##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

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

For the Quarterly Period Ended March 31, 2001

OR

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

Commission File No. 0-25741

PROXICOM, INC.
(Exact name of registrant as specified in its charter)

|                                         |  |                                        
|---------------------------------------- |  | ---------------------------------------
|Delaware                                 |  | 52-1770631                             
|                                        
|(State of Organization)                  |  | (I.R.S. Employer Identification Number)
|                                        
|11600 Sunrise Valley Drive, Reston, VA   |  | 20191                                  
|                                        
|(Address of principal executive offices) |  | (Zip Code)                             

Registrants telephone number, including area code: (703) 262-3200

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

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date.

|                                        |  |                            
|--------------------------------------- |  | ---------------------------
|Class                                   |  | Outstanding at May 11, 2001
|                                        |  |                            
|Common Stock, $0.01 par value per share |  | 57,333,719                 





---



PROXICOM, INC.
FORM 10-Q
FOR THE PERIOD ENDED MARCH 31, 2001


TABLE OF CONTENTS



|                                                          |                                                                                                                               |  |  |  |  |  |  | 
|--------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I
                             FINANCIAL INFORMATION
|                                                          | Item 1.  Financial Statements                                                                                                
|                                                          | Consolidated Balance Sheets
          as of December 31, 2000 and March 31, 2001                                             
|                                                          | Consolidated Statements of Operations
          for the Three-Month Periods Ended March 31, 2000 and
          March 31, 2001
|                                                          | Consolidated Statements of Cash Flows
          for the Three-Month Periods Ended March 31, 2000
          and March 31, 2001
|                                                          | Notes to Consolidated Financial Statements                                                                                   
|                                                          | Item 2. Management's Discussion and Analysis of Financial
          Condition and Results of Operations                      
|                                                          | Item 3. Quantitative and Qualitative Disclosures about Market Risk                                                           
|                                                          | PART II
                        OTHER INFORMATION                                                                            
|                                                          | Item 4. Submission of Matters to a Vote of Security Holders                                                                  
|                                                          | Item 6. Exhibits and Reports on Form 8-K                                                                                     
|AMENDED AND RESTATED CERTIFICATE OF INCORPORATION        
|1996 PROXICOM, INC. AMENDED AND RESTATED STOCK           



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##### Table of Contents



TABLE OF CONTENTS

|                                                                                              |  |                                                                                                                       |    |      |   | 
|--------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|                                                                                              |  |                                                                                                                       |    | PAGE
|                                                                                              |  |                                                                                                                       |    |     
|                                                                                              |  | PART I
FINANCIAL INFORMATION                                                                                         
|                                                                                             
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Financial Statements                                                                 
|                                                                                             
|                                                                                              |  | Consolidated Balance Sheets
as of December 31, 2000 and March 31, 2001 (unaudited)                                    |    |      | 1 | 
|                                                                                             
|                                                                                              |  | Consolidated (unaudited) Statements of Operations
for the Three-Month Periods Ended March 31, 2000 and
March 31, 2001 |    |      | 2 | 
|                                                                                             
|                                                                                              |  | Consolidated (unaudited) Statements of Cash Flows
for the Three-Month Periods Ended March 31, 2000
and March 31, 2001 |    |      | 3 | 
|                                                                                             
|                                                                                              |  | Notes to Consolidated (unaudited) Financial Statements                                                                |    |      | 4 | 
|                                                                                             
|Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |  |                                                                                                                       | 8  |     
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |  |                                                                                                                       | 15 |     
|                                                                                             
|                                                                                              |  | PART II
OTHER INFORMATION                                                                                            
|                                                                                             
|Item 4. Submission of Matters to a Vote of Security Holders                                   |  |                                                                                                                       | 17 |     
|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                      |  |                                                                                                                       | 18 |     





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##### Table of Contents






PART I
FINANCIAL INFORMATION




Item 1. Financial Statements




PROXICOM, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)

|                                                             |                                                                                                                                                                                                                                    |                            |         |              |         |           |         |             |         | 
|------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------------ | ------- | --------- | ------- | ----------- | ------- | 
|                                                             |                                                                                                                                                                                                                                    |                            |         | DECEMBER 31, |         | MARCH 31,
|                                                             |                                                                                                                                                                                                                                    |                            |         | 2000         |         | 2001     
|                                                             |                                                                                                                                                                                                                                    |                            |         |              |         |          
|                                                             |                                                                                                                                                                                                                                    |                            |         |              |         |           |         | (UNAUDITED)
|ASSETS                                                      
|                                                            
|                                                            
|                                                            
|                                                            
|Current assets:                                             
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Cash and cash equivalents                                                                                                                                                                                                          |                            | $       | 45,635       |         |           | $       | 55,515      |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Investments                                                                                                                                                                                                                        |                            |         | 60,143       |         |           |         | 16,627      |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Accounts receivable, net of allowance of
$1,662 and $3,041, respectively                                                                                                                                                           |                            |         | 46,310       |         |           |         | 47,859      |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Unbilled services                                                                                                                                                                                                                  |                            |         | 3,384        |         |           |         | 4,469       |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Prepaid expenses                                                                                                                                                                                                                   |                            |         | 2,851        |         |           |         | 3,233       |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Deferred tax and other current                                                                                                                                                                                                     |                            |         | 4,331        |         |           |         | 3,275       |        
|                                                             |                                                                                                                                                                                                                                    |                            |         |              |         |           |         |            
|                                                             |                                                                                                                                                                                                                                    | Total current assets       |         |              | 162,654 |           |         |             | 130,978 | 
|                                                            
|                                                            
|                                                            
|                                                            
|Property and equipment, net                                  |                                                                                                                                                                                                                                    |                            | 27,076  |              |         |           | 28,519  |            
|                                                            
|                                                            
|                                                            
|                                                            
|Goodwill and other intangibles                               |                                                                                                                                                                                                                                    |                            | 38,025  |              |         |           | 33,800  |            
|                                                            
|                                                            
|                                                            
|                                                            
|Deferred tax and other non-current                           |                                                                                                                                                                                                                                    |                            | 7,225   |              |         |           | 34,345  |            
|                                                             |                                                                                                                                                                                                                                    |                            |         |              |         |           |         |            
|                                                             |                                                                                                                                                                                                                                    | Total assets               |         | $            | 234,980 |           |         | $           | 227,642 | 
|                                                             |                                                                                                                                                                                                                                    |                            |         |              |         |           |         |             |        
|LIABILITIES AND STOCKHOLDERS EQUITY                        
|                                                            
|                                                            
|                                                            
|                                                            
|Current liabilities:                                        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Line of credit                                                                                                                                                                                                                     |                            | $       |             |         |           | $       | 1,500       |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Trade accounts payable                                                                                                                                                                                                             |                            |         | 9,378        |         |           |         | 8,042       |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Accrued compensation                                                                                                                                                                                                               |                            |         | 15,602       |         |           |         | 9,867       |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Employee withholdings, stock purchase plan                                                                                                                                                                                         |                            |         | 520          |         |           |         | 1,313       |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Deferred revenue                                                                                                                                                                                                                   |                            |         | 3,651        |         |           |         | 2,548       |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Accrual for restructuring                                                                                                                                                                                                          |                            |         |             |         |           |         | 18,686      |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Deferred tax and other accrued liabilities                                                                                                                                                                                         |                            |         | 5,319        |         |           |         | 5,787       |        
|                                                             |                                                                                                                                                                                                                                    |                            |         |              |         |           |         |            
|                                                             |                                                                                                                                                                                                                                    | Total current liabilities  |         |              | 34,470  |           |         |             | 47,743  | 
|                                                             | Deferred tax liability                                                                                                                                                                                                             |                            |         | 1,629        |         |           |         | 1,669       |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Deferred rent credits                                                                                                                                                                                                              |                            |         | 2,550        |         |           |         | 2,490       |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Accrual for restructuring                                                                                                                                                                                                          |                            |         |             |         |           |         | 27,731      |        
|                                                             |                                                                                                                                                                                                                                    |                            |         |              |         |           |         |            
|                                                             |                                                                                                                                                                                                                                    | Total liabilities          |         |              | 38,649  |           |         |             | 79,633  | 
|Commitments and contingencies
(Note 6)
Stockholders equity:
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Preferred stock, $0.01 par value;
10,000,0000 shares authorized, no shares
issued and outstanding at December 31,
2000 and March 31, 2001 (unaudited)                                                                              |                            |         |             |         |           |         |            |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Common stock, $0.01 par value,
100,000,000 shares authorized, 56,715,861
shares issued and outstanding at December
31, 2000; 200,000,000 shares authorized,
56,969,739 shares issued and outstanding
at March 31, 2001 (unaudited) |                            |         | 567          |         |           |         | 569         |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Additional paid-in capital                                                                                                                                                                                                         |                            |         | 232,669      |         |           |         | 233,508     |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Retained deficit                                                                                                                                                                                                                   |                            |         | (25,112      | )       |           |         | (76,759     | )      
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Accumulated other comprehensive income                                                                                                                                                                                             |                            |         | 232          |         |           |         | 407         |        
|                                                            
|                                                            
|                                                            
|                                                            
|                                                             | Deferred compensation                                                                                                                                                                                                              |                            |         | (12,025      | )       |           |         | (9,716      | )      
|                                                             |                                                                                                                                                                                                                                    |                            |         |              |         |           |         |            
|                                                             |                                                                                                                                                                                                                                    | Total stockholders equity |         |              | 196,331 |           |         |             | 148,009 | 
|                                                             |                                                                                                                                                                                                                                    |                            |         |              |         |           |         |            
|Total liabilities and stockholders equity                   |                                                                                                                                                                                                                                    | $                          | 234,980 |              |         | $         | 227,642 |            
|                                                             |                                                                                                                                                                                                                                    |                            |         |              |         |           |         |             |        

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

-1-



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##### Table of Contents






PROXICOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

(UNAUDITED)

|                                                                                          |                                                                                                        |       |        |                    |        |      |         |        |        | 
|----------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ----- | ------ | ------------------ | ------ | ---- | ------- | ------ | ------ | 
|                                                                                          |                                                                                                        |       |        | THREE MONTHS ENDED
|                                                                                          |                                                                                                        |       |        | MARCH 31,         
|                                                                                          |                                                                                                        |       |        |                   
|                                                                                          |                                                                                                        |       |        | 2000               |        | 2001
|                                                                                          |                                                                                                        |       |        |                    |        |     
|Revenue                                                                                   |                                                                                                        | $     | 38,167 |                    |        | $    | 39,089  |       
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Cost of revenue (inclusive of non-cash compensation
expense of  $35 and $0, respectively) |                                                                                                        |       | 18,417 |                    |        |      | 29,118  |       
|                                                                                          |                                                                                                        |       |        |                    |        |      |         |       
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Gross profit                                                                              |                                                                                                        |       | 19,750 |                    |        |      | 9,971   |       
|                                                                                          |                                                                                                        |       |        |                    |        |      |         |       
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Operating expenses:                                                                      
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | General and administrative (inclusive of
non-cash compensation expense of $0 and $2,309,
respectively) |       |        | 13,097             |        |      |         | 25,192 |       
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Selling and marketing                                                                                  |       |        | 3,594              |        |      |         | 2,902  |       
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Amortization of intangible assets                                                                      |       |        |                   |        |      |         | 4,225  |       
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Restructuring                                                                                          |       |        |                   |        |      |         | 57,000 |       
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          | Foreign currency transaction loss                                                                      |       |        |                   |        |      |         | 165    |       
|                                                                                          |                                                                                                        |       |        |                    |        |      |         |       
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                          |                                                                                                        | Total |        |                    | 16,691 |      |         |        | 89,484 | 
|                                                                                          |                                                                                                        |       |        |                    |        |      |         |       
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Income (loss) from operations                                                             |                                                                                                        |       | 3,059  |                    |        |      | (79,513 | )     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Interest and other income, net                                                            |                                                                                                        |       | 1,689  |                    |        |      | 2,851   |       
|                                                                                          |                                                                                                        |       |        |                    |        |      |         |       
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Income (loss) before income taxes                                                         |                                                                                                        |       | 4,748  |                    |        |      | (76,662 | )     
|                                                                                         
|                                                                                         
|                                                                                         
|                                                                                         
|Income tax provision (benefit)                                                            |                                                                                                        |       | 2,056  |                    |        |      | (25,015 | )     
|                                                                                          |                                                                                                        |       |        |                    |        |      |         |       
|Net income (loss)                                                                         |                                                                                                        | $     | 2,692  |                    |        | $    | (51,647 | )     
|                                                                                          |                                                                                                        |       |        |                    |        |      |         |       
|Basic net income (loss) per common share                                                  |                                                                                                        | $     | 0.05   |                    |        | $    | (0.92   | )     
|                                                                                          |                                                                                                        |       |        |                    |        |      |         |       
|Diluted net income (loss) per common share                                                |                                                                                                        | $     | 0.04   |                    |        | $    | (0.92   | )     
|                                                                                          |                                                                                                        |       |        |                    |        |      |         |       
|Weighted average common shares outstanding                                                |                                                                                                        |       | 53,382 |                    |        |      | 56,410  |       
|                                                                                          |                                                                                                        |       |        |                    |        |      |         |       
|Weighted average common shares and common share
equivalents                               |                                                                                                        |       | 63,017 |                    |        |      | 56,410  |       
|                                                                                          |                                                                                                        |       |        |                    |        |      |         |       

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

-2-



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##### Table of Contents






PROXICOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

(UNAUDITED)

|                                                     |                                                                                                    |                                           |                                               |                                                     |        |                    |         |         |         |        |         |  
|---------------------------------------------------- | -------------------------------------------------------------------------------------------------- | ----------------------------------------- | --------------------------------------------- | --------------------------------------------------- | ------ | ------------------ | ------- | ------- | ------- | ------ | ------- | -
|                                                     |                                                                                                    |                                           |                                               |                                                     |        | THREE MONTHS ENDED
|                                                     |                                                                                                    |                                           |                                               |                                                     |        | MARCH 31,         
|                                                     |                                                                                                    |                                           |                                               |                                                     |        |                   
|                                                     |                                                                                                    |                                           |                                               |                                                     |        | 2000               |         | 2001   
|                                                     |                                                                                                    |                                           |                                               |                                                     |        |                    |         |        
|Cash flows from operating activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net (loss) income                                                                                  |                                           | $                                             | 2,692                                               |        |                    | $       | (51,647 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Non-cash stock compensation               |                                               |                                                     | 35     |                    |         |         | 2,309   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Non-cash warrant expense                  |                                               |                                                     | 519    |                    |         |         |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Depreciation and amortization             |                                               |                                                     | 441    |                    |         |         | 5,692   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Provision for doubtful accounts           |                                               |                                                     | 5      |                    |         |         | 1,379   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Write-off of accounts receivable          |                                               |                                                     |       |                    |         |         | 1,290   |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Income tax benefit from stock based award |                                               |                                                     | 7,618  |                    |         |         |        |       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Increase in deferred income taxes         |                                               |                                                     | (5,540 | )                  |         |         | (24,606 | )     
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    | Changes in assets and liabilities:       
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                           | Increase in accounts receivable               |                                                     |        | (6,877             | )       |         |         | (4,218 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                           | Decrease (increase) in unbilled services      |                                                     |        | 143                |         |         |         | (1,085 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                           | Decrease in prepaid income taxes              |                                                     |        | 173                |         |         |         |       |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                           | Increase in prepaid expenses                  |                                                     |        | (743               | )       |         |         | (383   | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                           | (Increase) decrease in other assets           |                                                     |        | (1,287             | )       |         |         | 2,280  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                           | Increase (decrease) in trade accounts payable |                                                     |        | 3,534              |         |         |         | (1,336 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                           | Decrease in accrued compensation              |                                                     |        | (159               | )       |         |         | (5,735 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                           | (Decrease) increase in employee withholdings  |                                                     |        | (818               | )       |         |         | 792    |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                           | Increase (decrease) in deferred revenue       |                                                     |        | 394                |         |         |         | (1,103 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                           | Decrease in deferred rent credit              |                                                     |        |                   |         |         |         | (60    | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                           | Increase in restructuring accrual             |                                                     |        |                   |         |         |         | 46,417 |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                                    |                                           | Increase in other accrued liabilities         |                                                     |        | 5,400              |         |         |         | 22     |        
|                                                     |                                                                                                    |                                           |                                               |                                                     |        |                    |         |        
|                                                     |                                                                                                    |                                           |                                               | Net cash provided by (used in) operating
activities |        |                    | 5,530   |         |         |        | (29,992 | )
|                                                     |                                                                                                    |                                           |                                               |                                                     |        |                    |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|Cash flows from investing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Investment in unrelated
affiliates                                                                 |                                           |                                               |                                                    |        |                    |         | (3,250  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchases of property and equipment                                                                |                                           |                                               | (2,830                                              | )      |                    |         | (12,423 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Disposition of equipment under restructuring                                                       |                                           |                                               |                                                    |        |                    |         | 9,513   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchases of investments                                                                           |                                           |                                               | (31,042                                             | )      |                    |         | (16,627 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Sales of investments                                                                               |                                           |                                               | 5,818                                               |        |                    |         | 60,143  |        
|                                                     |                                                                                                    |                                           |                                               |                                                     |        |                    |         |        
|                                                     |                                                                                                    |                                           |                                               | Net cash (used in) provided by operating
activities |        |                    | (28,054 | )       |         |        | 37,356  |  
|                                                     |                                                                                                    |                                           |                                               |                                                     |        |                    |         |        
|Cash flows from financing activities:               
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Exercise of stock options                                                                          |                                           |                                               | 2,041                                               |        |                    |         | 287     |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Issuance of common stock through ESPP                                                              |                                           |                                               | 2,129                                               |        |                    |         | 553     |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Borrowings under lines of credit                                                                   |                                           |                                               |                                                    |        |                    |         | 1,500   |        
|                                                     |                                                                                                    |                                           |                                               |                                                     |        |                    |         |        
|                                                     |                                                                                                    |                                           |                                               | Net cash provided by financing activities           |        |                    | 4,170   |         |         |        | 2,340   |  
|                                                     |                                                                                                    |                                           |                                               |                                                     |        |                    |         |        
|                                                     | Effect of exchange rate change                                                                     |                                           |                                               | (1                                                  | )      |                    |         | 176     |        
|                                                     |                                                                                                    |                                           |                                               |                                                     |        |                    |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|Net (decrease) increase in cash and cash equivalents |                                                                                                    |                                           | (18,355                                       | )                                                   |        |                    | 9,880   |        
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents at beginning of period     |                                                                                                    |                                           | 113,819                                       |                                                     |        |                    | 45,635  |        
|                                                     |                                                                                                    |                                           |                                               |                                                     |        |                    |         |        
|Cash and cash equivalents at end of period           |                                                                                                    |                                           | 95,464                                        |                                                     |        |                    | 55,515  |        
|                                                     |                                                                                                    |                                           |                                               |                                                     |        |                    |         |        

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

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##### Table of Contents



PROXICOM, INC.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Subsequent Events

On May 3, 2001, Compaq Computer Corporation, through its wholly-owned
subsidiary, PFC Acquisition Corp., commenced a tender offer to acquire all of
the outstanding shares of common stock of Proxicom, Inc. (Proxicom or the
Company) for $5.75 per share in cash. The tender offer was made pursuant to
a merger agreement entered into between Proxicom and Compaq Computer
Corporation on April 26, 2001. On May 6, 2001, the Company received a separate
proposal from Dimension Data Holdings plc to acquire all of the Companys
outstanding common stock for $7.50 per share in cash. The aggregate purchase
price of this offer, without deducting the Company's current cash,
was approximately $440.0 million. Other than the
price per share to be paid, Dimension Datas proposed acquisition was on
substantially similar terms and conditions as the transactions contemplated by
the Companys merger agreement with Compaq.

On May 9, 2001, Proxicom informed Compaq that the Dimension Data proposal
to acquire all of Proxicoms outstanding common stock was a Superior Proposal
as defined in the merger agreement between Proxicom and Compaq. In accordance
with the terms of such agreement, Proxicom notified Compaq of its intention to
terminate the Compaq merger agreement and enter into an agreement with
Dimension Data if Compaq did not make, within three business days of Proxicoms
notice, an offer that the Board of Directors of Proxicom would have concluded
to be as favorable to the stockholders of Proxicom as the Dimension Data
proposal. On May 11, 2001, Compaq notified the Company that it did not intend
to increase its offer for all outstanding common stock of the Company.
Following receipt of such notice, Proxicom terminated its merger agreement with
Compaq and entered into a substantially similar agreement with Dimension Data.
In accordance with the terms of the Compaq merger agreement, Compaq was paid a
$10 million termination fee by Proxicom upon termination of such agreement.

According to the terms of the merger agreement between Proxicom and
Dimension Data, Dimension Datas tender offer, to be commenced no later than
May 18, 2001, will be conditioned upon, among other things, a majority of
Proxicoms shares outstanding on a fully diluted basis being tendered and not
withdrawn and the receipt of regulatory approvals. The merger agreement
contemplates that the tender offer will be followed by a merger in which each
share of Proxicoms common stock not purchased in the tender offer will be
converted into the right to receive cash in the amount paid per share in the
tender offer. Following the merger, Proxicom will continue as a direct
wholly-owned subsidiary of Dimension Data.

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2.   Basis of Presentation

The accompanying consolidated financial statements of Proxicom include the
accounts of Proxicom and all of its wholly owned subsidiaries. All material
intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the consolidated financial statements for
the three-month periods ended March 31, 2000 and 2001 reflect all normal and
recurring adjustments which are necessary for a fair presentation of Proxicoms
financial position, results of operations and cash flows as of the dates and
for the periods presented. The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Consequently, these consolidated statements do
not include all of the disclosures normally required by generally accepted
accounting principles for annual financial statements. Accordingly, these
unaudited consolidated financial statements should be read in conjunction with
Proxicoms audited consolidated financial statements and notes thereto for the
period ended December 31, 2000, included in the Form 10-K filed by Proxicom
with the Securities and Exchange Commission (SEC File No. 0-25741) on February
23, 2001. The consolidated results of operations for the three-month period
ended March 31, 2001 are not necessarily indicative of results for the full
year ending December 31, 2001.

3.   Restructuring Charges

During the first quarter of 2001, the Company recorded a pre-tax
restructuring charge of $57.0 million in connection with the
Company's abandonment of previously planned office expansion in several U.S.
cities and the reduction in workforce of 227 employees, representing approximately
19% of the Companys total workforce. These actions were taken in
response to a continued weakening in the general economy and in demand for the
Companys services. As a result of such decrease in demand, the Company has
abandoned planned office expansion in Reston VA,
Chicago IL, Boston MA, Houston TX and San Francisco CA. In addition, the
Company has released 158 professional service personnel, 62 general and
administrative personnel and 7 sales and marketing personnel. Included in the
restructuring charge is approximately $43.6 million of costs
related to future rent
expense, net of anticipated sublease income, from abandoned office
leases previously intended to support future growth,
approximately $10.0 million related to the write-down of leasehold improvements
and equipment that were impaired as a result of the abandoned office leases,
and approximately $3.4 million related to severance,
outplacement packages and consultation services
attributable to the reduction in workforce.

The Company expects future cash expenditures related to these
restructuring activities to be approximately $46.4 million, of which $18.7
million is anticipated to be paid within the next twelve months. Approximately
$44.2 million of the $46.4 million restructuring accrual as of March 31, 2001
relates to future lease expenditures

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##### Table of Contents



for which the Company does not expect to receive any benefit, and approximately $2.2
million relates to severance payments.

4.   Basic and Diluted Earnings (Loss) Per Share

The following is a reconciliation of the numerator and denominator of the
basic and diluted earnings (loss) per common share computations.

Basic Net Income (Loss) Per Common Share

|                                                    |  |                                          |        |      |  |   |         |  
|--------------------------------------------------- |  | ---------------------------------------- | ------ | ---- |  | - | ------- | -
|                                                    |  | THREE MONTHS ENDED MARCH 31,            
|                                                    |  |                                         
|                                                    |  | 2000                                     |        | 2001
|                                                    |  |                                          |        |     
|                                                    |  | (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|                                                   
|Net income (loss) available to common
stockholders  |  | $                                        | 2,692  |      |  | $ | (51,647 | )
|                                                    |  |                                          |        |      |  |   |         |  
|Weighted average shares of common stock
outstanding |  |                                          | 53,382 |      |  |   | 56,410  |  
|                                                    |  |                                          |        |      |  |   |         |  
|Basic net income (loss) per common share            |  | $                                        | 0.05   |      |  | $ | (0.92   | )
|                                                    |  |                                          |        |      |  |   |         |  

Basic net income (loss) per share is computed using the weighted average number
of common shares outstanding and excludes the effect of common stock
equivalents.

Diluted Net Income (Loss) Per Common Share

|                                                                                                              |  |                                          |        |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | ---- |  | - | ------- | -
|                                                                                                              |  | THREE MONTHS ENDED MARCH 31,            
|                                                                                                              |  |                                         
|                                                                                                              |  | 2000                                     |        | 2001
|                                                                                                              |  |                                          |        |     
|                                                                                                              |  | (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
|Net income (loss) available to common
stockholders                                                            |  | $                                        | 2,692  |      |  | $ | (51,647 | )
|                                                                                                              |  |                                          |        |      |  |   |         |  
|Weighted average shares of common stock
outstanding                                                           |  |                                          | 53,382 |      |  |   | 56,410  |  
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Incremental shares for rights to receive
shares and options assumed exercised
under common stock option plans |  |                                          | 9,635  |      |  |   |        |  
|                                                                                                              |  |                                          |        |      |  |   |         |  
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Adjusted shares of common stock
equivalents for computation                                                   |  |                                          | 63,017 |      |  |   | 56,410  |  
|                                                                                                              |  |                                          |        |      |  |   |         |  
|                                                                                                             
|                                                                                                             
|                                                                                                             
|                                                                                                             
|Diluted net income (loss) per common share                                                                    |  | $                                        | 0.04   |      |  | $ | (0.92   | )
|                                                                                                              |  |                                          |        |      |  |   |         |  

Diluted net income (loss) per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted net income per share is
computed using the weighted average number of common shares outstanding and
dilutive stock options and warrants calculated using the treasury stock method.

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Potentially dilutive shares as of March 31, 2001 have not been included in
the diluted net loss per share calculation for the three-month period ended
March 31, 2001 because the effect would have been anti-dilutive due to the loss
incurred by the Company during that period. Accordingly, for the three-month
period ended March 31, 2001, diluted net loss per common share is the same as
basic net loss per common share.

5.   Capital Stock

Following a vote of
stockholders, on April 12, 2001, Proxicom amended its amended and restated certificate
of incorporation to increase the number of authorized shares of common stock
from 100,000,000 to 200,000,000 shares. Additionally, following a
vote of stockholders, the Company amended its
1996 Stock Option Plan during the first quarter of 2001 to increase the total
number of shares of common stock authorized for issuance under the plan from
28,000,000 to 36,500,000.

In January 2001, 157,853
shares of common stock were purchased by
employee participants in the Companys Employee Stock Purchase Plan (ESPP) at
$3.51 per share for the semi-annual participation period ended December 31,
2000. A total of 2,000,000 shares are authorized for purchase under the ESPP.
As of March 31, 2001, there were 1,398,407 shares available for remaining purchases
under this plan.

The Companys treasury stock was re-issued to employees through the ESPP
and the 1996 Stock Option Plan during the three-months ended
March 31, 2000.

6.   Contingencies

The Company has certain contingent liabilities that arise in the ordinary
course of its business activities. The Company accrues liabilities when it is
probable that future expenditures will be made and such expenditures can be
reasonably estimated. As of March 31, 2001, the Company has accrued
approximately $46.4 million for future cash expenditures related to its
restructuring activities, of which $18.7 million is anticipated to be paid
within the next twelve months.

7.   Comprehensive Loss

Comprehensive loss includes
net loss and foreign currency translation
adjustments. For the
three-month period ended March 31, 2001, comprehensive loss was $51.5 million.

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

The matters discussed in this Quarterly Report on Form 10-Q include
forward-looking statements that involve risks or uncertainties. While
forward-looking statements are sometimes presented with numerical specificity,
they are based on various assumptions made by management regarding future
circumstances over which Proxicom may have little or no control. A number of
important factors, including those identified under the caption Risk Factors
in Proxicoms Annual Report on Form 10-K for the fiscal year ended December 31,
2000 (SEC File No. 000-25741) (the Form 10-K), which hereby is incorporated
by reference, as well as factors discussed elsewhere in this quarterly report,
could cause Proxicoms actual results to differ materially from those in the
forward-looking statements or financial information contained in this quarterly
report. Actual results may differ from forward-looking results for a number of
reasons, including the following: (a) changes in the demand for information
technology services; (b) Proxicoms ability to manage growth and hire and
retain skilled employees; (c) Proxicoms loss of a major client or significant
project; (d) competitive factors; (e) lack of growth or decline in Internet
usage; (f) Proxicoms failure to keep pace with changing technologies and
protect its intellectual property; and (g) future acquisitions or international
expansion (including the ability to integrate acquired businesses into
Proxicoms operations and the ability of acquired businesses to achieve
satisfactory operating results). Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected.

Recent Developments

On May 3, 2001, Compaq Computer Corporation, through its wholly-owned
subsidiary, PFC Acquisition Corp., commenced a tender offer to acquire all of
the outstanding shares of common stock of Proxicom for $5.75 per share in cash.
The tender offer was made pursuant to a merger agreement entered into between
Proxicom and Compaq Computer Corporation on April 26, 2001. On May 6, 2001,
the Company received a separate proposal from Dimension Data Holdings plc to
acquire all of the Companys outstanding common stock for $7.50 per share in
cash. The aggregate purchase price of this offer, without deducting
the Company's current cash, was approximately
$440.0 million. Other than the price per share to be paid, Dimension Datas
proposed acquisition was on substantially similar terms and conditions as the
transactions contemplated by the Companys merger agreement with Compaq.

On May 9, 2001, Proxicom informed Compaq that the Dimension Data proposal
to acquire all of Proxicoms outstanding common stock was a Superior Proposal
as defined in the merger agreement between Proxicom and Compaq. In accordance
with the terms of such agreement, Proxicom notified Compaq of its

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##### Table of Contents



intention to terminate the Compaq merger agreement and enter into an
agreement with Dimension Data if Compaq did not make, within three business
days of Proxicoms notice, an offer that the Board of Directors of Proxicom
would have concluded to be as favorable to the stockholders of Proxicom as the
Dimension Data proposal. On May 11, 2001, Compaq notified the Company that it
did not intend to increase its offer for all outstanding common stock of the
Company. Following receipt of such notice, Proxicom terminated its merger
agreement with Compaq and entered into a substantially similar agreement with
Dimension Data. In accordance with the terms of the Compaq merger agreement,
Compaq was paid a $10 million termination fee by Proxicom upon termination of
such agreement.

According to the terms of the merger agreement between Proxicom and
Dimension Data, Dimension Datas tender offer, to be commenced no later than
May 18, 2001, will be conditioned upon, among other things, a majority of
Proxicoms shares outstanding on a fully diluted basis being tendered and not
withdrawn and the receipt of regulatory approvals. The merger agreement
contemplates that the tender offer will be followed by a merger in which each
share of Proxicoms common stock not purchased in the tender offer will be
converted into the right to receive cash in the amount paid per share in the
tender offer. Following the merger, Proxicom will continue as a direct
wholly-owned subsidiary of Dimension Data.

Overview

Proxicom is a leading e-business consulting and development company,
delivering innovative multi-channel solutions to Global 1000 companies and
other large businesses. Since 1994, we have focused exclusively on the
Internet and have successfully completed over 1,000 client engagements. Our
Internet solutions include business to consumer electronic commerce Internet
sites, business to business electronic commerce extranets, company-specific
intranets and multi-channel solutions such as wireless e-commerce applications.
Using our proprietary methodology, which we call the Proxicom Process, we
integrate strategy, technology and creative design to help our clients
transform their businesses with Internet solutions.

Our revenue generally consists of fees generated from professional
services. We provide our services either on a time-and-materials basis or a
fixed-price, fixed-schedule basis. When we provide services on a
time-and-materials basis, we recognize revenue as we incur costs. In
time-and-materials engagements, we use our internally-developed estimation
process to develop cost proposals, which are then approved by a senior
management member. The estimation process accounts for standard billing rates
particular to each project, the technology environment and application type to
be applied, and the projects timetable and overall technical complexity. When
we provide services on a fixed-price, fixed-schedule basis, we use our
estimation process to propose fixed prices for such projects. A senior

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management member must approve all of our fixed-price proposals. For these
contracts, we recognize revenue using a percentage-of-completion method
primarily based on costs incurred. We make provisions for estimated losses on
uncompleted contracts on a contract-by-contract basis and recognize such
provisions in the period in which the losses are determined.

Our financial results may fluctuate from quarter to quarter based on such
factors as the number, complexity, size, scope and lead time of projects in
which we are engaged. More specifically, these fluctuations can result from
the contractual terms and degree of completion of such projects, any delays
incurred in connection with projects, employee utilization rates, the adequacy
of provisions for losses, the accuracy of estimates of resources required to
complete ongoing projects and general economic conditions. In addition, revenue
from a large client may constitute a significant portion of our total revenue
in a particular quarter.

During the first quarter of 2001, the Company recorded a pre-tax
restructuring charge of $57.0 million in connection with the
Company's abandonment of previously planned office expansion in several U.S.
cities and the reduction in workforce of 227 employees, representing approximately
19.0% of the Company's total workforce. These actions were taken in
response to a continued weakening in the general economy and in demand for the
Companys services. As a result of such decrease in demand, the Company has
abandoned planned office expansion in Reston VA,
Chicago IL, Boston MA, Houston TX and San Francisco CA. In addition, the
Company has released 158 professional service personnel, 62 general and
administrative personnel and 7 sales and marketing personnel. Included in the
restructuring charge is approximately $43.6 million of costs
related to future rent expense, net of anticipated sublease income, from abandoned office
leases previously intended to support future growth,
approximately $10.0 million related to the write-down of leasehold improvements
and equipment that were impaired as a result of the abandoned office
leases, and approximately $3.4 million related to severance,
outplacement packages and consultation services
attributable to the reduction in workforce.

The Company expects future cash expenditures related to these
restructuring activities to be approximately $46.4 million, of which $18.7
million is anticipated to be paid within the next twelve months. Approximately
$44.2 million of the $46.4 million restructuring accrual as of March 31, 2001
relates to future lease expenditures for which the Company does not
expect to receive any benefit,
and approximately $2.2 million relates to severance payments.

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Results of Operations

The following table presents, for the periods indicated, the relative
composition of revenue and selected statements of operations data as a
percentage of revenue:

|                                  |                                   |       |       |                    |      |      |        |       |       | 
|--------------------------------- | --------------------------------- | ----- | ----- | ------------------ | ---- | ---- | ------ | ----- | ----- | 
|                                  |                                   |       |       | Three-Month Period
|                                  |                                   |       |       | Ended March 31,   
|                                  |                                   |       |       |                   
|                                  |                                   |       |       | 2000               |      | 2001
|                                  |                                   |       |       |                    |      |     
|Revenue                           |                                   |       | 100.0 | %                  |      |      | 100.0  | %    
|                                 
|                                 
|                                 
|                                 
|Cost of revenue                   |                                   |       | 48.2  |                    |      |      | 74.5   |      
|                                  |                                   |       |       |                    |      |      |        |      
|Gross profit                      |                                   |       | 51.8  |                    |      |      | 25.5   |      
|                                 
|                                 
|                                 
|                                 
|Operating expenses:              
|                                 
|                                 
|                                 
|                                 
|                                  | General and administrative        |       |       | 34.4               |      |      |        | 64.5  |      
|                                 
|                                 
|                                 
|                                 
|                                  | Selling and marketing             |       |       | 9.4                |      |      |        | 7.4   |      
|                                 
|                                 
|                                 
|                                 
|                                  | Amortization of intangible assets |       |       |                   |      |      |        | 10.8  |      
|                                 
|                                 
|                                 
|                                 
|                                  | Restructuring                     |       |       |                   |      |      |        | 145.8 |      
|                                 
|                                 
|                                 
|                                 
|                                  | Foreign currency transaction loss |       |       |                   |      |      |        | .4    |      
|                                  |                                   |       |       |                    |      |      |        |      
|                                  |                                   | Total |       |                    | 43.8 |      |        |       | 228.9 | 
|                                 
|                                 
|                                 
|                                 
|Income (loss) from operations     |                                   |       | 8.0   |                    |      |      | (203.4 | )    
|                                 
|                                 
|                                 
|                                 
|Interest and other income, net    |                                   |       | 4.4   |                    |      |      | 7.3    |      
|                                  |                                   |       |       |                    |      |      |        |      
|Income (loss) before income taxes |                                   |       | 12.4  |                    |      |      | (196.1 | )    
|                                 
|                                 
|                                 
|                                 
|Income tax provision (benefit)    |                                   |       | 5.4   |                    |      |      | (64.0  | )    
|                                  |                                   |       |       |                    |      |      |        |      
|Net income (loss)                 |                                   |       | 7.0   | %                  |      |      | (132.1 | )%   
|                                  |                                   |       |       |                    |      |      |        |      

Three-Month Period ended March 31, 2001 Compared to the Three-Month Period
Ended March 31, 2000

Revenue.For the three-month period ended March 31, 2001, revenue
increased $922,000, or 2.4%, to $39.1 million from $38.2 million for the
three-month period ended March 31, 2000. The rate of growth in the Companys
revenue decreased significantly during the three-month period ended March 31,
2001 as compared to the same period in 2000, primarily as a result of a
significant reduction in demand experienced by the e-business industry,
including the Company. The decrease in demand experienced by the Company
resulted, in part, from many of our clients reconsidering or delaying the
implementation of their e-business strategy due to a decline in general
economic conditions.

For the three-month period ended March 31, 2001, our two largest clients
contributed 15.4% and 10.6% of our revenues. No other individual client
contributed 10% or more of our revenues for the three-months ended March 31,
2001. For the three-month period ended March 31, 2000, no customer
represented 10% or more of our revenue. We believe that period-to-period
comparisons of our

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revenue and operating results are not necessarily meaningful and that you
should not rely on these comparisons as indicators of future performance.

Cost of Revenue.Cost of revenue consists primarily of compensation and
associated employee benefits, including non-cash stock-based compensation, for
personnel directly assigned to client projects and non-reimbursed direct
expenses incurred to complete projects, such as technical consulting fees.
Cost of revenue increased $10.7 million, or 58.1%, to $29.1 million for the
three-month period ended March 31, 2001 from $18.4 million for the three-month
period ended March 31, 2000. As a percentage of revenue, cost of revenue
increased to 74.5% for the three-month period ended March 31, 2001 as compared
to 48.2% for the three-month period ended March 31, 2000. This increase was
primarily a result of overcapacity of service delivery personnel relative to
the demand for our services. Correspondingly, on March 23, 2001, the Company
announced a restructuring plan which included headcount reduction initiatives.
In connection with these initiatives, the Company reduced its workforce by 227
employees, of which 158 were professional services personnel.

Gross Profit.For the three-month period ended March 31, 2001, gross
profit decreased $9.8 million, or 49.5%, to $10.0 million from $19.8 million
for the three-month period ended March 31, 2000. As a percentage of revenue,
gross profit decreased to 25.5% for the three-month period ended March 31, 2000
as compared to 51.8% for the three-month period ended March 31, 2000. The
decrease in gross profit as a percentage of revenue was due to the substantial
decrease in utilization of personnel caused by the drop in demand for our professional
services over the same period as described above.

General and Administrative.General and administrative costs consist of
salaries, non-cash stock-based compensation and associated employee benefits
for executive and selected senior management, finance, recruiting and
administrative personnel, facilities costs including depreciation and
amortization, computer and office equipment operating leases, training, travel,
bad debt and all other branch and corporate costs. These costs increased $12.1
million, or 92.3%, to $25.2 million for the three-month period ended March 31,
2001 from $13.1 million for the three-month period ended March 31, 2000. This
increase was due primarily to increased facilities and related expenses
incurred to support our expected growth. Growth was slower than projected due
to decreased demand for our services. As a percentage of revenue, general and
administrative expenses increased to 64.5% for the three-month period ended
March 31, 2001 as compared to 34.4% for the three-month period ended March 31,
2000. For the three-month period ended March 31, 2001, we wrote
off $2.7
million in uncollectible accounts (of which approximately $1.4 million relates to
provisions made for doubtful accounts) as compared to $330,000 in the
three-month period ended March 31, 2000. This $2.4 million
increase includes the write off of $1.3 million related to two
clients. We believe
the

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current allowance for doubtful accounts balance of $2.2 million is
sufficient for other potential doubtful accounts. For the three-month period
ended March 31, 2001, we incurred non-cash stock based compensation charges of
$2.3 million, or 5.9% of revenue, related to the Company's acquisition
of Clarity IBD Limited in April 2000. In connection with this acquisition,
certain employee/owners of Clarity were issued 521,606 shares of common stock
of the Company. A portion of these shares continue to be held in escrow and will be released
on the second anniversary date of the acquisition if certain
contingencies are satisfied. There
were no such charges in the three-month period ended March 31, 2000.

Selling and Marketing. Selling and marketing costs consist primarily of
salaries, benefits and travel expenses of selling and marketing personnel and
promotional expenses. Selling and marketing costs decreased $692,000, or
19.3%, to $2.9 million for the three-month period ended March 31, 2001 from
$3.6 million for the three-month period ended March 31, 2000. This decrease
was primarily attributable to decreased advertising, promotional material and
public relations expenditures. As a percentage of revenue, selling and
marketing costs decreased to 7.4% for the three months ended March 31, 2001
from 9.4% for the three-month period ended March 31, 2000.

Amortization of Intangible Assets. Amortization of intangible assets
consists of amortization of service agreements, customer lists, assembled
workforce and goodwill resulting from the Companys acquisition of
Clarity IBD Limited in April 2000.
Amortization of these costs for the three-month period ended March 31, 2001
was $4.2 million. The Company did not have any amortization costs related to
intangible assets for the three-month period ended March 31, 2000. Intangible
assets related to the Clarity acquisition will be amortized over three years.

Restructuring Charges.
For the three months ended March 31, 2001, restructuring related
charges were $57.0 million, consisting of $43.6 million of costs
related to future rent expense, net of anticipated sublease income, $3.4 million related to workforce reductions
and $10.0 million for other depreciable assets impaired as a result
of the abandonment of planned office expansion. These actions were taken in response
to the continued weakening in the general economy and demand for our
services. In response to the weakening demand, we implemented a
restructuring plan to better align our overall cost structure and
organization with anticipated demand for our services. The
restructuring plan resulted in the termination of 227 employees, none
of whom remained employed by us as of March 31, 2001. Approximately
69.6% of the terminated employees were professional service
personnel, 27.3% were general and administrative personnel and 3.1%
were sales and marketing personnel. The restructuring plan also
included abandoning planned office expansion in several
U.S. cities including Reston VA, San Francisco CA, Chicago IL, Boston
MA and Houston TX. Estimated costs for abandonment of the planned
expansion
of facilities consist of contractual rental commitments
for office space being vacated offset by estimated sublease income.

Foreign Currency Transaction Loss. Foreign currency transaction loss
incurred in the three-month periods ended March 31, 2000 and March 31, 2001
were $0 and $165,000, respectively. This loss was a result of the change in
exchange rates between the transaction date and the expiration date
of the Companys forward commitment contract.

Interest and Other Income, Net.Interest and other income, net increased $1.2
million to $2.9 million for the three-month period ended March 31, 2001 from
$1.7 million for the three-month period ended March 31, 2000. Included in
interest and other income is a one-time $1.7 million gain on sale related to the
disposition of our joint venture with Iberdrola S.A. in Spain. We generally invest
in highly rated commercial paper, U.S. Treasury bills and money market
accounts. The amount of interest income fluctuates based upon the amount of
funds available for investment and prevailing interest rates.

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Income Tax Provision (Benefit). The $25.0 million income tax benefit in
the three-month period ended March 31, 2001 represents a benefit from combined
federal, international and state income taxes at an effective rate of 32.6%.
The $2.1 million income tax provision in the three months ended March 31, 2000
represents combined federal, international and state income taxes at an
effective rate of 43.3%.

Liquidity and Capital Resources

We have primarily funded our operations from cash flows generated from
operations and the proceeds from our public stock offerings. In addition, we
have a $10.0 million revolving credit facility with Bank of America, N.A. to be
used for working capital purposes and permitted acquisitions. The interest
rate on the amounts borrowed under the credit facility is the Eurodollar Daily
Floating Rate plus 1.25%. The credit facility expires on August 31, 2002 and
will renew automatically for one additional year at the sole discretion of Bank
of America, N.A.
The credit facility requires us to maintain a ratio of liquid assets to total
bank commitments of no less than 1.5 to 1.0 as of the end of each fiscal
quarter. As of March 31, 2001, we had outstanding indebtedness of $1.5 million
under the credit facility.

Additionally, we have a Committed Standby Letter of Credit
with Bank of America, N.A. for $25.0 million. This credit
facility expires on August 31, 2002. The letter of credit fee is 1% annually
of the outstanding letters of credit written on this facility. As of March 31,
2001, the entire $25.0 million Standby Letter of Credit was fully committed.
We also have an additional $3.9 million committed under separate outstanding
letters of credit with Bank of America, N.A., which reduces the amounts
available for borrowing under the aforementioned $10.0 million line of credit
with Bank of America, N.A.

At March 31, 2001, we had approximately $72.1 million in cash, cash
equivalents and short-term investments compared to approximately $105.8 million
at December 31, 2000. Short-term investments consist primarily of instruments
that are highly liquid, investment grade securities that have maturities of
less than one year. On May 11, 2001, the Company paid a $10.0
million termination fee to Compaq Computer Corporation in connection
with the termination of the merger agreement between Proxicom and
Compaq dated April 26, 2001.

Cash used in operating activities for the three-month period ended March
31, 2001 was approximately $30.0 million, which resulted primarily from a net
loss of $51.6 million and increases in deferred income taxes of
$24.6 million,
offset by the restructuring accrual of $46.4 million recorded in the three-month
period ended March 31, 2001.

The Company expects future
cash expenditures related to its previously described
restructuring activities to be approximately $46.4 million, of which $18.7
million is anticipated to be paid within the next twelve months.

Cash provided by investing activities for the three-month period ended
March 31, 2001 was approximately $37.4 million. This was due to capital
expenditures of $12.4 million for leasehold improvements, office equipment and
computer

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equipment, offset by $9.5 million of write-offs of impaired leasehold
improvements as a result of the Companys restructuring efforts and $43.5
million from maturities, net of purchases, of short-term investments.

Net cash provided by financing activities was $2.3 million for the
three-month period ended March 31, 2001. Financing activities primarily
consisted of borrowings under the Companys revolving credit facility of $1.5 million.

We anticipate that existing sources of liquidity and funds generated from
operations should provide adequate cash to fund our currently anticipated cash
needs through at least the next 18 months. To the extent we are unable to fund
our operations from cash flows, we may need to obtain financing from external
sources in the form of either additional equity or indebtedness. There can be
no assurance that additional financing will be available at all, or that, if
available, such financing will be obtainable on terms favorable to Proxicom.




ITEM 3.   Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to interest rate risk related to our borrowings under the
credit facility with Bank of America, N.A. As of March 31, 2001, we had
outstanding indebtedness of $1.5 million under this credit facility.

We are also exposed to interest rate risk primarily through our
investments in short-term marketable securities, cash equivalents and debt
agreements. Our investment policy calls for investment in short-term, low risk
instruments. At March 31, 2001, we had $59.7 million invested in commercial
paper and money market accounts. A rise in interest rates would have an
adverse impact on the fair market value of fixed rate securities. If interest
rates fall, floating rate securities may generate less interest income. We
manage our exposure to interest rate risk through investing in securities with
maturities of one year or less.

Our international operations are subject to foreign exchange rate
fluctuations. We derived 10.5% of our revenue for the three-month period ended March 31,
2001 from services performed in France, Germany, Italy, Spain and the United
Kingdom. Since the revenue and expenses of our international operations
generally are denominated in local currencies, exchange rate fluctuations
between such local currencies and the United States dollar will subject us to
currency translation risk

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with respect to the reported results of our foreign operations as well as
to risk sometimes associated with international operations. In addition, we
may be subject to currency risk when our service contracts are denominated in a
currency other than the currency in which we incur expenses related to such
contracts. France, Germany, Italy, Spain and the United Kingdom have
traditionally had relatively stable currencies. We do not hedge our foreign
currency exposure. Management does not believe that the Companys exposure to
foreign currency rate fluctuations is material.

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PART II

OTHER INFORMATION




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

Proxicom held its 2001 annual meeting of stockholders on March 29, 2001.
All of the proposals presented for stockholder consideration at the annual
meeting were approved. The following sets forth information regarding each
matter voted upon at the 2001 annual meeting. There were 56,921,841 shares of
common stock outstanding as of the record date for, and entitled to vote at,
the 2001 annual meeting. Each share of common stock voted on the proposals set
forth below had one vote per share.

Proposal 1. The stockholders approved a proposal to elect the nominee to
the board of directors for a three-year term, which will expire at the annual
meeting of stockholders in 2004. The tabulation of votes on this proposal is
as follows:

|                   |  |            |  |                   
|------------------ |  | ---------- |  | ------------------
|Nominee           
|(Three-Year
Term): |  | For        |  | Withhold Authority
|Raul J. Fernandez  |  | 47,361,968 |  | 2,978,065         

Proposal 2. The stockholders approved the proposal to amend Proxicoms
amended and restated certificate of incorporation to increase the number of
authorized shares of capital stock from 110,000,000 to 210,000,000 shares and
to increase the number of authorized shares of common stock from 100,000,000 to
200,000,000 shares, with the number of authorized shares of preferred stock
remaining at 10,000,000 shares. The tabulation of votes on this proposal is as
follows:

|                 |  |  |            | 
|---------------- |  |  | ---------- | 
|Votes For        |  |  | 49,202,444 | 
|                
|                
|                
|                
|Votes Against    |  |  | 1,104,140  | 
|                
|                
|                
|                
|Abstentions      |  |  | 33,449     | 
|                
|                
|                
|                
|Broker Non-Votes |  |  | 0          | 

Proposal 3. The stockholders approved the proposal to amend the Proxicom,
Inc. Amended and Restated 1996 Stock Option Plan as amended to increase the
total number of shares of common stock authorized for issuance under the plan
from 28,000,000 to 36,500,000. The tabulation of votes on this proposal is as
follows:

|              |  |  |            | 
|------------- |  |  | ---------- | 
|Votes For     |  |  | 24,829,719 | 
|             
|             
|             
|             
|Votes Against |  |  | 14,295,050 | 
|             
|             
|             
|             
|Abstentions   |  |  | 125,132    | 

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|                 |  |  |            | 
|---------------- |  |  | ---------- | 
|Broker Non-Votes |  |  | 11,090,132 | 

Proposal 4. The stockholders ratified the appointment by the Board of
Directors of PricewaterhouseCoopers LLP as the Companys independent public
accountants for the fiscal year ending December 31, 2001. The tabulation of
votes on this proposal is as follows:

|                 |  |  |            | 
|---------------- |  |  | ---------- | 
|Votes For        |  |  | 48,790,007 | 
|                
|                
|                
|                
|Votes Against    |  |  | 1,524,200  | 
|                
|                
|                
|                
|Abstentions      |  |  | 25,826     | 
|                
|                
|                
|                
|Broker Non-Votes |  |  | 0          | 




ITEM 6.   Exhibits and Reports on Form 8-K.

|   |  |           |  |                                                                                                                                    
|-- |  | --------- |  | -----------------------------------------------------------------------------------------------------------------------------------
|a. |  | Exhibits:
|  
|  
|  
|  
|   |  | 3.1       |  | Proxicom, Inc.
Amended and Restated Certificate of Incorporation, as amended                                                       
|  
|  
|  
|  
|   |  | 10.1 *    |  | Agreement and Plan of Merger dated as of April 26, 2001 among
Compaq Computer Corporation, Proxicom, Inc. and PFC Acquisition
Corp.
|  
|  
|  
|  
|   |  | 10.2      |  | 1996 Proxicom, Inc. Amended and Restated Stock Option Plan, as
amended                                                             

* Incorporated by reference to the Schedule TO of PFC
Acquisition Corp. and Compaq Computer Corporation, filed May 3, 2001.

b.   Reports on Form 8-K:

On February 22, 2001, Proxicom filed a current report on Form 8-K
announcing the date and time of the Companys annual meeting of stockholders.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-Q to be signed on its behalf by the
undersigned thereunto duly authorized.

|                   |  |                                                      
|------------------ |  | -----------------------------------------------------
|                   |  | PROXICOM, INC.                                       
|                  
|                  
|Date: May 15, 2001 |  | /s/ KENNETH J. TARPEY                                
|                   |  |                                                      
|                   |  | Kenneth J. Tarpey                                    
|                  
|                  
|                  
|                  
|                   |  | Executive Vice President, Chief Financial            
|                  
|                  
|                  
|                  
|                   |  | and Officer and Treasurer (duly authorized to sign on
|                  
|                  
|                  
|                  
|                   |  | behalf of the Registrant)                            

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