominal consideration.

      Gain or Loss on Issuances of Stock By Partner Companies

      Pursuant to SEC Staff Accounting Bulletin No. 84, at the time a Partner
Company accounted for under the consolidation or equity method of accounting
issues its common stock at a price different from the Partner Company's book
value per share, the Company's share of the Partner Company's net equity
changes. If at that time, the Partner Company is not a newly-formed, non-
operating entity, nor a research and development, start-up or development stage
company, nor is there question as to the Company's ability to continue in
existence, the Company records the change in its share of the Partner Company's
net equity as a gain or loss in its Consolidated Statements of Operations.

      Foreign Currency Translation

      The functional currency for the Company's international subsidiary is the
local currency of the country in which it operates. Assets and liabilities are
translated using the exchange rate at the balance sheet date. Revenue,
expenses, gains and losses are translated at the average exchange rate in the
month those elements are recognized. Translation adjustments, which have not
been material to date, are included in other comprehensive income (loss).

      Stock Based Compensation

      The Company has adopted Statement of Financial Accounting No. 123,
Accounting for Stock Based Compensation (SFAS 123). As permitted by SFAS No.
123, the Company measures compensation cost in accordance with Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees
and related interpretations. Accordingly, no accounting recognition is given to
stock options issued to employees that are granted at fair market value until
they are exercised. Stock options issued to non-employees are recorded at fair
value at the date of grant. Fair value is determined using the Black-Scholes
method and the expense is amortized over the vesting period. Upon exercise, net
proceeds, including tax benefits realized, are credited to equity.

      Comprehensive Income (Loss)

      The Company reports and displays comprehensive income (loss) and its
components in the Consolidated Statements of Comprehensive Income (Loss).
Comprehensive income (loss) is the change in equity of a business enterprise
during a period from transactions and other events and circumstances from non-
owner sources. Excluding net income (loss), the Company's sources of
comprehensive income (loss) is from net unrealized appreciation on its
available-for-sale securities and foreign currency translation adjustments;
such

                                      F-15
INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1. Significant Accounting Policies (Continued)

translation adjustments have been negligible through December 31, 1999.
Reclassification adjustments result from the recognition in net income of gains
or losses that were included in comprehensive income (loss) in prior periods.

      Reclassifications

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

      Recent Accounting Pronouncements

      The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flows.

2. Pro Forma Information (Unaudited)

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

      Pro Forma Income Taxes

      The Company's 1998 and 1999 pro forma effective tax rate of 37% and 30%,
respectively, differed from the federal statutory rate of 35% principally due
to non-deductible permanent differences.

      Based upon the cumulative temporary differences (primarily relating to
the difference between the book and tax carrying value of its Partner
Companies), the Company would have recognized a pro forma net deferred federal
and state asset of $8.2 million at December 31, 1998. In the opinion of
management, it is more likely than not that such asset would be realized and
accordingly, a valuation allowance was not considered necessary in calculating
this pro forma amount.

      In 1998, the difference between basic and diluted weighted average shares
outstanding of 94,000 was due to the dilutive effect of stock options.

                                      F-16
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

3. Net Income (Loss) per Share

      The calculations of Net Income (Loss) per Share were:
Year Ended December 31,
                                                     -------------------------
                                                      1997     1998     1999
                                                     -------  ------- --------
                                                          (in thousands
                                                         except per share
                                                             amounts)
Basic
     Net Income (loss).............................. $(6,580) $13,899 $(29,777)
                                                     -------  ------- --------
     Average common shares outstanding..............  68,198  112,205  201,851
                                                     =======  ======= ========
     Basic.......................................... $ (0.10) $  0.12 $  (0.15)
                                                     =======  ======= ========
   Diluted
     Net Income (loss).............................. $(6,580) $13,899 $(29,777)
                                                     -------  ------- --------
     Average common shares outstanding..............  68,198  112,205  201,851
     Effect of dilutive securities..................     --        94      --
                                                     -------  ------- --------
     Average common shares assuming dilution........  68,198  112,299  201,851
                                                     =======  ======= ========
     Diluted........................................ $ (0.10) $  0.12 $  (0.15)
                                                     =======  ======= ========
Options to purchase 188,000 and 5,173,000 shares of common stock at
average prices of $0.50 and $23.74, respectively, were outstanding as of
December 31, 1997 and 1999, but were not included in the computation of diluted
EPS. Warrants to purchase 2,215,717 shares of common stock at $6.00 per share
were outstanding as of December 31, 1999, but were not included in the
computation of diluted EPS. Convertible subordinated notes convertible into
4,443,267 shares of common stock were outstanding as of December 31, 1999, but
were not included in the computation of diluted EPS. An option to convert a
Note Payable into 1,049,426 shares of common stock was outstanding as of
December 31, 1999, but was not included in the computation of diluted EPS.
These options and warrants are not included in diluted EPS as their effect
would have been anti-dilutive.

4. Ownership Interests in and Advances to Partner Companies

      The following summarizes the Company's ownership interests in and
advances to Partner Companies accounted for under the equity method or cost
method of accounting. The ownership interests are classified according to
applicable accounting methods at December 31, 1998 and 1999. Cost basis
represents the Company's original acquisition cost less any impairment charges
in such companies.
As of December 31, 1998   As of December 31, 1999
                             ------------------------- -------------------------
                             Carrying Value Cost Basis Carrying Value Cost Basis
                             -------------- ---------- -------------- ----------
                                               (in thousands)
Equity Method............    $21,311      $27,588      $491,977     $578,922
   Cost Method..............     38,181       38,181        55,362       55,362
                                -------                   --------
                                $59,492                   $547,339
                                =======                   ========
At December 31, 1999 the Company's carrying value in its Partner
Companies accounted for under the equity method of accounting exceeded its
share of the underlying equity in the net assets of such companies by $293.7
million. This excess relates to ownership interests acquired through December
31, 1999 and is being amortized over a three year period. Amortization expense
of $.4 million and $19.8 million is included in

                                      F-17
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

4. Ownership Interests in and Advances to Partner Companies (Continued)

"Equity income (loss)" in the accompanying Consolidated Statements of
Operations for the years ended December 31, 1998 and 1999, respectively.

      During the year ended December 31, 1999 the Company acquired an interest
in a new Partner Company from shareholders of the Partner Company who have an
option, exercisable at any time through August 2000, of electing to receive
cash of $11.3 million or 2,083,334 shares of the Company's common stock. As of
December 31, 1999, $5.6 million of the obligation has been converted into
1,033,908 shares of the Company's common stock.

      During the year ended December 31, 1999 the Company acquired an interest
in a new Partner Company from shareholders of the Partner Company by exchanging
852,631 shares of the Company's common stock, valued at $150.2 million, as
consideration, in addition to cash.

      During the year ended December 31, 1999 the Company acquired an interest
in a new Partner Company by issuing a short-term note payable for $21.2
million, net of imputed interest of $1.8 million, in addition to cash.

      During the year ended December 31, 1999 the Company acquired an interest
in a new Partner Company by committing $7 million in cash consideration to be
paid in 2000, in addition to cash consideration paid in 1999.

      As of December 31, 1999, the Company had $9.6 million in advances to
Partner Companies which mature on various dates through 2004 and bear interest
rates between 5.25% and 12.50% and are convertible into the Partner Companies'
equity.

      The following unaudited summarized financial information for Partner
Companies accounted for under the equity method of accounting at December 31,
1998 and 1999 and for each of the years in the three-year period ending
December 31, 1999 has been compiled from the financial statements of the
respective Partner Companies.

Balance Sheets
As of December
                                                                     31,
                                                               ----------------
                                                                1998     1999
                                                               ------- --------
                                                                (in thousands)
Current assets................................................ $33,645 $494,745
Non-current assets............................................   7,148  329,133
                                                               ------- --------
  Total assets................................................ $40,793 $823,878
                                                               ------- --------
Current liabilities...........................................  11,712  149,799
Non-current liabilities.......................................     759  268,197
Shareholder's equity..........................................  28,322  405,882
                                                               ------- --------
  Total liabilities and Shareholders' equity.................. $40,793 $823,878
                                                               ======= ========
Results of Operations
Year Ended December
                                                    ---------------------------
                                                     1997     1998      1999
                                                    ------- --------  ---------
                                                          (in thousands)
Revenue............................................ $18,912 $ 21,496  $ 192,759
Net income (loss).................................. $   255 $(14,969) $(254,027)
F-18
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

5. Other Acquisitions

      During 1999, the Company expended approximately $29.8 million to acquire
interests in five companies that it owns a direct or indirect interest of more
than 50% of the outstanding voting securities as of December 31, 1999. The
Company accounts for these Partner Companies under the consolidation method of
accounting, and accordingly, the purchase price of these acquisitions has been
allocated to the assets purchased and liabilities assumed based upon their fair
values at the dates of acquisition. The consolidated financial statements
reflect the operations and cash flows of the acquired interests since the
respective acquisition dates. The excess of the purchase price over the fair
value of the net assets acquired of approximately $11.8 million was recorded as
goodwill and is being amortized over three years. Accumulated amortization
relating to this goodwill totaled $1.1 million at December 31, 1999.

      In May 1999, the Company expended approximately $3.9 million in the
acquisition of its interest in EmployeeLife.com, which provides Internet-based
solutions that enable the online procurement and management of employee health
and welfare benefits.

      In June 1999, the Company expended approximately $.8 million in the
acquisition of its interest in iParts, which provides Internet-based sales and
distribution of electronic components.

      In September 1999, the Company expended approximately $3.9 million and
$9.2 million in its acquisitions of its interests in CyberCrop.com and Animated
Images, respectively. Cybercrop.com is developing a system to provide an
Internet-based service for agriculture producers to purchase services and
inputs, as well as market their grain crops that include corn, wheat and
soybeans. Animated Images provides Internet-based design, communication, and
procurement services for the apparel and sewn goods industries.

      In October 1999, the Company expended $12 million in its acquisition of
its interest in ICG Commerce which provides strategic sourcing consulting and
on-line Internet purchasing. In 1999, ICG Commerce acquired all of the
outstanding capital stock of Purchasing Group, Inc. (PGI) and Integrated
Sourcing, LLC (ISL) from two of ICG Commerce's founders for $14.9 million in
cash and notes payable to these founders. These acquisitions were accounted for
using the purchase method of accounting. The excess of purchase price over the
fair value of the net assets acquired of approximately $12.9 million was
recorded as goodwill and is being amortized over 5 years. Accumulated
amortization relating to this goodwill totaled $0.8 million at December 31,
1999.

      The following unaudited pro forma financial information presents the
combined results of operations as if the Company had owned EmployeeLife.com,
iParts, CyberCrop.com, Animated Images, and ICG Commerce since January 1, 1998;
and is if ICG Commerce had owned PGI and ISL since January 1, 1998, after
giving effect to certain adjustments including goodwill and income taxes. The
unaudited pro forma financial information is provided for informational
purposes only and should not be construed to be indicative of the Company's
consolidated results of operations had the acquisitions been consummated on the
dates assumed and do not project the Company's results of operations for any
future period:
Year Ended
                                                               December 31,
                                                             -----------------
                                                              1998      1999
                                                             -------  --------
                                                               (Unaudited)
                                                              (in thousands)
Revenue..................................................... $11,441  $ 24,477
Pro forma net income (loss)................................. $ 9,788  $(32,486)
Pro forma net income (loss) per share....................... $ (0.09) $  (0.16)
These pro forma amounts exclude the impact of 12 acquisitions of equity
method Partner Companies consummated or announced through March 8, 2000.

                                      F-19
INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Fixed Assets

      Fixed assets consists of the following:
As of December
                                                                   31,
                                                             ----------------
                                                              1998     1999
                                                             -------  -------
                                                             (in thousands)
Computer equipment and software, office equipment and
 furniture.................................................. $ 1,877  $ 2,855
Construction in progress....................................     --     1,483
Leasehold improvements......................................      46      354
                                                             -------  -------
                                                               1,923    4,692
Less: accumulated depreciation and amortization.............    (772)    (677)
                                                             -------  -------
                                                             $ 1,151  $ 4,015
                                                             =======  =======
7. Debt

      Convertible Subordinated Notes

      In May, 1999, the Company issued $90 million of convertible subordinated
notes which converted to 14,999,732 shares of the Company's common stock upon
the completion of the Company's initial public offering in August 1999. The
notes bore interest at an annual rate of 4.99% during the first year and at the
prime rate for the remaining two years. In connection with the conversion of
these notes, all accrued interest was waived and reclassed to additional paid-
in-capital and the Company issued 3,000,000 warrants to purchase the Company's
common stock at $6 per share (the IPO price) through May 2002 which will
increase additional paid-in capital upon exercise. The warrants may also be
exercised by a cashless exercise or net issue, whereby a portion of the
warrants are forfeited based upon an average fair market price in place of
cash. During 1999, 661,434 and 122,849 shares of the Company's common stock
were issued in connection with cash and net issue warrant exercises,
respectively.

      In December, 1999, the Company issued $566.3 million of convertible
subordinated notes. The notes bear interest at an annual rate of 5.5% and
mature in December, 2004. The notes are convertible at the option of the
holder, at any time on or before maturity into shares of the Company's common
stock at a conversion price of $127.44 per share, which is equal to a
conversion rate of 7.8468 shares per $1,000 principal of notes. Additionally,
the notes may be redeemed by the Company if the Company's closing stock price
exceeds 150% of the conversion price then in effect for at least 20 trading
days within a period of 30 consecutive trading days. The conversion rate is
subject to adjustment. The Company recorded interest expense of $1.0 million
relating to these notes during 1999 with the first interest payment due June
21, 2000 and subsequent interest payments due each six months following through
December 21, 2004. Issuance costs of $18.3 million were recorded in other
assets and are being amortized as interest expense over the term of the notes
using the effective interest method.

      Revolving Credit Facilities

      In March 1998, the Company entered into an unsecured $3 million revolving
credit facility. Borrowings under this facility accrued interest at a premium
to prime ranging from .75% to 1.5%. The Company borrowed up to $2 million under
this facility during 1998. No amounts were outstanding at December 31, 1998 and
the facility expired in March 1999.

      In April 1999, the Company entered into a $50 million revolving bank
credit facility. In connection with the facility, the Company issued 400,000
warrants exercisable for seven years at $5 per share. The warrants,

                                      F-20
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

7. Debt (Continued)

valued at $1.0 million, were recorded as debt issuance costs in other assets
and additional paid-in-capital and are being amortized to interest expense
over the one year term of the credit facility.

      The facility expires in April 2000, is subject to a .25% unused
commitment fee, bears interest, at the Company's option, at prime and/or LIBOR
plus 2.5%, and is secured by substantially all of the Company's assets.
Borrowing availability under the facility is based on the fair market value of
the Company's holdings of publicly traded Partner Companies and the value, as
defined in the facility, of the Company's private Partner Companies. During
year ended December 31, 1999, the Company borrowed and repaid $25 million
under the facility. The Company is currently in negotiations to replace this
line of credit on or before its expiration date.

      EmployeeLife.com has a $1,000,000 revolving credit facility and a
$500,000 equipment line of credit at December 31, 1999. Borrowings under the
credit facility accrue interest at a rate of prime plus .75% and the equipment
line of credit accrues interest at the two year treasury rate plus 1.75%. No
amounts were outstanding at December 31, 1999. The revolving credit facility
expires in March 2001 and the equipment line expires in June 2000.

      Long-Term Debt

      The Company's long-term debt relates to its Consolidated Partner
Companies, is non-recourse to the Company, and consists of the following:
As of
                                                                 December 31,
                                                                 --------------
                                                                 1998    1999
                                                                 -----  -------
                                                                      (in
                                                                  thousands)
Term notes with related parties................................. $ --   $ 6,136
Capital leases..................................................   640       49
                                                                 -----  -------
                                                                   640    6,185
Less: current portion...........................................  (288)  (3,000)
                                                                 -----  -------
Long-term debt.................................................. $ 352  $ 3,185
                                                                 =====  =======
The term notes with related parties of ICG Commerce and EmployeeLife.com
relate to a secured notes due to shareholders with interest rates ranging from
8.0% to 9.25% at December 31, 1999. These notes will mature through 2001.

      CyberCrop.com has capital leases on its equipment with a lease term of
five years. The interest rate implicit in the leases is 11.0%. At December 31,
1999, the book value of assets held under capital leases was approximately
equal to the principal balance due.

      At December 31, 1999, long-term debt, including capital leases, is
scheduled to mature as follows:
(in thousands)
2000.......................................................     $3,000
      2001.......................................................      3,158
      2002.......................................................         18
      2003.......................................................          6
      2004.......................................................          3
                                                                      ------
        Total....................................................     $6,185
                                                                      ======
F-21
INTERNET CAPITAL GROUP, INC.

          NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Other Liability

      In October 1999, ICG Commerce sold shares of redeemable convertible
preferred stock that are convertible, at the option of the holder, into common
stock. The $4.3 million balance as of December 31, 1999 represents those shares
sold to a holder other than the Company and the related accrued dividend
payable. Upon conversion of this other liability balance by the holder,
minority interest will be increased.

9. Accrued Expenses

      Accrued expenses consists of the following:
As of
                                                                  December 31,
                                                                  -------------
                                                                   1998   1999
                                                                  ------ ------
                                                                       (in
                                                                   thousands)
Accrued compensation and benefits................................ $  454 $  868
Accrued interest.................................................    --     952
Accrued marketing costs..........................................    446    --
Other............................................................    923  2,385
                                                                  ------ ------
                                                                  $1,823 $4,205
                                                                  ====== ======
10. Segment Information

      The Company's reportable segments, using the "management approach",
consist of Partner Company Operations and General ICG Operations. Partner
Company Operations includes the effect of consolidating VerticalNet for the
year ended December 31, 1997 and December 31, 1998 and Animated Images,
Breakaway Solutions, CyberCrop.com, EmployeeLife.com, ICG Commerce, and iParts
for the period from acquisition in 1999 through December 31, 1999, excluding
results of operations subsequent to de-consolidation, if applicable, and
recording the Company's share of earnings and losses of Partner Companies
accounted for under the equity method of accounting. VerticalNet's operations
include creating and operating industry-specific trade communities on the
Internet. Breakaway Solutions' operations include implementation of various
computer applications. Animated Images' operations include software development
and consulting services and ICG Commerce's operations include purchasing
services and consulting services. CyberCrop.com, EmployeeLife.com and iParts
are development stage companies that have generated negligible revenue since
their inception. Partner Companies accounted for under the equity method of
accounting operate in various Internet-related businesses. General ICG
Operations represents the expenses of providing strategic and operational
support to the Internet-related Partner Companies, as well as the related
administrative costs. General ICG Operations also includes the effect of
transactions and other events incidental to the Company's general operations
and the Company's ownership interests in and advances to Partner Companies. The
Company's and Partner Companies' operations were principally in the United
States of America during 1997, 1998 and 1999.

                                      F-22
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

10. Segment Information (Continued)

        The following summarizes the information related to the Company's
segments. All significant intersegment activity has been eliminated. Assets are
owned or allocated assets used by each operating segment.
Year Ended December 31,
                                                  ----------------------------
                                                   1997      1998      1999
                                                  -------  --------  ---------
                                                        (in thousands)
Partner Company Operations
  Revenue........................................ $   792  $  3,135  $  16,536
                                                  -------  --------  ---------
Operating expenses
  Cost of revenue................................   1,767     4,643      8,156
  Selling, general and administrative............   3,689    12,001     25,535
                                                  -------  --------  ---------
  Total operating expenses.......................   5,456    16,644     33,691
                                                  -------  --------  ---------
                                                   (4,664)  (13,509)   (17,155)
  Other income (expense), net....................     --        --        (258)
  Interest income................................      11       212        243
  Interest expense...............................    (126)     (297)      (175)
                                                  -------  --------  ---------
  Income (loss) before income taxes, minority
   interest and equity income (loss).............  (4,779)  (13,594)   (17,345)
  Income taxes...................................     --        --         --
  Minority interest..............................    (106)    5,382      6,026
  Equity income (loss)...........................     106    (5,869)   (92,099)
                                                  -------  --------  ---------
Loss from Partner Company Operations............. $(4,779) $(14,081) $(103,418)
                                                  =======  ========  =========
General ICG Operations
  General and administrative..................... $ 2,054  $  3,513  $  23,389
                                                  -------  --------  ---------
  Other income, net..............................     --     30,483     67,642
  Interest income................................     253     1,094      9,388
  Interest expense...............................     --        (84)    (3,722)
                                                  -------  --------  ---------
  Income (loss) from General ICG Operations
   before income taxes...........................  (1,801)   27,980     49,919
  Income taxes...................................     --        --      23,722
                                                  -------  --------  ---------
Income (loss) from General ICG Operations........ $(1,801) $ 27,980  $  73,641
                                                  =======  ========  =========
F-23
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

10. Segment Information (Continued)
As of December 31,
                                                             ------------------
                                                              1998      1999
                                                             ------- ----------
                                                               (in thousands)
Assets
Partner Company Operations
  Carrying value of equity method Partner Companies......... $21,311 $  491,977
  Other.....................................................  12,343     45,075
                                                             ------- ----------
                                                              33,654    537,052
General ICG Operations
  Cash and cash equivalents.................................  21,178  1,326,560
  Carrying value of cost method Partner Companies...........  38,181     55,362
  Other.....................................................   3,772    131,410
                                                             ------- ----------
                                                              63,131  1,513,332
                                                             ------- ----------
                                                             $96,785 $2,050,384
                                                             ======= ==========
11. Parent Company Financial Information

      Parent Company financial information is provided to present the financial
position and results of operations of the Company as if VerticalNet, Animated
Images, Breakaway Solutions, CyberCrop.com, EmployeeLife.com, ICG Commerce and
iParts ("consolidated companies") were accounted for under the equity method of
accounting for all periods presented. The Company's share of consolidated
companies' losses is included in "Equity income (loss)" in the Parent Company
Statements of Operations for all periods presented based on the Company's
ownership percentage in each period. The losses recorded in excess of carrying
value of VerticalNet at December 31, 1998 are included in "Non-current
liabilities" and the carrying value of the consolidated companies as of
December 31, 1999 are included in "Ownership interests in and advances to
Partner Companies" in the Parent Company Balance Sheets.

Parent Company Balance Sheets
As of December 31,
                                                              ------------------
                                                               1998      1999
                                                              ------- ----------
                                                                (in thousands)
Assets
  Current assets............................................. $21,597 $1,332,803
  Ownership interests in and advances to Partner Companies...  59,492    571,706
  Other......................................................   3,354    125,166
                                                              ------- ----------
    Total assets............................................. $84,443 $2,029,675
                                                              ======= ==========
Liabilities and shareholders' equity
  Current liabilities........................................   2,082     43,204
  Non-current liabilities....................................   1,637    566,250
  Shareholders' equity.......................................  80,724  1,420,221
                                                              ------- ----------
    Total liabilities and shareholders' equity............... $84,443 $2,029,675
                                                              ======= ==========
F-24
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

11. Parent Company Financial Information (Continued)

Parent Company Statements of Operations
Year ended December 31,
                                                 ----------------------------
                                                  1997      1998      1999
                                                 -------  --------  ---------
                                                       (in thousands)
Revenue......................................... $   --   $    --   $     --
Operating expenses
  General and administrative....................   2,054     3,513     23,389
                                                 -------  --------  ---------
    Total operating expenses....................   2,054     3,513     23,389
                                                 -------  --------  ---------
                                                  (2,054)   (3,513)   (23,389)
Other income, net...............................     --     30,483     67,642
Interest income, net............................     253     1,010      5,666
                                                 -------  --------  ---------
Income (loss) before income taxes and equity
 income (loss)..................................  (1,801)   27,980     49,919
Income taxes....................................     --        --      23,722
Equity income (loss)............................  (4,779)  (14,081)  (103,418)
                                                 -------  --------  ---------
Net income (loss)............................... $(6,580) $ 13,899  $ (29,777)
                                                 =======  ========  =========
F-25
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

11. Parent Company Financial Information (Continued)

Parent Company Statements of Cash Flows
Year Ended December 31,
                                                ------------------------------
                                                  1997      1998       1999
                                                --------  --------  ----------
                                                       (in thousands)
Operating Activities
 Net income (loss)............................. $ (6,580) $ 13,899  $  (29,777)
 Adjustments to reconcile to net cash used in
  operating activities:
  Gains included in other income...............      --    (32,552)    (67,636)
  Depreciation and amortization................       55       298       6,558
  Equity (income) loss.........................    4,779    16,150     103,418
  Deferred taxes...............................      --        --      (23,722)
  Changes in assets and liabilities, net of
   effect of acquisitions:
   Accounts receivable, net....................    2,003      (125)        --
   Prepaid expenses and other assets...........        1      (262)    (23,382)
   Accounts payable............................       56        39       5,344
   Accrued expenses............................       70        12       3,844
                                                --------  --------  ----------
    Net cash provided by (used in) operating
     activities................................      384    (2,541)    (25,353)
Investing Activities
 Capital expenditures..........................      (37)      (61)     (3,558)
 Proceeds from sales of available-for-sale
  securities...................................      --     36,431       2,496
 Proceeds from sales of Partner Company
  ownership interests and advances to
  shareholders.................................      --        300       3,506
 Advances to Partner Companies.................   (2,640)  (12,224)    (10,079)
 Repayment of advances to Partner Companies....      950       677       4,581
 Acquisitions of ownership interests in Partner
  Companies....................................  (16,466)  (44,822)   (368,159)
 Other advances................................      --        --      (12,850)
 Purchase of short-term investments............      --        --      (18,920)
 Proceeds from maturities of short-term
  investments..................................      --        --       18,920
                                                --------  --------  ----------
    Net cash provided by (used in) investing
     activities................................  (18,193)  (19,699)   (384,063)
Financing Activities
 Issuance of common stock, net.................   20,138    38,205   1,077,405
 Proceeds from convertible subordinated notes..      --        --      656,250
 Line of credit borrowings.....................      --        --       25,000
 Line of credit repayments.....................      --        --      (25,000)
 Distribution to former LLC members............       (2)      --      (10,676)
 Advances to employees.........................      --        --       (8,181)
                                                --------  --------  ----------
    Net cash provided by financing activities..   20,136    38,205   1,714,798
                                                --------  --------  ----------
Net Increase in Cash and Cash Equivalents......    2,327    15,965   1,305,382
Cash and cash equivalents at beginning of
 period........................................    2,886     5,213      21,178
                                                --------  --------  ----------
Cash and Cash Equivalents at End of Period..... $  5,213  $ 21,178  $1,326,560
                                                ========  ========  ==========
F-26
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

12. Shareholders' Equity

      During 1999, the Company increased it's authorized capital stock to
300,000,000 shares of common stock, par value $.001 per share. The holders of
common stock are entitled to one vote per share and are entitled to dividends
as declared.

      Dividends may be restricted by the inability to liquidate ownership
interests in Partner Companies to fund cash dividends and may be subject to the
preferential rights of the holders of the Company's preferred stock, if any. No
cash dividends have been declared to date and may not be declared for the
foreseeable future. As of December 31, 1999, the Company's bank line of credit
agreement precludes dividends.

      The Company may establish one or more classes or series of preferred
stock. The holders of the preferred stock may be entitled to preferences over
common stock or shareholders with respect to dividends, liquidation,
dissolution, or winding up of the Company, as established by the Company's
Board of Directors. At December 31, 1999, 10,000,000 shares of preferred stock
were authorized.

      Certain shareholders were granted registration rights and piggy-back
rights which were effective after completion of the Company's public offering
in August 1999.

      Shareholders' equity contributions are recorded when received. The
Company issued 31,980,000 shares of common stock for net proceeds of $32
million in 1999. These shares had been subscribed at December 31, 1998.

      Initial Public Offering

      In August 1999, the Company completed its initial public offering ("IPO")
of 30,620,000 shares of its common stock at $6.00 per share. Concurrently, the
Company completed a private placement of 7,500,000 shares of its common stock
at $6.00 per share. Net proceeds to the Company from these transactions
aggregated approximately $209.5 million (net of underwriters' commission and
offering expenses of approximately $19.2 million).

      Stock Dividend

      In December 1999, the Company recorded a one hundred percent (100%) stock
dividend effected in the form of a 2 for 1 stock split. The common stock and
additional paid-in capital accounts and all share and per share amounts have
been retroactively restated in these financial statements to reflect this stock
dividend.

      Secondary Offering

      In December 1999, the Company completed its secondary offering of common
stock and convertible subordinated notes (Note 7). The Company sold 6,900,000
shares of its common stock at $108.00 per share. Just prior to and concurrent
with the secondary offering, the Company completed private placements of
609,533 shares and 648,147 shares of its common stock at $82.02 and $108.00 per
share, respectively. Net proceeds to the Company from these transactions
aggregated approximately $831.0 million (net of underwriters' commission and
offering expenses of approximately $34.2 million).

      Issuance of Common Stock Under Equity Compensation Plans

      During 1996 and 1997, 12,054,034 and 1,513,216 shares of restricted
common stock ("restricted stock") were granted, net of forfeitures, to
employees, consultants and advisors at no cost as performance incentives under
the Membership Profit Interest Plan. The restricted stock vests in equal annual
installments over a five year period.

                                      F-27
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

12. Shareholders' Equity (Continued)

      At December 31, 1997 and 1998, the 13,567,250 shares of restricted stock
has been granted at a weighted average fair value of $0.10 per share or an
aggregate of $1.3 million based on independent valuations of the shares. These
independent valuations took into account certain factors, primarily the
restrictions on the ability of restricted shareholders to receive distributions
of dividends or profits and the uncertainty of realization of any return from
these shares. The $1.3 million of deferred compensation is classified as a
reduction of shareholders' equity and is being amortized over the five-year
vesting period. Through 1999, 486,532 shares were forfeited and were available
for grant in the form of restricted stock or stock options. These forfeitures
reduced additional paid-in capital by $0.1 million. Compensation expense
related to the restricted stock totaling $0.2 million, $0.3 million and $0.2
million was recorded in 1997, 1998 and 1999, respectively.

      In April through July 1999 the Company's Board of Directors authorized
the acceptance of full recourse promissory notes totaling $79.8 million from
its employees and a director as consideration for exercising all or a portion
of their vested and unvested stock options issued under the 1999 Equity
Compensation Plan (a total of 35,991,500 shares of common stock were issued in
connection with these exercises). The $79.8 million notes receivable from
employees is recorded as a reduction of Shareholders' Equity at December 31,
1999 to offset the increase in additional paid-in capital as a result of the
common stock issuance. The Company has the right, but not the obligation, to
repurchase unvested shares under certain circumstances. The exercise of
unvested options by the employees and director and the acceptance of promissory
notes by the Company was in accordance with the terms of the Company's equity
compensation plans and related option agreements. The Company's Board of
Directors also approved loaning employees the funds, under the terms of full
recourse promissory notes, to pay the income taxes that become due in
connection with the option exercises. These loans totaled $8.1 million and are
classified as Other Assets. The Company recorded 1999 interest income of $3.3
million related to these loans of which $2.3 million is included in other
current assets as a receivable at December 31, 1999.

      Through December 31, 1999, the Company recorded aggregate unearned
compensation expense of $17.1 million, net of $5.5 million in accumulated
amortization, in connection with the grant of stock options to non-employees
and the grant of stock options to employees, under the 1999 Equity Compensation
Plan, where it was determined that the exercise prices was less than the deemed
fair value on the respective dates of grant.

      Tax Distribution

      In March 1999 the Company made a distribution of $10.7 million to former
LLC members in accordance with the LLC agreements to satisfy the members' tax
liabilities.

13. Stock Option Plans

      Incentive or non-qualified stock options may be granted to Company
employees, directors and consultants under the Membership Profit Interest Plan
("MPI") or the 1999 Equity Compensation Plan ("1999 Plan") (together the
"Plans"). Generally, the options vest over a four to five year period and
expire eight to ten years after the date of grant. At December 31, 1999, the
Company reserved 6,008,500 and 486,532 shares of common stock under the 1999
Plan and MPI Plan, respectively, for possible future issuance. Most Partner
Companies also maintain their own stock option plans.

                                      F-28
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

13. Stock Option Plans (Continued)

      The following table summarizes the activity of the Company's stock option
plans:
Weighted
                                                                     Average
                                                       Shares     Exercise Price
                                                     -----------  --------------
Outstanding at January 1, 1997...................         --       $  --
   Options granted..................................     188,000        0.50
                                                     -----------
   Options canceled/forfeited.......................         --          --
   Outstanding at December 31, 1997.................     188,000        0.50
   Options granted..................................  12,144,000        1.00
   Options canceled/forfeited.......................     (94,000)      (0.50)
                                                     -----------
   Outstanding at December 31, 1998.................  12,238,000        1.00
   Options granted..................................  28,995,500        6.82
   Options exercised................................ (35,991,500)       2.26
   Options canceled/forfeited.......................     (69,000)       2.44
                                                     -----------
   Outstanding at December 31, 1999.................   5,173,000      $23.74
                                                     ===========
At December 31, 1997, 1998 and 1999 there were 188,000, 12,238,000 and
4,688,000 options exercisable at $0.50, $1.00 and $24.62 per share under the
plans, respectively.

      The following table summarizes information about stock options
outstanding at December 31:
Weighted                    Weighted                    Weighted
                    Number        Average       Number        Average       Number        Average
                  Outstanding    Remaining    Outstanding    Remaining    Outstanding    Remaining
                      at        Contractual       at        Contractual       at        Contractual
 Exercise Price      1997     Life (in Years)    1998     Life (in Years)    1999     Life (in Years)
 ---------------  ----------- --------------- ----------- --------------- ----------- ---------------
$ 0.50--$  4.00    188,000         9.0       12,238,000       10.0        2,771,000        9.2
 $ 4.01--$ 50.00        --          --               --         --           606,000        9.6
 $50.01--$ 60.00        --          --               --         --         1,450,000        9.8
 $60.01--$108.13        --          --               --         --           346,000        9.9
                    -------         ---       ----------       ----        ---------        ---
                    188,000         9.0       12,238,000       10.0        5,173,000        9.5
Included in the 1998 option grants are 94,000 stock options to non-
employees. The fair value of these options of $.4 million was recorded as
deferred compensation in 1998 and is being amortized over the five year vesting
period. The fair value of these options was determined using the Black-Scholes
method assuming a volatility of 80%, a dividend yield of 0%, an average
expected option life of 5 years, and a risk-free interest rate of 5.2%.

      Included in the 1999 option grants are 1,636,000 stock options to non-
employees. The fair value of these options of $3.7 million was recorded as
deferred compensation in 1999 and is being amortized over the five year vesting
period. The fair value of these options was determined using the Black-Scholes
method assuming a volatility of 80%, a dividend yield of 0%, an average
expected option life of 5 years, and a risk-free interest rate of 5.2%.

      Included in the 1999 option grants are 23,047,500 stock options to
employees issued below market value on the date of grant. The aggregate
difference between the strike price and market value on the date of grant, for
these options granted, of $12.7 million was recorded as deferred compensation
in 1999 and is being amortized over the five year vesting period.

                                      F-29
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

13. Stock Option Plans (Continued)

      The Company applies APB 25 and related interpretations to account for its
stock options plans. Had compensation cost been recognized pursuant to SFAS
123, the Company's net income (loss) would have been as follows:
Year Ended December 31,
                                      ----------------------------------------
                                          1997          1998         1999
                                      ------------- --------------------------
                                      (in thousands except per share amounts)
Net income (loss)
     As reported..................... $     (6,580) $     13,899 $     (29,777)
     SFAS 123 pro forma.............. $     (6,649) $     13,437 $     (41,499)
   Net income (loss) per share
     As reported..................... $       (.10) $        .12 $        (.15)
     SFAS 123 pro forma.............. $       (.10) $        .12 $        (.21)
The per share weighted-average fair value of options issued by the
Company during 1997, 1998 and 1999 was approximately $0.11, $0.22 and $3.94,
respectively.

      Prior to its initial public offering, the Company used the minimum value
method to value option grants using a 5.2% to 5.5% risk-free interest rate, an
expected life of 5 years, and no dividend yield. The following assumptions were
used to determine the fair value of stock options granted to employees by the
Company following its initial public offering through December 31, 1999:
Volatility...........................................................  101.5%
   Average expected option life......................................... 5 years
   Risk-free interest rate..............................................    5.5%
   Dividend yield.......................................................    0.0%
The Company also includes its shares of its Partner Companies SFAS 123
pro forma expense in the Company's SFAS 123 pro forma expense. The methods used
by the Partner Companies included the minimum value method for private Partner
Companies and the Black-Scholes method for public Partner Companies with
assumptions between 2 to 6 years for average expected option life, 5.0% to 5.5%
for risk-free interest rate, no dividend yield, and volatility up to 100%.

14. Income Taxes

      At December 31, 1999, the Company had a net operating loss carry forward
of approximately $6.0 million which may be used to offset future taxable
income. These carry forwards expire beginning in 2019 and may be limited should
certain changes in the Company's ownership occur.

      Income taxes for the year ended December 31, 1999 comprise a $23.7
million deferred tax benefit relating primarily to differences in the book and
tax basis of ownership interests in Partner Companies.

                                      F-30
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

14. Income Taxes (Continued)

      The Company's net deferred tax assets consist of the following:
As of
                                                               December 31, 1999
                                                               -----------------
                                                                (in thousands)
Net operating loss carryforward..........................     $  2,065
     Partner Company basis difference.........................       37,695
     Stock compensation.......................................        8,283
     Other, net...............................................         (466)
     Other comprehensive income...............................      (13,189)
                                                                   --------
     Net deferred tax asset...................................     $ 34,388
                                                                   ========
The Company's deferred tax asset includes approximately $15.0 million of
additional Partner Company basis difference generated from the conversion of
1,033,908 shares of the Company's common stock (Note 4).

      The effective tax rate differs from the federal statutory rate as
follows:
Year ended
                                                               December 31, 1999
                                                               -----------------
Tax benefit at statutory rate............................       (35.0)%
     Change in tax status.....................................       (14.5)%
     Stock-based compensation.................................         3.0 %
     Non-deductible expenses and other........................         2.2 %
                                                                     -----
                                                                     (44.3)%
                                                                     =====
15. Related Parties

      The Company provides strategic and operational support to its Partner
Companies in the normal course of its business. These services are generally
provided by the Company's employees, members of its Advisory Board and Board of
Directors and outside consultants. The costs related to employees are paid by
the Company and are reflected by the Company in general and administrative
expenses of the General ICG Operations segment. Members of the Company's
Advisory Board and Board of Directors are generally compensated with stock
options in the Company which are accounted for in accordance with Statement of
Financial Accounting Standards No. 123 with any expense related to these
options included in general and administrative expenses of the General ICG
Operations segment. The cost of outside consultants are generally paid directly
by the Partner Company.

      The Company entered into various cost sharing arrangements with the same
principal shareholder during 1997, 1998 and 1999, whereby the Company
reimbursed, under fair market terms, this shareholder for certain operational
expenses. The amounts incurred for such items were $0.1 million, $0.2 million
and $0.3 million in 1997, and 1998 and 1999, respectively.

      The Company loaned an officer $.1 million during 1998, evidenced by a
term note with an interest rate of prime plus 1% (8.75% at December 31, 1998)
to purchase a portion of the Company's interest in a Partner Company at the
Company's cost. This note was repaid in January 1999 and is included in other
current assets in the December 31, 1998 Consolidated Balance Sheet.

      In September 1998 the Company entered into a $.2 million one-year
consulting contract with a Partner Company.

                                      F-31
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

15. Related Parties (Continued)

      The Company shares certain acquisition rights with certain of its
principal shareholders whereby these shareholders have the ability to purchase
a portion of the Company's interest in certain Partner Companies. During 1998
and 1999, one shareholder exercised this right and acquired a portion of the
Company's interest in or advances to three Partner Companies for cash of $3.0
million and assumption of $.4 million of a payable to a Partner Company. At the
time of the transactions, there was no difference between the consideration
received and the Company's cost basis of the ownership interest or advance
sold. These rights terminated upon our initial public offering in August 1999.

      The Company loaned an officer $0.6 million during 1999, evidenced by a
term note with an interest rate of 4.98% to purchase the Company's stock in the
initial public offering. This note was repaid in 1999.

      Certain executives of the Company and its Partner Companies have the
option to purchase a portion of the Company's ownership interest in various
Partner Companies at the Company's cost.

16. Other supplemental non-cash financing and investing activities

      During the years ended December 31, 1997, 1998 and 1999, the Company
converted $1.4 million, $1.8 million and $2.8 million, respectively, of
advances to Partner Companies into ownership interests in Partner Companies.

      During the year ended December 31, 1998, the Company exchanged all of its
holdings in Matchlogic and Wisewire for shares of Excite and Lycos,
respectively (Note 18).

      Interest paid in the periods ended December 31, 1998 and 1999 was $0.2
million and $0.1 million, respectively.

      The Company paid no income taxes in 1997 and 1998 due to its tax status
as an LLC. No income taxes were paid in 1999 as the Company had a net operating
loss.

      In 1998, the Company acquired an ownership interest in a Partner Company
in exchange for a $1.7 million note payable. The note was payable in two equal
installments through June 1999, did not bear interest and was secured with the
acquired stock of the Partner Company. In March 1999, a shareholder of the
Company assumed $.4 million of this note. This note was paid in 1999.

17. Defined Contribution Plan

      In 1997, the Company established a defined contribution plan that covers
all of its employees. Participants may contribute 1% to 15% of pre-tax
compensation, as defined. The Company may make discretionary contributions to
the plan but has never done so.

                                      F-32
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

18. Other Income

      Other income consists of the following:
Year Ended
                                                                December 31,
                                                               ----------------
                                                                1998     1999
                                                               -------  -------
                                                               (in thousands)
Issuance of stock by VerticalNet......................... $   --   $50,717
     Issuance of stock by Breakaway Solutions.................     --    17,304
     Sale of SMART Technologies to i2 Technologies............     --     2,942
     Sale of Matchlogic to Excite.............................  12,822      --
     Sales of Excite holdings.................................  16,814    2,051
     Sale of Excite to @Home Corporation......................     --     2,719
     Sale of WiseWire to Lycos................................   3,324      --
     Sales of Lycos holdings..................................   1,472      --
     Partner company impairment charges.......................  (3,949)  (8,097)
     Other....................................................     --      (252)
                                                               -------  -------
                                                               $30,483  $67,384
                                                               =======  =======
Gains on sales of Partner Companies' and available-for-sale securities
are determined using average cost.

      As a result of VerticalNet completing its initial public offering in
February 1999 and issuing additional shares for acquisitions in 1999, the
Company's share of VerticalNet's net equity increased by $50.7 million. This
increase adjusts the Company's carrying value in VerticalNet and results in a
non-operating gain of $50.7 million, before deferred taxes of $17.7 million, in
the year ended December 31, 1999. As a result of Breakaway Solutions completing
its initial public offering in October 1999, the Company's share of Breakaway
Solutions' net equity increased by $17.3 million. This increase adjusts the
Company's carrying value in Breakaway Solutions and results in a non-operating
gain of $17.3 million, before deferred taxes of $6.1 million, in the year ended
December 31, 1999. These gains were recorded in accordance with SEC Staff
Accounting Bulletin No. 84 and the Company's accounting policy with respect to
such transactions.

      In August 1999, the Company divested its ownership interest in SMART
Technologies, Inc. due to the agreement of merger of SMART Technologies, Inc.
and i2 Technologies, Inc. Upon completion of this merger, during the three
months ended September 30, 1999, the Company's ownership interest in and
advances to SMART Technologies, Inc. were converted into cash, common stock and
warrants to purchase common stock of i2 Technologies, Inc. The Company's non-
operating gain before taxes from this transaction was $2.9 million.

      In February 1998, the Company exchanged all of its holdings of
Matchlogic, Inc. for 763,820 shares of Excite, Inc. The $14.3 million market
value of the Excite shares received on the date of exchange was used to
determine the gain of $12.8 million. Throughout the remainder of 1998, the
Company sold 716,082 shares of Excite, which resulted in $30.2 million of
proceeds and $16.8 million of gains. During 1999, the Company sold 23,738
shares of Excite, which resulted in $2.5 million of proceeds and $2.1 million
of gains.

      In May 1999, @Home Corporation announced it would exchange its shares for
all of the outstanding stock of Excite. As part of this merger, the Company
received shares of @Home Corporation in exchange for its shares in Excite,
resulting in a non-operating gain before taxes of $2.7 million.

                                      F-33
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

18. Other Income (Continued)

      In April 1998, the Company exchanged all of its holdings of WiseWire for
191,922 shares of Lycos, Inc. The $5.3 million market value of the Lycos shares
received on the date of exchange was used to determine
the gain of $3.3 million. Throughout the remainder of 1998, the Company sold
169,548 shares of Lycos which resulted in $6.2 million of proceeds and $1.5
million of gains.

      The Company's remaining holdings of @Home Corporation, Lycos, and i2
Technologies at December 31, 1999 are accounted for as available-for-sale
securities and are marked to market, with the difference between carrying value
and market value, net of deferred taxes, recorded in "Accumulated other
comprehensive income" in the shareholders' equity section of its Consolidated
Balance Sheets in accordance with Statement of Financial Accounting Standards
No. 115.

      In December 1998, the Company recorded an impairment charge of $1.9
million for the decrease in value of one of its partner companies accounted for
under the cost method of accounting as a result of selling the partner company
interest below its carrying value. The Company had acquired its ownership
interest in the partner company during 1996 and 1997. In December 1998, the
partner company agreed to be acquired by an independent third party. The
transaction was completed in January 1999. The impairment charge it recorded
was determined by calculating the difference between the proceeds it received
from the sale and its carrying value.

      For the years ended December 31, 1998 and 1999, the Company recorded
impairment charges of $2 million and $8.1 million, respectively, for the other
than temporary decline in the fair value of a cost method partner company. From
the date the Company initially acquired an ownership interest in this partner
company through December 31, 1999, its funding to this partner company
represented all of the outside capital the company had available to fund its
net losses and capital asset requirements. During the year ended December 31,
1999 the Company fully guaranteed the partner company's new bank loan and
agreed to provide additional funding. The Company acquired additional non-
voting convertible debentures of this partner company for $8 million in 1999.
The impairment charges the Company recorded were determined by the decrease in
net book value of the partner company caused by its net losses, which were
funded entirely based on the Company's funding and bank guarantee. Given its
continuing losses, the Company will continue to determine and record impairment
charges in a similar manner for this partner company until the status of its
financial position improves.

19. Commitments and Contingencies

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

      In connection with its ownership interests in certain Partner Companies
as of December 31, 1999, the Company guaranteed $5.5 million of bank loan and
other commitments and has committed capital of $9.2 million to existing Partner
Companies to be funded in 2000.

                                      F-34
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

19. Commitments and Contingencies (Continued)

      The Company and its consolidated subsidiaries, Animated Images,
CyberCrop.com, Breakaway Solutions, EmployeeLife.com, ICG Commerce and iParts,
lease their facilities under operating lease agreements expiring through 2004.
Future minimum lease payments as of December 31, 1999 under the leases are as
follows:
(in thousands)
2000..........................    $ 1,640
            2001..........................      1,641
            2002..........................      1,531
            2003..........................      1,329
            2004..........................      1,161
            Thereafter....................     10,205
Rent expense under the noncancelable operating leases was approximately
$.1 million in 1997, $.3 million in 1998 and $.4 million in 1999.

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

      Animated Images, CyberCrop.com, EmployeeLife.com, and ICG Commerce have
entered into employment agreements with certain employees. The agreements are
cancelable, but require severance upon termination. As of December 31, 1999,
Animated Images, CyberCrop.com, EmployeeLife.com, and ICG Commerce would be
required to pay up to $1.3 million in aggregate severance in the event that
these employment agreements are cancelled.

                                      F-35
INTERNET CAPITAL GROUP, INC.

          Notes to the Consolidated Financial Statements--(Continued)

20. Selected Quarterly Financial Information (Unaudited)

      The following table sets forth selected quarterly financial and stock
price information for the years ended December 31, 1998 and 1999. The operating
results for any given quarter are not necessarily indicative of results for any
future period.
Fiscal 1998 Quarter Ended            Fiscal 1999 Quarter Ended
                         ----------------------------------  -------------------------------------
                         Mar. 31  Jun.30   Sep. 30  Dec. 31  Mar. 31  Jun. 30   Sep. 30   Dec. 31
                         -------  -------  -------  -------  -------  --------  --------  --------
                                                   (in thousands)
Revenue................. $   377  $   587  $   897  $ 1,273  $ 3,111  $  4,480  $  7,192  $  1,753
Cost of revenue.........     628    1,075    1,195    1,744    1,553     2,450     3,421       731
Selling, general and
 administrative.........   2,459    3,220    4,151    5,684    3,848     9,428    17,727    17,922
                         -------  -------  -------  -------  -------  --------  --------  --------
                          (2,710)  (3,708)  (4,449)  (6,155)  (2,290)   (7,398)  (13,956)  (16,900)
Other income, net.......  12,322   11,727     (534)   6,969   28,677     2,397    15,927    20,382
Interest income.........      56      247      443      559      310       975     2,892     5,454
Interest expense........    (110)    (108)     (15)    (148)     (14)     (953)     (803)   (2,125)
                         -------  -------  -------  -------  -------  --------  --------  --------
                           9,558    8,158   (4,555)   1,225   26,683    (4,979)    4,060     6,811
Income taxes............     --       --       --       --       663     5,134     7,044    10,882
Minority interest.......     --       976    1,723    2,682      146     1,302     2,685     1,893
Equity income (loss)....    (290)  (2,390)  (1,289)  (1,899)  (7,413)  (12,667)  (29,063)  (42,958)
                         -------  -------  -------  -------  -------  --------  --------  --------
Net income (loss)....... $ 9,268  $ 6,744  $(4,121) $ 2,008  $20,079  $(11,210) $(15,274) $(23,372)
                         =======  =======  =======  =======  =======  ========  ========  ========
The selected quarterly financial information includes the accounts of the
Company, its wholly owned subsidiary, Internet Capital Group Operations, Inc.
and its majority owned subsidiaries, VerticalNet, for each of the quarters in
the year ended December 31, 1998; Breakaway Solutions for the period from
January 1, 1999 through October 4, 1999 (the date of Breakaway's initial public
offering); EmployeeLife.com and iParts for each of the quarters in the year
ended December 31, 1999; CyberCrop.com for the quarters ended September 30,
1999 and December 31, 1999; and Animated Images, Inc. and ICG Commerce for the
quarter ended December 31, 1999, all of which were consolidated from their date
of acquisition.

      During the period January 1 through March 8, 2000, the Company has issued
150,000 shares of common stock for an acquisition, is contingently obligated to
issue up to 11,197,238 shares of common stock for acquisitions, and has granted
options to purchase 6,766,000 shares of common stock at an average exercise
price of $110.50 per share.

21. Fiscal 2000 Events (Unaudited)

      In February 2000, eMerge Interactive completed its initial public
offering (IPO), selling 7,200,000 newly issued shares of its common stock at
$15 per share. The Company's ownership following the offering was approximately
22%.

      In March 2000, Onvia.com, Inc. completed its IPO, selling 8,000,000 newly
issued shares of its common stock at $21 per share, including 2,666,666 shares
sold to the Company at the IPO price in a concurrent private placement. The
Company's ownership following the offering was approximately 22%.

                                      F-36
INTERNET CAPITAL GROUP, INC.

          Notes to the Nonsolidated Financial Statements--(Continued)

21. Fiscal 2000 Events (Unaudited) (Continued)

      In March, 2000, Universal Access completed its initial public offering
(IPO), selling 11,000,000 newly issued shares of its common stock at $14 per
share. The Company's ownership following the offering was approximately 25%.

      During the period from January 1, 2000 through March 24, 2000 we utilized
$387.6 million to acquire interests in or make advances to new and existing
partner companies. These companies included: Arbinet Communications,
AsseTRADE.com, AUTOVIA, Benchmarking Partners, BuyMedia, Centrimed,
ClearCommerce, Collabria, Commerce Quest, ComputerJobs.com, CourtLink, e-
Chemicals, Entegrity Solutions, eumediX, Eu Supply, FarmingOnLine, FreeBorders,
Industrial America, Internet Healthcare Group, iSky, LinkShare, Logistics.com,
Inc., eMetra, NetVendor, ONVIA.com, Servicesoft Technologies, Simplexis,
StarCite!, TALPX, TeamOn, Universal Access, and Vivant!

      During January 2000, we acquired an additional interest in an existing
partner company from a shareholder of the partner company for 150,000 shares of
our common stock valued at $26.6 million.

      During the year ended December 31, 1999, Ariba, Inc. announced its
intention to acquire all of the outstanding stock of one of our partner
companies, TRADEX Technologies, in exchange for approximately $2.0 billion in
Ariba stock. Ariba closed its acquisition of TRADEX Technologies on March 9,
2000. Based on Ariba's closing price of $320.88 on March 9, 2000, we will
record a non-operating gain of approximately $290 million during the quarter
ended March 31, 2000. Our holdings of Ariba after the transaction will be
accounted for as available-for-sale securities and will be marked to market,
with the difference between carrying value and market value, net of deferred
taxes, recorded in "Accumulated other comprehensive income" in the
shareholders' equity section of our Consolidated Balance Sheets in accordance
with Statement of Financial Accounting Standards No. 115.

      During the year ended December 31, 1999, VerticalNet acquired all of the
outstanding stock of NECX Exchange LLC in exchange for $70 million in
convertible notes, $10 million in cash and the assumption of debt and certain
other liabilities. Upon conversion of the $70 million in convertible notes
(expected in the first quarter of 2000), our voting ownership in VerticalNet
will decrease from 35% to approximately 34%. In addition, we expect to record a
non-operating gain due to the increase in our share of VerticalNet's net equity
as a result of their issuance of shares.

      In January, 2000, Breakaway Solutions announced it had signed a
definitive agreement to acquire EggRock Partners for 3,636,000 shares of
Breakaway Solutions common stock valued at $250 million at the date of signing
of the definitive agreement. Consummation of the transaction is subject to
customary closing conditions and is expected to close in April 2000. Upon
closing, our voting ownership in Breakaway Solutions will decrease from 40% to
approximately 33%. In addition, we expect to record a non-operating gain due to
the increase in our share of Breakaway Solutions' net equity as a result of
their issuance of shares.

      In February 2000, the Company entered into an agreement to form a joint
venture with DuPont named CapSpan. CapSpan will provide management, growth
capital, financial, technical and infrastructure capabilities designed to
accelerate the development of B2B e-commerce.

      In February, 2000, the Company entered into an agreement to acquire a
significant interest in eCredit.com, a leading provider of Internet based
financing. We will issue common stock worth approximately $450 million to
eCredit.com shareholders. We expect the transaction to close in the quarter
ending June 30, 2000.

                                      F-37
INTERNET CAPITAL GROUP, INC.

          Notes to the Nonsolidated Financial Statements--(Continued)

21. Fiscal 2000 Events (Unaudited) (Continued)

      In March, 2000, the Company entered into an agreement to acquire a
majority interest in RightWorks, a leading provider of e-procurement software
for B2B exchanges. We will issue approximately $635 million in Internet Capital
Group common stock (valued at $111.48 per share) to tendering RightWorks'
preferred shareholders (subject to adjustment based on the number of
RightWorks' shares tendered) and also will purchase newly issued RightWorks
shares for $22 million in cash. We expect the transaction to close in the
quarter ending June 30, 2000.

      In March 2000, the Company entered into an agreement to acquire a
majority interest in Harbour Ring International Holdings, which will be renamed
ICG AsiaWorks Limited, with Hutchison Whampoa Ltd., a Hong Kong based multi-
national conglomerate, to facilitate our entrance into the Asian e-commerce
markets. Upon completion of the acquisition, and under the terms of a separate
agreement, a third party affiliated with Hutchison Whampoa Ltd. would, at the
request of ICG and subject to the approval by the Stock Exchange of Hong Kong
Limited and the Securities & Futures Commission, be required to purchase the
operating subsidiaries of ICG AsiaWorks Limited at a fixed price for a two-year
period from the closing date of the acquisition, including assets and
liabilities arising subsequent to the closing date of the acquisition. We will
expend approximately $117 million upon the closing of this transaction which is
expected to take place in the quarter ending June 30, 2000.

      In March 2000, VerticalNet announced it had signed a definitive agreement
to acquire Tradeum, Inc. approximately for 2,000,000 shares of VerticalNet
common stock valued at approximately $500 million at the date of signing of the
definitive agreement. Consummation of the transaction is subject to customary
closing conditions and is expected to close in the second quarter of 2000. Upon
closing, our voting ownership of VerticalNet will decrease from 33% to
approximately 31%. In addition, we expect to record a non-operating gain due to
the increase in our share of VerticalNet's net equity as a result of their
issuance of shares.

      In March, 2000, the Company entered into an agreement to increase the
amount available under our bank credit facility to $250 million.

      During the period January 1 through March 8, 2000, the Company has issued
150,000 shares of common stock for an acquisition, is contingently obligated to
issue up to 11,197,238 shares of common stock for acquisitions, and has granted
options to purchase 6,766,000 shares of common stock at an average exercise
price of $110.50 per share.

                                      F-38
Report of Independent Accountants

To the Board of Directors and
Stockholders of eCredit.com, Inc.

We have audited the accompanying consolidated balance sheets of eCredit.com,
Inc. and subsidiaries as of December 31, 1998 and 1999, and the related
consolidated statements of operations, redeemable convertible preferred stock
and stockholders' deficit and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the 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 eCredit.com, Inc.
and subsidiaries at December 31, 1998 and 1999 and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.

                                          Ernst & Young LLP

March 6, 2000
Boston, Massachusetts

                                      F-39
Report of Independent Accountants

To the Board of Directors and
Stockholders of eCredit.com, Inc.

      In our opinion, the accompanying consolidated statements of operations,
of redeemable convertible preferred stock and stockholders' deficit and of cash
flows present fairly, in all material respects, the results of operations and
cash flows of eCredit.com, Inc. and its subsidiary for the year ended December
31, 1997, in conformity with accounting principles generally accepted in the
United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above. We have
not audited the consolidated financial statements of eCredit.com, Inc. for any
period subsequent to December 31, 1997.

PricewaterhouseCoopers LLP

Boston, Massachusetts
September 30, 1998

                                      F-40
eCredit.com, Inc.
                          Consolidated Balance Sheets
                       (In Thousands, except share data)
Pro Forma
                                                   December 31      December 31
                                                  1998      1999       1999
                                                 -------  --------  -----------
                                                                    (unaudited)
Assets
Current assets:
 Cash and cash equivalents...................... $ 2,312  $ 35,210   $ 38,870
 Accounts receivable, net of allowance for
  doubtful accounts of $36 at December 31, 1998
  and 1999......................................   1,154     4,196      4,196
 Prepaid expenses...............................      16        55         55
 Other current assets...........................      37       940        940
                                                 -------  --------   --------
Total current assets............................   3,519    40,401     44,061
Fixed assets, net...............................     581     2,762      2,762
Capitalized software costs......................     --        681        681
Notes receivable from officers..................     --      1,302      1,302
Other assets....................................      96       668        668
                                                 -------  --------   --------
Total assets.................................... $ 4,196  $ 45,814   $ 49,474
                                                 =======  ========   ========
Liabilities, redeemable preferred stock and
 stockholders' deficit
Current liabilities:
 Current portion of note payable................     --   $    461   $    461
 Current portion of capital lease............... $   112        76         76
 Accounts payable...............................     192     3,008      3,008
 Accrued expenses...............................     661     3,199      3,199
 Deferred revenue...............................     442       907        907
 Billings in excess of cost and estimated
  earnings on uncompleted contracts.............     351       787        787
                                                 -------  --------   --------
Total current liabilities.......................   1,758     8,438      8,438
Capital lease obligations, net of current por-
 tion...........................................      99        69         69
Notes payable, net of current portion...........     --      1,172      1,172
                                                 -------  --------   --------
Total liabilities...............................   1,857     9,679      9,679
Commitments and contingencies
Redeemable convertible preferred stock:
 Series A Redeemable convertible preferred
  stock, $.001 par value; 946,808 shares
  authorized, issued and outstanding at December
  31, 1998 and 1999 issued for $2,225...........   5,597    68,171        --
 Series B Redeemable convertible preferred
  stock, $.001 par value; 184,432 shares
  authorized, issued and outstanding at December
  31, 1998 and 1999 issued for $1,540...........   1,639    19,923        --
 Series C Redeemable convertible preferred
  stock, $.001 par value; 1,297,076 shares
  authorized, 757,156 issued and outstanding at
  December 31, 1998 and 1999 issued for $6,205..   7,421    90,410        --
 Series D Redeemable convertible preferred
  stock, $.001 par value; 6,695,618 shares
  authorized, issued and outstanding at December
  31, 1999 issued for $23,876...................     --    160,695        --
 Series E Redeemable convertible preferred
  stock, $.001 par value; 1,914,053 shares
  authorized, 1,435,535 issued and outstanding
  at December 31, 1999 issued for $23,899.......     --     34,453        --
 Common stock, $.001 par value; 16,935,842 and
  33,962,013 shares authorized at December 31,
  1998 and 1999, respectively, 2,550,000 and
  6,513,648 shares issued at December 31, 1998
  and 1999, respectively, 2,100,000, 6,063,648
  and 23,212,123 shares outstanding at December
  31 1998, 1999 and 1999 Pro Forma,
  respectively..................................       3         7         31
 Additional paid-in capital.....................     394    41,844    905,390
 Accumulated deficit............................ (12,490) (341,042)  (836,125)
 Notes receivable...............................     --     (3,095)    (3,095)
 Deferred compensation..........................     --    (35,006)   (26,181)
 Common stock held in treasury, 450,000 shares
  at cost.......................................    (225)     (225)      (225)
                                                 -------  --------   --------
Total stockholders' equity (deficit)............ (12,318) (337,517)    39,795
                                                 -------  --------   --------
Total liabilities, redeemable preferred stock
 and stockholders' equity (deficit)............. $ 4,196  $ 45,814   $ 49,474
                                                 =======  ========   ========
See accompanying notes.

                                      F-41
eCredit.com, Inc.
                     Consolidated Statements of Operations
                (In Thousands, except share and per share data)
Pro Forma
                                           December 31             December 31
                                  -------------------------------  -----------
                                    1997       1998       1999        1999
                                  ---------  ---------  ---------  -----------
                                                                   (unaudited)
Revenues
 Software licenses and related
  implementation................. $   3,358  $   3,763  $   6,702  $    6,702
 Services and software support...       585      1,061      1,699       1,699
                                  ---------  ---------  ---------  ----------
Total revenues...................     3,943      4,824      8,401       8,401
                                  ---------  ---------  ---------  ----------
Cost of revenues
 License and related
  implementation (1999 and Pro
  Forma excludes $351 and $17,371
  stock compensation,
  respectively)..................     2,153      1,987      5,230       5,230
 Services (1999 and Pro Forma
  excludes $72 and $3,563 stock
  compensation, respectively)....       440        708      1,195       1,195
                                  ---------  ---------  ---------  ----------
Total cost of revenues...........     2,593      2,695      6,425       6,425
                                  ---------  ---------  ---------  ----------
Gross profit.....................     1,350      2,129      1,976       1,976
Operating expenses
 Selling and marketing (1999 and
  Pro Forma excludes $613 and
  $30,339 stock compensation,
  respectively)..................     1,151      2,262     11,225      11,225
 Research and development (1999
  and Pro Forma excludes $23 and
  $1,138 stock compensation,
  respectively)..................       419        472        823         823
 General and administrative (1999
  and Pro Forma excludes $1,227
  and $60,724 stock compensation,
  respectively)..................     1,598      1,802      4,159       4,159
 Stock compensation..............       --         --       2,286     113,135
                                  ---------  ---------  ---------  ----------
Total operating expenses.........     3,168      4,536     18,493     129,342
                                  ---------  ---------  ---------  ----------
Loss from operations.............    (1,818)    (2,407)   (16,517)   (127,366)
Interest income..................       --          27        185         185
Interest expense.................      (128)      (147)       (72)        (72)
Other income.....................       --         --          31          31
                                  ---------  ---------  ---------  ----------
Net loss.........................    (1,946)    (2,527)   (16,373)   (127,222)
Accretion of preferred stock.....       --      (5,081)  (312,179)        --
                                  ---------  ---------  ---------  ----------
Net loss attributable to common
 stockholders.................... $  (1,946) $  (7,608) $(328,552) $ (127,222)
                                  =========  =========  =========  ==========
Basic and diluted net loss per
 share........................... $   (0.93) $   (3.62) $ (110.02) $    (5.48)
                                  =========  =========  =========  ==========
Weighted average shares used in
 computing basic and diluted net
 loss per common share........... 2,100,000  2,100,000  2,986,305  23,212,123
                                  =========  =========  =========  ==========
See accompanying notes.

                                      F-42
F-43
                               eCredit.com, Inc.
     Consolidated Statements of Redeemable Convertible Preferred Stock and
                             Stockholders' Deficit
                       (In Thousands, Except Share Data)
Series A        Series B        Series C          Series D          Series E
                    Redeemable      Redeemable      Redeemable        Redeemable        Redeemable
                    Convertible     Convertible     Convertible      Convertible        Convertible
                     Preferred       Preferred       Preferred        Preferred          Preferred
                       Stock           Stock           Stock            Stock              Stock        Common         Additional
                  --------------- --------------- --------------- ------------------ -----------------   Stock    Par   Paid-in
                  Shares  Amount  Shares  Amount  Shares  Amount   Shares    Amount   Shares   Amount   Shares   value  capital
                  ------- ------- ------- ------- ------- ------- --------- -------- --------- ------- --------- ----- ----------
Balance,
December 31,
1996              946,808 $ 2,225                                                                      2,550,000  $ 3
Issuance of
 Series B
 redeemable
 convertible
 preferred
 stock..........                  184,432 $ 1,540
Net loss........
Balance,
 December 31,
 1997             946,808   2,225 184,432   1,540                                                      2,550,000    3
Issuance of
 Series C
 convertible
 preferred stock
 with warrants,
 net of issuance
 costs of $117..                                  757,156 $ 5,811
Issuance of
 warrants.......                                                                                                        $   394
Accretion of
 redeemable
 preferred stock
 to redemption
 value..........            3,372              99           1,610
Net loss........
Balance,
 December 31,
 1998             946,808   5,597 184,432   1,639 757,156   7,421                                      2,550,000    3       394
Issuance of
 Series D
 convertible
 preferred
 stock, net of
 issuance costs
 of $124........                                                  6,695,618 $ 23,876
Issuance of
 Series E
 convertible
 preferred stock
 with warrants,
 net of issuance
 costs of $102..                                                                     1,435,535 $22,940
Issuance of
 warrants.......                                                                                                            959
Issuance of
 restricted
 stock to
 officers and
 directors......                                                                                       3,924,273    4     3,152
Issuance of
 common stock in
 connection with
 the exercise of
 stock options..                                                                                          39,375             47
Expenses
 associated with
 remeasurement
 of employee
 stock option...                                                                                                            111
Deferred
 compensation
 related to
 stock awards
 and option
 grants.........                                                                                                         37,181
Amortization of
 deferred
 compensation...
Repayment of
 officers
 notes..........
Accretion of
 redeemable
 preferred stock
 to redemption
 value..........           62,574          18,284          82,989            136,819            11,513
Net loss........
                  ------- ------- ------- ------- ------- ------- --------- -------- --------- ------- ---------  ---   -------
Balance,
 December 31,
 1999             946,808 $68,171 184,432 $19,923 757,156 $90,410 6,695,618 $160,695 1,435,535 $34,453 6,513,648  $ 7   $41,844
                  ======= ======= ======= ======= ======= ======= ========= ======== ========= ======= =========  ===   =======
Total
                  Accumulated   Notes      Deferred   Treasury Stockholders'
                    deficit   receivable compensation  stock      deficit
                  ----------- ---------- ------------ -------- -------------
Balance,
December 31,
1996               $  (2,936)                          $(225)    $  (3,158)
Issuance of
 Series B
 redeemable
 convertible
 preferred
 stock..........
Net loss........      (1,946)                                       (1,946)
Balance,
 December 31,
 1997                 (4,882)                           (225)       (5,104)
Issuance of
 Series C
 convertible
 preferred stock
 with warrants,
 net of issuance
 costs of $117..
Issuance of
 warrants.......                                                       394
Accretion of
 redeemable
 preferred stock
 to redemption
 value..........      (5,081)                                       (5,081)
Net loss........      (2,527)                                       (2,527)
Balance,
 December 31,
 1998                (12,490)                           (225)      (12,318)
Issuance of
 Series D
 convertible
 preferred
 stock, net of
 issuance costs
 of $124........
Issuance of
 Series E
 convertible
 preferred stock
 with warrants,
 net of issuance
 costs of $102..
Issuance of
 warrants.......                                                       959
Issuance of
 restricted
 stock to
 officers and
 directors......               $(3,104)                                 52
Issuance of
 common stock in
 connection with
 the exercise of
 stock options..                                                        47
Expenses
 associated with
 remeasurement
 of employee
 stock option...                                                       111
Deferred
 compensation
 related to
 stock awards
 and option
 grants.........                           $(37,181)                     -
Amortization of
 deferred
 compensation...                              2,175                  2,175
Repayment of
 officers
 notes..........                      9                                  9
Accretion of
 redeemable
 preferred stock
 to redemption
 value..........    (312,179)                                     (312,179)
Net loss........     (16,373)                                      (16,373)
                  ----------- ---------- ------------ -------- -------------
Balance,
 December 31,
 1999              $(341,042)  $ (3,095)   $(35,006)   $(225)    $(337,517)
                  =========== ========== ============ ======== =============
See accompanying notes.
eCredit.com, Inc.
                     Consolidated Statements of Cash Flows
                                 (In Thousands)
Year ended December 31
                                                     --------------------------
                                                      1997     1998      1999
                                                     -------  -------  --------
Cash flows provided by (used in) operating activi-
 ties
Net loss...........................................  $(1,946) $(2,527) $(16,373)
Depreciation and amortization......................      173      221       479
Amortization of stock compensation.................      --       --      2,286
Loss on disposal of fixed assets...................       10      --          4
Changes in assets and liabilities
 Accounts receivable...............................       13     (135)   (3,042)
 Prepaid expenses and other current assets.........      129       (4)     (942)
 Other assets......................................      --       (64)     (572)
 Accounts payable..................................      382     (306)    2,816
 Accrued expenses..................................      344     (192)    2,538
 Deferred revenue..................................        6      263       465
 Billings in excess of cost and estimated earnings
  on uncompleted contracts.........................     (413)     324       436
                                                     -------  -------  --------
Net cash used in operating activities..............   (1,302)  (2,420)  (11,905)
                                                     -------  -------  --------
Cash flows used in investing activities
Purchases of fixed assets..........................     (157)    (369)   (2,601)
Capitalized software additions.....................      --       --       (681)
                                                     -------  -------  --------
Net cash used in investing activities..............     (157)    (369)   (3,282)
                                                     -------  -------  --------
Cash flows provided by (used in) financing activi-
 ties
Borrowings under bridge financing arrangement from
 stockholders......................................      --     1,300     3,000
Proceeds received from note payable................      --       --      1,655
Principal payments made on note payable............      (13)    (974)      (22)
Notes receivable from officers.....................      --       --     (1,302)
Proceeds on repayment of officer notes receivable..      --       --          9
Payments on capital lease obligations..............     (104)    (140)     (129)
Proceeds from issuance of Series B redeemable con-
 vertible preferred stock, net of issuance costs...    1,540      --        --
Proceeds from issuance of Series C redeemable con-
 vertible preferred stock and preferred stock war-
 rants, net of issuance costs......................      --     4,905       --
Proceeds from issuance of Series D redeemable con-
 vertible preferred stock, net of issuance costs...      --       --     20,876
Proceeds from issuance of Series E redeemable con-
 vertible preferred stock and common stock war-
 rants, net of issuance costs......................      --       --     23,899
Proceeds from exercise of stock options............      --       --         47
Proceeds from issuance of restricted stock.........      --       --         52
                                                     -------  -------  --------
Net cash provided by financing activities..........    1,423    5,091    48,085
                                                     -------  -------  --------
See accompanying notes.

                                      F-44
eCredit.com, Inc.
               Consolidated Statements of Cash Flows (continued)
                                 (In Thousands)
Year ended December 31
                                                        -----------------------
                                                        1997    1998     1999
                                                        -------------- --------
Net increase (decrease) in cash and cash equivalents... $ (36) $ 2,302 $ 32,898
Cash and cash equivalents, beginning of period.........    46       10    2,312
                                                        -----  ------- --------
Cash and cash equivalents, end of period............... $  10  $ 2,312 $ 35,210
                                                        =====  ======= ========
Supplemental disclosure of cash flow information:
 Cash paid for interest................................ $ 128  $   147 $     72
Supplemental disclosure of non-cash investing and fi-
 nancing activities:
  Additions to capital lease obligations for purchases
   of fixed assets..................................... $ 214  $    96 $     63
  Conversion of note payable to stockholders into
   redeemable convertible preferred stock..............   --     1,300    3,000
See accompanying notes

                                      F-45
eCredit.com, Inc.

                   Notes to Consolidated Financial Statements

                               December 31, 1999

1. Nature of Business

      eCredit.com, Inc. (the "Company" or "eCredit") is a provider of Internet
and client server-based credit management and financing solutions for business-
to-business and business-to-consumer commerce. The Company's principal market
is the United States. The Company manages its business as a single segment.

      The Company is subject to risks common to technology-based companies
including, but not limited to, the development of new technology, development
of markets and distribution channels, and dependence on key personnel.

      The Company has experienced operating losses since inception and through
December 31, 1999. Such losses resulted from the Company's lack of substantial
revenue in addition to costs incurred in the development of the Company's
services and in the establishment of the Company's market presence. For the
foreseeable future the Company expects to continue to experience significant
growth in its operating expenses in order to execute its business plan,
particularly engineering and development, and sales and general and
administrative expenses.

      eCredit expects to seek additional financing through further rounds of
private equity financing or an initial public offering. In the event that the
Company were to be unable to raise further financing to meet its anticipated
cash needs for working capital and capital expenditures, eCredit would reduce
its current growth plans. Management believes, if required, it is able to
reduce its cost structure and therefore meet its working capital requirements
for the next 12 months.

2. Summary of Significant Accounting Policies

Principles of Consolidation

      The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries, SRR Solutions (India) Private Limited, a
company incorporated under the laws of India and eCredit.com Limited, a company
incorporated in the United Kingdom. At December 31, 1999, the Company owned 99%
and 100% of the subsidiaries, respectively; amounts pertaining to the minority
interest are insignificant. All intercompany accounts and transactions have
been eliminated in consolidation.

Cash and Cash Equivalents

      The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Cash
equivalents include money market funds at December 31, 1998 and 1999. The
carrying value of these instruments approximates their fair values.

Advertising Expenses

      The Company expenses advertising costs as incurred. Advertising costs
were approximately $82,000, $92,000 and $2,940,000 for the years ended December
31, 1997, 1998 and 1999, respectively.

                                      F-46
eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

2. Summary of Significant Accounting Policies--(continued)

Fixed Assets

      Fixed assets are recorded at cost and depreciated using the straight-line
method over the estimated useful lives of the related assets. Equipment held
under capital lease is stated at the lower of the fair value of the equipment
or the present value of the minimum lease payments at the inception of the
lease and is amortized on a straight-line basis over the shorter of the
estimated lives of the related assets or the lease term.

Stock Split

      On October 1, 1999, the Company authorized a three-for-one stock split of
its common stock. As a result, all common stock share data included in the
accompanying consolidated financial statements and notes have been
retroactively restated for this split.

Research and Development

      The Company's products are highly technical in nature and require a large
and continuing research and development effort. All research and development
costs are expensed as incurred.

      Costs associated with the development of computer software that is to be
sold to customers are accounted for in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased or Otherwise Marketed" (FAS 86) and are expensed as incurred
prior to establishing technological feasibility. Technological feasibility is
demonstrated by a working model. Software development costs are capitalized
thereafter until the product is available for general release. Software
development costs qualifying for capitalization under FAS 86 were not
significant during the years ended December 31, 1997, 1998, and 1999.

Capitalized Software Development Costs

      Capitalized software costs consist of costs incurred in the development
of the Company's internet-based technology. Such costs consist of salaries and
personnel costs for the design, deployment and enhancement of the Company's
technology. The Company capitalizes such costs under Statement of Position 98-
1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). Under SOP 98-1, costs of internal use software are
expensed during the preliminary project and post- implementation stages. Costs
are capitalized during the application development stage. Capitalization ends
when the project is substantially complete and the software is ready for its
intended use. The Company adopted SOP 98-1 on January 1, 1999. There has been
no amortization of cost to date.

      The carrying value of the Company's software costs are reviewed on a
quarterly basis for the existence of facts and circumstances both internally
and externally that may suggest impairment. If an impairment is indicated, the
Company will adjust the carrying value of its capitalized software costs,
accordingly.

Revenue Recognition

      The Company's software systems are sold for a one-time perpetual license
fee. The license fee is recognized upon the delivery of the software when the
system does not require significant customization, modification, integration or
installation services (collectively, "related implementation services"), and
fees for

                                      F-47
eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

2. Summary of Significant Accounting Policies--(continued)
services are recognized as the services are performed provided that the related
contract is executed, fees are fixed and determinable and collection is
probable. When significant implementation services are required, the license
fee and fees for these services are recognized as the services are performed
utilizing the percentage of completion method based on cost incurred in
relation to expected total cost upon completion. Service revenues consist of
consulting fees not related to initial deliveries of systems and revenues for
software support contracts. Consulting fees are recognized as the services are
performed. Revenues from software support contracts are deferred and recognized
on a straight-line basis over the contract period, which is typically one year.

Stock-Based Compensation

      The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25), and related interpretations. Accordingly, compensation
expense is recorded for stock options awarded to employees and directors to the
extent that the option exercise prices are less than the common stock's fair
market value on the date of grant, where the number of shares and exercise
price are fixed. The difference between the fair value of the Company's common
stock and the exercise price of the stock option, if any, is recorded as
deferred compensation and is amortized to compensation expense over the vesting
period of the underlying stock option. The Company follows the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123). All stock-based awards to
non-employees are accounted for at their fair value in accordance with FAS 123.

Net Loss Per Share

      The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS 128
requires the calculation and presentation of basic and diluted earnings per
share. Basic earnings per share is calculated based on the weighted-average
number of common shares outstanding, and excludes any dilutive effects of
warrants, stock options, or other types of securities. Diluted earnings per
share is calculated based on the weighted-average number of common shares
outstanding and the dilutive effect of stock options, warrants, and related
securities. Dilutive securities are excluded from the diluted earnings per
share calculation if their effect is antidilutive.

Concentration of Credit Risk and Major Customers

      Financial instruments which potentially subject the Company to
concentrations of credit risk include cash, cash equivalents and accounts
receivable. The Company invests its excess cash in money market funds of major
financial institutions that, in management's opinion, are subject to minimal
credit and market risk.

      The Company sells its products primarily to Fortune 500 corporate
customers located domestically. Concentrations of credit risk with respect to
trade receivables are limited due to the stability of the customers comprising
the Company's customer base. The Company performs ongoing evaluations of its
customers' financial condition and, consistent with industry practice, does not
generally require collateral. The Company monitors its accounts receivable
credit risk as a matter of policy, and losses on accounts receivable have
historically been within the Company's estimates. At December 31, 1998, three
customers accounted for 14%, 13%, and 12% of the Company's accounts receivable.
At December 31, 1999, one customer accounted for 63% of the Company's accounts
receivable.

                                      F-48
eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

2. Summary of Significant Accounting Policies--(continued)
      For the year ended December 31, 1997, two customers accounted for 25% and
15% of the Company's total revenue. For the year ended December 31, 1998, one
customer accounted for 11% of the Company's total revenue. For the year ended
December 31, 1999, one customer accounted for 45% of the Company's total
revenue.

Foreign Currency Translation

      The functional currency for the Company's foreign operations is the U.S.
dollar. Assets and liabilities of the Company's foreign operations are
translated into U.S. dollars at exchange rates in effect as of the balance
sheet date and nonmonetary assets and liabilities are translated at historical
exchange rates. Results of operations are translated at the average exchange
rates for the period. Foreign exchange gains and losses, which are
insignificant, are included in the Company's results of operations.

Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Components particularly subject to
estimation include revenue recognized under the percentage-of-completion method
and the corresponding deferred revenue amount. Actual results could differ from
these estimates.

Fair Value of Financial Instruments

      The carrying value of the Company's financial instruments, which include
cash and cash equivalents accounts receivable, notes receivable, accounts
payable, accrued expenses and notes payable approximate their fair values at
December 31, 1998 and 1999.

Accounts Receivable

      At December 31, 1998 and 1999, accounts receivable included unbilled
amount of approximately $79,000 and $477,000, respectively.

Notes Receivable from Officers

      Notes receivable from officers are full-recourse notes with certain of
the Company's executive officers. The notes bear interest at market rates and
are due on December 30, 2005.

Income Taxes

      Deferred taxes are determined based on the difference between financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. Valuation
allowances are provided, if, based upon the weight of available evidence, it is
more likely than not some or all of the deferred tax assets will not be
realized.

                                      F-49
eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

2. Summary of Significant Accounting Policies--(continued)
Segment Reporting

      In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard No. 131, "Disclosures about Segments
of an Enterprise and Related Information" (FAS 131). This statement requires
companies to report information about operating segments consistent with
management's internal view of the Company. The Company adopted FAS 131
effective for its fiscal year ended December 31, 1998. The Company operates in
a single segment: retail domestic sales and related services. As of December
31, 1999, the Company has no organizational structure dictated by product
lines, geography or customer type.

Comprehensive Income

      In June 1997, the FASB issued Statement of Financial Accounting Standard
No. 130, "Reporting Comprehensive Income" (FAS 130). FAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in financial statements. The adoption of FAS 130 did not impact the
Company's financial statements as the Company had no items of other
comprehensive income during the years ended December 31, 1997, 1998 and 1999.

Recent Accounting Pronouncements

      In March 1998, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants issued Statement of
Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use". SOP 98-1 provides guidance regarding
when software developed or obtained for internal use should be capitalized. SOP
98-1 is effective for fiscal years beginning after December 15, 1998.
eCredit.com adopted SOP 98-1 on January 1, 1999, resulting in capitalization of
$681,000 through December 31, 1999 related to the Global Financing Network.

      In December 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position 98-9 (SOP 98-9), "Modification of SOP No. 97-2,
Software Revenue Recognition, with Respect to Certain Transactions." SOP 98-9
amends SOP 97-2 (as amended by SOP 98-4) to require recognition of revenue
using the "residual method" in circumstances outlined in SOP 98-9. Under the
residual method, revenue is recognized as follows: (1) the total fair value of
undelivered elements, as indicated by vendor specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections
of SOP 97-2 and (2) the difference between the total arrangement fee and the
amount deferred for the undelivered elements is recognized as revenue related
to the delivered elements. SOP 98-9 is effective for transactions entered into
in fiscal years beginning after March 15, 1999 (calendar 2000 for the Company).

      Also, the provisions of SOP 97-2 that were deferred by SOP 98-4 will
continue to be deferred until the date SOP 98-9 becomes effective. The Company
does not expect that the adoption of SOP 98-9 will have a significant impact on
its results of operations or financial position.

      In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities," (FAS
133) which establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The Company, to date, has
not engaged in derivative and hedging activities, and accordingly does not
believe that

                                      F-50
eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

2. Summary of Significant Accounting Policies--(continued)
the adoption of FAS 133 will have a material impact on its financial reporting
and related disclosures. The Company will adopt FAS 133 as required by FAS 137,
"Deferral of the Effective Date of the FASB Statement No. 133," in fiscal year
2001.

      In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 (SAB101), "Revenue Recognition in Financial
Statements." SAB101 summarizes the application of generally accepted accounting
principles to revenue recognition in financial statements. On March 24, 2000,
the SEC issued an amendment to SAB101 delaying the effective date for certain
companies. The Company will adopt SAB101 in the second quarter of fiscal 2000
and is presently analyzing the impact that SAB101 will have on its financial
statements. Based on the Company's review to date, SAB101 is not expected to
materially impact the Company's financial position or operating results.

3. Fixed Assets

      Fixed assets consist of the following:
Estimated    December 31
                                                    useful life  --------------
                                                      (years)     1998   1999
                                                   ------------- --------------
                                                                 (in thousands)
Furniture and fixtures............................      5-7      $  166 $   607
Computer equipment................................      3-5       1,096   2,971
Leasehold improvements............................ Term of lease     87     427
                                                                 ------ -------
                                                                  1,349   4,005
Less accumulated depreciation and amortization....                  768   1,243
                                                                 ------ -------
                                                                 $  581 $ 2,762
                                                                 ====== =======
At December 31, 1998 and 1999, assets held under capital lease totaled
approximately $626,000 and $677,000, respectively. Amortization expense of
equipment held under capital lease approximated $97,000, $120,000 and $112,000
for the years ended December 31, 1997, 1998, and 1999 respectively. Related
accumulated amortization of assets held under capital lease totaled
approximately $427,000 and $538,000 at December 31, 1998 and 1999,
respectively.

4. Accrued Expenses

      Accrued liabilities consists of the following at December 31:
1998    1999
                                                                ---------------
                                                                (in thousands)
Consulting and professional.................................... $  110 $  1,225
Legal..........................................................     33      549
Vacation.......................................................    246      458
Bonus..........................................................    162      443
Other..........................................................    110      524
                                                                ------ --------
Total.......................................................... $  661 $  3,199
                                                                ====== ========
F-51
eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

5. Note Payable and Lines-of-Credit

      On October 31, 1997 borrowings under a prior line-of-credit were replaced
by a $1,000,000 demand note payable (the "Note") secured by the Company's
accounts receivable and intangible assets. The Note originally expired on
December 31, 1997 and was extended to June 30, 1998. In May 1998, the Company
entered into a line-of-credit agreement (the "Line") with another bank to
provide maximum borrowings of $1,500,000; borrowings under the Line were used
to repay the Note in the amount of $973,800. The Line was scheduled to expire
in January 2000. At December 31, 1998, there were no borrowings outstanding
under the Line. In July 1999 the Company amended and restated its Line entered
into in May 1998. The amended facility provides for maximum borrowings of
$2,500,000 under a revolving line and $500,000 under an equipment line of
credit, subject to a limit of $1,500,000 until the Company closes equity
financing. In November 1999, as a result of equity financing, the Company
amended its line-of-credit entered into in July 1999. The amended facility
provides maximum borrowings of $3,000,000 under a revolving line and $2,000,000
under an equipment line. The ability to draw on the revolving line and the
equipment line expires in July 2000 and September 2000, respectively. Repayment
of amounts drawn on the lines occurs based on the maturity schedule as defined
in the agreement, through 2003. Interest is payable monthly at the prime rate
plus 0.75% for the revolving line and at the prime rate plus 1.0% for the
equipment line. The Company is required to comply with certain financial
covenants including maintaining certain financial statement ratios. At December
31 1999, there were no borrowings outstanding under the revolving line-of-
credit and $1,633,000 outstanding under the equipment line. Borrowing under the
revolving line-of-credit and equipment line are secured by substantially all
business assets.

      Scheduled principal repayments on long-term debt are as follows:
(in thousands)
Year end December 31:
2000.............................................................     $  461
2001.............................................................        568
2002.............................................................        531
2003.............................................................         73
                                                                      ------
                                                                      $1,633
                                                                      ======
6. Redeemable Convertible Preferred Stock

      In September 1993, the Company issued 425,532 shares of Series A
redeemable convertible preferred stock (the "Series A preferred stock") at a
price of $2.35 per share for total cash proceeds of $1,000,000. In June 1995,
bridge loans totaling $650,000 were converted into 276,595 shares of Series A
preferred stock, and 244,681 shares of Series A preferred stock were sold for
total cash proceeds of $575,000.

      In May 1997, the Company issued 184,432 shares of Series B redeemable
convertible preferred stock (the "Series B preferred stock") at a price of
$8.35 per share for total cash proceeds of $1,540,000.

      In September 1998, the Company issued 598,802 shares of Series C
redeemable convertible preferred stock (the "Series C preferred stock") at a
price of $8.35 per share for total cash proceeds of $4,905,000. In addition,
bridge loans issued during 1998 totaling $1,300,000 were converted into 158,354
shares of Series C preferred stock at a price of $8.35 per share. In
conjunction with the issuance of Series C preferred stock, the Company issued
warrants for the purchase of 539,920 additional shares of Series C preferred
stock at a price of $8.35 per share. The Company ascribed a value of $394,000
to these warrants which is included in additional

                                      F-52
eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

6. Redeemable Convertible Preferred Stock--(continued)
paid in capital at December 31, 1999. The warrants expire on the earlier of
September 21, 2003 or the date on which the Company completes a qualifying
public offering of its common stock, as defined in the agreement.

      On October 22, 1999 and November 12, 1999, the Company issued 3,989,473
and 1,869,192 shares, respectively, of Series D redeemable convertible
preferred stock (the "Series D preferred stock") at a price of $3.58 per share
for net proceeds of $20,876,000. Also, on October 22, 1999, the Company issued
836,953 shares of Series D preferred in exchange for the conversion of a
$3,000,000 bridge note payable.

      On December 22, 1999, the Company issued 1,435,535 shares of Series E
Redeemable convertible preferred stock (the "Series E preferred stock") at a
price of $16.72 per share for net proceeds of $23,899,000. In conjunction with
the Series E preferred stock issuance, the Company issued warrants for the
purchase of 191,378 shares of its common stock at a price of $25.08 per share.
The Company ascribed a value of $959,000 to these warrants, which is included
in additional paid in capital at December 31, 1999. These warrants expire on
the earlier of December 22, 2001 or the sale of the Company. In conjunction
with the issuance of Series C preferred stock, certain rights of the Series A
and Series B preferred stock were conformed with the Series C preferred stock.
The Series A, Series B, Series C, Series D and Series E preferred stock have
the following characteristics:

Conversion Rights

      The Series A, Series B, Series C, Series D and Series E preferred stock
is convertible into the Company's common stock, at any time, at the rate of
3.0, 4.5, 5.0, 1.0 and 1.0 shares of common stock, respectively, for each share
of preferred stock, adjustable for certain dilutive events, as defined by the
agreement.

      The Series A, Series B, Series C, Series D and Series E preferred stock
is automatically converted into 3.0, 4.5, 5.0, 1.0 and 1.0 shares of common
stock, respectively, upon the closing of an initial public offering in which
proceeds to the Company equal or exceed $20,000,000 and in which the price to
the public is at least $8.35 per common share.

Liquidation Preference

      Upon liquidation of the Company, the Series E preferred stockholders
shall first be entitled to $16.72 per share. The Series D preferred
stockholders, which as a shareholder class are subordinate to the Series E
preferred stockholders, are entitled to $3.58 per share. The Series A, Series
B, and Series C preferred stockholders, which as a class are subordinate to the
Series D and Series E preferred stockholders, are entitled to $2.35, $8.35, and
$8.35, respectively, per share. If any net assets are remaining after the
preferred stock payments, they shall be distributed pro-rata among preferred
and common stockholders.

Voting Rights

      The holders of the preferred stock are entitled to the number of votes
equal to the number of shares of common stock into which the shares of
preferred stock could be converted at the time the vote is taken.

Protective Provisions

      As long as at least 50% of the collective initially issued shares of
Series A, Series B, Series C, Series D and Series E preferred stock remain
outstanding, consent of the holders of at least two-thirds of the Series A,

                                      F-53
eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

6. Redeemable Convertible Preferred Stock--(continued)
Series B, Series C, Series D and Series E preferred stock, voting together as
a single class, will be required for the approval of certain events relating
to the sale, merger, liquidation or winding up of the Company, the issuance of
additional preferred stock or significant borrowings, as defined by the
agreement.

Dividend Rights

      No dividend will accrue or be paid on preferred stock unless declared by
the Board of Directors.

Redemption

      Two-thirds of the Series A, Series B, Series C, Series D and Series E
preferred stock, voting together as a single class, may require the Company to
redeem the Series A, Series B Series C, Series D and Series E preferred stock
in two equal annual installments commencing on December 22, 2004, at a
redemption price equal to the greater of the fair market value or the original
purchase price per share of each Series plus any accrued and unpaid dividends.

7. Common Stock

      Each share of common stock entitles the holder to one vote on all
matters submitted to a vote of the Company's stockholders. As long as the
preferred stock is outstanding, no dividends shall be paid on the common
stock.

      At December 31, 1999, the Company had 24,573,132 shares of its common
stock reserved for issuance upon conversion of preferred stock and exercise of
warrants and options.

      In conjunction with the issuance of restricted common stock, the Company
received full recourse notes receivable from officers of the Company in the
amount of $2,841,000, from Advisory Directors in the amount of $100,000, and
made advances to Directors in the amount of $154,000. The notes bear interest
at 6.02% and are payable in full by October 19, 2005.

8. Stock Option Plan

      In September 1993, the Company adopted the 1993 Stock Option Plan (the
"1993 Plan"). The 1993 Plan provides for issuance of nonqualified stock
options, awards of restricted stock, and direct stock purchase opportunities
to directors, officers, employees and consultants of the Company. At December
31, 1999 the total number of shares which could be issued under the 1993 Plan
was 712,941. As of December 31, 1999 no options were available for future
grant under the 1993 Plan. Nonqualified options may be granted at an exercise
price less than, equal to or greater than the fair market value on the date of
grant, as determined by the Board of Directors. Vesting of the options is over
a four year period.

      In September 1998, the Company adopted the 1998 Stock Option Plan (the
"1998 Plan"). The 1998 Plan provides for issuance of incentive stock options
to employees of the Company and non-qualified stock options, awards of
restricted stock, and direct stock purchase opportunities to directors,
officers, employees and consultants of the Company. The total number of shares
which may be issued under the 1998 Plan is 9,338,184. At December 31, 1999,
there were 4,570,236 options outstanding under the 1998 Plan and 843,675
available for future grant. Incentive stock options may not be granted at less
than the fair market value of the Company's common stock at the date of grant
and for a term not to exceed ten years. For holders of 10% or more of the

                                     F-54
eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

8. Stock Option Plan--(continued)
Company's outstanding common stock, options may not be granted at less than
110% of the fair market value of the common stock at the date of grant and the
option term may not exceed five years. Incentive stock options and nonqualified
stock options vest over a four year period.

      A restricted stock award, as allowed by the 1993 Plan and 1998 Plan,
provides for the issuance of common stock to directors, officers, consultants
and other key personnel at prices determined by the Board of Directors.
Participants unvested shares are subject to repurchase by the Company at the
original purchase price plus interest accrued for up to four years.

      A summary of the activity under the Company's 1993 Plan and 1998 Plan as
of December 31, 1999, and changes during the three years then ended is
presented below:
Weighted-
                                                      Number of      average
                                                        Shares    exercise price
                                                      ----------  --------------
Outstanding--December 31, 1996.......................    439,800      $0.78
 Granted (exercise price equal to fair value)........    375,870       1.18
 Canceled............................................    (11,400)      0.78
                                                      ----------      -----
Outstanding--December 31, 1997.......................    804,270       0.97
 Granted (exercise price equal to fair value)........    338,250       1.19
 Granted (exercise price below fair value)...........    141,000        .78
 Canceled............................................    (64,500)      0.97
                                                      ----------      -----
Outstanding--December 31, 1998.......................  1,219,020       1.01
 Granted (exercise price below fair value)...........  8,473,509       1.77
 Exercised........................................... (3,963,648)      0.81
 Canceled............................................   (445,704)      0.84
                                                      ----------      -----
Outstanding--December 31, 1999.......................  5,283,177      $2.35
                                                      ==========      =====
There were 327,450, 458,961 and 624,100 stock options that were
exercisable at December 31, 1997, 1998 and 1999, respectively.

      The following table summarizes information about stock options
outstanding and exercisable at December 31, 1999:
Weighted-
                               average
                              remaining
                  Options    contractual    Options
                outstanding life in years exercisable
Exercise price  ----------- ------------- -----------
$0.78            3,307,680       9.0        534,663
 1.19              235,875       8.2         89,437
 5.50            1,739,622       9.9              -
                 ---------                  -------
                 5,283,177                  624,100
                 =========                  =======
FAS 123 encourages but does not require companies to record compensation
cost for stock-based employee compensation at fair value. The Company has
chosen to account for stock-based compensation granted to employees using the
intrinsic value method prescribed in APB 25 and related interpretations.
Accordingly, deferred compensation cost for restricted stock awards and stock
options granted to employees is measured as the excess, if any, of the fair
value of the Company's stock at the date of the grant over the

                                      F-55
eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

8. Stock Option Plan--(continued)
amount that must be paid to acquire the stock. From January 1, 1999 through
December 31, 1999, the Company recorded approximately $37,181,000 in deferred
compensation for restricted stock awards and options to purchase common stock
granted at exercise prices subsequently determined to be below the fair value
of the common stock on the date of grant. Compensation expense of approximately
$2,175,000 was recognized during 1999.

      Option valuation models have been developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. Such models require the input of highly subjective assumptions.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The fair value
of each option grant is estimated on the date of grant using the minimum value
method. The following assumptions were made for grants in 1997, 1998, and 1999,
respectively:
1997    1998        1999
                                                    ---- ----------- -----------
Dividend yield.....................................  0%      0%          0%
Expected lives of options (years)..................  5        5           5
Risk-free interest rate............................ 6.2% 4.41%-5.46% 5.25%-6.24%
Volatility......................................... --       --          --
The fair value of the options granted during 1997 is estimated to be
$0.22. The fair value of the options granted during 1998 is estimated to be
$0.28 for options granted with exercise prices equal to the common stock fair
value and $1.10 for options granted with exercise prices below the common stock
fair value. The fair value of the options granted during 1999 is estimated to
be $4.73. Had the Company accounted for stock options to employees under the
fair value method prescribed under FAS 123, pro forma net losses attributable
to common stockholders, and basic diluted net loss per share would have been as
follows (the effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts):
1997         1998          1999
                                      ------------ ------------ -------------
                                      (in thousands except per share data)
Net loss attributable to common
 stockholders (as reported).......... $    (1,946) $    (7,608) $    (328,552)
Stock compensation...................         (18)        (114)        (2,583)
                                      -----------  -----------  -------------
Pro forma net loss attributable to
 common stockholders................. $    (1,964) $    (7,722) $    (331,135)
                                      ===========  ===========  =============
Pro forma basic and diluted net loss
 per share........................... $     (0.94) $     (3.68) $     (110.88)
F-56
eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

9. Income Taxes

      A reconciliation of the Company's income tax provision to the statutory
federal provision is as follows:
Year ended December 31
                                                       1997    1998     1999
                                                      ------- ------- --------
                                                          (in thousands)
Statutory federal income tax provision............... $ (662) $ (860) $ (5,567)
State income taxes net of federal tax benefit........   (121)   (157)   (1,136)
Change in deferred tax asset valuation allowance.....    778   1,010     7,617
Stock compensation expense...........................    --      --       (970)
Other................................................      5       7        56
                                                      ------  ------  --------
Income tax provision................................. $  --   $  --   $    --
                                                      ======  ======  ========
At December 31, 1999, the Company had unused net operating loss
carryforwards of approximately $24,956,000 available to reduce federal and
state taxable income, these loss carryforwards expire through 2019. Due to the
degree of uncertainty related to the use of the loss carryforwards, the Company
has fully reserved this tax benefit. Additionally, the future utilization of
the net operating loss carryforwards may be subject to limitations under the
change in stock ownership rules of the Internal Revenue Service.

      Significant components of the Company's deferred tax assets are as
follows:
1998    1999
                                                                ------  -------
                                                                (in thousands)
Deferred tax assets:
 Net operating loss carryforwards.............................. $2,670  $ 9,975
 Other.........................................................      7      338
 Tax credit carryforwards......................................    153      134
                                                                ------  -------
Total deferred tax assets......................................  2,830   10,447
Valuation allowance............................................ (2,830) (10,447)
                                                                ------  -------
Net deferred tax assets........................................ $  --   $   --
                                                                ======  =======
The valuation allowance increased by $1,010,000 and $7,617,000 during
1998 and 1999, respectively, due primarily to the increase in net operating
loss carryforwards.

10. Employee Benefit Plan

      In 1995, the Company established a savings plan for its employees which
is designed to be qualified under Section 401(k) of the Internal Revenue Code.
Eligible employees are permitted to contribute to the 401(k) plan within
statutory and plan limits. The Company has not contributed to the savings plan
to date.

                                      F-57
eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

11. Commitments

Leases

      The Company leases its operating facilities and certain computer
equipment and furniture and fixtures under noncancelable operating and capital
lease agreements. Rent expense for the years ended December 31 1997, 1998 and
1999 was $137,000, $311,000, and $505,000, respectively. Future minimum lease
commitments at December 31, 1999 are as follows:
Operating Capital
                                                                 Lease   Leases
Year ending December 31:                                       --------- -------
                                                                (in thousands)
2000..........................................................  $1,111    $ 97
2001..........................................................     559      39
2002..........................................................     556      21
2003..........................................................     556      21
2004..........................................................     555      11
Thereafter....................................................   1,657     --
                                                                ------    ----
Total minimum lease payments..................................  $4,994     189
                                                                ======
Less amount represent interest................................             (44)
                                                                          ----
Present value of minimum lease payments.......................            $145
                                                                          ====
The Company's obligations on one of its operating leases is
collateralized by a $780,000 letter-of-credit with a commercial bank. The
letter of credit is collateralized by a $520,000 certificate of deposit held by
eCredit. The certificate of deposit has been classified as a component of Other
Assets at December 31, 1999.

Employment Agreements

      During 1994, the Company entered into a separation agreement with an
officer and stockholder. Pursuant to the terms of the separation agreement, the
Company repurchased 450,000 shares of common stock for $225,000 and entered
into a stock call option agreement. Pursuant to the stock call option, the
Company may purchase an additional 300,000 shares held by the former officer at
fair market value on the date of exercise. The call option terminates upon the
earlier of June 26, 2000 or immediately subsequent to a public offering of
common stock, or a sale, liquidation or merger of the Company, as defined by
the agreement.

      In April 1999, the Company entered into a separation agreement with an
officer of the Company. Pursuant to the terms of the separation agreement, the
Company repriced the then vested options to allow the officer to acquire 81,666
shares of common stock at $0.78 per share. Accordingly, under the Proposed
Interpretation of APB 25, the Company will be required to recognize
compensation expense on July 1, 2000 for the effect of the repricing.

                                      F-58
eCredit.com, Inc.

            Notes to Consolidated Financial Statements--(Continued)

12. Subsequent Events--Pro Forma Balance Sheet, Statement of Operations and Net
Loss Per Share (Unaudited)

      On February 24, 2000 the Company signed a definitive exchange offer
agreement with Internet Capital Group, Inc ("ICG"). ICG will offer to purchase
from existing stockholders 30% of eCredit common stock, including authorized
but unallocated options, on a fully diluted basis. Upon the closing of the
exchange offer, ICG will exchange that number of shares of ICG common stock
equal to $450,000,000 divided by the average closing share price of ICG common
stock on the three consecutive days preceding the second trading day preceding
the close of the transaction. The implied price per eCredit common share is
$48.68. Prior to the expiration of the exchange offer, eCredit preferred stock
will convert into common stock.

      eCredit will grant ICG a warrant to purchase up to 5% of eCredit common
stock on a fully-diluted basis, which is exercisable over a period of 48 months
following an initial public offering at an aggregate price of $300,000,000
during the first 18 months and $400,000,000 thereafter until expiration. The
value of the warrant approximates $40,000,000.

      The unaudited pro forma balance sheet is stated as if the transaction
occurred at December 31, 1999, the unaudited pro forma statement of operations
is stated as if the transaction occurred at January 1, 1999. The pro forma
balance sheet and statement of operations reflect the following:

*  Conversion of all its outstanding shares of preferred stock into a total of
   15,568,622 shares of common stock

*  Acceleration and exercise of 1,579,853 common stock options at a weighted
   average exercise price of $2.32. Such acceleration and exercise, in
   conjunction with the issuance of the warrant results in a stock compensation
   charge of $62,000,000, and acceleration of deferred compensation of
   $8,800,000. This assumes an implied price per eCredit common share of
   $48.68.

*  Issuance of warrants to ICG, valued at approximately $40,000,000, in
   connection with the purchase of eCredit's shares. Such warrants are
   exercisable upon an initial public offering of shares of eCredit.

                                      F-59
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To RightWorks Corporation:

We have audited the accompanying balance sheets of RightWorks Corporation (a
California corporation) as of December 31, 1999 and 1998, and the related
statements of operations and comprehensive loss, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of RightWorks Corporation as of
December 31, 1999 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with accounting principles generally accepted in the United States.

                                          /s/ ARTHUR ANDERSEN LLP
San Jose, California
April 11, 2000

                                      F-60
RIGHTWORKS CORPORATION
                                 Balance Sheets
December 31,
                                                       -----------------------
                                                          1999         1998
                                                       -----------  ----------
Assets
Current Assets:
 Cash and cash equivalents...........................  $11,921,721  $3,948,840
 Accounts receivable, net of allowance for doubtful
  accounts of $30,000 and $0, respectively...........    3,162,920      58,500
 Prepaid expenses and other current assets...........      128,960      44,930
 Deferred debt costs, current portion................       41,779          --
                                                       -----------  ----------
  Total current assets...............................   15,255,380   4,052,270
 Property and Equipment, net.........................      412,683     175,515
 Other Assets........................................       24,432      27,825
 Deferred debt costs, less current portion...........       76,596          --
                                                       -----------  ----------
  Total assets.......................................  $15,769,091  $4,255,610
                                                       ===========  ==========
        Liabilities And Shareholders' Equity
Current Liabilities:
 Accounts payable....................................  $   634,518  $  204,196
 Accrued payroll.....................................      866,094     250,682
 Accrued professional services.......................      317,155          --
 Deferred revenue....................................    1,760,583      58,500
 Other current liabilities...........................      273,780          --
 Capital leases, current portion.....................      106,471          --
 Notes payable, current portion......................      576,706          --
                                                       -----------  ----------
  Total current liabilities..........................    4,535,307     513,378
Capital leases, less current portion.................      206,111          --
Notes payable, less current portion..................    2,423,294          --
                                                       -----------  ----------
  Total liabilities..................................    7,164,712     513,378
                                                       -----------  ----------
Commitments (Note 4)
Shareholders' Equity:
 Convertible preferred stock, $0.001 par value;
 Series A:
  Authorized--3,000,000 shares
  Outstanding--3,000,000 shares in 1999 and 1998;
   liquidation preference of $150,000................        3,000       3,000
 Series B:
  Authorized--4,946,000 shares
  Outstanding--4,946,000 shares in 1999 and 1998;
   liquidation preference of $525,018................        4,946       4,946
 Series C:
  Authorized--9,139,485 shares
  Outstanding--9,139,485 shares in 1999 and 1998;
   liquidation preference of $1,902,110..............        9,139       9,139
 Series D:
  Authorized--7,838,085 shares
  Outstanding--7,838,085 shares in 1999 and 1998;
   liquidation preference of $2,250,000..............        7,838       7,838
 Series E:
  Authorized--14,417,093 shares
  Outstanding--12,700,370 shares in 1999 and 1998;
   liquidation preference of $1,831,012..............       12,701      12,701
 Series F:
  Authorized--35,000,000 shares
  Outstanding--34,681,280 shares in 1999 and 1998;
   liquidation preference of $5,000,000..............       34,681      34,681
 Series G:
  Authorized--1,000,000 shares
  Outstanding--935,616 shares in 1999 and no shares
   in 1998; liquidation preference of $748,493.......          936          --
 Series H:
  Authorized--8,428,935 shares
  Outstanding--5,845,938 shares in 1999 and no shares
   in 1998; liquidation preference of $13,094,901....        5,846          --
 Series H-1:
  Authorized--6,621 shares
  Outstanding--no shares in 1999 and 1998; liquida-
   tion preference of $0.............................           --          --
 Series I:
  Authorized--3,500,000 shares
  Outstanding--162,179 shares in 1999 and no shares
   in 1998; liquidation preference of $501,663.......          162          --
Common stock, $0.001 par value:
  Authorized--100,000,000 shares
  Outstanding--4,409,885 shares in 1999 and 1,855,152
   shares in 1998....................................        4,410       1,855
Warrants.............................................      567,495     161,293
Additional paid-in capital...........................   28,946,240  11,583,708
Notes receivable from shareholders...................     (367,667)         --
Deferred compensation................................   (3,239,420)         --
Accumulated deficit..................................  (17,385,928) (8,076,929)
                                                       -----------  ----------
Total shareholders' equity...........................    8,604,379   3,742,232
                                                       -----------  ----------
Total liabilities and shareholders' equity...........  $15,769,091  $4,255,610
                                                       ===========  ==========
The accompanying notes are an integral part of these financial statements.

                                      F-61
RIGHTWORKS CORPORATION

                Statements Of Operations And Comprehensive Loss
Year Ended December 31,
                                        -------------------------------------
                                           1999         1998         1997
                                        -----------  -----------  -----------
Revenues:
  Product license...................... $ 2,149,757  $        --  $        --
  Services.............................     273,667       75,000       19,160
  Discount related to warrant..........    (271,887)          --           --
                                        -----------  -----------  -----------
    Total revenue......................   2,151,537       75,000       19,160
Cost of Revenue........................     429,960           --           --
                                        -----------  -----------  -----------
    Gross Profit.......................   1,721,577       75,000       19,160
                                        -----------  -----------  -----------
Operating Expenses:
  Research and development.............   3,344,721    2,262,607    1,200,707
  Sales and marketing..................   6,061,872    2,261,838      312,691
  General and administrative...........   1,543,769    1,036,573      551,936
  Amortization of deferred compensa-
   tion................................     150,578           --           --
                                        -----------  -----------  -----------
    Total operating expenses...........  11,100,940    5,561,018    2,065,334
                                        -----------  -----------  -----------
Loss from operations...................  (9,379,363)  (5,486,018)  (2,046,174)
Interest and Other Income (Expense),
 net...................................      70,364     (135,547)      29,337
                                        -----------  -----------  -----------
Net Loss and Comprehensive Loss........ $(9,308,999) $(5,621,565) $(2,016,837)
                                        ===========  ===========  ===========
Basic and diluted net loss per common
 share................................. $     (5.05) $     (3.48) $     (1.44)
                                        ===========  ===========  ===========
Shares used in computing basic and di-
 luted net loss per common share.......   1,845,000    1,615,000    1,402,000
                                        ===========  ===========  ===========
The accompanying notes are an integral part of these financial statements.

                                      F-62
RIGHTWORKS CORPORATION

                       Statement of Shareholders' Equity
Convertible
                   Preferred Stock     Common Stock
                  ------------------ -----------------
                                                                                 Notes
                                                                 Additional    Receivable
                                                                   Paid-In        From       Deferred    Accumulated
                    Shares   Amount   Shares    Amount  Warrants   Capital    Shareholders Compensationt   Deficit       Total
----------------  ---------- ------- ---------  ------  -------- -----------  ------------ ------------- ------------  ----------
Balances at
 December 31,
 1996...........   7,946,000 $ 7,946 1,289,833  $1,290  $     -- $   688,648   $      --    $        --  $   (438,527) $  259,357
Issuance of
 Series C
 convertible
 preferred,
 net............   9,139,485   9,139       --      --        --    1,892,161         --             --            --    1,901,300
Exercise of
 stock options..         --      --    226,555     227       --        9,192         --             --            --        9,418
Exercise of
 options issued
 in conjunction
 with bridge
 financing......         --      --    152,000     152       --        7,448         --             --            --        7,600
Net loss........         --      --        --      --        --          --          --             --     (2,016,837) (2,016,837)
                  ---------- ------- ---------  ------  -------- -----------   ---------    -----------  ------------  ----------
Balances at
 December 31,
 1997...........  17,085,485  17,085 1,668,388   1,668       --    2,597,449         --             --     (2,455,364)    160,838
Issuance of
 Series D
 convertible
 preferred
 stock, net.....   7,838,085   7,838       --      --        --    2,225,559         --             --            --    2,233,437
Issuance of
 Series E
 convertible
 preferred,
 net............  12,700,370  12,701       --      --        --    1,802,423         --             --            --    1,815,124
Issuance of
 Series F
 convertible
 preferred,
 net............  34,681,280  34,681       --      --        --    4,926,529         --             --            --    4,961,210
Issuance of
 warrants to
 purchase Series
 E convertible
 preferred
 stock..........         --      --        --      --    161,293         --          --             --            --      161,293
Exercise of
 stock options..         --      --    263,564     264       --       35,471         --             --            --       35,735
Repurchase of
 common stock...         --      --    (76,800)    (77)      --       (3,763)        --             --            --       (3,840)
Net loss........         --      --        --      --        --          --          --             --     (5,621,565) (5,621,565)
                  ---------- ------- ---------  ------  -------- -----------   ---------    -----------  ------------  ----------
Balances at
 December 31,
 1998...........  72,305,220  72,305 1,855,152   1,855   161,293  11,583,708         --             --     (8,076,929)  3,742,232
Issuance of
 Series G
 convertible
 preferred stock
 in exchange for
 technology.....     935,616     936       --      --        --      133,952         --             --            --      134,888
Issuance of
 Series H
 convertible
 preferred
 stock, net.....   5,845,938   5,846       --      --        --   13,018,440     (16,667)           --            --   13,007,619
Issuance of
 Series I
 convertible
 preferred
 stock, net.....     162,179     162       --      --        --      432,163         --             --            --      432,325
Issuance of
 warrants to
 purchase
 convertible
 preferred
 stock..........         --      --        --      --    406,202         --          --             --            --      406,202
Exercise of
 stock options..         --      --    254,907     255       --       43,758         --             --            --       44,013
Repurchase of
 common stock...         --      --    (40,174)    (40)      --       (4,439)        --             --            --       (4,479)
Exercise of
 options via
 promissory
 note...........         --      --  2,340,000   2,340       --      348,660    (351,000)           --            --          --
Deferred
 Compensation...         --      --        --      --        --    3,389,998         --      (3,389,998)          --          --
Amortization of
 deferred
 compensation...         --      --        --      --        --          --          --         150,578           --      150,578
Net loss........         --      --        --      --        --          --          --             --     (9,308,999) (9,308,999)
                  ---------- ------- ---------  ------  -------- -----------   ---------    -----------  ------------  ----------
Balances at
 December 31,
 1999...........  79,248,953 $79,249 4,409,885  $4,410  $567,495 $28,946,240   $(367,667)   $(3,239,420) $(17,385,928) $8,604,379
                  ========== ======= =========  ======  ======== ===========   =========    ===========  ============  ==========
The accompanying notes are an integral part of these financial statements.

                                      F-63
RIGHTWORKS CORPORATION

                            Statements Of Cash Flows
Year Ended December 31,
                                          -------------------------------------
                                             1999         1998         1997
                                          -----------  -----------  -----------
Cash Flows from Operating Activities:
 Net loss...............................  $(9,308,999) $(5,621,565) $(2,016,837)
 Adjustments to reconcile net loss to
  net cash used in operating activities:
  Provision for bad debt................       30,000           --           --
  Depreciation and amortization.........      306,048      100,490       59,948
  Conversion of accrued interest to pre-
   ferred stock.........................           --       26,012           --
  Warrants issued in conjunction with
   bridge financing.....................           --      161,293           --
  Valuation of warrants issued in
   connection with revenue contracts and
   lease lines..........................      406,202           --           --
  Write off of abandoned technology
   exchanged for preferred stock........      134,888           --           --
  Changes in operating assets and lia-
   bilities:
   Accounts receivable..................   (3,134,420)     (58,500)      34,457
   Prepaid expenses and other current
    assets..............................      (84,030)     (44,689)       6,825
   Other assets.........................        3,393           --      (23,623)
   Deferred debt costs..................     (118,325)          --           --
   Accounts payable and accrued liabili-
    ties................................    1,636,669      244,565      192,089
   Deferred revenue.....................    1,702,083       58,500      (10,000)
                                          -----------  -----------  -----------
    Net cash used in operating activi-
     ties...............................   (8,426,541)  (5,133,894)  (1,757,141)
                                          -----------  -----------  -----------
Cash Flows from Investing Activities:
 Purchase of property and equipment.....      (60,817)    (120,550)    (142,246)
                                          -----------  -----------  -----------
    Net cash used in investing activi-
     ties...............................      (60,817)    (120,550)    (142,246)
                                          -----------  -----------  -----------
Cash Flows from Financing Activities:
 Advances from related party............           --           --      500,000
 Proceeds from bridge financing.........           --    1,650,000           --
 Proceeds from issuance of common
  stock.................................       44,013       35,735       17,018
 Repurchase of common stock.............       (4,479)      (3,840)          --
 Proceeds from issuance of preferred
  stock, net............................   13,439,944    6,833,759    1,901,300
 Repayments of capital lease obliga-
  tions.................................      (19,239)          --           --
 Proceeds from issuance of note pay-
  able..................................    3,000,000           --           --
                                          -----------  -----------  -----------
    Net cash provided by financing ac-
     tivities...........................   16,460,239    8,515,654    2,418,318
                                          -----------  -----------  -----------
Net Increase In Cash and Cash Equiva-
 lents..................................    7,972,881    3,261,210      518,931
Cash and Cash Equivalents, Beginning of
 Period.................................    3,948,840      687,630      168,699
                                          -----------  -----------  -----------
Cash and Cash Equivalents, End of Peri-
 od.....................................  $11,921,721  $ 3,948,840  $   687,630
                                          ===========  ===========  ===========
Supplemental Schedule of Noncash Financ-
 ing Activities:
 Warrants issued in conjunction with
  bridge financing......................  $        --  $   161,293  $        --
                                          ===========  ===========  ===========
 Write off of abandoned technology ex-
  changed for preferred stock...........  $   134,888  $        --  $        --
                                          ===========  ===========  ===========
 Notes receivable from officer in ex-
  change for preferred stock............  $    16,667  $        --  $        --
                                          ===========  ===========  ===========
 Notes receivable from officers for
  exercise of common stock options......  $   351,000  $        --  $        --
                                          ===========  ===========  ===========
 Equipment purchased under capital
  leases................................  $   331,821  $        --  $        --
                                          ===========  ===========  ===========
The accompanying notes are an integral part of these financial statements.

                                      F-64
RIGHTWORKS CORPORATION

                         Notes to Financial Statements

1. Organization:

      RightWorks Corporation (the "Company" or "RightWorks") was incorporated
in California in September 1994 to develop and market Web-based enterprise-
class electronic procurement solutions.

      The Company has financed its operations primarily through the sale of
convertible preferred stock. In February 1999, the Company released and shipped
the production version of its initial product and emerged from the development
stage. However, the Company continues to be subject to the risks and challenges
associated with companies in a comparable stage of development, including:
dependence on key employees for technology development and support, dependence
on a limited number of customers, rapidly changing technology, potential
competition from larger, more established companies, the successful development
and marketing of its products and the ability to obtain adequate financing to
support its growth.

      The Company incurred a net loss of $9.3 million for the year ended
December 31, 1999 and, as of December 31, 1999, has an accumulated deficit of
$17.4 million. During February 2000 the Company raised approximately $7.1
million in gross proceeds from the sale of its Series I preferred stock. In
March 2000, Internet Capital Group entered into an agreement, with tendering
preferred shareholders of the Company, to acquire a majority interest in the
Company. The Company expects to incur additional losses in the future.
Management anticipates funding future operations through additional equity
financing, as required, and successful operations; however, there is no
assurance that such efforts will be successful.

2. Significant Accounting Policies:

    Use of Estimates in the Preparation of Financial Statements

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

    Statements of Cash Flows

      For purposes of the statements of cash flows, RightWorks considers all
highly liquid investments purchased with original maturities of three months or
less to be cash equivalents. Cash equivalents consist of amounts on deposit at
a commercial bank.

    Concentration of Credit Risk and Significant Customers

      Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses which, to date, have not been material.

      Receivables due from significant customers as a percentage of total
accounts receivable were as follows:
As of
                                                                December 31,
                                                                ---------------
                                                                 1999     1998
                                                                ------   ------
Customer A................................................      *      100%
     Customer B................................................     56%       *
     Customer C................................................     13%       *
* Represents less than 10% for the indicated period.

                                      F-65
RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)

      Sales to significant customers as a percentage of total revenues were as
follows:
Years Ended
                                                                   December 31,
                                                                  ----------------
                                                                  1999  1998  1997
                                                                  ----  ----  ----
Customer B..................................................  86%    *     *
     Customer D..................................................   *     *    49%
     Customer E..................................................   *     *    51%
     Customer F..................................................   *    67%    *
     Customer G..................................................   *    33%    *
--------
      * Represents less than 10% for the indicated period.

    Property and Equipment

      Property and equipment is stated at cost. Depreciation is computed using
the straight-line method based on estimated useful lives of the assets, which
is generally three years. Depreciation expense is included in operating
expenses.

      Property and equipment consists of the following at December 31:
1999       1998
                                                           ---------  ---------
Computer equipment................................... $ 592,240  $ 279,062
     Furniture and fixtures...............................   136,933     69,370
     Purchased software...................................    24,397     12,500
                                                           ---------  ---------
                                                             753,570    360,932
     Accumulated depreciation and amortization............  (340,887)  (185,417)
                                                           ---------  ---------
     Property and equipment, net.......................... $ 412,683  $ 175,515
                                                           =========  =========
Software Development Costs

      Under the criteria set forth in Statement of Financial Accounting
Standards (SFAS) No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed," capitalization of software development
costs begins upon the establishment of technological feasibility of the
product, which the Company defines as establishment of a working model and is
further defined as a beta version of the software. The period of time
commencing when a product achieves beta status and ending when a product is
offered for sale is typically very short. Accordingly, amounts that could have
been capitalized under SFAS No. 86 after consideration of the above factors and
overall recoverability of capitalizable amounts were immaterial and, therefore,
no software development costs have been capitalized by the Company to date.

    Stock-Based Compensation

      The Financial Accounting Standards Board ("FASB") issued SFAS No. 123,
"Accounting for Stock-Based Compensation," in October 1995. This accounting
standard permits the use of either a fair value based method of accounting or
the method defined in Accounting Principles Board Opinion 25 ("APB 25"),
"Accounting for Stock Issued to Employees" to account for stock-based
compensation arrangements. Companies that elect to employ the method prescribed
by APB 25 are required to disclose the pro forma net income (loss) that would
have resulted from the use of the fair value based method. RightWorks has
elected to

                                      F-66
RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)

continue to account for its stock-based compensation arrangements under the
provisions of APB 25, and accordingly, has included in Note 6 the pro forma
disclosures required under SFAS No. 123.

    Revenue Recognition

      The Company did not complete development of its principal product until
February 1999 and, accordingly, had no product revenue in 1998. Revenue
recognized in the years ended December 31, 1998 and 1997 related to royalties
and services.

      RightWorks' revenues for 1999 are derived from two sources; license fees
and services. Services include software maintenance and support, training and
system implementation consulting.

      Fees from licenses are recognized as revenue upon contract execution,
provided all shipment obligations have been met, fees are fixed or
determinable, collection is probable, and vendor specific objective evidence
exists to allocate the total fee between all elements of the arrangement. If an
acceptance period is required, revenue is recognized upon the earlier of
customer acceptance or the expiration of the acceptance period.

      Maintenance revenue is recognized ratably over the term of the
maintenance contract, which is typically twelve months. If maintenance is
included in an arrangement which includes a license agreement, amounts related
to maintenance are unbundled from the license fee based on vendor specific
objective evidence. Consulting and training revenue is recognized when the
services are performed.

      Cost of revenue consists of compensation and related overhead costs for
persons engaged in consulting, training and maintenance for our customers.

    Advertising Costs

      The Company expenses all advertising costs as incurred. The Company does
not incur any direct-response advertising costs.

    Comprehensive Income (Loss)

      In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which RightWorks adopted beginning on January 1, 1998. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The objective
of SFAS No. 130 is to report a measure of all changes in equity of an
enterprise that result from transactions and other economic events of the
period other than transactions with shareholders ("comprehensive income").
Comprehensive income is the total of net income and all other non-owner changes
in equity. For each of the three years ended December 31, 1999, RightWorks'
comprehensive loss was equal to net loss.

                                      F-67
RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)

    Computation of Basic and Diluted Net Loss Per Share

      Basic and diluted net loss per common share are presented in conformity
with SFAS No. 128, "Earnings Per Share," for all periods presented. In
accordance with SFAS No. 128, basic net loss per common share has been computed
using the weighted average number of shares of common stock outstanding during
the period, less shares subject to repurchase (in thousands, except per share
amounts).
Years Ended December 31,
                                                  ----------------------------
                                                    1999      1998      1997
                                                  --------  --------  --------
Net loss......................................... $ (9,309) $ (5,622) $ (2,017)
                                                  --------  --------  --------
Basic and diluted:
  Weighted average shares of common stock out-
   standing......................................    2,511     1,852     1,534
Less: Weighted average shares subject to repur-
 chase...........................................     (666)     (224)     (133)
                                                  --------  --------  --------
  Weighted average shares used in computing basic
   and diluted net loss per common share.........    1,845     1,615     1,402
                                                  --------  --------  --------
Basic and diluted net loss per common share...... $  (5.05) $  (3.48) $  (1.44)
                                                  ========  ========  ========
RightWorks has excluded all convertible preferred stock, warrants for
convertible preferred stock, outstanding stock options, and shares subject to
repurchase from the calculation of diluted net loss per common share because
all such securities are antidilutive for all periods presented. The total
number of shares excluded from the calculations of diluted net loss per share
were approximately 84,500,000, 75,100,000, and 17,500,000 for the years ended
December 31, 1999, 1998 and 1997, respectively. See notes 5 and 6 for further
information on these securities.

    Segment Reporting

      During 1998, RightWorks adopted SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information." SFAS No. 131 requires a new basis of
determining reportable business segments (i.e., the management approach). This
approach requires that business segment information used by management to
assess performance and manage company resources be the source for segment
information disclosure. On this basis, Rightworks is organized and operates as
one business segment; the design, development, and marketing of software
solutions.

      During the years ended December 31, 1999, 1998 and 1997, Rightworks did
not generate revenues in foreign countries and had no assets in foreign
countries.

    Recent Accounting Pronouncements

      In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires companies to record
derivative financial instruments on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. In June 1999, the
FASB issued SFAS No. 137, "Accounting For Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133," which
amends SFAS No. 133 to be effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000 (or January 1, 2001 for RightWorks). Management
believes that this statement will not have a material impact on the financial
condition or results of the operations of RightWorks.

                                      F-68
RIGHTWORKS CORPORATION

                  Notes to Financial Statements--(Continued)

      In December 1998, the AICPA issued Statement of Position ("SOP") 98-9,
"Modification of SOP97-2, Software Revenue Recognition, with Respect to
Certain Transactions." SOP 98-9 amends SOP 97-2 and SOP 98-4 by extending the
deferral of the application of certain provisions of SOP 97-2 amended by SOP
98-4 through fiscal years beginning on or before March 15, 1999. All other
provisions of SOP 98-9 are effective for transactions entered into in fiscal
years beginning after March 15, 1999. RightWorks does not anticipate that this
statement will have a material impact on its statement of operations.

      In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101 (SAB 101), "Revenue Recognition in Financial
Statements." SAB 101 summarizes the application of generally accepted
accounting principles to revenue recognition in financial statements. On March
24, 2000, the SEC issued an amendment to SAB 101 delaying the effective date
for certain companies. The Company will adopt SAB 101 in the second quarter of
fiscal 2000 and is presently analyzing the impact that SAB 101 will have on
its financial statements. Based on the Company's review to date, SAB 101 is
not expected to materially impact the Company's financial position or
operating results.

3. Borrowings:

      In June 1999, the Company entered into a convertible subordinated note
agreement with a financing company totaling $3,000,000, secured by the assets
of the Company. The note bears interest at 10%, is payable, initially, in
twelve monthly installments of interest only. Beginning July 2000, principal
and interest is payable in twenty-four equal monthly installments. The Company
is required to maintain compliance with certain financial covenants, including
minimum tangible net worth and liquidity coverage. Until 45 days prior to an
initial public offering of the Company's common stock, 30% of the note is
convertible into preferred stock of the Company at a conversion rate equal to
the lower of the price per share of preferred stock representing a $20 million
valuation or the price per share of preferred stock at the next financing
round. None of the note was converted during the year ended December 31, 1999.
In conjunction with the agreement, the Company issued a warrant to purchase
143,916 shares of Series H preferred stock at an exercise price of $2.24 per
share (see note 5).

      Future maturities of principal on these note agreements as of December
31, 1999 are as follows:
2000............................................................ $  576,706
     2001............................................................  1,485,761
     2002............................................................    937,533
                                                                      ----------
                                                                      $3,000,000
                                                                      ==========
In June 1999, the Company entered into a note payable agreement with a
leasing company. The note accrues interest monthly at 3.09 % and matures in
June 2002. The note is secured by the equipment acquired with the proceeds
from this note. The principal amount outstanding at December 31, 1999 under
this note is $312,582. In conjunction with the agreement, the Company issued a
warrant to purchase 23,986 shares of Series H preferred stock at an exercise
price of $2.24 per share (see note 5).

      Included in property and equipment are assets acquired under capital
leases. Future minimum lease payments on capital leases are as follows at
December 31, 1999:
Years Ending December 31,
     -------------------------
2000............................................................ $ 139,088
     2001............................................................   139,088
     2002............................................................   119,877
                                                                      ---------
     Total minimum lease payments....................................   398,053
     Less: Imputed interest (7.0%)...................................   (85,471)
                                                                      ---------
     Present value of payments under capital lease...................   312,582
     Less: Current portion...........................................  (106,471)
                                                                      ---------
     Long-term capital lease obligations............................. $ 206,111
                                                                      =========
F-69
RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)

4. Commitments:

      RightWorks leases its facilities under operating lease agreements. The
facility leases expire at various dates in 2000. As of December 31, 1999,
future minimum payments required under RightWorks' operating leases in 2000
were $130,810.

      In April 2000, RightWorks entered into an operating lease agreement for a
new office facility. the term of the lease is eight years and expires in March
2008. Future minimum lease payments under the lease are as follows:
2000............................................................ $  914,359
     2001............................................................  1,044,732
     2002............................................................  1,044,732
     2003............................................................  1,044,732
     2004............................................................  1,044,732
     Thereafter......................................................  3,395,379
                                                                      ----------
                                                                      $8,488,666
                                                                      ==========
Rent expense was $240,898, $197,470 and $112,030 for the years ended
December 31, 1999, 1998 and 1997, respectively.

5. Preferred Stock:

      At December 31, 1999, the Company has authorized 87,276,219 shares of
preferred stock, of which 3,000,000 shares have been designated as Series A
Preferred Stock ("Series A"); 4,946,000 shares have been designated Series B
Preferred Stock ("Series B"); 9,139,485 shares have been designated as Series C
Preferred Stock ("Series C"); 7,838,085 shares have been designated as Series D
Preferred Stock ("Series D"); 14,417,093 shares have been designated as Series
E Preferred Stock ("Series E"); 35,000,000 shares have been designated as
Series F Preferred Stock ("Series F"); 1,000,000 shares have been designated as
Series G Preferred Stock ("Series G"); 8,435,556 shares have been designated as
Series H Preferred Stock ("Series H"); and 3,500,000 shares have been
designated as Series I Preferred Stock ("Series I"). Significant rights,
restrictions and preferences of the preferred stock are as follows:

    .  Each share of preferred stock is entitled to receive dividends at a
       rate of $0.005 to $0.3083 per share, payable in preference and
       priority to payment of any dividend on common stock, when, and if,
       declared by the board of directors of the Company. The right to
       dividends on the preferred stock shall not be cumulative. No
       dividends have been declared as of December 31, 1999.

    .  In the event of liquidation, dissolution, or winding up of the
       Company, either voluntary or involuntary, the holders of preferred
       stock shall be entitled to receive, pari passu with each other and in
       preference to any distribution to holders of common stock, an amount
       per share ranging from $0.05 to $3.083. If the assets and funds are
       not sufficient to permit the payment of these amounts, then the
       entire assets and funds of the corporation shall be distributed
       ratably among the holders of preferred stock in proportion to the
       number of shares of each series of preferred stock held by each such
       holder. Any remaining assets will be distributed proportionally among
       the holders of common stock and preferred stock on an as-converted
       basis.

       Each share of preferred stock is convertible at the option of the
       holder into one share of common stock (subject to adjustments for
       events of dilution). The shares will be converted into common shares
       immediately prior to the closing of a public stock offering which
       meets certain criteria. The shares will also be automatically
       converted into common shares upon written consent of the holders of
       not less than 66.67% of the then outstanding preferred shares.

                                      F-70
RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)

    .  Each share of preferred stock is entitled to vote in an amount
       equivalent to the number of common shares into which it is
       convertible.

    Series G Preferred Stock

      In 1999, the Company entered into an agreement with another company to
exchange certain technology for Series G. In conjunction with this agreement,
the Company agreed to issue 935,616 shares of Series G, valued at $134,888,
which has similar rights and preferences as other series of preferred stock as
noted above. The Company anticipated using the technology to incorporate into
their product to sell to companies desiring to purchase an internal procurement
software product. During 1999, the Company abandoned the use of the technology
as it re-focused its efforts on selling software to companies establishing
digital marketplaces on the internet. The write-off of the technology is
included in research and development in the accompanying statements of
operations.

    Series I Preferred Stock

      In January 2000, the Company issued an additional 2,287,228 shares of
Series I at $3.083 per share. Total proceeds from the additional issuance
amounted to approximately $4,700,000.

    Warrants

      In August and October 1998, the Company issued $1,150,000 and $500,000,
respectively, of Convertible Promissory Notes (the "Notes") pursuant to Note
and Warrant Purchase Agreements. The Notes bore interest at 8.5%, and the
principal of $1,650,000 and accrued interest of $26,012 were converted into
Series E Preferred Stock at a conversion price of $0.14417.

      In conjunction with this bridge financing, the Company issued warrants to
purchase 1,716,723 shares of Series E Preferred Stock at an exercise price of
$0.14417. The warrants were exercisable after the closing of the Series E
financing and expire in August 2003. The fair value of the warrants on the date
of grant was estimated using the Black-Scholes model using the following
assumptions: risk-free interest rate of 5.46%, expected life of 5 years, and
expected volatility of 75%, and was determined to be $161,293. This amount has
been recognized as additional interest expense in the accompanying statement of
operations.

      In conjunction with four software and value added reseller arrangements,
the Company issued warrants to purchase 2,400,536 shares of the Company's
preferred stock at exercise prices ranging from $2.24 to $3.083 per share, the
fair value of the underlying preferred stock on the dates of the agreements.
The warrants have terms ranging from December 31, 2002 to December 31, 2004 and
will be earned over their terms as certain performance milestones are achieved.
Warrants for 150,000 shares were earned during 1999 and the fair value of these
warrants was determined to be approximately $281,000 and was estimated using
the Black-Scholes option pricing model with the following assumptions: risk-
free interest rate of 6%; expected lives of three to five years; and expected
volatility of 70%. This amount was recognized as a reduction of revenue on the
accompanying statements of operations and comprehensive loss. The residual
2,250,536 warrants were unearned at December 31, 1999.

      In conjunction with the note agreements (see note 3), the Company issued
167,902 warrants to purchase series H preferred stock at exercise prices of
$2.24 per share which are exercisable until either June 25, 2006 or three years
from the Company's initial public offering. The fair value of these warrants
was

                                      F-71
RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)

determined to be approximately $125,000 and was estimated using the Black-
Scholes option pricing model with the following assumptions: risk-free interest
rate of 6%; expected life of seven years; and expected volatility of 70%. This
amount, net of amortization for 1999, was recorded as debt issuance costs in
other assets and is being amortized to interest expense over the one year term
of the agreement.

6. Common Stock:

    Reserved for Future Issuance

      As of December 31, 1999, the Company has reserved the following shares of
authorized but unissued common stock:
Series A........................................................  3,000,000
     Series B........................................................  4,946,000
     Series C........................................................  9,139,485
     Series D........................................................  7,838,085
     Series E........................................................ 12,700,370
     Series F........................................................ 34,681,280
     Series G........................................................    935,616
     Series H........................................................  5,845,938
     Series I........................................................    162,179
     Warrants to purchase preferred stock............................  4,285,160
     Stock options...................................................  4,372,667
                                                                      ----------
                                                                      87,906,780
                                                                      ==========
Stock-Based Compensation

      In connection with the grant of certain stock options to employees during
the year ended December 31, 1999, the Company recorded deferred compensation of
$3,389,998, representing the difference between the deemed value of the common
stock for accounting purposes and the option exercise price or stock sale price
at the date of the option grant or stock sale. Such amount is presented as a
reduction of shareholders' equity and amortized over the vesting period of the
applicable options. Approximately $150,578 was expensed during the year ended
December 31, 1999. Compensation expense is decreased in the period of
forfeiture for any accrued but unvested compensation arising from the early
termination of an option holder's services.

    1996 Stock Option Plan

      In August 1996, the board of directors approved the 1996 Stock Option
Plan (the "Plan"). Under the Plan, incentive and nonqualified stock options to
purchase up to 7,258,093 shares of common stock may be granted to employees,
directors, and consultants to the Company. The option price per share shall not
be less than the fair value, as determined by the board of directors, for
incentive stock option grants or not less than 85% of the fair value for
nonqualified stock options. Any options granted to a shareholder with more than
10% of the voting power (a "ten-percent owner") shall not have an option price
of less than 110% of the fair value. Options become exercisable as determined
by the board of directors, which is generally over four years. Options
generally expire ten years after the date of grant, or five years for greater
than ten-percent owners.

                                      F-72
RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)

      The following table summarizes stock option activity under the Plan:
Year Ending          Year Ending        Year Ending
                           December 31, 1999    December 31, 1998  December 31, 1997
                          --------------------- ------------------ ------------------
                                       Weighted           Weighted           Weighted
                                       Average            Average            Average
                                       Exercise           Exercise           Exercise
                            Shares      Price    Shares    Price    Shares    Price
                          ----------   -------- --------  -------- --------  --------
Outstanding at beginning
 of year................      887,763   $0.25    300,865   $0.05    116,459   $0.05
  Granted...............    5,710,835   $0.17    917,287   $0.25    381,006   $0.10
  Exercised.............  (2,594,907)   $0.15   (263,564)  $0.15   (126,555)  $0.05
  Cancelled.............  (1,291,348)   $0.21    (66,825)  $0.30    (70,045)  $0.05
                          ----------            --------           --------
Outstanding at end of
 year...................    2,712,343   $0.18    887,763   $0.25    300,865   $0.05
                          ==========            ========           ========
Exercisable at end of
 year...................      260,157   $0.13    275,830   $0.10    205,828   $0.05
                          ==========            ========           ========
RightWorks accounts for its stock option plans pursuant to APB 25 whereby
the difference between the exercise price and the fair value at the date of
grant is recognized as compensation expense. Had compensation expense for stock
option plans been determined consistent with SFAS No. 123, net losses would
have increased to the following pro forma amounts (in thousands, except per
share amounts):
Years Ended December 31,
                                                  ----------------------------
                                                    1999      1998      1997
                                                  --------  --------  --------
Net loss as reported............................. $ (9,309) $ (5,622) $ (2,017)
Net loss pro forma............................... $ (9,378) $ (5,626) $ (2,082)
Net loss per common share as reported............  $ (5.05) $  (3.48) $  (1.44)
Net loss per common share pro forma..............  $ (5.08) $  (3.48) $  (1.49)
The weighted average fair value of options granted during the years ended
1999, 1998, and 1997 was $0.05, $0.05 and $0.02, respectively. The fair value
of each option grant was estimated on the date of grant using the Black-Scholes
option pricing model using the following assumptions: risk-free interest rates
ranging from 4.22% to 5.99%; expected dividend yield of zero percent for all
three periods; an average expected life of 2.5 years; and expected volatility
of 0.001% for all periods.

      The following table summarizes the stock options outstanding and
exercisable as of December 31, 1999:
Options Vested
                                       Options Outstanding      And Exercisable
                                   ---------------------------- ----------------
                                             Weighted  Weighted         Weighted
               Range of                       Average  Average          Average
               Exercise                      Remaining Exercise         Exercise
                Prices              Number     Years    Price   Number   Price
               --------            --------- --------- -------- ------- --------
$0.05........................    61,671    6.9     $0.05    54,658  $0.05
     $0.10........................    98,003    7.6     $0.10    82,837  $0.10
     $0.15........................ 1,342,412    5.9     $0.15    75,879  $0.15
     $0.22........................ 1,175,435    9.8     $0.22    36,393  $0.22
     $0.50........................    34,822    7.9     $0.50    10,390  $0.50
                                   ---------                    -------
                                   2,712,343                    260,157
                                   =========                    =======
F-73
RIGHTWORKS CORPORATION

                  Notes to Financial Statements--(Continued)

    Non-Plan Stock Options

     In October 1995, non-qualified stock options for a total of 99,600 shares
of common stock were granted to an employee at an exercise price of $0.025 per
share. These options are fully vested and expire ten years from the date of
grant.

    Stock Split

     On June 2, 1999, Rightworks' board of directors approved a 5-for-1
reverse stock split of Rightworks' outstanding common stock. All share and per
share information relating to common stock included in these financial
statements has been retroactively adjusted to reflect this reverse stock
split.

7. Income Taxes:

     The Company accounts for income taxes pursuant to the provisions of SFAS
No. 109, "Accounting for Income Taxes," which provides for an asset and
liability approach under which deferred income taxes are provided based upon
enacted tax laws and rates applicable to the periods in which the taxes become
payable. The Company has not had any taxable income or related tax liabilities
for any period. A valuation allowance has been recorded for the total deferred
tax assets as a result of uncertainties regarding realization of the assets
based upon the limited operating history of the Company, the lack of
profitability to date, and the uncertainty of future profitability.

     The components of the deferred income tax asset as of December 31, 1999
and 1998 were as follows:
1999        1998
                                                         ----------  ----------
Net operating loss carryforwards........................ $4,057,314  $2,101,786
Temporary differences...................................    646,679      46,586
Capitalized Start Up Costs..............................  2,217,234   1,888,655
Research and development credits........................    321,239     210,324
                                                         ----------  ----------
                                                          7,244,466   4,247,351
Valuation allowance..................................... (7,244,466) (4,247,351)
                                                         ----------  ----------
Net deferred income tax asset........................... $       --  $       --
                                                         ==========  ==========
As of December 31, 1999, the Company has Federal and State net deferred
tax assets of approximately $7,244,000 consisting primarily of net operating
loss carryforwards. The Company has established a valuation allowance equal to
this net deferred tax asset. The Company has research and development credits
of approximately $287,000 and $34,000 to offset future Federal and State
taxable income, respectively. Additionally, the Company has capitalized start-
up costs of approximately $5,430,000 and has net operating loss carryforwards
of approximately $9,954,000 to offset future Federal and State taxable income.
The net operating loss carryforwards expire at various dates through the year
2019. The Tax Reform Act of 1986 contains provisions which may limit the net
operating loss and credit carryforwards to be used in any given year upon the
occurrence of certain events, including a significant change in ownership
interest.

8. Related Party Transactions:

     On December 31, 1997 the Company received a $500,000 advance payment from
a shareholder in conjunction with the Series D financing which closed in
January 1998. Upon closure of the financing, the advance was converted into
1,741,796 shares of Series D.

                                     F-74
RIGHTWORKS CORPORATION

                   Notes to Financial Statements--(Continued)

      During 1999, an officer of the Company was given a loan to purchase
11,121 shares of Series H at $2.24 per share and certain other officers were
given loans, with full recourse, to exercise 2,340,000 common stock options at
$0.15 per share. In April 2000, the loan for Series H was paid-in-full. The
loans for the option exercises bear interest at 6% and are due in four years.

                                      F-75
Independent Auditors' Report

To the Board of Directors of
eMerge Interactive, Inc.:

We have audited the accompanying consolidated balance sheets of eMerge
Interactive, Inc. as of December 31, 1997 and 1998 and September 30, 1999 and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1998, and for the nine months ended September 30, 1999. 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 generally accepted auditing
standards. 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 eMerge Interactive,
Inc. at December 31, 1997 and 1998 and September 30, 1999 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, and for the nine months ended September 30,
1999 in conformity with generally accepted accounting principles.

                                          KPMG LLP

Orlando, Florida
December 6, 1999

                                      F-76
EMERGE INTERACTIVE, INC.

                          Consolidated Balance Sheets
Proforma
                                                                       September 30,
                             December 31,  December 31,  September 30,     1999
                                 1997          1998          1999       (note 1(b))
                             ------------  ------------  ------------- -------------
                                                                        (unaudited)
Assets
Current assets:
 Cash......................  $       400   $       268    $ 1,650,134   $ 1,650,134
 Trade accounts
  receivable...............           --       368,421      2,790,427     2,790,427
 Inventories (note 3)......      635,963       706,557        655,129       655,129
 Cattle deposits...........           --            --        489,760       489,760
 Prepaid expenses..........       33,642        27,837        103,242       103,242
 Net assets of discontinued
  operations (note 12).....    1,066,804     2,285,341        390,336       390,336
                             -----------   -----------    -----------   -----------
 Total current assets......    1,736,809     3,388,424      6,079,028     6,079,028
Property and equipment, net
 (note 4)..................      428,140       513,837      1,711,404     1,711,404
Capitalized offering
 costs.....................           --            --        341,967       341,967
Investment in Turnkey
 Computer Systems, Inc.
 (note 5)..................           --            --      1,822,833     1,822,833
Intangibles, net (note 6)..           --     2,699,828      6,273,309     6,273,309
                             -----------   -----------    -----------   -----------
   Total assets............  $ 2,164,949   $ 6,602,089    $16,228,541   $16,228,541
                             ===========   ===========    ===========   ===========
Liabilities and
 Stockholders' Equity
 (Deficit)
Current liabilities:
 Current installments of
  capital lease obligation
  with related party (note
  10)......................  $        --   $    79,852    $    83,917   $    83,917
 Note payable (note 5).....           --            --        500,000       500,000
 Accounts payable..........      725,369       423,946      1,633,132     1,633,132
 Accrued liabilities:
 Salaries and benefits.....      175,597       283,103        908,271       908,271
 Other.....................       98,704       319,989      1,435,987     1,435,987
 Advanced payments from
  customers................           --            --        619,270       619,270
 Due to related parties
  (note 10)................    8,040,304     5,187,334     13,405,957    13,405,957
                             -----------   -----------    -----------   -----------
 Total current
  liabilities..............    9,039,974     6,294,224     18,586,534    18,586,534
Capital lease obligation
 with related party,
 excluding current
 installments (note 10)....           --       305,018        242,673       242,673
Note payable (note 5)......           --            --        900,000       900,000
                             -----------   -----------    -----------   -----------
 Total liabilities.........    9,039,974     6,599,242     19,729,207    19,729,207
                             -----------   -----------    -----------   -----------
Commitments and
 contingencies (notes 6, 10
 and 13)
Redeemable Class A common
 stock, issued and
 outstanding. No shares
 issued and outstanding in
 1997 and 1998, 62,500
 shares issued and
 outstanding in 1999. No
 shares issued and
 outstanding pro forma
 (note 5).....................        --            --        406,000            --
                             -----------   -----------    -----------   -----------
Stockholders' equity
 (deficit) (notes 7, 9 and
 14):
 Preferred stock, $.01 par
  value, authorized
  15,000,000 shares:
 Series A preferred stock,
  (aggregate involuntary
  liquidation preference
  of $6,741,954 in 1997,
  $7,386,314 in 1998 and
  $7,545,198 in 1999),
  designated 6,500,000
  shares, issued and
  outstanding 6,443,606
  shares in 1997, 1998 and
  1999. No shares
  designated, issued and
  outstanding pro forma....       64,436        64,436         64,436            --
 Series B junior preferred
  stock, (aggregate
  involuntary liquidation
  preference of $-0- in
  1997, $4,801,315 in 1998
  and $4,919,671 in 1999),
  designated 2,400,000
  shares, issued and
  outstanding -0- shares
  in 1997, 2,400,000
  shares in 1998 and 1999.
  No shares designated,
  issued and outstanding
  pro forma................           --        24,000         24,000            --
 Series C preferred stock,
  designated 1,300,000
  shares, issued and
  outstanding -0- shares
  in 1997 and 1998 and
  1,100,000 shares in
  1999. No shares
  designated, issued and
  outstanding pro forma....           --            --         11,000            --
 Series D preferred stock,
  designated 4,555,556
  shares, no shares issued
  and outstanding in 1997,
  1998 and 1999. No shares
  designated, issued and
  outstanding pro forma....           --            --             --            --
 Common stock, $.008 par
  value, authorized
  100,000,000 shares:
 Class A common stock,
  designated 92,711,110
  shares, issued and
  outstanding 3,258,125
  shares in 1997,
  5,845,625 shares in 1998
  and 6,957,694 shares in
  1999 and 19,449,702
  shares pro forma.........       26,065        46,765         55,662       155,723
 Class B common stock,
  designated 7,288,890
  shares; no shares issued
  and outstanding in 1997,
  1998, 1999 or pro
  forma....................           --            --             --            --
 Additional paid-in
  capital..................    1,982,986    16,648,286     23,454,170    23,859,545
 Accumulated deficit.......   (8,948,512)  (16,780,640)   (27,452,825)  (27,452,825)
 Unearned compensation.....           --            --        (63,109)      (63,109)
                             -----------   -----------    -----------   -----------
   Total stockholders'
    equity (deficit).......   (6,875,025)        2,847     (3,906,666)   (3,500,666)
                             -----------   -----------    -----------   -----------
   Total liabilities and
    stockholders' equity
    (deficit)..............  $ 2,164,949   $ 6,602,089    $16,228,541   $16,228,541
                             ===========   ===========    ===========   ===========
See accompanying notes to consolidated financial statements.

                                      F-77
EMERGE INTERACTIVE, INC.

                     Consolidated Statements of Operations
Nine Months Ended
                               Years Ended December 31,               September 30,
                          -------------------------------------  -------------------------
                             1996         1997         1998         1998          1999
                          -----------  -----------  -----------  -----------  ------------
                                                                 (unaudited)
Revenue.................  $        --  $        --  $ 1,792,471  $ 1,106,452  $ 18,338,645
Cost of revenue
 (including $0, $0,
 $511,000, $388,000 and
 $255,000 to related
 parties--note 10)......           --           --    2,623,447    1,628,757    18,282,330
                          -----------  -----------  -----------  -----------  ------------
    Gross profit
     (loss).............           --           --     (830,976)    (522,305)       56,315
                          -----------  -----------  -----------  -----------  ------------
Operating expenses:
  Selling, general and
   administrative
   (including $0,
   $219,000, $627,000,
   $507,000, and
   $600,000 to related
   parties--note 10)....           --      627,606    3,659,810    2,427,944     7,539,689
  Research and
   development
   (including $0,
   $51,000, $119,000,
   $95,000 and $171,000
   to related parties--
   note 10).............           --      727,753    1,109,382      759,434     2,756,262
                          -----------  -----------  -----------  -----------  ------------
    Total operating
     expenses...........           --    1,355,359    4,769,192    3,187,378    10,295,951
                          -----------  -----------  -----------  -----------  ------------
Profit (loss) from
 continuing operations..           --   (1,355,359)  (5,600,168)  (3,709,683)  (10,239,636)
Related party interest
 expense (note 10)......           --     (141,167)    (331,594)    (231,000)     (458,624)
Other income............           --           --           --           --        15,655
                          -----------  -----------  -----------  -----------  ------------
    Profit (loss) from
     continuing
     operations before
     income taxes.......           --   (1,496,526)  (5,931,762)  (3,940,683)  (10,682,605)
                          -----------  -----------  -----------  -----------  ------------
Income tax expense
 (benefit) (note 8).....           --           --           --           --            --
    Profit (loss) from
     continuing
     operations.........           --   (1,496,526)  (5,931,762)  (3,940,683)  (10,682,605)
Discontinued operations
 (note 12):
  Income (loss) from
   operations of
   discontinued
   transportation
   segment (including
   $468,000, $814,000,
   $370,000, $287,000,
   and $171,000 to
   related parties--note
   10)..................   (1,719,492)  (3,987,097)  (1,808,951)  (1,721,060)       10,420
  Loss on disposal of
   transportation
   segment..............           --           --      (91,415)          --            --
                          -----------  -----------  -----------  -----------  ------------
Net profit (loss).......  $(1,719,492) $(5,483,623) $(7,832,128) $(5,661,743) $(10,672,185)
                          ===========  ===========  ===========  ===========  ============
Profit (loss) from
 continuing operations
 per common share--basic
 and diluted............  $        --  $     (3.91) $     (1.36) $     (0.67) $      (1.59)
                          ===========  ===========  ===========  ===========  ============
Net profit (loss) per
 common share--basic and
 diluted................  $     (9.24) $    (14.34) $     (1.80) $     (0.97) $      (1.59)
                          ===========  ===========  ===========  ===========  ============
Weighted average number
 of common shares
 outstanding--basic and
 diluted................      186,096      382,273    4,356,926    5,845,625     6,709,854
                          ===========  ===========  ===========  ===========  ============
See accompanying notes to consolidated financial statements.

                                      F-78
EMERGE INTERACTIVE, INC.

           Consolidated Statements of Stockholders' Equity (Deficit)
Preferred Stock   Preferred Stock   Preferred Stock  Preferred Stock       Common Stock    Common Stock
                      Series A          Series B          Series C         Series D              Class A         Class B
                  ----------------- ----------------- ----------------- -----------------   ----------------- -------------
                   Shares   Amount   Shares   Amount   Shares   Amount  Shares    Amount     Shares   Amount  Shares Amount
                  --------- ------- --------- ------- --------- ------- -------   -------   --------- ------- ------ ------
Balances at
December 31,
1995............         -- $    --        -- $    --        -- $    --       --   $    --      1,250 $    10   --    $--
Issuance of
common stock to
XL Vision, Inc.,
for cash at
$.008 per
share...........         --      --        --      --        --      --       --        --    248,750   1,990   --     --
Issuance of
common stock for
cash at $.008
per share.......         --      --        --      --        --      --       --        --    175,000   1,400   --     --
Exercise of
stock options
for cash at
$.008 per
share...........         --      --        --      --        --      --       --        --     25,000     200   --     --
Net profit
(loss)..........         --      --        --      --        --      --       --        --         --      --   --     --
                  --------- ------- --------- ------- --------- -------  -------   -------  --------- -------  ---    ---
Balances at
December 31,
1996............         --      --        --      --        --      --       --        --    450,000   3,600   --     --
Issuance of
common stock to
XL Vision, Inc.,
for cash at
$.008 per
share...........         --      --        --      --        --      --       --        --  2,808,125  22,465   --     --
Sale of Series A
preferred stock
for cash at
$1.00 per share
(note 7)........  6,443,606  64,436        --      --        --      --       --        --         --      --   --     --
Transfer of
technology by XL
Vision, Inc.
(note 10).......         --      --        --      --        --      --       --        --         --      --   --     --
Net profit
(loss)..........         --      --        --      --        --      --       --        --         --      --   --     --
                  --------- ------- --------- ------- --------- -------  -------   -------  --------- -------  ---    ---
Balances at
December 31,
1997............  6,443,606  64,436        --      --        --      --       --        --  3,258,125  26,065   --     --
Contribution of
debt to equity
by XL Vision,
Inc. (note 10)..         --      --        --      --        --      --       --        --         --      --   --     --
Issuance of
Series B
preferred stock
in exchange for
contribution of
debt to equity
by XL Vision,
Inc. at $2.00
per share (notes
7 and 10).......         --      -- 2,400,000  24,000        --      --       --        --         --      --   --     --
Issuance of
common stock in
connection with
Nutri-Charge
transaction at
$0.80 per share
(note 6)........         --      --        --      --        --      --       --        --  2,587,500  20,700   --     --
Contribution of
put rights by XL
Vision, Inc.
(note 6)........         --      --        --      --        --      --       --        --         --      --   --     --
Net profit
(loss)..........         --      --        --      --        --      --       --        --         --      --   --     --
                  --------- ------- --------- ------- --------- -------  -------   -------  --------- -------  ---    ---
Balances at
December 31,
1998............  6,443,606  64,436 2,400,000  24,000        --      --       --        --  5,845,625  46,765   --     --
Exercise of
stock options
for cash at
$0.80 per
share...........         --      --        --      --        --      --       --        --    112,069     897   --     --
Issuance of
common stock in
connection with
CIN transaction
at $0.96 per
share (note 6)..         --      --        --      --        --      --       --        --    750,000   6,000   --     --
Issuance of
common stock in
connection with
Cyberstockyard
transaction at
$1.80 per share
(note 6)........         --      --        --      --        --      --       --        --    250,000   2,000   --     --
Issuance of
Series C
preferred stock
at $5.00 per
share (note 7)..         --      --        --      -- 1,100,000  11,000       --        --         --      --   --     --
Accretion to
redemption value
of Class A
common stock
issued in
connection with
the Turnkey
Computer
Systems, Inc.
(note 5)........         --      --        --      --        --      --       --        --         --      --   --     --
Net profit
(loss)..........         --      --        --      --        --      --       --        --         --      --   --     --
Unearned
compensation
(note 9)........         --      --        --      --        --      --       --        --         --      --   --     --
Amortization of
unearned
compensation
(note 9)........         --      --        --      --        --      --       --        --         --      --   --     --
                  --------- ------- --------- ------- --------- -------  -------   -------  --------- -------  ---    ---
Balances at
September 30,
1999............  6,443,606 $64,436 2,400,000 $24,000 1,100,000 $11,000       --   $    --  6,957,694 $55,662   --    $--
                  ========= ======= ========= ======= ========= =======  =======   =======  ========= =======  ===    ===
Additional
                    Paid-in    Accumulated     Unearned
                    Capital      Deficit     Compensation    Total
                  ------------ ------------- ------------ ------------
Balances at
December 31,
1995............  $     3,816  $ (1,745,397)   $     --   $(1,741,571)
Issuance of
common stock to
XL Vision, Inc.,
for cash at
$.008 per
share...........           --            --          --         1,990
Issuance of
common stock for
cash at $.008
per share.......           --            --          --         1,400
Exercise of
stock options
for cash at
$.008 per
share...........           --            --          --           200
Net profit
(loss)..........           --    (1,719,492)         --    (1,719,492)
                  ------------ ------------- ------------ ------------
Balances at
December 31,
1996............        3,816    (3,464,889)         --    (3,457,473)
Issuance of
common stock to
XL Vision, Inc.,
for cash at
$.008 per
share...........           --            --          --        22,465
Sale of Series A
preferred stock
for cash at
$1.00 per share
(note 7)........    6,379,170            --          --     6,443,606
Transfer of
technology by XL
Vision, Inc.
(note 10).......   (4,400,000)           --          --    (4,400,000)
Net profit
(loss)..........           --    (5,483,623)         --    (5,483,623)
                  ------------ ------------- ------------ ------------
Balances at
December 31,
1997............    1,982,986    (8,948,512)         --    (6,875,025)
Contribution of
debt to equity
by XL Vision,
Inc. (note 10)..    7,500,000            --          --     7,500,000
Issuance of
Series B
preferred stock
in exchange for
contribution of
debt to equity
by XL Vision,
Inc. at $2.00
per share (notes
7 and 10).......    4,776,000            --          --     4,800,000
Issuance of
common stock in
connection with
Nutri-Charge
transaction at
$0.80 per share
(note 6)........    2,049,300            --          --     2,070,000
Contribution of
put rights by XL
Vision, Inc.
(note 6)........      340,000            --          --       340,000
Net profit
(loss)..........           --    (7,832,128)         --    (7,832,128)
                  ------------ ------------- ------------ ------------
Balances at
December 31,
1998............   16,648,286   (16,780,640)         --         2,847
Exercise of
stock options
for cash at
$0.80 per
share...........       88,758            --          --        89,655
Issuance of
common stock in
connection with
CIN transaction
at $0.96 per
share (note 6)..      714,000            --          --       720,000
Issuance of
common stock in
connection with
Cyberstockyard
transaction at
$1.80 per share
(note 6)........      448,000            --          --       450,000
Issuance of
Series C
preferred stock
at $5.00 per
share (note 7)..    5,489,000            --          --     5,500,000
Accretion to
redemption value
of Class A
common stock
issued in
connection with
the Turnkey
Computer
Systems, Inc.
(note 5)........       (6,000)           --          --        (6,000)
Net profit
(loss)..........           --   (10,672,185)         --   (10,672,185)
Unearned
compensation
(note 9)........       72,126            --     (72,126)           --
Amortization of
unearned
compensation
(note 9)........           --            --       9,017         9,017
                  ------------ ------------- ------------ ------------
Balances at
September 30,
1999............  $23,454,170  $(27,452,825)   $(63,109)  $(3,906,666)
                  ============ ============= ============ ============
See accompanying notes to consolidated financial statements.

                                      F-79
EMERGE INTERACTIVE, INC.

                     Consolidated Statements of Cash Flows
Nine Months ended
                               Years ended December 31,               September 30,
                          -------------------------------------  -------------------------
                             1996         1997         1998         1998          1999
                          -----------  -----------  -----------  -----------  ------------
                                                                 (Unaudited)
Cash flows from
 operating activities:
Net profit (loss).......  $(1,719,492) $(5,483,623) $(7,832,128) $(5,661,743) $(10,672,185)
Adjustments to reconcile
 net profit (loss) to
 net cash used in
 operating activities:
 Depreciation and
  amortization..........        1,503      122,486      438,576      230,964     1,176,431
 Amortization of
  unearned
  compensation..........           --           --           --           --         9,017
 Changes in operating
  assets and
  liabilities:
 Trade accounts
  receivable, net.......           --           --     (368,421)    (138,705)   (2,405,456)
 Inventories............           --     (635,963)     (70,594)     (30,741)       51,428
 Cattle deposits........           --           --           --           --      (489,760)
 Prepaid expenses and
  other assets..........       (1,304)     (32,338)       5,805      (77,079)      (75,405)
 Net assets of
  discontinued
  operations............      (96,209)    (853,501)  (1,140,425)  (1,477,150)           --
 Accounts payable.......        5,675      719,694     (301,423)     (32,037)    1,038,877
 Accrued liabilities....       75,542      198,759      328,791      151,016       214,739
 Advanced payments from
  customers.............           --           --           --           --       619,270
                          -----------  -----------  -----------  -----------  ------------
  Net cash used by
   operating
   activities...........   (1,734,285)  (5,964,486)  (8,939,819)  (7,035,475)  (10,533,044)
                          -----------  -----------  -----------  -----------  ------------
Cash flows from
 investing activities:
Business combinations,
 net of cash acquired of
 $737...................           --           --           --           --    (1,799,263)
Purchases of property
 and equipment..........      (56,861)    (506,540)    (460,290)    (269,831)   (1,228,432)
Purchase of
 intangibles............     (100,000)          --     (431,923)    (431,923)           --
Proceeds from
 discontinued
 operations.............           --           --           --           --     1,825,407
Investment in Turnkey
 Computer Systems, Inc..           --           --           --           --       (22,833)
                          -----------  -----------  -----------  -----------  ------------
  Net cash used by
   investing
   activities...........     (156,861)    (506,540)    (892,213)    (701,754)   (1,225,121)
                          -----------  -----------  -----------  -----------  ------------
Cash flows from
 financing activities:
Net borrowings from
 related parties........    1,889,101        3,810    9,447,030    7,737,227     8,218,623
Proceeds from capital
 lease financing with
 related party..........           --           --      440,832           --            --
Payments on capital
 lease obligations......           --           --      (55,962)          --       (58,280)
Offering costs..........           --           --           --           --      (341,967)
Sale of preferred
 stock..................           --    6,443,606           --           --     5,500,000
Sale of common stock....        3,590       22,465           --           --        89,655
                          -----------  -----------  -----------  -----------  ------------
  Net cash provided by
   financing
   activities...........    1,892,691    6,469,881    9,831,900    7,737,227    13,408,031
                          -----------  -----------  -----------  -----------  ------------
  Net increase
   (decrease) in cash...        1,545       (1,145)        (132)          (2)    1,649,866
Cash--beginning of
 period.................           --        1,545          400          400           268
                          -----------  -----------  -----------  -----------  ------------
Cash--end of period.....  $     1,545  $       400  $       268  $       398  $  1,650,134
                          ===========  ===========  ===========  ===========  ============
Supplemental
 disclosures:
Cash paid for interest..  $        --  $        --  $    23,594  $    13,517  $     20,628
Non-cash investing and
 financing activities:
 Transfer of technology
  by XL Vision, Inc.
  (note 10).............           --    4,400,000           --           --            --
 Contribution of debt to
  equity by XL Vision,
  Inc. (note 10)........           --           --    7,500,000           --            --
 Issuance of preferred
  stock in exchange for
  contribution of debt
  to equity by XL
  Vision, Inc. (note
  10)...................           --           --    4,800,000           --            --
 Non-cash issuance of
  Class A common stock
  in connection with
  Nutri-Charge
  transaction (note 6)..           --           --    2,070,000    2,070,000            --
 Contribution of put
  rights by XL Vision,
  Inc. (note 6).........           --           --      340,000      340,000            --
 Issuance of Class A
  common stock in
  connection with CIN
  transaction (note 6)..           --           --           --           --       720,000
 Issuance of Class A
  common stock with
  Cyberstockyard
  transaction (note 6)..           --           --           --           --       450,000
 Issuance of redeemable
  Class A common stock
  with Turnkey Computer
  Systems, Inc.
  transaction (note 5)..           --           --           --           --       400,000
 Issuance of note
  payable to Turnkey
  Computer Systems, Inc.
  (note 5)..............           --           --           --           --     1,400,000
See accompanying notes to consolidated financial statements.

                                      F-80
EMERGE INTERACTIVE, INC.

                  Notes to Consolidated Financial Statements
  (Information insofar as it relates to September 30, 1998 or the nine months
                                     ended
                       September 30, 1998 is unaudited)

(1) Organization

    (a) Overview

      eMerge Interactive, Inc. (the "Company") is a Delaware corporation that
was incorporated on September 12, 1994 as Enhanced Vision Systems, a wholly
owned subsidiary of XL Vision, Inc. ("XL Vision"). The Company's name was
changed to eMerge Vision Systems, Inc. on July 16, 1997 and to eMerge
Interactive, Inc. on June 11, 1999.

      The Company was incorporated to develop and commercialize infrared
technology focused on the transportation segment. In 1997, the Company entered
a new business segment, animal sciences, by developing an infrared camera
system for use primarily by veterinarians. The Company further expanded its
operations in 1998 by licensing NutriCharge and infrared technology (see note
5) for commercialization. In December 1998, the Company's Board of Directors
decided to dispose of the transportation segment. The Company's AMIRIS thermal
imaging system, which was the sole product sold by the transportation segment,
was sold on January 15, 1999.

    (b) Basis of Presentation

      The consolidated financial statements include the accounts of eMerge
Interactive, Inc. and its wholly-owned subsidiaries, STS Agriventures, Ltd.
("STS"), a Canadian corporation and Cyberstockyard, Inc. ("Cyberstockyard").

      All significant intercompany balances and transactions have been
eliminated upon consolidation.

      The pro forma balance sheet as of September 30, 1999 assumes the
conversion of all preferred stock to Class A common stock upon the Company's
planned initial public offering ("IPO").

    (c) Management's Plans

      As of September 30, 1999, the Company had a working capital deficiency
of $12,507,506 and stockholders' deficit of $3,906,666. Management expects
additional working capital requirements as the Company continues its marketing
and development efforts for its products. Subsequent to September 30, 1999,
the Company obtained equity financing (see note 14). The Company also plans an
IPO. Although management believes that its IPO will be successful, there can
be no assurances that it will be completed.

(2) Summary of Significant Accounting Policies

    (a) Revenue Recognition

      The Company recognizes revenue in accordance with the terms of the sale
or contract, generally as products are shipped or services are provided. The
Company bears both the inventory and credit risk with respect to sales of all
of its products. In cattle sales transactions, the Company purchases cattle
from the seller, takes title at shipment and records the cattle as inventory
until delivered to and accepted by the buyer, typically a 24 to 48 hour
period. In both cattle auction and resale transactions, the Company acts as a
principal in purchasing cattle from suppliers and sales to customers so that
the Company recognizes revenue equal to the amount paid by customers for the
cattle.

                                     F-81
EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

    (b) Inventories

     Inventories are stated at standard cost which approximates the lower of
first-in, first-out cost or market.

    (c) Property and Equipment

     Property and equipment are stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets. Amortization of equipment under capital lease is computed
over the shorter of the lease term or the estimated useful life of the related
assets.

    (d) Intangibles

     Intangibles are stated at amortized cost. Amortization is computed using
the straight-line method over the estimated useful lives of the assets.

    (e) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
    Of

     The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of". This Statement requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower
of their carrying amount or fair value less costs to sell.

    (f) Income Taxes

     The Company accounts for income taxes using the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

    (g) Stock-Based Compensation

     Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," permits entities to recognize as expense over
the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB Opinion No. 25") and provide pro forma net
income and pro forma earnings per share disclosures for employee stock option
grants as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.

                                     F-82
EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

    (h) Use of Estimates

      The preparation of the Company's consolidated financial statements, in
conformity with generally accepted accounting principles, requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.

    (i) Net Profit (Loss) Per Share

      Net profit (loss) per share is computed in accordance with SFAS No. 128,
"Earnings Per Share," by dividing the net profit (loss) allocable to common
stockholders (net profit (loss) less accretion related to redeemable Class A
common stock) by the weighted average number of shares of common stock
outstanding less the 62,500 shares of redeemable Class A common stock. The
Company's stock options (338,125 at December 31, 1997, 1,632,500 at December
31, 1998 and 2,488,494 at September 30, 1999) and convertible preferred stock
(6,443,606 at December 31, 1997, 8,843,606 at December 31, 1998 and 9,943,606
at September 30, 1999), have not been used in the calculation of diluted net
profit (loss) per share because to do so would be anti-dilutive. As such, the
numerator and the denominator used in computing both basic and diluted net
profit (loss) per share allocable to common stockholders are equal.

      Pursuant to Securities and Exchange Commission ("SEC") Staff Accounting
Bulletin No. 98 and SEC staff policy, all common stock and common stock
equivalents issued for nominal consideration during the periods presented
herein and through the filing of the registration statement for the IPO are to
be reflected in a manner similar to a stock split or stock dividend for which
retroactive treatment is required in the calculation of net profit (loss) per
share; the Company did not have any such issuances.

    (j) Estimated Fair Value of Financial Instruments

      The carrying value of cash, trade accounts receivable, accounts payable,
accrued liabilities and amounts due to related parties reflected in the
consolidated financial statements approximates fair value due to the short-term
maturity of these instruments.

    (k) Interim Financial Information

      The consolidated financial statements for the period ended September 30,
1998 are unaudited but reflect only normal and recurring adjustments which are,
in the opinion of management, necessary for the fair presentation of financial
position and results of operations. Operating results for the nine months ended
September 30, 1999 and 1998 are not necessarily indicative of the results that
may be expected for the full year.

(3) Inventories

      Inventories consist of:
December 31,
                                                 ----------------- September 30,
                                                   1997     1998       1999
                                                 -------- -------- -------------
Raw materials............................. $346,335 $424,130   $594,337
      Work-in-process...........................  289,628  282,427     60,792
                                                 -------- --------   --------
                                                 $635,963 $706,557   $655,129
                                                 ======== ========   ========
F-83
EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

(4) Property and Equipment

      Property and equipment consists of:
December 31,
                                  ----------------- September 30,  Estimated
                                    1997     1998       1999      useful lives
                                  -------- -------- ------------- ------------
Engineering and
      manufacturing equipment.... $258,082 $366,150  $  634,625     5 years
     Office and computer
      equipment..................  179,315  259,462   1,532,298     3 years
     Furniture and fixtures......   67,282  104,706     112,122     7 years
     Leasehold improvements......   46,865   46,865      80,430     7 years
     Automobiles.................       --       --      54,717     5 years
                                  -------- --------  ----------
                                   551,544  777,183   2,414,192
     Less accumulated
      depreciation and
      amortization...............  123,404  263,346     702,788
                                  -------- --------  ----------
     Property and equipment,
      net........................ $428,140 $513,837  $1,711,404
                                  ======== ========  ==========
Assets under capital lease amounted to $-0-, $440,832 and $440,832 as of
December 31, 1997, 1998 and September 30, 1999, respectively. Accumulated
amortization for assets under capital lease totaled approximately $-0-,
$152,300 and $217,500 as of December 31, 1997, 1998 and September 30, 1999,
respectively.

(5) Investment in Turnkey Computer Systems, Inc.

      On August 16, 1999, the Company acquired 19% of the common stock of
Turnkey Computer Systems, Inc. ("Turnkey") for $1,822,833. The purchase price
consisted of 62,500 shares of the Company's redeemable Class A common stock
valued at $400,000, $1,400,000 in cash and $22,833 of transaction costs. The
$1,400,000 is payable upon the earlier of the completion of the Company's IPO
or $500,000 at December 31, 1999, $500,000 at December 31, 2000 and $400,000 at
December 31, 2001. This investment is carried on the cost method since the
Company does not have significant influence over Turnkey. The common stock
purchase agreement with Turnkey contains a put right which allows Turnkey to
have a one time right to put to the Company its 62,500 redeemable Class A
common shares with a fixed purchase price of $500,000. The put right can only
be exercised upon a change in control or after December 31, 2001, if the
Company has not completed an IPO. This redeemable Class A common stock is
classified outside of stockholders' equity (deficit). The difference between
the carrying amount and the redemption amount of $500,000 is being accreted to
redeemable Class A common stock as a charge to additional paid-in capital from
issuance to December 31, 2001 using the effective interest method.

                                      F-84
EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

(6) Intangibles

      Intangibles consists of:
December 31,                  Estimated
                                      ----------------- September 30,  useful
                                       1997     1998        1999        life
                                      ------ ---------- ------------- ---------
NutriCharge license............  $   -- $2,273,538  $2,273,538   10 years
     Infrared technology license....      --    568,385     568,385    5 years
     Goodwill--CIN..................      --         --   2,076,368    5 years
     Non-compete agreement--CIN.....      --         --     100,000    5 years
     Goodwill--Cyberstockyard.......      --         --     427,274    3 years
     Non-compete agreement--
      Cyberstockyard................      --         --     100,000    3 years
     Goodwill--PCC..................      --         --   1,487,791    5 years
     Non-compete agreement--PCC.....      --         --     100,000    4 years
                                      ------ ----------  ----------   --------
                                          --  2,841,923   7,133,356
     Less accumulated amortization..      --    142,095     860,047
                                      ------ ----------  ----------
     Intangibles, net...............  $   -- $2,699,828  $6,273,309
                                      ====== ==========  ==========
On July 29, 1998, the Company acquired licenses for NutriCharge and
infrared technology. The purchase price of $2,841,923 (consisting of $300,000
in cash, 2,587,500 of the Company's Class A common shares valued at $0.80 per
share, $131,923 in acquisition costs and the estimated fair value of put rights
granted by XL Vision) was allocated to the acquired NutriCharge and infrared
technology licenses based on estimated fair values determined by estimated cash
flows from the underlying licensed product. In connection with the transaction,
XL Vision granted a put right that allows the sellers to require XL Vision to
purchase up to 1,250,000 shares of the Company's Class A common stock at $3.00
per share. The fair value of the put was estimated to be $340,000 and was
credited to additional paid-in capital. The put right may only be exercised
thirty days prior to or after the fourth anniversary of the agreement. The
ultimate amount payable under the put agreement is reduced by the amount, if
any, of indemnification obligations related to the transaction. The estimated
fair value of the put was determined with the assistance of an independent,
third party valuation expert by calculating the net present value (at 10%
interest) of the product of the $2,000,000 intrinsic value of the put adjusted
for the 25% probability that the put would be exercised.

      On February 24, 1999, the Company acquired substantially all of the
tangible and intangible assets of CIN, LLC d/b/a/ Cattlemen's Information
Network ("CIN") for $2,296,610. The purchase price for the assets consisted of
750,000 shares of the Company's Class A common stock valued at $720,000, the
assumption of $812,021 of liabilities, a cash payment due in October 1999 of
$357,816, and an agreement to pay the first $350,000 from Internet sales of
third party products over the Company's Web site and transaction costs of
$56,773. CIN is in the business of selling access to its cattle feedlot
performance measurements database. Immediately after the closing, CIN changed
its name to Lost Pelican, L.L.C.

      On March 29, 1999, the Company acquired 100% of the stock of
Cyberstockyard, Inc. for $542,265. The purchase price consisted of 250,000
shares of the Company's Class A common stock valued at $450,000, the assumption
of $89,972 of liabilities and transaction costs of $2,293. Cyberstockyard, Inc.
is in the business of selling cattle through its proprietary auction software
over the Internet.

      On May 19, 1999, the Company acquired substantially all of the tangible
and intangible assets of PCC, LLC d/b/a Professional Cattle Consultants, L.L.C.
("PCC") for $1,827,861. The purchase price consists of a

                                      F-85
EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

cash payment of $1,800,000 and an assumption of $2,861 of liabilities and
transaction costs of $25,000. PCC is in the business of providing comparative
analysis and market information for the feedlot industry. Immediately after the
closing, PCC changed its name to QDD Investment Company, L.L.C.

      Each acquisition was accounted for as a purchase and the results of
operations of the acquired companies is included in the statement of operations
since the respective date of acquisition.

      The aggregate purchase price of the above acquisitions was approximately
$4,666,736, which included related acquisition costs of approximately $84,000
and was allocated as follows:
Goodwill...................................................... $3,991,433
      Non-compete agreements........................................    300,000
      Equipment.....................................................    358,016
      Current assets, including cash acquired of $737...............     17,287
                                                                     ----------
                                                                     $4,666,736
                                                                     ==========
Unaudited pro forma information for the Company as if the acquisitions
above had been consummated as of January 1, 1998 and 1999 follows:
Nine months ended September 30,
                                             ---------------------------------
                                                  1998              1999
                                             ---------------  ----------------
Revenue............................... $     1,687,077  $     18,560,565
                                             ===============  ================
      Net profit (loss)..................... $    (4,987,862) $    (11,097,329)
                                             ===============  ================
      Net profit (loss) per common share.... $         (0.97) $          (1.61)
                                             ===============  ================
(7) Equity

    Common Stock

      As of September 30, 1999, the Company had authorized the issuance of
100,000,000 shares of common stock.

      Class A--In 1999, the Company designated 92,711,110 shares as Class A
common stock.

      Class B--In 1999, the Company designated 7,288,890 shares as Class B
common stock. Holders of Class B common stock are entitled to two and one-half
votes for each share. The shares of Class A and Class B are identical in all
other respects.

    Preferred Stock

      As of September 30, 1999, the Company had authorized the issuance of
15,000,000 shares of preferred stock and had designated 6,500,000 as Series A
shares, and 2,400,000 as Series B shares, 1,300,000 as Series C shares and
4,555,556 as Series D shares. Each share of preferred stock is convertible into
1.25 shares of Class A common stock at the option of the holder or upon the
vote of holders of two-thirds of the respective preferred stock class
outstanding except for Series D shares which is convertible at the offering
price into 1.25 shares Class B common stock. Preferred stock is automatically
converted into common stock upon a qualified

                                      F-86
EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

IPO of at least $10 million with a Company valuation of at least $30 million or
upon a public rights offering of the Company to shareholders of Safeguard
Scientifics, Inc.

      Series A--The Series A shares are entitled to a liquidation preference
before any distribution to common stockholders equal to the greater of (a)
$1.00 per share plus an additional $.10 per year (pro rated for partial years)
from July 16, 1997 or (b) the amount which would be distributed if all of the
preferred stock of the Company were converted to Class A common stock prior to
liquidation. The holders of Series A preferred stock are entitled to vote as a
separate class to elect two directors to the Board of Directors of the Company.

      Series B--Series B shares are entitled to a liquidation preference before
any distribution to common stockholders equal to the greater of (a) $2.00 per
share plus an additional $.20 for each year (pro rated for partial years) from
December 31, 1998 or until the date of distribution of available assets or (b)
the amount which would be distributed if all of the preferred stock of the
Company were converted to Class A common stock prior to liquidation. Series B
shares are junior to Series A, C and D shares.

      Series C--Series C shares are entitled to a liquidation preference before
any distribution to common stockholders equal to the greater of (a) $5.00 per
share plus an additional $.50 for each year (pro rated for partial years) from
April 15, 1999 or until the date of distribution of available assets or (b) the
amount which would be distributed if all of the preferred stock of the Company
were converted to Class A common stock prior to liquidation. Series C shares
are on parity with Series A and D shares except as to voting rights.

      Series D--Series D shares are entitled to a liquidation preference before
any distribution to common stockholders equal to the greater of (a) $9.00 per
share plus an additional $1.00 for each year (pro rated for partial years) from
October 27, 1999 or until the date of distribution of available assets or (b)
the amount which would be distributed if all the preferred stock of the Company
were converted to Class B common stock prior to liquidation. Series D shares
are on parity with Series A and C shares except as to voting rights. Series D
stockholders are entitled to two and one-half votes per share.

(8) Income Taxes

      Deferred income taxes reflect the net tax effects of temporary difference
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Significant components of
the Company's deferred income tax assets and liability are as follows:
December 31,
                                           ---------------------- September 30,
                                              1997        1998        1999
                                           ----------  ---------- -------------
Deferred tax assets:
       Net operating loss carryforwards..  $3,237,000  $5,967,000  $ 8,057,000
       Amortization of acquired
        technology from XL Vision (note
        10)..............................   1,829,000   1,704,000    1,704,000
       Research and experimentation tax
        credits..........................     294,000     448,000      718,000
       Other.............................     125,000     596,000    1,524,000
                                           ----------  ----------  -----------
                                            5,485,000   8,715,000   12,003,000
       Less valuation allowance..........   5,370,000   8,715,000   12,003,000
                                           ----------  ----------  -----------
         Net deferred tax assets.........     115,000          --           --
     Deferred tax liability:
       Imputed interest..................    (115,000)         --           --
                                           ----------  ----------  -----------
         Net deferred tax asset
          (liability)....................  $       --  $       --  $        --
                                           ==========  ==========  ===========
F-87
EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

      The Company has available at September 30, 1999 for federal income tax
purposes, unused net operating loss carryforwards of approximately $21,000,000
which may be applied against future taxable income and expires in years
beginning in 2010. The Company also has approximately $718,000 in research and
experimentation credits carryforwards. The research and experimentation
credits, which begin to expire in 2010, can also be used to offset future
regular tax liabilities. A valuation allowance for deferred tax assets is
provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized.

      The difference between the "expected" tax benefit (computed by applying
the federal corporate income tax rate of 34% to the loss before income taxes)
and the actual tax benefit is primarily due to the effect of the valuation
allowance.

(9) Stock Plan

      In January 1996, the Company adopted an equity compensation plan (the
"1996 Plan") pursuant to which the Company's Board of Directors may grant
shares of common stock or options to acquire common stock to certain directors,
advisors and employees. The Plan authorizes grants of shares or options to
purchase up to 2,168,750 shares of authorized but unissued common stock. Stock
options granted have a maximum term of ten years and have vesting schedules
which are at the discretion of the Compensation Committee of the Board of
Directors and determined on the effective date of the grant.

      In May 1999, the Company's stockholders approved the 1999 Equity
Compensation Plan (the "1999 Plan"). Under the 1999 Plan, an additional
1,250,000 shares of authorized, unissued shares of common stock of the Company
are reserved for issuance to employees, advisors and for non-employee members
of the Board of Directors. Option terms under the 1999 Plan may not exceed 10
years.

      A summary of option transactions follows:
Weighted
                                      Range of                     average
                                      exercise     Weighted       remaining
                                     prices per    average       contractual
                           Shares      share    exercise price life (in years)
                          ---------  ---------- -------------- ---------------
Balance outstanding, De-
 cember 31, 1996.........     3,125  $     0.80     $0.80           4.85
                                                                    ====
  Granted................   335,000        0.80      0.80
                          ---------  ----------     -----
Balance outstanding, De-
 cember 31, 1997.........   338,125        0.80      0.80           9.64
                                                                    ====
  Granted................ 1,692,500   0.80-1.60      0.84
  Canceled...............  (398,125)       0.80      0.80
                          ---------  ----------     -----
Balance outstanding, De-
 cember 31, 1998......... 1,632,500   0.80-1.60       .84           9.48
                                                                    ====
  Granted................ 1,010,250   1.60-7.20      2.58
  Exercised..............  (112,069)       0.80      0.80
  Canceled...............   (42,187)  0.80-1.60      1.04
                          ---------  ----------     -----
Balance outstanding,
 September 30, 1999...... 2,488,494  $0.80-7.20     $1.54           9.08
                          =========  ==========     =====           ====
At December 31, 1997, 1998 and September 30, 1999, there were 76,719,
414,375 and 716,369 shares exercisable, respectively at weighted average
exercise prices of $0.80, $0.82 and $1.06, respectively.

                                      F-88
EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

      At December 31, 1997 and 1998 and September 30, 1999, 99,375, 511,250 and
747,250 shares were available for grant, respectively.

      The per share weighted-average fair value of stock options granted was $0
in 1996, $0 in 1997, $0.08 in 1998 and $0.84 in 1999 on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions:
1996  1997  1998  1999
                                                         ----  ----  ----  ----
Volatility........................................    0%    0%    0%    0%
      Dividend paid.....................................    0%    0%    0%    0%
      Risk-free interest rate........................... 6.35% 6.11% 4.73% 4.99%
      Expected life in years............................ 5.77  6.75  5.57  6.75
No volatility was assumed due to the use of the Minimum Value Method of
computation for options issued by the Company as a private entity as prescribed
by SFAS No. 123.

      All stock options granted, except as noted in the paragraph below, have
been granted to directors or employees with an exercise price equal to the fair
value of the common stock at the date of grant. The Company applies APB Opinion
No. 25 for issuances to directors and employees in accounting for its Plan and,
accordingly, no compensation cost has been recognized in the consolidated
financial statements through December 31, 1998.

      On March 19, 1999, the Company granted 360,625 stock options with an
exercise price of $1.60 and a fair value of $1.80. The Company recorded $72,126
of unearned compensation at the date of grant and is amortizing the unearned
compensation over the vesting period. Compensation expense amounted to $9,017
for the nine months ended September 30, 1999.

      Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, the Company's net loss
would have increased to the pro forma amounts indicated below:
1996         1997         1998          1999
                               -----------  -----------  -----------  ------------
Net loss as reported.... $(1,719,492) $(5,483,623) $(7,832,128) $(10,672,185)
                               ===========  ===========  ===========  ============
      Pro forma net loss...... $(1,719,492) $(5,483,623) $(7,865,031) $(10,887,665)
                               ===========  ===========  ===========  ============
      Net loss per share, as
       reported:
        Basic and diluted..... $     (9.24) $    (14.34) $     (1.80) $      (1.59)
                               ===========  ===========  ===========  ============
      Pro forma net loss per
       share:
        Basic and diluted..... $     (9.24) $    (14.34) $     (1.81) $      (1.62)
                               ===========  ===========  ===========  ============
F-89
EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

(10) Related Party Transactions

    Due to Related Parties

      Due to related parties consist of:
December 31,
                                           --------------------- September 30,
                                              1997       1998        1999
                                           ---------- ---------- -------------
XL Vision........................... $8,029,995 $5,158,436  $ 6,057,978
      Safeguard Scientifics, Inc. and
       Safeguard Delaware, Inc............     10,309     28,898    7,347,979
                                           ---------- ----------  -----------
                                           $8,040,304 $5,187,334  $13,405,957
                                           ========== ==========  ===========
Amounts Due to XL Vision

      Amounts due to XL Vision consist of:
Balance as of December 31, 1996............................  $ 3,636,494
        Allocation of costs and funding of working capital to the
         Company.................................................    6,318,405
        Technology transfer fee..................................    4,400,000
        Interest charges on technology transferred...............      141,167
        Proceeds from Series A Preferred Stock...................   (6,443,606)
        Issuance of Class A common stock.........................      (22,465)
                                                                   -----------
      Balance as of December 31, 1997............................    8,029,995
        Allocation of costs and funding of working capital to the
         Company.................................................    9,120,441
        Interest charges on technology transferred...............      308,000
        Contribution of debt to equity...........................   (7,500,000)
        Contribution of debt to equity in exchange for Series B
         Preferred Stock.........................................   (4,800,000)
                                                                   -----------
      Balance as of December 31, 1998............................    5,158,436
        Allocation of costs and funding of working capital to the
         Company.................................................      668,542
        Interest charges on technology transferred...............      231,000
                                                                   -----------
      Balance as of September 30, 1999...........................  $ 6,057,978
                                                                   ===========
The average outstanding balance due to XL Vision was approximately
$2,690,900 in 1996, $6,239,600 in 1997, $12,782,400 in 1998 and $7,342,435 in
1999.

      On January 1, 1999, the Company signed a revolving promissory note with
XL Vision for up to $3,000,000. The revolving promissory note bears interest at
the prime rate plus 1% and is due in full when the Company completes an IPO or
sells all of its assets or stock.

    Note Payable to Safeguard Delaware, Inc.

      On July 21, 1999, the Company obtained a $3,000,000 revolving note
payable from Safeguard Delaware, Inc ("Safeguard"). The revolving note payable,
as amended, bears interest payable monthly at the prime rate plus 1% and is due
December 31, 1999.

                                      F-90
EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

      In August, September and October 1999, the Company signed demand notes
with interest payable monthly at the prime rate plus 1% with Safeguard for
$2,500,000, $2,000,000 and $2,500,000, respectively. These notes were cancelled
in October 1999, in exchange for a $7,050,000 note due in full on October 25,
2000, the repayment of a promissory note issued concurrently with the sale of
Series D preferred stock or an IPO, whichever is earlier.

    Technology Fee

      On July 15, 1997, the Company entered into an agreement with XL Vision
for the transfer of certain technology that is used by the Company in the sale
of its products for a $4,400,000 note payable. The transfer was accounted for
as a distribution to XL Vision as it represented amounts paid for an asset to
an entity under common control in excess of the cost of such asset. The note
payable bears interest at 7% per annum. Interest expense was $141,167 in 1997,
$308,000 in 1998 and $231,000 in 1999.

    Direct Charge Fee

      Prior to April 1, 1997 personnel, and other services were provided by XL
Vision and the costs were allocated to the Company. The Company believes that
the allocation method used by XL Vision was reasonable. Effective April 1,
1997, the Company entered into a direct charge fee agreement with XL Vision
which allows for cost-based charges based upon actual hours incurred. Costs
allocated by or service fees charged by XL Vision were approximately $468,000
in 1996, $720,000 in 1997, $460,000 in 1998 and $390,000 in 1999. A portion of
the fees in 1998 and 1999 and all of the costs and fees in 1996 and 1997 were
allocated to the discontinued transportation segment.

    Administrative Services Fee

      Effective December 15, 1997, the Company entered into an agreement which
requires accrual of an administrative services fee based upon a percentage of
gross revenues. The fee for administrative support services, including
management consultation, investor relations, legal services and tax planning,
is payable monthly to XL Vision and Safeguard Scientifics, Inc., the largest
shareholder of XL Vision, based upon an aggregate of 1.5% of gross revenues
with such service fees to be not more than $300,000 annually. Effective August
17, 1999, the agreement was amended such that the administrative services fee
is applied to net contribution margin on cattle sales and gross revenue for all
other sales. The fee is accrued monthly but is only payable in months during
which the Company has achieved positive cash flow from operations. The
agreement extends through December 31, 2002 and continues thereafter unless
terminated by any party. Administrative service fees were approximately $10,300
in 1997, $37,200 in 1998 and $43,500 in 1999.

    Leases

      The Company leases equipment under a capital lease, effective April 20,
1998, with an affiliated entity, XL Realty, Inc. Future minimum lease payments,
including imputed interest at 7.53%, are $79,852 in 1999, $85,765 in 2000,
$92,684 in 2001, $100,154 in 2002 and $26,415 in 2003. Interest expense was
$23,594 in 1998 and $20,627 in 1999.

      The Company rents its facility from XL Vision. Rent expense varies based
on space occupied by the Company and includes charges for base rent, repairs
and maintenance, telephone and networking expenses, real estate taxes and
insurance. Rent expense is approximately $68,000 in 1996, $354,000 in 1997,
$1,129,000 in 1998, and $528,000 in 1999.

    License Agreement with XL Vision, Inc.

      In February 1999, the Company signed a license agreement with XL Vision,
granting XL Vision a license to use Company software for the limited purpose of
evaluating whether the software could provide the

                                      F-91
EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

basis for a new company that would operate in the agricultural industry. The
license agreement terminated on November 30, 1999. If XL Vision forms a new
company, the Company will negotiate a long-term license agreement. In addition,
XL Vision is obligated to give the Company at least 25% of the new company. The
Company is obligated to transfer all amounts up to 25% of the company to Lost
Pelican, LLC.

(11) Segment Information

      In 1998, the Company adopted SFAS No. 131, which requires the reporting
of segment information using the "management approach" versus the "industry
approach" previously required. The management approach requires the Company to
report certain financial information related to continuing operations that is
provided to the Company's chief operating decision-maker. The Company's chief
operating decision-maker receives revenue and contribution margin (revenue less
direct costs and excluding overhead) by source, and all other statement of
operations data and balance sheet on a consolidated basis. The Company's
reportable segments consist of cattle sales and animal sciences products and
services. While the Company operates entirely in the animal science
marketplace, the contribution margin associated with cattle sales and the
related prospects for this portion of the Company's business differ from the
rest of the Company's product offerings.

      The following summarizes revenue, cost of revenue and gross profit and
contribution margin information related to the Company's two operating
segments:
Nine months ended
                                                      -------------------------
                                       Year ended     September 30,  September
                                    December 31, 1998     1998       30, 1999
                                    ----------------- ------------- -----------
                                                       (Unaudited)
Revenue:
  Cattle...........................    $        --     $        --  $17,022,862
  Animal sciences..................      1,792,471       1,106,452    1,315,783
                                       -----------     -----------  -----------
  Total............................    $ 1,792,471     $ 1,106,452  $18,338,645
                                       ===========     ===========  ===========
Cost of revenue:
  Direct costs:
    Cattle.........................    $        --     $        --  $16,860,452
    Animal sciences................        900,824         603,410      492,115
                                       -----------     -----------  -----------
    Total direct costs.............        900,824         603,410   17,352,567
  Unallocated overhead.............      1,722,623       1,025,347      929,763
                                       -----------     -----------  -----------
  Total............................    $ 2,623,447     $ 1,628,757  $18,282,330
                                       ===========     ===========  ===========
Gross profit (loss):
  Contribution margin:
    Cattle.........................    $        --     $        --  $   162,410
    Animal sciences................        891,647         503,042      823,668
                                       -----------     -----------  -----------
    Total..........................        891,647         503,042      986,078
  Unallocated overhead.............     (1,722,623)     (1,025,347)    (929,763)
                                       -----------     -----------  -----------
  Gross profit (loss)..............    $  (830,976)    $  (522,305) $    56,315
                                       ===========     ===========  ===========
The Company's assets, and other statement of operations data are not
allocated to a segment.

                                      F-92
EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

(12) Discontinued Operations

      In December 1998, the Company's Board of Directors decided to dispose of
its transportation segment. The Company's AMIRIS thermal imaging system, which
was the sole product sold in the transportation segment, was sold on January
15, 1999 to Sperry Marine, Inc. for approximately $1,900,000. The Company
received $200,000 of cash at closing and collected an additional $1,388,000
through September 30, 1999. The remaining balance of approximately $312,000 is
expected to be collected by December 31, 1999. The Company is entitled to a
royalty of 8% of net AMIRIS system sales, up to a maximum royalty of $4.3
million over a four year period or up to a maximum royalty of $5.0 million, if
$4.3 million is not received within four years.

      Net assets of the discontinued transportation segment consist of:
December 31,
                                          ----------------------  September 30,
                                             1997        1998         1999
                                          ----------  ----------  -------------
Accounts receivable...................... $  145,500  $  381,435    $ 419,784
Inventory, net...........................  1,076,043   2,020,625      123,093
Property and equipment, net..............     22,650     134,098           --
Intangibles, net.........................     94,444      61,108       36,106
Accounts payable.........................   (271,833)    (80,510)     (63,647)
Accrued liabilities including provision
 for operating loss during phase out
 period of $72,667 in 1998 and $18,748 in
 1999....................................         --    (231,415)    (125,000)
                                          ----------  ----------    ---------
    Net assets........................... $1,066,804  $2,285,341    $ 390,336
                                          ==========  ==========    =========
(13) Commitments and Contingencies

    Voluntary Employee Savings 401(k) Plan

      The Company established a voluntary employee savings 401(k) plan in 1997
which is available to all full time employees 21 years or older. The plan
provides for a matching by the Company of the employee's contribution to the
plan for 50% of the first 6% of the employee's annual compensation. The
Company's matching contributions were $6,300 in 1996, $38,195 in 1997, $62,108
in 1998 and $54,229 in 1999.

    Royalties

      In connection with the NutriCharge license, the Company is obligated to a
royalty of 5% of gross revenues from the sale of NutriCharge products and
infrared technology related to the Company's Canadian license agreement.

      The Company is also obligated to a royalty of 6% of net revenues from
product or services related to technology patented by Iowa State University.

(14) Subsequent Events

    Sale of Series D Preferred Stock

      On October 27, 1999, the Company agreed to issue 4,555,556 shares of
Series D preferred stock and a warrant to acquire 1,138,889 shares of Class B
common stock. Each share of Series D preferred stock is convertible into 1.25
shares of Class B common stock at any time at the option of the holder or
immediately

                                      F-93
EMERGE INTERACTIVE, INC.

            Notes to Consolidated Financial Statements--(Continued)

upon an IPO. The warrant is exercisable at the Company's IPO price. In the
event the Company does not complete an IPO, the warrant is exercisable at $9.00
after November 16, 2000 or earlier if the Company has an equity financing of
not less that $20,000,000 from private investors. The warrant expires on
November 16, 2002. In return for these instruments, the Company received
$18,000,000 of cash in November 1999 and a $23,000,000 non-interest, bearing
note receivable due on October 27, 2000. Imputed interest at 9.5% amounts to
$2,185,000 over the life of the note.

      The net consideration of $38,815,000 was allocated to the warrant and
preferred stock as follows. The warrant was valued at $3,325,553 using the
Black-Scholes method and assuming a strike price of $11.20, expiration of three
years, 90% volatility, and 5.8% interest. The remaining proceeds were allocated
to preferred stock and amounted to $7.79 per preferred share ($6.23 per common
share). The beneficial conversion feature was calculated as the difference
between the conversion price ($6.23) and the fair value of the common stock
($7.20) multiplied by the number of Class B common shares into which the
preferred stock is convertible (5,694,445) and amounts to $5,523,612.

      The note receivable will be shown as a reduction of stockholders' equity,
net of imputed interest. Interest income will be accreted over the life of the
note using the effective interest method. The value of the warrant will be
credited to additional paid-in capital. The beneficial conversion feature will
be credited to preferred stock with a corresponding charge to additional paid-
in capital at issuance. The beneficial conversion feature will reduce net
income available to common shareholders.

    Stock Split

      On December 6, 1999, the Board of Directors of the Company authorized a
five-for-four stock split. The stock split has been reflected in these
financial statements as if it had occurred on the first day of the first period
presented.

    Legal Proceeding (Unaudited)

      The Company has been named as a defendant in a lawsuit filed by Central
Biotech, Inc. on January 12, 2000 in the Queen's Bench Judicial Centre of
Regina, Providence of Saskatchewan, Canada. The complaint alleges that eMerge
and E-Y laboratories, Inc. were each subject to confidentiality agreements with
the plaintiff, and subsequently engaged in discussions concerning a potential
business arrangement in violation of such agreements. The complaint asserts
damages, including punitive damages, from the defendants in the aggregate
amount of $18,000,000 (Canadian dollars), as well as injunctive relief.
Although the Company has not yet completed its assessment of these claims, the
Company believes that there are a number of substantive and procedural defenses
that exist and intends to defend these claims vigorously.

    Initial Public Offering (Unaudited)

      On February 17, 2000, the Company closed on its IPO and a concurrent
private placement of common stock and raised net proceeds of approximately
$107,400,000. Approximately $12,800,000 of the proceeds were used to pay
amounts due to related parties and $900,000 was paid to Turnkey.

                                      F-94
Report of Independent Auditors

Board of Directors and Stockholders
JusticeLink, Inc.
(formerly LAWPlus, Inc.)

We have audited the balance sheets of JusticeLink, Inc. (formerly LAWPlus,
Inc.) as of December 31, 1999 and 1998, and the related statements of
operations, mandatory redeemable convertible stock and other capital
(deficiency) and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of JusticeLink, Inc. (formerly
LAWPlus, Inc.) at December 31, 1999 and 1998, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States.

Ernst & Young

Dallas, Texas
February 18, 2000, except for the third
paragraph of Note 10, for which is March 30, 2000

                                      F-95
JusticeLink, Inc.
                            (formerly LAWPlus, Inc.)

                                 Balance Sheets
December 31,
                                                               ----------------
                                                                1999     1998
                                                               -------  -------
                                                               (In thousands)
Assets
Current assets:
  Cash and cash equivalents..................................  $12,163  $    14
  Accounts receivable--trade.................................       68       74
  Prepaids...................................................       29       27
                                                               -------  -------
  Total current assets.......................................   12,260      115
Property and equipment, net..................................    2,218      747
Notes receivable, affiliates.................................       --      135
Deposits.....................................................       49      106
Debt issuance cost, net......................................       --       91
Goodwill and other intangible assets, net of accumulated
 amortization of $844........................................    5,547       --
Other........................................................       --        4
                                                               -------  -------
Total assets.................................................  $20,074  $ 1,198
                                                               =======  =======
Liabilities, Mandatory Redeemable Convertible Stock and Other
 Capital (Deficiency)
Current liabilities:
  Accounts payable trade.....................................  $   463  $   763
  Accrued liabilities........................................      669      401
  Accrued lease cancellation fees............................       --      161
  Deferred compensation......................................       80      546
  Current portion of capital lease obligations...............      592      375
  Notes payable and current portion of long-term debt........    4,992      243
                                                               -------  -------
Total current liabilities....................................    6,796    2,489
Capital lease obligations, less current portion..............      406      125
Long-term debt, less current portion.........................    1,000    4,927
Notes payable, long-term debt and accrued interest converted
 to Series B mandatory redeemable convertible preferred stock
 during 1999.................................................       --    7,563
Commitments and contingencies
Mandatory Redeemable Convertible Stock
  Series B mandatory redeemable convertible preferred stock,
   par value $.01 per share, 10,000,000 shares authorized,
   9,461,468 shares issued and outstanding...................   19,353       --
  Series C mandatory redeemable convertible preferred stock,
   par value $.01 per share, 7,200,000 shares authorized,
   7,108,707 shares issued and outstanding...................   14,337       --
Other Capital (Deficiency)
  Series A convertible preferred stock, $.01 par value,
   15,000,000 shares authorized, 3,200,000 shares issued and
   outstanding ($3,809,536 aggregate liquidation value)......       --       32
  Common stock, $.05 par value, 25,000,000 shares authorized,
   10,000 shares in 1999 and 683,242 shares in 1998 issued
   and outstanding...........................................        1       34
  Additional capital.........................................    7,942    6,157
  Accumulated deficit........................................  (29,761) (20,129)
                                                               -------  -------
Total other capital (deficiency).............................  (21,818) (13,906)
                                                               -------  -------
Total liabilities, mandatory redeemable convertible stock and
 other capital...............................................  $20,074  $ 1,198
                                                               =======  =======
See accompanying notes.

                                      F-96
JusticeLink, Inc.
                            (formerly LAWPlus, Inc.)

                            Statements of Operations
Year ended December 31,
                                                     -------------------------
                                                        1999          1998
                                                     -----------  ------------
                                                          (in thousands)
Revenue............................................. $       277  $        272
Operating expenses:
  Selling and customer support......................       2,875         2,179
  Product development...............................         909         2,004
  Operations........................................       1,613         1,824
  General and administrative........................       1,726         2,249
  Depreciation and amortization.....................       1,744           693
                                                     -----------  ------------
                                                           8,867         8,949
                                                     -----------  ------------
Loss from operations................................      (8,590)       (8,677)
Interest income.....................................          71            --
Interest expense....................................      (1,113)       (1,578)
                                                     -----------  ------------
Net loss............................................ $    (9,632) $    (10,255)
                                                     ===========  ============
See accompanying notes.

                                      F-97
JusticeLink, Inc.
                            (formerly LAWPlus, Inc.)

     Statements of Mandatory Redeemable Convertible Stock and Other Capital
                                  (Deficiency)
Mandatory Redeemable
                               Convertible Stock                               Other Capital
                         ----------------------------- -----------------------------------------------------------------
                            Series B       Series C       Series A
                           Preferred      Preferred      Convertible         Common
                             Stock          Stock      Preferred Stock        Stock
                         -------------- -------------- -----------------  -------------- Additional Accumulated
                         Shares Amount  Shares Amount  Shares    Amount   Shares  Amount  Capital     Deficit    Total
                         ------ ------- ------ ------- --------  -------  ------  ------ ---------- ----------- --------
                                                               (In thousands)
Balance at January 1,
 1998...................                                  3,200   $   32     687   $ 34    $5,744    $ (9,874)  $ (4,064)
Issuance of warrants
 attached to Revolving
 Note guarantee and 1998
 Bridge Loans...........                                    --       --      --     --        503         --         503
Other...................                                    --       --       (4)   --        (90)        --         (90)
Net loss and
 comprehensive loss.....                                    --       --      --     --        --      (10,255)   (10,255)
                                                       --------   ------  ------   ----    ------    --------   --------
Balance at December 31,
 1998...................                                  3,200       32     683     34     6,157     (20,129)   (13,906)
Exercise of warrants
 issued in connection
 with the 1998 and 1999
 Bridge Loans...........                                    --       --    7,754    388       --          --         388
Recapitalization of
 LAWPlus, Inc........... 3,462  $ 6,925                  (3,200)     (32) (8,437)  (422)    2,994         --       2,540
Series B mandatory
 redeemable preferred
 stock issued in
 connection with the
 acquisition of
 JusticeLink, Inc....... 1,187    2,375                     --       --      --     --        --          --         --
Series B mandatory
 redeemable preferred
 stock issued in
 exchange for 1999
 Bridge Loans and
 accrued interest....... 1,114    2,228                     --       --      --     --        --          --         --
Sale of Series B
 mandatory redeemable
 preferred stock, net... 2,398    4,795                     --       --      --     --       (583)        --        (583)
Issuance of Series B
 mandatory redeemable
 preferred stock in
 connection with Lexis-
 Nexis agreement........ 1,300    2,600                     --       --      --     --        --          --         --
Sale of Series C
 mandatory redeemable
 preferred stock, net...   --       --  7,109  $14,217      --       --      --     --        (80)        --         (80)
Accrued dividends on
 Series B and C
 mandatory redeemable
 preferred stock........   --       430   --       120      --       --      --     --       (550)        --        (550)
Exercise of employee
 stock options..........                  --       --       --       --       10      1         4         --           5
Net loss and
 comprehensive loss.....   --       --    --       --       --       --      --     --        --       (9,632)    (9,632)
                         -----  ------- -----  ------- --------   ------  ------   ----    ------    --------   --------
Balance at December 31,
 1999................... 9,461  $19,353 7,109  $14,337      --    $  --       10   $  1    $7,942    $(29,761)  $(21,818)
                         =====  ======= =====  ======= ========   ======  ======   ====    ======    ========   ========
See accompanying notes.

                                      F-98
JusticeLink, Inc.
                            (formerly LAWPlus, Inc.)

                            Statements of Cash Flows
Year ended
                                                                December 31,
                                                              -----------------
                                                               1999      1998
                                                              -------  --------
                                                               (in thousands)
Operating Activities
Net loss....................................................  $(9,632) $(10,255)
Adjustments to reconcile net loss to net cash used in
 operating activities:
  Depreciation and amortization.............................    1,744       693
  Amortization of debt issuance costs.......................       91        26
  Loss on disposal of property and equipment................       --       434
  Interest related to warrants attached to debt.............       --       503
  Non-cash interest expense.................................       --       563
  Bad debt expense..........................................        5        --
  Write-off of note receivable--affiliates..................      135        --
  Changes in operating assets and liabilities, net of
   effects of an acquired business in 1999:
    Accounts receivable trade...............................        1       (52)
    Prepaids, deposits and other............................       53       (57)
    Notes receivable, affiliates............................      --        115
    Accounts payable and accrued liabilities................     (294)      489
                                                              -------  --------
      Net cash used in operating activities.................   (7,897)   (7,541)
Investing Activities
  Cash acquired from merger with JusticeLink, Inc...........        1        --
  Merger costs..............................................     (474)       --
  Purchases of property and equipment.......................   (1,269)     (154)
                                                              -------  --------
    Net cash used in investing activities...................   (1,742)     (154)
Financing Activities
  Proceeds from the exercise of warrants for LAWPlus, Inc.
   common stock.............................................      388        --
  Proceeds from the exercise of stock options...............        5        --
  Net proceeds from sale of Series B and Series C preferred
   stock....................................................   18,349        --
  Proceeds from issuance of notes payable and long-term
   debt.....................................................    3,762     6,375
  Payments on notes payable and long-term debt..............     (250)     (591)
  Payments on capital lease obligations.....................     (466)     (361)
  Other.....................................................       --       (90)
                                                              -------  --------
    Net cash provided by financing activities...............   21,788     5,333
                                                              -------  --------
Increase (decrease) in cash and cash equivalents............   12,149    (2,362)
Cash and cash equivalents at beginning of year..............       14     2,376
                                                              -------  --------
Cash and cash equivalents at end of year....................  $12,163  $     14
                                                              =======  ========
Supplemental Cash Flow Information
Cash paid for interest......................................  $ 1,581  $    527
Significant Noncash Investing and Financing Activities
Common stock, Series A preferred stock and debt converted to
 Series B preferred stock (including accrued interest of
 $928,000)..................................................  $11,693  $     --
Series B preferred stock issued in connection with the
 merger with JusticeLink, Inc...............................  $ 2,375  $     --
Series B preferred stock issued in connection with the
 Lexis-Nexis agreement......................................  $ 2,600  $     --
Property and equipment acquired with capital leases.........  $   967  $     --
Additional capital allocated to Series B and C preferred
 stock for dividends........................................  $   550  $     --
See accompanying notes.

                                      F-99
JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                         Notes to Financial Statements
                               December 31, 1999

1. Organization and Description of Business

      LAWPlus, LLC, a Texas limited liability corporation was formed on April
20, 1995 (inception) and was 94% owned by COREPlus LLC. At the commencement of
operations on July 16, 1997, the members of LAWPlus, LLC exchanged their
membership units for shares of common stock of LAWPlus, Inc., a Delaware
corporation incorporated on July 9, 1997, and COREPlus, LLC transferred assets
of $25,000 and liabilities of $2,701,000, recorded at their historical basis,
to LAWPlus, Inc.

      On May 25, 1999, LAWPlus, Inc. acquired all of the outstanding common
stock of JusticeLink, Inc. in exchange for 1,187,495 shares of Series B
Preferred Stock. Additionally, LAWPlus, Inc. acquired assets of $180,000 and
assumed a note payable of $1,072,000. Effective with the merger, the Company
changed its name to JusticeLink, Inc. The merger has been accounted for using
the purchase method of accounting and, accordingly, results of the acquired
operations of JusticeLink, Inc. are included in the Company's statements of
operations from the date of its acquisition. The pro forma effects on the
Company's operations for the years ended December 31, 1999 and 1998, assuming
that JusticeLink was acquired as of September 1, 1998 (its inception), would be
to increase the net loss by $1,456,000 and $1,843,000, respectively.
JusticeLink had no net revenues during either period.

      The Company provides electronic document transmission and storage
services to court systems, attorneys and litigants accessed via the Internet.
The Company has executed service agreements with court systems and law firms
participating within certain court systems in the states of Texas, California,
Colorado, Alabama, and Georgia. The Company continues to pursue opportunities
to expand its services throughout the United States.

2. Summary of Significant Accounting Policies

      Revenue Recognition

      The Company recognizes revenue as services are provided.

      Cash and Cash Equivalents

      The Company considers short-term investments with original maturity dates
of 90 days or less at the date of purchase to be cash equivalents.

      Property and Equipment

      Property and equipment are recorded at cost. Property and equipment are
depreciated using the straight-line method over the estimated useful lives of
the related assets which range from three to five years. Leasehold improvements
and assets under capital leases are amortized over the lesser of the base lease
term or estimated useful life of the respective asset and included in
depreciation expense.

      Product Development Costs

      In 1998, the Company expensed all product development costs as incurred.
Product development costs represent the internal and external costs associated
with developing the Company's electronic internet applications.

                                     F-100
JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)

      In March 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. The SOP is effective for all
fiscal years beginning after December 15, 1998 and requires the capitalization
of certain costs incurred in connection with developing or obtaining internal
use software. SOP 98-1 does not require restatement of prior year financial
statements upon adoption. As of December 31, 1999, the Company has capitalized
$1,311,000 in connection with developing internal use software of which
$754,000 has been placed in service as of December 31, 1999. Amortization
expense for internally developed software was $84,000 for the year ended
December 31, 1999.

      Intangibles

      Intangible assets consist of goodwill, trademarks, customer lists,
technological capabilities and strategic relationships and are amortized using
the straight-line method over the estimated useful lives of three years.

      Impairment of Long-Lived Assets

      The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.

      Debt Issuance Costs

      Debt issuance costs were carried at cost of $130,000 less accumulated
amortization of $39,000 as of December 31, 1998 which was calculated using the
interest method over the term of the debt, and are included in other assets.
During 1999, the remaining unamortized balance of $33,000 was written off in
connection with the Company's recapitalization (see Note 7).

      Income Taxes

      Deferred tax assets and liabilities are determined based on the temporary
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities. Valuation allowances are provided against deferred
tax assets when the realization of the assets is not reasonably assured.

      Use of Estimates

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

      Concentration of Credit Risk

      Financial instruments that potentially subject the Company to
concentration of credit risk consist of cash and cash equivalents and accounts
receivable. Cash and cash equivalents are held primarily with one financial
institution and exceed federally insured amounts. The Company has not incurred
any losses relating to such concentration and none are expected. The Company's
accounts receivable are comprised of small balances due from a large number of
customers for which collateral is generally not required. The allowance for
doubtful

                                     F-101
JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)

accounts as of December 31, 1999 was $5,000 and no allowance was necessary as
of December 31, 1998. Losses on accounts receivable have historically been
within management's expectation.

      Recent Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives), and for hedging
activities. SFAS 133, as amended by SFAS 137, is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000, with earlier
application encouraged. The Company has not completed a thorough review of all
its contracts for embedded derivatives and, accordingly, the effects, if any,
upon adoption of SFAS 133 on its financial position or results of operations
have not been determined.

3. Property and Equipment

      Property and equipment consisted of the following:
December 31,
                                                               ----------------
                                                                1999     1998
                                                               -------  -------
                                                               (in thousands)
Computer and data network equipment...................... $ 2,313  $ 1,513
     Software.................................................   1,783      261
     Office and other equipment...............................     197      154
                                                               -------  -------
                                                                 4,293    1,928
     Less accumulated depreciation............................  (2,075)  (1,181)
                                                               -------  -------
     Property and equipment, net.............................. $ 2,218  $   747
                                                               =======  =======
Included within property and equipment are assets under capital leases of
$998,000 and $1,250,000 and related accumulated amortization of $261,000 and
$556,000 at December 31, 1999 and 1998, respectively.

                                     F-102
JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)

4. Notes Payable and Long-Term Debt

      Notes payable and long-term debt consisted of the following:
December 31,
                                                              ----------------
                                                               1999     1998
                                                              -------  -------
                                                              (in thousands)
Note payable................................................. $ 1,072  $    --
Revolving Note...............................................   3,500    3,500
Senior Note..................................................      84      334
12% Subordinated Notes.......................................      --    3,440
1998 Bridge Loans ...........................................      --    2,500
12% Senior Subordinated Notes ...............................      --    1,060
Subordinated Note ...........................................   1,000    1,000
8% Senior Subordinated Note..................................     336      336
                                                              -------  -------
                                                                5,992   12,170
Less current portion not converted to Series B mandatory
 redeemable convertible preferred stock .....................  (4,992)    (243)
Less, in 1998, notes payable and long-term debt converted to
 Series B mandatory redeemable convertible preferred stock
 during 1999.................................................      --   (7,000)
                                                              -------  -------
Long-term debt, less current portion......................... $ 1,000  $ 4,927
                                                              =======  =======
In connection with the recapitalization of LAWPlus, Inc. and the merger
with JusticeLink, Inc. in May 1999, the Company's outstanding 12% Senior
Subordinated Notes, 12% Subordinated Notes and the 1998 Bridge Loans were
converted to Series B Convertible Preferred Stock (See Note 7). These amounts
totaling $7,000,000 plus accrued interest of $563,000 at December 31, 1998 are
shown separately on the balance sheet at December 31, 1998 as Notes payable,
long-term debt and accrued interest converted to Series B mandatory redeemable
convertible preferred stock during 1999.

      In July 1997, the Company assumed 12% Senior Subordinated Notes totaling
$1,060,000, a Subordinated Note of $1,000,000, and an 8% Senior Subordinated
Note of $450,000 from COREP1us, LLC.

      The 12% Senior Subordinated Notes of $1,060,000 bore interest at 12%
which was payable quarterly. The principal of the notes was originally due and
payable on July 1, 2001, however, in conjunction with the 1999 recapitalization
of LAWPlus, Inc. and the merger with JusticeLink, Inc., the Senior Subordinated
Notes of $1,060,000 were converted to Series B Preferred Stock (see Note 7).

      The $1,000,000 Subordinated Note is unsecured and due on March 31, 2001.
Interest accrues at prime plus 1% (9.50% at December 31, 1999) and is payable
quarterly.

      The 8% Senior Subordinated Note between the Company and Southeast Texas
NETPlus, Inc. (an entity owned by stockholders who were former directors or
officers of the Company) accrues interest at 8% with principal and interest
payable quarterly. On November 20, 1997 and May 4, 1998, the terms of the 8%
Senior Subordinated Note for the then remaining principal of $436,000 and
$386,000, respectively were

                                     F-103
JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)

amended to provide that interest will accrue at 8% per annum. Payment of such
interest is deferred until the closing of a private placement equity financing
at which time all such deferred interest payments shall be paid and interest
would then be paid monthly. All deferred interest was paid in connection with
the equity financing on July 1, 1999 described in Note 7. In addition, the
Company made a required principal payment of $50,000 in connection with the May
4, 1998 amendment. As of December 31, 1999 and 1998, $336,000 principal was
outstanding which is due on October 16, 2000.

      In July and November 1997, the Company issued 12% Subordinated Notes to
venture capitalists for $3,440,476. The notes were originally due on June 30,
2002 with interest payable quarterly. However, in conjunction with the 1999
recapitalization of LAWPlus, Inc. and the merger with JusticeLink, Inc. (see
Note 7) the Subordinated Notes were converted to Series B Preferred Stock. As
permitted by the terms of the 12% Subordinated Notes, accrued interest was
added to the unpaid principal balance of the notes prior to the conversion.

      In May 1998, the Company entered into a Substitute Revolving Note (the
"Revolving Note") with a bank under which it has borrowed $3,500,000 bearing
interest at the bank's prime rate (8.50% at December 31, 1999). Interest is
payable monthly with all outstanding principal due July 31, 2000. The
borrowings under the Revolving Note are collateralized by substantially all the
assets of the Company. In addition, the Revolving Note is guaranteed by two
investment fund limited partnerships, which held all of the Company's Series A
Preferred Stock, $5,940,000 in debt and had representatives on the Board of
Directors of the Company at December 31, 1998, in return for 435,000 warrants
to purchase an equal number of shares of common stock with an exercise price of
$.05 per share through May 4, 2008. The fair value of the warrants at the date
of grant, as determined by management, of $218,000 was recorded as additional
capital and amortized to interest expense over the period to the original
maturity date of the Revolving Note on August 31, 1998. The guarantee by the
two investment fund limited partnerships may be reduced to $1,000,000 upon
meeting conditions as to the size and valuation of an initial public offering.

      In December 1997, the Company entered into a term note (the "Senior
Note") agreement with a commercial bank for $500,000 due on December 5, 2000.
Interest accrues at prime plus 2% (10.50% at December 31, 1999). Principal
payments, beginning January 5, 1998, were due in equal monthly installments of
approximately $14,000 plus interest. The Senior Note agreement contains a
penalty for prepayments and restricts the Company's ability to declare or pay
any dividends during the term of the loan. A provision of the Senior Note
required the Company to raise $10,000,000 in junior capital by March 31, 1998,
The March 31, 1998 deadline was subsequently extended to September 30, 1998. In
November 1998, the Company and the commercial bank agreed to renegotiate the
terms of the agreement which resulted in a requirement for monthly payments of
approximately $14,000 until March 5, 1999 (subsequently extended to August 5,
1999), at which time all unpaid principal and interest was due and payable. In
September 1999, the Company and the commercial bank renegotiated the Senior
Note as a six-month installment note, with monthly payments including principal
and interest of approximately $46,000, maturing on February 5, 2000. The Senior
Note is collateralized by specific equipment. This note was paid in full on
February 1, 2000.

      To fund operations in 1998, the Company entered into a series of bridge
loans (the "1998 Bridge Loans") aggregating $2,500,000 at December 31, 1998.
The 1998 Bridge Loans bore interest at 9% per annum with all principal and
interest due at maturity of November 30, 1998 or March 15, 1999. In addition,
the Company issued to the lenders 3,812,160 warrants expiring May 4, 2008 for
an equal number of shares of common stock with an exercise price of $0.05 per
share. Warrants for 641,180 shares were immediately exercisable. Warrants for
1,000,000 shares became exercisable on each of December 15, 1998, January 15,

                                     F-104
JUSTICELINK, INC.
                           (Formerly LAWPlus, Inc.)

                  Notes to Financial Statements--(Continued)

1999 and February 15, 1999 and 171,080 became exercisable on January 12, 1999.
If the 1998 Bridge Loans had been repaid by each of these dates or had the
Company obtained third party financing, some or all of the warrants would have
been voided. The fair value of the warrants at the date of grant, as
determined by management, of $285,000, was recorded as additional capital and
amortized to interest expense over the period from issue to the original
maturity date of the 1998 Bridge Loans.

     To fund operations during 1999, the Company entered into additional
bridge loans (the "1999 Bridge Loans") for an aggregate of $3,762,000 of
borrowings, under substantially the same terms as the 1998 Bridge Loans
including immediately exercisable warrants expiring on May 4, 2008 for an
aggregate of 10,342,160 shares of common stock at an exercise price of $0.05
per share. The value of the warrants was determined by management to be
nominal.

     In connection with the 1999 recapitalization of LAWPlus, Inc. and the
merger with JusticeLink, Inc. the $2,500,000 of 1998 Bridge Loans and
$1,862,000 of 1999 Bridge Loans were converted to Series B Preferred Stock
(see Note 7). Additionally, on July 1, 1999, $1,900,000 of 1999 Bridge Loans
were converted to Series B Preferred Stock at a ratio of $2.00 per share (see
Note 7).

     On May 25, 1999 in connection with the merger with JusticeLink, the
Company assumed a $1,072,000 note payable to an entity which became a Series B
Preferred stockholder in the Company. The note payable bore interest at 8% per
annum. Principal and interest was due at maturity on March 12, 2000. At
December 31, 1999, $1,072,000 was outstanding with accrued interest payable of
$51,691. On February 11, 2000, the note payable was settled for $850,000 in
cash plus certain equipment and software (see Note 10).

     Maturities of notes payable and long-term debt at December 31, 1999, are
as follows (in thousands):
2000................................................................ $4,992
     2001................................................................  1,000
                                                                          ------
         Total........................................................... $5,992
                                                                          ======
5. Income Taxes

     No provision for income taxes has been provided for the years ended
December 31, 1999 and 1998 due to the Company's operating losses.

     The differences between the actual income tax benefit and the amount
computed by applying the statutory federal tax rate to the loss before income
taxes are as follows:
December 31
                                                             ----------------
                                                              1999     1998
                                                             -------  -------
                                                             (In thousands)
Benefit computed at federal statutory rate............. $(3,275) $(3,487)
     Permanent differences..................................     260        9
     State income tax benefit, net of federal tax effect at
      state statutory rate..................................    (263)    (304)
     Increase in valuation reserve..........................   3,278    3,782
                                                             -------  -------
         Total.............................................. $    --  $    --
                                                             =======  =======
F-105
JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)

      The components of the deferred tax assets and liabilities are as follows:
December 31
                                                                ---------------
                                                                 1999    1998
                                                                ------  -------
                                                                (In thousands)
Deferred tax assets--net operating loss carryforwards.......... $9,444  $ 5,714
Valuation allowance for deferred tax assets.................... (8,959)  (5,681)
                                                                ------  -------
Deferred tax assets, net of valuation allowance................    485       33
Deferred tax liabilities
  Software development costs...................................   (454)      --
  Other, net...................................................    (31)     (33)
                                                                ------  -------
Total deferred tax liabilities.................................   (485)     (33)
                                                                ------  -------
Deferred income taxes, net..................................... $   --  $    --
                                                                ======  =======
At December 31, 1999, the Company has approximately $25.6 million of
federal net operating loss carryforwards which begin to expire in 2012. The
Company has approximately $25.6 million of state net operating losses as of
December 31, 1999.

      At December 31, 1999 and 1998, the Company has recorded a valuation
allowance against its net deferred tax assets because management believes that,
after considering all the available objective evidence, the realization of the
assets is not reasonably assured.

6. Commitments and Contingencies

      Leases

      The Company has operating and capital lease commitments for office space
and equipment with lease terms ranging from three to five years. The office
space lease agreement includes an escalation clause and renewal option to
extended the term by three years.

      Capital leases require monthly payments over periods ranging from 18 to
36 months with implicit interest rates ranging from 8% to 25%.

                                     F-106
JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)

      Future minimum lease payments under noncancelable capital and operating
leases at December 31, 1999 were as follows:
Capital Operating
                                                               Leases   Leases
                                                               ------- ---------
                                                                (in thousands)
2000........................................................  $ 592    $649
  2001........................................................    424     172
  2002........................................................    198      18
  2003........................................................     --       8
                                                                -----    ----
    Total minimum lease payments..............................  1,214    $847
                                                                         ====
Less amount representing interest.............................    216
                                                                -----
Present value of minimum capital lease payments...............    998
Less current portion..........................................    592
                                                                -----
Capital lease obligations, less current portion...............  $ 406
                                                                =====
Rent expense for noncancelable operating leases was approximately
$542,000 and $317,000 for the years ended December 31, 1999 and 1998,
respectively.

      In February 1998, the Company entered into an outsourcing agreement with
a third party to provide data processing and related information technology
services for the Company's production operating system. Amounts paid to the
third party in 1998 were approximately $322,000. The agreement was terminated
in December 1998 and termination costs of approximately $161,000 were accrued.

      Legal

      From time to time, the Company is a party to various claims, legal
actions and complaints arising in the ordinary course of business. In the
opinion of management, the disposition of these claims, legal actions and
complaints will not have a material effect on the Company's financial position
or result of operations.

7. Recapitalization of LAWPlus, Inc.

      Effective May 25, 1999, LAWPlus, Inc. recapitalized as a condition of
closing the merger with JusticeLink, Inc. In the recapitalization, LAWPlus,
Inc. issued 3,462,461 shares of Series B Preferred Stock in exchange for all of
the 12% Senior Subordinated Notes, the 12% Subordinated Notes, the 1998 Bridge
Loans, $1,862,000 of 1999 Bridge Loans, accrued interest of $600,000 on the
1998 and 1999 Bridge Loans, and all of the outstanding shares of Series A
Preferred Stock and common stock at conversion rates negotiated by the
stockholders.

      The recapitalization resulted in approximately $6,925,000 being allocated
to Series B Preferred Stock at $2.00 per share and the remainder as an increase
to additional capital.

      Additionally, outstanding stock options as of December 31, 1998 covering
593,068 shares were converted to options to purchase 226,223 shares of common
stock at $1.3108 per share. These options were rescinded by the board of
directors and were replaced by the June 8, 1999 stock option grant for shares
in the merged Company, described in Note 8 under "Stock Options."

                                     F-107
JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)

8. Capital Stock

      Reverse Stock Split

      On October 29, 1998, LAWPlus, Inc. amended its Articles of Incorporation
to convert each share of its $.01 par value common stock into one-fifth of one
share of common stock, $.05 par value (reverse split). All common stock,
options and warrants to purchase common shares outstanding on October 29, 1998
were adjusted to reflect the reverse split. The impact of the reverse split has
been retroactively reflected in the accompanying financial statements.

      Series A Convertible Preferred Stock

      Each share of Series A Convertible Preferred Stock (the "Series A
Preferred Stock") was convertible into one share of common stock. The Series A
Preferred Stock would automatically convert to common stock upon closing of an
initial public offering of common stock in which aggregate proceeds received by
the Company would have been at least $25 million and which represented a
valuation of the total common equity of the Company of at least $60 million.
Holders of Series A Preferred Stock were not entitled to receive dividends
prior, or in preference, to common shareholders. Holders of Series A Preferred
Stock were to receive dividends upon declaration or payment of any dividend or
distribution to common shareholders. Holders of Series A Preferred Stock had
the right to vote with common shareholders on the basis of one vote per share
of Series A Preferred Stock held. The liquidation preference of the Series A
Preferred Stock was $1.19048 per share.

      In connection with the recapitalization of LAWPlus, Inc. and merger with
JusticeLink, Inc., all of the issued and outstanding Series A Preferred Stock
was exchanged for Series B Preferred Stock (see below).

      Series B Mandatory Redeemable Convertible Preferred Stock

      On July 1, 1999, the Company completed a sale of 2,397,500 shares of
Series B Convertible Preferred Stock (the "Series B Preferred Stock") at $2.00
per share. The Company received proceeds of $4,212,000, net of $583,000 of
offering costs. Offering costs of $583,000 have been recorded against
additional capital. In connection with arranging the offering, 234,250
immediately exercisable 10 year warrants to purchase common stock were issued
to the underwriter with a $2.00 per share exercise price.

      Concurrently, on July 1, 1999, $1,900,000 of the 1999 Bridge Loans plus
accrued interest of approximately $328,000 were converted to 1,114,017 shares
of Series B Preferred Stock at $2.00 per share.

      Each share of Series B Preferred Stock is convertible into the number of
shares of common stock that results from dividing the liquidation value
(initially $2.00 per share) of the Series B Preferred Stock by the conversion
price (initially $2.00 per share) for Series B Preferred Stock plus the number
of shares that results from dividing the amount of any accrued and unpaid
dividends divided by the amount equal to the fair value of the common stock.
The holders of Series B Preferred Stock will be entitled to receive cumulative
dividends at the rate of 5.0% of the original purchase price, which will be
converted into common shares upon conversion of the Series B Preferred Stock at
a conversion price equal to the fair market value of the common stock at the
time of conversion. The Series B Preferred Stock automatically converts to
common stock upon 1) the election of the holders of at least two-thirds of the
issued and outstanding Series B and Series C Preferred Stocks or 2) the closing
of an initial public offering of common stock in which aggregate proceeds are
at least $20,000,000.

                                     F-108
JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)

Holders of Series B Preferred Stock vote with common shareholders on the basis
of one vote per share of Series B Preferred Stock held. In the event of
liquidation, dissolution or winding up of the Company, either voluntarily or
involuntarily, the holders of the Series B Preferred Stock have a liquidation
preference in an amount equal to three times the liquidation value of $2.00 per
share or their pro rata share if the assets of the Company are insufficient to
pay in full the respective preferential amounts (see adjustment to liquidation
preference upon issuance of Series C Preferred Stock described below).

      On October 28, 1999, the Company amended the Certificate of Designation
for the Series B Preferred Stock making the Series B Preferred Stock
mandatorily redeemable upon the vote of two thirds of the combined holders of
Series B and Series C (see below) Preferred Stock. The redemption would be one
third of the shares on each of July 1, 2004, 2005 and 2006 at liquidation value
plus accrued unpaid dividends.

      As of December 31, 1999, $429,776 representing the pro-rata portion of
the cumulative 5% dividend has been recorded to Series B Preferred Stock and
charged to additional capital in the absence of positive retained earnings.

      Series C Mandatory Redeemable Preferred Stock

      On October 28, 1999, the Company's Board of Directors authorized
7,200,000 shares of Series C Preferred Stock (the "Series C Preferred Stock")
with a par value of $0.01. The Series C Preferred Stock has essentially the
same rights and preferences as the amended Series B Preferred Stock, except in
the event of a liquidation. In the event of a liquidation where the assets
available are insufficient for payment of the entire preferred liquidation
preference, plus any cumulative but unpaid dividends, first, until the holders
of the Series C Preferred Stock have received an amount per share equal to the
liquidation value ($2.00 per share), plus any accrued dividends, sixty percent
of such assets will be allocated ratably to Series C Preferred Stock holders
and forty percent of such assets will be allocated ratably among the holders of
Series B Preferred Stock. The holders of the Series B and C Preferred Stocks
then share ratably until the holders have received an amount of three times the
liquidation value, plus any cumulative but unpaid dividends.

      The Series C Preferred Stock is mandatorily redeemable upon the vote of
two-thirds of the combined holders of Series B and C Preferred Stocks. The
redemption would be one-third of the shares on each of July 1, 2004, 2005 and
2006 at liquidation value plus accrued unpaid dividends.

      In November 1999, the Company sold 6,415,422 shares of Series C Preferred
Stock at $2.00 per share to Internet Capital Group, Inc. and a private
investment banking firm. The Company received gross proceeds of $12,831,000
from these offerings. The terms of the Series C Preferred Stock offering
restricted the use of the proceeds from paying debt and allowed existing
stockholders of the Company to acquire up to 750,000 shares at $2.00 per share
of which 693,285 shares have been sold as of December 31, 1999. As of December
31, 1999, the Company paid $80,000 of offering costs, which have been recorded
against additional capital.

      As of December 31, 1999, $119,422 representing the pro-rata portion of
the cumulative 5% dividend has been recorded to Series C Preferred Stock and
charged to additional capital in the absence of positive retained earnings.

                                     F-109
JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)

      Agreement with Lexis-Nexis

      On November 1, 1999, the Company and Lexis-Nexis Group, a division of
Reed Elsevier Inc. (Lexis) entered into a strategic alliance whereby the
Company will become the exclusive court electronic filing solutions partner of
Lexis. In the agreement the Company issued 1,300,000 shares of Series B
Preferred Stock in exchange for the right to pursue certain Lexis customers for
e-filing services and entering into a joint marketing agreement. The joint
marketing agreement relates to co-branding and promoting each Company's
services and listing the Company as Lexis' exclusive e-filing services
provider. Lexis will use its best efforts to transition the specified customers
to the Company's system. The shares issued are not contingent upon future
performance or services. The Company agreed to issue additional common stock to
Lexis contingent upon the level of revenue generated from these specified Lexis
former customers, if they are converted to be Company customers, for a thirty-
month period beginning after the transition period, which is expected to occur
no earlier than March 31, 2000.

      Additionally, in connection with the agreement with Lexis, the Company
issued immediately exercisable 10 year warrants for 150,000 shares of common
stock at an exercise price of $2.50 per share to certain shareholders for
services performed during the transaction. The value assigned to the warrants
was nominal. The Company has recorded the $2.6 million of consideration to
intangible assets at December 31, 1999. Any additional consideration given to
Lexis related to future revenues will be charged to expense based on the fair
value of the stock to be given as of the date of the resolution of the
contingency.

      Stock Warrants

      As of December 31, 1999 and 1998, warrants to purchase 393,875 and
4,247,160 shares of common stock with an exercise price of $2.50 and $0.05,
respectively, were outstanding. All of the warrants outstanding at December 31,
1999 were exercisable. The warrants expire from May 4, 2008 through November 1,
2009.

      In March 1999, 7,753,979 warrants of the 14,589,320 warrants issued in
connection with the 1998 and 1999 Bridge Loans were exercised as a part of the
recapitalization of LAWPlus, Inc. (see Note 7). Proceeds from the exercise
approximated $388,000. The remaining warrants issued in connection with the
1998 and 1999 Bridge Loans were voided as a condition of the merger with
JusticeLink, Inc.

      Employee Stock Options

      As of December 31, 1998, fully vested options granted prior to the
incorporation of LAWPlus, Inc. to purchase 15,000 shares of common stock were
outstanding with an exercise price of $0.0165 per share, exercisable through
December 31, 2010. Subsequently, with the 1999 recapitalization of LAWPlus,
Inc. and the merger with JusticeLink, Inc., these options were converted to
options to purchase 9,246 shares of common stock with an exercise price of
$0.0268 with the original expiration date.

      In October 1998, the stockholders of the Company approved an Employee
Stock Option Plan authorizing 1,000,000 shares of the Company's common stock to
be reserved for the granting of incentive stock options. Stock option grants
for 593,068 shares with an exercise price of $0.50, representing the estimated
fair value at the date of grant were awarded during 1998 and subsequently
rescinded by the board of directors in December 1999. Generally, the options
vested at six to twelve months from the date of grant at a rate of 25% of the
initial grant and then pro rata each month thereafter until all options vest
four years from the date of grant. As of December 31, 1998, 66,261 options were
exercisable.

                                     F-110
JUSTICELINK, INC.
                           (Formerly LAWPlus, Inc.)

                  Notes to Financial Statements--(Continued)

      In October 1998 and June 1999, the Company increased the number of
shares available for grant under its Employee Stock Option Plan to 1,700,000
shares. During 1999, stock option grants covering 1,722,000 shares at an
exercise price of $0.50 per share were awarded by the Company, with terms
similar to the existing options with the vesting beginning from either their
original hire date or October 28, 1998. As of December 31, 1999, 180,797
shares are available for grant under the plan.

      Data with respect to stock options of the Company are as follows:
Options Outstanding      Exercisable Options
                                ------------------------- ----------------------
                                              Weighted               Weighted
                                              Average                Average
                                 Shares    Exercise Price Shares  Exercise Price
                                ---------  -------------- ------- --------------
January 1, 1998................     9,246       $.03        9,246     $ .03
Granted........................   593,068        .50
                                ---------       ----
December 31, 1998..............   602,314        .49       66,261     $(.43)
Granted........................ 1,722,000        .50
Exercised......................   (10,000)       .50
Rescinded......................  (593,068)       .50
Forfeitures....................  (212,043)       .50
                                ---------       ----
December 31, 1999.............. 1,509,203       $.50      331,354     $ .49
                                =========       ====
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, requires pro forma information regarding the
Company's net loss determined as if the Company has accounted for its employee
stock options under the fair value method. The fair value of the Company's
options estimated at the dates of grant during 1999 and 1998 using a "minimum
value" option pricing model was insignificant. Accordingly, the fair value
method results in substantially the same net loss for the years ended December
31, 1999 and 1998 as that shown in the statements of operations.

      Reserved Shares

      Shares of common stock reserved for future issuance as of December 31,
1999 were as follows:
Conversion of Series B Mandatory Redeemable Preferred Stock......  9,461,468
   Conversion of Series C Mandatory Redeemable Preferred Stock......  7,108,707
   Warrants.........................................................    393,875
   Employee Stock Option Plan.......................................  1,700,000
                                                                     ----------
                                                                     18,664,050
                                                                     ==========
9. Related Party Transactions

      On October 28, 1999, the Company's Board of Directors approved a
settlement agreement (the "Agreement") between the Company and a former
officer and shareholder, whereby the Company agreed to pay the former officer
deferred compensation of $118,000, which is included in the deferred
compensation liability at December 31, 1998. The amount will be payable in ten
monthly installments of $10,000 and twelve monthly installments of $1,500
beginning November 1, 1999. As part of this Agreement, the Company wrote off
the $135,000 note receivable from this former officer and shareholder.

                                     F-111
JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)

      An officer and director of the Company owns a facility from which the
Company relocated effective December 1998. The Company incurred approximately
$67,000 in rental expense related to this facility during the year ended
December 31, 1998.

      Equipment is leased from a company in which a director of the Company has
an ownership interest. During the year ended December 31, 1999 and 1998, the
Company made approximately $397,000 and $266,000 in capital lease payments to
this company.

      A partner of the Company's former outside legal counsel is also an equity
owner in the Company. The Company incurred approximately $18,000 in legal
expenses with the law firm during the year ended December 31, 1998.

      In February 1998, the Company entered into a third-party development
contract for the design, engineering and development of a significant portion
of the Company's electronic filing application. Certain shareholders and
directors of the Company hold equity interests in the third party and serve on
its board of directors. For the year ended December 31, 1999 and 1998, the
Company made contract payments to this entity of approximately $816,000 and
$515,000, respectively. This agreement expired in September of 1999.

10. Subsequent Events

      Note Payable Agreement

      On February 11, 2000, the Company reached an agreement with Series B
Preferred stockholder which held the Note Payable in the amount of $1,072,000
(plus accrued interest of $62,000 as of February 11, 2000). Under the terms of
the agreement, the Company will pay $850,000 and transfer certain tangible and
intangible assets acquired in the merger with JusticeLink on May 25, 1999 to
the stockholder by March 10, 2000 in full settlement of the note. As of
December 31, 1999, the net book value of the tangible asset included in
property and equipment was $97,721. As a result of the agreement goodwill and
accrued interest will be reduced by $145,000 and $51,000, respectively.

      Letter of Intent

      On February 2, 2000, the Company signed a Letter of Intent for a proposed
merger with Data West Corporation, d.b.a. CourtLink. Tentatively, the agreement
calls for all of the outstanding equity securities of the Company to be
converted into CourtLink securities representing 42% of the combined entity.
Currently, the Company's operations are expected to remain in Dallas; however,
Corporate personnel are expected to relocate to Seattle, Washington. The
effects of the proposed merger have not been reflected in the accompanying
financial statements.

      Asset Purchase Agreement

      On March 30, 2000, the Company entered into an asset purchase agreement
with a software development company whereby the Company will purchase certain
assets, including software for $4.0 million and a 1.5% common stock interest in
the newly formed entity to be formed as a result of the planned merger with
CourtLink. The Company must pay $2.0 million within thirty days of closing and
$2.0 million on or before November 15, 2000.

      Also the Company entered into a cooperative marketing and limited grant
license agreement with the software development company.

                                     F-112
JUSTICELINK, INC.
                            (Formerly LAWPlus, Inc.)

                   Notes to Financial Statements--(Continued)

11. Year 2000 (Unaudited)

      The Company, in conjunction with its third-party technology developers
and other third parties and key suppliers, completed an assessment of its
internal information systems and the electronic filing application and has
developed or modified portions of these information systems so that they would
function properly with respect to dates in the Year 2000 and thereafter. The
Company also modified the internet application underlying its electronic filing
service so that the occurrence of the date January 1, 2000, would not, by
itself, cause the current version of the JusticeLink system, owned and
developed by the Company and licensed for use by the Company to its customers
in the regular course of business, to materially fail to operate in accordance
with published specifications.

      The Company did not experience any significant failures as a direct
result of Year 2000, and management does not believe that there is any
remaining exposure related to the Year 2000. Additionally, the Company
continuously monitors the activity of the internet application and has standing
operating procedures to address Year 2000 related failures should they occur.
The Company has expensed a nominal amount in 1999 related to Year 2000
compliance, which was included in product development expense.

                                     F-113
Report of Independent Public Accountants

To the Partners of
MetalSite General Partner, LLC:

      We have audited the accompanying consolidated balance sheet of MetalSite
General Partner, LLC (a Delaware limited liability company) as of December 31,
1998 and the related consolidated statements of operations, partners' capital
and cash flows for the period from Inception (November 15, 1998) through
December 31, 1998. These financial statements are the responsibility of
MetalSite General Partner, LLC's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

      We conducted our audit in accordance with auditing standards generally
accepted in the 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 audit provides a
reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
MetalSite General Partner, LLC as of December 31, 1998, and the consolidated
results of its operations and its cash flows for the period from Inception
(November 15, 1998) through December 31, 1998 in conformity with accounting
principles generally accepted in the United States.

      The accompanying consolidated financial statements have been prepared
assuming that MetalSite General Partner, LLC will continue as a going concern.
As discussed in Note 2 to the consolidated financial statements, it is
uncertain as to whether the Partnership will generate sufficient cash flows
from operations. This factor raises substantial doubt about the Partnership's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

                                          Arthur Andersen LLP

Pittsburgh, Pennsylvania
January 12, 2000

                                     F-114
METALSITE GENERAL PARTNER, LLC

                          Consolidated Balance Sheets
                    September 30, 1999 and December 31, 1998
(Unaudited)
                                                     September 30, December 31,
                                                         1999          1998
                                                     ------------- ------------
Assets
Current Assets:
  Cash and cash equivalents.........................  $1,196,301    $1,129,323
  Trade accounts receivable.........................     395,894           789
  Other receivables.................................       5,516            --
  Prepaid service arrangement, net of accumulated
   amortization of $41,667 and $0, respectively.....     458,333            --
  Prepaid expenses..................................      47,427         2,194
                                                      ----------    ----------
    Total current assets............................   2,103,471     1,132,306
Fixed Assets:
  Furniture and fixtures............................       2,000         1,967
  Computer equipment and hardware...................     759,495       428,553
  Accumulated depreciation..........................    (276,193)      (30,293)
                                                      ----------    ----------
    Total fixed assets, net.........................     485,302       400,227
                                                      ==========    ==========
Other Assets:
  Notes receivable from employees...................     113,323            --
  Deposits..........................................      18,669        25,100
  Software and development costs, net of accumulated
   amortization of $1,141,668 and $65,400,
   respectively.....................................     564,306     1,189,965
                                                      ----------    ----------
    Total other assets..............................     696,298     1,215,065
                                                      ----------    ----------
Total Assets........................................  $3,285,071    $2,747,598
                                                      ==========    ==========
    Liabilities And Partners' Capital (Deficit)
Current Liabilities:
  Current portion of capital lease obligation.......  $  118,589    $       --
  Accounts payable..................................      67,295       594,502
  Accrued incentives................................     271,876            --
  Accrued interest..................................     222,548         4,652
  Other accrued liabilities.........................     709,161       345,041
  Deferred revenue..................................         450            --
                                                      ----------    ----------
    Total current liabilities.......................   1,389,919       944,195
Long-term Liabilities:
  Long-term portion of capital lease obligation.....     130,282           --
  Loans from partners...............................   4,826,566     1,826,566
                                                      ----------    ----------
    Total long-term liabilities.....................   4,956,848     1,826,566
                                                      ----------    ----------
Minority Interest in Limited Partnership............   1,115,794            --
Partners' Capital (Deficit).........................  (4,177,490)      (23,163)
                                                      ----------    ----------
Total Liabilities and Partners' Capital (Deficit)...  $3,285,071    $2,747,598
                                                      ==========    ==========
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                     F-115
METALSITE GENERAL PARTNER, LLC

                     Consolidated Statements Of Operations

      For the Nine Months Ended September 30, 1999 and for the Period from
            inception (November 15, 1998) through December 31, 1998
(Unaudited)
                                             Nine Months     From Inception
                                                Ended     (November 15, 1998)
                                            September 30, through December 31,
                                                1999              1998
                                            ------------- --------------------
Revenues...................................  $ 1,022,216       $     789
  Cost of revenues.........................      442,728         121,250
                                             -----------       ---------
  Gross profit (loss)......................      579,488        (120,461)
                                             -----------       ---------
Operating Expenses:
  Product development......................    1,785,115         456,079
  Sales and marketing......................    1,369,137         255,000
  General and administrative...............    2,264,400         168,103
  Partnership interest based compensation..       65,200              --
                                             -----------       ---------
  Total operating expenses.................    5,483,852         879,182
                                             -----------       ---------
  Loss from operations.....................   (4,904,364)       (999,643)
                                             -----------       ---------
Interest expense, net......................      213,537           4,652
                                             -----------       ---------
Minority interest in loss of limited
 partnership...............................     (949,406)       (930,913)
                                             -----------       ---------
Net Loss...................................  $(4,168,495)      $ (73,382)
                                             ===========       =========
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                     F-116
METALSITE GENERAL PARTNER, LLC

             Consolidated Statements of Partners' Capital (Deficit)

      For the Nine Months Ended September 30, 1999 (Unaudited) and for the
      Period from inception (November 15, 1998) through December 31, 1998
Partners' Capital (Deficit),
 beginning balance at Inception (November 15, 1998)............... $       --
  Contributions...................................................      50,219
  Net loss........................................................     (73,382)
                                                                   -----------
Partners' Capital (Deficit),
 December 31, 1998................................................     (23,163)
                                                                   -----------
  Contributions...................................................      14,168
  Net loss........................................................  (4,168,495)
                                                                   -----------
Partners' Capital (Deficit),
 September 30, 1999............................................... $(4,177,490)
                                                                   ===========
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                     F-117
METALSITE GENERAL PARTNER, LLC

                     Consolidated Statements of Cash Flows

      For the Nine Months Ended September 30, 1999 and for the Period from
            inception (November 15, 1998) through December 31, 1998
(Unaudited)
                                              Nine Months    From Inception
                                                 Ended     (November 15, 1998)
                                             September 30,       through
                                                 1999       December 31, 1998
                                             ------------- -------------------
Cash Flows From Operating Activities:
Net loss....................................  $(4,168,495)     $   (73,382)
Adjustments to reconcile net loss to net
 cash provided (used) by operating
 activities--
  Depreciation and amortization.............    1,284,401           95,693
  Minority interest in loss of Limited
   Partnership..............................     (949,406)        (930,913)
  Amortization of deferred compensation.....       65,200              --
Changes in assets and liabilities--
  Accounts receivable.......................     (395,105)            (789)
  Other receivables.........................       (5,516)             --
  Prepaid expenses..........................      (45,233)          (2,194)
  Other assets..............................     (106,892)             --
  Accounts payable..........................     (527,207)         594,502
  Accrued expenses..........................      853,892          349,693
  Deferred revenue..........................          450              --
                                              -----------      -----------
    Net cash (used) provided by operating
     activities.............................   (3,993,911)          32,610
                                              -----------      -----------
Cash Flows From Investing Activities:
  Additions to fixed assets, software, and
   development costs........................      453,279        1,685,885
  Deposits..................................          --            25,100
                                              -----------      -----------
    Cash used in investing activities.......     (453,279)      (1,710,985)
                                              -----------      -----------
Cash Flows From Financing Activities:
  General Partners' cash contributions......       14,168           50,219
  Limited Partners' cash contributions......    1,500,000          930,913
  Loans from partners.......................    3,000,000        1,826,566
                                              -----------      -----------
Cash provided by financing activities.......    4,514,168        2,807,698
                                              -----------      -----------
    Net increase in cash....................       66,978        1,129,323
                                              -----------      -----------
Cash and cash equivalents, beginning of
 period.....................................    1,129,323              --
                                              -----------      -----------
Cash and cash equivalents, end of period....  $ 1,196,301      $ 1,129,323
                                              ===========      ===========
Non-Cash Transactions:
  Purchase of equipment through capital
   lease....................................  $   248,871      $       --
  Contribution of prepaid service
   arrangement for Limited Partnership
   Interest.................................  $   500,000      $       --
The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                     F-118
METALSITE GENERAL PARTNER, LLC

                   Notes to Consolidated Financial Statements

      For the Nine Months Ended September 30, 1999 (Unaudited) and for the
      Period from Inception (November 15, 1998) through December 31, 1998

1. Organization and Partnership Agreement:

      MetalSite General Partner, LLC ("MGP" or the "general partner") a
Delaware limited liability company owns a 1% interest in MetalSite, L.P. (the
"Partnership" or "MetalSite") a Delaware Limited Partnership and through the
provisions of the Third Amended and Restated Operating Agreement of MGP (the
"Agreement") controls MetalSite. MetalSite is a leading provider of business-
to- business electronic commerce solutions to the metals industry. MetalSite's
Internet-based marketplace permits raw material suppliers, integrated and mini-
mill producers, service centers, distributors, toll processors, brokers,
fabricators and original equipment manufacturers to efficiently buy and sell
metals products. The Partnership was in the development stage for the period
from Inception (November 15, 1998) through the first half of 1999.

      Weirton Steel Corporation ("WSC"), LTV Steel Company ("LTV") and Steel
Dynamics, Inc. ("SDI") purchased their respective general partner and
Partnership interests on November 15, 1998. LTV and SDI were also granted
warrants allowing them to purchase additional limited partnership interests
under specified terms (see Note 8). As the period from the time of respective
Partnership interest purchase to December 31, 1998 is one and a half months,
comparison to the nine-month period ending September 30, 1999 is not
meaningful.

      For purposes of determining the ownership percentage of the Partnership,
the cost incurred by WSC prior to the initial capitalization of the
Partnership, for early development of the technology and intellectual property
that supports the Partnership's business, was included as a component of WSC
("Predecessor") and was credited towards WSC's initial Partnership interest. To
the extent that the expenditures composing this investment included assets
contributed to the Partnership, these assets were accounted for using the net
book value of the assets transferred from WSC's books. For financial reporting
purposes, however, the amount contained in WSC's capital account excludes those
costs that WSC expensed prior to the initial capitalization of the Partnership.

      On September 1, 1999, Ryerson Tull, Inc. ("RTI") purchased its respective
general partner and Partnership interests in exchange for cash and intellectual
property (see Note 2). Additionally on September 1, 1999, Bethlehem Steel
Corporation ("BSC") purchased its respective general partner and Partnership
interests in exchange for cash.

      As of December 31, 1998, WSC, LTV and SDI were collectively the limited
partners of MetalSite. As of September 30, 1999, WSC, LTV, SDI, RTI, and BSC
were collectively the limited partners of MetalSite (the "Limited Partners").

      The Limited Partnership Agreement provides, among other things, for the
following:

      Management

      The affairs of the Partnership are managed by MGP, its general partner.

                                     F-119
METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)

      Right of First Refusal

      Pursuant to the Limited Partnership Agreement of MetalSite L.P., a Class
A Partner (the "Selling Partner") shall have the right to sell all (but not
less than all) of its Class A interest in MetalSite ("Offered Interest") to a
bonafide third party provided that the Selling Partner first gives the
Partnership and the other Class A Partners (the "Non-Selling Partners") the
opportunity to purchase the Offered Interest. The Selling Partner shall give
written notice of any bona fide offer (the "Offer Notice") to MGP and each of
the Non-Selling Partners. Within 60 days following receipt of the Offer Notice,
the Partnership shall have the right to elect to purchase, at the same price
and on the same terms and conditions specified in the Offer Notice, the Offered
Interest.

      Term and Dissolution

      Pursuant to the Agreement of MGP, the Limited Partners shall not take
part in the control, direction or operation of the affairs of MGP other than to
exercise rights specifically provided in the Agreement, nor may the limited
partners act for or bind the MGP. At all times the sole control of the
Partnership shall rest exclusively with the general partner. Additionally, no
prior consent or approval of a limited partner is required for any act or
transaction to be taken by the general partner.

      The term of the Partnership will continue until there is either (a) a
sale or distribution of all of MetalSite's assets, (b) a superceding of the
original partnership agreement or (c) a termination by dissolution.

2. Summary of Significant Accounting Policies:

      Principles of Consolidation

      The accompanying consolidated financial statements are those of the
general partner and include the accounts of MGP and the Partnership. All
significant intercompany transactions have been eliminated in consolidation.

      Basis of Presentation and Management's Plans

      The accompanying consolidated financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and
settlement of liabilities in the ordinary course of business. Through September
30, 1999, MGP has incurred a cumulative net loss of $4,241,877 and has yet to
generate significant revenues. Management anticipates that additional losses
will be incurred while MetalSite's website aggregates sufficient commercial
activity to cover its operating costs. Any substantial delay in the
implementation of management's plans or substantial unanticipated costs
associated with its plans (including delays in achieving sufficient commercial
activity) could have an adverse effect on MGP's financial condition. As such,
it is uncertain as to whether MetalSite will generate sufficient cash flows
from operations. These factors raise substantial doubt about MGP's ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.

      Management's plans include achieving sufficient commercial activity to
cover its operating costs. Until this is achieved, the Partnership is dependent
on the continued funding of its Limited Partners. On September 1, 1999,
management obtained a Partnership Loan Facility from the Limited Partners to
provide up to a maximum of $6,000,000 to fund Partnership operations (see Note
4).

                                     F-120
METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)

      Minority Interest

      Minority interest includes the Limited Partner's Class A partnership
interests in MetalSite, the value of warrants issued to two of the Limited
Partners (see Note 8) and deferred compensation associated with the Class B
partnership interests that were issued to certain members of the Partnership's
management under a Restricted Partnership Interest Plan (the "RPIP"). Losses
are allocated pro-rata to the Limited Partners until the minority interest
balance is reduced to zero. At that time, all remaining losses are allocated
to the general partner.

      Below is a reconciliation of the minority interest in the Limited
Partnership at September 30, 1999:
Minority interest in Limited Partnership--December 31, 1998......... $       --
Limited Partners' cash contributions................................  1,500,000
Contribution of prepaid service arrangement for capital.............    500,000
Amortization of deferred compensation...............................     65,200
Minority interest in loss of Limited Partnership....................   (949,406)
                                                                     ----------
Minority interest in Limited Partnership--September 30, 1999........ $1,115,794
                                                                     ==========
Cash and Cash Equivalents

      Cash and cash equivalents include cash on hand and money market funds.
All cash equivalents are recorded at cost, which approximates fair value.

      Fixed Assets

      Fixed assets are stated at cost. Depreciation is computed using the
straight- line method to charge the cost of significant assets to income over
their useful lives. For purposes of this computation, the useful lives are
assumed to be as follows:
From Inception
                                                           (November 15, 1998)
                                                           to December 31, 1998
                                                           --------------------
Hardware and Software.....................................      3-5 years
Furniture and Fixtures....................................        5 years
Based upon the Partnership reassessment of hardware and software's
useful life, effective August 1, 1999, the Partnership changed the depreciable
life of the above assets as follows:
Internally Developed or Capitalized Software Costs.................... 1.5 years
Externally Developed or Acquired Software and Hardware................   2 years
The effect of the change in depreciable lives was an additional charge
of $399,660 to the statement of operations during the nine months ended
September 30, 1999.

      Capitalized Software Costs

      The Partnership capitalizes in accordance with SOP 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use",
certain internal and external development costs that relate

                                     F-121
METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)

to the development of internal use software that will provide benefits to
future periods. These costs are amortized over the shorter of their estimated
useful life or 1.5 years.

      Prepaid Service Agreement

      In connection with the sale of Class A partnership interest to RTI, MGP,
RTI and MetalSite have agreed that RTI shall provide certain of its consultants
to MetalSite to perform analysis, design, consulting, and/or support for one-
year from the date of RTI's investment. The consultants, in performing
services, provide MetalSite with their knowledge, experiences, expertise,
ideas, know-how, concepts and understandings, whether written or oral, to
assist MetalSite with the further development of its catalog technology. The
fair value of this prepaid service agreement ($500,000) is being amortized over
the life of the agreement (one-year).

      Revenue Recognition

      MetalSite recognizes revenue from three types of occurrences conducted on
or over its website: (1) fixed transaction fees for items with a set selling
price at the time the seller accepts the buyer's order, (2) auction transaction
fees derived from the highest bid received above seller specific reserve prices
at the time an auction is closed and (3) advertising fees for posted customer
advertisements at the time the service is performed. The specific reserve price
in (2) above is defined as the bid price that must be received from the buyer
before MetalSite is entitled to revenue. The seller, prior to placing a product
for auction on the site, sets the reserve price.

      Cost of Revenues

      Cost of revenues consist primarily of the costs for hosting services
provided by MetalSite's internet service provider for daily use of its server
and employee costs.

      Income Taxes

      No provision for income taxes has been made in the financial statements
as MGP is not subject to income tax. The tax effects of MGP and the
Partnership's operations accrue to its Partners.

      Use of Estimates

      The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

3. Notes Receivable from Employees:

      In connection with the Class B partnership interests that were issued at
a discount to certain members of the Partnership's management under the RPIP,
the Partnership recorded $113,323 in nonrecourse loans to these employees for
tax payments the Partnership remitted to the government upon Class B
partnership interest grant. The interest on these loans is recourse. These
loans bear interest at 5% and are due in four equal annual installments
beginning April 17, 2000 (see Note 10).

                                     F-122
METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)

4. Related Party Transactions:

      Revenues

      As of December 31, 1998, the Partnership's exclusive revenue provider was
WSC, a Limited Partner. As a result, the trade receivable recorded as of
December 31, 1998 was solely from WSC. Subsequent to December 31, 1998, the
Partnership began facilitating the sale of metal for other Limited Partners and
new sellers recording transaction fee revenue and the resultant trade
receivables from these sellers.

      Note Payable to WSC

      The Partnership received $1,826,566 in loans from WSC during the period
from Inception (November 15, 1998) through December 31, 1998. The loans bear
interest at an 8% fixed rate per annum and provide for the liquidation of
principal balances on December 31, 2001. These loans are secured by a lien on
the assets of the Partnership and are subordinated to the Partnership Loan
Facility discussed below. Among other restrictions, the Partnership will be
deemed to be in an "Event of Default" under the agreement if principal,
interest, or other indebtedness under the note payable agreement with WSC is
not paid when due. Included in the accompanying consolidated balance sheets
related to the WSC loans is accrued interest of $113,947 and $4,652 as of
September 30, 1999 and December 31, 1998, respectively. Interest expense for
the nine months ended September 30, 1999 and the period from Inception
(November 15, 1998) through December 31, 1998, was $109,295 and $4,652,
respectively.

      Partnership Loan Facility

      On September 1, 1999, the Limited Partners established a Partnership Loan
Facility (the "Facility") to provide working capital to fund the Partnership's
operations. Under the terms of this Facility, the Partnership can borrow up to
a maximum of $6,000,000. The Facility provides that upon the request of the
Partnership, each Limited Partner will make loans to the Partnership in
proportion to their respective ownership interests. These loans bear interest
at the PNC Bank prime interest rate plus 1%. Accrued interest and principal
balances are payable at maturity, which is March 26, 2001. Loans made under
this facility are secured by a lien on accounts receivable and fixed assets of
the Partnership and are subordinated to future bank borrowings. The amount
outstanding under the facility at September 30, 1999 was $3,000,000. Among
other restrictions, the Partnership will be deemed to be in an "Event of
Default" under the Facility if principal, interest, or other indebtedness under
the agreement is not paid when due. Additionally, the accompanying September
30, 1999 consolidated balance sheet includes accrued interest of $108,601 for
outstanding amounts due under the Facility. This also represents the amount of
interest expense incurred for the nine months ended September 30, 1999.

      Warrants

      Upon the earlier of (1) the date by which both LTV and SDI shall have
exercised their warrants to purchase Partnership interest or (2) April 1, 2001,
if a warrant in the Partnership previously expires without being exercised, WSC
shall be required to make an additional capital contribution equal to the
appraised value of the Partnership as of December 31, 1998, minus any capital
contributions made by any of the Limited Partners through such date to the
extent such appraised value of the Partnership exceeds the aggregate capital
contributions made to the Partnership. As of September 30, 1999 and December
31, 1998, no additional capital contributions were required.

                                     F-123
METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)

      Leases

      From its Inception (November 15, 1998) through September 30, 1999, the
Partnership occupied facilities which were leased by WSC. WSC's monthly lease
payment was recorded as a payable to WSC on the Partnership's balance sheet. On
July 12, 1999, this lease was assigned to the Partnership and the Partnership
began making payments directly to the lessor (see Note 7). WSC has remained a
guarantor of this lease agreement.

      WSC has guaranteed a lease facility that the Partnership has used to
purchase furniture for its offices. The maximum credit that will be extended
under this facility is $175,000. As of September 30, 1999 and December 31,
1998, the Partnership had leased office furniture under this facility totaling
approximately $175,000 and $83,000, respectively. This lease facility is
accounted for as an operating lease by the Partnership.

5. Technology License Agreement:

      WSC developed the intellectual property and business processes
("Intellectual Property") that support the MetalSite website. Because this
information is critical to the Partnership's operation, WSC has entered into a
technology licensing agreement with the Partnership. This license allows the
Partnership worldwide, royalty free and irrevocable usage of WSC's Intellectual
Property in the metals industry. Upon a Transfer Event, as defined, WSC shall
automatically assign all right, title and interest in and to the Intellectual
Property to the Partnership free and clear of any claim, suit, proceedings,
security interest, pledge or lien or encumbrance of any kind or nature. A
Transfer Event, as defined by the technology licensing agreement is the earlier
of (1) an initial public offering of securities by MetalSite; or (2) two years
from the effective date of the agreement which is August 27, 1999.

6. Employee Benefit and Incentive Plans:

      The Partnership has established a 401(K) retirement program to provide
the opportunity for substantially all employees to invest pretax earnings
towards their retirement. The Partnership's program provides for the
possibility of matching contributions up to a specified limit based on the
extent to which the Partnership achieves financial and operating goals. No
matching contributions were made to this Program during the nine months ended
September 30, 1999 or the period from Inception (November 15, 1998) through
December 31, 1998.

      The Partnership has also established various incentive bonus plans for
its employees during 1999. No payments were made under these plans during the
nine months ended September 30, 1999. MetalSite accrued $271,876 for these
plans at September 30, 1999.

                                     F-124
METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)

7. Leases:

      The Partnership leases certain office space and office furniture under
operating leases. The following is a schedule of future minimum rental payments
required under non-cancelable operating leases:
September 30,
                                                                       1999
                                                                   -------------
1999...........................................................   $115,000
   2000...........................................................    510,000
   2001...........................................................    226,000
   2002...........................................................     19,000
                                                                     --------
     Total........................................................   $870,000
                                                                     ========
Rental expense for all operating leases was approximately $237,000 and
$33,000 for the nine months ended September 30, 1999 and the period from
Inception (November 15, 1998) through December 31, 1998, respectively. Future
minimum lease payments include facility lease payments for office space
subleased from WSC subsequent to December 31, 1998 (see Note 4).

      In August 1999, MetalSite entered into a capital lease with Exodus, an
internet service provider, for a website server and related hardware. Under the
terms of the lease, MetalSite is required to make twenty-four monthly payments
of $14,364 through October 31, 2001. An asset and corresponding obligation were
recorded for an amount equal to the present value of minimum lease payments at
the beginning of the lease term, excluding that portion of the payments
representing executory costs to be paid by the lessor. Payments were discounted
using a 9% interest rate, which approximated MetalSite's incremental borrowing
rate at the time the lease was executed. The principal balance outstanding
under this lease agreement was $248,871 at September 30, 1999.

      Future minimum payments by year and in the aggregate, under capital
leases consist of the following at September 30, 1999:
1999.............................................................. $  28,728
   2000..............................................................   172,368
   2001..............................................................   143,640
                                                                      ---------
     Total minimum lease payments....................................   344,736
   Less--Amounts for executory costs.................................   (51,110)
   Less--Amounts representing interest...............................   (44,755)
                                                                      ---------
   Present value of net minimum lease payments.......................   248,871
   Less--Amounts due within one year.................................  (118,589)
                                                                      ---------
   Long-term capital lease obligations............................... $ 130,282
                                                                      =========
8. Warrants Outstanding:

      In connection with their purchase of an initial Partnership interest, two
of the Partnership's limited partners, LTV and SDI obtained nontransferable
warrants to purchase additional partnership interests. These warrants allow LTV
and SDI to acquire additional partnership interests sufficient to double their
initial Partnership interests. These warrants may be exercised at any time
between January 1, 1999 and March 31,

                                     F-125
METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)

2001 and allow the additional interests to be purchased for a price based upon
a valuation of the Partnership as of December 31, 1998. The warrants entitle
the holder to a discount on their exercise price ("Discount") based on tonnage
the holder sells over the MetalSite website during the twelve months preceding
the exercise. As of September 30, 1999 and December 31, 1998, these warrants
remain unexercised. Additionally, as of December 31, 1998, neither LTV nor SDI
met the tonnage requirements to receive a Discount. At the point in time that
it becomes probable that LTV and SDI will achieve the tonnage targets,
MetalSite will begin to accrete the Discount with a charge to transaction fee
discount expense and a corresponding credit to warrants outstanding. At
September 30, 1999 and December 31, 1998, warrants outstanding totaled $74,250.

9. Fair Value of Financial Instruments and Market Risks:

      Statement of Financial Accounting Standards No. 107 "Fair Value of
Financial Instruments" requires disclosures about fair value for all financial
statements. The $1,826,566 in loans from WSC bears interest at an 8% fixed rate
per annum, with principal paid at maturity. The $3,000,000 outstanding from the
Partnership Loan Facility bears interest at the PNC Bank prime rate plus 1%,
with principal paid at maturity. The variable rate debt approximates current
rates available to MetalSite for such debt, and accordingly the fair value of
such floating rate debt approximates the current carrying amount. At September
30, 1999 and December 31, 1998, it is not practicable to determine the fair
value of the fixed rate debt.

10. Management Ownership Plan:

      During 1999, the Partnership established a Management Ownership Plan
("MOP") to provide incentive to key employees of the Partnership to (i) achieve
high levels of performance, and (ii) increase earnings and value of the
Partnership. The MOP seeks to accomplish these goals by providing a means
whereby such employees may acquire Class B interests in the Partnership through
the grant of Class B interests or the exercise of Class B options.

      The grant of a Class B interest by the Partnership or the purchase of a
Class B interest pursuant to the exercise of a Class B option under the MOP
shall cause WSC's percentage interest in MetalSite (and a proportionate amount
of their capital account) to decrease by the same amount as the grant or
purchase of such Class B interest.

      To the extent that the Limited Partners are allowed to sell any Class A
interests in MetalSite, or other securities into which the Class A interests
may convert in a registered offering, the Class B Partners shall have the right
to convert their respective Class B interest, or other securities into which
the Class B interest may convert, into Class A securities and sell in the same
registered offering, on the same terms as the Limited Partners. Each Class B
Partner's right to sell pursuant to the foregoing shall be in proportion to the
percentage of all Class A securities held by all Class B Partners that such
Class B Partner holds. If the Partnership engages in an initial public offering
("IPO") of securities other than the Class B interests, the Class B Interests
shall convert into the security being offered in the IPO immediately prior to
the IPO.

      Under the provisions of the MOP, ownership interests totaling up to 10%
will be transferred to employees. On April 17, 1999 the Class B partnership
interests totaling 5% were issued to certain members of the Partnership's
management under the RPIP, which is a component of the MOP. The RPIP provides
for ownership of the Partnership interests to vest over a four-year period,
with the potential for accelerated vesting under certain circumstances. The
Class B partnership interests were recorded as deferred compensation at the
appraised value on the date of grant ($250,000) in the accompanying
consolidated statements of partners' capital (deficit). The deferred
compensation is being amortized over the four-year vesting period. The total

                                     F-126
METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)

compensation cost recognized in the accompanying consolidated statement of
operations for the nine months ended September 30, 1999 was $65,200.

      Under the Class B Option Award Plan (the "Plan"), which is a component of
the MOP, the Partnership may grant options for up to 1,000,000 units. The
Partnership's Board of Directors or its designee determines the option price
and vesting requirements. During the nine months ended September 30, 1999, the
Partnership granted 374,500 options at a price of $0.50 per unit. Under the
Plan, the option exercise price equals the unit's appraised value on the date
of grant. The Class B option granted under the Plan may only be exercised in
its entirety and only after the end of the applicable Plan Period, as defined
in each Class B Option Award Agreement, while the recipient is employed by the
Partnership, but in no event greater than 10 years from the award date.

      1999 activity under the Class B Option Award Plan is summarized below:
Weighted Average
                                                         Units   Exercise Price
                                                        ------- ----------------
Options outstanding at January 1, 1999.................      --      $  --
Granted--Class B Option Award Plan..................... 374,500       0.50
Forfeited..............................................      --         --
Exercised..............................................      --         --
                                                        -------      -----
Outstanding at September 30, 1999...................... 374,500      $0.50
Exercisable at September 30, 1999......................      --         --
Weighted Average fair vale of option granted...........      --      $0.13
The Partnership accounts for the Class B Option Award Plan by application
of APB No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations. Had compensation cost for the Class B Option Plan been
determined based upon the fair value at the grant dates consistent with SFAS
No. 123, "Accounting for Stock Based Compensation", the Partnership would have
recorded additional compensation expense in the amount of $50,322.

      The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants in 1999:
9/29/99  9/27/99  9/15/99   9/2/99
                                             -------- -------- -------- --------
Risk free interest rate.....................    5.68%    5.62%    5.67%    5.74%
Expected dividend yield.....................       0%       0%       0%       0%
Expected life of options.................... 2 years  2 years  2 years  2 years
Expected volatility rate....................      40%      40%      40%      40%
11. New Accounting Pronouncements:

      In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133"). Statement 133
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. In June 1999, the FASB issued Statement No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133", which amends Statement 133 to be
effective for all fiscal quarters of all fiscal years beginning after June 15,
2000.

                                     F-127
METALSITE GENERAL PARTNER, LLC

            Notes to Consolidated Financial Statements--(Continued)

Management does not believe that the adoption of Statement 133 will have a
material impact on MGP's financial position or its results of operations.

      On December 3, 1999 the SEC staff released Staff Accounting Bulletin No.
101, "Revenue Recognition" ("SAB No. 101"), to provide guidance on the
recognition, presentation and disclosure of revenue in financial statements.
SAB No. 101 explains the SEC staff's general framework for revenue recognition,
stating that four criteria need to be met in order to recognize revenue. The
four criteria, all of which must be met, are:

      .There must be persuasive evidence of an arrangement;

      .Delivery must have occurred or services must have been rendered;

      .The selling price must be fixed or determinable; and

      .Collectibility must be reasonably assured.

      SAB No. 101 does not change existing literature on revenue recognition.
SAB No. 101 states that changes in accounting to apply the guidance contained
therein may be accounted for as a change in accounting principle under APB
Opinion No. 20, "Accounting Changes". The new standard did not require
management to change existing revenue recognition policies and therefore had no
impact on reported financial position and results of operations.

12. Subsequent Events:

      On December 29, 1999, Internet Capital Group, Inc. ("ICG") purchased its
respective general partner and Partnership interests from WSC, pursuant to a
Securities Purchase Agreement (the "Purchase Agreement") between ICG and WSC.
Pursuant to the Purchase Agreement, ICG acquired a Class A limited partner
interest in MetalSite representing a 44.42% interest on a basic per unit basis
and a 35.35% interest on a diluted per unit basis. ICG also acquired a
Membership Interest in the general partner representing a 47.26% interest on a
basic per unit basis and a 39.72% interest on a diluted per unit basis.

      In addition, pursuant to the Purchase Agreement, ICG has been granted
options to purchase additional interests in MetalSite and the general partner
from WSC upon the occurrence of certain events, as defined in the Purchase
Agreement. Further, ICG will have the right to appoint two voting members of
the Board of Directors of the general partner.

                                     F-128
Report of Independent Public Accountants

To the Board of Directors of
Weirton Steel Corporation:

      We have audited the accompanying statements of costs and expenses of
MetalSite as a Component of Weirton Steel Corporation for the period from
January 1, 1998 to November 15, 1998 and for the year ended December 31, 1997.
These financial statements are the responsibility of Weirton Steel
Corporation's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the 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 statements of costs and expenses referred to above
present fairly, in all material respects, the costs and expenses of MetalSite
as a Component of Weirton Steel Corporation for the period from January 1, 1998
to November 15, 1998 and for the year ended December 31, 1997, in conformity
with accounting principles generally accepted in the United States.

                                          /s/ Arthur Andersen LLP

Pittsburgh, Pennsylvania
January 12, 2000

                                     F-129
METALSITE AS A COMPONENT OF
                           WEIRTON STEEL CORPORATION

                        Statements of Costs and Expenses
          For the Period from January 1, 1998 to November 15, 1998 and
                      For the Year Ended December 31, 1997
Period From
                                                    January 1, 1998
                                                    To November 15, December 31,
                                                         1998           1997
                                                    --------------- ------------
Costs And Expenses:
  Product Development..............................   $2,110,563      $805,111
  Sales and Marketing..............................      324,753        80,053
  General and Administrative.......................      655,918       109,475
                                                      ----------      --------
    Total Costs and Expenses.......................   $3,091,234      $994,639
                                                      ==========      ========
The accompanying notes are an integral part of these financial statements.

                                     F-130
METALSITE AS A COMPONENT OF
                           WEIRTON STEEL CORPORATION

                         Notes to Financial Statements

          For the Period From January 1, 1998 to November 15, 1998 and
                      For the Year Ended December 31, 1997

1. Basis of Presentation:

      The accompanying financial statements represent the financial information
of MetalSite as a Component of Weirton Steel Corporation (the "Component"). The
costs and expenses of the Component were funded by Weirton Steel Corporation
and accordingly, no balance sheets or statements of cash flows are presented
for the Component. The statements of costs and expenses represent the
Component's share of total spending by Weirton Steel Corporation on behalf of
the Component for the respective periods presented. There was no activity
related to the Component prior to January 1, 1997.

      On November 15, 1998, Weirton Steel Corporation, LTV Steel Company and
Steel Dynamics, Inc. purchased their respective interests in MetalSite General
Partner, LLC and MetalSite, L.P., at which time, the Component ceased to exist.

2. Research and Development:

      The costs incurred for the Component primarily represent research and
development type expenditures related to the creation of the infrastructure of
the Component and were incurred prior to the establishment of technical
feasibility and were therefore expensed as incurred.

                                     F-131
Report of Independent Accountants

To the Board of Directors and Stockholders of
Syncra Software, Inc.

      In our opinion, the accompanying balance sheet and the related statements
of operations, of changes in redeemable preferred stock and stockholders'
deficit and of cash flows present fairly, in all material respects, the
financial position of Syncra Software, Inc. (a development stage enterprise) at
December 31, 1998 and the results of its operations and its cash flows for the
period from inception (February 11, 1998) through December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for the
opinion expressed above.

                                          PricewaterhouseCoopers LLP

Boston, Massachusetts
April 29, 1999

                                     F-132
SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                                 Balance Sheet
(Unaudited)
                                                                    December 31,   March 31,
                                                                        1998          1999
                                                                    ------------  ------------
Assets
Current Assets:
  Cash and cash equivalents........................................ $ 1,700,370   $    176,953
  Prepaid expenses.................................................     185,506        149,366
  Other current assets.............................................      22,704         19,991
                                                                    -----------   ------------
  Total current assets.............................................   1,908,580        346,310
Fixed assets, net..................................................     351,752        342,690
Deposits...........................................................     136,998        136,998
                                                                    -----------   ------------
                                                                    $ 2,397,330   $    825,998
                                                                    ===========   ============
Liabilities, Redeemable Preferred Stock and Stockholders' Deficit
Current Liabilities:
  Accounts payable................................................. $   233,281   $    226,688
  Accrued expenses.................................................     316,918        347,771
  Notes payable to stockholders....................................   3,926,370             --
                                                                    -----------   ------------
  Total current liabilities........................................   4,476,569        574,459
                                                                    -----------   ------------

Redeemable Preferred Stock:
  Series A redeemable convertible preferred stock, $0.001 par value
   Authorized: 2,941,031 and 2,586,207 shares at December 31, 1998
   and March 31, 1999 (unaudited), respectively; issued and
   outstanding: 2,586,207 shares at December 31, 1998 and March 31,
   1999 (unaudited) plus accrued dividends of $334,652 and $454,513
   at December 31, 1998 and March 31, 1999 (unaudited),
   respectively; liquidation value of $6,334,651 and $6,454,512 at
   December 31, 1998 and March 31, 1999 (unaudited), respectively
   ................................................................   6,334,651      6,454,512
  Series B redeemable convertible preferred stock, $0.001 par value
   Authorized: 3,737,602 shares; subscribed and issued and
   outstanding: 3,287,602 shares at March 31, 1999 (unaudited);
   liquidation value of $13,150,408 at March 31, 1999 (unaudited)..          --     13,150,408
  Subscriptions receivable (unaudited).............................          --     (9,000,000)
  Preferred stock warrants.........................................     120,000        120,000
  Redeemable non-voting, non-convertible preferred stock, $0.001
   par value Authorized: 150,000 and 130,000 shares at December 31,
   1998 and March 31, 1999 (unaudited), respectively; issued and
   outstanding: 130,000 shares at December 31, 1998 and March 31,
   1999 (unaudited) plus accrued dividends of $89,468 and $116,001
   at December 31, 1998 and March 31, 1999 (unaudited),
   respectively; liquidation value of $1,389,468 and $1,416,001 at
   December 31, 1998 and March 31, 1999 (unaudited), respectively..   1,389,468      1,416,001
                                                                    -----------   ------------
  Total redeemable preferred stock.................................   7,844,119     12,140,921
                                                                    -----------   ------------

Stockholders' Deficit:
  Common stock, $0.001 par value; 10,000,000 shares authorized;
   396,000 shares issued and outstanding at December 31, 1998 and
   March 31, 1999 (unaudited)......................................         396            396
  Deficit accumulated during the development stage.................  (9,923,754)   (11,889,778)
                                                                    -----------   ------------
  Total stockholders' deficit......................................  (9,923,358)   (11,889,382)
                                                                    -----------   ------------
Commitments (Note 14)..............................................
                                                                    -----------   ------------
                                                                    $ 2,397,330   $    825,998
                                                                    ===========   ============
The accompanying notes are an integral part of these financial statements

                                     F-133
SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                            Statement of Operations
For the Period         (Unaudited)
                                     from Inception        For the Three
                                      (February 11,   Months Ended March 31,
                                      1998) through   ------------------------
                                    December 31, 1998    1998         1999
                                    ----------------- -----------  -----------
Costs and Expenses:
  Research and development.........    $ 1,501,267    $   235,127  $   480,701
  Selling and marketing............      2,425,532        271,723      767,148
  General and administrative.......      1,950,153        685,788      355,164
  Impairment charge for intangible
   assets..........................      1,312,500             --           --
  Settlement charge................      1,795,333             --           --
                                       -----------    -----------  -----------
Loss from operations...............     (8,984,785)    (1,192,638)  (1,603,013)
Interest expense, net..............        (90,430)        (2,565)    (156,617)
                                       -----------    -----------  -----------
Net loss...........................    $(9,075,215)   $(1,195,203) $(1,759,630)
                                       ===========    ===========  ===========
The accompanying notes are an integral part of these financial statements

                                     F-134
SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

  Statement of Changes in Redeemable Preferred Stock and Stockholders' Deficit
Series A Redeemable   Series B Redeemable                  Preferred
                                                       Preferred Stock       Preferred Stock                  Stock Warrants
                                                    --------------------- ---------------------               --------------
                                                               Carrying              Carrying   Subscriptions    Carrying
                                                     Shares      Value     Shares      Value     Receivable       Value
                                                    --------- ----------- --------- ----------- ------------- --------------
Issuance of
 common stock to
 founders.......
Issuance of
 redeemable non-
 voting, non-
 convertible
 preferred
 stock..........
Issuance of
 Series A
 redeemable
 convertible
 preferred
 stock, issuance
 costs of
 $170,752:
 Initial
  closing.......                                      948,276 $ 2,200,000
 Second
  closing.......                                      646,551   1,500,000
 Third closing..                                      991,380   2,299,999
Repurchase and
 retirement of
 common stock...
Redemption of
 redeemable non-
 voting, non-
 convertible
 preferred
 stock..........
Series A
 redeemable
 convertible
 preferred stock
 warrants.......                                                                                                 $120,000
Accrual of
 cumulative
 dividends on
 redeemable
 preferred
 stock..........                                                  334,652
Net loss........
                                                    --------- ----------- --------- -----------  -----------     --------
Balance at
 December 31,
 1998...........                                    2,586,207   6,334,651                                         120,000
Issuance of
 Series B
 redeemable
 convertible
 preferred
 stock, issuance
 costs of
 $60,000
 (Unaudited)....                                                          3,287,602 $13,150,408  $(9,000,000)
Accrual of
 cumulative
 dividends on
 redeemable
 preferred stock
 (Unaudited)....                                                  119,861
Net loss
 (Unaudited)....
                                                    --------- ----------- --------- -----------  -----------     --------
Balance at March
 31, 1999
 (Unaudited)....                                    2,586,207 $ 6,454,512 3,287,602 $13,150,408  $(9,000,000)    $120,000
                                                    ========= =========== ========= ===========  ===========     ========
Redeemable Non-
                                                          voting
                                                     Non-convertible                             Deficit
                                                     Preferred Stock         Common stock      Accumulated
                                                    -------------------- ---------------------    During
                                                              Carrying                         Development
                                                    Shares     Value       Shares    Par Value    Stage         Total
                                                    -------- ----------- ----------- --------- ------------- -------------
Issuance of
 common stock to
 founders.......                                                          1,396,000   $1,396                 $      1,396
Issuance of
 redeemable non-
 voting, non-
 convertible
 preferred
 stock..........                                    150,000  $1,500,000
Issuance of
 Series A
 redeemable
 convertible
 preferred
 stock, issuance
 costs of
 $170,752:
 Initial
  closing.......
 Second
  closing.......
 Third closing..                                                                               $   (170,752)     (170,752)
Repurchase and
 retirement of
 common stock...                                                         (1,000,000)  (1,000)      (249,000)     (250,000)
Redemption of
 redeemable non-
 voting, non-
 convertible
 preferred
 stock..........                                    (20,000)   (204,667)
Series A
 redeemable
 convertible
 preferred stock
 warrants.......
Accrual of
 cumulative
 dividends on
 redeemable
 preferred
 stock..........                                                 94,135                            (428,787)     (428,787)
Net loss........                                                                                 (9,075,215)   (9,075,215)
                                                    -------- ----------- ----------- --------- ------------- -------------
Balance at
 December 31,
 1998...........                                    130,000   1,389,468     396,000      396     (9,923,754)   (9,923,358)
Issuance of
 Series B
 redeemable
 convertible
 preferred
 stock, issuance
 costs of
 $60,000
 (Unaudited)....                                                                                    (60,000)      (60,000)
Accrual of
 cumulative
 dividends on
 redeemable
 preferred stock
 (Unaudited)....                                                 26,533                            (146,394)     (146,394)
Net loss
 (Unaudited)....                                                                                 (1,759,630)   (1,759,630)
                                                    -------- ----------- ----------- --------- ------------- -------------
Balance at March
 31, 1999
 (Unaudited)....                                    130,000  $1,416,001     396,000   $  396   $(11,889,778) $(11,889,382)
                                                    ======== =========== =========== ========= ============= =============
The accompanying notes are an integral part of these financial statements

                                     F-135
SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                            Statement of Cash Flows
For the Period         (Unaudited)
                                    From Inception    For the Three Months
                                     (February 11,       Ended March 31,
                                     1998) Through   ------------------------
                                   December 31, 1998    1998         1999
                                   ----------------- -----------  -----------
Cash flows from operating
 activities:
Net loss..........................    $(9,075,215)   $(1,195,203) $(1,759,630)
Adjustments to reconcile net loss
 to net cash used for operating
 activities:......................
  Depreciation....................         58,537            506       28,522
  Amortization and impairment of
   intangible assets..............      1,500,000        125,000           --
  Amortization of discounts on
   notes payable..................         46,370             --       73,630
  Changes in assets and
   liabilities:
    Prepaid expenses..............       (185,506)            --       36,140
    Other current assets..........        (22,704)       (54,333)       2,713
    Accounts payable..............        233,281          1,691       (6,593)
    Accrued expenses..............        316,918        126,233      121,261
                                      -----------    -----------  -----------
    Net cash used for operating
     activities...................     (7,128,319)      (996,106)  (1,503,957)
                                      -----------    -----------  -----------
Cash flows from investing
 activities:
Purchases of fixed assets.........       (410,289)       (28,543)     (19,460)
Increase in deposits..............       (136,998)            --           --
                                      -----------    -----------  -----------
    Net cash used for investing
     activities...................       (547,287)       (28,543)     (19,460)
                                      -----------    -----------  -----------
Cash flows from financing
 activities:
Proceeds from issuance of notes
 payable to stockholders..........      4,000,000             --           --
Proceeds from Series A redeemable
 convertible preferred stock, net
 of issuance costs................      5,829,247      1,829,248           --
Proceeds from issuance of common
 stock............................          1,396          1,396           --
Redemption of non-voting, non-
 convertible redeemable preferred
 stock and related dividends......       (204,667)            --           --
Repurchase of common stock........       (250,000)            --           --
                                      -----------    -----------  -----------
    Net cash provided by financing
     activities...................      9,375,976      1,830,644           --
                                      -----------    -----------  -----------
Net increase (decrease) in cash
 and cash equivalents.............      1,700,370        805,995   (1,523,417)
Cash and cash equivalents,
 beginning of period..............             --             --    1,700,370
                                      -----------    -----------  -----------
Cash and cash equivalents, end of
 period...........................    $ 1,700,370    $   805,995  $   176,953
                                      ===========    ===========  ===========
Non-cash investing and financing
 activities:
Software acquired in exchange for
 150,000 shares of non-voting,
 non-convertible redeemable
 preferred stock..................    $ 1,500,000    $ 1,500,000  $        --
                                      ===========    ===========  ===========
Conversion of notes payable to
 stockholders plus accrued
 interest of $150,408 into
 1,037,602 shares of Series B
 Preferred Stock..................    $        --    $        --  $ 4,150,408
                                      ===========    ===========  ===========
The accompanying notes are an integral part of these financial statements

                                     F-136
SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                         Notes to Financial Statements

1. Nature of the Business

      Syncra Software, Inc. ("Syncra" or the "Company") was incorporated in
Delaware on February 11, 1998. Syncra was formed to design, develop, produce
and market supply chain collaboration software and solutions. Since its
inception, Syncra has devoted substantially all of its efforts to business
planning, research and development, recruiting management and technical staff,
acquiring operating assets, raising capital, marketing and business
development. Accordingly, Syncra is considered to be in the development stage
as defined in Statement of Financial Accounting Standards ("SFAS") No. 7,
"Accounting and Reporting by Development Stage Enterprises".

      Syncra is subject to risks and uncertainties common to growing
technology-based companies, including rapid technological changes, growth and
commercial acceptances of the Internet, dependence on principal products and
third party technology, new product development and performance, new product
introductions and other activities of competitors, dependence on key personnel,
development of a distribution channel, international expansion, lengthy sales
cycles and limited operating history.

2. Summary of Significant Accounting Policies

    Cash and Cash Equivalents

      Syncra considers all highly liquid instruments with an original maturity
of three months or less at the time of purchase to be cash equivalents.
Included in cash and cash equivalents at December 31, 1998 is approximately
$1.6 million in money market accounts.

    Financial Instruments

      The carrying amount of Syncra's financial instruments, principally cash,
notes payable, and redeemable preferred stock, approximates their fair values
at December 31, 1998.

    Fixed Assets

      Fixed assets are recorded at cost and depreciated using the straight-line
method over their estimated useful lives. Repairs and maintenance costs are
expensed as incurred.

    Research and Development and Software Development Costs

      Costs incurred in the research and development of Syncra's products are
expensed as incurred, except for certain research and development costs. Costs
associated with the development of computer software are expensed prior to the
establishment of technological feasibility, as defined by SFAS No. 86,
"Accounting for the Cost of Computer Software to be Sold, Leased or Otherwise
Marketed." Costs incurred subsequent to the establishment of technological
feasibility and prior to the general release of the products are capitalized.
During the period ended December 31, 1998, costs eligible for capitalization
were immaterial.

    Accounting for Impairment of Long Lived Assets

      In accordance with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of", the Company records
impairment of losses on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.

                                     F-137
SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)

    Stock-Based Compensation

      Syncra accounts for stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, no compensation expense is recorded for options issued to
employees in fixed amounts and with fixed exercise prices at least equal to the
fair market value of Syncra's Common Stock at the date of grant. Syncra has
adopted the provisions of SFAS No. 123, " Accounting for Stock-Based
Compensation", through disclosure only (Note 11). All stock-based awards to
non-employees are accounted for at their fair value in accordance with SFAS No.
123.

    Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

    Unaudited Interim Financial Statements

      The financial statements as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 are unaudited. In the opinion of Syncra's
management, the March 31, 1998 and 1999 unaudited interim financial statements
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial position and results of operation for
that period. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of the results of operations to be expected
for the year ending December 31, 1999.

3. Prepaid Expenses

      Prepaid expenses consist of the following at December 31, 1998:
Trade shows and other marketing prepayments...................... $135,774
     Others...........................................................   49,732
                                                                       --------
                                                                       $185,506
                                                                       ========
4. Fixed Assets

      Fixed assets consist of the following:
Estimated
                                                        useful life December 31,
                                                          (years)       1998
                                                        ----------- ------------
Computer equipment..................................       3       $246,631
   Office equipment....................................       5         71,783
   Furniture and fixtures..............................       7         91,875
                                                                      --------
                                                                       410,289
   Less: accumulated depreciation......................                 58,537
                                                                      --------
                                                                      $351,752
                                                                      ========
F-138
SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)

5. Impairment of Intangible Assets

      In accordance with SFAS No. 121, Syncra reviews for impairment of long-
lived assets when events or changes in circumstances indicate that an asset's
carrying value may not be recoverable. In connection with the organization of
Syncra in February 1998, Syncra purchased the rights to certain software from
Benchmarking Partners, Inc. ("Benchmarking") in exchange for the issuance of
150,000 shares of Syncra's non-voting, non-convertible Redeemable Preferred
Stock (Note 8). Syncra did not obtain an independent valuation of the
technology and the fair value of the Redeemable Preferred Stock was not
objectively determinable. Therefore, Syncra recorded the technology based upon
the amount of the Redeemable Preferred Stock as determined by Syncra's Board of
Directors. Syncra expected to use the acquired software as a core technology in
its product development. In May 1998, management reassessed the status of
Syncra's product development and the additional features and functionality
planned to be included in Syncra's products. As a result of this re-evaluation,
management concluded that the core technology acquired from Benchmarking would
not be able to support Syncra's planned products. Accordingly, management
decided to restart Syncra's product development activities without the use of
the acquired software. An impairment charge of $1,312,500 was recognized in the
December 31, 1998 statement of operations.

6. Notes Payable to Stockholders

      During 1998, the Company received aggregate cash proceeds totaling
$4,000,000 pursuant to the issuance of convertible promissory notes (the
"Notes") payable to certain of its stockholders. No repayments of principal or
interest (which accrues at a rate of 9% per annum) were made during the year.
The Note holders were also issued 344,828 warrants to purchase Series A
Preferred Stock ("Preferred Stock Warrants") at $2.32 per share in 1998. The
aggregate value of the Preferred Stock Warrants issued to all Note holders was
estimated to be $120,000, which was accounted for as discount on the Notes and
Preferred Stock Warrants. The discount is being amortized over the term of the
Notes. Upon closing of the Series B Preferred Stock financing, each Note holder
is entitled to a number of warrants equal to 20% of the face value of the Note
held by such holder divided by the price per share of Series B Preferred Stock.
As a result of the Series B Preferred Stock financing in 1999, the Notes were
converted into shares of Series B Preferred Stock. Additionally, the Preferred
Stock Warrants were converted to the equivalent number of warrants for Series B
Preferred Stock totaling 200,000 shares at $4.00 per share (Note 7). The
Preferred Stock Warrants have a term of ten years.

7. Redeemable Convertible Preferred Stock

      At December 31, 1998, the Company had authorized preferred stock of
5,000,000 shares, $.001 par value per share, of which 2,941,031 shares were
designated as redeemable convertible Series A Preferred Stock ("Series A
Preferred Stock") and 150,000 shares of which were designated as Redeemable
Preferred Stock (the "Redeemable Preferred Stock").

      On March 31, 1999, the Company's authorized Preferred Stock was increased
to 6,453,809 shares with a par value of $.001 per share of which 2,586,207
shares were designated as redeemable convertible Series A Preferred Stock,
3,737,602 shares as redeemable convertible Series B Preferred Stock ("Series B
Preferred Stock") and 130,000 shares as Redeemable Preferred Stock. Of the
designated Series B Preferred Stock, the Company issued 3,287,602 shares on
March 31, 1999 in exchange for net cash proceeds of $9.0 million received on
April 1, 1999 and the conversion of all principal and accrued interest due on
the Notes (Note 6).

                                     F-139
SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)

      The Series A and B Preferred Stock have the following characteristics:

    Voting

      Holders of Series A and B Preferred Stock are entitled to that number of
votes equal to the number of shares of common stock into which the shares of
Series A and B Preferred Stock are then convertible.

    Dividends

      Holders of Series A and B Preferred Stock are entitled to receive out of
funds legally available, cumulative dividends at the rate of 8% per share per
annum on the Base Amount of each share. The Base Amount of each share is equal
to the price paid for each share of Series A and B Preferred Stock of $2.32 and
$4.00, respectively, plus unpaid dividends which accrue commencing on the date
of original issuance of the Series A and B Preferred Stock. In the event that
the full amount of dividends is not paid in any twelve-month period, the Base
Amount will be increased by the amount of the unpaid dividend. After payment of
all dividends owing to the holders of Series A and B Preferred Stock, such
holders will not participate in any other dividends thereafter paid on
Redeemable Preferred Stock or Common Stock.

    Liquidation

      In the event of any liquidation, dissolution or winding-up of the affairs
of the Company, the holders of Series A and B Preferred Stock are entitled to
receive, prior to and in preference to holders of both Redeemable Preferred
Stock and Common Stock, an amount equal to $2.32 and $4.00 per share,
respectively, plus all unpaid cumulative dividends on each share. After full
payment of (i) the foregoing amounts and (ii) amounts to be paid to the holders
of Redeemable Preferred Stock pursuant to the terms thereof (Note 8), the
remaining assets of the Company will be distributed ratably among the holders
of Common Stock.

    Conversion

      Each share of Series A and B Preferred Stock may be converted at any
time, at the option of the stockholder, into one share of Common Stock, subject
to certain anti-dilution adjustments, as defined in the terms of the Series A
and B Preferred Stock.

      The Series A and B Preferred Stock will automatically convert into shares
of Common Stock upon (i) a public offering of Syncra's Common Stock which
results in gross proceeds to Syncra of at least $10,000,000, at a price per
share of the Common Stock of at least three times the Series B Preferred Stock
original purchase price per share (as adjusted for stock splits, stock
dividends, combinations, reorganizations, reclassifications or similar events)
or (ii) upon approval of the two-thirds of the outstanding Series A and B
Preferred Stockholders, voting separately, to convert all outstanding shares of
Series A and B Preferred Stock to Common Stock.

    Redemption

      Any time after March 31, 2004, at the option of the holders of the Series
A and B Preferred Stock, Syncra shall redeem all, but not less than all of such
holder's shares of Series A and B Preferred Stock, at a redemption price equal
to the original purchase price of $2.32 and $4.00 per share, respectively, plus
all unpaid dividends thereon which have accrued through and including the
redemption date.

                                     F-140
SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)

    Accretion

      The issuance cost incurred by the Company was accreted in full in 1998
and at March 31, 1999 as an adjustment to the carrying value of redeemable
convertible Series A and B Preferred Stock.

8. Non-voting, Non-convertible Redeemable Preferred Stock

      As described in Note 5, Syncra's Redeemable Preferred Stock was issued in
a non-cash exchange with Benchmarking for certain software. Subsequent to the
issuance of the Redeemable Preferred Stock to Benchmarking, Syncra repurchased
20,000 shares of its Redeemable Preferred Stock from Benchmarking at a price
per share of $10.00 plus accrued dividends of $4,667. In a separate
transaction, Benchmarking transferred the remaining 130,000 shares of the
Redeemable Preferred Stock to Internet Capital Group, Inc. ("ICG"), an existing
stockholder of Syncra in exchange for a $1.3 million note, bearing interest at
8% per annum. At December 31, 1998, ICG continued to hold the 130,000 shares of
Redeemable Preferred Stock. ICG is also a stockholder of Benchmarking.

      The Redeemable Preferred Stock has the following characteristics:

    Voting

      Except as required by law, holders of Redeemable Preferred Stock are not
entitled to vote on any matters submitted to a vote of the stockholders of
Syncra, including the election of directors.

    Dividends

      Holders of Redeemable Preferred Stock are entitled to receive out of
funds legally available, cumulative dividends at the rate of 8% per share per
annum on the Base Amount of each share. The Base Amount of each share is equal
to purchase price paid for such share of Redeemable Preferred Stock ($10.00)
plus unpaid dividends which accrue commencing on the date of original issuance
of the Redeemable Preferred Stock. In the event that the full amount of
dividends is not paid in any twelve- month period, the Base Amount will be
increased by the amount of the unpaid dividends. After payment of all dividends
owing to the holders of Redeemable Preferred Stock, such holders will not
participate in any other dividends thereafter paid on the Series A and B
Preferred Stock or the Common Stock.

    Liquidation

      In the event of any liquidation, dissolution or winding-up of the affairs
of Syncra, the holders of Redeemable Preferred Stock are entitled to receive,
prior to and in preference to any holders of Common Stock, but after all
distribution or payments required to be made to the holders of Series A and B
Preferred Stock, an amount equal to $10.00 per share plus accrued but unpaid
dividends. After payment in full of the amounts owed to holders of the
Redeemable Preferred Stock, such holders are not entitled to share in the
distribution of the remaining assets of Syncra.

    Redemption

      At any time after March 31, 2004, each holder may require Syncra to
redeem all or any portion of such holder's shares at a redemption price equal
to the original issuance price per share ($10.00) plus all unpaid dividends
thereon which have accrued through and including the redemption date.

                                     F-141
SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)

      At any time, and from time to time, Syncra may elect to redeem all, or
any portion of the outstanding shares of its Redeemable Preferred Stock, at a
redemption price equal to the original issuance price per share ($10.00) plus
all unpaid dividends thereon which have accrued through and including the
redemption date.

      Redeemable Preferred Stock is also redeemable by Syncra upon the earlier
of (i) a public offering of Syncra's Common Stock which results in gross
proceeds to Syncra of at least $10,000,000, at a price per share of the Common
Stock of at least three times the Series B Preferred Stock original purchase
price per share (as adjusted for stock splits, stock dividends, combinations,
reclassifications, reorganizations or other similar events); or (ii) the
consummation of a sale of all or substantially all of Syncra's assets or
capital stock, either through a direct sale, merger, reorganization or other
form of business combination in which control of Syncra is transferred and as a
result holders of Series A and B Preferred Stock receive at least three times
the Series B Preferred Stock original purchase price per share (as adjusted for
stock splits, stock dividends, combination, reorganizations, reclassifications
or other similar events).

9. Common Stock

      Each share of Common Stock entitles the holder to one vote on all matters
submitted to a vote of Syncra's stockholders. Common stockholders are entitled
to receive dividends, if any, as may be declared by the Board of Directors,
subject to the preferential dividend rights of the holders of the Series A and
B Preferred Stock and the Redeemable Preferred Stock.

    Restricted Stock Agreements

      Syncra has entered into agreements with certain of its employee
stockholders providing for restrictions on transfers of the shares subject to
such agreement. Each agreement provides Syncra with a right to repurchase the
shares held by such individual, in the event that the Company terminates the
employment of the individual. The number of shares which may be repurchased by
the Company and the price at which such shares may be repurchased differs per
individual and is contingent on whether such individual's termination is for
"cause' (as defined in the agreement) or other than for "cause'. At December
31, 1998, none of the restricted shares were subject to repurchase due to the
restrictions contained in these agreements.

      Pursuant to a stockholders' agreement, as amended and restated on March
31, 1999, all of the outstanding capital stock (including the Common Stock,
Series A and B Preferred Stock and Redeemable Preferred Stock) of the Company
is subject to certain restrictions as to sale or transfer of such shares
pursuant to a stockholders' agreement. The Company and its non-founder
stockholders also hold rights of first refusal, under certain circumstances, on
shares offered by a stockholder for sale to third parties, at the price per
share to be paid by such third party.

    Reserved Shares

      At December 31, 1998, 2,833,857 shares were reserved for issuance upon
conversion of the Series A Preferred Stock and exercise of outstanding options.

10. Repurchase of Common Stock and Redemption of Preferred Stock

      On June 5, 1998, the Company repurchased 1,000,000 shares of Common Stock
and redeemed 20,000 shares of its Redeemable Preferred Stock from Benchmarking,
one of the original founders in exchange for

                                     F-142
SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)

$2,250,000. The transaction was financed through the sale of additional Series
A Preferred Stock to certain of the existing holders of Series A Preferred
Stock. Of the 150,000 shares of Redeemable Preferred Stock originally issued to
Benchmarking, the remaining 130,000 shares were transferred by Benchmarking to
ICG (see Note 8).

      In addition to the shares acquired, the withdrawal of Benchmarking as a
stockholder eliminated a potential conflict of interest for Syncra and its
other stockholders with Benchmarking and its customers. The transaction also
settled potential claims by Benchmarking against Syncra with respect to the
transfer of technical talent from Benchmarking to Syncra and other potential
claims by Benchmarking against the potential future value of Syncra.

      The difference between the total amount paid to Benchmarking and the
aggregate of the redemption value of the Redeemable Preferred Stock plus
accrued dividends of $204,667 and the fair value of the Common Stock of
$250,000 was treated as settlement charge in the statement of operations.

11. Stock Option Plan

      In 1998, the Company adopted the 1998 Stock Option Plan (the "1998 Plan")
which provides for the grant of incentive stock options and non-qualified stock
options, stock awards and stock purchase rights for the purchase of up to
1,000,000 shares of the Company's Common Stock by officers, employees,
consultants, and directors of the Company. The Board of Directors is
responsible for administration of the 1998 Plan. The Board determines the term
of each option, the option exercise price, the number of shares for which each
option is granted, the rate at which each option is exercisable and the vesting
period (generally ratably over four to five years). Incentive stock options may
be granted to any officer or employee at an exercise price of not less than the
fair value per common share on the date of the grant (not less than 110% of the
fair value in the case of holders of more than 10% of the Company's voting
stock) and with a term not to exceed ten years from the date of the grant (five
years for incentive stock options granted to holders of more than 10% of the
Company's voting stock). Non-qualified stock options may be granted to any
officer, employee, consultant, or director at an exercise price per share of
not less than the book value per share.

      During the period from inception (February 11, 1998) through December 31,
1998, Syncra granted options aggregating 803,300 shares with a weighted average
exercise price of $0.87 per share. Of the total options granted, 99,374 shares
were exercisable at December 31, 1998. None of these vested options were
exercised during the period. Options totaling 196,700 were available for future
grant at December 31, 1998. The weighted-average remaining contractual life of
the options outstanding is 9.5 years. No compensation expense has been
recognized for employee stock-based compensation in 1998.

      The exercise price of the options is more than the fair market value of
the common stock, therefore, the weighted average grant date fair value per
share of the options granted during the year using the Black-Scholes option-
pricing model is zero at December 31, 1998. As a result, had compensation
expense been determined based on the fair value of the options granted to
employees at the grant date consistent with the provision of SFAS No. 123, the
Company's pro forma net loss would have been the same. The impact on the pro
forma net loss is not necessarily indicative of the effects on future results
of operations because the Company expects to grant options in future years.

      For purposes of pro forma disclosure of net loss, the fair value of each
option grant was estimated on the date of grant using the Black-Scholes option-
pricing model with the following assumptions for grants in 1998; zero dividend
yield; zero volatility; risk-free interest rate of 4.55%, and expected life of
five years.

                                     F-143
SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)

12. Income Taxes

      Deferred tax assets consist of the following at December 31, 1998:
Net operating loss carryforward................................ $2,386,619
     Fixed and intangible assets....................................    482,690
     Research and development credit carryforwards..................     90,891
     Accrued vacation...............................................     35,687
                                                                     ----------
     Net deferred tax assets........................................  2,995,887
     Deferred tax asset valuation allowance.........................  2,995,887
                                                                     ----------
                                                                     $       --
                                                                     ==========
The Company has provided a valuation allowance for the full amount of its
net deferred tax assets since realization of any future benefit from deductible
temporary differences and net operating loss and tax credit carryforwards
cannot be sufficiently assured at December 31, 1998.

      At December 31, 1998, the Company has federal and state net operating
loss carryforwards of approximately $5.9 million available to reduce future
taxable income, which will expire in 2019. The Company also has federal and
state research and development tax credit carryforwards of approximately
$72,490 and $27,881, respectively, available to reduce future tax liabilities.

      Under the provisions of the Internal Revenue Code, certain substantial
changes in the Company's ownership may limit the amount of net operating loss
carryforwards and research and development credit carryforwards which could be
utilized annually to offset future taxable income and taxes payable.

13. 401(k) Savings Plan

      The Company has established a retirement savings plan under Section
401(k) of the Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan covers
substantially all employees of the Company who meet minimum age and service
requirements, and allows participants to defer a portion of their annual
compensation on a pre-tax basis. Company contributions to the 401(k) Plan may
be made at the discretion of the Board of Directors. The Company has not made
any contributions to the 401(k) Plan through December 31, 1998.

                                     F-144
SYNCRA SOFTWARE, INC.
                        (a development stage enterprise)

                   Notes to Financial Statements--(Continued)

14. Commitments

      The Company leases its office space and certain office equipment under
noncancelable operating leases. Total rent expense under these operating leases
was approximately $134,000 for the period ended December 31, 1998.

      Future minimum lease commitments at December 31, 1998 are as follows:
Operating Leases
Year ending December 31,                                        ----------------
1999.........................................................    $  272,328
  2000.........................................................       254,728
  2001.........................................................       254,728
  2002.........................................................       254,728
  Thereafter...................................................       127,364
                                                                   ----------
                                                                   $1,163,876
                                                                   ==========
15. Related Party Transactions

      In the normal course of business, Syncra had transactions with
Benchmarking during the period from inception until May 1998 for certain
operating expenses such as organizational costs, payroll, marketing, legal and
other expenses. The total expenses reimbursed by Syncra to Benchmarking
amounted to $496,344. Furthermore, Syncra also paid Benchmarking a management
fee totaling $80,000 during the same period.

      In addition to the above transactions, Syncra also reimbursed ICG
$500,000 related to professional services provided by Benchmarking to Syncra
that originally were funded by ICG.

16. Subsequent Events

      In April 1999, Syncra issued 250,000 shares of Series B Preferred Stock
for $1.0 million to a new investor.

                                     F-145
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To USgift.com Corporation:

We have audited the accompanying balance sheet of USgift.com Corporation (a
Georgia corporation and wholly owned subsidiary of OneCoast Network Corporation
in the development stage) as of September 30, 1999 and the related statements
of operations and accumulated deficit and cash flows for the period from
inception (April 27, 1999) to September 30, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USgift.com Corporation as of
September 30, 1999 and the results of its operations and its cash flows for the
period from inception (April 27, 1999) to September 30, 1999 in conformity with
generally accepted accounting principles.

                                          Arthur Andersen LLP
Atlanta, Georgia
December 3, 1999

                                     F-146
USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                     Stage)

                                 BALANCE SHEET

                               SEPTEMBER 30, 1999

Assets
Cash................................................................... $   204
Property and equipment, net............................................ 154,922
                                                                        -------
$155,126
                                                                       ========

Liabilities and Stockholders' Deficit

Current Liabilities:
 Due to OneCoast...................................................... $645,774
 Accounts payable and accrued liabilities.............................  147,529
                                                                       --------
   Total current liabilities..........................................  793,303
                                                                       --------
Contingencies (Note 4)
Stockholders' Deficit:
Common stock, no par value; 100,000,000 shares authorized, 0 shares
  issued and outstanding.............................................        0
 Deficit accumulated during the development stage.................... (638,177)
                                                                      --------
   Total stockholders' deficit....................................... (638,177)
                                                                      --------
                                                                      $155,126
                                                                      ========
The accompanying notes are an integral part of this balance sheet.

                                     F-147
USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                     Stage)

                Statement of Operations and Accumulated Deficit

                         For the Period from Inception

                     (April 27, 1999) to September 30, 1999
Sales............................................................... $       0
                                                                     ---------
Costs and expenses:
 General and administrative.........................................   636,609
 Depreciation and amortization......................................     1,568
                                                                     ---------
   Total costs and expenses.........................................   638,177
                                                                     ---------
Net loss............................................................  (638,177)
Accumulated Deficit:
 Beginning of period................................................         0
                                                                     ---------
 End of period...................................................... $(638,177)
                                                                     =========
The accompanying notes are an integral part of this statement.

                                     F-148
USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                     Stage)

                            Statement of Cash Flows

                         For the Period from Inception

                     (April 27, 1999) to September 30, 1999
Cash Flows from Operating Activities:
 Net loss........................................................... $(638,177)
 Adjustments to reconcile net loss to net cash provided by operating
  activities:
  Depreciation and amortization.....................................     1,568
  Changes in operating assets and liabilities:
   Due to OneCoast..................................................   645,774
   Accounts payable and accrued liabilities.........................   147,529
                                                                     ---------
    Net cash provided by operating activities.......................   156,694
                                                                     ---------
Cash Flows from Investing Activities:
 Purchases of property and equipment................................  (156,490)
                                                                     ---------
Change in Cash and Cash Equivalents.................................       204
Cash and Cash Equivalents, beginning of period......................         0
                                                                     ---------
Cash and Cash Equivalents, end of period............................ $     204
                                                                     =========
Supplemental Disclosures of Cash Flow Information:
 Interest paid...................................................... $       0
                                                                     =========
 Taxes paid......................................................... $       0
                                                                     =========
The accompanying notes are an integral part of this statement.

                                     F-149
USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                     Stage)

                         Notes to Financial Statements

                               September 30, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Business

      USgift.com Corporation ("USgift" or the "Company") is a development stage
enterprise organized by OneCoast Network Corporation ("OneCoast") under the
laws of the state of Georgia on April 27, 1999. The Company did not issue any
stock until November 10, 1999, and accordingly, has no outstanding capital
stock at September 30, 1999. The Company was formed for the purpose of pursuing
business to business e-Commerce solutions related to the ongoing business of
OneCoast. OneCoast is a manufacturers' representative agency which solicits
sales of home and gift accessories through various methods of retail
distribution, including gift shops, merchandise marts, and catalogs throughout
the United States.

      The Company's absence of operating history makes it difficult to predict
future operating results. The Company's budgeted expense levels are based, in
part, on its expectations of future growth. If revenue levels are below
expectations or if the Company is unable to reduce expenses proportionately,
operating results will be adversely affected. There is no assurance that the
Company will be profitable. The Company's prospects must be considered in light
of the risks, expenses, and difficulties frequently encountered by companies in
their early stages of development. While the Company believes that their
business to business e-Commerce solutions will become a viable commercial
operation, there can be no assurance in that regard. Accordingly, their
business processes may not work as the Company expects, and to the extent that
the Company is unable to make necessary adjustments to the business processes,
the operating results of the Company may be adversely affected.

  History of Operating Losses

      The Company has incurred net losses since its formation. The Company will
need to generate significant revenues to achieve and maintain profitability
which cannot be assured. The Company plans to significantly increase its sales
and marketing, research and development, and general and administrative
expenses throughout the remainder of calendar year 1999. Advances from OneCoast
as of September 30, 1999 were approximately $646,000. Subsequent to September
30, 1999, USgift became further indebted to OneCoast in the form of a
promissory note totaling approximately $10.3 million (Note 5). This note
matures upon the earlier of demand by OneCoast or proceeds from a qualified
debt or equity financing. OneCoast has represented they will not demand payment
of the note prior to the Company receiving adequate financing.

  Use of Estimates

      The preparation of the accompanying financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

  Cash and Cash Equivalents

      From inception (April 27, 1999) through September 30, 1999, OneCoast
maintained a centralized cash management function; accordingly, the Company did
not maintain a separate operating cash account, and its cash disbursements were
settled by OneCoast. The cash balance at September 30, 1999 relates to petty
cash.

                                     F-150
USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                     Stage)

                   Notes to Financial Statements--(Continued)

  Fair Value of Financial Instruments

      The book values of trade accounts payable approximate its fair value
principally because of the short-term maturities of this instrument.

  Property and Equipment

      Property and equipment are stated at cost and are depreciated and
amortized using the straight-line method over the estimated useful lives of
three years.
Computer software and equipment................................... $129,091
    Machinery and equipment...........................................   27,399
                                                                       --------
                                                                        156,490
    Less accumulated depreciation.....................................   (1,568)
                                                                       --------
                                                                       $154,922
                                                                       ========
The Company records impairment losses on property and equipment used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.

  Comprehensive Income

      The Company currently has no other comprehensive income items as defined
by Statement of Financial Accounting Standard ("SFAS") No. 130 "Reporting
Comprehensive Income."

  Segment Information

      USgift operates solely in one operating segment, business to business e-
Commerce solutions for the gift and home accessories wholesale industry.

  Recent Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
USgift will be required to adopt for the year ending December 31, 2001. This
statement establishes a new model for accounting for derivatives and hedging
activities. SFAS No. 133 establishes methods of accounting for derivative
financial instruments and hedging activities related to those instruments as
well as other hedging activities. Because USgift currently holds no derivative
financial instruments and does not currently engage in hedging activities, the
adoption of SFAS No. 133 is expected to have no material impact on USgift's
financial condition or results of operations.

2. PAYABLE TO ONECOAST

      The payable to OneCoast consists primarily of expenses incurred by
OneCoast on behalf of USgift. These expenses include allocations of amounts
estimated by management and the actual operating expenses of USgift. Advances
through September 30, 1999 of $645,774 plus additional advances of $182,630 are
included in the $10.3 million note payable discussed in Note 5.

                                     F-151
USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                     Stage)

                   Notes to Financial Statements--(Continued)

      Allocations of certain corporate expenses primarily relating to officer
and corporate administration salaries and benefits and occupancy expense for
corporate headquarters has been included as a component of general and
administrative expense. Because specific identification of such expense was not
practicable, a proportionate cost allocation was utilized to allocate these
expenses to USgift based on management's estimate of officer and corporate
administration's time incurred or total square footage utilized in relation to
OneCoast's total corporate headquarters' square footage. Allocated expenses
totaled approximately $208,000 for the period from inception (April 27, 1999)
to September 30, 1999. Management has determined that such allocations are a
practical and reasonable method of allocation. However, these financial
statements are not necessarily indicative of the financial position that would
have occurred if the Company had been an independent company. The amounts that
would have been incurred on a stand-alone basis could differ significantly from
the allocated amounts due to economies of scale, differences in management and
operational practices, or other factors.

3. INCOME TAXES

      For the period from inception (April 27, 1999) to September 30, 1999, the
Company's results were included in the federal and state income tax returns of
OneCoast. For the purpose of these financial statements, the income tax
provision has been determined on a basis as if the Company were a separate
taxpayer. Due to the history of losses incurred by the Company, the net
deferred tax asset resulting from temporary differences is not considered
probable of realization and therefore is offset in all periods presented by a
valuation allowance. Net operating loss carryforwards generated by USgift
through November 10, 1999 will not be available to offset income taxes
subsequent to the spin-off. A reconciliation of the provision of income taxes
to the amount computed by applying the statutory federal income tax rate to
income before income taxes is as follows for the period from inception (April
27, 1999) to September 30, 1999:
Statutory federal tax rate...........................................  34.0%
    State tax rate, net of federal tax benefit...........................   4.0
    Valuation allowance.................................................. (38.0)
                                                                          -----
                                                                            0.0%
                                                                          =====
4. CONTINGENCIES

      For the period from inception (April 27, 1999) to August 31, 1999, the
Company shared office space with OneCoast and was allocated total rent expense
of $4,348. Commencing September 1, 1999, the Company entered into a lease
agreement for separate office space with an obligation of $5,986 per month and
is cancelable upon 30 days notice.

5. SUBSEQUENT EVENTS

  Agreement and Plan of Reorganization and Corporate Separation

      On April 27, 1999, the Company was organized under the laws of the state
of Georgia. On September 9, 1999, OneCoast notified its shareholders of a spin-
off of USgift whereby one share of USgift common stock would be distributed to
each holder of (or the right to hold) one share of OneCoast common stock. On
November 10, 1999, OneCoast subscribed to 1,634,096 shares of common stock of
USgift, all the then outstanding shares of USgift common stock, for $16,341 for
purposes of effecting the spin-off. Also on

                                     F-152
USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                    Stage)

                  Notes to Financial Statements--(Continued)

November 10, 1999, pursuant to an agreement and plan of reorganization and
corporate separation, OneCoast and USgift effected the following:

    Transfer of Assets

     OneCoast transferred certain assets with a nominal net book value to
USgift in exchange for 10,178,152 shares of USgift common stock.

    Distribution of USgift Stock to OneCoast Shareholders

     OneCoast distributed all 10,178,152 shares of USgift common stock
acquired above to each holder of OneCoast stock of any class, subject to the
receipt by USgift of such shareholder's signature to the USgift shareholders
agreement.

    Distribution of USgift Stock to OneCoast Warrant Holders

     At the direction of OneCoast, USgift reserved 2,081,428 shares of common
stock for future issuance to holders of OneCoast warrants to purchase common
stock.

    Purchase and Sale of OneCoast Assets

     USgift purchased certain tangible assets from OneCoast for an estimated
net book value of $160,000.

    Reimbursement of Start-up and Transaction Costs; Loan to USgift

     In consideration of certain prior services provided by OneCoast, advances
of $828,404 through October 31, 1999, an anticipated loan of approximately
$1.6 million and tangible assets with a net book value of $160,000, USgift
promised to pay OneCoast approximately $10.3 million in the form of a
promissory note. The note bears interest at 13.33% per annum, payable
quarterly. Principal is payable on demand or from any proceeds from any debt
or equity financing. The note is secured by substantially all of the assets of
USgift. The Company will account for monies due under the note in excess of
assets received as a capital transaction.

  Shareholders Agreement and Registration Rights Agreement

     All recipients of USgift common stock and equivalents were required to
sign the USgift shareholders agreement. The shareholders agreement, as
amended, provides for the appointment of seven board members, one of which
will be independent. The agreement requires any shareholder wishing to sell
common stock to first offer the shares to the Company and existing
shareholders prior to any sales to third parties. The agreement also grants
certain investors rights to co-sale in the event of a sale to a third party.

     A significant portion of shareholders are also party to a registration
rights agreement which requires the Company to effect a registration of common
stock upon the earlier of October 8, 2000 or 180 days after the effective date
of an initial public offering, as defined.

  License Agreement

     On November 10, 1999, One Coast and USgift entered into a 20-year license
agreement. Pursuant to the agreement, OneCoast licensed certain technology and
derivative works, including an electronic catalog and

                                     F-153
USGIFT.COM CORPORATION

 (A Wholly Owned Subsidiary of OneCoast Network Corporation in the Development
                                     Stage)

                   Notes to Financial Statements--(Continued)

electronic order processing system and certain data about OneCoast
manufacturers and their products and OneCoast retailers, to USgift on a royalty
free basis. USgift is required to share all derivative works with OneCoast for
a period of four years.

  Strategic Alliance Agreement

      On November 10, 1999, OneCoast and USgift entered into a strategic
alliance agreement. Pursuant to the agreement, OneCoast will use its best
efforts to encourage OneCoast manufacturers and retailers to conduct business
with and through USgift. In return, USgift agrees to pay OneCoast a percentage
of its revenues through 2004. The percentage is 1.5% of revenues for calendar
year 2000 and decreases .3% each year through 2004.

  Stock Option Plans

      On November 10, 1999, the board of directors of USgift approved the
adoption of the 1999 USgift Stock Option and Incentive Plan (the "1999 Plan")
and the 2000 USgift Stock Option and Incentive Plan (the "2000 Plan"). USgift
reserved 2,447,286 shares of common stock for issuance under the 1999 Plan and
6,573,105 shares of common stock for issuance under the 2000 Plan
(collectively, the "Plans"). The Plans provide for the granting of either
incentive or nonqualified stock options to purchase shares of common stock and
for other stock-based awards to employees, directors, consultants, and
independent contractors.

      On November 10, 1999, the Company issued options to purchase 2,447,286
shares of common stock under the 1999 Plan, all with an exercise price of $.01
per share. The vesting of the options was immediate for 1,933,120 options and
ratable over four years for the remaining 514,166 options. Certain of the
options which vested immediately may be repurchased for $.01 by the Company if
employment is terminated prior to December 1, 2000. The Company anticipates
recording a compensation charge related to the issuance of these options.

      On November 10, 1999, the Company entered into agreements to issue
options to purchase 2,592,378 shares of common stock under the 2000 Plan. The
options were issued in connection with the preferred stock offering discussed
below. The exercise price of the options is $2.21 per share and vest upon the
attainment of certain goals, including effecting an exit transaction, as
defined, or obtaining certain revenue goals for USgift. The Company anticipates
recording a compensation charge related to the issuance of these options.

  Preferred Stock Offering

      On November 19, 1999, the Company amended its articles of incorporation
whereby the authorized capital stock was increased to 113,000,000 shares of
which 13,000,000 shares were designated as Series A Preferred Stock. Dividends
are payable annually in cash or securities at a rate of 8% per annum. The
preferred shares, together with any accrued and unpaid dividends, are
convertible into an equal number of common shares and automatically convert
upon the earlier of a public offering, as defined, or at the election of a two-
thirds majority of the preferred shareholders. The shares are mandatorily
redeemable five years from issuance at the greater of $2.21 per share or fair
market value. The shares have a liquidation preference of $2.21 per share.

      On November 24, 1999, the Company sold 12,265,198 shares of Series A
Preferred for consideration of $27.1 million, plus an earnout. A portion, $7
million, of the consideration is not payable until March 31, 2000.
Additionally, an earnout of $7 million is payable if the Company's revenues for
its fiscal year ended December 31, 2000 are not less than $25 million or the
Company effects a public offering of its common stock, as defined, prior to
December 31, 2000.

      A portion of the proceeds from the offering were used to repay the note
payable to OneCoast.

                                     F-154
Independent Auditors' Report

To the Board of Directors and
Shareholders of VerticalNet, Inc.:

      We have audited the accompanying consolidated balance sheets of
VerticalNet, Inc. and subsidiaries as of December 31, 1999 and 1998 and the
related consolidated statements of operations, shareholders' equity (deficit)
and comprehensive loss and cash flows for each of the years in the three-year
period ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion these consolidated financial statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. 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
VerticalNet, Inc. and subsidiaries as a December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles.

                                          KPMG LLP

January 28, 2000
Philadelphia, Pennsylvania

                                     F-155
VERTICALNET, INC.

                          Consolidated Balance Sheets
December 31,  December 31,
                                                        1999          1998
                                                    ------------  ------------
Assets
Current assets:
  Cash and cash equivalents........................ $ 14,253,828  $  5,662,849
  Short-term investments...........................   44,131,135            --
  Accounts receivable, net of allowance for
   doubtful accounts of $2,084,573 in 1999 and
   $61,037 in 1998.................................   45,776,520     1,794,728
  Inventory........................................    5,509,525            --
  Prepaid expenses and other assets................    5,964,422       747,951
                                                    ------------  ------------
    Total current assets...........................  115,635,430     8,205,528
                                                    ------------  ------------
Cash-restricted....................................    4,789,261            --
Property and equipment, net........................   13,147,628     1,072,063
Goodwill, net of accumulated amortization of
 $7,322,829 in 1999 and $282,990 in 1998...........  159,253,441     2,451,991
Other intangibles, net of accumulated amortization
 of $779,513 in 1999...............................   18,670,487            --
Long-term investments..............................   16,885,183            --
Other investments (Note 7).........................    6,700,000            --
Other assets.......................................    5,823,062       613,393
                                                    ------------  ------------
    Total assets................................... $340,904,492  $ 12,342,975
                                                    ============  ============
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
  Current portion of long-term debt................ $  1,372,255  $    288,016
  Line of credit...................................           --     2,000,000
  Accounts payable.................................   14,515,309     1,220,562
  Accrued expenses.................................   20,101,348     1,582,038
  Deferred revenues................................    9,768,394     2,176,585
                                                    ------------  ------------
    Total current liabilities......................   45,757,306     7,267,201
                                                    ------------  ------------
Long-term debt, net of current portion.............    1,749,935       351,924
                                                    ------------  ------------
Convertible notes (Note 10)........................  115,000,000     5,000,000
Commitments and contingencies (Note 11)
Shareholders' Equity (Deficit):
  Preferred stock $.01 par value, 10,000,000 shares
   authorized, 7,805,667 shares issued and
   outstanding in 1998.............................           --        78,057
  Common stock $.01 par value, 90,000,000 shares
   authorized, 72,120,866 shares issued in 1999 and
   10,537,516 shares issued in 1998................      721,208       105,374
  Common stock to be issued (Note 2)...............   99,545,663            --
  Additional paid-in capital.......................  151,874,747    19,487,338
  Deferred compensation............................     (600,942)     (594,033)
  Accumulated other comprehensive loss.............     (218,671)           --
  Accumulated deficit..............................  (72,772,767)  (19,292,886)
                                                    ------------  ------------
                                                     178,549,238      (216,150)
  Treasury stock at cost, 649,936 shares in 1999
   and 645,156 shares in 1998......................     (151,987)      (60,000)
                                                    ------------  ------------
    Total shareholders' equity (deficit)...........  178,397,251      (276,150)
                                                    ------------  ------------
    Total liabilities and shareholders' equity..... $340,904,492  $ 12,342,975
                                                    ============  ============
See accompanying notes to consolidated financial statements.

                                     F-156
VERTICALNET, INC.

                     Consolidated Statements Of Operations
Year Ended December 31,
                                        ---------------------------------------
                                            1999          1998         1997
                                        ------------  ------------  -----------
Revenues:
  Exchange transaction sales..........  $ 16,500,781  $         --  $        --
  Cost of exchange transaction sales..    14,171,345            --           --
                                        ------------  ------------  -----------
    Net exchange revenues.............     2,329,436            --           --
  Advertising and e-commerce
   revenues...........................    18,428,485     3,134,769      791,822
                                        ------------  ------------  -----------
    Combined revenues.................    20,757,921     3,134,769      791,822
Costs and Expenses:
  Editorial and operational...........     8,611,317     3,237,971    1,055,725
  Product development.................     7,396,316     1,404,557      711,292
  Sales and marketing.................    26,268,370     7,894,662    2,300,365
  General and administrative..........    11,886,681     3,823,593    1,388,123
  Amortization expense................     7,819,351       282,990           --
  In-process research and development
   charge (Note 3)....................    13,600,000            --           --
                                        ------------  ------------  -----------
    Operating loss....................   (54,824,114)  (13,509,004)  (4,663,683)
                                        ------------  ------------  -----------
Interest and dividend income..........     3,448,034       212,130       10,999
Interest expense......................    (2,103,801)     (297,401)    (126,105)
                                        ------------  ------------  -----------
Interest, net.........................     1,344,233       (85,271)    (115,106)
                                        ------------  ------------  -----------
Net loss..............................  $(53,479,881) $(13,594,275) $(4,778,789)
                                        ============  ============  ===========
Basic and diluted net loss per share..  $      (0.86) $      (1.32) $     (0.47)
                                        ============  ============  ===========
Weighted average shares outstanding
 used in basic and diluted per-share
 calculation..........................    62,391,416    10,282,200   10,107,460
                                        ============  ============  ===========
See accompanying notes to consolidated financial statements.

                                     F-157
VERTICALNET, INC.

  Consolidated Statement of Shareholders' Equity (Deficit) and Comprehensive
                                     Loss
Preferred              Common                                                Accumulated
                        Stock                 Stock          Common     Additional                    Other
                  -------------------  ------------------- Stock to be   Paid-In       Deferred   Comprehensive Accumulated
                    Shares    Amount     Shares    Amount    Issued      Capital     Compensation     Loss        Deficit
                  ----------  -------  ---------- -------- ----------- ------------  ------------ ------------- ------------
Balance, January
1, 1997.........     512,821  $ 5,128  10,107,460 $101,074 $        -- $    978,884   $      --     $      --   $   (919,822)
Issuance of
Series B
preferred
stock...........   2,579,580   25,796          --       --          --    1,974,204          --            --             --
Issuance of
Series C
preferred
stock...........     154,861    1,549          --       --          --      198,451          --            --             --
Issuance of
warrants in
connection with
debt financing..          --       --          --       --          --       50,000          --            --             --
Net loss........          --       --          --       --          --           --          --            --     (4,778,789)
                  ----------  -------  ---------- -------- ----------- ------------   ---------     ---------   ------------
Balance,
December 31,
1997............   3,247,262   32,473  10,107,460  101,074          --    3,201,539          --            --     (5,698,611)
                  ----------  -------  ---------- -------- ----------- ------------   ---------     ---------   ------------
Issuance of
Series D
preferred stock,
net of issuance
costs...........   4,558,405   45,584          --       --          --   15,089,770          --            --             --
Issuance of
common stock as
consideration
for private
placement fees..          --       --     227,920    2,280          --      147,720          --            --             --
Issuance of
fully vested
options to non
employees.......          --       --          --       --          --       19,096          --            --             --
Shares issued as
consideration
for
acquisitions....          --       --     193,416    1,932          --      158,362          --            --             --
Exercise of
employee stock
options.........          --       --       8,720       88          --        1,311          --            --             --
Unearned
compensation....          --       --          --       --          --      669,540    (669,540)           --             --
Amortization of
unearned
compensation....          --       --          --       --          --           --      75,507            --             --
Issuance of
warrants in
connection with
debt financing..          --       --          --       --          --      200,000          --            --             --
Net loss........          --       --          --       --          --           --          --            --    (13,594,275)
                  ----------  -------  ---------- -------- ----------- ------------   ---------     ---------   ------------
Balance,
December 31,
1998............   7,805,667   78,057  10,537,516  105,374          --   19,487,338    (594,033)           --    (19,292,886)
                  ----------  -------  ---------- -------- ----------- ------------   ---------     ---------   ------------
Comprehensive
loss:
Conversion to
common stock....  (7,805,667) (78,057) 38,939,384  389,396          --     (311,339)         --            --             --
Sale of common
stock in initial
public offering
(Note 1)........          --       --  16,100,000  161,000          --   58,126,314          --            --             --
Common stock to
be issued (Note
2)..............          --       --          --       --  99,545,663           --          --            --             --
Notes converted
to common
stock...........          --       --   1,250,000   12,500          --    4,987,500          --            --             --
Exercise of
options.........          --       --   2,214,908   22,148          --    1,358,259          --            --             --
Shares issued
through employee
stock purchase
plan............          --       --     143,122    1,430          --      571,068          --            --             --
Shares issued as
consideration
for
acquisitions....          --       --   2,787,640   27,876          --   67,127,029          --            --             --
Exercise of
warrants........          --       --     148,296    1,484          --       90,503          --            --             --
Unearned
compensation....          --       --          --       --          --      438,075    (494,855)           --             --
Amortization of
unearned
compensation....          --       --          --       --          --           --     487,946            --             --
Net loss........          --       --          --       --          --           --          --            --    (53,479,881)
Unrealized loss
on securities...          --       --          --       --          --           --          --      (218,671)            --
Comprehensive
loss............
                  ----------  -------  ---------- -------- ----------- ------------   ---------     ---------   ------------
Balance,
December 31,
1999............          --  $    --  72,120,866 $721,208 $99,545,663 $151,874,747   $(600,942)    $(218,671)  $(72,772,767)
                  ==========  =======  ========== ======== =========== ============   =========     =========   ============
Total
                             Shareholders'  Comprehensive
                  Treasury      Equity         Income
                    Stock      (Deficit)       (Loss)
                  ---------- -------------- --------------
Balance, January
1, 1997.........  $ (60,000) $    105,264
Issuance of
Series B
preferred
stock...........         --     2,000,000
Issuance of
Series C
preferred
stock...........         --       200,000
Issuance of
warrants in
connection with
debt financing..         --        50,000
Net loss........         --    (4,778,789)
                  ---------- -------------- --------------
Balance,
December 31,
1997............    (60,000)   (2,423,525)
                  ---------- -------------- --------------
Issuance of
Series D
preferred stock,
net of issuance
costs...........         --    15,135,354
Issuance of
common stock as
consideration
for private
placement fees..         --       150,000
Issuance of
fully vested
options to non
employees.......         --        19,096
Shares issued as
consideration
for
acquisitions....         --       160,294
Exercise of
employee stock
options.........         --         1,399
Unearned
compensation....         --            --
Amortization of
unearned
compensation....         --        75,507
Issuance of
warrants in
connection with
debt financing..         --       200,000
Net loss........         --   (13,594,275)
                  ---------- -------------- --------------
Balance,
December 31,
1998............    (60,000)     (276,150)
                  ---------- -------------- --------------
Comprehensive
loss:
Conversion to
common stock....         --            --
Sale of common
stock in initial
public offering
(Note 1)........         --    58,287,314
Common stock to
be issued (Note
2)..............         --    99,545,663
Notes converted
to common
stock...........         --     5,000,000
Exercise of
options.........         --     1,380,407
Shares issued
through employee
stock purchase
plan............         --       572,498
Shares issued as
consideration
for
acquisitions....         --    67,154,905
Exercise of
warrants........    (91,987)           --
Unearned
compensation....         --       (56,780)
Amortization of
unearned
compensation....         --       487,946
Net loss........         --   (53,479,881)
Unrealized loss
on securities...         --      (218,671)  $(53,479,881)
Comprehensive
loss............                                (218,671)
                  ---------- -------------- --------------
Balance,
December 31,
1999............  $(151,987) $178,397,251   $(53,698,552)
                  ========== ============== ==============
See accompanying notes to consolidated financial statements.

                                     F-158
VERTICALNET, INC.

                     Consolidated Statements of Cash Flows
Year ended December 31,
                                      ----------------------------------------
                                          1999           1998         1997
                                      -------------  ------------  -----------
Net loss............................  $ (53,479,881) $(13,594,275) $(4,778,789)
Adjustments to reconcile net loss to
 net cash used in operating
 activities:
 Loss from disposal of fixed
  assets............................         30,912            --        3,278
 Depreciation, amortization and
  other noncash charges.............      9,790,278       837,724      388,058
 In-process research and
  development charge................     13,600,000            --           --
 Change in assets net of effect of
  acquisitions:
 Accounts receivable................     (8,031,734)   (1,058,461)    (428,669)
 Inventory..........................      1,894,778            --           --
 Prepaid expenses and other
  assets............................     (1,944,568)   (1,085,213)    (143,420)
 Change in liabilities net of
  effect of acquisitions:
 Accounts payable...................      1,818,386       581,536      509,434
 Accrued expenses...................     12,486,254     1,403,491      135,057
 Deferred revenues..................      7,032,955     1,249,624      493,960
                                      -------------  ------------  -----------
   Net cash used in operating
    activities......................    (16,802,620)  (11,665,574)  (3,821,091)
                                      -------------  ------------  -----------
Cash flows from investing
 activities:
 Acquisitions, net of cash
  acquired..........................    (64,334,532)   (1,858,389)          --
 Loan to Informatrix prior to
  acquisition.......................             --      (550,914)          --
 Purchase of investments............   (195,042,538)           --           --
 Proceeds from sale and redemption
  of investments....................    133,782,760            --           --
 Restricted cash....................     (3,719,097)           --           --
 Loan receivable....................             --        (4,086)    (160,000)
 Bridge financing to Isadra prior
  to acquisition....................       (965,319)           --           --
 Purchase of equity investments.....     (6,700,000)
 Capital expenditures...............     (5,403,196)     (484,408)    (235,671)
                                      -------------  ------------  -----------
   Net cash used investing
    activities......................   (142,381,922)   (2,897,797)    (395,671)
                                      -------------  ------------  -----------
Cash flows from financing
 activities:
 Borrowings under line of credit....             --     2,000,000    2,500,000
 Repayment of line of credit........     (2,000,000)   (2,500,000)          --
 Loans from ICG.....................             --     6,550,000    1,600,000
 Repayment of loans from ICG........             --            --     (950,000)
 Repayment of loans from related
  parties...........................             --      (100,000)          --
 Principal payments on obligations
  under capital leases..............       (903,428)     (189,005)     (48,834)
 Repayment of long-term debt........       (603,261)      (32,852)      (9,139)
 Net proceeds from issuance of
  preferred stock...................             --    13,741,962    1,550,000
 Net proceeds from issuance of
  common stock in initial public
  offering..........................     58,459,305            --           --
 Net proceeds from convertible debt
  issuance..........................    110,870,000            --           --
 Proceeds from exercise of stock
  options and employee stock
  purchase plan.....................      1,952,905         1,399           --
                                      -------------  ------------  -----------
   Net cash provided by financing
    activities......................    167,775,521    19,471,504    4,642,027
                                      -------------  ------------  -----------
Net increase in cash................      8,590,979     4,908,133      425,265
Cash and cash equivalents--beginning
 of period..........................      5,662,849       754,716      329,451
                                      -------------  ------------  -----------
Cash and cash equivalents--end of
 period.............................  $  14,253,828  $  5,662,849  $   754,716
                                      =============  ============  ===========
Supplemental disclosure of cash flow
 information:
Cash paid during the period for
 interest...........................  $     300,806  $    199,016  $    52,925
                                      =============  ============  ===========
Supplemental schedule of noncash
 investing and financing activities:
 Equipment acquired under capital
  leases............................  $   3,120,292  $    383,816  $   415,195
 Issuance of common stock as
  consideration for acquisitions....  $  67,154,905  $    160,294  $        --
 Common stock to be issued as
  consideration for acquisitions....  $  99,545,663  $         --  $        --
 Issuance of common stock as
  consideration for private
  placement fees....................  $          --  $    150,000  $        --
 Issuance of warrants in connection
  with debt financing...............  $          --  $    200,000  $    50,000
 Warrant exercises..................  $      91,987  $         --  $        --
 Liabilities assumed in conjunction
  with acquisitions.................  $  18,671,532  $         --  $        --
 Loans from ICG converted to
  preferred stock...................  $          --  $  1,550,000  $   650,000
 Notes converted to common stock....  $   5,000,000  $         --  $        --
 Financing agreement for directors
  and officers liability
  insurance.........................  $     235,214  $         --  $        --
See accompanying notes to consolidated financial statements.

                                     F-159
VERTICALNET, INC.

                   Notes to Consolidated Financial Statements

(1) Summary of Significant Accounting Policies

Description of Company

      VerticalNet, Inc. ("VerticalNet" or the "Company") owns and operates
vertical trade communities, which are targeted business-to-business communities
of commerce on the Internet. The Company's vertical trade communities are Web
sites that act as industry-specific comprehensive sources of information,
interaction and electronic commerce. Vertical trade communities combine product
information; industry news; requests for proposals; directories; classifieds;
job listings; discussion forums; a variety of electronic commerce opportunities
for buyers and sellers; and other services, such as online professional
education courses and virtual trade shows. Each trade community is individually
branded, focuses on one business sector and caters to individuals with similar
professional interests. The virtual trade communities are designed to attract
technical and purchasing professionals with highly specialized product and
specification requirements and purchasing authority or influence. The Company
was founded on July 28, 1995 and as of March 15, 2000 operates 55 vertical
trade communities in eleven major industry groups: advanced technologies;
communications; environmental; food and packaging; food service/hospitality;
healthcare and science; manufacturing and metals; process; public sector;
service; textiles and apparel.

      Through the December 16, 1999 acquisition of NECX.com LLC ("NECX"), a
business-to-business market maker for the electronic components and hardware
market, the Company is also engaged in the sale of electronic hardware and
components. NECX acts as a third party intermediary, purchasing electronic
hardware and components from various vendors for resale to foreign and domestic
companies. NECX also has overseas subsidiaries in Sweden and Ireland that serve
as sales offices to European exchange customers. NECX's functional currency is
US dollars.

      On February 17, 1999, the Company completed its initial public offering
(the "IPO") of 16,100,000 shares of its common stock at $4.00 per share (on a
post-split basis). Net proceeds to the Company were approximately $58.3 million
(net of underwriters' commission and offering expenses of $6.1 million).

      On July 21, 1999, the Board of Directors of the Company approved a two-
for-one stock split of the Company's common stock. Shares resulting from the
split were distributed on August 20, 1999 to shareholders of record at the
close of business on August 9, 1999.

      On January 20, 2000, the Board of Directors of the Company approved a
two-for-one stock split of the Company's common stock to be distributed in the
form of a stock dividend, payable on or about March 31, 2000 for shareholders
of record at the close of business on March 17, 2000.

      All references in the consolidated financial statements to shares, share
prices and per share amounts have been adjusted retroactively for these splits.

Principles of Consolidation

      The consolidated financial statements include the financial statements of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

                                     F-160
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

Revenue and Editorial and Operational Expenses

      Prior to the acquisition of NECX, the Company generated substantially all
of its revenue from Internet advertising including the development of
"storefronts" (Web pages that focus on advertisers' products and provide a link
to the advertisers' Web sites). The advertising contracts generally do not
extend beyond one year, although certain contracts are for multiple years.
Advertising revenues are recognized ratably over the period of the advertising
contract. In 1999, we also entered into a number of strategic co-marketing
agreements where the Company is responsible for creating co-branded sites.
Revenues from the development of these sites are recognized as earned.
Additional revenues from advertising and maintenance services are recognized as
earned over the term of the contract. Revenues from educational courses are
recognized in the period in which the course is completed and revenues from the
sale of books are recognized in the period in which the books are shipped.
Auction revenues related to transaction fees are recognized at the time that
the auction is successfully concluded. Web hosting revenues are recognized
ratably over the period of service and web development fees are recognized as
earned. All e-commerce revenues, whether transaction fees, a percentage of sale
fee or a minimum guaranteed fee, are recognized when earned. Approximately $3.0
million and $1.0 million at December 31, 1999 and 1998, respectively, included
in the accounts receivable balance, is unbilled due to customer payment terms.

      Gross exchange transaction sales are comprised of product sales, net of
returns and allowances. Product sales typically involve electronic components,
computer products and connectivity equipment. Revenue is recognized when the
products are shipped to customers. The Company reflects the gross revenue and
related product costs of exchange transactions in its consolidated financial
statements since it takes title to the products exchanged in such transactions
and is exposed to both inventory and credit risk related to the execution of
the transactions. However, management believes that the amount of net revenue,
resulting from exchange transactions is an important performance measure for
the exchange business and has presented this amount as a subtotal in the
consolidated statements of operations. Net exchange revenues as shown in the
Company's consolidated financial statements are gross exchange transaction
sales less exchange transaction costs primarily consisting of resale inventory
purchases and freight charges. The Company records a reserve for exchange sales
returns at the time of shipment, based on estimated return rates.

      Barter transactions are recorded at the lower of estimated fair value of
the goods or services received or the estimated fair value of the
advertisements given based on historical cash transactions. Barter revenue is
recognized when the advertising impressions are delivered to the customer and
advertising expense is recorded when the advertising impressions or other
advertising services are received from the customer. If the advertising
impressions are received from the customer prior to the Company delivering the
advertising impressions a liability is recorded, and if the Company delivers
the advertising impressions to the customer prior to receiving the advertising
impressions or other advertising a prepaid expense is recorded. For the year
ended December 31, 1999 and 1998, the Company recognized approximately $3.8
million and $650,000 of advertising revenues and $3.0 million and $498,000 of
advertising expenses from barter transactions, respectively. For the year ended
December 31, 1997, barter transactions were immaterial. The Company has
recorded approximately $968,000 and $175,000 in prepaid expenses related to
barter transactions as of December 31, 1999 and 1998, respectively.

      Editorial and operational expenses primarily consist of Internet
connection charges, depreciation, purchased content, salaries and benefits of
operating and editorial personnel and other related operating costs and are
recorded as incurred.

                                     F-161
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

Product Development

      Product development costs consist principally of salaries and related
costs, which are charged to expense as incurred.

Advertising Costs

      The Company charges advertising costs to expense as incurred. Advertising
expense, exclusive of barter advertising discussed above, was approximately
$4.3 million, $1.9 million and $198,000 for the years ended December 31, 1999,
1998 and 1997, respectively.

Cash and Cash Equivalents

      Cash and cash equivalents include cash, money market investments and
other highly liquid investments with original maturities of three months or
less.

Restricted Cash

      Restricted cash represents certificates of deposit held pursuant to a
building lease agreement and standby letters of credit.

Investments

      The Company accounts for investments in accordance with Statement of
Financial Accounting Standard ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company's marketable investments
are classified as available-for-sale as of the balance sheet date and are
reported at fair value, with unrealized gains and losses, net of tax, recorded
in shareholders' equity (deficit). Realized gains or losses and permanent
declines in value, if any, on available-for-sale securities will be reported in
other income or expense, as incurred.

      The Company holds equity instruments of privately held companies for
business and strategic purposes. These investments are included in other
investments and are accounted for under the cost method since ownership is less
than 20% and the Company does not have the ability to exercise significant
influence over the investees. For these non-quoted investments, the Company's
policy is to regularly review the assumptions underlying the operating
performance and cash flow forecasts in assessing the carrying values. The
Company identifies and records impairment losses on long-lived assets when
events and circumstances indicate that such assets might be impaired. To date,
no such impairment has been recorded.

      The Company has investments in companies whose results are not
consolidated, but over whom the Company exercises significant influence, these
investments are accounted for under the equity method of accounting. Whether or
not the Company exercises significant influence with respect to an investment
depends on an evaluation of several factors including, among others,
representation on the investee's board of directors and ownership level, which
is generally a 20% to 50% interest in the voting securities of the investee,
including voting rights associated with the Company's holdings in common,
preferred and other convertible instruments in the investee. Under the equity
method of accounting, the Company's share of the earnings or losses of the
investee is reflected in the Company's consolidated statements of operations.

                                     F-162
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

Inventory

      Inventory consists of NECX merchandise purchased for resale and is
recorded at the lower of cost or market with the cost determined on the first-
in, first-out basis.

Property and Equipment

      Property and equipment are stated at cost, net of accumulated
amortization and depreciation. Leasehold improvements are amortized on a
straight-line basis over the lesser of the estimated useful life of the asset
or the lease term. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets as follows:
Computer equipment and purchased software....................... 3-5 years
      Office equipment and furniture.................................. 5-7 years
      Trade show equipment............................................   7 years
      Leasehold improvements..........................................   3 years
Internal Use Software

      Under the provisions of Statement of Position ("SOP") 98-1, Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use, the
Company capitalizes costs associated with internally developed and/or purchased
software systems for new products and enhancements to existing products that
have reached the application stage and meet recoverability tests. Capitalized
costs include external direct costs of materials and services utilized in
developing or obtaining internal-use software, payroll and payroll related
expenses for employees who are directly associated with and devote time to the
internal-use software project and interest costs incurred, if material, while
developing internal-use software. Capitalization of such costs begins when the
preliminary project stage is complete and ceases no later than the point at
which the project is substantially complete and ready for its intended purpose.
The carrying value of the software is regularly reviewed and a loss is
recognized if the value of estimated undiscounted cash flow benefit related to
the asset falls below the unamortized cost. As of December 31, 1999,
capitalized costs are not yet being amortized since projects are still in
process.

Goodwill and Intangible Assets

      Goodwill is amortized using the straight-line method from the date of
acquisition over the period of the expected benefits, which ranges from three
to five years. Other intangible assets resulting from the Company's
acquisitions, including covenants not-to-compete, acquired technology,
strategic relationships and acquired workforce, are also amortized using the
straight-line method from the date of acquisition over the period of the
expected benefits, ranging from at two to four years. The Company periodically
assesses the recoverability of goodwill, as well as other long-lived assets,
based upon expectations of future undiscounted cash flows.

Debt Issuance Costs

      Specific costs related to the convertible debt offering were capitalized
upon issuance and are being amortized to interest expense using the effective
interest rate method over five years. As of December 31, 1999, the remaining
debt issuance costs are $3.7 million, classified in other assets on the balance
sheet.

                                     F-163
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

Income Taxes

      The Company records income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and the tax effect of net operating loss carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is recorded against deferred
tax assets if it is more likely than not that such assets will not be realized.

Use of Estimates

      The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Accounting for Impairment of Long-Lived Assets

      The Company assesses impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
future cash flows estimated to be generated by those assets are less than the
assets' carrying amount. The amount of the impairment, if any, is measured
based on projected discounted future cash flows.

Financial Instruments

      In accordance with the requirements of SFAS No. 107, Disclosure about
Fair Value of Financial Instruments, the Company has determined the estimated
fair value of its financial instruments using available market information and
valuation methodologies. The Company's financial instruments consist of cash,
accounts receivable, accounts payable, capital leases and convertible notes.
Considerable judgment is required to develop the estimates of fair value; thus,
the estimates are not necessarily indicative of the amounts that could be
realized in a current market exchange. However, the Company believes the
carrying values of these assets and liabilities, with the exception of the
convertible notes, is a reasonable estimate of their fair market values at
December 31, 1999 and 1998 due to the short maturities of such items. Based on
their quoted market value as of December 31, 1999, the convertible notes are
estimated to have an aggregate fair market value of approximately $487.6
million.

Concentration of Credit Risk

      Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash and cash equivalents in
bank deposits accounts, marketable securities and trade receivables. The
Company has not experienced significant losses related to cash and cash
equivalents and marketable securities and does not believe it is exposed to any
significant credit risks relating to its cash and cash equivalents. The
Company's trade receivables from exchange sales are derived primarily from
sales of electronic hardware products to a large number of customers worldwide.
The Company establishes the allowance for doubtful accounts based on factors
surrounding the credit risk of specific customers, historical

                                     F-164
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

trends and other information. At December 31, 1999 less than 1% of receivables
(denominated in U.S. dollars) is due from exchange customers whose economies
are considered highly inflationary. The Company does not anticipate any losses
from these receivables in excess of the provided allowances. No single customer
accounted for greater than 10% of total revenues during the years ended
December 31, 1999, 1998 and 1997.

Self Insurance

      The Company is self-insured for certain losses related to employee
medical benefits as of December 1999. The Company has purchased stop-loss
coverage in order to limit its exposure. Self insurance losses are accrued
based upon the Company's estimates of the aggregate liability for uninsured
claims incurred using certain actuarial assumptions followed in the insurance
industry. At December 31, 1999, the accrued liability for self-insured losses
included in other accrued expenses is $171,000.

Stock Options

      Stock-based compensation is recognized using the intrinsic value method
in accordance with Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees ("APB No. 25"). For disclosure purposes, pro forma
net loss and loss per share data are provided in accordance with SFAS 123,
Accounting for Stock-Based Compensation as if the fair value method had been
applied.

Computation of Historical Net Loss Per Share and Pro Forma Net Loss Per Share

      Basic net loss per share is computed using the weighted average number of
common shares outstanding during the period. Dilutive net loss per share is
computed using the weighted average number of common and dilutive common
equivalent shares outstanding during the period. Common equivalent shares
potentially could include the incremental common shares issuable upon the
exercise of stock options and warrants (using the treasury stock method) and
the incremental common shares issuable upon the conversion of the convertible
preferred stock (using the if-converted method) and the Company's convertible
debt. Common equivalent shares are excluded from the calculation if their
effect is anti-dilutive. Common stock to be issued upon the conversion of the
convertible note given as consideration for the purchase of NECX was included
in the calculation from the date of acquisition in December 1999 since the
related securities were accounted for as equity.

      Pro forma net loss per share is computed using the weighted average
number of shares of common stock outstanding, including common equivalent
shares from the convertible preferred stock (using the if-converted method),
which automatically converted into common stock upon the completion of the IPO
as if converted at the original date of issuance, for both basic and diluted
net loss per share, even though inclusion is anti-dilutive.

      The following table sets forth the reconciliation between the weighted
average shares outstanding for basic and diluted and pro forma net loss per
share computations:
Year Ended December 31,
                                               --------------------------------
                                                  1999       1998       1997
                                               ---------- ---------- ----------
Weighted average shares outstanding basic and
 diluted.....................................  62,391,416 10,282,200 10,107,460
Effect of convertible preferred stock........   4,267,326 32,259,756 14,629,844
                                               ---------- ---------- ----------
Pro forma weighted average shares
 outstanding.................................  66,658,742 42,541,956 24,737,304
                                               ========== ========== ==========
F-165
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

      The following table sets forth the computation of net loss per share:
Year Ended December 31,
                                        ---------------------------------------
                                            1999          1998         1997
                                        ------------  ------------  -----------
Basic and diluted net loss per share
Numerator: Net loss.................... $(53,479,881) $(13,594,275) $(4,778,789)
Denominator:
  Weighted average shares outstanding
   basic and diluted...................   62,391,416    10,282,200   10,107,460
Basic and diluted net loss per share... $      (0.86) $      (1.32) $     (0.47)
                                        ============  ============  ===========
Pro forma net loss per share
Numerator: Net loss.................... $(53,479,881) $(13,594,275) $(4,778,789)
Denominator:
  Pro forma weighted average shares
   outstanding basic and diluted.......   66,658,742    42,541,956   24,737,304
Basic and diluted net loss per share... $      (0.80) $      (0.32) $     (0.19)
                                        ============  ============  ===========
The conversion of outstanding options, warrants and subordinated
convertible debt resulting in 17,583,787, 2,704,474 and 1,464,292 common stock
equivalents would have been anti-dilutive and were excluded from the
calculations for the years ended December 31, 1999, 1998 and 1997,
respectively.

Recent Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, Accounting for Derivatives and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. SFAS No. 133, as
amended by SFAS No. 137, is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. As we do not currently engage or plan to engage
in derivative or hedging activities, it is not anticipated that there will be
any impact on our results of operations, financial position or cash flows upon
the adoption of this standard.

      In October 1999, the Chief Accountant of the Securities and Exchange
Commission (the "SEC") requested that the Financial Accounting Standards Board
Emerging Issues Task Force (the "EITF") address a number of accounting and
financial reporting issues that the SEC believes had developed with respect to
Internet businesses. The SEC identified twenty issues for which they believed
some form of standard setting or guidance may be appropriate either because (1)
there appeared to be diversity in practice or (2) the issues are not
specifically addressed in current accounting literature or (3) the SEC Staff is
concerned that developing practice may be inappropriate under generally
accepted accounting principles. Many of the issues identified by the SEC,
including those which address barter and revenue recognition, are potentially
applicable to the Company. Although the EITF has begun to deliberate these
issues, formal guidance has not been issued to date for the majority of them.
In addition, in December 1999, the SEC issued Staff Accounting Bulletin ("SAB")
No. 101, Revenue Recognition in Financial Statements, which is required to be
implemented in the quarter ended March 31, 2000. The Company is currently
analyzing the potential impact of SAB No. 101 on its revenue recognition
policies. Although the Company believes its historical accounting policies and
practices conform with generally accepted accounting principles, there can be
no assurance that final consensuses reached by the EITF on the Internet issues
referred to above, or other actions by standard setting bodies, or the
Company's formal implementation of SAB No. 101, will not result in changes to
the Company's historical accounting policies and practices or to the manner in
which certain transactions are presented and disclosed in the Company's
consolidated financial statements.

                                     F-166
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

(2) Acquisitions

      In September 1998, the Company acquired all of the outstanding capital
stock of Boulder Interactive Technology Services Company ("BITC") for $1.8
million in cash. BITC operates a vertical trade community for professionals in
the radio frequency and wireless communications industry. The acquisition was
accounted for as a purchase and the excess of the purchase price over the fair
value of the net assets acquired of approximately $1.9 million was recorded as
goodwill and is being amortized over 36 months.

      In September 1998, the Company acquired all of the outstanding capital
stock of Informatrix Worldwide, Inc. ("Informatrix") for 184,616 shares of the
Company's common stock valued at $153,000. The acquisition was accounted for as
a purchase and the excess of the purchase price over the fair value of the net
assets acquired of approximately $903,000 was recorded as goodwill and is being
amortized over 36 months. The purchase agreement also provided for the Company
to issue up to 46,152 additional shares of the Company's common stock to the
Informatrix shareholders in the event that Informatrix achieved certain sales
targets through December 1998. Through December 31, 1998, the former
shareholders of Informatrix earned, and the Company recorded, the issuance of
14,952 shares of common stock which was valued at $32,000. The additional
consideration was accounted for as additional goodwill. Informatrix operates a
vertical community in the property and casualty insurance industry that caters
to risk managers, agents, brokers and other professionals in the insurance
industry.

      In January 1999, the Company acquired certain assets, including the
Safety Online Web site, and assumed certain liabilities from Coastal Video
Communications ("Coastal"). The Company paid $260,000 in cash, issued a $50,000
note, to be paid within 90 days of the closing of the purchase, and provided
the seller an advertising commitment on the Company's Web site valued at
$160,000. As of December 31, 1999, the Company has paid the note to Coastal and
has fulfilled approximately $104,000 of its advertising commitment to the
seller. The acquisition was accounted for as a purchase and the estimated
excess of the purchase price over the fair value of the net assets acquired of
approximately $550,000 was recorded as goodwill and is being amortized over 36
months. The results of operations from Safety Online are not material to the
Company's consolidated financial position or results of operations. Safety
Online is a vertical trade community serving professionals in the occupational
and safety industry.

      In June 1999, the Company acquired certain assets, including the Oillink
Web site, and assumed certain liabilities of a sole proprietor. The Company
paid $225,000 in cash and issued 11,684 shares of its common stock valued at
$250,000. The acquisition was accounted for as a purchase and the estimated
excess of the purchase price over the fair value of the net assets acquired of
approximately $504,000 was recorded as goodwill and is being amortized over 36
months. The results of operations from Oillink are not material to the
Company's consolidated financial position or results of operations. Oillink is
a vertical trade community for professionals in the global oil and gas
community, offering industry news, information and a number of on-line
services.

      In June 1999, the Company acquired certain assets, including the
ElectricNet Web site, and assumed certain liabilities of a sole proprietor. The
Company paid $975,000 in cash and issued 42,252 shares of its common stock
valued at $825,000. The acquisition was accounted for as a purchase and the
estimated excess of the purchase price over the fair value of the net assets
acquired of approximately $1.9 million was recorded as goodwill and is being
amortized over 36 months. The results of operations from ElectricNet are not
material to the Company's consolidated financial position or results of
operations. ElectricNet is a leading destination for electrical power industry
professionals, offering information for the power transmission and distribution
industry.

                                     F-167
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

      In June 1999, the Company acquired all of the outstanding capital stock
of Techspex, Inc. ("Techspex") for $211,000 in cash and 179,988 shares of
common stock valued at $3.0 million. The acquisition was accounted for as a
purchase and the estimated excess of the purchase price over the fair value of
the net assets acquired of approximately $3.3 million was recorded as goodwill
and is being amortized over 36 months. Techspex was the owner and operator of a
vertical trade community in the machine tools industry. The Web site acts as a
comprehensive source of information, interaction and electronic commerce for
the machine tool industry providing a searchable database of machine tools,
dealers and tooling and accessory suppliers.

      In July 1999, the Company acquired all of the outstanding capital stock
of LabX Technologies Inc. ("LabX") for $1.6 million in cash and 139,588 shares
of common stock valued at $2.8 million. The common stock given as consideration
was reduced by an illiquidity discount of 10% based on restrictions detailed in
the lock up agreements signed by the individuals receiving the stock. The
acquisition was accounted for as a purchase and the estimated excess of the
purchase price over the fair value of the net assets acquired of approximately
$4.6 million was allocated to a covenant not-to-compete, existing technology
and goodwill of approximately $350,000, $500,000 and $3.75 million,
respectively. The covenant not-to-compete is being amortized on a straight-line
basis over 24 months, the term of the covenant, while the existing technology
and goodwill are being amortized on a straight-line basis over 36 months. LabX
was the owner and operator of an Internet trading community focused on
facilitating electronic commerce of scientific equipment on the Internet.
LabX's Web site community allows participants to communicate their buying and
selling requirements for laboratory equipment.

      In August 1999, the Company acquired all of the outstanding capital stock
of CertiSource Inc. ("CertiSource") for $476,000 in cash and 167,424 shares of
common stock valued at $2.7 million. The acquisition was accounted for as a
purchase and the estimated excess of the purchase price over the fair value of
the net assets acquired of approximately $3.4 million was allocated to a
covenant not-to-compete and goodwill of approximately $500,000 and $2.9
million, respectively. Both the covenant not-to-compete and goodwill are being
amortized on a straight-line basis over 36 months. CertiSource provides
registration services for technical and educational training courses, as well
as related training products, consulting services and software. CertiSource
also uses an Internet Web site to provide large corporations training
management services including reporting and the coordination of private
training events.

      In August 1999, the Company acquired certain assets, including the
Surface Finishing Web site, and assumed certain liabilities from Industry On
Line, Inc. ("Industry On Line"). The Company paid $150,000 in cash and issued
13,592 shares of its common stock valued at approximately $251,000. The Company
has also agreed to provide the seller an advertising commitment on the
Company's Web site valued at $140,000. As of December 31, 1999, the Company has
fulfilled approximately $67,000 of its advertising commitment to the seller.
The acquisition was accounted for as a purchase and the estimated excess of the
purchase price over the fair value of the net assets acquired of approximately
$604,000 was recorded as goodwill and is being amortized over 36 months. The
results of operations from Industry On Line are not material to the Company's
consolidated financial position or results of operations. Industry On Line is
the owner and operator of a vertical trade community in the metal finishing
industry.

      In August 1999, the Company acquired all of the outstanding capital stock
of Isadra, Inc. ("Isadra") for $2.4 million in cash, 2,000,000 shares of common
stock valued at $37.8 million and 81,526 options to purchase VerticalNet common
stock valued at $1.5 million at the date of acquisition using the Black-Sholes
model. The common stock given as consideration was reduced by an illiquidity
discount ranging from 5% to 20% based on restrictions detailed in the lock up
agreements signed by the individuals receiving the stock. In

                                     F-168
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

connection with this transaction, the Company agreed to lend up to $1.0 million
to Isadra prior to the closing of this transaction. As of the acquisition date,
the Company had advanced Isadra $965,000. The acquisition was accounted for as
a purchase and the estimated excess of the purchase price over the fair value
of the net assets acquired of approximately $43.9 million was allocated to in-
process research and development, existing technology, assembled work force and
goodwill of approximately $13.6 million, $2.1 million, $500,000 and $27.7
million, respectively. The $13.6 million was charged to expense as a non-
recurring charge upon consummation of the acquisition since the in-process
research and development has not yet reached feasibility and had no alternative
future use (see Note 3). The existing technology and assembled work force are
being amortized on a straight-line basis over 24 months, while goodwill is
being amortized on a straight-line basis over 36 months. Isadra has developed
e-commerce software for vertical industries.

      In December 1999, the Company acquired substantially all of the assets
and liabilities of NECX for approximately $14.1 million cash and $70.0 million
of notes convertible into common stock. The notes were valued at the estimated
fair value of the shares into which they are convertible, based on the average
of the stock price for a few days before and after the transaction was
announced on November 16, 1999. On the date of the definitive agreement,
November 16, 1999, the notes were convertible into 2,008,738 shares of
VerticalNet common stock valued at $99.5 million. Since the notes are required
to be paid in common stock and it is the Company's intention to convert the
notes once a registration statement is declared effective, the notes have been
accounted for as common stock to be issued. Additionally, the Company assumed
certain liabilities including, $10.0 million in debt and a $22.0 million line
of credit which were paid in cash upon the transaction closing.

      NECX was a privately held leader in buying and selling semiconductors,
electronic components, computer products and networking equipment. The
acquisition was accounted for as a purchase and the estimated excess of the
purchase price over the fair value of the net assets acquired of approximately
$120.0 million was allocated to strategic relationships, including customer and
vendor lists, assembled workforce and goodwill in the amounts of approximately
$13.0 million, $2.5 million and $104.5 million respectively. The assembled
workforce is being amortized on a straight-line basis over 48 months, while
strategic relationships and goodwill are being amortized on a straight-line
basis over 60 months.

      In December 1999, the Company acquired certain assets, including the
GovCon Web site, and assumed certain liabilities from GovCon, Inc. ("GovCon").
The Company issued 150,000 shares of its common stock valued at approximately
$12.0 million. The acquisition was accounted for as a purchase and the
estimated excess of the purchase price over the fair value of the net assets
acquired of approximately $12.0 million was recorded as goodwill and is being
amortized over 36 months. The results of operations from GovCon are not
material to the Company's consolidated financial position or results of
operations. GovCon is a Web site community for bidders on federal government
contracts.

      In December 1999, the Company acquired certain assets, including the
TextileWeb Web site, and assumed certain liabilities from TextileWeb, Inc.
("TextileWeb"). The Company issued 76,600 shares of its common stock valued at
approximately $6.1 million. The acquisition was accounted for as a purchase and
the estimated excess of the purchase price over the fair value of the net
assets acquired of approximately $6.3 million was recorded as goodwill and is
being amortized over 36 months. The results of operations from TextileWeb are
not material to the Company's consolidated financial position or results of
operations. TextileWeb is a vertical trade community in the textile industry.

                                     F-169
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

      The following unaudited pro forma financial information presents the
combined results of operations of VerticalNet, BITC, Informatrix, Techspex,
LabX, CertiSource, Isadra and NECX as if the acquisitions occurred on January
1, 1998, after giving effect to certain adjustments including amortization of
goodwill. The unaudited pro forma financial information does not necessarily
reflect the results of operations that would have occurred had VerticalNet,
BITC, Informatrix, Techspex, LabX, CertiSource, Isadra and NECX constituted a
single entity during such periods.
Year ended December 31,
                                                     --------------------------
                                                         1999          1998
                                                     ------------  ------------
Combined revenues................................... $ 55,349,732  $ 42,625,594
Net loss............................................  (89,180,374)  (47,005,966)
Net loss per share..................................        (1.35)        (3.15)
(3) In-Process Research and Development

      The write-off of in-process research and development ("IPR&D") related to
the acquisition of Isadra (discussed in Note 2) totaled $13.6 million which was
expensed as a one time non recurring charge. The allocation of $13.6 million
represents the estimated fair value related to incomplete projects based on
risk-adjusted cash flows. At the date of the acquisition, the projects
associated with the IPR&D efforts had not yet reached technological feasibility
and had no alternative future uses. Accordingly, these costs were expensed. At
the acquisition date, Isadra was conducting development, engineering and
testing activities associated with the completion of the following next
generation technologies: i) CatSmart Business; ii) Business Publisher; and iii)
C2 Hub/Server. The projects under development, at the valuation date, are
expected to address emerging market demands for business-to-business e-
commerce.

      At the acquisition date, the technologies under development were between
70 and 80 percent complete, based on project man-months and costs. Isadra had
spent approximately $3.0 million on the IPR&D and expected to spend
approximately $1.0 million to complete the IPR&D projects. Isadra anticipated
that research and development related to these projects would be completed by
early to mid-2000, after which time Isadra is expected to begin generating
economic benefits from the value of the completed IPR&D.

      In allocating the purchase price, the Company considered present value
calculations of income, an analysis of project accomplishments and completion
costs, an assessment of overall contributions, as well as project risks.

      The values assigned to IPR&D were determined by estimating the costs to
develop the purchased technology into commercially viable products, estimating
the resulting net cash flows from each project, excluding the cash flows
related to the portion of each project that was incomplete at the acquisition
date, and discounting the resulting net cash flows to their present value. Each
of the project forecasts were based upon future discounted cash flows, taking
into account the state of development of each in-process project, the cost to
complete that project, the expected income stream, the life cycle of the
product ultimately developed and the associated risks.

      Aggregate revenue attributable to the IPR&D projects was estimated to
peak, as a percentage of total revenue, in 2000 and decline thereafter through
2003, the end of the estimated life of the IPR&D, as new product technologies
are expected to be introduced by Isadra. For the projects under development,
risk-adjusted discount rates of 50 percent were utilized to discount projected
cash flows.

                                     F-170
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

(4) Property and Equipment
December 31,
                                                        -----------------------
                                                           1999         1998
                                                        -----------  ----------
Computer equipment and purchased software.............. $10,295,624  $1,475,773
Office equipment and furniture.........................   2,695,007     225,658
Trade show equipment...................................      40,587      40,587
Leasehold improvements.................................   2,147,368      45,864
                                                        -----------  ----------
                                                         15,178,586   1,787,882
Less: accumulated depreciation and amortization........  (2,030,958)   (715,819)
                                                        -----------  ----------
Property and equipment, net............................ $13,147,628  $1,072,063
                                                        ===========  ==========
Amortization applicable to property and equipment under capital leases is
included in depreciation expense.

(5) Intangible Assets

      Intangible assets consist of the following:
December 31,
                                                       ------------------------
                                                           1999         1998
                                                       ------------  ----------
Goodwill.............................................. $166,576,270  $2,734,981
Covenant not-to-compete...............................      850,000          --
Existing technology...................................    2,600,000          --
Assembled workforce...................................    3,000,000          --
Strategic relationships...............................   13,000,000          --
                                                       ------------  ----------
                                                        186,026,270   2,734,981
Less: accumulated amortization........................   (8,102,342)   (282,990)
                                                       ------------  ----------
Intangible assets, net................................ $177,923,928  $2,451,991
                                                       ============  ==========
Amortization expense was $7.8 million and $282,990 for the year ended
December 31, 1999 and 1998, respectively.

                                     F-171
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

(6) Investments

      Investments are categorized as available-for-sale securities and
summarized as follows:
Gross      Gross
                                            Unrealized Unrealized
                                             Holding    Holding      Market
                                   Cost       Gains      Losses       Value
                                ----------- ---------- ----------  -----------
Corporate Debt Obligations--
 maturity less than 1 year..... $23,221,249    $--     $ (30,694)  $23,190,555
Corporate Debt Obligations--
 maturity between 1 and 5
 years.........................  10,004,764     --       (64,131)    9,940,633
U.S. Government & Government
 Agency Obligations--maturity
 less than 1 year..............  21,008,976     --       (68,396)   20,940,580
U.S. Government & Government
 Agency Obligations--maturity
 between 1 and 5 years.........   7,000,000     --       (55,450)    6,944,550
                                -----------    ---     ---------   -----------
                                $61,234,989    $--     $(218,671)  $61,016,318
                                ===========    ===     =========   ===========
Investments are classified on the balance sheet as current assets of
$44,131,135 and non-current assets of $16,885,183.

      There were no investments held at December 31, 1998.

      Proceeds from sales of securities available for sale were approximately
$133.8 million for the year ended December 31, 1999. Gross losses were
approximately $25,000 for the year ended December 31, 1999. Realized gains and
losses are computed on a specific identification basis.

(7) Joint Ventures & Equity Investments

Joint Ventures

      With the acquisition of NECX, the Company acquired an ownership interest
in Electronic Commodity Exchange Asia Pte., Ltd. ("NECX Asia") and Asia
Business Venture Holdings Pte., Ltd. ("Asia Business Venture"), both of which
are joint ventures engaged in the distribution of electronic hardware. The
following is a summary of the joint ventures:
Balance in
                                        Original     Other Assets at  Ownership
                                      Investment(1) December 31, 1999 Percentage
                                      ------------- ----------------- ----------
NECX Asia............................   $542,610        $542,610          50%
Asia Business Venture................    937,592         937,592           6
--------
(1) Original investment is based on fair value assumed on the date of the
    acquisition of NECX on December 16, 1999.

      The Company accounts for its ownership in NECX Asia under the equity
method. NECX Asia's total assets are approximately 2% of the Company's total
assets at December 31, 1999 and its net loss is less than 2% of the Company's
net loss for year ended December 31, 1999. The Company accounts for its
minority

                                     F-172
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

interest in Asia Business Venture using the cost method and believes that there
has been no impairment of its investment at December 31, 1999.

Equity Investments

      In July 1999, the Company acquired 414,233 shares of the Series C
preferred stock of Tradex Technologies, Inc. ("Tradex") at a cost of $1.0
million. In December 1999, Tradex entered into an Agreement and Plan of
Reorganization with Ariba, Inc. On March 10, 2000, Ariba announced that it had
completed the acquisition of Tradex. Pursuant to the terms of the Agreement and
Plan of Reorganization, the Company's investment in Tradex will be exchanged
into approximately 283,153 shares of Ariba's common stock (unaudited).

      In October 1999, the Company acquired 352,112 shares of Neoforma's
("Neoforma") Series E preferred stock at a cost of $2.0 million. Additionally
the Company entered into a co-marketing strategic alliance with Neoforma which
includes a $2.0 million payment to the Company over the term of the agreement.
In January 2000, Neoforma successfully consummated an initial public offering
of its common stock, at which time our preferred stock holdings were converted
to common stock on a one-for-one basis. The Company executed a six month lock
up agreement in connection with Neoforma's IPO.

      In November 1999, the Company acquired 630 shares of Zillacast Series A
preferred stock at a cost of $1.5 million. Additionally the Company entered
into a co-marketing strategic alliance with ZillaCast which includes a $750,000
payment to the Company over the term of the agreement.

      In December 1999, the Company invested $1.4 million in BioSupplies.com
("BioSupplies"). The investment is held in escrow and will convert into equity
of BioSupplies upon the terms defined in the agreement. Additionally the
Company entered into a co-marketing strategic alliance with BioSupplies which
includes a $890,000 payment to the Company over the term of the agreement.

      In December 1999, the Company acquired 177,778 shares of Community of
Science ("COS") Series A convertible preferred stock at a cost of $800,000.
Additionally, the Company entered into a co-marketing strategic alliance with
COS which includes a $725,000 payment to the Company over the term of the
agreement. The Company has also purchased advertising services from COS for
$200,000.

      These investments are included in other investments in the accompanying
financial statements and are accounted for under the cost method since the
Company's ownership is less than 20% and the Company does not have the ability
to exercise significant influence over the investee.

(8) Line of Credit

      As of June 1998, the Company reduced its line of credit with the bank
from $2.5 million to $500,000. On November 25, 1998, the agreement was
additionally amended allowing the Company to execute a $2.0 million note with
the bank. The note had an interest rate of prime plus 1.5% and matured at the
earlier of March 31, 1999 or the completion of the Company's next financing. In
connection with the loan, the Company issued warrants to purchase 82,052 shares
of the Company's common stock at an exercise price of $4 per share with an
estimated fair value of $40,000 based on the Black-Scholes model. As of
December 31, 1998, the outstanding balance for borrowings under this facility
was $2,000,000 and the weighted average interest rate for the year ended
December 31, 1998 was 10%.

                                     F-173
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

      Upon the completion of the IPO in February 1999, the line of credit was
reduced back to $500,000 and subsequently expired on June 30, 1999.

      In February 2000, NECX entered into a $33.0 million revolving line of
credit. Under the terms of the loan agreement, NECX is required to satisfy
certain financial covenants, which include: minimum tangible net worth, limits
on capital expenditures and the maintenance of a minimum cash or short term
investment balance of $20.0 million required by the Company. The line of credit
is guaranteed by the Company and is secured by a pledge of the Company's
ownership in NECX and a security interest in the assets of NECX. Interest on
any outstanding balances will be paid monthly at an annual rate equal to the
prime rate, which, as of March 15, 2000, was 8.75%. The commitment fee to
originate the loan was $165,000. NECX must pay an additional fee of .375% per
annum on any unused portion of the line (unaudited).

(9) Accrued Expenses
December 31,
                                                        ----------------------
                                                           1999        1998
                                                        ----------- ----------
Accrued compensation and related costs................. $ 5,775,700 $  454,230
Accrued professional fees..............................     950,042    269,500
Accrued marketing costs................................          --    446,334
Accrued acquisition and debt offering costs............   7,692,824         --
Accrued payable to training suppliers..................     767,889         --
Accrued interest payable on convertible notes..........   1,587,945         --
Accrued withholding on employee exercise of non
 qualified stock options...............................   1,010,171         --
Other..................................................   2,316,777    411,974
                                                        ----------- ----------
                                                        $20,101,348 $1,582,038
                                                        =========== ==========
(10) Long-term Debt and Convertible Notes
December 31,
                                                       ------------------------
                                                           1999         1998
                                                       ------------  ----------
Capital leases........................................ $  3,122,190  $  639,940
Convertible notes.....................................  115,000,000   5,000,000
                                                       ------------  ----------
                                                        118,122,190   5,639,940
Less: current portion.................................   (1,372,255)   (288,016)
                                                       ------------  ----------
Long-term debt........................................ $116,749,935  $5,351,924
                                                       ============  ==========
On September 27, 1999, the Company completed the sale of $100.0 million
of 5 1/4% convertible subordinated debentures in a private placement
transaction pursuant to Section 4(2) of the Securities Act of 1933, resulting
in net proceeds of $96.3 million. Additionally, on October 12, 1999, the over-
allotment option on the convertible debt offering was exercised in full,
resulting in additional convertible debt of $15.0 million and net proceeds of
$14.6 million to the Company. The debentures have a maturity date of September
27, 2004 with semi-annual interest payments due on March 27 and September 27 of
each year beginning March 27, 2000. The debentures are convertible into shares
of the Company's common stock at an initial conversion price of $20 per share,
subject to adjustment under certain circumstances. On February 11, 2000, the
Company filed a registration statement with the Securities and Exchange
Commission covering the convertible subordinated debentures and the shares of
its common stock underlying the debentures. Once the registration statement is

                                     F-174
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

declared effective, the Company may redeem the debentures if the price of the
Company's common stock is above $34 per share for at least 20 trading days
during the 30-day trading period ending on the trading day before the Company
mails notice that the Company intends to redeem the debentures. If the Company
redeems the debentures, the Company must redeem at a price equal to 101.3125%
of the principal amount, pay any accrued but unpaid interest and make an
interest make-whole payment equal to the present value of the interest that
would have accrued from the redemption date through September 26, 2002.

      If the Company were to redeem the debentures on March 31, 2000, the
Company would be required to make an aggregate payment of $13.7 million,
excluding the semi-annual interest payment of $3.0 million the Company made on
March 27, 2000.

      In addition, the Company would write off the debt issuance costs carried
on the balance sheet as a loss on the date of redemption. This amount
approximated $3.7 million at December 31, 1999.

      In February, March and April 1998, Internet Capital Group lent an
aggregate of $1,550,000 to the Company, also at a rate of 9.5%. These amounts
were converted to Series D preferred stock in May 1998 (Note 12).

      In May 1998, the Company repaid their outstanding term note with the bank
and three unsecured term notes due to shareholders.

      On November 25, 1998, Internet Capital Group lent and certain holders of
the Series D preferred stock (the note holders) lent the Company $5.0 million
in the form of convertible notes. The note holders converted the $5.0 million
in convertible notes at the initial public offering into 1,250,000 shares of
common stock. In connection with the notes, the Company issued warrants to
purchase 328,204 shares of the Company's common stock with an estimated fair
value of $160,000 based on the Black-Scholes model at an exercise price of
$4.00 per share.

      The Company has several capital leases with various financial
institutions for computer and communications equipment used in operations with
lease terms ranging from three to five years. Additionally, the Company has an
insurance premium financing agreement for directors and officers liability
insurance. The interest rates under the leases and insurance premium financing
agreement range from 8% to 20%. At December 31, 1999 and 1998, the book value
of assets held under capital leases were approximately $2.8 million and
$518,000, respectively, and the aggregate remaining minimum lease and financing
agreement payments at December 31, 1999 were approximately $3.5 million
including interest of approximately $417,000.

      At December 31, 1999, long-term debt will mature as follows:
2000......................................................... $  1,372,255
      2001.........................................................    1,145,113
      2002.........................................................      588,952
      2003.........................................................        5,898
      2004.........................................................  115,006,760
      2005.........................................................        3,212
                                                                    ------------
        Total...................................................... $118,122,190
                                                                    ============
F-175
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

(11) Commitments and Contingencies

      In January 1999, the Company entered into a one-year agreement with
Compaq Computer Corporation ("Compaq") and its Internet Web site known as
AltaVista. The agreement provides for the Company and AltaVista to sponsor and
promote 31 co-branded Web pages. The agreement requires the Company to pay
Compaq $1.0 million over the term of the agreement based on the number of
advertising impressions delivered. Such amount will be charged to expense as
AltaVista provides the advertising impressions. As of December 31, 1999, no
payments have been made to AltaVista. In addition, each company will provide
the other with $300,000 in barter advertising during the term of the agreement.
Both parties have satisfied their barter advertising obligation under this
agreement. In October 1999, the agreement with AltaVista was terminated and the
Company was relieved of further obligations.

      In August 1999, the Company entered into a one-year agreement with Lycos.
The agreement provides for the Company and Lycos to sponsor and promote co-
branded sites. The agreement requires the Company to pay Lycos $1.0 million
over the term of the agreement based on agreed upon dates and impressions
delivered. As of December 31, 1999, the Company has made a payment of $500,000
to Lycos. In addition, each company committed to provide the other with $1.0
million in barter advertising during the term of the agreement. With the
exception of approximately $17,000 in services due to Lycos, both parties have
satisfied their barter advertising obligation under this agreement as of
December 31, 1999. In January 2000, the contract was modified to increase the
barter advertising during the term of the agreement to $3.0 million.

      In November 1999, the Company entered into a marketing contract with
RealNames Corporation ("RealNames") which requires the Company to pay a $10
million platform license fee in equal quarterly payments over a two year
contact period. An additional fee of $.10 per visit is also required if
aggregate visits reach specified levels. In November 1999 RealNames also
entered into a two-year contract with the Company for $8 million in newsletter
advertising. RealNames will pay the contracted amount in equal monthly payments
over the contract life. For the year ended December 31, 1999, the Company
recognized $333,000 of revenue and $513,000 of expense related to the RealNames
contracts.

      The Company has entered into non-cancelable obligations with several
content service providers and Internet search engines. Under these agreements,
exclusive of the Lycos and RealNames agreements discussed above, the Company's
commitments are as follows:
2000............................................................. $560,500
      2001.............................................................  123,500
      2002.............................................................   50,000
In April 1999, the Company entered into a 10 year lease for its
headquarters commencing in July 1999. According to the terms of the lease
agreement, the Company is required to maintain certificates of deposit for an
agreed upon amount in an escrow account. The certificates of deposit with an
aggregate balance of $1,220,261 were issued in June 1999 and will mature in
five equal installments of $244,052 on August 1, 2000 and the four subsequent
years thereafter. The certificates of deposit are classified as a long-term
asset included in cash restricted on the accompanying consolidated balance
sheet.

                                     F-176
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

      Future minimum lease payments as of December 31, 1999 for the Company's
facility leases are as follows:
2000........................................................... $2,700,000
      2001...........................................................  2,700,000
      2002...........................................................  2,300,000
      2003...........................................................  2,100,000
      2004...........................................................  2,100,000
      Thereafter.....................................................  4,300,000
Rent expense under noncancelable operating leases was approximately $1.3
million, $336,000 and $81,000, for the years ended December 31, 1999, 1998 and
1997, respectively.

      The Company is a party to various legal proceedings and claims, which
arise in the ordinary course of business. In the opinion of management, the
amount of any ultimate liability with respect to these actions will not
materially affect the financial position, results of operations or cash flows
of the Company.

(12) Capital Stock

      At December 31, 1999, the Company's restated Articles of Incorporation
provides the Company with the authority to issue 90,000,000 shares of common
stock and 10,000,000 shares of blank check preferred stock.

Preferred Stock

      In September 1996, the Company sold 512,821 shares of Series A preferred
stock (Series A) for $1.0 million. In July 1997, the Company sold 2,579,580
shares of Series B preferred stock (Series B) for $2.0 million. In October
1997, the Company sold 154,861 shares of Series C preferred stock (Series C)
for $200,000.

      On May 11, 1998 and June 10, 1998, the Company sold 3,988,604 and 569,801
shares of Series D preferred stock (Series D), respectively, for an aggregate
amount of approximately $15.2 million.

      Holders of preferred stock had the option to convert such shares into
shares of common stock on a 1:1 ratio, except for the Series A preferred stock
which converted on a ratio of 4.7619:1. Mandatory conversion occurred upon the
closing of the Company's IPO. The preferred stock voted on an as if converted
basis. The Series A, Series B and Series C, together had the right to elect two
directors of the Company and the Series D holders have the right to elect two
directors of the Company. The holders of preferred stock had no right to elect
or appoint directors after the shares convert into common stock upon the
closing of an IPO.

      Preferred stock consisted of the following at December 31, 1998:
December 31,
                                              Per share                 1998
                                             liquidation             Issued and
Preferred Class                                 value    Authorized Outstanding
---------------                              ----------- ---------- ------------
Series A....................................    $1.95      512,821     512,821
Series B....................................      .78    2,615,385   2,579,580
Series C....................................     1.31      205,128     154,861
Series D....................................     3.51    4,615,385   4,558,405
                                                         ---------   ---------
                                                         7,948,719   7,805,667
                                                         =========   =========
F-177
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

      On February 17, 1999, in connection with the closing of the Company's
IPO, all of the preferred stock converted into 38,939,384 shares of common
stock.

Warrants

      Outstanding warrants as of December 31, 1999 were:
Number of Exercise  Expiration
Date Granted                                    Warrants   Price       Date
------------                                    --------- -------- -------------
April 1997.....................................   15,480   $0.19      April 2007
November 1998..................................  364,672    0.88   November 2008
November 1998..................................  410,264    4.00   November 2008
Stock Option Plans

      In December 1996, the Company's Board of Directors adopted the 1996
Equity Compensation Plan (the "Plan"). Employees, key advisors and non-employee
directors of the Company are eligible to receive awards under the Plan. As of
January 1999, a total of 14.4 million shares of common stock were reserved for
issuance under this Plan.

      In August 1999, the Company's Board of Directors adopted the 1999 Equity
Compensation Plan. A total of 1.2 million shares of common stock were reserved
for issuance to employees of the Company and its subsidiaries.

      In October 1999, the Company's Board of Directors adopted the Equity
Compensation Plan for Employees (1999). A total of 2.8 million shares of common
stock were reserved for issuance to employees of VerticalNet and its
subsidiaries. The plan was amended and restated in November 1999 to increase
the shares of common stock authorized for issuance to 5.8 million.

      The exercise price for the options is determined by the Board of
Directors, but shall not be less than 100% of the fair market value of the
common stock on the date the option is granted. Generally, the options vest
over a four-year period after the date of grant and expire ten years after the
date of grant. Option holders that terminate their employment with the Company
generally forfeit all non-vested options.

      The following table summarizes the activity for the Company's stock
option plans:
Weighted average
                                                      Shares     exercise price
                                                    ----------  ----------------
Outstanding at January 1, 1997.....................         --       $   --
Options granted....................................  2,220,852         0.16
Options cancelled..................................         --           --
                                                    ----------       ------
Outstanding at December 31, 1997...................  2,220,852         0.16
Options granted....................................  6,655,608         0.83
Options exercised..................................     (8,720)        0.05
Options cancelled..................................   (532,296)        0.53
                                                    ----------       ------
Outstanding at December 31, 1998...................  8,335,444         0.67
Options granted....................................  9,928,620        30.46
Options exercised.................................. (2,214,908)        0.63
Options cancelled..................................   (544,140)        4.35
                                                    ----------       ------
Outstanding at December 31, 1999................... 15,505,016       $19.58
                                                    ==========       ======
F-178
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

      The following table summarizes information about stock options
outstanding at December 31, 1999:
Options Outstanding              Options Exercisable
                 -------------------------------------  -----------------------
                                Weighted
                                 Average     Weighted                 Weighted
   Range of        Number       Remaining    Average      Number      Average
   Exercise      Outstanding   Contractual   Exercise   Exercisable   Exercise
    Prices       at 12/31/99      Life        Price     at 12/31/99    Price
   --------      -----------   -----------   --------   -----------   --------
$ 0.07 -  0.08      248,460        7.3        $ 0.07        65,190     $ 0.07
$ 0.20 -  0.25    2,698,220        7.9        $ 0.20     1,488,542     $ 0.20
$ 0.66 -  0.83    2,376,604        8.5        $ 0.69       598,130     $ 0.68
$ 1.42 -  1.42       42,430        9.0        $ 1.42         3,302     $ 1.42
$ 4.00 -  4.00    1,272,602        9.0        $ 4.00       147,464     $ 4.00
$14.17 - 20.00    4,938,700        9.6        $18.18        15,000     $15.58
$22.38 - 25.88      900,600        9.7        $24.09            --         --
$34.57 - 48.00      189,800        9.9        $41.05        10,000     $47.32
$58.00 - 82.82    2,837,600       10.0        $62.33            --         --
                 ----------                              ---------     ------
                 15,505,016                              2,327,628     $ 0.87
                 ==========                              =========     ======
The Company applies APB No. 25 and related interpretations in accounting
for its stock option plan. Had compensation cost been recognized pursuant to
SFAS No. 123, the Company's net loss would have been increased to the pro
forma amounts indicated below:
Year Ended December 31,
                                        ---------------------------------------
                                            1999          1998         1997
                                        ------------  ------------  -----------
Net loss:
  As reported.......................... $(53,479,881) $(13,594,275) $(4,778,789)
  Pro forma............................ $(54,926,120) $(13,776,554) $(4,785,358)
Pro forma loss per share:
  As reported.......................... $      (0.86) $      (1.32) $     (0.47)
  Pro forma............................ $      (0.88) $      (1.34) $     (0.47)
The per share weighted-average fair value of options issued by the
Company during 1999, 1998 and 1997 was $30.46, $0.26 and $0.05, respectively.

      The following range of assumptions were used by the Company to determine
the fair value of stock options granted (the minimum value method was used for
1998 and 1997):
1999       1998     1997
                                                   ----------- -------- --------
Dividend yield....................................          0%       0%       0%
Expected volatility...............................        100%       0%       0%
Average expected option life...................... 4.09 years  5 years  5 years
Risk-free interest rate...........................        5.7%     5.3%     5.9%
Employee Stock Purchase Plan

      In January 1999, the Board adopted an Employee Stock Purchase Plan for
all employees meeting eligibility criteria. Under the Plan, eligible employees
may purchase shares of the Company's common stock,

                                     F-179
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

subject to certain limitations, at 85 percent of the market value. Purchases
are limited to 10 percent of an employee's eligible compensation, up to a
maximum of 4,000 shares per purchase period. At December 31, 1999 approximately
1,056,878 remain available under the Plan. During the year ended 1999, 143,122
shares were issued to or purchased on the open market for employees at the IPO
price of $4 per share since the plan was effective on the date of the IPO.
Subsequent plan periods are for six months, the first of which began on October
31, 1999.

(13) Defined Contribution Plan

      In 1997, the Company established a defined contribution plan for
qualified employees as defined under the plan. Participants may contribute 1%
to 15% of pre-tax compensation, as defined. Under the plan, the Company can
make discretionary contributions. To date, the Company has not made any
contributions to the plan.

(14) Income Taxes

      The components of the net deferred tax assets as of December 31, 1998 and
1999 consist of the following:
December 31,  December 31,
                                                          1999          1998
                                                      ------------  ------------
Deferred Tax Assets:
Net operating losses.................................  33,567,221     6,730,622
Reserves.............................................   1,245,503        27,398
Depreciation & amortization..........................     141,773        26,588
Deferred revenue and other...........................   4,284,956       881,682
                                                      -----------    ----------
                                                       39,239,453     7,666,290
Valuation allowance.................................. (39,239,453)   (7,666,290)
                                                      ===========    ==========
Net deferred tax asset...............................          --            --
                                                      ===========    ==========
Deferred income taxes reflect the net effects of temporary differences
between carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which temporary
differences representing net future deductible amounts become deductible. Due
to the uncertainty on the Company's ability to realize the benefit of the
deferred tax assets, the deferred tax assets are fully offset by a valuation
allowance at December 31, 1999 and 1998. The net change in the valuation
allowance for deferred tax assets at December 31, 1999 and 1998 was an increase
of $31.6 million and $5.6 million, respectively.

      As of December 31, 1999, the Company has approximately $76.0 million of
net operating loss carryforwards for federal income tax purposes. These
carryforwards will begin expiring in 2011 if not utilized. In addition, the
Company has net operating loss carryforwards of approximately $76.0 million in
certain states with various expiration periods beginning in 2002. The majority
of state net operating losses are subject to a $2.0 million annual limitation
and begin expiring in 2006.

                                     F-180
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

      Under the Tax Reform Act of 1986, the utilization of a corporation's net
operating loss carryforward is limited following a greater than 50% change in
ownership within a three year period. Due to the Company's prior and current
equity transactions, a portion of the company's net operating loss
carryforwards are subject to an annual limitation. At December 31, 1999, the
Company had consolidated pre-limitation net operating loss carryforwards
available for future use of approximately $23.9 million. This amount is subject
to an annual limitation of approximately $20.9 million.

      Included in the pre-limitation net operating loss carryforwards are
losses that were generated by companies acquired in 1999. The losses generated
by acquired companies prior to their acquisition generally are available to
offset future taxable income of the acquiring company. However, upon the
acquisition of these companies in 1999, their net operating losses of
approximately $3.5 million became subject to an annual limitation of
approximately $1.0 million.

      Additionally, at December 31, 1999, approximately $14.0 million of the
net deferred tax asset will reduce equity and approximately $1.8 million of the
deferred tax asset will reduce goodwill to the extent such assets are reduced
and reduce future taxable income.

(15) Segment Information

      Based on the manner in which the Company is managed and its resources are
allocated by management, the Company operates in two segments which are
vertical trade communities and exchange operations. The vertical trade
communities operating segment includes all revenue generating activities
associated with the vertical sites, such as advertising, e-commerce, auctions
and education. Exchange operations include market making activities for
computer and electronic equipment resulting from the acquisition of NECX in mid
December 1999.

      The reporting segments follow the same accounting policies used for the
Company's consolidated financial statements and described in the summary of
significant accounting policies. Management primarily evaluates the segments'
performance based upon the operating income (loss) before interest,
amortization and other non-cash charges. The exchange segment performance is
additionally evaluated on gross profit margin of sales which in the table is
reflected as net revenues under the exchange segment.
Year Ended December 31, 1999
                                      -----------------------------------------
                                      Vertical Trade
                                       Communities     Exchange       Totals
                                      -------------- ------------  ------------
Exchange transactions sales.........   $         --  $ 16,500,781  $ 16,500,781
Cost of exchange transaction sales..             --    14,171,345    14,171,345
Net revenues........................     18,428,485     2,329,436    20,757,921
Operating income (loss) before
 interest, amortization and
 in-process research & development
 charge.............................    (33,518,667)      113,904   (33,404,763)
Interest and dividend income........      3,447,665           369     3,448,034
Interest expense....................     (2,103,801)                 (2,103,801)
Amortization expense................      6,814,547     1,004,804     7,819,351
In-process research & development
 charge.............................     13,600,000            --    13,600,000
Net loss............................    (52,589,350)     (890,531)  (53,479,881)
Capital expenditures................      5,052,066       351,130     5,403,196
Segment assets......................    161,889,953   179,014,539   340,904,492
Equity investments..................             --       542,610       542,610
F-181
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

      Prior to the acquisition of NECX, the Company's operations were conducted
solely in the vertical trade communities segment. Accordingly, no segment
information has been presented for 1998 or 1997.

      Approximate exchange sales by country, denominated in U.S. dollars were
as follows, based on the location to which the products were shipped (in
thousands):
Ended December 31, 1999
                                             -----------------------------------
                                                 Exchange             Net
                                             Transaction Sales Exchange Revenues
                                             ----------------- -----------------
United States...............................      $12,425           $1,770
Hong Kong...................................          768               43
Germany.....................................          523               94
Russia......................................          427               54
Singapore...................................          316                8
United Kingdom..............................          257               51
Sweden......................................          244               69
Canada......................................          193               32
Other.......................................        1,348              208
                                                  -------           ------
Total.......................................      $16,501           $2,329
                                                  =======           ======
The only significant foreign sales made by the Company other than the
exchange operations was approximately $581,000 to South Africa in relation to
the Metropolis agreement. This transaction related to the vertical trade
communities segment.

(16) Summarized Quarterly Data (Unaudited)

      Following is a summary of the quarterly results of operations for the
years ended December 31, 1999 and December 31, 1998:
Quarter Ended
                         -----------------------------------------------------
                                                    September
                          March 31,    June 30,        30,        December 31,
                         -----------  -----------  ------------   ------------
1999
Combined net revenues... $ 1,933,779  $ 3,551,180  $  5,182,495   $ 10,090,467
Loss from operations....  (5,756,404)  (7,475,444)  (26,296,357)   (15,295,909)
Net loss................  (5,608,758)  (6,760,711)  (25,826,811)*  (15,283,601)
Net loss per share--
 basic and diluted......       (0.14)       (0.10)        (0.38)         (0.21)
1998
Combined net revenues... $   377,371  $   587,422  $    897,006   $  1,272,970
Loss from operations....  (2,008,935)  (2,885,803)   (3,454,845)    (5,159,421)
Net loss................  (2,084,869)  (2,871,512)   (3,378,036)    (5,259,858)
Net loss per share--
 basic and diluted......       (0.21)       (0.28)        (0.33)         (0.50)
--------
*  Includes $13.6 million in-process research and development charge resulting
   from the Isadra acquisition.

                                     F-182
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

(17) Subsequent Events (Unaudited)

      In January 2000, the Company announced plans to form a joint venture with
Softbank Commerce Corp. ("Softbank"), a wholly-owned subsidiary of Softbank
Corporation. The goal of the new company, to be called VerticalNet Japan, is to
develop, maintain and operate Japanese language vertical trade communities in
Japan.

      On January 17, 2000, the Company entered into a binding letter agreement
with Microsoft Corporation with respect to a strategic relationship. Under the
terms of the letter agreement, the Company agreed with Microsoft to a three-
year commercial relationship and an equity investment by Microsoft in
VerticalNet.

      On March 29, 2000, the Company entered into a definitive agreement with
Microsoft with respect to the commercial relationship. The commercial
relationship with Microsoft has a three-year term during which Microsoft will
purchase from the Company and then distribute to third party businesses at
least 80,000 of the Company's storefronts and e-commerce centers. The Company
will assist Microsoft in distributing 30,000 of these storefronts and e-
commerce centers. Microsoft will pay the Company a minimum of approximately
$161.9 million in the aggregate over the term for the storefronts and e-
commerce centers. Microsoft will provide the storefronts and e-commerce centers
it purchases from the Company to business customers for the 12 month
subscription period. For each customer, the Company will build the storefront
or e-commerce center on one of the Company's vertical trade communities. The
Company will pay Microsoft an aggregate of $60 million during the term for
advertising and promotional placements in The Microsoft Network and on
Microsoft's bCentral website and, if the pace of Microsoft's distribution of
storefronts and e-commerce centers does not meet agreed upon goals, additional
amounts for advertising and promotional placements not to exceed $15 million in
the aggregate.

      Microsoft will pay the Company an aggregate of $60 million during the
term for advertising and promotional placements in our vertical trade
communities. The Company will pay Microsoft an aggregate of $18.5 million over
the term to be directed toward the development and enhancement of products and
services relating to the business-to-business marketplace and database software
technology.

      The Company will use commercially reasonably efforts during the term to
adopt and use Microsoft products to operate the Company's vertical trade
communities when appropriate and feasible. The Company will pay Microsoft an
aggregate of $56.5 million over the term towards the licensing of Microsoft
products and provision of Microsoft services.

      In connection with the strategic relationship, and in accordance with the
letter agreement dated January 17, 2000, Microsoft will make an initial $100
million equity investment in VerticalNet through the purchase of shares of the
Company's Series A 6% convertible redeemable preferred stock, which would be
convertible into 1,151,080 shares of the Company's common stock. Microsoft will
be entitled to registration rights and will receive the right to nominate one
member of VerticalNet's board of directors. In addition, Microsoft will receive
warrants entitling Microsoft to purchase 1,500,000 shares of the Company's
common stock at an exercise price of $69.50 per share. The share numbers and
the exercise price mentioned in this paragraph (along with other information in
these notes) are adjusted to reflect the split of our common stock to be
effected on or about March 31, 2000. The Company expects that the equity
investment by Microsoft in the Company will close in late March or April of
2000.

      In February 2000, the Company announced the formation of VerticalNet
Europe, a joint venture with British Telecommunications, plc ("BT") and ICG.
The Company will be the majority shareholder in the joint

                                     F-183
VERTICALNET, INC.

            Notes to Consolidated Financial Statements--(Continued)

venture which has been funded with $107 million in cash from the three
partners. The Company is contributing to the joint venture $7 million in cash
and intellectual property for the operations of vertical trade communities
within Europe. Additionally VerticalNet Europe and BT have agreed to create
VerticalNet UK Ltd. as part of the joint venture.

      In February 2000, the Company signed an agreement to acquire RW
Electronics for $10.0 million of cash and 720,642 shares of the Company common
stock. Based on the average closing price of the Company's common stock between
February 16, 2000 and the day immediately preceding the date that a
registration statement covering the common stock is declared effective by the
Securities and Exchange Commission, the Company may be required to issue up to
366,702 additional shares of its common stock. The Company also agreed to
assume indebtedness of RW Electronics, including a line of credit estimated as
of March 15, 2000 to be approximately $21.0 million. RW Electronics operates an
exchange in the electronic hardware market. The consummation of this
transaction is subject to certain closing conditions. The acquisition will be
accounted for as a purchase and the estimated excess of the purchase price over
the fair value of the net assets acquired will be allocated to strategic
relationships, including customer and vendor lists, assembled workforce and
goodwill.

      In March 2000, the Company acquired Tradeum, Inc. through a merger of
VERT Acquisition Corp., a wholly-owned subsidiary of the Company, with and into
Tradeum. In connection with the merger, the Company issued approximately 4.0
million shares of its common stock for all of the outstanding shares and
options in Tradeum. The merger will be accounted for as a purchase transaction.
Tradeum is a development-stage company located in San Francisco, California and
is engaged principally in the development of information technology designed to
enable the building and hosting of business-to-business exchanges, auctions and
sourcing activities.

      In March 2000, the Company announced the formation of
PaintandCoatings.com Inc., a joint venture with Eastman Chemical Company, to
transform the Company's Paint and Coatings vertical trade community into a one-
stop, independent Internet marketplace for the paint and coatings industry. The
Company will be the minority shareholder in the joint venture, which was funded
with $1.5 million from the two partners. In addition to the Company's $600,000
cash contribution, the Company will provide administrative and other support
services and will license intellectual property related to the maintenance and
operation of the Web site.

      To accommodate the Company's split of its common stock to be effected on
or about March 31, 2000, the Company filed, on March 29, 2000, an amendment to
its restated Articles of Incorporation to increase the number of shares of its
authorized common stock by 36,787,533 to 126,787,533 shares. The amendment was
filed to increase the number of authorized shares of common stock by the number
of outstanding shares of common stock as of March 17, 2000, the record date for
the Company's split of its common stock.

                                     F-184
INTERNET CAPITAL GROUP, INC.

               Pro Forma Condensed Combined Financial Statements
                             Basis of Presentation
                                  (Unaudited)

      During 1999 and 2000, Internet Capital Group, Inc. acquired significant
minority ownership interests in 38 partner companies accounted for under the
equity method of accounting. In February 2000, we agreed to acquire a
significant minority ownership interest in eCredit.com for total purchase
consideration of approximately $450 million in stock. In March 2000, we agreed
to acquire a majority ownership interest in RightWorks for approximately $635
million in stock and $22 million in cash. In addition, we deconsolidated
Breakaway Solutions, Inc. subsequent to September 30, 1999 due to the decrease
in our voting ownership percentage in the company from above to below 50%.

      The unaudited pro forma condensed combined statement of operations for
the year ended December 31, 1999 gives effect to the acquisition of a
significant minority ownership interest in eCredit.com, the acquisition of a
majority ownership interest in RightWorks, the 1999 and 2000 acquisitions of
significant minority ownership interests in 38 equity method partner companies,
and the acquisition of our ownership interest in Breakaway Solutions, Inc. as a
company accounted for under the equity method as if the transactions had
occurred on January 1, 1999. As VerticalNet, Inc. was deconsolidated in the
first quarter of 1999, no pro forma adjustments to the consolidated statement
of operations for the year ended December 31, 1999 are necessary to reflect its
deconsolidation.

      The unaudited pro forma condensed combined balance sheet as of December
31, 1999 gives effect to the acquisition of a significant minority ownership
interest in eCredit.com, the acquisition of a majority ownership interest in
RightWorks, and the acquisitions during the period from January 1, 2000 through
March 24, 2000 of significant minority ownership interests in 13 new and 13
existing equity method partner companies as if the transactions had occurred on
December 31, 1999.

      The unaudited pro forma condensed combined financial statements have been
prepared by the management of Internet Capital Group, Inc. and should be read
in conjunction with our historical consolidated financial statements contained
elsewhere herein, and the historical consolidated financial statements of
eCredit.com and RightWorks which are included elsewhere herein. Since the
unaudited pro forma financial statements which follow are based upon the
financial condition and operating results of eCredit.com, RightWorks and the
equity method partner companies acquired during periods when they were not
under the control or management of Internet Capital Group, Inc., the
information presented may not be indicative of the results which would have
actually been obtained had the acquisitions been completed on the pro forma
dates reflected nor are they indicative of future financial or operating
results. The unaudited pro forma financial information does not give effect to
any synergies that may occur due to the integration of Internet Capital Group,
Inc. with eCredit.com, RightWorks, and the other equity method partner
companies.

      The effects of the acquisitions have been presented using the purchase
method of accounting and accordingly, the purchase price was allocated to the
assets and liabilities assumed based upon management's best preliminary
estimate of fair value with any excess purchase price being allocated to
goodwill, other identifiable intangibles and in-process research and
development costs (if any). We have not determined the amount of any in-process
research and development costs associated with the eCredit.com and RightWorks
acquisitions. The preliminary allocation of the purchase price will be subject
to further adjustments as we finalize our allocation of purchase price in
accordance with generally accepted accounting principles.

                                       28
INTERNET CAPITAL GROUP, INC.

     Unaudited Pro Forma Condensed Combined Balance Sheet December 31, 1999

                                 (In thousands)
Internet
                          Capital
                           Group,    Pro Forma        Sub-    eCredit.com  RightWorks   Pro Forma
                            Inc.    Adjustments      Total    Acquisition  Acquisition   Combined
                         ---------- -----------    ---------- -----------  -----------  ----------
Assets
Current Assets
 Cash and cash
  equivalents........... $1,343,459  $(376,891) c  $  966,568        --     $(10,078)b  $  956,490
 Short-term
  investments...........      3,359         --          3,359        --           --         3,359
 Accounts receivable,
  less allowance for
  doubtful accounts.....      1,207         --          1,207        --        3,163 b       4,370
 Prepaid expenses and
  other current assets..      6,347         --          6,347        --          129 b       6,476
                         ----------  ---------     ----------  --------     --------    ----------
 Total current assets...  1,354,372   (376,891)       977,481        --       (6,786)      970,695
 Fixed assets, net......      4,015                     4,015        --          413 b       4,428
 Ownership interests in
  and advances to
  Partner Companies.....    547,339    403,488 c,d    950,827  $450,000 a         --     1,400,827
 Available-for-sale
  securities............     46,767         --         46,767        --           --        46,767
 Intangible assets,
  net...................     23,649         --         23,649        --      881,780 b     905,429
 Deferred taxes.........     34,388         --         34,388        --           --        34,388
 Other..................     39,854         --         39,854        --           --        39,854
                         ----------  ---------     ----------  --------     --------    ----------
Total Assets............ $2,050,384  $  26,597     $2,076,981  $450,000     $875,407    $3,402,388
                         ==========  =========     ==========  ========     ========    ==========
Liabilities and
 Shareholders' Equity
Current Liabilities
 Current maturities of
  long-term debt........ $    3,000         --     $    3,000        --           --    $    3,000
 Accounts payable.......      6,750         --          6,750        --     $  3,959 b      10,709
 Accrued expenses.......      4,205         --          4,205        --           --         4,205
 Notes payable to
  Partner Company.......     34,134         --         34,134        --           --        34,134
 Other..................        903         --            903        --           --           903
                         ----------  ---------     ----------  --------     --------    ----------
 Total current
  liabilities...........     48,992         --         48,992        --        3,959        52,951
 Long-term debt.........      3,185         --          3,185        --        2,456 b       5,641
 Subordinated debt......    566,250         --        566,250        --           --       566,250
 Other liability........      4,255         --          4,255        --           --         4,255
 Deferred taxes.........         --         --             --        --      229,950 b     229,950
 Minority interest......      7,481         --          7,481        --        4,042 b      11,523
Shareholders' Equity
 Total shareholders'
  equity................  1,420,221  $  26,597 d    1,446,818  $450,000 a    635,000 b   2,531,818
                         ----------  ---------     ----------  --------     --------    ----------
Total Liabilities and
 Shareholders' Equity... $2,050,384  $  26,597     $2,076,981  $450,000     $875,407    $3,402,388
                         ==========  =========     ==========  ========     ========    ==========
See notes to unaudited pro forma condensed combined financial statements

                                       29
INTERNET CAPITAL GROUP, INC.

  Unaudited Pro Forma Condensed Combined Statement of Operations for the Year
                            Ended December 31, 1999

                     (In thousands, except per share data)
Internet
                          Capital
                           Group,      Breakaway     Pro Forma                eCredit.com RightWorks   Pro Forma
                            Inc.    Deconsolidation Adjustments    Sub-Total  Acquisition Acquisition  Combined
                          --------  --------------- -----------    ---------  ----------- -----------  ---------
Revenue                   $ 16,536     $(14,743)     $   7,941 f   $   9,734          --   $   2,152 h $  11,886
                          --------     --------      ---------     ---------   ---------   ---------   ---------
Operating Expenses
 Cost of revenue........     8,156       (7,038)            --         1,118          --         430 h     1,548
 Selling, general and
  administrative........    48,924      (14,722)         6,234 f,j    40,436          --     305,100 h   345,536
                          --------     --------      ---------     ---------   ---------   ---------   ---------
 Total operating
  expenses..............    57,080      (21,760)         6,234        41,554          --     305,530     347,084
                          --------     --------      ---------     ---------   ---------   ---------   ---------
                           (40,544)       7,017          1,707       (31,820)         --    (303,378)   (335,198)
Other income, net.......    67,384          (28)           329 f      67,685          --          70 h    67,755
Interest income.........     9,631          (59)            --         9,572          --          --       9,572
Interest expense........    (3,897)          54             --        (3,843)         --          --      (3,843)
                          --------     --------      ---------     ---------   ---------   ---------   ---------
Income (Loss) Before
 Income Taxes, Minority
 Interest and Equity
 Income (Loss)..........    32,574        6,984          2,036        41,594          --    (303,308)h  (261,714)
Income taxes............    23,722           --         93,550 i     117,272   $  54,352     102,900 h   274,524
Minority interest.......     6,026           --         (3,993)f,j     2,033          --       4,189 h     6,222
Equity income (loss)....   (92,099)          --       (269,547)g,j  (361,646)   (155,292)         --    (516,938)
                          --------     --------      ---------     ---------   ---------   ---------   ---------
Net Income (Loss).......  $(29,777)    $  6,984      $(177,954)    $(200,747)  $(100,940)  $(196,219)  $(497,906)
                          ========     ========      =========     =========   =========   =========   =========
Net Income (Loss) per
 Share
 Basic..................  $  (0.15)                                                                    $   (2.34)
 Diluted................  $  (0.15)                                                                    $   (2.34)
Weighted Average Shares
 Outstanding
 Basic..................   201,851                                                                       213,199 k
 Diluted................   201,851                                                                       213,199 k
See notes to unaudited pro forma condensed combined financial statements.

                                       30
INTERNET CAPITAL GROUP, INC.

           Notes to Pro Forma Condensed Combined Financial Statements
                                  (Unaudited)

1 . Basis of Presentation

      The unaudited pro forma condensed combined balance sheet as of December
31, 1999 gives effect to the acquisition of a significant minority ownership
interest in eCredit.com, the acquisition of a majority ownership interest in
RightWorks, and the acquisition of significant minority ownership interests in
13 new and 13 existing equity method partner companies as if the transactions
had occurred on December 31, 1999.

      The unaudited pro forma condensed combined statement of operations for
the year ended December 31, 1999 gives effect to the acquisition of a
significant minority ownership interest in eCredit.com, the acquisition of a
majority ownership interest in RightWorks, the deconsolidation of Breakaway
Solutions, Inc., the 1999 and 2000 acquisitions of significant minority
ownership interests in 38 equity method partner companies and the acquisition
of our ownership interest in Breakaway Solutions, Inc. as a company accounted
for under the equity method, as if the transactions had occurred on January 1,
1999.

      The effects of the acquisitions have been presented using the purchase
method of accounting and accordingly, the aggregate purchase price of these
acquisitions was allocated to the assets and liabilities assumed based upon
management's best preliminary estimate of fair value with any excess purchase
price being allocated to goodwill, other identifiable intangibles and in-
process research and development (if any). We have not determined the amount of
any in-process research and development costs associated with the eCredit.com
and RightWorks' acquisitions. The preliminary allocation of the purchase price
will be subject to further adjustments as we finalize our allocations of
purchase price in accordance with generally accepted accounting principles.

2. Pro Forma Balance Sheet Adjustments

      The pro forma balance sheet adjustments as of December 31, 1999 reflect:

    (a) The acquisition of a significant minority ownership interest in
        eCredit.com for approximately $450 million in our common stock.

    (b) The acquisition of a majority ownership interest in RightWorks for
        approximately $635 million in our common stock and $22 million in
        cash. The total RightWorks purchase price of approximately $657
        million was allocated as follows: cash -- $11.9 million, net
        receivables -- $3.2 million, fixed and other assets -- $0.6 million,
        accounts payable and accruals -- $4.0 million, long-term debt --
        $2.5 million, minority interest -- $4.0 million, $230.0 million
        deferred tax liability and goodwill and intangibles -- $881.8
        million.

    (c) The acquisition during the period from January 1, 2000 through March
        24, 2000 of new and additional significant minority ownership
        interests in equity method partner companies for aggregate cash
        consideration of $377 million.

    (d) The acquisition in January 2000 of a new significant minority
        ownership interest in an equity method partner company for
        approximately $26.6 million in our common stock.

                                       31
INTERNET CAPITAL GROUP, INC.

    Notes to Pro Forma Condensed Combined Financial Statements--(Continued)
                                  (Unaudited)

3. Pro Forma Statement of Operations Adjustments

     The pro forma statement of operations adjustments for the year ended
December 31, 1999 consist of:

    (e) Equity income (loss) has been adjusted to reflect our acquisition of
        a significant minority ownership interest in eCredit.com and the
        related interest in the income (loss) and amortization of the
        difference in our carrying value and ownership interest in the
        underlying net equity of eCredit.com over an estimated useful life of
        three years. For the year ended December 31, 1999, equity income
        (loss) of $155.3 million includes $5.3 million of equity income
        (loss), and $150 million in amortization of the difference between
        cost and equity in net assets. For the year ended December 31, 1999,
        income tax benefit has been adjusted $54.3 million to reflect the tax
        effect of the eCredit.com pro forma adjustments.

    (f) Reflects additional revenue of $7.9 million, general and
        administrative expenses of $8.4 million, other income of $0.3
        million, and minority interest of $0.5 million related to the
        acquisitions of Animated Images, Purchasing Group, Inc. and
        Integrated Sourcing, LLC. Included in general and administrative
        expenses is approximately $2.4 million of goodwill amortization
        during the year ended December 31, 1999, relating to these
        acquisitions.

    (g) Equity income (loss) has been adjusted by $267.3 million to reflect
        our ownership interests in the income (loss) of the 38 equity method
        partner company acquisitions in 1999 and 2000 and the amortization of
        the difference in our carrying value in the partner companies and our
        ownership interest in the underlying net equity of the partner
        companies over an estimated useful life of three years. For the year
        ended December 31, 1999, equity income (loss) includes $25.5 million
        of equity income (loss) and $241.7 million in amortization of the
        difference between cost and equity in net assets.

    (h) Reflects additional revenue of $2.2 million, cost of revenue of $0.4
        million, general and administrative expenses of $305.1 million, other
        income of approximately $.1 million, income tax benefit of $102.9
        million related to the amortization of goodwill, and minority
        interest of $4.2 million related to the acquisition of a majority
        interest in RightWorks. Included in general and administrative
        expenses is approximately $294 million of goodwill amortization
        during the year ended December 31, 1999, relating to this
        acquisition.

    (i) Income tax benefit has been adjusted $93.6 million for the year ended
        December 31, 1999 to reflect the tax effect of the pro forma
        adjustments.

    (j) Reflects elimination of $3.4 million for the year ended December 31,
        1999 related to Breakaway Solutions, Inc. upon its deconsolidation,
        and the reclass of $2.2 million of amortization of goodwill related
        to our acquisition of Breakaway Solutions, Inc. from selling, general
        and administrative expense to equity income (loss) upon its
        deconsolidation.

    (k) Reflects the issuance of 150,000 shares related to the acquisition of
        e-Chemicals, Inc. in January 2000, and the issuance of 6.5 million
        shares related to the RightWorks acquisition and 4.7 million shares
        related to the eCredit.com acquisition as if the issuances occurred
        on January 1, 1999.

                                      32
PART II.

              INFORMATION REQUIRED IN THE REGISTRATION STATEMENT.

Item 3. Incorporation of Documents by Reference

      The following documents, which we have filed with the SEC, are
incorporated by reference into this registration statement:

          (a) The prospectus we filed with the SEC on December 16, 1999
    pursuant to Rule 424(b) under the Securities Act;

          (b) Our annual report on Form 10-K for the year ended December 31,
    1999;

          (c) All other reports filed with the SEC pursuant to Section 13(a)
    or 15(d) of the Securities Exchange Act of 1934 since December 31, 1999;
    and

          (d) The description of our Common Stock contained in our
    registration statement on Form 8-A (SEC File No. 222-26929), filed
    August 4, 1999, which incorporates by reference the section entitled
    "Description of Capital Stock" in our registration statement on Form S-1
    (SEC File No. 333-78193), filed May 11, 1999, as amended, and including
    any amendment or report filed for the purpose of updating such
    description.

      In addition, all documents that we subsequently file with the SEC
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act
of 1934 prior to the filing with the SEC of a post-effective amendment to this
registration statement that (1) indicates that all shares of Common Stock
registered on this registration statement have been sold or (2) effects the
deregistration of the balance of such shares then remaining unsold shall be
deemed to be incorporated in this registration statement by reference and to be
a part of this registration statement from the date of filing of such
documents.

Item 4. Description of Securities.

      Not applicable.

Item 5. Interests of Named Experts and Counsel.

      Dechert Price & Rhoads, Internet Capital Group's counsel, beneficially
owns 41,666 shares of our common stock and warrants exercisable at $6.00 per
share to purchase 8,333 shares of our common stock. Members of and attorneys
associated with Dechert Price & Rhoads beneficially own an aggregate of 12,554
shares of our common stock and warrants exercisable at $6.00 per share to
purchase 1,111 shares of our common stock.

Item 6. Indemnification of Directors and Officers.

      Under Section 145 of the General Corporation Law of the State of
Delaware, Internet Capital Group has broad powers to indemnify its directors
and officers against liabilities they may incur in such capacities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). Internet Capital Group's bylaws also provide for mandatory
indemnification of its directors and executive officers, and permissive
indemnification of its employees and agents, to the fullest extent permissible
under Delaware law.

      Internet Capital Group's certificate of incorporation provides that the
liability of its directors for monetary damages shall be eliminated to the
fullest extent permissible under Delaware law. Pursuant to Delaware law, this
includes elimination of liability for monetary damages for breach of the
directors' fiduciary

                                      II-1
duty of care to Internet Capital Group and its shareholders. These provisions
do not eliminate the directors' duty of care and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available under Delaware law. In addition, each director will
continue to be subject to liability for breach of the director's duty of
loyalty to Internet Capital Group, for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for any
transaction from which the director derived an improper personal benefit, and
for payment of dividends or approval of stock repurchases or redemptions that
are unlawful under Delaware law. The provision also does not affect a
director's responsibilities under any other laws, such as the federal
securities laws or state or federal environmental laws.

      Prior to the effective date of the Registration Statement, Internet
Capital Group entered into agreements with its directors and certain of its
executive officers that require Internet Capital Group to indemnify such
persons against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred (including expenses of a derivative action) in
connection with any proceeding, whether actual or threatened, to which any such
person may be made a party by reason of the fact that such person is or was a
director or officer of Internet Capital Group or any of its affiliated
enterprises, provided such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of
Internet Capital Group and, with respect to any criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The
indemnification agreements also set forth certain procedures that will apply in
the event of a claim for indemnification thereunder.

      Internet Capital Group has obtained a policy of directors' and officers'
liability insurance that insures the Company's directors and officers against
the cost of defense, settlement or payment of a judgment under certain
circumstances.

Item 7. Exemption From Registration Claimed.

      The sale and issuance of restricted securities registered for resale
hereunder were exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act as transactions by an issuer not involving a
public offering, where the purchasers were sophisticated investors who
represented their intention to acquire securities for investment only and not
with a view to distribution and received or had access to adequate information
about the Registrant and in reliance on rule 701 promulgated under the
Securities Act.

      Appropriate restrictive legends were affixed to the stock certificates
issued in the above transactions. Similar legends were imposed in connection
with any subsequent sales of any such securities. No underwriters were employed
in any of the above transactions.

                                      II-2
Item 8. Exhibits
Exhibit
 Number  Description
 ------- -----------
4.1    Restated Certificate of Incorporation of the Registrant (incorporated
         by reference to Exhibit 3.1 to the Registrant's Registration Statement
         on Form S-1 (Reg. No. 333-78193). (the "Registration Statement")

  4.2    Amended and Restated Bylaws of the Registrant (incorporated reference
         to Exhibit 3.2 to the Registration Statement)

  5      Opinion of Dechert Price & Rhoads

 23.1    Consent of KPMG LLP regarding Internet Capital Group, Inc.

 23.2    Consent of Ernst & Young LLP regarding eCredit.com, Inc.
 23.3    Consent of PricewaterhouseCoopers LLP regarding eCredit.com, Inc.
 23.4    Consent of KPMG LLP regarding eMerge Interactive, Inc.
 23.5    Consent of Ernst & Young LLP regarding JusticeLink, Inc. (formerly
         LawPlus, Inc.)
 23.6    Consent of Arthur Andersen LLP regarding MetalSite as a Component of
         Weirton Steel Corporation
 23.7    Consent of Arthur Andersen LLP regarding MetalSite General Partner,
         LLC
 23.8    Consent of Arthur Andersen LLP regarding RightWorks
 23.9    Consent of PricewaterhouseCoopers LLP regarding Syncra Software, Inc.
 23.10   Consent of Arthur Andersen LLP regarding USgift.com Corporation
 23.11   Consent of KPMG LLP regarding VerticalNet, Inc.
 23.12   Consent of Dechert Price & Rhoads (included in Exhibit 5)
II-3
Item 9. Undertakings.

      (a) The undersigned registrant hereby undertakes:

                  (1) To file, during any period in which offers or sales are
            being made, a post-effective amendment to this registration
            statement:

                        (i) To include any prospectus required by section
                  10(a)(3) of the Securities Act of 1933;

                        (ii) To reflect in the prospectus any facts or events
                  arising after the effective date of the registration
                  statement (or the most recent post-effective amendment
                  thereof), which, individually or in the aggregate, represent
                  a fundamental change in the information set forth in the
                  registration statement. Notwithstanding the foregoing, any
                  increase or decrease in volume of securities offered (if the
                  total dollar value of securities offered would not exceed
                  that which was registered) and any deviation from the low or
                  high end of the estimated maximum offering range may be
                  reflected in the form of prospectus filed with the SEC
                  pursuant to Rule 424(b) if, in the aggregate, the changes in
                  volume and price represent no more than a 20% change in the
                  maximum aggregate offering price set forth in the
                  "Calculation of Registration Fee" table in the effective
                  registration statement;

                        (iii) To include any material information with respect
                  to the plan of distribution not previously disclosed in the
                  registration statement or any material change to such
                  information in the registration statement;

                        Provided, however, that paragraphs (a)(1)(i) and
                  (a)(1)(ii) above do not apply if the information required to
                  be included in a post-effective amendment by those
                  paragraphs is contained in periodic reports filed with or
                  furnished to the SEC by the registrant pursuant to Section
                  13 or Section 15(d) of the Securities Exchange Act of 1934
                  that are incorporated by reference in this registration
                  statement.

                  (2) That, for the purpose of determining any liability under
            the Securities Act, each such post-effective amendment shall be
            deemed to be a new registration statement relating to the
            securities offered therein, and the offering of such securities at
            that time shall be deemed to be the initial bona fide offering
            thereof.

                  (3) To remove from registration by means of a post-effective
            amendment any of the securities being registered which remain
            unsold at the termination of the offering.

      (b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

      (c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the

                                      II-4
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.

           [The remainder of this page is left blank intentionally.]

                                      II-5
SIGNATURES

      Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Philadelphia, Commonwealth of Pennsylvania, on
this 13th day of April, 2000.

                                          Internet Capital Group, Inc.

                                                   Walter W. Buckley, III
                                          By: _________________________________
                                                   Walter W. Buckley, III
                                               President and Chief Executive
                                                          Officer

                               POWER OF ATTORNEY

      KNOWN TO ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Walter W. Buckley, III and David D.
Gathman and each of them, individually, his attorneys-in-fact, with full power
of substitution and resubstitution, for him in any and all capacities, to sign
any or all amendments or post-effective amendments to this registration
statement and to file the same with the Securities and Exchange Commission,
granting unto each of such attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
all that each such attorney-in-fact, or his agent or substitutes, may do or
cause to be done by virtue hereof.

      Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature                          Title                   Date
              ---------                          -----                   ----
Walter W. Buckley, III         President, Chief Executive   April 13, 2000
______________________________________  Officer, and Director
        Walter W. Buckley, III          (principal executive
                                        officer)

           David D. Gathman            Chief Financial Officer      April 13, 2000
______________________________________  and Treasurer (principal
           David D. Gathman             financial and accounting
                                        officer)

          Julian A. Brodsky            Director                     April 13, 2000
______________________________________
          Julian A. Brodsky

            Kenneth A. Fox             Director                     April 13, 2000
______________________________________
            Kenneth A. Fox

        Dr. Thomas P. Gerrity          Director                     April 13, 2000
______________________________________
        Dr. Thomas P. Gerrity
II-6
Signature                          Title                   Date
              ---------                          -----                   ----
Warren V. Musser              Director                     April 13, 2000
______________________________________
           Warren V. Musser

         Peter A. Solvik               Director                     April 13, 2000
______________________________________
           Peter A. Solvik
II-7
EXHIBIT INDEX
Exhibit
 Number  Document
 ------- --------
4.1    Restated Certificate of Incorporation of the Registrant (incorporated
         by reference to Exhibit 3.1 to the Registrant's Registration Statement
         on Form S-1 (Reg. No. 333-78193). (the "Registration Statement")

  4.2    Amended and Restated Bylaws of the Registrant (incorporated reference
         to Exhibit 3.2 to the Registration Statement)

  5      Opinion of Dechert Price & Rhoads

 23.1    Consent of KPMG LLP regarding Internet Capital Group, Inc.
 23.2    Consent of Ernst & Young LLP regarding eCredit.com, Inc.
 23.3    Consent of PricewaterhouseCoopers LLP regarding eCredit.com, Inc.
 23.4    Consent of KPMG LLP regarding eMerge Interactive, Inc.
 23.5    Consent of Ernst & Young LLP regarding JusticeLink, Inc.
 23.6    Consent of Arthur Andersen LLP regarding MetalSite as a Component of
         Weirton Steel Corporation
 23.7    Consent of Arthur Andersen LLP regarding MetalSite General Partner,
         LLC
 23.8    Consent of Arthur Andersen LLP regarding RightWorks Corporation
 23.9    Consent of PricewaterhouseCoopers LLP regarding Syncra Software, Inc.
 23.10   Consent of Arthur Andersen LLP regarding USgift.com
 23.11   Consent of KPMG LLP regarding VerticalNet, Inc.
 23.12   Consent of Dechert Price & Rhoads (included in Exhibit 5)