<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 19, 2000
PROXICOM, INC.
--------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 0-25741 52-1770631
---------------------------------- ----------------------------- -------------------------
<S> <C> <C>
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
</TABLE>
11600 SUNRISE VALLEY DRIVE, RESTON, VIRGINIA 20191
--------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (703) 262-3200
--------------
<PAGE> 2
EXPLANATORY NOTE
Pursuant to Items 7(a)(4) and 7(b)(2) of Form 8-K under the
Securities Exchange Act of 1934, Proxicom, Inc. (the "Company") hereby amends
Item 7 of its Current Report on Form 8-K, filed with the Securities and
Exchange Commission on April 21, 2000 (the "Form 8-K"), to add financial
information for the Company reflecting the acquisition of Clarity IBD Limited
("Clarity"). The Company acquired Clarity on April 19, 2000 pursuant to the
Share Exchange Agreement, dated as of April 11, 2000, by and among Proxicom and
Clarity's shareholders. Item 7(c) of the Form 8-K is also hereby amended to add
the consent of Grant Thornton, independent auditors for Clarity.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
Included herewith is the following financial information for Clarity
IBD Limited (Formerly Clarity Communications Limited):
Report of Directors.
Report of the Auditors to the Members of Clarity IBD Limited
(Formerly Clarity Communications Limited).
Report of Independent Auditors.
Financial Statements of Clarity IBD Limited (Formerly Clarity
Communications Limited) as of June 30, 1999 and 1998 and the two years
ended June 30, 1999 and 1998 (audited).
Clarity IBD Limited (Formerly Clarity Communications Limited)
as of December 31, 1999 and for the six months ended December 31, 1999
and 1998 (unaudited).
(b) Unaudited Pro Forma Financial Information.
Included herewith is the following Unaudited Pro Forma financial
information for the Company:
Unaudited Pro Forma Combined Statements of Operations for the
year ended December 31, 1999.
Unaudited Pro Forma Combined Statements of Operations for the
three months ended March 31, 2000.
Unaudited Pro Forma Combined Balance Sheet as of March 31,
2000.
<PAGE> 3
(c) Exhibits.
23. Consent of Grant Thornton.
2
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PROXICOM, INC.
Date: July 3, 2000 By: /s/ Kenneth J. Tarpey
------------------------------------------
Kenneth J. Tarpey
Executive Vice President, Chief Financial
Officer and Treasurer
3
<PAGE> 5
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
FINANCIAL STATEMENTS OF CLARITY IBD LIMITED (FORMERLY CLARITY COMMUNICATIONS
LIMITED) AS OF JUNE 30, 1999 AND 1998 AND THE TWO YEARS ENDED JUNE 30, 1999 AND
1998
(UNAUDITED)
CLARITY IBD LIMITED (FORMERLY CLARITY COMMUNICATIONS LIMITED) AS OF DECEMBER
31, 1999 AND FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
INDEX PAGE
<S> <C>
Report of the Directors 5-6
Reports of the Auditors 7-8
Principal Accounting Policies 9-10
Profit and Loss Accounts 11
Balance Sheets 12
Statements of Total Recognized Gains and Losses 13
Notes to the Financial Statements and
Unaudited Interim Financial Information 14-23
</TABLE>
4
<PAGE> 6
REPORT OF THE DIRECTORS
The directors present their report together with financial statements for the
year ended 30 June 1999.
PRINCIPAL ACTIVITIES
The company is principally engaged in marketing and business development
consultancy and specializes in exploiting new media such as the internet to
develop competitive advantage for its clients.
DIRECTORS
The present membership of the Board is set out below. All directors served
throughout the year.
The interests of the directors and their families in the shares of the company
as at 30 June 1999 and 1 July 1998 were as follows:
<TABLE>
<CAPTION>
'A' ORDINARY SHARES
----------------------
30 JUNE 1999 1 JULY 1998
-------------- -----------
<S> <C> <C>
M N Chilcott 50,250 50,250
J Tarin 50,250 50,250
</TABLE>
YEAR 2000
The company reviewed its computer systems for the impact of the Year 2000 date
change, prepared an action plan to address the issue and carried out all
necessary measures. All systems have continued to operate properly over the
Year 2000 date change and through any roll-over procedures that occurred at a
later date.
The issue is complex, and no business can guarantee that there will be no Year
2000 problems. As all businesses are dependent on the compliance of their major
customers, suppliers and other trading partners, any impact that had occurred
on their systems will affect the company's business to a greater or lesser
extent.
DIRECTORS' RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
5
<PAGE> 7
select suitable accounting policies and then apply them
consistently
make judgements and estimates that are reasonable and prudent
prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
The directors are responsible for maintaining proper accounting records, for
safeguarding the assets of the company and for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
AUDITORS
Grant Thornton offer themselves for reappointment as auditors in accordance
with section 385 of the Companies Act 1985.
SMALL COMPANY EXEMPTION
This report has been prepared in accordance with the special provisions of Part
VII of the Companies Act 1985 relating to small companies.
ON BEHALF OF THE BOARD
M N Chilcott
Director
18 February 2000
6
<PAGE> 8
REPORT OF THE AUDITORS TO THE MEMBERS OF CLARITY IBD LIMITED
(FORMERLY CLARITY COMMUNICATIONS LIMITED)
We have audited the financial statements for the year ended 30 June 1999 on
pages 8 to 23 which have been prepared in accordance with the Financial
Reporting Standard for Smaller Entities (effective March 1999) and under the
accounting policies set out on page 9.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described on page 5 the company's directors are responsible for the
preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with United Kingdom Auditing Standards
issued by the Auditing Practices Board. An audit includes examination, on a
test basis, of evidence relevant to the amounts and disclosures in the
financial statements. It also includes an assessment of the significant
estimates and judgements made by the directors in the preparation of the
financial statements, and of whether the accounting policies are appropriate to
the company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of the company's affairs as at 30 June 1999 and of its profit for the year then
ended and have been properly prepared in accordance with the Companies Act
1985.
/s/ GRANT THORNTON
GRANT THORNTON
REGISTERED AUDITORS
CHARTERED ACCOUNTANTS
OXFORD
ENGLAND
18 February 2000
7
<PAGE> 9
CLARITY IBD LIMITED
REPORT OF THE INDEPENDENT AUDITORS
To the Board of Directors and the Shareholders of Clarity IBD Limited.
We have audited the accompanying balance sheets of Clarity IBD Limited
(formerly Clarity Communications Limited) (the "Company") as of June
30, 1998 and 1999, the related statements of profit and loss accounts
for each of the two years in the period ended June 30, 1999, and
statements of total recognised gains and losses for each of the two
years in the period ended June 30, 1999 all expressed in pounds
sterling, (together, "the financial statements") which have been
prepared on the basis of accounting principles generally accepted in
the United Kingdom. These financial statements are the responsibility
of the Directors of the Company. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with both generally accepted
auditing standards in the United Kingdom and generally accepted auditing
standards in the United States. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects the financial position of the Company
as of June 30, 1998 and 1999, and the results of its operations for
each of the two years in the period ended June 30, 1999 in conformity
with accounting principles generally accepted in the United Kingdom.
United Kingdom accounting principles vary in certain material respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of
shareholders' equity and financial position as of June 30, 1999 and the
determination of net income for each of the two years in the period
ended June 30, 1999 to the extent summarised in Note 17 to the
financial statements.
/s/ GRANT THORNTON
Grant Thornton
Chartered Accountants
Oxford
England
19 May 2000
8
<PAGE> 10
PRINCIPAL ACCOUNTING POLICIES
BASIS OF PREPARATION
The financial statements have been prepared in accordance with applicable
accounting standards and principles generally accepted in the United Kingdom
and under the historical cost convention.
The principal accounting policies of the company have remained unchanged from
the previous year.
TURNOVER
Turnover is the total amount receivable by the company for services provided,
excluding VAT and trade discounts.
DEPRECIATION
Depreciation is calculated to write down the cost less estimated residual value
of all tangible fixed assets by the reducing balance method over their expected
useful lives. The rates generally applicable are:
Fixtures and fittings 15%
Computer equipment 30%
STOCKS AND WORK IN PROGRESS
Work in progress was stated at the lower of cost and net realisable value. Cost
represents the external cost of works done, paid for by Clarity IBD Limited.
Net realisable value represents the cost that can be passed onto the client.
DEFERRED TAXATION
Deferred tax is provided for using the tax rates estimated to arise when the
timing differences reverse and is accounted for to the extent that it is
probable that a liability or asset will crystallise. Unprovided deferred tax is
disclosed as a contingent liability.
Debit balances arising in respect of advance corporation tax on dividends
payable or proposed are carried forward to the extent that they are expected to
be recoverable.
CONTRIBUTIONS TO PENSION FUNDS
Defined Contribution Scheme
The pension costs charged against profits represent the amount of the
contributions payable to the scheme in respect of the accounting period.
9
<PAGE> 11
LEASED ASSETS
Assets held under finance leases and hire purchase contracts are capitalised in
the balance sheet and depreciated over their expected useful lives. The
interest element of leasing payments represents a constant proportion of the
capital balance outstanding and is charged to the profit and loss account over
the period of the lease.
All other leases are regarded as operating leases and the payments made under
them are charged to the profit and loss account on a straight-line basis over
the lease term.
GOODWILL
Previously purchased goodwill has been eliminated from the financial statements
by write-off against reserves.
10
<PAGE> 12
CLARITY IBD LIMITED (FORMERLY CLARITY COMMUNICATIONS LIMITED)
PROFIT AND LOSS ACCOUNTS
<TABLE>
<CAPTION>
UNAUDITED Unaudited AUDITED Audited
6 MONTHS ENDED 6 months ended YEAR ENDED Year ended
31 DECEMBER 1999 31 December 1998 30 JUNE 1999 30 June 1998
POUND STERLING Pound Sterling POUND STERLING Pound Sterling
<S> <C> <C> <C> <C>
TURNOVER (1) 2,456,583 1,380,326 3,051,489 1,119,711
Cost of sales (534,471) (248,756) (471,003) (185,508)
---------------------------------------------------------------------------
Gross Profit 1,922,112 1,131,570 2,580,486 934,203
Administrative expenses (2,944,251) (739,883) (1,778,039) (1,099,243)
---------------------------------------------------------------------------
OPERATING (LOSS)/PROFIT (1,022,139) 391,687 802,447 (165,040)
Net interest (2) 839 (4,775) (4,654) (8,525)
---------------------------------------------------------------------------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE
TAXATION (1) (1,021,300) 386,912 797,793 (173,565)
---------------------------------------------------------------------------
Tax on profit on ordinary activities (4) - - (154,000) -
---------------------------------------------------------------------------
(LOSS)/PROFIT TRANSFERRED TO RESERVES (11) (1,021,300) 386,912 643,793 (173,565)
===========================================================================
</TABLE>
The figures for the 6 months ended 31 December 1999 and 31 December 1998 are
unaudited.
The accompanying accounting policies and notes form an integral part of these
financial statements.
11
<PAGE> 13
CLARITY IBD LIMITED (FORMERLY CLARITY COMMUNICATIONS LIMITED)
BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED AUDITED Audited
AS AT AS AT As at
31 DECEMBER 1999 30 JUNE 1999 30 June 1999
POUND STERLING POUND STERLING Pound Sterling
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets (5) 235,254 149,934 54,581
Stocks (6) - - 1,620
Debtors (7) 1,517,828 879,293 293,848
Cash at bank and in hand 195,669 183,429 ---
----------------------------------------------------------
1,713,497 1,062,722 295,468
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR (8) (1,607,886) (541,746) (352,232)
----------------------------------------------------------
NET CURRENT ASSETS/(LIABILITIES) 105,611 520,976 (56,764)
----------------------------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 340,865 (670,910) (2,183)
CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN
ONE YEAR (9) (23,547) (29,300) ---
----------------------------------------------------------
317,318 641,610 (2,183)
==========================================================
CAPITAL AND RESERVES
Called up share capital (10) 268,669 255,433 255,433
Share premium account (11) 101,791 101,791 101,791
Other reserves (11) 683,772 - -
Profit and loss account (11) (736,914) 284,386 (359,407)
----------------------------------------------------------
317,318 641,610 (2,183)
==========================================================
</TABLE>
The financial statements for the 2 years ended 30 June 1999 were prepared in
accordance with the special provisions of Part VII of the Companies Act 1985
relating to small companies and with the Financial Reporting Standard for
Smaller Entities (effective March 1999).
The financial statements for the year ended 30 June 1999 were approved by the
Board of Directors on 18 February 2000.
AJ Skates Director
The accompanying accounting policies and notes form an integral part of these
financial statements.
12
<PAGE> 14
CLARITY IBD LIMITED (FORMERLY CLARITY COMMUNICATIONS LIMITED)
STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
<TABLE>
<CAPTION>
UNAUDITED AUDITED Audited
6 MONTHS ENDED YEAR ENDED Year ended
31 DECEMBER 1999 30 JUNE 1999 30 June 1998
POUND STERLING POUND STERLING Pound Sterling
<S> <C> <C> <C>
(Loss)/profit for the financial year (1,021,300) 643,793 (173,565)
Total recognised gains and losses for the year (1,021,300) 643,793 (173,565)
Prior year adjustments - - (57,825)
Total gains and losses recognised since last
financial statements (1,021,300) 643,793 (231,390)
=================== =================== ===================
</TABLE>
The accompanying accounting policies and notes form an integral part of these
financial statements.
13
<PAGE> 15
NOTES TO THE FINANCIAL STATEMENTS AND UNAUDITED
INTERIM FINANCIAL INFORMATION
1 TURNOVER AND PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
The profit on ordinary activities is stated after:
<TABLE>
<CAPTION>
UNAUDITED Unaudited AUDITED Audited
6 MONTHS ENDED 6 months ended YEAR ENDED Year ended
31 DECEMBER 1999 31 December 1998 30 JUNE 1999 30 June 1998
POUND STERLING Pound Sterling POUND STERLING Pound Sterling
<S> <C> <C> <C> <C>
Auditors' remuneration (for audit services) --- --- 5,500 4,000
Depreciation and amortisation:
Tangible fixed assets, owned 23,625 7,000 17,390 10,429
Tangible fixed assets, held under finance
leases and hire purchase contracts 2,081 --- 4,162 ---
----------------------------------------------------------------------------
Stock compensation charge and related costs 1,345,000 --- --- ---
============================================================================
</TABLE>
The stock compensation charge relates to the issue of share options at a
discount to market value. This charge has been calculated in accordance with
the provisions of UITF 17, regarding employee share schemes.
2 NET INTEREST
<TABLE>
<CAPTION>
UNAUDITED Unaudited AUDITED Audited
6 MONTHS ENDED 6 months ended YEAR ENDED Year ended
31 DECEMBER 1999 31 December 1998 30 JUNE 1999 30 June 1998
POUND STERLING Pound Sterling POUND STERLING Pound Sterling
<S> <C> <C> <C> <C>
Other interest payable/(receivable)
and similar charges (839) 4,775 4,654 8,525
============================================================================
</TABLE>
14
<PAGE> 16
3 DIRECTORS
<TABLE>
<CAPTION>
UNAUDITED Unaudited AUDITED Audited
6 MONTHS ENDED 6 months ended YEAR ENDED Year ended
31 DECEMBER 1999 31 December 1998 30 JUNE 1999 30 June 1998
POUND STERLING Pound Sterling POUND STERLING Pound Sterling
<S> <C> <C> <C> <C>
Directors' emoluments 101,492 105,818 218,070 142,079
===========================================================================
</TABLE>
During the year 3 directors (1998: 3 directors) participated in money purchase
pension schemes.
4 TAX ON PROFIT ON ORDINARY ACTIVITIES
The tax charge represents:
<TABLE>
<CAPTION>
UNAUDITED Unaudited AUDITED Audited
6 MONTHS ENDED 6 months ended YEAR ENDED Year ended
31 DECEMBER 1999 31 December 1998 30 JUNE 1999 30 June 1998
POUND STERLING Pound Sterling POUND STERLING Pound Sterling
<S> <C> <C> <C> <C>
Corporation tax - - 154,000 -
=============================================================================
</TABLE>
15
<PAGE> 17
5 TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
PLANT AND
MACHINERY ETC. TOTAL
POUND STERLING POUND STERLING
<S> <C> <C>
COST
At 1 July 1998 (audited) 68,850 68,850
Additions (audited) 116,905 116,905
-----------------------------------
At 30 June 1999 (audited) 185,755 185,755
Additions (unaudited) 111,026 111,026
-----------------------------------
At 31 December 1999 (unaudited) 296,781 296,781
-----------------------------------
DEPRECIATION
At 1 July 1998 (audited) 14,269 14,269
Charged for the year (audited) 21,552 21,552
-----------------------------------
At 30 June 1999 (audited) 35,821 35,821
-----------------------------------
Charged for 6 months (unaudited) 25,706 25,706
-----------------------------------
At 31 December 1999 (unaudited) 61,527 61,527
-----------------------------------
NET BOOK AMOUNT AT 31 DECEMBER 1999 (UNAUDITED) 235,254 235,254
===================================
NET BOOK AMOUNT AT 30 JUNE 1999 (AUDITED) 149,934 149,934
===================================
NET BOOK AMOUNT AT 30 JUNE 1998 (AUDITED) 54,581 54,581
===================================
</TABLE>
16
<PAGE> 18
6 STOCKS
<TABLE>
<CAPTION>
UNAUDITED AUDITED Audited
AS AT AS AT As at
31 DECEMBER 1999 30 JUNE 1999 30 June 1998
POUND STERLING POUND STERLING Pound Sterling
<S> <C> <C> <C>
Stocks - - 1,620
====================================================
</TABLE>
7 DEBTORS
<TABLE>
<CAPTION>
UNAUDITED AUDITED Audited
AS AT AS AT As at
31 DECEMBER 1999 30 JUNE 1999 30 June 1998
POUND STERLING POUND STERLING Pound Sterling
<S> <C> <C> <C>
Trade debtors 1,464,174 815,920 231,845
Other debtors 53,654 63,373 62,003
----------------------------------------------------
1,517,828 879,293 293,848
====================================================
</TABLE>
8 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
UNAUDITED AUDITED Audited
AS AT AS AT As at
31 DECEMBER 1999 30 JUNE 1999 30 June 1998
Pound
POUND STERLING POUND STERLING Sterling
<S> <C> <C> <C>
Bank loans and overdrafts - - 91,950
Trade creditors 284,352 93,140 115,181
Social security and other taxes 344,460 317,295 57,650
Other creditors 923,073 91,065 82,166
Pension contributions 45,000 26,776 4,690
Amounts due under finance leases 11,001 13,470 595
--------------------------------------------------------
1,607,886 541,746 352,232
========================================================
</TABLE>
The bank overdrafts are secured.
17
<PAGE> 19
9 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
UNAUDITED AUDITED Audited
AS AT AS AT As at
31 DECEMBER 1999 30 JUNE 1999 30 June 1998
POUND STERLING POUND STERLING Pound Sterling
<S> <C> <C> <C>
Amounts due under finance leases 23,547 29,300 -
========================================================
</TABLE>
10 SHARE CAPITAL
<TABLE>
<CAPTION>
UNAUDITED AUDITED Audited
AS AT AS AT As at
31 DECEMBER 1999 30 JUNE 1999 30 June 1998
POUND STERLING POUND STERLING Pound Sterling
<S> <C> <C> <C>
Authorised
'A' ordinary shares of Pound Sterling1 each 119,409 119,409 110,000
'B' ordinary shares of Pound Sterling1 each 69,680 69,680 65,000
Preference shares of Pound Sterling1 each 190,000 190,000 190,000
---------------------------------------------------------
379,089 379,089 365,000
=========================================================
Allotted, called up and fully paid
'A' ordinary shares of Pound Sterling1 each 116,361 103,125 105,180
'B' ordinary shares of Pound Sterling1 each 67,055 67,055 65,000
Preference shares of Pound Sterling1 each 85,253 85,253 85,253
---------------------------------------------------------
268,669 255,433 255,433
=========================================================
</TABLE>
ISSUES OF SHARES
As a result of the exercise of share options 13,236 shares were issued at par
during the 6 months ended 31 December 1999.
ORDINARY SHARES
The rights of A and B shareholders rank pari passu in all respects and can be
regarded as a single class of share, although additional obligations are placed
upon the A shareholders concerning securing additional funding (loan and equity)
for the company. Further, no contract of employment of any A shareholder may be
amended without the sanction of at least 75% in voting rights of all the
shareholders.
18
<PAGE> 20
PREFERENCE SHARES
The preference shares may be redeemed at any time, at the option of the holder,
at par. Holders of preference shares have one vote for every share held but only
on a resolution for the winding-up of the company or on a resolution affecting
the rights attached to the shares. Preference shareholders have the right on a
winding-up to receive, in priority to any other class of shares, repayment in
full of the capital paid upon the preference shares held by them.
SHARE OPTIONS
On 19 July the Company granted to various employees 18,786 options to acquire
Ordinary shares in the Company with an exercise price of Pound Sterling1 per
share. Of these options 13,486 vested immediately, 1,325 vested from 1 January
2000 and 3,200 vest from 1 January 2001. The remaining 775 options lapsed in the
period.
At 31 December 1999 there remained 4,775 options over Pound Sterling1 shares in
the company unexercised.
The Company recorded a stock compensation expense of Pound Sterling820,000
during the period ended 31 December 1999 which was calculated in accordance with
UITF 17.
11 SHARE PREMIUM ACCOUNT AND RESERVES
<TABLE>
<CAPTION>
OTHER SHARE PROFIT AND
RESERVES PREMIUM LOSS ACCOUNT
POUND ACCOUNT POUND
STERLING POUND STERLING STERLING
<S> <C> <C> <C>
At 30 June 1998 (audited) - 101,791 (359,407)
Retained profit for the year (audited) - - 643,793
-------------------------------------------------
At 30 June 1999 (audited) - 101,791 284,386
Retained profit for the period (unaudited) - - (1,021,300)
Amount arising on the exercise of share options (unaudited) 683,772 - -
-------------------------------------------------
At 31 December 1999 (unaudited) 683,772 101,791 (736,914)
=================================================
</TABLE>
Other reserves represent the difference between the market value and
the exercise price of share options at the date of grant accounted for
in accordance with UITF 17 on options exercised in the period.
12 CAPITAL COMMITMENTS
The company had no capital commitments at 31 December 1999 (unaudited),
30 June 1999 (audited) or 30 June 1998 (audited).
19
<PAGE> 21
13 CONTINGENT LIABILITIES
During 1997, Clarity Communications Limited received from CTSS Design
Limited, a company of which M Chilcott was a director, the sum of Pound
Sterling40,000 for management salaries of which Pound Sterling10,000
was subsequently repaid. CTSS Design Limited went into liquidation in
August 1997 and the liquidator has requested that Clarity
Communications Limited should repay the Pound Sterling30,000, as it
claimed that this was paid as a preference. This matter is being dealt
with by the company's solicitor and the outcome, is still, at present
uncertain.
14 LEASING COMMITMENTS
Operating lease payments amounting to Pound Sterling88,951 (30 June
1999: Pound Sterling89,611, 30 June 1998: Pound Sterling93,211) are due
within one year.
The leases to which these amounts relate expire as follows:
<TABLE>
<CAPTION>
UNAUDITED AUDITED Audited
AS AT AS AT As at
31 DECEMBER 1999 30 JUNE 1999 30 June 1998
POUND STERLING POUND STERLING Pound Sterling
<S> <C> <C> <C>
In one year or less 1,623 2,283 7,800
Between one and five years 87,328 87,328 22,911
In five years or more - - 62,500
--------------------------------------------------------
88,951 89,611 93,211
========================================================
</TABLE>
15 PENSIONS
DEFINED CONTRIBUTION SCHEME
The company operates a defined contribution pension scheme for the
benefit of the employees and directors. The assets of the scheme are
administered by trustees in a fund independent from those of the
company.
16 POST BALANCE SHEET EVENTS
With effect from 19 April 2000 the company became a wholly owned
subsidiary of Proxicom Inc, a company incorporated in the USA following
the acquisition by that company of 100% of the ordinary shares of
Clarity IBD Limited.
20
<PAGE> 22
17 DIFFERENCES BETWEEN UNITED KINGDOM AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The accompanying financial statements have been prepared in accordance
with accounting principles generally accepted in the United Kingdom ("UK
GAAP"), which differs in certain material respects from those generally
accepted in the United States ("US GAAP"). Such differences involve the
amounts shown in the financial statements, as well as additional
disclosures required by US GAAP.
RECONCILIATION OF DIFFERENCES BETWEEN UK GAAP AND US GAAP
The effect on the company's net income and shareholders' equity of
applying the significant differences between UK GAAP and US GAAP is
summarised in the reconciliation statements set out below:
(a) Reconciliation of profit and loss accounts for the years ended 30 June
and the six month periods ended 31 December:
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
6 MONTHS ENDED 6 MONTHS ENDED
31 DECEMBER 1999 31 DECEMBER 1998 1999 1998
POUND STERLING POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C> <C>
Profit/(loss) for the financial year
reported under UK GAAP (1,021,300) 386,912 643,793 (173,565)
US GAAP adjustments:
Compensation expense (1) 24,000 17,000 (7,000) (7,000)
Deferred taxation - full provision (2) 9,525 (83,000) (83,000) 46,000
---------------- ---------------- --------------- -----------
Net income/(loss) and comprehensive income/(loss)
in accordance with US GAAP (987,775) 320,912 553,793 (134,565)
================ ================ =============== ===========
</TABLE>
(b) Reconciliation of Shareholders' equity for the years ending 30 June:
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
6 MONTHS ENDED 6 MONTHS ENDED
31 DECEMBER 1999 31 DECEMBER 1998 1999 1998
POUND STERLING POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C> <C>
Total Shareholders' fund under UK GAAP 317,318 384,729 641,610 (2,183)
US GAAP adjustments:
Accrued compensation (1) - - (24,000) (17,000)
Deferred tax full provision (2) 9,525 - - 83,000
Redeemable preferred stock (3) (85,000) (85,000) (85,000) (85,000)
---------------- ---------------- --------------- -----------
Shareholders' equity in accordance with US GAAP 241,843 299,729 532,610 (21,183)
================ ================ =============== ===========
</TABLE>
21
<PAGE> 23
(c) Changes in Shareholders' equity on a US GAAP basis for the years ending
30 June and the six month periods ending 31 December:
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
6 MONTHS ENDED 6 MONTHS ENDED
31 DECEMBER 1999 31 DECEMBER 1998 1999 1998
POUND STERLING POUND STERLING POUND STERLING POUND STERLING
<S> <C> <C> <C> <C>
Shareholders' equity at the beginning of the year 532,610 (21,183) (21,183) 43,382
Net income/(loss) (987,775) 320,912 553,793 (134,565)
Issue of shares 13,236 - - 70,000
Stock based compensation 683,772 - - -
---------------- ---------------- --------------- --------------
Shareholders' equity at the end of the year 241,843 299,729 532,610 (21,183)
================ ================ =============== ==============
</TABLE>
The following are descriptions of US GAAP reconciling items:
(1) Under UK GAAP, obligations for future absences are not required to
be recorded by employers. Under US GAAP, a company shall accrue an
employer's obligation to employees' rights to receive compensation for
future absences when it is attributable to services already rendered,
the obligation relates to rights that vest or accumulate, payment of
the compensation is probable and the amount can be reasonably
estimated.
(2) Under UK GAAP, deferred taxation is only provided to the extent an
asset or liability is expected to crystallise. Under US GAAP, deferred
taxation is provided on all temporary differences under the liability
method, subject to a valuation allowance on deferred tax assets where
applicable. The principal adjustment to apply US GAAP is to record a
deferred tax asset at 30 June 1998 resulting from net operating loss
carryforwards which offset taxable income during the year ended 30 June
1999.
(3)Under UK GAAP, redeemable preference shares are included as part of
share capital. Under US GAAP, pursuant to regulation S-X of the
Securities Act, preference shares with a fixed or determinable price or
determinable date may not be included as part of shareholders' equity.
The redeemable preference shares can be redeemed at par at any time at
the option of the issuer, and have thus been adjusted to conform to US
GAAP.
STATEMENT OF CASH FLOWS - Under UK GAAP the Cash Flow statement is not
required to be presented in accordance with Financial Reporting
Statement No. 1 as revised ("FRS 1") if the Company qualifies as a
small company. The Statement prepared under FRS 1 presents
substantially the same information as that required under US GAAP as
interpreted by SFAS No. 95.
Under UK GAAP cash flows are presented for operating activities;
returns on investments and servicing of finance; taxation; capital
expenditure and financial investment; acquisitions and disposals;
equity dividends paid; investing and financing activities.
Cash flows under US GAAP in respect of interest received, interest
paid, investment income and taxation would be included within operating
activities. Capital expenditure and financial investment and cash flows
from acquisitions and disposals would be included within investing
activities under US GAAP. Dividends paid by subsidiary undertakings,
minority interests, equity dividends paid, management of liquid
resources and returns on investment and servicing of finance would be
included within financing activities under US GAAP.
22
<PAGE> 24
The statement of cash flows presented in accordance with SFAS No. 95 is
as follows:
<TABLE>
<CAPTION>
Unaudited Unaudited
Six Months Ended Six Months Ended
31 December 1999 31 December 1998
Pound Sterling Pound Sterling
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit/(loss) - US GAAP (987,775) 320,912
Adjustments to reconcile net profit/(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortisation of property, plant and equipment 25,706 7,000
Gain on sale of fixed assets
Deferred income taxes (9,525) 83,000
Stock based compensation 683,772 -
Change in assets and liabilities:
Increase in debtors (638,535) (334,087)
Decrease in stocks 1,044,609 1,620
Increase in trade creditors - 57,126
------------------------------------
Net cash provided by (used in) operating activities 118,252 135,571
------------------------------------
Cash flows from investing activities
Additions to property, plant and equipment (119,248) (12,697)
------------------------------------
Net cash used in investing activities (119,248) (12,697)
------------------------------------
Cash flows from financing activities
Proceeds from sale of ordinary shares 13,236 -
Increase (decrease) in bank overdraft - (91,950)
------------------------------------
Net cash (used in) provided by financing activities 13,236 (91,950)
------------------------------------
Net increase (decrease) in cash 12,240 30,924
Cash at beginning of period 183,429 -
------------------------------------
Cash at end of period 195,669 30,924
====================================
Cash paid during the period for:
Interest - 4,775
====================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
30 JUNE 1999 30 JUNE 1998
POUND STERLING POUND STERLING
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit/(loss) - US GAAP 553,793 (134,565)
Adjustments to reconcile net profit/(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortisation of property, plant and equipment 21,552 10,429
Gain on sale of fixed assets - 1,110
Deferred income taxes 83,000 (46,000)
Stock based compensation 683,772 -
Change in assets and liabilities:
Increase in debtors (585,445) (38,203)
Decrease in stocks 1,620 1,968
Increase in trade creditors 275,589 135,367
------------------------------------
Net cash provided by (used in) operating activities 350,109 (69,894)
------------------------------------
Cash flows from investing activities
Additions to property, plant and equipment (74,730) (49,806)
Proceeds from sale of fixed assets - 5,589
------------------------------------
Net cash used in investing activities (74,730) (44,217)
------------------------------------
Cash flows from financing activities
Proceeds from sale of ordinary shares - 70,000
Increase (decrease) in bank overdraft (91,950) 44,111
------------------------------------
Net cash (used in) provided by financing activities (91,950) 114,111
------------------------------------
Net increase (decrease) in cash 183,429 -
Cash at beginning of period - -
------------------------------------
Cash at end of period 183,429 -
====================================
Cash paid during the period for:
Interest 4,654 8,525
====================================
</TABLE>
The Company acquired equipment under capital lease obligations totaling
Pound Sterling42,175 during the year ended 30 June 1999.
23
<PAGE> 25
PROXICOM, INC.
INTRODUCTION TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements have
been prepared to give effect to the acquisition by Proxicom, Inc. a Delaware
corporation ("Proxicom" or "the Company") of Clarity IBD Limited, a United
Kingdom e-business development consultancy company ("Clarity") for approximately
$65.3 million (including direct acquisition costs of approximately $3.6 million)
consisting of $16.0 million in cash and 1,291,046 shares of Proxicom common
stock with a value of $45.7 million (based on an average closing price of the
Company's stock). The acquisition was accounted for under the purchase method
of accounting and accordingly, the purchase price was allocated to the assets
acquired and the liabilities assumed based on their respective fair values
(based on an independent valuation).
The Unaudited Pro Forma Combined Statements of Operations (the
"Unaudited Pro Forma Statements of Operations") for the year ended December 31,
1999 and the three months ended March 31, 2000 give effect to the acquisition of
Clarity as if it had occurred on January 1, 1999. The Unaudited Pro Forma
Statements of Operation and the Unaudited Pro Forma Combined Balance Sheet ("the
Unaudited Pro Forma Financial Information") and the accompanying notes thereto
should be read in conjunction with the other financial statements and notes
thereto included in this Form 8-K/A and Proxicom's Consolidated Financial
Statements and notes thereto included in its Annual Report on Form 10-K for the
year ended December 31, 1999 and its Quarterly Report on Form 10-Q for the three
month period ended March 31, 2000.
Certain reclassifications of amounts included in the profit and loss
accounts of Clarity have been made to conform to Proxicom's financial statement
presentation. In addition, the following adjustments have been made to the
unaudited Balance Sheets and unaudited Profit and Loss Accounts of Clarity
included in the Unaudited Pro Forma Financial Information:
(1) the account balances have been converted from UK generally
accepted accounting principles and are presented in accordance
with US generally accepted accounting principles;
(2) the account balances have been converted from British Pounds
Sterling into US dollars using an exchange rate of 1.5953 at
March 31, 2000 and an average exchange rate of 1.6178 and
1.6057 for the year ended December 31, 1999 and the three
months ended March 31, 2000, respectively; and
(3) the account balances have been converted from a fiscal year
reporting basis to a calendar reporting basis.
The Unaudited Pro Forma information is presented for illustrative
purposes only and does not purport to be indicative of the operating results or
financial position that would have actually occurred if the acquisition had been
in effect on the dates indicated, nor is it indicative of the future operating
results or financial position of the Company. The Unaudited Pro Forma
adjustments are
24
<PAGE> 26
based upon information and assumptions available at the time of the filing
of this Form 8-K/A and may be revised as additional information becomes
available.
25
<PAGE> 27
PROXICOM, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 2000
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Combined
Pro Forma Unaudited Pro
Proxicom Inc.(1) Clarity (2) Adjustments (3) Forma (4)
------------------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 95,464 $ 562 $ (16,000) (d) $ 80,026
Investments 31,043 -- -- 31,043
Accounts receivables, net 30,915 2,257 -- 33,172
Unbilled services 1,722 -- -- 1,722
Prepaid expenses 2,629 134 -- 2,763
Deferred tax and other
current assets 2,773 30 -- 2,803
------------------- --------------- --------------- ------------------
Total current assets 164,546 2,983 $ (16,000) 151,529
Goodwill and other intangibles -- -- 52,005 (b) 52,005
Property and equipment, net 7,452 481 -- 7,933
Deferred tax and other
non-current 11,500 -- -- 11,500
------------------- --------------- --------------- ------------------
Total assets $ 183,498 $ 3,464 $ 36,005 $ 222,967
=================== =============== =============== ==================
Trade accounts payable $ 4,879 $ 147 -- $ 5,026
Accrued compensation 8,139 1,099 -- 9,238
Employee withholdings,
stock purchase plan 1,322 -- -- 1,322
Deferred revenue 3,927 -- -- 3,927
Other accrued liabilities 6,939 1,665 3,579 (c) 12,183
------------------- --------------- --------------- ------------------
Total current liabilities 25,206 2,911 3,579 31,696
Other non-current liabilities -- 33 5,693 (f) 5,726
------------------- --------------- --------------- ------------------
Total liabilities 25,206 2,944 9,272 37,422
Common stock 538 293 13 (d) 551
(293) (a)
Additional paid in capital 174,823 162 45,716 (d) 220,539
(162) (a)
Deferred Compensation -- -- (18,476) (e) (18,476)
Retained earnings (deficit) (17,192) 65 (65) (a) (17,192)
Accumulated other comprehensive
income 123 -- -- 123
------------------- --------------- --------------- ------------------
Total stockholders' equity 158,292 520 26,733 185,545
------------------- --------------- --------------- ------------------
Total liabilities and
stockholders' equity $ 183,498 $ 3,464 $36,005 $ 222,967
=================== =============== =============== ==================
</TABLE>
(1) Reflects the unaudited interim consolidated financial position
of the Company as of March 31, 2000.
(2) Reflects the unaudited financial position of Clarity as of March
31, 2000, prepared in accordance with US generally accepted
accounting principals.
(3) Reflects the adjustments necessary to give effect to the
Company's acquisition of Clarity. See Note 3
- Unaudited Pro Forma Combined Balance Sheet Adjustments.
(4) Reflects the consolidated financial position of the Company,
on an unaudited pro forma combined basis, assuming the
acquisition of Clarity had been consummated on March 31, 2000
(using an average exchange rate of British Pound Sterling 1:
US$1.5953 as of March 31, 2000).
26
<PAGE> 28
PROXICOM, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Combined
Pro Forma Unaudited Pro
Proxicom, Inc. (1) Clarity (2) Adjustments (3) Forma (4)
------------------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Revenue $ 82,688 $ 6,344 $ -- $ 89,032
Cost of revenue 43,561 2,996 -- 46,557
------------------- --------------- ---------------- ------------------
Gross profit 39,127 3,348 42,475
Operating expenses --
General and administrative 28,650 1,975 -- 30,625
Selling and marketing 5,553 182 5,735
Stock-based compensation 434 2,176 9,238 (b) 11,848
Amortization of intangible assets -- -- 15,437 (a) 15,437
Acquisition and merger costs 300 -- -- 300
------------------- --------------- ---------------- ------------------
Total 34,937 4,333 24,675 63,945
------------------- --------------- ---------------- ------------------
Income (loss) from operations 4,190 (985) (24,675) (21,470)
Interest income (expense), net 2,770 (2) (960) (c) 1,808
------------------- --------------- ---------------- ------------------
Net income (loss) before
income taxes 6,960 (987) (25,635) (19,662)
Income tax provision (benefit) 2,936 234 (1,261) (d) 1,909
------------------- --------------- ---------------- ------------------
Net income (loss) 4,024 (1,221) (24,374) (21,571)
Net cash dividend on beneficial
conversion of convertible
preferred stock (4,873) -- -- (4,873)
------------------- --------------- ---------------- ------------------
Net income (loss) available to
common stockholders $ (849) $ (1,221) $ (24,374) $ (26,444)
=================== =============== ================ ==================
Basic net income (loss) per
common share $ (0.02) $ (0.58)
=================== ==================
Weighted average common
shares outstanding 44,532 769 (5) 45,301
</TABLE>
(1) Reflects the audited consolidated results of operations of the
Company for the year ended December 31, 1999.
(2) Amounts have been derived from the unaudited results of
operations of Clarity for the twelve months ended
December 31, 1999 prepared in accordance with US generally
accepted accounting principles. Certain amounts have been
reclassified to conform to the Company's presentation.
(3) See Note 4 - Unaudited Pro Forma Combined Statements of
Operations.
(4) Reflects the results of operations of the Company, on an
unaudited pro forma combined basis, assuming the acquisition
of Clarity had been consummated as of January 1, 1999 (using
an average exchange rate of British Pound Sterling 1:
US$1.6178 for the year ended December 31, 1999).
(5) See Note 5 - Unaudited Pro Forma Loss per Share.
27
<PAGE> 29
PROXICOM, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Combined
Pro Forma Unaudited Pro
Proxicom Inc.(1) Clarity (2) Adjustments (3) Forma (4)
------------------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Revenue $ 38,167 $ 2,554 $ -- $ 40,721
Cost of revenue 18,382 1,248 -- 19,630
------------------- --------------- ---------------- ------------------
Gross profit 19,785 1,306 21,091
Operating expenses
General and administrative 13,097 942 -- 14,039
Selling and marketing 3,594 39 -- 3,633
Stock-based compensation 35 45 2,309 (b) 2,389
Amortization of intangible
assets -- -- 3,859 (a) 3,859
------------------- --------------- ---------------- ------------------
Total 16,726 1,026 6,168 23,920
------------------- --------------- ---------------- ------------------
Income (loss) from operations 3,059 280 (6,168) (2,829)
Interest income (expense), net 1,689 (2) (240) (c) 1,447
------------------- --------------- ---------------- ------------------
Net income (loss) before
income taxes 4,748 278 (6,408) (1,382)
Income tax provision (benefit) 2,056 142 (545) (d) 1,653
------------------- --------------- ---------------- ------------------
Net income (loss) available to
common stockholders $ 2,692 $ 136 $ (5,863) $ (3,035)
=================== =============== ================ ==================
Basic net income (loss) per
common share $ 0.05 $ (0.06)
=================== ==================
Diluted net income (loss) per
common share $ 0.04
===================
Weighted average common
shares outstanding 53,382 1,030(5) 54,412
Weighted average common
shares and common share
equivalents 63,017
</TABLE>
(1) Reflects the unaudited interim consolidated results of
operations of the Company for the three months ended March 31,
2000.
(2) Amounts have been derived from the unaudited results of
operations of Clarity for the three months ended
March 31, 2000 prepared in accordance with US generally
accepted accounting principles. Certain amounts have been
reclassified to conform to the Company's presentation.
(3) See Note 4 - Unaudited Pro Forma Combined Statements of
Operations.
(4) Reflects the results of operations of the Company, on an
unaudited pro forma combined basis, assuming the acquisition
of Clarity had been consummated as of January 1, 1999 (using
an average exchange rate of British Pound Sterling 1:
US$1.6057 for the three months ended March 31, 2000).
(5) See Note 5 - Unaudited Pro Forma Loss per Share.
28
<PAGE> 30
PROXICOM, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
NOTE 1 - BUSINESSES AND BASIS OF PRESENTATION
Proxicom is a leading provider of Internet solutions to Global 1000 companies
and other large organizations. Since 1994, Proxicom has focused exclusively on
the Internet. Proxicom's Internet solutions include business-to-consumer
electronic commerce Internet sites, business-to-business electronic commerce
extranets, and company-specific intranets.
Clarity is a UK e-business development consultancy company that develops and
implements customer-centric strategies to help organizations create competitive
advantage through interactive digital media. Clarity is a European leader in
developing multi-channel e-business strategies and the application of Internet,
interactive television, wireless and multimedia technologies to create
innovative solutions for its clients.
The Unaudited Pro Forma Combined Balance Sheet as of March 31, 2000 gives effect
to the acquisition as if it had occurred on March 31, 2000. The Unaudited Pro
Forma Combined Statements of Operations gives effect to this transaction as if
it had occurred on January 1, 1999.
The financial information for Clarity included in the Unaudited Pro Forma
Combined Balance Sheet and Statements of Operations is presented on a basis
consistent with that of the Company and is presented in conformity with US
generally accepted accounting principles.
Management believes that the assumptions used in preparing the Unaudited Pro
Forma Combined Balance Sheet and Statements of Operations provide a reasonable
basis for presenting all of the significant effects of the acquisition included
therein, that the Unaudited Pro Forma adjustments give appropriate effect to
those assumptions and that the Unaudited Pro Forma adjustments are properly
applied in the Unaudited Pro Forma Combined Balance Sheet and Statements of
Operations.
The audited financial statements of Clarity are included elsewhere in this
8-K/A.
NOTE 2 -ACQUISITION OF CLARITY
The acquisition is being accounted for using the purchase method of accounting.
Total consideration of $46.8 million (including direct acquisition cost of
approximately $3.6 million) was comprised of $16.0 million in cash and 769,440
shares of the Company's common stock valued at $27.2 million. Additionally, the
Company issued 521,606 shares of its common stock valued at $18.5 million to
principal owner/employees of Clarity. The common stock was valued at $35.42
per share which was determined as the average of the Company's closing stock
price for the week ended April 14, 2000. The Company announced the acquisition
on April 11, 2000.
Management obtained an independent valuation for the allocation of the excess
purchase price over net tangible assets acquired. Based on this allocation,
management has attributed the excess purchase price to acquired service
agreements, customer relationships, assembled workforce with the remaining
29
<PAGE> 31
excess as unallocated goodwill. The carrying value of the intangible assets will
be periodically reviewed by the Company based on expected future undiscounted
operating cash flows.
NOTE 3 - UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS
(a) Reflects the elimination of the Clarity common stock, contributed
surplus (capital in excess of par), and retained earnings in connection
with the acquisition of Clarity.
(b) Reflects the excess of cost over net tangible assets acquired. The
Company considered the carrying value of the acquired tangible assets to
approximate their fair value, with all of the excess of such acquisition
cost being attributed to the acquired service agreements, customer
relationships, assembled workforce and goodwill intangible assets. (This
allocation was based on an independent appraisal.) The Company has
assigned a life of 3 years to goodwill and other intangible assets. The
following is a summary of the adjustment for goodwill and other
intangible assets:
<TABLE>
<CAPTION>
(In Thousands of
U.S. Dollars)
---------------------
<S> <C>
Goodwill $43,872
Assembled Workforce 1,914
Service Agreement 2,551
Customer Relationships 3,668
---------------------
Total intangible assets $52,005
=====================
</TABLE>
(c) Reflects the liabilities incurred in conjunction with the acquisition of
Clarity including legal fees, accounting and consulting fees and cost
directly related to the acquisition. This amount has been included in
the purchase price.
(d) Reflects the acquisition of Clarity including: (i) recording of the
issuance of 1,291,046 shares of common stock of the Company at an
average price of $35.42 per share in exchange for all of the issued
shares of Clarity and (ii) $16.0 million in cash paid.
(e) Reflects issuance of 521,606 (included as part of 1,291,046) shares of
common stock to principal employee/owners of Clarity. Stock
compensation will be amortized on a straight-line basis over the two
year vesting period.
(f) Reflects the establishment of deferred tax liability for nondeductible
expenses associated with identified intangible assets. This amount has
been included as part of goodwill.
NOTE 4 - UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS ADJUSTMENTS
The purchase price has been allocated to tangible assets acquired and
liabilities assumed, based upon their respective fair values, with the excess
allocated to intangible assets to be amortized over the estimated economic lives
of the intangible assets from the respective dates of acquisition. The Company
has undertaken studies by an independent third party to determine the allocation
of the total purchase price of Clarity as indicated in Note 3(b) above.
(a) Reflects amortization resulting from the allocation of the
purchase price to the acquired net tangible and intangible
assets (principally service agreements,
30
<PAGE> 32
customer relationships, assembled workforce and goodwill
intangible assets) relating to the acquisition included therein.
The assigned lives of these acquired intangible assets is three
years.
(b) Reflects stock compensation expense related to the issuance of
shares to principal owner/employees of Clarity. Shares are held
in escrow and will be released on the first and second
anniversary date of the acquisition. The value of these
shares was $18.5 million as of the date of the acquisition and
will be amortized on a straight line basis over the two year
vesting period.
(c) Reflects the reduction in interest income due to use of the
Company's cash on hand in acquisition, determined based on
Proxicom's current rate of return on its investment funds.
(d) Reflects the impact of conforming Clarity to the same tax
reporting basis as the Company and the impact of non-deductible
expenses associated with the acquisition.
NOTE 5 - UNAUDITED PRO FORMA LOSS PER COMMON SHARE
Pro Forma loss per basic share is computed using pro forma combined net loss
available to common stockholders divided by the weighted average number of pro
forma shares of common stock that were outstanding during the periods presented.
Included in the pro forma loss per basic share for the three months ended March
31, 2000 is 260,803 shares relating to the 521,606 shares held in escrow for the
principal owners/employees of Clarity. The 260,803 shares represent the number
of vested shares after the one year anniversary date on January 1, 2000.
31
<PAGE> 33
EXHIBIT INDEX
23. Consent of Grant Thornton.
32
