HLM DESIGN INC, S-1/A, 1998-04-29

HLM DESIGN INC
S-1/A, 1998-04-29
ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1998

REGISTRATION NO. 333-40617
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

AMENDMENT NO. 4

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
------------------------

HLM DESIGN, INC.

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 8712 56-2018819
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

121 WEST TRADE STREET, SUITE 2950

CHARLOTTE, NORTH CAROLINA 28202

TELEPHONE (704) 358-0779

(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

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

MR. JOSEPH M. HARRIS

PRESIDENT AND CHAIRMAN OF THE BOARD

HLM DESIGN, INC.

121 WEST TRADE STREET, SUITE 2950

CHARLOTTE, NORTH CAROLINA 28202

TELEPHONE (704) 358-0779

(Name, address, including zip code, and telephone number, including
area code, of agent for service)

COPIES TO:

<TABLE>
<S> <C>
GARY C. IVEY, ESQ. MICHAEL K. DENNEY, ESQ.
PARKER, POE, ADAMS & BERNSTEIN L.L.P. BRADLEY & RILEY, P.C.
2500 CHARLOTTE PLAZA 100 FIRST STREET, S.W.
CHARLOTTE, NORTH CAROLINA 28244 CEDAR RAPIDS, IOWA 52404
TELEPHONE (704) 372-9000 TELEPHONE (319) 363-0101
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:

As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR

TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED APRIL 28, 1998

PROSPECTUS

1,200,000 SHARES

[HLM LOGO APPEARS HERE]

COMMON STOCK
------------------------

All of the 1,200,000 shares (the "Shares") of common stock, par value $.001
per share (the "Common Stock"), are offered hereby (the "Offering") by HLM
Design, Inc. ("HLM Design").

Prior to the Offering, there has been no public market for the Common
Stock. It is currently anticipated that the public offering price will be
between $6.00 and $7.50 per share. See "Underwriting" for information relating
to factors to be considered in determining the initial public offering price.

HLM Design has applied for quotation of the Common Stock on the Nasdaq
SmallCap Market under the symbol "HLMD."

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. THIS OFFERING INVOLVES A
HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------

[CAPTION]
<TABLE>
<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO THE
PUBLIC DISCOUNT (1) COMPANY(2)
<S> <C> <C> <C>
Per Share........................................... $ $ $
Total (3)........................................... $ $ $
</TABLE>

(1) HLM Design has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses, payable by HLM Design, estimated at $558,280.

(3) HLM Design has granted to the Underwriters an option, exercisable within 45
days of the date hereof, to purchase up to an aggregate of 180,000
additional shares of Common Stock solely to cover over-allotments, if any.
If such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to HLM Design will be $ , $ and $ ,
respectively. See "Underwriting."
------------------------

The Shares are being offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Shares will be made in New York, New York on or about
, 1998.

BERTHEL FISHER & COMPANY FINANCIAL SERVICES, INC.

WESTPORT RESOURCES INVESTMENT SERVICES, INC.

MARION BASS SECURITIES CORPORATION
------------------------

The date of this Prospectus is , 1998.

<PAGE>
[Photographs of various projects completed by the Company]

HLM DESIGN INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS
CONTAINING FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT AUDITORS AND WILL
MAKE AVAILABLE COPIES OF ITS QUARTERLY RESULTS FOR THE FIRST THREE QUARTERS OF
EACH YEAR.

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."

<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (A) GIVES EFFECT TO AN
EFFECTIVE 12.75-TO-1 STOCK SPLIT (EFFECTED IN A SERIES OF TRANSACTIONS) OF HLM
DESIGN'S COMMON STOCK TO BE COMPLETED PRIOR TO THE CONSUMMATION OF THE OFFERING
(THE "STOCK SPLIT"), (B) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS
NOT EXERCISED, AND (C) GIVES EFFECT TO THE EXERCISE OF THE WARRANTS, INCLUDING
THE WARRANTS HELD BY PACIFIC (AS DEFINED HEREIN) TO BE EXERCISED IMMEDIATELY
PRIOR TO THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS IS A PART. SEE "DESCRIPTION OF CAPITAL STOCK -- WARRANTS" AND
"UNDERWRITING." UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES HEREIN TO THE
"COMPANY" MEAN HLM DESIGN, INC. AND THE ARCHITECTURAL, ENGINEERING AND PLANNING
FIRMS ("AEP FIRMS") IT MANAGES CONSIDERED AS ONE ENTERPRISE, REFERENCES TO A
"MANAGEMENT AND SERVICES AGREEMENT" MEAN A LONG-TERM AGREEMENT BETWEEN HLM
DESIGN AND AN AEP FIRM AS DESCRIBED HEREIN IN "BUSINESS -- HLM DESIGN
OPERATIONS -- MANAGEMENT AND SERVICES AGREEMENTS", AND REFERENCES TO THE
"MANAGED FIRMS" MEAN (I) WITH RESPECT TO THE PERIOD PRIOR TO THE DATE OF THIS
PROSPECTUS, HLMI, HLMNC AND HLMO (EACH AS DEFINED BELOW) WHICH ARE THE AEP FIRMS
CURRENTLY OPERATING UNDER MANAGEMENT AND SERVICES AGREEMENTS WITH HLM DESIGN,
AND (II) WITH RESPECT TO THE PERIOD FROM AND AFTER THE DATE OF THIS PROSPECTUS,
HLMI, HLMNC AND HLMO AND SUCH OTHER AEP FIRMS WITH WHICH HLM DESIGN SHALL, FROM
TIME TO TIME, ENTER INTO MANAGEMENT AND SERVICES AGREEMENTS. "HLM" IS A
REGISTERED TRADEMARK OF HLM DESIGN.

THE COMPANY

HLM Design, Inc. is a management company that enters into management and
services relationships with full service AEP Firms. It was formed in March 1997
to pursue a strategy of consolidating non-professional operations and providing
management expertise to individual AEP Firms. HLM Design believes it is the
first company to pursue such a consolidation strategy in order to take advantage
of operating efficiencies and provide geographic and service diversification for
clients. Prior to March 1997, the current management team of HLM Design operated
HLM Design of Northamerica, Inc. (formerly named Hansen Lind Meyer Inc.), an
Iowa corporation ("HLMI"), HLM Design of the Southeast, P.C. (formerly named HLM
of North Carolina, P.C.) ("HLMNC") and HLM Design of the Northwest,
Architecture, Engineering and Planning, P.C. (formerly named HLM of Oregon,
Architecture and Planning, P.C.) ("HLMO"). HLMI has been in operation for over
thirty years. HLMNC and HLMO were organized in 1996 but have had no operations
to date. These three AEP Firms have each entered into a Management and Services
Agreement with HLM Design. The Managed Firms operate offices in Atlanta,
Georgia, Iowa City, Iowa, Chicago, Illinois, Orlando, Florida, Bethesda,
Maryland, Denver, Colorado, Sacramento, California, Philadelphia, Pennsylvania,
Portland, Oregon and Charlotte, North Carolina. HLM DESIGN IS NOT ENGAGED IN THE
PRACTICE OF ARCHITECTURE, ENGINEERING OR PLANNING.

Joseph M. Harris and Vernon B. Brannon, executive officers and principal
stockholders of HLM Design, are also the principal stockholders and officers of
the Managed Firms, HLMI, HLMNC and HLMO. As officers of the Managed Firms, they
caused the Managed Firms to enter into Management and Services Agreements with
HLM Design and as stockholders of each of the Managed Firms they entered into
Stockholders' Agreements (as described below). See "Certain
Transactions -- Relationships with Managed Firms."

A full-service AEP Firm provides a spectrum of services in various
specialties to customers through a broad range of professionals, including
architects, mechanical, electrical, structural and civil engineers, landscape
architects, interior designers and construction administration personnel. HLM
Design has chosen to focus its effort on the management of full-service AEP
Firms because it believes these firms offer a competitive advantage -- the
ability to provide a full line of high-quality, cost effective services -- over
firms that provide a more narrow range of services. HLM Design believes that its
consolidation strategy will assist in attracting new AEP Firms as a result of
two major trends: (1) the increasing complexity, cost and competitiveness of the
design practice conducted by AEP Firms requiring operating and cost
efficiencies, and (2) AEP Firms' need for access to a wider pool of
geographically dispersed professionals in order to provide solutions for the
evolving needs of their clients.

As a management company, HLM Design's relationship with the Managed Firms
is contractual; it has no ownership interest in the Managed Firms. As a result,
stockholders in HLM Design will have no direct or indirect ownership interest in
the Managed Firms.

HLM Design's strategy is to expand revenues through (1) the development of
new long-term Management and Services Agreements with full-service AEP Firms
throughout the United States and (2) the expansion of services to existing
clients. Currently, HLM Design is not engaged in negotiations with any AEP
Firms.

<PAGE>
HLM Design's principal executive office is located at 121 West Trade
Street, Suite 2950, Charlotte, North Carolina and its telephone number is (704)
358-0779.

OPERATING STRATEGY

The Company provides, primarily through HLMI, a complement of
architectural, engineering and planning services to a variety of clients in
several industries. These services include, in addition to the provision of
architectural and engineering services, all phases of a construction project
starting with assistance in the funding process, development of a master plan,
and construction oversight. The services also may involve the redesign of a
workplace to make it efficient, reliable and easy to maintain. The Company has
developed a strength and is recognized as a national leader in the following
markets:

(Bullet) Healthcare -- In the last five years, HLMI has designed and
constructed more than 15 million square feet of healthcare facilities. Clients
have ranged from 20-bed hospitals in the rural mid-west to America's most
prestigious academic medical centers. Healthcare clients include Duke University
Medical Center, University of Chicago Hospitals, University of Iowa Hospitals
and Clinics, Rush-Presbyterian-St. Lukes Medical Center, Thomas Jefferson
University Hospital and Georgetown University Medical Center.

(Bullet) Justice -- HLMI has designed over 10 million square feet of
justice facilities in the last ten years. It has designed jail and prison
projects valued at over $500 million and has designed emerging court facility
projects valued at over $555 million.

(Bullet) High-tech Research Facilities -- HLMI has designed research
facilities valued at over $500 million. The Company's clients in this market
include some of the most prestigious in the country including Johns Hopkins
University, the National Institutes of Health, the Mayo Foundation, and
Georgetown University. Planning for high-tech research facilities is intended to
optimize space utilization and provide flexibility to adapt to changing
technology and funding constraints.

All of the Company's architecture, engineering and planning services are
provided through the Managed Firms, and not by HLM Design.

GROWTH STRATEGY

HLM Design intends to implement an aggressive, yet disciplined, expansion
program by pursuing Management and Services Agreements with (i) large "regional"
AEP Firms with established operating histories located in large metropolitan and
high-growth suburban geographic markets that the Company does not currently
serve and (ii) small firms that provide operational diversity in geographic
areas that complement the services that are either currently provided by the
Company in such geographic areas or that are intended to be provided in the
future. HLM Design believes its approach will be attractive to these large and
small AEP Firms because it will provide these firms with economies of scale and
the synergies that result from increased purchasing power, a greater breadth of
services, an increased pool of professionals, and geographical diversity.
Furthermore, this strategy will give these regional and local AEP Firms, as a
part of the Company, the ability to provide services to existing and future
clients with national operations that might otherwise have turned to "non-local"
firms to service their needs. The goal is for the Company to be the single
source provider for large national clients that have geographically diverse
operations.

HLM Design generally expects that AEP Firms that sign Management and
Services Agreements will retain existing high-quality professional employees and
continue to operate in an effective and efficient manner with architects,
engineers and planning professionals who understand the local market. HLM
Design's management team will provide all management and administrative services
to the AEP Firms. Management believes it is positioned to pursue larger, well
established AEP Firms as a result of the depth of HLM Design's management team,
HLM Design's capital structure and the reputation of the management team in the
design industry. Management also believes its growth strategy can be achieved at
less cost than that which would be incurred by AEP firms operating on a stand
alone basis.

CERTAIN RISK FACTORS

The Common Stock offered hereby involves a high degree of risk. Prospective
purchasers should consider that:

(Bullet) HLM Design's operating and growth strategies are predicated upon
its ability to achieve significant consolidation of AEP Firm
operations and to generate profits from those firms;

(Bullet) Conflicts of interest could arise between HLM Design and Joseph
Harris and Vernon Brannon, the President and Chief Financial
Officer, respectively, of HLM Design, in connection with the
operation and enforcement of the provisions of Stockholders'
Agreements and the Management and Services Agreements;

<PAGE>
(Bullet) HLM Design's revenues are currently derived from Management and
Services Agreements with three firms, only one of which had active
operations at October 31, 1997 and all of which are related to
each other, and to HLM Design, by common and principal
stockholders, Messrs. Harris and Brannon;

(Bullet) HLM Design's operating and growth strategies require substantial
capital resources resulting in the incurrence of long-term and
short-term indebtedness and may result in the public or private
issuance from time to time of additional debt or equity
securities, including the issuance of such securities in
connection with the execution of new Management and Services
Agreements;

(Bullet) AEP Firms that have entered into Management and Services
Agreements with HLM Design have the right to terminate such
agreements upon the filing by HLM Design of a petition in
voluntary bankruptcy or assignment for the benefit of creditors,
or upon other action taken voluntarily or involuntarily under any
federal or state law for the benefit of debtors;

(Bullet) Because of the unique structure of the relationship between HLM
Design and its Managed Firms, many aspects of these relationships
have not been the subject of prior regulatory interpretations and
there can be no assurance that a review of the Company's business
by applicable regulatory authorities will not result in
determinations that may adversely affect the operations of the
Company or prevent its continued operations;

(Bullet) The Company's success depends to a significant degree upon the
continued contributions of Messrs. Harris and Brannon; and

(Bullet) There is no existing market for the Common Stock and no assurance
can be given that one will develop following the Offering.

PROSPECTIVE INVESTORS SHOULD ALSO BE AWARE THAT AS OF THE DATE HEREOF, HLM
DESIGN HAS ENTERED INTO MANAGEMENT AND SERVICES AGREEMENTS ONLY WITH AFFILIATED
ENTITIES AND NO ASSURANCES MAY BE GIVEN THAT HLM DESIGN WILL BE SUCCESSFUL IN
ENTERING INTO SUCH AGREEMENTS WITH OTHER AEP FIRMS.

See "Risk Factors" beginning on page 7 for a discussion of factors that
should be considered by prospective purchasers of the Common Stock offered
hereby.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by HLM Design.................... 1,200,000 shares (1)
Common Stock to be outstanding after the Offering..... 2,075,087 shares (1)(2)(3)
Total............................................ 2,075,087 shares
Use of proceeds....................................... The net proceeds of the Offering will be used to repay certain
indebtedness of HLM Design, for working capital and for general
corporate purposes, including the funding of HLM Design's entering
into new Management and Services Agreements. See "'Use of Proceeds."
Trading............................................... The Company has applied for quotation of the Common Stock on the
Nasdaq SmallCap Market ("Nasdaq"), under the symbol "HLMD."
</TABLE>

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(1) Does not include up to an aggregate of 180,000 shares that may be sold by
HLM Design upon exercise of the over-allotment option granted to the
Underwriters. See "Underwriting."

(2) Excludes (i) 159,955 shares of Common Stock reserved for future issuance
under HLM Design's Stock Option Plan (as defined herein), including options
to purchase an aggregate of 115,908 shares of Common Stock that have been
granted and are currently effective or will become effective immediately
before the completion of the Offering, and (ii) 57,954 shares of Common
Stock reserved for future issuance under HLM Design's ESPP (as defined
herein).

(3) Gives effect to the Stock Split.

All broker-dealers effecting transactions in the Common Stock in the State
of Oklahoma must comply with the requirements of Section 660: 10-9-31 of the
Rules of the Oklahoma Securities Commission and the Administrator of the
Department of Securities to deliver a prospectus prior to or concurrently with
any transaction in the Common Stock until 90 days after the effective date of
the registration of the Common Stock in Oklahoma.

<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA

The following summary historical and financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements of HLM Design and
Affiliates and the Predecessor Company (as defined below) and the related notes
thereto included elsewhere in this Prospectus.

The following summary historical financial data for the Predecessor Company
for each of the three fiscal years ended April 25, 1997 are derived from audited
financial statements, which are included elsewhere in this Prospectus. The
summary financial data (Predecessor Company) for the one month ended May 30,
1997 and the nine months ended January 24, 1997 are derived from the unaudited
financial statements of HLMI, which are included elsewhere in this Prospectus.
The selected financial data for the nine months ended January 30, 1998 are
derived from the unaudited combined financial statements of HLM Design and, for
the eight months ended January 30, 1998, of HLMI, HLMNC and HLMO, which are
included elsewhere in this Prospectus. In the opinion of management, these
unaudited financial statements reflect all adjustments necessary for a fair
presentation of its results of operations and financial condition. The results
of operations for an interim period are not necessarily indicative of results of
operations for a full fiscal year or any other interim period.

<TABLE>
<CAPTION>
PREDECESSOR COMPANY (1)
-----------------------------------------------------------------------
NINE
FOR THE YEAR ENDED MONTHS ONE MONTH
----------------------------------------- ENDED ENDED
APRIL 30, APRIL 26, APRIL 25, JANUARY 24, MAY 30,
1995 1996 1997 1997 1997
----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Revenue........................................ $29,122,557 $28,554,424 $26,754,710 $19,442,280 $2,233,036
----------- ----------- ----------- ----------- -----------
Costs and Expenses:
Direct cost of revenue......................... 15,685,671 14,261,952 13,376,251 9,917,627 898,979
Operating costs................................ 14,098,729 13,104,278 12,414,739 9,359,733 1,163,141
ESOP expenses.................................. 573,837 584,202 408,765 406,652
Amortization on intangible assets.............. 5,952 99,145 107,670 81,807 9,571
----------- ----------- ----------- ----------- -----------
Total costs and expenses....................... 30,364,189 28,049,577 26,307,425 19,765,819 2,071,691
----------- ----------- ----------- ----------- -----------
Income (loss) from operations.................. (1,241,632) 504,847 447,285 (323,539 ) 161,345
----------- ----------- ----------- ----------- -----------
Other income (expense):
Net interest................................... (142,744) (383,552) (396,007) (280,027 ) (36,951 )
Non-operating income........................... 428,475 850,273 285,635
----------- ----------- ----------- ----------- -----------
Total other income (expense)............... 285,731 466,721 (110,372) (280,027 ) (36,951 )
----------- ----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes.............. (955,901) 971,568 336,913 (603,566 ) 124,394
Income tax expense (benefit)................... (360,080) 435,459 219,799 (143,517 ) 43,000
----------- ----------- ----------- ----------- -----------
Net income (loss) (3).......................... $ (595,821) $ 536,109 $ 117,114 $ (460,049 ) $ 81,394
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
Working capital(deficiency).................... $(1,029,547) $(1,620,488) $(1,902,363) $ (686,632 ) $(2,238,531)
Total assets................................... 10,519,859 12,577,992 12,874,503 13,402,269 17,639,673
Long-term debt................................. 840,302 564,577 103,792 769,742 2,476,008
Total liabilities.............................. 10,690,072 11,819,796 11,670,962 12,803,938 16,354,738
Warrants outstanding (4).......................
Stockholders' equity (deficiency) (5).......... (170,213) 758,196 1,203,541 598,331 1,284,935

<CAPTION>
HLM DESIGN
(COMBINED)
NINE
MONTHS
ENDED
JANUARY 30,
1998 (2)
-----------
INCOME STATEMENT DATA:
<S> <C>
Revenue........................................ $21,543,416
-----------
Costs and Expenses:
Direct cost of revenue......................... 9,979,581
Operating costs................................ 9,629,991
ESOP expenses..................................
Amortization on intangible assets.............. 114,549
-----------
Total costs and expenses....................... 19,724,121
-----------
Income (loss) from operations.................. 1,819,295
-----------
Other income (expense):
Net interest................................... (748,621 )
Non-operating income...........................
-----------
Total other income (expense)............... (748,621 )
-----------
Income (Loss) Before Income Taxes.............. 1,070,674
Income tax expense (benefit)................... 514,063
-----------
Net income (loss) (3).......................... $ 556,611
-----------
-----------
BALANCE SHEET DATA:
Working capital(deficiency).................... $ (432,870 )
Total assets................................... 18,043,555
Long-term debt................................. 4,357,057
Total liabilities.............................. 17,194,658
Warrants outstanding (4)....................... 200,068
Stockholders' equity (deficiency) (5).......... 648,829
</TABLE>

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

(1) The "Predecessor Company" is HLMI.

(2) Includes information for HLM Design and for the Managed Firms for the eight
months from May 31, 1997 to January 30, 1998 on a combined basis. HLM
Design's operations for the month ended May 30, 1997 reflected herein
include no revenues or expenses.

(3) Historical net income per share is not presented, as the historical capital
structure prior to the Offering is not comparable with the capital structure
of the Company that will exist after the Offering.

(4) Reflects Warrants held by Pacific and Equitas as of January 30, 1998.
Equitas exercised its Warrants in February 1998 and Pacific has undertaken
that it will exercise its Warrants immediately prior to the effective date
of the Registration Statement of which this Prospectus is a part.

(5) Neither HLM Design nor the Predecessor Company has paid cash dividends from
May 1, 1994 to January 30, 1998.

<PAGE>
RISK FACTORS

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER AND EVALUATE ALL OF THE
INFORMATION SET FORTH IN THIS PROSPECTUS, INCLUDING THE PRINCIPAL RISK FACTORS
SET FORTH BELOW.

INNOVATIVE STRATEGY

HLM Design's operating and growth strategies are predicated upon its
ability to achieve significant consolidation of AEP Firm operations and to
generate profits from those firms. The process of identifying suitable
candidates for entering into Management and Services Agreements and proposing,
negotiating and implementing economically feasible affiliations with AEP Firms
is lengthy and complex. Such strategies require intense management direction in
a dynamic marketplace that is increasingly subject to cost containment and other
competitive pressures. There can be no assurance that these strategies will be
successful or that modifications to the Company's strategies will not be
required.

CONFLICTS OF INTEREST

Joseph Harris and Vernon Brannon, the President and the Chief Financial
Officer, respectively, of HLM Design, are also principal stockholders in each of
HLMI, HLMNC and HLMO and have entered into Stockholders' Agreements with respect
to those firms that, among other things, permit the management by HLM Design of
each of HLMI, HLMNC and HLMO. Conflicts of interest could arise between HLM
Design and Messrs. Harris and Brannon in connection with the operation and
enforcement of the provisions of these Stockholders' Agreements and the
Management and Services Agreements. See "Certain Transactions." The interests of
HLM Design could be materially adversely affected if circumstances arose in
which it would be in the interest of Joseph Harris and Vernon Brannon to
interfere with the performance by HLMI, HLMNC or HLMO of the Management and
Services Agreements. Upon the execution of new Management and Services
Agreements with AEP Firms, similar conflicts of interest would arise between HLM
Design and stockholders of such firms.

BENEFITS OF OFFERING TO INSIDERS

Joseph M. Harris and Vernon B. Brannon, stockholders, directors and
executive officers of HLM Design, will benefit personally from the Offering in
several ways. Both Mr. Harris and Mr. Brannon will be released from personal
guaranties in connection with the Pacific/Equitas Loan (as defined below) upon
the consummation of the Offering and the repayment of the Pacific/Equitas Loan
from the proceeds of the Offering. The Offering will result in increased
liquidity for Messrs. Harris and Brannon, as well as all other current
stockholders of HLM Design, with respect to the shares of Common Stock each such
person currently holds in HLM Design. Messrs. Harris and Brannon and Berthel
Fisher Company Leasing, Inc. ("Berthel Leasing") have, however, agreed to escrow
Common Stock owned by each of them pursuant to the requirements of the various
state securities commissions. For a description of restrictions on current
stockholders' ability to freely transfer Common Stock outstanding on the date
hereof and not sold in the Offering, see "Shares Eligible for Future Sale."
Additionally, in connection with the consummation of the Offering, Messrs.
Harris and Brannon have entered into Employment Agreements with HLM Design
whereby each will receive compensation and other benefits as well as options to
purchase 57,954 shares of HLM Design Common Stock. See "Management -- Employment
Agreements."

MANAGEMENT AND SERVICES AGREEMENTS WITH ONLY THREE FIRMS

HLM Design's revenues are derived solely from its contractual relationships
with the Managed Firms (for whom, as indicated below, HLM Design will also
provide required financing). Currently, HLM Design has Management and Services
Agreements with three firms, only one (HLMI) of which had active operations at
January 30, 1998. All three of these firms are related to each other and to HLM
Design, by common principal stockholders, Joseph M. Harris and Vernon B.
Brannon. There can be no assurance that HLM Design will be able to successfully
enter into Management and Services Agreements with additional firms.

UNCERTAINTIES CONCERNING ABILITY TO RECEIVE PAYMENTS FROM MANAGED FIRMS

HLM Design earns, for services provided to the Managed Firms, 99% of the
net income of the Managed Firms as determined in accordance with generally
accepted accounting principles. However, for cash management purposes, HLM
Design is to receive 99% of the positive cash flows of the Managed Firms
(calculated for any period as the change in the cash balances from the beginning
of the period to the end of the period). HLM Design's ability actually to
receive payments in respect thereof during the period will be subject to the
cash requirements of the Managed Firms for the period. Through January 30, 1998,
HLM Design had earned aggregate management fees under Management and Services
Agreements with

<PAGE>

Managed Firms of $1,034,008 since its inception in March 1997. As of January 30,
1998, $450 in management fees had actually been paid by the Managed Firms to HLM
Design and $1,033,558 continued to be carried by HLM Design as an account
receivable. Such receivable balance is to be paid with future positive cash
flows. To the extent, however, the cash requirements of the Managed Firms
continue to exceed 1% of positive cash flows, HLM Design will be unable to
receive payments against such receivable and such payments will continue to be
delayed. HLM Design's ability to pay dividends on the Common Stock will depend
on the ability of HLM Design to collect such receivables.

UNCERTAINTIES CONCERNING ADDITIONAL FINANCINGS AND COMPANY'S ABILITY TO OBTAIN
NEW LINE OF CREDIT

HLM Design's operating and growth strategies require substantial capital
resources, particularly since HLM Design, as the management company, will be
responsible for the financing of working capital growth, capital growth and
other cash needs of the Managed Firms. See "Business -- HLM Design
Operating -- Management and Services Agreements." These requirements will result
in HLM Design incurring long-term and short-term indebtedness and may result in
the public or private issuance, from time to time, of additional debt or equity
securities, including the issuance of such securities in connection with the
execution of Management and Services Agreements. There can be no assurance that
any such financing will be obtainable on terms acceptable to HLM Design. As
further discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources," HLM
Design has already incurred borrowings under its existing revolving line of
credit equal to the full amount of its borrowing capacity thereunder.
Furthermore, such line of credit matures as of May 30, 1998, unless it is
renewed by the lender. Although HLM Design has received both verbal and written
indications of the willingness of the lender to renew and increase HLM Design's
line of credit following a successful completion of this Offering, the lender
has not entered into any commitment to do so. If HLM Design is unable to obtain
a new revolving line of credit following the Offering, its ability to implement
its growth strategy will be adversely affected.

Additionally, issuing securities in connection with the execution of
Management and Services Agreements will dilute the percentage of Common Stock
owned by stockholders prior to such issuance. There is no assurance that such
financings will not cause dilution in the book value per share of the Common
Stock.

EFFECT OF BANKRUPTCY

AEP Firms that have entered into Management and Services Agreements with
HLM Design have the right to terminate such agreements upon the filing by HLM
Design of a petition in voluntary bankruptcy, an assignment for the benefit of
creditors, or upon other action taken voluntarily or involuntarily under any
federal or state law for the benefit of debtors. Because the substantial
majority of the assets of the Company are owned by the Managed Firms, if such
agreements are terminated, HLM Design would proceed through bankruptcy without
any meaningful assets. In such circumstances, it is likely that no significant
assets would be available for distribution to stockholders upon a liquidation.

GOVERNMENT REGULATION

The architectural and engineering industries are regulated at the state
level. The Company believes its operations are in material compliance with
applicable law. Nevertheless, because of the unique structure of the
relationships between HLM Design and its Managed Firms, many aspects of these
relationships have not been the subject of prior regulatory interpretation. The
Company has not discussed its structure with or received approvals from any
regulatory authorities, and is unaware of its business being reviewed by any
such regulatory authorities. There can be no assurance that a review of the
Company's business by applicable regulatory authorities will not result in
determinations that may adversely affect the operations of the Company or
prevent its continued operation. There also can be no assurance that the
regulatory environment will not change so as to restrict the Company's existing
operations or limit the expansion of the Company's business. Expansion of the
operations of the Company to certain jurisdictions could require structural and
organizational modifications of HLM Design's relationships with its Managed
Firms. Consequently, if the Company is unable or unwilling to undertake such
modifications, it may be limited in its ability to expand into certain
jurisdictions. As of the date hereof, the Company has not determined which
jurisdictions would require structural or organizational modifications of HLM
Design's relationships with the Managed Firms. Although the Company believes its
operations are in material compliance with existing applicable law, there can be
no assurance that the Company's existing Management and Services Agreements
could not be successfully challenged as, for example, constituting the
unlicensed practice of architecture, or that the enforceability of the
provisions thereof, including non-disclosure agreements therein, will not be
limited.

<PAGE>
DEPENDENCE ON KEY PERSONNEL AND LIMITED MANAGEMENT AND PERSONNEL RESOURCES

The Company's success depends to a significant degree upon the continued
contributions of its management team (particularly its senior management) and
professional personnel. The loss of the services of one or more of these key
employees could have a material adverse effect on the Company. The Company
carries key employee insurance on each of Joseph M. Harris and Vernon B. Brannon
and has employment and/or noncompetition agreements with Messrs. Harris and
Brannon as well as with several members of its senior professional staff, but
does not have such agreements with all of its key personnel. There can be no
assurance that a court would enforce the noncompetition agreements as currently
in effect. A court might, for example, narrow the geographical or client
restrictions contained in such agreement, lessen the length of the agreements
or, in some cases, refuse to enforce any provisions thereof. If courts refuse to
enforce the noncompetition agreements of HLM Design or the Managed Firms, such
refusals could have a material adverse effect on HLM Design.

In addition, as the Company expands it may need to hire additional
personnel and will likely be dependent on the senior professional staff of any
firm with which HLM Design enters into a Management and Services Agreement. The
market for qualified employees in the industry and in the regions in which the
Company operates is competitive and may subject the Company to increased labor
costs in periods of low unemployment. The loss of the services of key employees
or the inability to attract additional qualified professional staff could have a
material adverse effect on the Company. In addition, the lack of qualified
professional staff or employees of the Company's potential candidates for
Management and Services Agreements may limit the Company's ability to consummate
future agreements. See "Business -- Growth Strategy," "Business -- Competition"
and "Management."

RISKS INHERENT IN PROVISION OF SERVICES

The Managed Firms and certain employees of the Managed Firms are involved
in the delivery of services to the public and, therefore, are exposed to the
risk of professional liability claims. Claims of this nature, if successful,
could result in substantial damage awards to the claimants that may exceed the
limits of any applicable insurance coverage. Insurance against losses related to
claims of this type can be expensive and varies widely from state to state.
Although HLM Design is indemnified under its Management and Services Agreements
for claims against the Managed Firms and their employees, HLM Design maintains
liability insurance for itself and negotiates liability insurance for its
Managed Firms and the professionals employed by its Managed Firms. Successful
malpractice claims asserted against the Managed Firms, their employees or HLM
Design could have an adverse effect on the Company's profitability.

DEPENDENCE ON MANAGED FIRMS

HLM Design's revenues depend on fees and revenues generated by various AEP
Firms managed by HLM Design. Any material loss of revenue by such firms, whether
as a result of the loss of professionals or otherwise, could have a material
adverse effect on HLM Design. HLM Design is not engaged in the practice of
architecture, engineering or planning and, as a result, does not control (i) the
practice of architecture, engineering or planning by professionals or (ii) the
compliance with certain regulatory requirements directly applicable to the
Managed Firms.

COMPETITION

The business of providing architectural, engineering and planning related
services is highly competitive. The Company's competition includes many other
firms, including large national firms as well as regional or small local firms.
Several companies that have established operating histories and significantly
greater resources than the Company provide some of the services provided by the
Managed Firms. In addition, there are other companies with substantial resources
that may in the future decide to engage in activities similar to those in which
the Company engages. See "Business -- Competition."

CONCENTRATION OF VOTING POWER AND ANTI-TAKEOVER PROVISIONS

HLM Design's Certificate of Incorporation authorizes the Board of Directors
of HLM Design to issue 1,000,000 shares of preferred stock with such
designations, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely effect the
voting power or other rights of the holders of HLM Design's Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of preferred stock, there can be no assurance that the Company will
not do so in the future. The application of any such provisions or the issuance
of preferred stock could prevent stockholders from

<PAGE>
realizing a premium upon the sale of their shares of Common Stock upon an
acquisition of the Company. See "Description of Capital Stock."

Certain provisions of the Company's Certificate of Incorporation and Bylaws
make it more difficult for stockholders of the Company to effect certain
corporate actions. See "Description of Capital Stock -- Delaware Law and Certain
Charter and Bylaw Provisions." Under the Company's Stock Option Plan, options
outstanding thereunder become immediately exercisable upon a change in control
of the Company. See "Management -- Stock Option Plan." Additionally, HLM
Design's Bylaws provide: (i) for a Board of Directors divided into three classes
serving staggered terms, (ii) that special meetings of stockholders, unless
otherwise prescribed by law or its Certificate of Incorporation, may be called
only by the President at the request in writing of the majority of the Board of
Directors and (iii) that any stockholder seeking to bring business before an
annual meeting of stockholders, or to nominate candidates for election as
directors at an annual or special meeting of stockholders, must provide timely
notice thereof in writing. These provisions will impair the stockholders'
ability to influence or control the Company or to effect a change in control of
the Company, and may prevent stockholders from realizing a premium on the sale
of their shares of Common Stock upon an acquisition of the Company. See
"Description of Capital Stock."

NO PRIOR PUBLIC MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Common
Stock. HLM Design has applied for quotation of its Common Stock on the Nasdaq
SmallCap Market. The initial public offering price of the Common Stock will be
determined by negotiations among the Company and representatives of the
Underwriters. See "Underwriting." There can be no assurance that the market
price of the Common Stock prevailing at any time after this Offering will equal
or exceed the initial public offering price. Quarterly and annual operating
results of the Company, variations between such results and the results expected
by investors and analysts, changes in local or general economic conditions or
developments affecting the architecture or engineering industries, the Company
or its competitors could cause the market price of the Common Stock to fluctuate
substantially. As a result of these factors, as well as other factors common to
initial public offerings, the market price could fluctuate substantially from
the initial offering price. In addition, the stock market has, from time to
time, experienced extreme price and volume fluctuations, which could adversely
effect the market price for the Common Stock without regard to the financial
performance of the Company.

POSSIBLE INABILITY TO MEET CONTINUED NASDAQ SMALLCAP LISTING REQUIREMENTS

While the Company has applied for Nasdaq SmallCap listing and expects its
Common Stock to be initially included on the Nasdaq SmallCap, there can be no
assurance that the Company will at all times meet the criteria for continued
listing. If the Company is unable to satisfy the Nasdaq SmallCap's maintenance
requirements, its Common Stock may be delisted from the Nasdaq SmallCap. In
addition, Nasdaq has the right to review and reverse a decision to list a
security on the Nasdaq SmallCap Market before or after the completion of an
offering. In the event of any such delisting, trading, if any, in the Common
Stock would thereafter be conducted in the over-the-counter market in the
so-called "pink-sheets" or the "Electronic Bulletin Board" of the National
Association of Securities Dealers, Inc. ("NASD") and it could be more difficult
to obtain quotations of the market price of the Company's Common Stock.
Consequently, the liquidity of the Company's Common Stock could be impaired, not
only in the number of securities which could be bought and sold, but also
through delays in the timing of transactions, reduction in security analysts'
and the news media's coverage of the Company. The Company expects to meet the
Nasdaq SmallCap continued listing requirements immediately following this
Offering.

POTENTIAL ADVERSE EFFECTS OF DELISTING; "PENNY STOCK" RULES

If the Company's Common Stock were delisted from the Nasdaq SmallCap, it
could become subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker-dealers that sell such Common
Stock to persons other than established customers and "accredited investors"
(generally, individuals with a net worth in excess of $1,000,000 or annual
incomes exceeding $200,000 or $300,000 together with their spouses), among
others. For transactions covered by such a rule, a broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently such
rule may adversely affect the ability of broker-dealers to sell the Company's
Common Stock and may adversely affect the ability of purchasers in the Offering
to sell in the secondary market any of the Common Stock acquired.

Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule relating to the penny stock market. Disclosure is also
required to be made about commissions

<PAGE>

payable to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.

The foregoing required penny stock restrictions will not apply to the
Company's Common Stock if the Common Stock is listed on the Nasdaq SmallCap and
has certain price and volume information provided on a current and continuing
basis or meets certain minimum net tangible assets or average revenue criteria.
There can be no assurance that the Company's Common Stock will qualify for
exemption from these restrictions. In any event, even if the Company's Common
Stock was exempt from such restrictions, it would remain subject to Section
15(b)(6) of the Exchange Act, which gives the Commission the authority to
prohibit any person that is engaged in unlawful conduct while participating in a
distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest. If the Company's Common
Stock were subject to the rules on penny stocks, the market liquidity for the
Company's Common Stock could be severely adversely affected.

LACK OF INDEPENDENT DIRECTORS

Upon completion of the Offering, the majority of the members of HLM
Design's Board of Directors will be employees of HLM Design or representatives
of holders of Common Stock. HLM Design intends to maintain at least two
independent directors on its Board following completion of the Offering and to
establish audit and compensation committees which will consist entirely of
outside directors. Such directors will not, however, constitute a majority of
the Board, and HLM Design's Board may not have a majority of independent
directors at any time in the future. In the absence of a majority of independent
directors, HLM Design's executive officers, who also are principal stockholders
and directors, could establish policies and enter into transactions without
independent review and approval thereof, subject to certain restrictions under
HLM Design's Certificate of Incorporation and other undertakings by HLM Design.
HLM Design has undertaken that all transactions between the Company and any of
its officers, directors and employees will be approved by the outside directors.
See "Management."

DILUTION

Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in the amount of $3.53 per share, or 59% of the initial
public offering price ($3.74 per share, or 62% of the initial public offering
price, giving effect to the Common Stock issuance and exercise of Warrants
subsequent to January 30, 1998), in net tangible book value per share from the
initial offering price, assuming an initial offering price of $6.00 per share
(the low point of the range of the initial offering price set forth on the cover
page of this Prospectus). See "Dilution."

POTENTIAL ADVERSE MARKET PRICE EFFECT OF ADDITIONAL SHARES ELIGIBLE FOR FUTURE
SALE

256,712 of the 875,087 shares of Common Stock owned beneficially by
existing stockholders of HLM Design and the 159,955 shares of Common Stock
reserved for future issuance under the Stock Option Plan are "restricted
securities" as defined in Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"), and may in the future be resold in compliance with Rule
144. See "Management -- Stock Option Plan" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." No prediction can be made as to the effect that resale of
shares of Common Stock, or the availability of shares of Common Stock for
resale, will have on the market price of the Common Stock prevailing from time
to time. The resale of substantial amounts of Common Stock, or the perception
that such resales may occur, could adversely affect prevailing market prices for
the Common Stock and the ability of HLM Design to raise equity capital in the
future. HLM Design has agreed, subject to certain exceptions, not to issue, and
all executive officers of HLM Design and the Managed Firms have agreed not to
resell, any shares of Common Stock or other equity securities of HLM Design for
365 days after the date of this Prospectus without the prior written consent of
the representatives of the Underwriters. See "Shares Eligible for Future Sale"
and "Underwriting." Additionally, Messrs. Harris and Brannon and Berthel Leasing
have agreed to escrow Common Stock owned by each of them pursuant to the
requirements of the various state securities commissions.

<PAGE>
USE OF PROCEEDS

The net proceeds to HLM Design from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $5.92 million ($6.89 million if
the Underwriters' over-allotment option is exercised in full), assuming an
initial public offering price of $6.00 per share (the low point of the range of
the initial public offering price set forth on the cover page of this
Prospectus) and after deducting the underwriting discount and estimated expenses
of the Offering.

HLM Design intends to use approximately $3.0 million of the net proceeds to
repay certain indebtedness consisting of (i) the $2.0 million due under the
Pacific/Equitas Loan (payable June 1, 2002 at an interest rate of 13.5%), (ii) a
$0.75 million term loan from Berthel Leasing, an affiliate of one of the
Underwriters (payable May 31, 1998, with an interest rate of 12% due in monthly
installments), and (iii) notes payable in an aggregate principal amount of $0.2
million to employee stockholders (payable at various dates until August 2002
including interest of 6.0%). The $3.0 million of indebtedness currently has an
effective weighted interest cost at an annual rate equal to 23%. (In connection
with the merger agreement between HLMI and BBH Corp. described elsewhere in this
Prospectus and the payment of the merger consideration to holders of HLMI's
common stock, the Company incurred indebtedness in the aggregate principal
amount of $2 million to Pacific Capital, L.P. ("Pacific") and Equitas, L.P.
("Equitas") (the "Pacific/Equitas Loan") and assumed the above-referenced notes
payable to employee stockholders. The Berthel Leasing proceeds were used for
working capital.) See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

HLM Design intends to use the remaining expected net proceeds of the
Offering for the development of new business and, to the extent not required in
that regard, for working capital and other general corporate purposes, including
payments made by HLM Design in connection with the execution of new Management
and Services Agreements. Until utilized, the Company will invest the net
proceeds in short-term, interest bearing, investment grade instruments. The
following table illustrates HLM Design's intended use of proceeds in order of
priority:

<TABLE>
<CAPTION>
DOLLARS PERCENTAGE OF
USE OF PROCEEDS ($) PROCEEDS (%)
- ------------------------------------------------------------------------------------------------- ---------- -------------
<S> <C> <C>
Underwriting Discount............................................................................ $ 720,000 10.00%
Payment of Expenses.............................................................................. 558,280 7.75%
Repayment of Pacific/Equitas Loan................................................................ 2,000,000 27.78%
Repayment of Berthel Leasing Loan................................................................ 750,000 10.42%
Repayment of notes payable to employee stockholders.............................................. 200,000 2.78%
New Business Development......................................................................... 2,971,720 41.27%
---------- -------------
Estimated Net Proceeds to HLM Design........................................................... $7,200,000 100.00%
---------- -------------
---------- -------------
</TABLE>

DIVIDEND POLICY

HLM Design has never declared or paid a dividend on its Common Stock. HLM
Design intends to retain all of its earnings to finance the growth and
development of its business, including the execution of new Management and
Services Agreements, and does not anticipate paying any cash dividends on its
Common Stock for the foreseeable future. Any future change in HLM Design's
dividend policy will be made at the discretion of the Board of Directors of HLM
Design and will depend upon HLM Design's operating results, financial condition,
capital requirements, general business conditions and such other factors as the
Board of Directors deems relevant. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of Capital Stock."

<PAGE>
CAPITALIZATION

The following table sets forth, as of January 30, 1998, the combined
capitalization of HLM Design and Affiliates (a) on an actual basis (giving
effect to the Stock Split), and (b) on a pro forma basis, as adjusted to reflect
the Offering and the application of the estimated net proceeds thereof to be
received by the Company, and the Common Stock issuance and exercise of Warrants
subsequent to January 30, 1998. See "Use of Proceeds", "Dilution" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the unaudited pro forma financial statements of
HLM Design and Affiliates and the related notes thereto included elsewhere in
this Prospectus.

<TABLE>
<CAPTION>
JANUARY 30, 1998
-------------------------------
PRO FORMA FOR THE
COMMON STOCK
ISSUANCE AND
EXERCISE OF
WARRANTS
SUBSEQUENT TO
JANUARY 30, 1998
AND FOR THE
ACTUAL OFFERING(1)
---------- -----------------
<S> <C> <C>
Short-term debt:
Notes payable.............................................................................. $2,250,000 $ 1,500,000
Current maturities of long-term debt....................................................... 743,311 743,311
---------- -----------------
Total short-term debt................................................................... $2,993,311 $ 2,243,311
---------- -----------------
---------- -----------------
Long-term debt, excluding current maturities................................................. $4,357,057 $ 2,194,749
---------- -----------------
Warrants outstanding......................................................................... 200,068 0
---------- -----------------
Stockholders' equity:
Preferred Stock of HLM Design, $.10 par value, 1,000,000 shares authorized; no shares
issued and outstanding.................................................................. 0 0
Common Stock of HLM Design, $.001 par value, 9,000,000 shares authorized; 702,834 shares
issued and outstanding, actual; 2,075,087 shares issued and outstanding, as adjusted
(2)..................................................................................... 703 2,075
Common Stock of HLMI, $.01 par value; Class A, voting authorized 2,000,000 shares; issued
200; Class B, nonvoting, authorized 1,000,000 shares, no shares outstanding............. 2 2
Common Stock of HLMNC $.01 par value, 10,000 shares authorized; 300 shares issued and
outstanding............................................................................. 3 3
Common Stock of HLMO $.01 par value, 10,000 shares authorized; 300 shares issued and
outstanding............................................................................. 3 3
Additional Paid-in capital (3)............................................................. 101,031 6,221,533
Retained earnings.......................................................................... 556,611 556,611
Stock subscription receivable -- HLM Design, HLMNC, HLMO (4)............................... (9,524) (9,524)
---------- -----------------
Total stockholders' equity.............................................................. 648,829 6,770,703
---------- -----------------
Total capitalization.................................................................. $5,205,954 $ 8,965,452
---------- -----------------
---------- -----------------
</TABLE>

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

(1) Adjusted to give effect to the Offering and the application of the net
proceeds thereof, the exercise by Equitas of Warrants to purchase 5,749
shares of Common Stock (73,300 shares after giving effect to the Stock
Split) and the exercise by Pacific of Warrants to purchase 7,761 shares of
Common Stock (98,953 shares after giving effect to the Stock Split). See
"Use of Proceeds", "Dilution", "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Certain Transactions."

(2) 2,255,087 shares if the Underwriters' over-allotment option is exercised in
full. See "Underwriting" and "Principal Stockholders." Excludes (i) 159,955
shares of Common Stock reserved for future issuance under HLM Design's Stock
Option Plan (including up to 115,908 shares of Common Stock reserved for
issuance upon exercise of options prior to consummation of the Offering
pursuant to the Stock Option Plan), and (ii) 57,954 shares of Common Stock
reserved for issuance under HLM Design's ESPP. See "Management's Discussion
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Management -- Stock Option Plan" and "Management -- Employee
Stock Purchase Plan".

(3) Includes additional consideration received in connection with the exercise
of Warrants after the time of the initial exercise in the case of Equitas,
Berthel Leasing and Mr. Caroland. See "Dilution."

(4) Common Stock had not been funded as of January 30, 1998.

<PAGE>
DILUTION

The net tangible book deficit of the Company (defined as the combined net
tangible book value (deficit) of HLM Design, HLMI, HLMNC, and HLMO) as of
January 30, 1998 was $1,618,616, or $2.30 per share of Common Stock. Net
tangible book value (deficit) per share is determined by dividing the tangible
net worth of the Company by the total number of outstanding shares of Common
Stock. After giving effect to the sale of the 1,200,000 shares of Common Stock
offered hereby and the receipt of an assumed $5.92 million of net proceeds from
the Offering (based on an assumed initial public offering price of $6.00 per
share and net of underwriting discounts and estimated offering expenses), net
tangible book value of the Company at January 30, 1998 would have been $2.47 per
share. This represents an immediate increase in the net tangible book value of
$4.77 per share to existing stockholders and an immediate dilution of $3.53 per
share to new investors purchasing Common Stock in the Offering. The following
table illustrates this per share dilution (as of January 30, 1998 and without
giving effect to the Common Stock issuance or exercise of Warrants subsequent to
January 30, 1998):

<TABLE>
<S> <C>
Assumed initial public offering price per share...................................................................... $ 6.00
Net tangible book value per share (deficit) before giving effect to the Offering................................... (2.30)
Increase in net tangible book value per share attributable to the Offering......................................... 4.77
Pro forma net tangible book value per share after giving effect to the Offering...................................... 2.47

Dilution per share to new investors(1)(2)............................................................................ $ 3.53
Dilution per share as a percentage of the assumed initial public offering price(2)................................. 59%
</TABLE>

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

(1) Dilution is determined by subtracting the net tangible book value per share
of Common Stock after the Offering from the public offering price per share.

(2) Giving effect to the Common Stock issuance and exercise of Warrants
subsequent to January 30, 1998 the dilution per share to new investors would
be $3.74 and the dilution per share as a percentage of the assumed initial
public offering price would be 62%.

The following table sets forth the issuance of Common Stock to current
stockholders of HLM Design (giving effect to the Stock Split):

<TABLE>
<CAPTION>
NUMBER OF
STOCKHOLDER(4) DATE ISSUED SHARES ISSUED PRICE
- -------------------------------- ---------------------------------- ------------- ----------------------------
<S> <C> <C> <C>
Joseph Harris March 20, 1997 261,375 an aggregate of $1,000
March 2, 1998 47,813 $2.09 per share (1)
Vernon Brannon March 20, 1997 261,375 an aggregate of $1,000
March 2, 1998 47,812 $2.09 per share (1)
Equitas February 12, 1998 73,300 an aggregate of $110.67 (2)
Pacific (4) 98,953 an aggregate of $98.96 (2)
Berthel Leasing December 26, 1997 43,631 an aggregate of $43.64 (2)
Clay R. Caroland November 10, 1997 10,991 an aggregate of $11.00 (2)
Other employee stockholders (3) May 16, 1997-November 1, 1997 29,835 an aggregate of $34,655.40
</TABLE>

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

(1) Represents price paid by Messrs. Harris and Brannon in purchase of shares
from a former director.

(2) Represents price paid in connection with exercise of Warrants, including in
the case of Equitas, Berthel Leasing and Mr. Caroland, a portion received
after the time of the initial exercise. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." Equitas (and/or a representative thereof), Pacific,
Bethel Leasing and Mr. Caroland originally paid $8,000, $10,800, $4,757 and
$1,200, respectively, as consideration for the purchase of the Warrants.

(3) Each of such employees owns less than 1% of the Common Stock outstanding.

(4) Warrants to be exercised and shares issued immediately prior to the
effective date of the Registration Statement of which this Prospectus is a
part.

<PAGE>
SELECTED FINANCIAL DATA

The following selected financial data for the Predecessor Company for each
of the three fiscal years ended April 25, 1997 are derived from audited
financial statements, which are included elsewhere in this Prospectus. The
following selected financial data for the Predecessor Company for each of the
two fiscal years ended April 30, 1994 are derived from unaudited financial
statements, which are not included in this Prospectus. The selected financial
data (Predecessor Company) for the one month ended May 30, 1997 and the nine
months ended January 24, 1997 are derived from the unaudited financial
statements of HLMI, which are included elsewhere in this Prospectus. The
selected financial data for the nine months ended January 30, 1998 are derived
from the unaudited combined financial statements of HLM Design and, for the
eight months ended January 30, 1998, of HLMI, HLMNC and HLMO, which are included
elsewhere in this Prospectus. In the opinion of management, these unaudited
financial statements reflect all adjustments necessary for a fair presentation
of its results of operations and financial condition. The results of operations
for an interim period are not necessarily indicative of results of operations
for a full fiscal year or any other interim period. All of the data set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Financial Statements
and related notes included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
(PREDECESSOR COMPANY) (1)
-------------------------------------------------------------------------------------------------
NINE
FOR THE YEAR ENDED MONTHS ONE MONTH
------------------------------------------------------------------- ENDED ENDED
APRIL 30, APRIL 30, APRIL 30, APRIL 26, APRIL 25, JANUARY 24, MAY 30,
1993 1994 1995 1996 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ------------ ------------
Revenue.......................... $33,464,656 $27,841,902 $29,122,557 $28,554,424 $26,754,710 $19,442,280 $ 2,233,036
<S> <C> <C> <C> <C> <C> <C> <C>
----------- ----------- ----------- ----------- ----------- ------------ ------------

Costs and Expenses:
Direct cost of revenue........... 18,371,876 15,925,434 15,685,671 14,261,952 13,376,251 9,917,627 898,979
Operating costs.................. 15,376,045 13,516,392 14,098,729 13,104,278 12,414,739 9,359,733 1,163,141
ESOP expenses.................... 474,403 564,918 573,837 584,202 408,765 406,652
Amortization on intangible
assets......................... 4,464 5,952 5,952 99,145 107,670 81,807 9,571
----------- ----------- ----------- ----------- ----------- ------------ ------------
Total costs and expenses......... 34,226,788 30,012,696 30,364,189 28,049,577 26,307,425 19,765,819 2,071,691
----------- ----------- ----------- ----------- ----------- ------------ ------------
Income (loss) from operations.... (762,132 ) (2,170,794 ) (1,241,632) 504,847 447,285 (323,539 ) 161,345
----------- ----------- ----------- ----------- ----------- ------------ ------------
Other income (expense):

Net interest..................... (18,438 ) (43,058 ) (142,744) (383,552) (396,007) (280,027 ) (36,951)
Non-operating income............. -- -- 428,475 850,273 285,635
----------- ----------- ----------- ----------- ----------- ------------ ------------
Total other income
(expense)................... (18,438 ) (43,058 ) 285,731 466,721 (110,372) (280,027 ) (36,951)
----------- ----------- ----------- ----------- ----------- ------------ ------------
Income (loss) before income
taxes.......................... (780,570 ) (2,213,852 ) (955,901) 971,568 336,913 (603,566 ) 124,394
Income tax expense (benefit)..... (260,000 ) (779,000 ) (360,080) 435,459 219,799 (143,517 ) 43,000
----------- ----------- ----------- ----------- ----------- ------------ ------------
Net income (loss) (3)............ $ (520,570 ) $(1,434,852) $ (595,821) $ 536,109 $ 117,114 $ (460,049 ) $ 81,394
----------- ----------- ----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ----------- ----------- ------------ ------------
BALANCE SHEET DATA:
Working capital(deficiency)...... $2,059,840 $1,229,211 $(1,029,547) $(1,620,488) $(1,902,363) (686,632 ) (2,238,531)
Total assets..................... 11,586,309 10,147,420 10,519,859 12,577,992 12,874,503 13,402,269 17,639,673
Long-term debt................... 1,598,727 1,050,330 840,302 564,577 103,792 769,742 2,476,008
Total liabilities................ 10,020,182 9,713,789 10,690,072 11,819,796 11,670,962 12,803,938 16,354,738
Warrants outstanding (4).........
Stockholders' equity (deficiency)
(5)............................ 1,566,127 433,631 (170,213) 758,196 1,203,541 598,331 1,284,935

<CAPTION>
HLM DESIGN
(COMBINED)
NINE
MONTHS
ENDED
JANUARY 30,
1998 (2)
-----------
Revenue.......................... $21,543,416
<S> <C>
-----------
Costs and Expenses:
Direct cost of revenue........... 9,979,581
Operating costs.................. 9,629,991
ESOP expenses....................
Amortization on intangible
assets......................... 114,549
-----------
Total costs and expenses......... 19,724,121
-----------
Income (loss) from operations.... 1,819,295
-----------
Other income (expense):
Net interest..................... (748,621 )
Non-operating income.............
-----------
Total other income
(expense)................... (748,621 )
-----------
Income (loss) before income
taxes.......................... 1,070,674
Income tax expense (benefit)..... 514,063
-----------
Net income (loss) (3)............ $ 556,611
-----------
-----------
BALANCE SHEET DATA:
Working capital(deficiency)...... (432,870 )
Total assets..................... 18,043,555
Long-term debt................... 4,357,057
Total liabilities................ 17,194,658
Warrants outstanding (4)......... 200,068
Stockholders' equity (deficiency)
(5)............................ 648,829
</TABLE>

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

(1) The "Predecessor Company" is HLMI.

(5) Neither HLM Design nor the Predecessor Company has paid cash dividends from
May 1, 1992 to January 30, 1998.

<PAGE>
HLM DESIGN, INC. AND AFFILIATES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

The following unaudited pro forma combined financial information includes
HLM Design, HLMI, HLMNC and HLMO to reflect their results assuming that the
acquisition of HLMI through the merger of BBH Corp., a non-operating entity
controlled by the controlling stockholders of HLM Design, into HLMI had occurred
at the beginning of the respective periods and that the Management and Services
Agreements and related Stockholder Agreements had been effective as of the
beginning of the respective periods.

The Company believes that the assumptions used in the following statements
provide a reasonable basis on which to present the pro forma financial data. The
unaudited pro forma combined financial data is provided for informational
purposes only and should not be construed to be indicative of the Company's
financial condition or results of operations had the transactions and events
described above been consummated on the dates assumed, and are not intended to
project the Company's financial condition on any future date or its results of
operation for any future period.

<TABLE>
<CAPTION>
(PREDECESSOR HLM DESIGN (COMBINED)
COMPANY) (COMBINED) PRO FORMA
ONE MONTH NINE MONTHS PRO FORMA FOR THE NINE
ENDED ENDED ADJUSTMENTS MONTHS ENDED
MAY 30, JANUARY 30, PRO FORMA FOR THE JANUARY 30,
1997 1998 ADJUSTMENTS(1) OFFERING 1998
----------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenue................................... $ 2,233,036 $21,543,416 $23,776,452
Costs and expenses:
Direct cost of revenue.................... 898,979 9,979,581 10,878,560
Operating costs........................... 1,163,141 9,629,991 $ (3,800)(7) 10,761,332
(28,000)(3)
Amortization of intangible assets......... 9,571 114,549 4,800(2) 128,920
----------- ----------- ------------- ------------- ------------
Total costs and expenses.................. 2,071,691 19,724,121 (27,000) 21,768,812
----------- ----------- ------------- ------------- ------------
Income from operations.................... 161,345 1,819,295 27,000 2,007,640
Other income (expense)
Interest expense.......................... (36,951) (748,621) 26,000(4) $ (298,000)(6) (994,572 )
(35,000)(4) 355,000(6)
(48,000)(5) (209,000)(12)
----------- ----------- ------------- ------------- ------------
Total other expense..................... (36,951) (748,621) (57,000) (152,000) (994,572 )
----------- ----------- ------------- ------------- ------------
Income before income taxes................ 124,394 1,070,674 (30,000) (152,000) 1,013,068
Income tax expense........................ 43,000 514,063 (9,650)(9) (58,140)(8) 489,273
----------- ----------- ------------- ------------- ------------
Net income................................ $ 81,394 $ 556,611 $ (20,350) $ (93,860) $ 523,795
----------- ----------- ------------- ------------- ------------
----------- ----------- ------------- ------------- ------------
Pro forma net income per share (11)(14)... $ .25
------------
Weighted average shares outstanding
(000s).................................. 2,060
------------
------------
</TABLE>

(FOOTNOTES ON FOLLOWING PAGE)

<PAGE>
HLM DESIGN, INC. AND AFFILIATES

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FOR THE TWELVE (1) ADJUSTMENTS FOR THE TWELVE
MONTHS ENDED PRO FORMA FOR THE MONTHS ENDED
APRIL 25, 1997 ADJUSTMENTS OFFERING APRIL 25, 1997
-------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Revenue.................................................. $ 26,754,710 $ 26,754,710
Costs and Expenses:
Direct cost of revenue................................... 13,376,251 13,376,251
Operating costs.......................................... 12,414,739 $(338,000)(3) 12,031,739
(45,000)(7)
ESOP expenses............................................ 408,765 (408,765)(10)
Amortization of intangible assets........................ 107,670 60,330(2) 168,000
-------------- ----------- ----------- --------------
Total costs and expenses................................. 26,307,425 (731,435) 25,575,990
-------------- ----------- ----------- --------------
Income from operations................................... 447,285 731,435 1,178,720
-------------- ----------- ----------- --------------
Other income (expense)
Interest expense......................................... (402,509) 311,000(4) $(240,000)(6) (1,118,509)
(425,000)(4) 400,000(6)
(580,000)(5) (182,000)(12)
Non-operating income..................................... 292,137 292,137
-------------- ----------- ----------- --------------
Total other expense.................................... (110,372) (694,000) (22,000) (826,372)
-------------- ----------- ----------- --------------
Income before income taxes............................... 336,913 37,435 (22,000) 352,348
Income tax expense....................................... 219,799 78,579(9) (8,415)(8) 289,963
-------------- ----------- ----------- --------------
Net income............................................... $ 117,114 $ (41,144) $ (13,585) $ 62,385
-------------- ----------- ----------- --------------
-------------- ----------- ----------- --------------
Pro forma net income per share (13)(14).................. $ .03
--------------
Weighted average shares outstanding (000s)............... 2,033
--------------
--------------
</TABLE>

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

(1) On May 23, 1997 BBH Corp., affiliated with HLM Design through a
majority-in-interest of common stockholders, acquired HLMI in a transaction
accounted for under the purchase method of accounting. BBH Corp. purchased
50,000 shares in HLMI for $3.2 million, and in connection with this
transaction, BBH Corp. was merged into HLMI with HLMI being the surviving
entity. Upon the merger, each share of common stock in BBH Corp.
outstanding at the time of merger was converted into one share of common
stock in HLMI. All common stock of HLMI held by BBH Corp. (including HLMI
common stock contributed to BBH Corp. by Messrs. Harris and Brannon as
their initial capital contribution to BBH Corp.) were canceled and retired.
As a part of the foregoing, the stockholders of HLMI (other than BBH
Corp.), including the HLMI Employee Stock Ownership Plan (the "ESOP"),
redeemed their HLMI common stock for a total of $64 a share. As a result,
there was a 90% change in voting control of HLMI. The assets and
liabilities of HLMI were restated to fair value as of May 31, 1997.
Purchase accounting was effected May 31, 1997 because (i) it was not
materially different than May 23, 1997, (ii) May 30, 1997 was the normal
accounting close for HLMI and (iii) a portion of the acquisition funding
commitment for the transaction was not finalized until May 30, 1997. The
excess of the purchase cost over the fair value of tangible net assets was
recorded as goodwill and will be amortized over fifteen years.

(2) Reflects the adjustment necessary for the amortization of goodwill arising
from the acquisition of HLMI by BBH Corp. and the merger of BBH Corp. into
HLMI.

(3) Reflects the adjustment necessary to record the net decrease in
depreciation expense as a result of the extended lives of depreciable
assets (furniture and fixtures) due to the establishment of remaining lives
subsequent to the acquisition by BBH Corp. Management estimated the
remaining useful lives of such assets from their date of acquisition or the
term of lease if less.

(4) Reflects the increase in interest expense resulting from the financing
arrangement for the HLMI acquisition, which was in the form of a
sale-leaseback agreement and which is reduced by the interest costs
associated with bank loans that were repaid. Although the transaction was
structured in the form of a sale leaseback, the transaction was in
substance a financing, and, therefore, no gain or loss resulted.

(5) Reflects the adjustment to record interest expense for the debt incurred to
effect the acquisition of HLMI by BBH Corp. through the merger of BBH Corp.
into HLMI.

(6) Reflects the decrease in interest expense resulting from the repayment of
certain indebtedness through the proceeds of the Offering which is offset
by an increase in deferred fee expense associated with the pay off of such
indebtedness. See "Use of Proceeds".

<PAGE>
(7) Reflects the adjustment necessary to record decreased depreciation expense
due to the reduction to fair value of certain leasehold improvements in
connection with the HLMI transaction.

(8) Reflects the change in provision for income taxes resulting from adjustment
(5) above.

(9) Reflects the change in provision for income taxes resulting from
adjustments above.

(10) Reflects the elimination of ESOP expenses as a result of the acquisition of
HLMI by BBH Corp. through the merger of BBH Corp. into HLMI.

(11) Pro forma net income per share is based upon the assumption that 2,075,087
shares of Common Stock are outstanding after the Offering. This amount
represents 1,200,000 shares of Common Stock to be issued in the Offering,
702,834 shares of Common Stock owned by the Company's stockholders prior to
the Offering, and the inclusion of Common Stock equivalents of 172,253
related to Warrants.

(12) Reflects the increase in interest expense resulting from the write-off of
deferred loan costs relating to Warrants attached to certain indebtedness
which was repaid with proceeds of the Offering. See "Use of Proceeds".

(13) Pro forma net income per share is based upon the assumption that 2,033,685
shares of Common Stock are outstanding after the Offering. This amount
represents 1,200,000 shares of Common Stock to be issued in the Offering,
618,375 shares of Common Stock owned by the Company's stockholders prior to
the Offering, and the inclusion of Common Stock equivalents of 215,310
related to Warrants.

(14) Fully diluted earnings per share are not materially different.

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with HLM Design and
Affiliate's financial statements and the Predecessor Company's financial
statements and the related notes thereto included elsewhere in this Prospectus.

OVERVIEW

HLM Design is a management company which enters into management and
services relationships with full-service architectural, engineering and planning
firms. Currently, HLM Design has entered into Management and Services Agreements
with HLMI, HLMNC and HLMO. These three firms operate in ten offices in Atlanta,
Georgia, Iowa City, Iowa, Chicago, Illinois, Orlando, Florida, Bethesda,
Maryland, Denver, Colorado, Sacramento, California, Philadelphia, Pennsylvania,
Portland, Oregon, and Charlotte, North Carolina. A full service AEP Firm
provides a spectrum of services in various specialties to customers through a
broad range of professionals, including architectural, mechanical, electrical,
structural and civil engineers, landscape architects, interior designers and
construction administration personnel.

In May 1997, BBH Corp., a corporation controlled by Joseph Harris and
Vernon Brannon, controlling shareholders of HLM Design, merged into HLMI with
HLMI being the surviving corporation. Funding for the acquisition through the
merger and "cash-out" of HLMI's existing stockholders, including the redemption
of the ESOP, was provided by loans of $3.2 million from HLM Design to BBH Corp.
See "Certain Transactions -- Merger Transaction."

Immediately following the merger, the Managed Firms, HLMI, HLMNC and HLMO,
entered into Management and Services Agreements with HLM Design. HLM Design,
under the terms of such agreements, is the sole and exclusive manager and
administrator of all of the Managed Firms' day-to-day business functions,
including financial planning, facilities, equipment and supplies, management and
administrative services, and receives as compensation all but 1% of each firm's
positive cash flow following the payment by each firm of all such firm's
expenses.

PRO FORMA RESULTS OF OPERATIONS (EXCLUDING THE EFFECT OF THE OFFERING)

As a result of the acquisition of HLMI through the merger of BBH Corp. into
HLMI and the consummation of the Management and Services Agreements and
Stockholders' Agreements, the discussion and analysis of results of operations
for the nine months ended January 30, 1998 compared to nine months ended January
24, 1997 is presented on a pro forma basis that reflects the acquisition of the
assets of HLMI through the merger of BBH Corp. into HLMI and the consummation of
the Management and Services Agreements and Stockholders' Agreements as though
they occurred at the beginning of the respective periods.

NINE MONTHS ENDED JANUARY 30, 1998 COMPARED WITH NINE MONTHS ENDED JANUARY 24,
1997 -- PRO FORMA

This pro forma financial data does not give effect to the Offering.

<TABLE>
<CAPTION>
COMBINED COMBINED
PRO FORMA PRO FORMA
JANUARY 24, JANUARY 30,
1997 1998
----------- -----------
<S> <C> <C>
Revenue........................................................................................ $19,442,280 $23,776,452
Costs and expenses:
Direct cost of revenue......................................................................... 9,917,627 10,878,560
Operating costs................................................................................ 9,072,733 10,761,332
Amortization of intangible assets.............................................................. 126,000 128,920
----------- -----------
Total costs and expenses....................................................................... 19,116,360 21,768,812
----------- -----------
Income from operations......................................................................... 325,920 2,007,640
Other income (expense)
Interest expense............................................................................... (801,027) (842,572)
----------- -----------
Total other expense.......................................................................... (801,027) (842,572)
----------- -----------
Income (loss) before income taxes.............................................................. (475,107) 1,165,068
Income tax expense (benefit)................................................................... (77,517) 547,413
----------- -----------
Net income (loss).............................................................................. $ (397,590) $ 617,655
----------- -----------
----------- -----------
</TABLE>

Revenues were $23.8 million for the nine months ended January 30, 1998
compared to $19.4 million for the nine months ended January 24, 1997, which is
an increase of 22.3%. The increase in revenues is attributable to management's
stronger focus on marketing efforts during the nine months ended January 30,
1998.

<PAGE>
Direct costs primarily include, direct labor, subconsultant costs, and
reimbursable expenses. Direct costs were $10.9 million, or 45.8% of revenues,
for the nine months ended January 30, 1998, as compared to $9.9 million, or
51.0% of revenues, for the nine months ended January 24, 1997. This decrease as
a percent of revenue is principally due to a decrease in direct labor incurred
as a percentage of revenues due to improved productivity as a result of
management's closer monitoring of each project, as well as a decrease in
subconsultant costs.

Operating expenses were $10.8 million, or 45.3% of revenues, for the nine
months ended January 30, 1998 as compared to $9.1 million, or 46.7% of revenues,
for the nine months ended January 24, 1997. This decrease as a percentage of net
sales was due principally to increased sales.

Amortization of intangible assets were $0.1 million for both the nine
months ended January 30, 1998 and January 24, 1997. The amortization expense
relates to the goodwill arising from the acquisition of HLMI by BBH Corp.
through the merger of BBH Corp. into HLMI. See Note 2 to the Notes to Combined
Financial Statements.

Interest expense was $0.8 million for the nine months ended January 30,
1998 as compared to $0.8 million for the nine months ended January 24, 1997.

Income tax expense for the nine months ended January 30, 1998 was $0.5
million as compared to an income tax benefit of $0.1 million for the nine months
ended January 24, 1997. The effective income tax rate was 48% for the nine
months ended January 30, 1998 as compared to 16.3% for the nine months ended
January 24, 1997. The effective income tax rate was higher due to non-deductible
goodwill amortization and the ratio of non-deductible penalties and meals and
entertainment expense to pre-tax income or loss.

PREDECESSOR RESULTS OF OPERATIONS

The following discussion and analysis and results of operations for the
fiscal years ended April 25, 1997, 1996 and 1995 relate to the Predecessor
Company, HLMI. HLM Design was incorporated on March 6, 1997 had no significant
activity as of April 25, 1997.

FISCAL 1997 COMPARED WITH FISCAL 1996

Revenues were $26.8 million in fiscal 1997 compared to $28.6 million in
fiscal 1996, which was a decline of 6.3%. The decline in revenues was primarily
attributable to HLMI's decentralization of architectural personnel from one
location to multiple locations, a shift in HLMI's mix from large academic
education facilities to smaller healthcare and criminal justice projects, and
HLMI's efforts to focus on the estimating process and selecting contracts with
profitability as the major goal, which resulted in some potential contracts not
being pursued. During fiscal 1997 and fiscal 1996, approximately 70% of HLMI's
revenues were related to health care projects and approximately 30% were from
criminal justice and other projects.

Direct costs include, among other things, direct labor, subconsultant
costs, and reimbursable expenses. Direct costs were $13.4 million, or 50.0% of
revenues, in fiscal 1997 as compared to $14.3 million, or 49.9% of revenues, in
fiscal 1996. This increase as a percent of revenue is principally due to an
increase in the use of subconsultants to meet project requirements (18.2% and
16.7% of revenue in fiscal 1997 and fiscal 1996, respectively) and an increase
in reimbursable expenses incurred (4.4% and 3.3% of revenue in fiscal 1997 and
fiscal 1996, respectively). This increase is offset by a decrease in direct
labor incurred due to improved productivity as a result of HLMI's focus on cost
containment of each project (24.7% and 26.7% of revenue in fiscal 1997 and
fiscal 1996, respectively). As a result of these fluctuations and decreased
sales, gross profit from revenue (revenue less direct cost of revenue) decreased
to $13.4 million in fiscal 1997 from $14.3 million in fiscal 1996.

Operating expenses decreased 5.3% to $12.4 million, or 46.4% of revenues,
in fiscal 1997 from $13.1 million, or 45.9% of revenues, in fiscal 1996. The
decrease of 5.3% is principally due to a reduction in personnel costs resulting
from HLMI's efforts to increase utilization of labor.

ESOP expenses were $0.4 million in fiscal 1997 as compared to $0.6 million
in fiscal 1996. These expenses represent principal and interest payments on the
ESOP debt.

Amortization of intangible assets was $0.1 million for both fiscal 1997 and
1996. The amortization relates to the goodwill arising from the acquisition of
MPB Architects, Inc. in April 1995. See Note 2 to HLMI Financial Statements
included elsewhere in this Prospectus.

Interest expense was $0.4 million for both fiscal 1997 and fiscal 1996.

<PAGE>
Non-operating income was $0.3 million in fiscal 1997 compared to $0.9
million in fiscal 1996. Non-operating income is principally due to the gain on a
lease termination as a result of the cumulative excess of lease expense over the
lease payments made as of the termination dates. In fiscal 1997 and fiscal 1996,
HLMI terminated facility leases resulting in a gain of $0.3 million and $0.8
million, respectively.

Income tax expense was $0.2 million in fiscal 1997 compared to $0.4 million
in fiscal 1996. The effective income tax rate in fiscal 1997 was 65.2% compared
to 44.8% in fiscal 1996. The effective tax rate was higher for fiscal 1997 as
compared to fiscal 1996 due principally to nondeductible penalties (17.4% in
1997) and meals and entertainment expenses (9.3% in 1997). The increase in
penalty expense is due to HLMI's inability to timely fund payroll taxes.

FISCAL 1996 COMPARED WITH FISCAL 1995

Revenues were $28.6 million in fiscal 1996 compared to $29.1 million in
fiscal 1995, a decline of 2.0%. The decline in revenues was primarily
attributable to HLMI's decentralization of architectural services from one
location to multiple locations and its efforts to focus on the estimating
process and selecting contracts with profitability as the major goal, which
resulted in some potential contracts not being pursued. During fiscal 1996,
approximately 70% of HLMI's revenues were related to health care projects and
approximately 30% were from criminal justice and other projects as compared to
during fiscal 1995, approximately 73% of HLMI's revenues were related to health
care projects and approximately 27% were from criminal justice and other
projects.

Direct costs include, among other things, direct labor, subconsultants
costs, and reimbursable expenses. Direct costs were $14.3 million, or 49.9% of
revenues, in fiscal 1996 as compared to $15.7 million, or 53.9% of revenues, in
fiscal 1995. This decrease as a percent of revenues is principally due to a
decrease in the use of subconsultants to meet project requirements (16.7% and
18.4% of revenue in fiscal 1996 and fiscal 1995, respectively), a decrease in
direct labor incurred as a result of HLMI's focus on cost containment of each
project (26.7% and 27.3% of revenue in fiscal 1996 and fiscal 1995,
respectively) and a decrease in reimbursable expenses incurred (3.3% and 5.3% of
revenue in fiscal 1996 and fiscal 1995, respectively). As a result of these
reductions, gross profit from revenue (revenue less direct cost of revenue)
increased to $14.3 million in fiscal 1996 from $13.4 million in fiscal 1995.

Operating expenses decreased 7.1% to $13.1 million, or 45.9% of revenues,
in fiscal 1996 from $14.1 million, or 48.4% of revenues, in fiscal 1995. The
decrease is principally due to a decrease in rent and occupancy costs resulting
from management's renegotiation of certain office leases and, to a lesser
extent, a decrease in the costs incurred for contingencies related to various
disputes and legal actions related to contract operations due to HLMI's focus on
prevention and resolution of such matters on an ongoing basis. This was
partially offset by an increase in salary and related costs and reproduction
costs.

ESOP expenses were $0.6 million for both fiscal 1996 and 1995. The expenses
represent principal and interest payments on the ESOP debt.

Amortization of intangible assets were $0.1 million in fiscal 1996 and
$5,952 in fiscal 1995. This increase relates to the goodwill arising from the
acquisition of MPB Architects, Inc. in April 1995. See Note 2 to Notes to HLMI
Financial Statements.

Interest expense was $0.4 million for fiscal 1996 and $0.2 million for
fiscal 1995. This increase is primarily due to increased borrowing for working
capital needs in fiscal 1996.

Non-operating income was $0.9 million in fiscal 1996 compared to $0.4
million in fiscal 1995. In fiscal 1996, the Company terminated facility leases
resulting in a gain of $0.8 million. In fiscal 1995, HLMI sold its airplane
which generated a gain on sale of assets of $0.4 million. See Note 4 to Notes to
HLMI Financial Statements.

Income tax expense was $0.4 million in fiscal 1996 compared to an income
tax benefit of $0.4 million in fiscal 1995. The effective income tax rate in
fiscal 1996 was 44.8% compared to 37.7% in fiscal 1995. The effective tax rate
was higher for fiscal 1996 as compared to fiscal 1995 due to the ratio of
non-deductible meals and entertainment expense to pre-tax income or loss.

LIQUIDITY AND CAPITAL RESOURCES

At April 25, 1997, HLMI's current liabilities of $11.6 million exceeded
current assets of $9.7 million, resulting in a working capital deficit of $1.9
million. During fiscal 1997, HLMI generated $0.5 million in cash from operating
activities. HLMI used $0.7 million in investing activities, primarily the
purchase of equipment. HLMI received proceeds from new debt

<PAGE>
of $0.5 million and repaid borrowings on notes payable of $0.4 million. These
transactions resulted in a net decrease in cash of $8,809 for the fiscal year.

At January 30, 1998, the Company's current liabilities of $12.8 million
exceeded current assets of $12.4 million resulting in a working capital
deficiency of $.4 million. During the nine months ended January 30, 1998, the
Company provided $0.2 million in cash for operating activities. The Company used
$0.5 million for investing activities, primarily the purchase of equipment. The
Company generated $0.4 million for financing activities, primarily from
long-term borrowings reduced by the payment of the ESOP buyback.

The Company received proceeds, in June 1997, from financing, in the form of
a capital lease of $2.8 million (the "Lease Financing") from Berthel Leasing.
The proceeds were used to repay a line of credit and a note payable due to
Firstar Bank of Iowa, N.A. In connection with the Lease Financing, HLMI granted
a security interest in all of its personal property to Berthel Leasing, and
Joseph Harris, Vernon Brannon and a former director of HLM Design, partially
guaranteed the amount due to Berthel Leasing. HLM Design also entered into a
$0.75 million term loan, in September 1997, with Berthel Leasing for working
capital purposes. In consideration for this borrowing, HLM Design sold Warrants
to purchase 3,422 shares of Common Stock (43,631 shares after giving effect to
the Stock Split), subject to adjustment in certain circumstances, to Berthel
Leasing (the "Berthel Warrants"). See "Certain Transactions -- Berthel Leasing
Lease Financing" and "Description of Capital Stock -- Warrants." In December
1997, Berthel Leasing exercised its Warrants and purchased 3,422 shares of
Common Stock (43,631 shares after giving effect to the Stock Split) at an
exercise price of $.01 per share.

In connection with the merger agreement with BBH Corp. and the payment of
the merger consideration to holders of HLMI common stock, the Company (i) issued
indebtedness in the aggregate principal amount of $2 million to Pacific and
Equitas, (ii) obtained financing from First Charter National Bank in the form of
a revolving line of credit in an aggregate principal amount of $1 million
(together with a $0.5 million line of credit with First Charter National Bank
previously in effect, the "First Charter Loan") (under which HLM Design
currently has borrowings outstanding of $1.5 million) and obtained notes payable
to employee stockholders for $0.2 million. The Pacific/Equitas Loan is secured
by, among other things, a collateral assignment of HLM Design's interest in its
Management and Services Agreements and a security interest in HLM Design's
personal property and fixtures. Additionally, HLMI, as well as Joseph Harris and
Vernon Brannon has, under certain circumstances, guaranteed the Pacific/Equitas
Loan. HLM Design also sold Warrants to purchase 14,372 shares of Common Stock
(183,242 shares after giving effect to the Stock Split), subject to adjustment
in certain circumstances, to Pacific, Equitas, Shannon LeRoy, a representative
of Equitas and a member of the Board of HLM Design, and Clay R. Caroland, a
representative of Pacific and a member of the Board of HLM Design (the
"Pacific/Equitas Warrants" and, together with the Berthel Warrants, the
"Warrants"). See "Certain Transactions -- Merger Transaction," "Description of
Capital Stock -- Warrants" and Note 4 to the Combined Financial Statements. In
November 1997, Mr. Caroland exercised his Warrants and purchased 862 shares of
Common Stock (10,991 shares after giving effect to the Stock Split) at an
exercise price of $.01 per share and Mr. LeRoy transferred his Warrants to
purchase 862 shares of Common Stock (10,991 shares after giving effect to the
Stock Split) to Equitas. In February 1998, Equitas exercised its Warrants and
purchased 5,749 shares of Common Stock (73,300 shares after giving effect to the
Stock Split) at an exercise price of $.01 per share. Pacific has undertaken that
it will exercise its Warrants immediately prior to the effective date of the
Registration Statement of which this Prospectus is a part. The First Charter
Loan is secured by an unconditional guaranty from HLMI, which is secured by a
security interest in all of HLMI's accounts receivable. Joseph Harris, Vernon
Brannon and a former director have also guaranteed the First Charter Loan.

The Company's growth and operating strategy will require substantial
capital and may result in the Company incurring additional debt, issuing equity
securities or obtaining additional bank financing. (As the management company,
HLM Design will be responsible for the financing of working capital growth,
capital growth and other cash needs of the Managed Firms. See "Business -- HLM
Design Operations -- Management and Services Agreements"). As indicated above,
HLM Design has already maximized its borrowings under its existing revolving
line of credit in the form of the First Charter Loan. Furthermore, such line of
credit matures as of May 30, 1998, unless it is renewed by First Charter.
Although HLM Design has received both verbal and written indications from First
Charter of its willingness to renew and increase HLM Design's line of credit
following a successful completion of this Offering, First Charter has not
entered into any commitment to do so. The Company believes that the net proceeds
from the Offering, the new revolving line of credit and anticipated funds from
future operations will be sufficient to meet its working capital needs for at
least the next twelve months. If HLM Design is unable to obtain a new revolving
line of credit following the Offering, however, its ability to implement its
growth strategy will be adversely affected.

The Company's operations are professional services and as such are not
capital intensive. However, in order to enhance productivity, the Company has
increased its purchase of computer hardware and software. The Company currently
has no

<PAGE>
material commitments for purchases of additional equipment. Capital expenditures
during fiscal year 1997 were $0.7 million. The Company expects fiscal 1998
capital expenditures to be comparable to expenditures in fiscal 1997.

Subsequent to the Offering, the Company expects to fund AEP Firm
affiliations with proceeds from the Offering and future offerings.

SEASONALITY

The Company's operations are not seasonal in nature.

EFFECTS OF INFLATION

Due to the relatively low levels of inflation in fiscal years 1995, 1996
and 1997, inflation did not have a significant effect on the Company's results
of operations for those periods.

NEW ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Standards No. 128, "Earnings Per Share." This Statement specifies
the computation, presentation and disclosure requirements for earnings per
share. The Company believes that the adoption of such Statement would not result
in earnings per share materially different than pro forma earnings per share
presented in the accompanying pro forma statements of income. It will be
effective for periods ending after December 15, 1997.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement establishes standards of reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. This
Statement will be effective for HLM Design's fiscal year ending April 24, 1998,
and the Company does not intend to adopt this Statement prior to the effective
date.

On November 20, 1997, EITF 97-2, "Application of FASB Statement No. 94,
CONSOLIDATION OF ALL MAJORITY-OWNED SUBSIDIARIES, and APB Opinion No. 16,
BUSINESS COMBINATIONS, to Physician Practice Management Entities and Certain
Other Entities with Contractual Management Arrangements", was issued which
reached a consensus that arrangements similar to those between HLM Design and
the Managed Firms should be accounted for on a consolidated basis. The Company
intends to reflect this change prospectively in the fiscal year ended April 24,
1998 financial statements. If the change had been effected for the nine months
ended January 30, 1998, the effect would have been a reduction to stockholder's
equity by approximately $10,511, an increase in minority interest by
approximately $10,511 and a decrease in net income of approximately $10,509.

<PAGE>
BUSINESS
OVERVIEW

HLMI was founded in Iowa City, Iowa in 1962 to provide architectural,
engineering and planning services. HLMI enjoyed steady growth, expanding
geographically and establishing a national presence and is now recognized as a
leader in the healthcare arena. In 1987, the original founders of HLMI sold
their ownership in the company to the ESOP and a board of directors, consisting
of senior principals, took control of HLMI.

In 1994, as a result of the poor financial performance of HLMI, Joseph M.
Harris was hired as Chief Executive Officer and Vernon B. Brannon was hired as
Chief Financial Officer. Messrs. Harris and Brannon instituted significant
changes, cutting costs and personnel, with a focus on returning HLMI to
profitability. In 1996, HLMO and HLMNC were formed and the headquarters of HLMI
was moved from Iowa City, Iowa to Charlotte, North Carolina. HLMI, HLMO and
HLMNC currently operate offices in Atlanta, Georgia, Iowa City, Iowa, Chicago,
Illinois, Orlando, Florida, Bethesda Maryland, Denver, Colorado, Sacramento,
California, Philadelphia Pennsylvania, Portland, Oregon and Charlotte, North
Carolina.

On May 23, 1997, BBH Corp. merged into HLMI. See "Certain
Transactions -- Merger Transaction." Following the merger of BBH Corp. into
HLMI, Messrs. Harris and Brannon owned all of the outstanding common stock in
HLMI.

In March 1997, HLM Design was formed with the intent of managing the
nonprofessional operations of AEP Firms through Management and Services
Agreements. HLM Design believes it is the first company in the architectural,
engineering and planning industry to actively pursue the strategy of
consolidating non-professional operations and providing management expertise to
AEP Firms. Currently, HLM Design is not engaged in negotiations with any AEP
Firms. HLM Design believes its strategy will take advantage of operating
efficiencies for AEP Firms and provide service and geographic diversification
for its AEP Firm's clients. The process of developing and entering into
management and services relationships is complex and will likely require several
months to complete. In May 1997, HLM Design entered into forty-year Management
and Services Agreements with HLMI, HLMNC and HLMO. All three of these firms are
related through common principal stockholders and these stockholders have
entered into Stockholders' Agreements. See "Certain Transactions."

OPERATING STRATEGY

The creation of a management relationship between HLM Design and an AEP
Firm involves, among other things, the signing of a Management and Services
Agreement between HLM Design and the AEP Firm. Under the terms of the Management
and Services Agreement, HLM Design is the sole and exclusive manager and
administrator of all of the Managed Firm's day-to-day business functions. These
functions include financial planning, facilities, equipment and supplies, and
management and administrative services. Management and administrative services
include bookkeeping and accounts, general administration services, contract
negotiation and administration for all non-architectural and non-engineering
aspects of all agreements pertaining to the provision of architectural and
engineering services by Managed Firms to third parties, personnel, security and
maintenance, architectural and engineering recruiting and training, insurance,
issuance of debt and additional capital stock and billing and collections. For
these services, HLM Design receives all but 1% of the firm's positive cash flow
(as determined in accordance with generally accepted accounting principles
applied on a consistent basis) following the payment by the AEP Firm of all such
firm's expenses. See " -- HLM Design Operations -- Management and Services
Agreements."

In addition to the Management and Services Agreement, HLM Design will
require stockholders of Managed Firms to enter into Stockholders' Agreements
which will provide the stockholders of those entities with nominee stockholder
status. Generally, the Stockholders' Agreements will provide for the following:
(i) the repurchase by the Managed Firm of the stockholder's stock upon such
stockholder's death, (ii) restrictions on transferability of the stock, (iii) a
"call-right" on the stock by the Managed Firm and (iv) a voting agreement among
the stockholders and the Managed Firm. See " -- HLM Design
Operations -- Stockholders' Agreements."

The architects, engineers and planners employed by the Managed Firms offer
a broad range of specialty and ancillary services. The Managed Firms offer
services in master planning, architectural design, mechanical, electrical,
structural and civil engineering, interior design, environmental graphics,
landscape architecture, construction services and facility management. Each
office varies in the number and types of specialties offered. The Managed Firms
provide excellence in design and over the years have designed over a billion
square feet of buildings and completed hundreds of planning and feasibility
studies. Clients of the firms range from small companies to America's most
prestigious corporations. The professionals at the Managed Firms specialize in
the design of hospitals, criminal justice buildings and high-tech research
facilities. Design experience of professionals employed by the Managed Firms
includes corporate headquarters, physician office buildings, investment office
buildings, multi-use office complexes and related facilities. The Managed Firms'
professionals maintain

<PAGE>
full control over their architectural and engineering practices, determine which
projects to pursue and set their own standards of practice in order to promote
high-quality provision of services and retain ownership of all contracts with
clients. HLM Design is not engaged in the practice of architecture, engineering
or planning.

The following more fully describes the services provided by the Managed
Firms:

FOCUS ON HEALTHCARE. The Managed Firms design healthcare facilities that
help their clients improve patient care and reduce operating costs. During the
last 33 years, HLMI has designed over one billion square feet of healthcare
facilities. Its experience includes more than 325 healthcare clients and over
825 major healthcare engagements including:

(Bullet) 201 health facility master plans
(Bullet) 118 ambulatory care centers
(Bullet) 77 ambulatory surgery centers
(Bullet) 119 academic medical centers and teaching facilities
(Bullet) 64 cancer centers
(Bullet) 69 women's facilities
(Bullet) 13 replacement hospitals
(Bullet) 44 medical office buildings

FOCUS ON JUSTICE. The Managed Firms design justice facilities that help
their clients build efficient and effective public facilities in times where
financing of construction and operation of these public facilities is
continually being scrutinized. Its experience includes:

(Bullet) 25 federal and state projects
(Bullet) 1.8 million square feet for the federal government
(Bullet) 3 million square feet of courthouse renovation

By integrating design and planning, the Company's professionals meet
project objectives by improving staff efficiency, accelerating the project
schedule or even addressing sensitive urban design issues. Teams explore options
to optimize the return on construction dollars, for example, by creatively
combining renovation and new construction. The Company helps bridge the gap
between need and public acceptance through public information campaigns and cost
control. The results are buildings -- courts, police, detention or corrections
facilities -- that meet stringent cost requirements yet still achieve a high
quality of design.

FOCUS ON RESEARCH FACILITIES. The Managed Firms design laboratories for
clients that focus on optimizing space utilization and provide flexibility to
adapt to changing technology or funding constraints. Systems are designed to
control operating costs while protecting the demands of the research function
and making safety and security the highest priority. Often, the goal is to
produce environments that stimulate creativity, promote interaction, enhance the
client's ability to recruit the best and brightest and attract funding. The
Managed Firms have completed 30 projects totalling over 3 million square feet
valued at $540 million in construction.

GROWTH STRATEGY

HLM Design intends to implement an aggressive, yet disciplined, expansion
program by pursuing Management and Services Agreements with (i) large "regional"
AEP Firms with established operating histories located in large metropolitan and
high-growth suburban geographic markets that the Company does not currently
serve and (ii) small firms that provide operational diversity in geographic
areas that will complement the services that are either currently provided by
the Company in such geographic areas or that are intended to be provided in the
future. HLM Design believes its approach will be attractive to these large and
small AEP Firms because it will provide these firms with economies of scale and
the synergies that result from increased purchasing power, a greater breadth of
services, an increased pool of professionals, and geographical diversity.
Furthermore, this strategy will give these regional and local AEP Firms, as a
part of the Company, the ability to provide services to existing and future
clients with national operations that might otherwise have turned to "non-local"
firms to service their needs. The goal is for the Company to be the single
source provider for large national clients with geographically diverse
operations.

HLM Design generally expects that AEP Firms that sign Management and
Services Agreements will retain existing high-quality professional staff and
continue to operate in an effective and efficient manner with personnel who
understand the local market. Additionally, management believes it is positioned
to pursue larger, well established AEP Firms as a result of the depth of HLM
Design's management team, its capital structure and the reputation of the
management team in the design

<PAGE>
industry. Management also believes these goals can be achieved at less cost than
that which would be incurred by AEP firms operating on a stand alone basis.

HLM DESIGN OPERATIONS

Pursuant to its Management and Services Agreements, HLM Design manages all
aspects of the Managed Firm other than the provision of professional
architectural, engineering and planning services. The provision of these
services is controlled by the Managed Firms themselves. HLM Design enhances firm
growth by assisting in the recruitment of new professionals and by expanding and
adding ancillary services.

One of HLM Design's goals is to negotiate national arrangements and provide
cost savings to Managed Firms through economies of scale in areas such as
malpractice insurance, supplies, equipment and business functions.

MANAGEMENT AND SERVICES AGREEMENTS

The Management and Services Agreements with the Managed Firms are for a
period of forty years. These agreements cannot be terminated by HLM Design or
the Managed Firms without a material default or bankruptcy. Under these
agreements, HLM Design is appointed as the sole and exclusive manager and
administrator of all of the Managed Firms' day-to-day business functions,
including financial planning, facilities, equipment and supplies, and management
and administrative services (including bookkeeping and accounts, general
administration services, contract negotiation and administration for all
non-architectural and non-engineering aspects of all agreements pertaining to
the provision of architectural and engineering services by Managed Firms to
third parties), personnel, security and maintenance, architectural and
engineering recruiting and training, insurance, and billing and collections. HLM
Design has no authority, directly or indirectly, to perform any function of the
Managed Firm's operations pertaining to services which are required to be
performed by duly licensed architects and engineers pursuant to any and all
applicable laws, rules or regulations adopted by any authority regulating the
licensing of architects or engineers. The Managed Firms will retain ownership of
all contracts with clients. Additionally, HLM Design has the authority to
approve or deny, on behalf of the Managed Firm, any and all proposals by
stockholders of such firm to encumber, sell, pledge, give or otherwise transfer
the capital stock of the Managed Firm, as well as the authority to approve
issuance of common stock or incurrence of indebtedness.

As compensation for the provision of its services under the Management and
Services Agreement, HLM Design earns 99% of the net income of the Managed Firms,
as determined in accordance with generally accepted accounting principles.
However, for cash management purposes, the Management and Services Agreements
state that HLM Design is to receive all but 1% of the positive cash flow
(calculated as the change in the cash balances from the beginning of the period
to the end of the period for the Managed Firms). As the management company, HLM
Design will be responsible for the financing of working capital growth, capital
growth and other cash needs. The Management and Services Agreements are
structured so as not to force the Managed Firms to borrow money to satisfy their
inter-company obligations for the management fee (defined as 99% of the net
income of the Managed Firm). For the nine months ended January 30, 1998, HLM
Design earned $1,034,008; however, due to cash requirements of the Managed
Firms, the management fee required to be paid at January 30, 1998 was $450. The
remaining balance of $1,033,558 has been recorded as a receivable by HLM Design,
which will be paid with future positive cash flows. All significant balances and
transactions between HLM Design and the Managed Firms have been eliminated in
the combined financial statements included elsewhere herein.

Effective January 1, 1998, all HLMI employees were transferred to HLM
Design and now provide services to HLMI as HLM Design employees. From May 30,
1997 (the date of inception of the Management and Services Agreement), until
December 31, 1997, HLMI accrued no compensation bonuses for HLMI stockholder
officers.

STOCKHOLDERS' AGREEMENTS

Stockholders of Managed Firms have entered into a Stockholders' Agreement
which generally restricts the ability of these stockholders to exercise certain
rights commonly associated with ownership of common stock and effectively
provides stockholders of such entities with nominee stockholder status.
Generally, such Stockholders' Agreements provide that:

(i) upon the death of a stockholder, the Managed Firm will purchase,
and the personal representative of such stockholder's estate will sell to
the Managed Firm, all the stock owned by such deceased stockholder;
provided, however, in certain circumstances the sale of such stockholder's
stock may be made to one or more third parties, subject to the approval of
the Managed Firm;

<PAGE>
(ii) stockholders may not sell, pledge, give or otherwise transfer any
or all of their stock to any third party, either voluntarily or
involuntarily, without first obtaining the Managed Firm's written approval
of such transfer;

(iii) the Managed Firm has the right at any time to purchase all, but
not less than all, of the stock then owned by any or all of the
stockholders; and

(iv) the stockholders agree that with respect to all matters which are
submitted to stockholder vote (and, to the extent that all or any of the
stockholders serve as a director of the Managed Firm, then also with
respect to all matters which are submitted to a vote of the board of
directors), the stockholders will, if not in unanimous agreement, follow
specified procedures to achieve unity in voting among all stockholders.

In addition, the Stockholders' Agreements contain an acknowledgment on the
part of each stockholder that it is in the parties' best interest that certain
of the Managed Firm's administrative and managerial functions be performed
pursuant to a Management and Services Agreement with HLM Design and that in
order to ensure consistency and continuity in the management of the firm's
business and affairs, that with respect to all matters pertaining to the
initiation of stock "calls" and the approval or denial of proposed stock
transfers, the Managed Firm will in all cases act in accordance with the written
recommendation of HLM Design. The Stockholders' Agreements provide that they may
be terminated upon the occurrence of any of the following events:

(i) cessation of the Managed Firm's business,

(ii) bankruptcy, receivership or dissolution of the Managed Firm, or

(iii) the voluntary agreement of all parties bound by the terms of
such Stockholders' Agreement.

It is anticipated that Stockholders' Agreements among stockholders of the
AEP Firms with whom HLM Design enters into Management and Services Agreements in
the future will have similar terms.

PROPERTIES

HLM Design's principal executive offices are located at 121 West Trade
Street, Suite 2950, Charlotte, North Carolina and its telephone number is (704)
358-0779, where the Company leases 7,254 square feet. Its lease of such offices
is for a term of 5 years and expires in 2000. The Company believes the office
facility is adequate for its current uses and anticipated growth. In addition to
HLM Design's principal executive offices, the Company leases office space in
Sacramento, California, Denver, Colorado, Orlando, Florida, Atlanta, Georgia,
Iowa City, Iowa, Chicago, Illinois, Bethesda, Maryland, Portland, Oregon and
Philadelphia, Pennsylvania.

COMPETITION

The business of providing architectural, engineering and planning services
is highly competitive. Although HLM Design is not aware of any other company
actively pursuing a strategy of consolidating firms' administrative and
management functions, it believes that additional companies with similar
objectives will be organized in the future. Potential sources of competition
include larger, nationally known, multi-specialty professional groups or
professional firms and others, a number of which may have significantly greater
resources than those of the Company.

The Managed Firms are in competition with many other AEP firms, including
large, national firms as well as many small, local firms. The Managed Firms
compete with these firms on the basis of technical capabilities, qualifications
and availability of personnel, experience, reputation, quality performance and,
to a lesser extent, price of services.

GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS

Each state has enacted legislation governing the registration of architects
and engineers, and, in some cases, landscape architects, fire protection
engineers and interior designers. These state laws impose licensing requirements
upon individual design professionals and architectural-engineering firms and are
implemented by a more detailed set of administrative rules and regulations
overseen by a registration board. In general, the state laws define the practice
of architecture and engineering, restrict the use of the titles ARCHITECT and
ENGINEER to licensed individuals, establish rules for entry into the profession,
explain how professionals licensed in other states may become reciprocally
registered to practice in the jurisdiction and define and enforce standards of
professional conduct and misconduct.

<PAGE>
The state laws, or the regulations established by a registration board, may
also establish requirements for the practice of architecture or engineering by a
corporation or partnership. A few states do not permit the practice of
architecture or engineering in a corporate form. Some states require design
professionals who want to incorporate to do so as a professional corporation
authorized and certified by the secretary of state. Most states permit practice
through either a professional corporation or a general business corporation.
Even if a state permits practice in a corporate form, the state may require that
a certain number of principals in the corporation must be registered architects
or engineers. Some states specify that a certain percentage of the principals,
directors or stockholders of a corporate entity must be registered architects or
engineers in order to practice in the state. A corporation seeking to practice
in a state other than that in which it is incorporated must register as a
foreign corporation in the other state and satisfy all of the registration
requirements.

There can be no assurance that the regulatory environment in which the
Company operates will not change significantly in the future. For additional
information regarding uncertainties concerning governmental regulations relating
to the practice of architecture and engineering in light of the relationship
between HLM Design and the Managed Firms, see "Risk Factors -- Governmental
Regulation."

Federal, state and local environmental laws and regulations have not
historically had a material impact on the operations of the Company; however,
the Company cannot predict the effect on its operations of possible future
environmental legislation or regulations.

EMPLOYEES

Prior to January 1, 1998, all employees were employed with HLMI; however,
under HLMI's Management and Services Agreement and consistent with HLM Design's
strategy, all employees were transferred to HLM Design as of January 1, 1998. As
of January 1, 1998, HLM Design employed approximately 246 persons of which
approximately 92 were registered professionals (engineers, architects and
others), approximately 102 were degreed professionals and approximately 52 were
administrative personnel. None of HLM Design's employees or the Managed Firm's
employees is represented by a labor union. HLM Design considers its relations
with its employees and the employees of the Managed Firms to be satisfactory.

The registered professional architects and engineers generally have degrees
from accredited architecture or engineering schools, several years of work
experience and have passed licensing examinations. Both registered and degreed
architects have either a five year architectural degree or a four year degree
and a two year advanced architectural degree. The Company's degreed
professionals who are not registered have not yet passed the required licensing
examinations.

LEGAL PROCEEDINGS

From time to time HLM Design or one or more of the Managed Firms are named
in claims involving contractual disputes or other matters arising in the
ordinary course of business. Currently, no legal proceedings are pending against
or involve HLM Design or the Managed Firms that, in the opinion of management,
when considering insurance coverage, could reasonably be expected to have a
material adverse effect on the business, financial condition or results of
operations of HLM Design.

<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS; KEY PERSONNEL

The executive officers, directors and key personnel of the Company, and
their ages as of the date of this Prospectus, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
- ------------------------- --- -------------------------------------------------------------------
<S> <C> <C>
Joseph M. Harris 53 President, Chairman of the Board and Director*
Vernon B. Brannon 54 Senior Vice President, Chief Financial Officer, Treasurer,
Assistant Secretary and Director*
Clay R. Caroland III 43 Director
D. Shannon LeRoy 41 Director
Thomas G. Pinkerton, Sr. 53 Senior Vice President of HLMI
Bradley A. Earl 50 Vice President of HLMI
Viktor A. Lituczy 44 Vice President of HLMI
Frank E. Talbert 41 Vice President of HLMI
Robert P. Ludden 42 Vice President of HLMI
</TABLE>

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

* Executive Officer

JOSEPH M. HARRIS, AIA, RIBA, has been President, Chairman of the Board, and
a Director of HLM Design since its organization in 1997. He has been President
and Chief Executive Officer of HLMI for the past three years. Prior to joining
HLMI in 1994, he served as President of Heery Architects and Engineers, Inc. and
an Executive Vice President and Director of Technical Services of Heery
International, Inc., one of the country's largest full-service
multi-disciplinary professional service firms. Prior to that, Mr. Harris was one
of the founders and served as President of Clark, Tribble, Harris and Li,
Architects, P.A. a multi-service architectural firm. Mr. Harris has over 30
years of professional experience and is an architect licensed in 32 states and
in the United Kingdom. Mr. Harris' initial term as a director of HLM Design will
expire at the annual meeting of stockholders of HLM Design to be held in 1999.

VERNON B. BRANNON has been Senior Vice President, Chief Financial Officer,
and a Director of HLM Design since its organization in 1997. Along with Mr.
Harris, he is a stockholder of HLMI which he joined in 1994 as Chief Financial
Officer and was appointed Senior Vice President soon after joining the firm.
Prior to joining HLMI, from 1988 to 1994, Mr. Brannon was Chief Operating
Officer of UAV Corporation, a video distribution firm, with responsibility for
manufacturing, finance, accounting, and all other functions except sales. Mr.
Brannon's initial term as a director of HLM Design will expire at the annual
meeting of stockholders of HLM Design to be held in 1999.

CLAY R. CAROLAND III has been a partner since 1987 in Health Investors, LP
and its affiliates. From 1996 to 1997 he also served as President of the General
Partner of Pacific Capital, L.P. Health Investors and Pacific are investment
firms. In 1989, he, along with Health Investors, organized and capitalized
ClinTrials, Inc., which grew to become a leading CRO. In 1981, he co-founded
Liberty Street Capital, NY, a Wall Street investment boutique and was Managing
Director there until 1987. Mr. Caroland has served on the boards of directors of
a number of companies including EquiVision and ClinTrials. Mr. Caroland's
initial term as a director of HLM Design will expire at the annual meeting of
stockholders of HLM Design to be held in 1998.

D. SHANNON LEROY currently serves as President of Tennessee Business
Investments, Inc., the general partner of Equitas, L.P., a licensed Small
Business Investment Company. From 1988 until 1994, Mr. LeRoy served as a Senior
Vice President of First Union National Bank of Tennessee, where he managed
commercial banking. Mr. LeRoy is a Director of Power Designs, Inc., a
manufacturer of power supply and power line conditional products, and Laure
Beverage Company, a consumer beverage company. Mr. LeRoy's initial term as a
director of HLM Design will expire at the annual meeting of stockholders of HLM
Design to be held in 1998.

BRADLEY A. EARL is a Vice President managing the Philadelphia office of
HLMI. He joined HLMI in 1996. Prior to that he served in various leadership
positions in architectural firms and as an independent architect. He was
Director of Architecture at The Klett Organization from 1994 to 1996 and
Executive Architect to Children's Hospital of Philadelphia from 1992 to 1994. He
is a registered architect with 21 years of experience.

VIKTOR A. LITUZAY rejoined HLMI in 1996 as Vice President managing HLMI's
Portland, Oregon office. Prior to leaving HLMI in 1989. Mr. Lituczy was
Corporate Vice President for the Chicago office as well as director of high-tech
laboratory projects firmwide. From 1992 until 1996 he had his own architectural
practice in Portland and consulted with a number of healthcare clients and
architects on projects. From 1989 until 1992 he was an Associate Principal for
KMD Architects & Planners in Portland. He is a registered architect with 20
years of experience.

<PAGE>
ROBERT P. LUDDEN is a Vice President managing the Orlando office of HLMI.
He joined HLMI in 1993. Prior to that, from 1986 to 1993, he was a Vice
President at Cannon, a large architectural firm that focuses on healthcare
architecture. Mr. Ludden's career has focused on the leadership and direction of
significant architectural and engineering projects. His work spans a number of
markets including justice, healthcare, research and commercial. He is a
registered architect.

THOMAS G. PINKERTON is a Senior Vice President of HLMI. He joined the firm
in 1994 as National Director of Justice Architecture. Prior to joining HLMI he
was an associate with Hellmuth, Obata & Kassabaum, Inc., one of the largest
architectural firms in the country. A registered architect with 33 years of
experience, he has devoted his practice exclusively to the design of justice
facilities.

FRANK E. TALBERT is a registered architect with 17 years experience. He
joined HLMI in 1994 and is Vice President managing the Chicago office of HLMI.
Prior to joining HLMI he was President of FibreCem Corporation from 1992 to 1994
where he led the successful turnaround of that company. His success was achieved
with a combination of an intensive, hands-on sales effort, and a reorganization
of operations. From 1990 to 1992 he managed the Carolinas office of Kajima
International Inc., the world's largest turnkey developer/builder where he
established a program for financial enhancements on free standing not leased
retail projects. Mr. Talbert is a registered architect.

After the Offering, HLM Design intends to maintain two individuals not
employed by or affiliated with HLM Design to HLM Design's Board of Directors.

The Board of Directors of the Company is divided into three classes, each
of which, after a transitional period, will serve for three years, with one
class being elected each year. The executive officers are elected annually by,
and serve at the discretion of, HLM Design's Board of Directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Since HLM Design's organization in March 1997, all matters concerning
executive officer compensation have been addressed by the entire Board of
Directors. Since HLM Design's organization, Vernon Brannon and Joseph Harris
have been executive officers of HLM Design and, together with Clay R. Caroland
III and Shannon LeRoy, who each represent creditors of HLM Design, have
constituted the majority of the Board of Directors. As soon as practicable after
the Offering, HLM Design intends to maintain two independent directors who will
thereafter comprise its Compensation Committee.

LIMITATIONS OF DIRECTORS' LIABILITY

HLM Design's Certificate of Incorporation includes a provision that
effectively eliminates the liability of directors to HLM Design or to HLM
Design's stockholders for monetary damages for breach of the fiduciary duties of
a director, except for breaches of the duty of loyalty, acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, certain actions with respect to unlawful dividends, stock repurchases or
redemptions and any transaction from which the director derived an improper
personal benefit. This provision does not prevent stockholders from seeking
nonmonetary remedies covering any such action, nor does it affect liabilities
under the federal securities laws. HLM Design's Bylaws further provide that HLM
Design shall indemnify each of its directors and officers, to the fullest extent
authorized by Delaware law, with respect to any threatened, pending or completed
action, suit or proceeding to which such person may be a party by reason of
serving as a director or officer. Delaware law currently authorizes a
corporation to indemnify its directors and officers against expenses (including
attorney's fees), judgments, fines and amounts paid in settlements actually and
reasonably incurred by them in connection with any action, suit or proceeding
brought by a third party if such officers or directors acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reason to believe their conduct was unlawful. Indemnification
is permitted in more limited circumstances with respect to derivative actions.
HLM Design believes that these provisions of its Certificate of Incorporation
and Bylaws are necessary to attract and retain qualified persons to serve as
directors and officers.

COMMITTEES OF THE BOARD

The Board of Directors of HLM Design intends to establish a Compensation
Committee and an Audit Committee consisting of independent directors. The
Compensation Committee will review and approve compensation for the executive
officers, and administer, and determine awards under, the Stock Option Plan and
any other incentive compensation plan for employees of the Company. See
" -- Stock Option Plan" and " -- Employee Stock Purchase Plan." The Audit
Committee will recommend the selection of auditors for the Company and will
review the results of the audit and other reports and services provided by the
Company's independent auditors. HLM Design has not previously had either of
these committees.

<PAGE>
DIRECTOR COMPENSATION

Members of the Board of Directors who are not employees of the Company will
be compensated for their services in amounts to be determined. The Company will
also reimburse all directors for their expenses incurred in connection with
their activities as directors of the Company. Directors who are also employees
of the Company receive no compensation for serving on the Board of Directors.

EXECUTIVE COMPENSATION

Set forth below is information for the years ended April 1997, 1996 and
1995 with respect to compensation for services to the Managed Firms:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------- NUMBER OF
OTHER SHARES
NAME AND ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION(S) YEAR SALARY(1) BONUS(2) COMPENSATION OPTIONS(3) COMPENSATION(4)
--------------------- ---- --------- -------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Harris 1997 $ 230,878 $ 50,000 -0- -0- -0-
Chairman, President 1996 192,307 0
and Director 1995 188,784 60,000
Vernon B. Brannon 1997 178,847 50,000 -0- -0- -0-
Senior Vice President 1996 144,281 0
Chief Financial Officer 1995 117,614 30,000
and Director
</TABLE>

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

(1) Does not include the dollar value of perquisites and other personal
benefits.

(2) The amounts shown are cash bonuses earned in the specified year and paid in
the first quarter of the following year.

(3) The Company's Stock Option Plan was adopted in February 1998. No options
were granted to any of the Company's executive officers in the years ended
April 1997, 1996 or 1995.

(4) The aggregate amount of perquisites and other personal benefits received did
not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for such executive officer.

EMPLOYMENT AGREEMENTS

HLM Design has entered into employment agreements with Messrs. Harris and
Brannon (the "Employment Agreements"), which provide for an annual base salary
and certain other benefits. Pursuant to the Employment Agreements, the base
salaries of Messrs. Harris and Brannon will be $318,000 and $268,000,
respectively. Messrs. Harris and Brannon will also receive a monthly automobile
allowance of $1,000 and such additional compensation as may be determined by the
Board of Directors. Each of the Employment Agreements is for a term of three
years and will automatically be renewed for successive periods of one year.
Additionally, Messrs. Harris and Brannon each have received options pursuant to
the Stock Option Plan (that are currently effective or will become effective
immediately before completion of the Offering), for 57,954 shares of Common
Stock, exercisable, in the case of incentive stock options, at 110% of the
initial public offering price, and in the case of nonstatutory stock options, at
$5.50 per share. See " -- Stock Option Plan."

The Employment Agreements contain similar noncompetition provisions. These
provisions, during the term of the Employment Agreement, (i) prohibit the
disclosure or use of confidential Company information, and (ii) prohibit the
solicitation of the Company's clients, the participation or operation in any
business or service provided by the Company and, in the case of Mr. Harris, the
lending of his name to any business which provides architectural and engineering
services to persons who were clients or prospective clients of the Company. The
provisions referred to in (ii) above shall also apply for a period of three
years following the expiration or termination of an Employment Agreement.

STOCK OPTION PLAN

In February 1998, the Board of Directors and stockholders of HLM Design
adopted the HLM Design, Inc. 1998 Stock Option Plan (the "Stock Option Plan") in
order to attract and retain key personnel. The following discussion of the
material

<PAGE>
features of the Stock Option Plan is qualified by reference to the text of such
plan filed as an exhibit to the Registration Statement of which this Prospectus
is a part.

Under the Stock Option Plan, options to purchase up to an aggregate of
159,955 shares of Common Stock may be granted to key employees of HLM Design and
its Managed Firms and to officers, directors, consultants and other individuals
providing services to the Company. Unless designated as "incentive stock
options" ("ISOs") intended to qualify under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), options granted under the Stock Option
Plan are intended to be "nonstatutory stock options" ("NSOs").

The Compensation Committee of the Board of Directors of HLM Design will
administer the Stock Option Plan and will determine, among other things, the
persons who are to receive options, the number of shares to be subject to each
option, and the vesting schedule of options; provided, that the Board of
Directors of HLM Design will make such determinations with respect to the
initial grants made under the Stock Option Plan. Members of the Board of
Directors who serve on the Compensation Committee must qualify as "non-employee
directors," as that term is defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended. The Board of Directors of HLM
Design will determine the terms and conditions upon which HLM Design may make
loans to enable an optionee to pay the exercise price of an option. In selecting
individuals for options and determining the terms thereof, the Compensation
Committee may consider any factors it considers relevant, including present and
potential contributions to the success of the Company. Options granted under the
Stock Option Plan must be exercised within a period fixed by the Compensation
Committee, which period may not exceed ten years from the date of the grant of
the option or, in the case of ISOs granted to any holder on the date of the
grant of more than ten percent of the total combined voting power of all classes
of stock of HLM Design and its affiliated firms, five years from the date of
grant of the option. Options may be made exercisable in whole or in
installments, as determined by the Compensation Committee.

Options generally may not be transferred other than by will or the laws of
descent and distribution and during the lifetime of an optionee may be exercised
only by the optionee. Notwithstanding the foregoing, the Compensation Committee,
in its absolute discretion, may grant transferable options if such options are
not ISOs. The exercise price of options that are NSOs will be determined at the
discretion of the Compensation Committee, but will not be less than 85% of the
market value of the Common Stock on the date of grant of the NSOs.. The exercise
price of ISOs may not be less than the market value of the Common Stock on the
date of the grant of the option. In the case of ISOs granted to any holder on
the date of grant of more than ten percent of the total combined voting power of
all classes of stock of HLM Design and its affiliated firms, the exercise price
may not be less than 110% of the market value of the Common Stock on the date of
the grant of the ISOs. The exercise price may be paid in cash, in shares of
Common Stock owned by the optionee, in NSOs granted under the Stock Option Plan
(except that the exercise price of an ISO may not be paid in NSOs) or in any
combination of cash, shares and NSOs.

Options granted under the Stock Option Plan may include the right to
acquire a "reload" option. In such case, if an optionee pays all or part of the
exercise price of an option with shares of Common Stock held by the optionee for
at least six months, then, upon exercise of the option, the optionee is granted
a second option to purchase, at the fair market value as of the date of exercise
of the original option, the number of whole shares used by the optionee in
payment of the exercise price of the original option. A reload option is not
exercisable until one year after the grant date of such reload option or the
expiration date of the original option. If the exercise price of a reload option
is paid for with shares of Common Stock that have been held by the Optionee for
more than six (6) months, then another reload option will be issued. Shares of
Common Stock covered by a reload option will not reduce the number of shares of
Common Stock available under the Stock Option Plan.

The Stock Option Plan provides that, in the event of changes in the
corporate structure of the Company or certain events affecting the Common Stock,
adjustments will automatically be made in the number and kind of shares
available for issuance and in the number and kind of shares and option price
thereof covered by outstanding options. It further provides that, in connection
with any merger or consolidation in which HLM Design is not the surviving
corporation and which results in the holders of the Common Stock owning less
than a majority of the surviving corporation or any sale or transfer by HLM
Design of all or substantially all its assets or any tender offer or exchange
offer for or the acquisition, directly or indirectly, by any person or group of
all or a majority of the then-outstanding voting securities of HLM Design, all
outstanding options under the Stock Option Plan will become exercisable in full
on and after (i) the 15th day prior to the effective date of such merger,
consolidation, sale, transfer or acquisition or (ii) the date of commencement of
such tender offer or exchange offer, as the case may be.

The Board of Directors of HLM Design has approved the grant, effective on
or before the consummation of the Offering, of NSOs to purchase 40,568 shares of
Common Stock and ISOs to purchase 17,386 shares of Common Stock to each of
Joseph Harris and Vernon Brannon. No other grants of ISOs or NSOs will be made
on or before the consummation of the Offering.

The issuance and exercise of ISOs have no federal income tax consequences
to the Company. While the issuance and exercise of ISOs generally have no
ordinary income tax consequences to the holder, upon the exercise of an ISO, the
holder will treat the excess of the Common Stock's fair market value on the date
of exercise over the exercise price as an item of tax

<PAGE>

adjustment for alternative minimum tax purposes. If the holder of Common Stock
acquired upon the exercise of an ISO holds such stock until a date that is more
than two years following the grant of the ISO and one year following the
exercise of the ISO, the disposition of such Common Stock will ordinarily result
in capital gain or loss to the holder for federal income tax purposes equal to
the difference between the amount realized on disposition of the Common Stock
and the option exercise price. If the holding period requirements described
above are not met, the holder will recognize ordinary income for federal income
tax purposes upon disposition of the Common Stock in an amount equal to the
lesser of (i) the excess of the Common Stock's fair market value on the date of
exercise over the option exercise price, and (ii) the excess of the amount
realized on disposition of the Common Stock over the option exercise price. Any
additional gain upon the disposition will be taxed as capital gains. Any capital
gain will be subject to reduced rates of tax if such shares were held more than
twelve months, and will be subject to further reduced rates if such shares were
held more than eighteen months. The Company will be entitled to a compensation
expense deduction for the Company's taxable year in which the disposition occurs
equal to the amount of ordinary income recognized by the holder.

The issuance of NSOs has no federal income tax consequences to the Company
or the holder. Upon the exercise of an NSO, NSO holders will recognize ordinary
income for federal income tax purposes at the time of option exercise equal to
the amount by which the fair market value of the underlying shares on the date
of exercise exceeds the exercise price. The Company generally will be allowed a
federal income tax deduction in the same amount. In the event of the disposition
of shares acquired by exercise of a NSO, any appreciation or depreciation after
the exercise date generally will be taxed as capital gain or loss; provided,
that any gain will be subject to reduced rates of tax if such shares were held
for more than twelve months and will be subject to further reduced rates if such
shares were held for more than eighteen months.

If the option exercise price under any NSO is paid for by surrendering
shares of Common Stock previously acquired, then the optionee will recognize
ordinary income on the exercise as described above with respect to any shares
acquired under the NSO in excess of the number of shares surrendered (such
shares being treated as having been acquired without consideration), but will
not recognize any taxable gain or loss on the difference between the optionee's
basis in the surrendered shares and their current fair market value. For federal
income tax purposes, the number of newly acquired shares equal to the number of
shares surrendered will have the same basis and holding period as the
surrendered shares. Any newly acquired shares in excess of the number of shares
surrendered will have a tax basis equal to the amount of ordinary income
recognized on such exercise (i.e., fair market value at exercise) and a holding
period which begins on the date the optionee recognizes ordinary income for tax
purposes.

HLM Design intends to register the shares underlying the Stock Option Plan
if required by the federal securities laws. If such registration is not
required, such shares may be issued upon option exercise in reliance upon the
private offering exemption codified in Section 4(2) of the Securities Act.
Resale of such shares may be permitted subject to the limitations of Rule 144.

Following the effective date of the Registration Statement of which this
Prospectus is a part, the Company will not permit the total number of shares
subject to outstanding warrants (exclusive of the Underwriters' Warrants (as
defined herein)) and options granted or authorized to be granted to exceed 10%
of all shares of Common Stock outstanding.

EMPLOYEE STOCK PURCHASE PLAN

In February 1998, the Board of Directors and stockholders of HLM Design
adopted the HLM Design, Inc. Employee Stock Purchase Plan (the "ESPP"). The ESPP
is intended to promote the interests of the Company by providing employees of
the Company the opportunity to acquire a proprietary interest in the Company
through the purchase of Common Stock. The following discussion of the material
features of the ESPP is qualified by reference to the text of such Plan filed in
an exhibit to the Registration Statement of which this Prospectus is a part.

The ESPP is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code. The ESPP is administered by the Compensation Committee,
which, subject to the terms of the ESPP, has plenary authority in its discretion
to interpret and construe the ESPP. The Compensation Committee will construe the
provisions of the ESPP so as to extend and limit participation in a manner
consistent with the requirements of Section 423 of the Code. A total of 57,954
shares of Common Stock have been reserved for purchase under the ESPP.

On January 1 of each year during the term of the ESPP (and also as soon as
administratively practicable following the effective date of the ESPP) (the
"Grant Date"), all eligible employees electing to participate in the ESPP
("Participating Employees") will be granted options to purchase shares of Common
Stock. As of each Grant Date, each Participating Employee will be deemed to have
been granted an option to purchase that number of shares of Common Stock that
equals: (i) the Participating Employee's base pay (as defined in the ESPP) as of
the Grant Date divided by 1000, with fractional amounts of .50 or more rounded
up to the next dollar and fractional amounts of less than .50 disregarded,
multiplied by (ii) two. No Participating Employee may be granted an option which
would permit such employee to purchase stock under the ESPP and all other
employee stock purchase plans of HLM Design at a rate which exceeds $25,000 of
the fair market value of such stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding at any time.

<PAGE>

A Participating Employee may elect to designate a limited percentage of
such employee's base pay (as defined in the ESPP) to be deferred by payroll
deduction as a contribution to the ESPP. To the extent a Participating Employee
has accumulated enough funds, his or her contributions to the ESPP will be used
to exercise the option granted under the ESPP through purchases of Common Stock
on the last business day of March, June, September and December, on which the
principal trading market for the Common Stock is open for trading and on any
other interim dates during the year which the Compensation Committee designates
for such purpose (the "Exercise Date"). Contributions which are not enough to
purchase a whole share of Common Stock will be carried forward and applied on
the next Exercise Date in that calendar year.

The purchase price at which Common Stock will be purchased through the ESPP
shall be eighty-five percent of the lesser of (i) the fair market value of the
Common Stock on the applicable Grant Date, and (ii) the fair market value of the
Common Stock on the applicable Exercise Date. Any option granted to a
Participating Employee will be exercised automatically on each Exercise Date
during the calendar year of the option's Grant Date in whole or in part such
that the Participating Employee's accumulated contributions as of such Exercise
Date will be applied to the purchase of the maximum number of whole shares of
Common Stock that such contribution will permit at the applicable option price,
limited to the number of shares available for purchase under the option.

Any option granted to a Participating Employee will expire on the last
Exercise Date of the calendar year in which granted. However, if a Participating
Employee withdraws from the ESPP or terminates employment prior to such Exercise
Date, the option may expire earlier.

Upon termination of a Participating Employee's employment for any reason
other than cause, death or leave of absence in excess of ninety days, such
employee may, at his or her election, request the return of contributions not
yet used to purchase Common Stock or continue participation in the ESPP until
the Exercise Date next following the date of termination of employment such that
any unexpired option held will be exercised automatically on such Exercise Date.
If a Participating Employee dies while employed by the Company or prior to the
Exercise Date next following the date of termination of employment, such
employee's estate will have the right to elect to withdraw all contributions not
yet used to purchase Common Stock or to exercise the Participating Employee's
option for the purchase of Common Stock on the Exercise Date next following the
date of such employee's death.

The Board of Directors of HLM Design may at any time amend, suspend or
terminate the ESPP; provided, however, that the ESPP may not be amended to
increase the maximum number of shares of Common Stock for which options may be
granted under the ESPP, other than in connection with a change in
capitalization, without obtaining the approval of HLM Design stockholders.

No federal taxable income will be recognized by Participating Employees
upon the grant of an option to purchase Common Stock under the ESPP. In
addition, a Participating Employee will not recognize federal taxable income on
the exercise of an option granted under the ESPP.

If the Participating Employee holds shares of Common Stock acquired upon
the exercise of an option granted under the ESPP until a date that is more than
two years from the Grant Date of the relevant option and one year from the date
of option exercise (or dies while owning such shares), the employee must report
as ordinary income in the year of disposition of the shares (or at death) the
lesser of (a) the excess of the fair market value of the shares at the time of
disposition (or death) over the option exercise price and (b) the excess of the
fair market value of the shares on the date the relevant option was granted over
the option exercise price. For this purpose, the option exercise price is 85% of
the fair market value of the shares on the date the relevant option was granted
(assuming the shares are offered at a 15% discount). Any additional income is
treated as long-term capital gain. If these holding period requirements are met,
the Company is not entitled to any deduction for income tax purposes. If the
Participating Employee does not meet the holding period requirements, the
employee recognizes at the time of disposition of the shares ordinary income
equal to the amount by which the fair market value of the shares on the date of
exercise exceeds the option exercise price for the shares, irrespective of the
price at which the employee disposes of the shares, and an amount equal to such
ordinary income is generally deductible by the Company. Any gain or loss
realized on the disposition of the shares will generally be capital gain or
loss; provided that any gain will be subject to reduced rates of tax if the
shares were held for more than twelve months and will be subject to further
reduced rates if the shares were held for more than eighteen months.

Because the ESPP is based on voluntary participation, benefits thereunder
are not determinable.

The Company intends to register the shares underlying the ESPP if required
by the federal securities laws. If such registration is not required, such
shares may be issued upon option exercise in reliance upon the private offering
exemption codified in Section 4(2) of the Securities Act. Resale of such shares
may be permitted subject to the limitations of Rule 144.

<PAGE>
CERTAIN TRANSACTIONS

RELATIONSHIPS WITH MANAGED FIRMS

Joseph Harris and Vernon Brannon, executive officers and principal
stockholders of HLM Design, are also the principal stockholders and officers of
the Managed Firms, HLMI, HLMNC and HLMO. As officers of the Managed Firms, they
caused the Managed Firms to enter into Management and Services Agreements with
HLM Design and as stockholders of each of the Managed Firms they entered into
Stockholders' Agreements. The primary purpose of the Stockholders' Agreement is
to restrict the ability of stockholders to exercise the rights commonly
associated with ownership of common stock and to effectively provide
stockholders of the Managed Firms with nominee stockholder status in order to
facilitate the execution and operation of the Management and Services
Agreements.

Future material transactions between HLM Design or any of the Managed Firms
and any of the Company's officers, directors or controlling persons will be made
or entered into on terms that are no less favorable to HLM Design than those
that can be obtained from unaffiliated third parties. Additionally, future loans
to, or forgiveness of any loans to, any of the Company's officers, directors or
controlling persons will be approved by a majority of HLM Design's directors and
by a majority of its independent directors who do not have an interest in the
transactions.

MERGER TRANSACTION

In April 1997, HLMI and BBH Corp., a Delaware corporation controlled by
Joseph Harris and Vernon Brannon, entered into a Merger Agreement (the "Merger
Agreement") whereby HLMI and BBH Corp. merged, with HLMI being the surviving
corporation. Upon consummation of the transactions contemplated by the Merger
Agreement each share of HLMI common stock (excluding shares of HLMI common stock
held by BBH Corp., which were (i) contributed to BBH Corp. by Messrs. Harris and
Brannon as their initial capital contribution to BBH Corp. and (ii) purchased
from HLMI with a $3.2 million loan from HLM Design) was converted into the right
to receive $64.00 in cash (the "Merger Consideration") and each share of BBH
Corp. then outstanding was converted into one share of HLMI common stock.
Following the consummation of the transactions contemplated by the Merger
Agreement, Joseph Harris and Vernon Brannon owned all of the outstanding common
stock of HLMI.

The payment of the Merger Consideration was financed indirectly by the
Pacific/Equitas Loan and the First Charter Loan through the purchase of
additional HLMI capital stock by BBH Corp., effective simultaneously with the
Merger. In connection with the Pacific/Equitas Loan, HLM Design issued the
Pacific/Equitas Warrants to Pacific, Equitas and Messrs. Caroland and LeRoy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Company intends to repay the
outstanding balance on the Pacific/Equitas Loan from the proceeds of the
Offering. Once such loan is repaid, Messrs. Harris and Brannon will be released
from their personal guarantees of the Pacific/Equitas Loan.

BERTHEL LEASING LEASE FINANCING

Berthel Leasing, an affiliate of Berthel Fisher & Company Financial
Services, Inc., one of the Underwriters in the Offering, has entered into the
Lease Financing with HLMI and has provided HLM Design with a $0.75 million term
loan for working capital purposes. In addition, Berthel Leasing received the
Berthel Warrants and received certain registration rights which begin in
September 2000, with respect to the Common Stock which underlies the Berthel
Warrants. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." A portion of the
proceeds of the Offering will be used to repay the $0.75 million term loan. The
Company has also agreed, in connection with the Offering, to sell to the
Underwriters, including Berthel Fisher & Company Financial Services, Inc.,
certain warrants. See "Underwriting."

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of HLM Design's Common Stock as of March 27, 1998 by (i) each
stockholder who is known by HLM Design to own beneficially more than five
percent of the outstanding Common Stock, (ii) each director of HLM Design, (iii)
each executive officer of HLM Design, and (iv) all directors and executive
officers of HLM Design as a group, and as adjusted to reflect the sale by HLM
Design of the shares of Common Stock in this Offering.

<PAGE>

<TABLE>
<CAPTION>
PERCENTAGE OF ALL
OUTSTANDING
COMMON STOCK
NUMBER OF SHARES -----------------------
OF COMMON STOCK BEFORE AFTER
NAME (1) OWNED(2) OFFERING OFFERING(3)
- ------------------------------------------------------------------------------------- ---------------- -------- -----------
<S> <C> <C> <C>
Joseph M. Harris(4)(5) 367,142 39.3% 17.2%
Vernon B. Brannon(4)(5) 367,141 39.3% 17.2%
Clay R. Caroland III(4) 10,991 1.3% *
D. Shannon LeRoy(4)(9) -- -- --
Berthel Leasing(6) 43,631 5.0% 2.1%
Pacific(7)(8) 98,953 10.2% 4.6%
Equitas(9) 73,300 8.4% 3.5%
All directors and executive officers as a group (4 persons) 745,274 85.2% 35.9%
</TABLE>

- ---------------
* Less than one percent.

(1) Unless otherwise noted, each person has sole voting and investment power
over the shares listed opposite his name subject to community property laws
where applicable.

(2) After giving effect to the Stock Split.

(3) If the Underwriters' over-allotment option is exercised in full, then after
the Offering the percentages of shares outstanding would be as follows:
Joseph Harris, 15.9%; Vernon Brannon, 15.9%; Clay Caroland III, less than
1%; Berthel Leasing, 1.9%; Pacific, 4.2%; Equitas, 3.3%; and all directors
and executive officers as a group, 33.0%.

(4) The address of such person is care of HLM Design at 121 West Trade Street,
Suite 2950, Charlotte, North Carolina 28202.

(5) Gives effect to options granted under HLM Design's Stock Option Plan which
will be exercisable upon consummation of the Offering. See
"Management -- Stock Option Plan."

(6) The address of such person is 100 Second Street Southeast, Cedar Rapids,
Iowa 52407.

(7) Includes shares of Common Stock which underlie currently exercisable
Warrants held by such person to be exercised immediately prior to the
effective date of the Registration Statement of which this Prospectus is a
part.

(8) The address of such person is Suite 1070, 3100 West End Avenue, Nashville,
Tennessee 37203.

(9) The address of such person is Suite 100, 2000 Glen Echo Road, Nashville,
Tennessee 37215. Although he serves as president of its general partner,
Mr. LeRoy disclaims beneficial ownership of shares held by Equitas.

DESCRIPTION OF CAPITAL STOCK

HLM Design's authorized capital stock consists of (i) 9,000,000 shares of
Common Stock, $.001 par value, and (ii) 1,000,000 shares of Preferred Stock,
$.10 par value. Upon completion of this Offering, HLM Design will have 2,075,087
outstanding shares of Common Stock (giving effect to the Stock Split and the
exercise by Pacific of its Warrants and not including Common Stock which
underlies the options granted pursuant to the Stock Option Plan) and no shares
of preferred stock.

The following summary description of HLM Design's capital stock does not
purport to be complete and is qualified in its entirety by reference to HLM
Design's Certificate of Incorporation, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and the Delaware
General Corporation Law (the "DGCL"). Reference is made to such exhibit and the
DGCL for a detailed description of the provisions thereof summarized below.

COMMON STOCK

The holders of validly issued and outstanding shares of Common Stock are
entitled to one vote per share of record on all matters to be voted upon by
stockholders. At a meeting of stockholders at which a quorum is present, a
majority of the votes cast decides all questions, unless the matter is one upon
which a different vote is required by express provision of law or HLM Design's
Certificate of Incorporation or Bylaws. There is no cumulative voting with
respect to the election of directors (or any other matter), but HLM Design's
Board of Directors is classified. The holders of a majority of the shares at a
meeting at which a quorum is present can, therefore, elect all of the directors
of the class then to be elected if they choose to do so, and, in such event, the
holders of the remaining shares would not be able to elect any directors of that
class.

The holders of Common Stock have no preemptive rights and have no rights to
convert their Common Stock into any other securities.

<PAGE>

Subject to the rights of holders of Preferred Stock, if any, in the event
of a liquidation, distribution, sale of assets, dissolution or winding up of HLM
Design, holders of Common Stock are entitled to participate equally, share for
share, in all assets remaining after payment of liabilities.

The holders of Common Stock are entitled to receive ratably such dividends
as the Board of Directors may declare out of funds legally available therefor,
when and if so declared. The payment by HLM Design of dividends, if any, rests
within the discretion of its Board of Directors and will depend upon HLM
Design's results of operations, financial condition and capital expenditure
plans, as well as other factors considered relevant by the Board of Directors.
See "Dividends."

TRANSFER AGENT AND REGISTRAR

HLM Design has appointed First Union National Bank as the transfer agent
and registrar for the Common Stock.

WARRANTS

In May 1997, September 1997 and December 1997, HLM Design issued Warrants
to purchase an aggregate of 226,874 shares of Common Stock at an exercise price
of $.01 per share to Pacific, Equitas and Berthel Leasing and two
representatives of Pacific and Equitas in connection with financing
arrangements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." By their terms,
the Pacific/Equitas Warrants will expire in July 2002 and the Berthel Warrants
will expire in September of that year; however, for a period of 30 days prior to
expiration the holder of any or all of the Warrants has the right and option to
sell to HLM Design any or all of the Warrants at a purchase price equal to the
Fair Market Value (as defined therein) of the shares of Common Stock issuable to
the holder upon exercise of the Warrant less the exercise price. The kind of
securities purchasable upon the exercise of the Warrants and the number of
shares of Common Stock purchasable upon exercise of the Warrants is subject to
adjustment upon the occurrence of certain events such as reclassification of
securities, consolidation or merger of HLM Design, subdivision or combination of
Common Stock or stock dividends. Additionally, if the indebtedness pursuant to
which the Warrants were issued is not repaid in full on or before May 30, 1999,
the number of shares of Common Stock each Warrant holder is able to purchase
will increase and will further increase on each May 30 thereafter until such
indebtedness is repaid in full. The Common Stock underlying the Berthel Warrants
and the Warrants issued to Pacific and Equitas are subject to certain
registration rights which begin in September 2000. Pursuant to the applicable
registration rights agreement, upon the request of holders of at least 25% of
Registrable Securities (as defined therein) HLM Design will, within 90 days,
effect registration under the Securities Act. Additionally, such agreements
provide Berthel Leasing, Pacific and Equitas with certain piggyback registration
rights that permit them to have their shares of Common Stock, as selling
security holders, included in any registration statements pertaining to the
registration of Common Stock for issuance by the Company or for resale by other
selling security holders. These registration rights will be limited or
restricted to the extent an underwriter of an offering, if an underwritten
offering, determines that marketing factors require a limitation of the number
of shares to be underwritten.

As of the date hereof, (i) all of the Warrants held by Berthel Leasing and
by Equitas have been exercised and the shares underlying such Warrants are
included in the currently outstanding shares reflected elsewhere in this
Prospectus, and (ii) Pacific has undertaken that it will exercise all of its
Warrants immediately prior to the effective date of the Registration Statement
of which this Prospectus is a part. Except as the context otherwise requires,
the shares underlying the Warrants held by Pacific are included in the
outstanding shares reflected elsewhere in this Prospectus.

PREFERRED STOCK

No shares of Preferred Stock are outstanding. HLM Design's Certificate of
Incorporation authorizes the Board of Directors to issue up to 1,000,000 shares
of Preferred Stock in one or more series and to establish such designations and
such relative voting, dividend, liquidation, conversion and other rights,
preferences and limitations as the Board of Directors may determine without
further approval of the stockholders of HLM Design. The issuance of Preferred
Stock by the Board of Directors could, among other things, adversely affect the
voting power of the holders of Common Stock and, under certain circumstances,
make it more difficult for a person or group to gain control of HLM Design.

The issuance of any series of Preferred Stock, and the relative
designations, rights, preferences and limitations of such series, if and when
established, will depend upon, among other things, the future capital needs of
the Company, the then-existing market conditions and other factors that, in the
judgment of the Board of Directors, might warrant the issuance of

<PAGE>
Preferred Stock. As of the date of this Prospectus, there are no plans,
agreements or understandings for the issuance of any shares of Preferred Stock.

DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS

Certain provisions of the DGCL and of HLM Design's Certificate of
Incorporation and Bylaws, summarized in the following paragraphs, may be
considered to have an antitakeover effect and may delay, deter or prevent a
tender offer, proxy contest or other takeover attempt that a stockholder might
consider to be in such stockholder's best interest, including such an attempt as
might result in payment of a premium over the market price for shares held by
stockholders.

DELAWARE ANTITAKEOVER LAW. HLM Design, a Delaware corporation, is subject
to the provisions of the DGCL, including Section 203. In general, Section 203
prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which such person became an interested
stockholder unless: (i) prior to such date, the Board of Directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; or (ii) upon becoming an
interested stockholder, the stockholder then owned at least 85% of the voting
stock, as defined in Section 203; or (iii) subsequent to such date, the business
combination is approved by both the Board of Directors and by holders of at
least 66 2/3% of the corporation's outstanding voting stock, excluding shares
owned by the interested stockholder. For these purposes, the term "business
combination" includes mergers, asset sales and other similar transactions with
an "interested stockholder." An "interested stockholder" is a person who,
together with affiliates and associates, owns (or, within the prior three years,
did own) 15% or more of the corporation's voting stock. Although Section 203
permits a corporation to elect not to be governed by its provisions, HLM Design
to date has not made this election.

SPECIAL MEETINGS OF STOCKHOLDERS. HLM Design's Bylaws provide that special
meetings of stockholders, unless otherwise prescribed by law or its Certificate
of Incorporation, may be called only by the President at the request in writing
of a majority of the Board of Directors of HLM Design. This provision may make
it more difficult for stockholders to take action opposed by the Board of
Directors.

ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. HLM Design's Bylaws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual or a special meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive office
of the Company, (i) in the case of an annual meeting that is called for a date
that is within 30 days before or after the anniversary date of the immediately
preceding annual meeting of stockholders, not less than 60 days nor more than 90
days prior to such anniversary date, and, (ii) in the case of an annual meeting
that is called for a date that is not within 30 days before or after the
anniversary date of the immediately preceding annual meeting, or in the case of
a special meeting of stockholders called for the purpose of electing directors,
not later than the close of business on the tenth day following the day on which
notice of the date of the meeting was mailed or public disclosure of the date of
the meeting was made, whichever occurs first. The Bylaws also specify certain
requirements for a stockholder's notice to be in proper written form. These
provisions may preclude some stockholders from bringing matters before the
stockholders at an annual meeting or from making nominations for directors at an
annual or special meeting.

CLASSIFIED BOARD OF DIRECTORS. HLM Design's Bylaws provide for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Board of Directors
will be elected each year. Classification of the Board of Directors expands the
time required to change the composition of a majority of directors and may tend
to discourage a takeover bid for HLM Design. Moreover, under Delaware Law, in
the case of a corporation having a classified board of directors, the
stockholders may remove a director only for cause. This provision, when coupled
with the provision of the Bylaws authorizing only the board of directors to fill
vacant directorships, will preclude stockholders of HLM Design from removing
incumbent directors without cause and simultaneously gaining control of the
Board of Directors by filling the vacancies with their own nominees.

<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, HLM Design will have outstanding
2,075,087 shares of Common Stock (excluding shares of Common Stock which
underlie options granted under the Stock Option Plan (115,908 shares) and
assuming no exercise of the Underwriters' over-allotment option). Of such
amount, the 1,200,000 Shares sold in this Offering will be freely transferable
and may be resold without further registration under the Securities Act, except
for any shares purchased by an "affiliate" of HLM Design (as defined below),
which shares will be subject to the resale limitations of Rule 144 under the
Securities Act ("Rule 144"). The 629,366 shares of Common Stock held by
affiliates of the Company are "restricted securities" within the meaning of Rule
144. The 361,629 shares of Common Stock, which (i) are held by non-affiliates of
the Company or (ii) which underlie (x) options granted on or before the
consummation of Offering under the Company's Stock Option Plan, and (y) the
Warrants are also "restricted securities." Such "restricted securities" may be
resold only pursuant to a registration statement under the Securities Act or
applicable exemption from registration thereunder, such as an exemption provided
by Rule 144.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted securities"
for at least one year may, under certain circumstances, resell within any
three-month period, such number of shares as does not exceed the greater of one
percent of the then-outstanding shares of Common Stock or the average weekly
trading volume of Common Stock during the four calendar weeks prior to such
resale. Rule 144 also permits, under certain circumstances, the resale of shares
without any quantity limitation by a person who has satisfied a two-year holding
period and who is not, and has not been for the preceding three months, an
affiliate of HLM Design. In addition, holding periods of successive
non-affiliate owners are aggregated for purposes of determining compliance with
these one-and two-year holding period requirements.

Upon completion of this Offering, 618,375 of the 875,087 shares of Common
Stock outstanding on the date of this Prospectus and not sold in the Offering
will have been held for at least one year. The remaining 256,712 shares are
"restricted securities", and therefore may not be resold pursuant to Rule 144
upon completion of this Offering.

The availability of shares for sale or actual sales under Rule 144 and the
perception that such shares may be sold may have an adverse effect on the market
price of the Common Stock. Sales under Rule 144 also could impair the Company's
ability to market additional equity securities.

HLM Design and all directors and executive officers of HLM Design have
agreed not to offer, sell, contract to sell, or otherwise dispose of, any shares
of Common Stock or securities convertible into or exchangeable for Common Stock
for 365 days from the date of this Prospectus without the prior written consent
of the representatives of the Underwriters. Additionally, Messrs. Harris and
Brannon and Berthel Leasing have agreed to escrow Common Stock owned by each of
them pursuant to the requirements of the various state securities commissions.

<PAGE>
UNDERWRITING

Each of the underwriters named below (the "Underwriters") have severally
agreed, subject to the terms and conditions of the Underwriting Agreement, to
purchase from the Company the number of shares of Common Stock set forth
opposite their respective names below. The nature of the obligations of the
Underwriters is such that if any of such shares are purchased, all must be
purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------------------------------------------------------------------------------------ ---------
<S> <C>
Berthel Fisher & Company Financial Services, Inc..........................................
Westport Resources Investment Services, Inc...............................................
Marion Bass Securities Corporation........................................................
---------

Total................................................................................
---------
</TABLE>

The Underwriters have advised HLM Design that they propose initially to
offer the Common Stock offered hereby to the public at the price to the public
set forth on the cover page of this Prospectus. The Underwriters may allow a
concession to selected dealers who are members of the National Association of
Securities Dealers, Inc. ("NASD") not in excess of $
per share, and the Underwriters may allow, and such dealers may reallow, to
members of the NASD a concession not in excess of $ per share. After the
public offering, the price to the public, the concession and the reallowance may
be changed by the Underwriters.

HLM Design has granted an option to the Underwriters, exercisable within 45
business days after the date of the Prospectus, to purchase up to an aggregate
of 180,000 additional shares of Common Stock at the initial price to the public,
less the underwriting discount, set forth on the cover page of this Prospectus.
The Underwriters may exercise the option only for the purpose of covering
over-allotments. To the extent that the Underwriters exercise such option, each
Underwriter will be committed, subject to certain conditions, to purchase from
HLM Design on a pro rata basis that number of additional shares of Common Stock
which is proportionate to such Underwriters' initial commitment.

HLM Design, certain stockholders and certain executive officers have
agreed, subject to certain exceptions, not to, directly or indirectly, (i) sell,
grant any option to purchase or otherwise transfer or dispose of any Common
Stock or securities convertible into or exchangeable or exercisable for Common
Stock, or file a registration statement under the Securities Act with respect to
the foregoing or (ii) enter into any swap or other agreement or transaction that
transfers, in whole or part, the economic consequence of ownership of the Common
Stock, without the prior written consent of Berthel Fisher, for a period of 365
days after the date of this Prospectus. Additionally, Messrs. Harris and Brannon
and Berthel Leasing have agreed to escrow Common Stock owned by each of them
pursuant to the requirements of the various state securities commissions.

At the request of HLM Design, the Underwriters have reserved up to 9,273
shares of the Common Stock for sale at the initial public offering price, and
otherwise on the same terms as sales pursuant to the Offering, to persons
designated by HLM Design. The number of shares of Common Stock available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares which are not so purchased will be
offered by the Underwriters to the general public on the same basis as the other
shares offered hereby.

Prior to this Offering, there has been no market for the Common Stock and
there can be no assurance that a regular trading market will develop upon the
completion of this Offering. The initial public offering price was determined by
negotiations between the Company and the Underwriters. The primary factors
considered in determining such offering price included the history of and
prospects for the Company's business and the industry in which the Company
competes, market valuation of comparable companies, market conditions for public
offerings, the prospects for future earnings of the Company, an assessment of
the Company's management, the general condition of the securities markets, the
demand for similar securities of comparable companies and other relevant
factors.

HLM Design has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act or to contribute to
payments the Underwriter may be required to make in respect thereof. Generally,
such indemnification or contribution rights relate to losses, claims, damages or
liabilities resulting from untrue statements of material fact contained in the
Registration Statement or any application or other document filed to qualify the
Common Stock under "blue sky" or securities laws of any state, or the omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading.

<PAGE>
The Underwriters have advised HLM Design that they do not intend to confirm
sales of Common Stock offered hereby to any accounts over which they exercise
discretionary authority.

Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriter and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Underwriters are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with the Offering, I.E., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Underwriters may
reduce that short position by purchasing Common Stock in the open market. The
Underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.

The Underwriters may also impose a penalty bid on certain members of the
underwriting group and selling group members. This means that if an Underwriter
purchases shares of Common Stock in the open market to reduce the Underwriter's
short position or to stabilize the price of the Common Stock, they may reclaim
the amount of the selling concession from the underwriting group and selling
group members who sold those shares as part of the Offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.

Neither HLM Design nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
HLM Design nor any of the Underwriters make any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.

HLM Design has agreed to reimburse the Underwriters for actual out of
pocket expenses incurred by the Underwriters in connection with the Offering (up
to a maximum of 1.365% of the gross proceeds of the Offering without giving
effect to the Underwriters' over-allotment option), none of which has been paid
as of the date of this Prospectus. HLM Design has also agreed to pay all
expenses in connection with qualifying the Common Stock offered hereby for sale
under the laws of such states as the Underwriters may designate, including
filing fees and fees and expenses of counsel retained for such purposes by the
Underwriters, and registering the Offering with the NASD.

In connection with this Offering, HLM Design has agreed to sell to the
Underwriters, for a price of $.01 per warrant, warrants (the "Underwriters'
Warrants") to purchase shares of Common Stock equal to 10% of the total number
of shares of Common Stock sold pursuant to this Offering, excluding shares
subject to the over-allotment option. The Underwriters' Warrants are exercisable
at a price equal to 120% of the initial public offering price ($7.20 assuming an
initial public offering price of $6.00 per share (the low point of the range set
forth on the cover of this Prospectus)) for a period of four years commencing
one year from the date of this Prospectus (the "Exercise Period"). HLM Design
has also agreed that Berthel Fisher & Company Financial Services, Inc. shall be
entitled, for a period of three (3) years following consummation of the Offering
to have a representative receive notice of, attend and observe, all Board
meetings of HLM Design. Such representative shall not be a Board member and
shall have no voting rights at any such meeting.

Berthel Leasing, an affiliate of Berthel Fisher & Company Financial
Services, Inc., provided lease financing to HLMI in an aggregate principal
amount of $2.8 million under the Lease Financing and provided HLM Design with a
$0.75 million term loan for working capital purposes. More than 10% of the net
proceeds of the Offering will be received by Berthel Leasing, by reason of the
use of such proceeds to repay a portion of such borrowings. In addition, the
$0.75 million term loan constitutes more than 10% of the subordinated debt of
the Company. Accordingly, the Offering will be conducted in accordance with NASD
Conduct Rule 2720, which requires that the public offering price of the Common
Stock be no higher than the price recommended by a Qualified Independent
Underwriter which has participated in the preparation of the Registration
Statement and performed its usual standard of due diligence with respect
thereto. Westport Resources Investment Services, Inc. will act as the Qualified
Independent Underwriter for the Offering, and the public offering price will not
be higher than the price recommended by Westport Resources Investment Services,
Inc.

<PAGE>
LEGAL MATTERS

Parker, Poe, Adams & Bernstein L.L.P., Charlotte, North Carolina, counsel
to the Company, will render an opinion that the Shares offered hereby, when
issued and paid for in accordance with the terms of the Underwriting Agreement,
will be duly authorized, validly issued, fully paid and nonassessable. Bradley &
Riley, P.C., Cedar Rapids, Iowa, has served as counsel to the Underwriters in
connection with this Offering.

EXPERTS

The audited financial statements of HLMI (Predecessor) as of April 25, 1997
and for each of the years in the three-year period ended April 25, 1997, and the
audited financial statements of HLM Design, Inc. as of April 25, 1997 and from
inception, March 6, 1997, to the period ended April 25, 1997, included in this
Prospectus and elsewhere in the Registration Statement of which this Prospectus
is a part, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the Registration
Statement, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-1 under the Securities Act with
respect to the Shares offered hereby. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Shares offered hereby, reference is made to the Registration Statement,
including the exhibits and schedules filed as part thereof. Statements contained
in this Prospectus as to the contents of any contract or any other documents are
not necessarily complete, and, in each such instance, reference is made to the
copy of the contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such reference
thereto. The Registration Statement, together with its exhibits and schedules,
may be inspected at the Public Reference Section of the SEC at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
SEC located at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any part of such materials may be obtained from
any such office upon payment of the fees prescribed by the SEC. Such information
may also be inspected and copied at the office of Nasdaq at 1735 K Street, NW
Washington, DC 20006-1500. The Commission also maintains a Website
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.

<PAGE>
INDEX TO FINANCIAL INFORMATION

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
HLM DESIGN, INC. AND AFFILIATES:
INDEPENDENT AUDITORS' REPORT......................................................................................... F-2
FINANCIAL STATEMENTS:
Balance Sheet at April 25, 1997 and unaudited Combined Balance Sheet at January 30, 1998.......................... F-3
Statements of Operations (unaudited) for the nine months ended January 24, 1997 (Predecessor), the one month ended
May 30, 1997 (Predecessor) and the Combined Statements of Income for the nine months ended January 30, 1998 (HLM
Design Inc.)..................................................................................................... F-4
Statements of Stockholders' Equity for the period ended April 25, 1997 and (unaudited) Combined statement of
stockholder's equity for the nine months ended January 30, 1998.................................................. F-5
Statements of Cash Flows (unaudited) for the nine months ended January 24, 1997 (unaudited) (Predecessor), the one
month ended May 30, 1997 (Predecessor) and Combined Statements of Cash Flows for the nine months ended January
30, 1998 (HLM Design Inc.)....................................................................................... F-6
Notes to Financial Statements..................................................................................... F-7

HANSEN LIND MEYER, INC. ("HLMI")
INDEPENDENT AUDITORS' REPORT......................................................................................... F-15
FINANCIAL STATEMENTS:
Balance Sheets at April 26, 1996 and April 25, 1997............................................................... F-16
Statements of Operations for the years ended April 30, 1995, April 26, 1996 and April 25, 1997.................... F-17
Statements of Stockholders' Equity for the years ended April 30, 1995, April 26, 1996 and April 25, 1997.......... F-18
Statements of Cash Flows for the years ended April 30, 1995, April 26, 1996 and April 25, 1997.................... F-19
Notes to Financial Statements..................................................................................... F-20
</TABLE>

F-1

<PAGE>
INDEPENDENT AUDITORS' REPORT

BOARD OF DIRECTORS
HLM DESIGN, INC.
Charlotte, North Carolina

We have audited the accompanying balance sheet of HLM Design, Inc. (the
"Company") as of April 25, 1997, and the related statements of stockholders'
equity, for the period from inception March 6, 1997 to April 25, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 April 25,
1997, and the changes in stockholders equity for the period from inception March
6, 1997 to April 25, 1997 in conformity with generally accepted accounting
principles.

DELOITTE & TOUCHE LLP
November 11, 1997 (January 30, 1998, February 13, 1998 and February 27, 1998 as
to the last paragraph in Note 1)
Charlotte, North Carolina

F-2

<PAGE>
HLM DESIGN, INC. AND AFFILIATES

BALANCE SHEETS

APRIL 25, 1997 AND JANUARY 30, 1998

<TABLE>
<CAPTION>
HLM
DESIGN COMBINED
APRIL 25, JANUARY 30,
1997 1998
--------- -----------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash.............................................................................................. $ 2,771
Trade and other receivables, less allowance for doubtful accounts of $150,000 at January 30,
1998........................................................................................... 6,338,342
Costs and estimated earnings in excess of billings on uncompleted projects (Note 3)............... 5,471,799
Prepaid expenses.................................................................................. 591,819
-----------
Total current assets......................................................................... 12,404,731
-----------
OTHER ASSETS:
Deferred income taxes (Note 8).................................................................... 562,821
Goodwill, less amortization of $114,549 at January 30, 1998 (Note 2).............................. 2,467,513
Other noncurrent assets........................................................................... 774,950
-----------
Total other assets........................................................................... 3,805,284
-----------
PROPERTY AND EQUIPMENT:
Leasehold improvements............................................................................ 701,119
Furniture and fixtures............................................................................ 1,560,298
-----------
Total property and equipment................................................................. 2,261,417
-----------
Less accumulated depreciation..................................................................... (427,877)
-----------
Property and equipment, net.................................................................. 1,833,540
-----------
TOTAL ASSETS........................................................................................ $18,043,555
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 4)............................................................................ $ 2,250,000
Accounts payable.................................................................................. 3,547,171
Accrued expenses.................................................................................. 1,444,022
Income taxes payable.............................................................................. 19,353
Billings in excess of costs and estimated earnings on uncompleted projects (Note 3)............... 3,188,791
Deferred income taxes (Note 8).................................................................... 1,644,953
Current maturities of long-term debt (Note 4)..................................................... 743,311
-----------
Total current liabilities.................................................................... 12,837,601
-----------
LONG-TERM DEBT (Note 4)............................................................................. 4,357,057
-----------
TOTAL LIABILITIES................................................................................... 17,194,658
-----------
COMMITMENTS AND CONTINGENCIES (Note 5, 6)
WARRANTS OUTSTANDING (Note 4)....................................................................... 200,068
-----------
STOCKHOLDERS' EQUITY:
HLM Design, Inc. Capital Stock
Common, $.001 par value, voting, authorized 9,000,000 shares; issued 618,375 and 702,834,
respectively.................................................................................. 618 703
Preferred, $.10 par value, voting, authorized 1,000,000, no shares outstanding.................
HLMNC and HLMO, Capital Stock, common, $.01 par value, authorized, outstanding 600................ 6
Hansen Lind Meyer Inc. Capital stock, common, $.01 par value:
Class A, voting, authorized 2,000,000 shares; issued 200....................................... 2
Class B, nonvoting, authorized 1,000,000 shares, no shares outstanding......................... -- --
Additional paid in capital........................................................................ 2,382 101,031
Retained earnings................................................................................. 556,611
Stock Subscription Receivable..................................................................... (3,000) (9,524)
--------- -----------
Total stockholders' equity.......................................................................... 648,829
--------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................................................... $ $18,043,555
--------- -----------
--------- -----------
</TABLE>

See notes to financial statements.

F-3

<PAGE>
HLM DESIGN, INC. AND AFFILIATES

STATEMENTS OF OPERATIONS

ONE MONTH ENDED MAY 30, 1997 (PREDECESSOR) AND NINE MONTHS ENDED
JANUARY 24, 1997 (PREDECESSOR) AND JANUARY 30, 1998 (COMBINED)

<TABLE>
<CAPTION>
(HLM
(PREDECESSOR (PREDECESSOR DESIGN)
COMPANY) COMPANY) COMBINED
----------- ---------- -----------
NINE MONTHS ONE MONTH NINE MONTHS
ENDED ENDED ENDED
----------- ---------- -----------
JANUARY 24, MAY 30, JANUARY 30,
1997 1997 1998
----------- ---------- -----------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
REVENUES (Note 1):
Fee income..................................................................... $18,439,931 $1,998,611 $16,160,923
Reimbursable income............................................................ 1,002,349 234,425 5,382,493
----------- ---------- -----------
Total revenues............................................................ 19,442,280 2,233,036 21,543,416
----------- ---------- -----------
CONSULTANT EXPENSES.............................................................. 3,573,159 192,862 3,802,734
----------- ---------- -----------
PROJECT EXPENSES:
Direct expenses................................................................ 522,063 35,404 744,579
Reimbursable expenses.......................................................... 877,693 68,617 630,190
----------- ---------- -----------
Total project expenses.................................................... 1,399,756 104,021 1,374,769
----------- ---------- -----------
NET PRODUCTION INCOME............................................................ 14,469,365 1,936,153 16,365,913
DIRECT LABOR..................................................................... 4,944,712 602,096 4,802,078
INDIRECT EXPENSES................................................................ 9,848,192 1,172,712 9,744,540
----------- ---------- -----------
OPERATING INCOME (LOSS).......................................................... (323,539) 161,345 1,819,295
----------- ---------- -----------
OTHER INCOME (EXPENSE):
Interest income................................................................ 3,575 54 1,888
Interest expense............................................................... (283,602) (37,005) (750,509)
----------- ---------- -----------
Total other income (expense), net......................................... (280,027) (36,951) (748,621)
----------- ---------- -----------
INCOME (LOSS) BEFORE TAXES....................................................... (603,566) 124,394 1,070,674
INCOME TAXES (Note 7):
Current tax expense (benefit).................................................. (23,713) (11,907) 58,000
Deferred tax expense (benefit)................................................. (119,804) 54,907 456,063
----------- ---------- -----------
Total income tax expense (benefit)........................................ (143,517) 43,000 514,063
----------- ---------- -----------
NET INCOME (LOSS)................................................................ $ (460,049) $ 81,394 $ 556,611
----------- ---------- -----------
----------- ---------- -----------
PRO FORMA NET INCOME PER SHARE (NOTE 1).......................................... $ .65
-----------
-----------
PRO FORMA NUMBER OF SHARES USED TO COMPUTE PER SHARE DATA (NOTE 1)............... 859,973
-----------
-----------
</TABLE>

See notes to financial statements.

F-4

<PAGE>
HLM DESIGN, INC. AND AFFILIATES

STATEMENTS OF STOCKHOLDERS' EQUITY

INCEPTION MARCH 6, 1997 TO APRIL 25, 1997 AND THE
NINE MONTHS ENDED JANUARY 30, 1998 (COMBINED)

<TABLE>
<CAPTION>
COMMON STOCK STOCK TOTAL
------------------ ADDITIONAL RETAINED SUBSCRIPTION STOCKHOLDERS'
SHARES AMOUNT PAID-IN-CAPITAL EARNINGS RECEIVABLE EQUITY
-------- ------ --------------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
ORGANIZATION OF HLM DESIGN,
MARCH 6, 1997................................ $ $ $ $ $
Issuance of HLM Design, Inc. shares.......... 618,375 618 2,382 (3,000)
-------- ------ --------------- ------------
BALANCE, APRIL 25, 1997........................ 618,375 618 2,382 (3,000)
-------- ------ --------------- -------- ------------ -------------
Equity of Combining Entities May 31, 1997
(UNAUDITED):
HLMI.................................... 200 2 2
HLMNC................................... 300 3 297 (300)
HLMO.................................... 300 3 297 (300)
Stock Issuance - HLM Design (unaudited)...... 84,459 85 98,055 (5,924) 92,216
Net Income -- Combined (unaudited)........... 556,611 556,611
-------- ------ --------------- -------- ------------ -------------
BALANCE JANUARY 30, 1998 -- COMBINED
(UNAUDITED).................................. 703,634 $ 711 $ 101,031 $556,611 $ (9,524) $ 648,829
-------- ------ --------------- -------- ------------ -------------
-------- ------ --------------- -------- ------------ -------------
</TABLE>

See notes to financial statements.

F-5

<PAGE>
HLM DESIGN, INC. AND AFFILIATES

STATEMENTS OF CASH FLOWS

ONE MONTH ENDED MAY 30, 1997 (PREDECESSOR),
AND THE NINE MONTHS ENDED JANUARY 24, 1997 (PREDECESSOR) AND JANUARY 30, 1998
(COMBINED)

<TABLE>
<CAPTION>
(PREDECESSOR COMPANY) (HLM
-------------------------- DESIGN)
COMBINED
NINE MONTHS ONE MONTH NINE MONTHS
ENDED ENDED ENDED
----------- ----------- -----------
JANUARY 29, MAY 30, JANUARY 30,
1997 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................... $ (460,049) $ 81,394 $ 556,611
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation................................................................. 431,073 55,544 247,463
Amortization of goodwill..................................................... 77,589 9,571 114,549
Amortization of deferred loan fees........................................... 108,526
Deferred rent................................................................ 4,249
Deferred income taxes........................................................ (110,228) 54,907 (17,844)
Changes in certain working capital items:
Increase in trade and other receivables.................................... (326,971) (1,500,472) (622,088)
Increase in costs and estimated earnings compared to billings on
uncompleted contracts, net................................................ 1,162,905 1,199,028 38,310
(Increase) decrease in refundable income taxes............................. (42,465) (11,157) 504,400
Increase in prepaid expenses............................................... (545,813) (10,427) (333,837)
(Increase) decrease in other assets........................................ 352,700 (1,152) (170,668)
Increase (decrease) in accounts payable.................................... (808,446) 233,659 (913,522)
Increase (decrease) in accrued expenses.................................... 718,998 (278,500) 643,475
Increase (decrease) in other non-current liabilities....................... (15,000) 15,000
----------- ----------- -----------
Net cash (used in) provided by operating activities..................... 438,542 (152,605) 155,375
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................. (600,377) (2,023) (549,848)
Note receivable from officer.................................................... (130,000) 30,000
----------- ----------- -----------
Net cash used in investing activities................................... (730,377) (2,023) (519,848)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on line of credit....................................................... 400,000 (2,360,000)
Proceeds from long-term borrowings.............................................. 100,000 2,800,000 6,712,307
Payments on long-term borrowings................................................ (216,974) (285,372) (3,305,100)
Payment of deferred loan fees................................................... (56,300)
Payment on ESOP buyback......................................................... (3,221,824)
Proceeds from issuance of notes payable to shareholders......................... 182,308
Proceeds from the issuance of warrants.......................................... 24,757
Proceeds from exercise of warrants.............................................. (135)
Proceeds from issuance of common stock.......................................... 28,910
----------- ----------- -----------
Net cash provided by financing activities............................... 283,026 154,628 364,923
----------- ----------- -----------
INCREASE (DECREASE) in Cash....................................................... (8,809) 450
CASH BALANCE:
Beginning of year............................................................... 11,130 2,321 2,321
----------- ----------- -----------
End of year..................................................................... $ 2,321 $ 2,321 $ 2,771
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES:
Cash paid (received) during the year for:
Interest..................................................................... $ 280,042 $ 6,827 $ 584,695
Income tax payments (refunds)................................................ $ 18,752 $ (750) $ 21,244
Noncash investing and financing transactions:
Retirement of common stock through issuance of note payable.................. $ 36,047
Reduction of ESOP debt....................................................... $ 336,231
Issuance of warrants to certain debtholders.................................. $ 238,752
</TABLE>

See notes to financial statements.

F-6

<PAGE>
HLM DESIGN, INC. AND AFFILIATES

NOTES TO FINANCIAL STATEMENTS

INCEPTION MARCH 6, 1997 TO APRIL 25, 1997 AND THE NINE MONTHS ENDED JANUARY 24,
1997
(PREDECESSOR -- UNAUDITED), THE ONE MONTH PERIOD ENDED MAY 30, 1997
(PREDECESSOR -- UNAUDITED) AND THE NINE MONTHS ENDED JANUARY 30, 1998
COMBINED -- UNAUDITED

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND BUSINESS -- HLM Design, Inc. ("Design") is a Management
Services Company incorporated March 6, 1997 for the purpose of providing
management and services to architectural, engineering and planning design
entities under long term management services agreement.

In May 1997, Design executed long term management and services agreements
with Hansen Lind Meyer Inc. ("HLMI"), HLM of North Carolina, P.C. ("HLMNC") and
HLM of Oregon, Architecture and Planning, P.C. ("HLMO"). HLMNC and HLMO,
organized in 1996 and have had no operations as of January 30, 1998 (HLMI, HLMNC
and HLMO are referred to herein collectively as "AEP"). Design and AEP are
referred to herein collectively as "the Company". In May 1997, HLMI entered into
a merger agreement with BBH Corp., a newly formed entity controlled by the
principal shareholders of Design, whereby Design loaned BBH Corp $3.2 million
which BBH Corp utilized to buy common stock in HLMI. Under the merger agreement,
BBH Corp merged into HLMI with HLMI being the surviving entity. As a part of the
merger agreement, HLMI redeemed previously outstanding common stock of HLMI,
from its' employee Stock Ownership Plan ("ESOP") and other shareholders, except
the shareholders of BBH Corp. the shares redeemed represented over 90% of the
pre-merger voting interest. As a result of the change in control, the assets and
liabilities of HLMI were fair valued using purchase accounting principles and
the excess of the fair value over the identified tangible net assets was
reflected as goodwill.

The management and service agreements are for 40 years. HLM Design is the
sole and exclusive manager and administrator of all of the Managed Firm's
day-to-day business functions including financial planning, facilities,
equipment and supplies, and management and administrative services (bookkeeping
and accounts, general administration services, contract negotiation and
administration for all non-architectural and non-engineering aspects of all
agreements (pertaining to the provision of architectural and engineering
services by Managed Firms to third parties), personnel, security and
maintenance, architectural and engineering recruiting and training, insurance,
issuance of debt and capital stock, billing and collections). For these
services, HLM Design receives all but 1% of the firm's positive cash flow (as
determined in accordance with generally accepted accounting principles applied
on a consistent basis) following the payment by the Managed Firm of all such
firm's expenses.

In addition, as a result of the consummation of the Management and Services
Agreements and the stockholders' agreements with the AEP's, the financial
statements of Design and the managed firm's are presented on a Combined basis
from May 31, 1997.

FINANCIAL STATEMENT PRESENTATION

The financial statements included herein reflect the following:

(Bullet) HLM Design, Inc. as of April 25, 1997, HLM Design, Inc. had no
operations or cash flows from March 6, 1997, date of inception, to
April 25, 1997

(Bullet) Hansen Lind Meyer Inc. (Predecessor Company) for the one month
ended May 30, 1997 (unaudited) and for the nine months ended
January 24, 1997 (unaudited)

(Bullet) HLM Design, Inc. combined with HLMI, HLMNC and HLMO, all from May
31, 1997 the effective date of the Management Services Agreements
a shareholders agreements, as of January 30, 1998 and for the nine
months then ended (unaudited). All significant balances and
transactions between HLM Design and HLMI, HLMNC and HLMO have been
eliminated in the combined financial statements.

HLMI provides architectural and engineering consulting and design services,
which constitutes one business segment nationally from offices in Iowa City,
Chicago, Denver, Orlando, Atlanta, Bethesda, Philadelphia, Portland and
Sacramento.

PROPOSED STOCK OFFERING -- HLM Design intends to undertake an initial
public offering of HLM Design's Common Stock (the "Offering"). In connection
with the anticipated Offering, HLM Design intends to issue shares of its common
stock.

F-7

<PAGE>
HLM DESIGN, INC. AND AFFILIATES

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
FISCAL YEAR-END POLICY -- The Company uses a 52-53 week fiscal year for
accounting purposes which defines the fiscal year-end date as the last Friday in
April. Thus, the current fiscal year-end is April 25, 1997.

OPERATING CYCLE -- Assets and liabilities related to long-term contracts
are included in current assets and current liabilities in the accompanying
balance sheets, as they will be liquidated in the normal course of contract
completion, although this may require more than one year.

REVENUE RECOGNITION -- Revenue is recognized, at estimated collectible
amounts, in the period the services are performed. More specifically, the
Company recognizes revenues either on the percentage-of-completion method
measured by the percentage of cost incurred to date to estimated total cost for
each contract, or based upon a fixed hourly rate. Consultant expenses, project
expenses, direct labor and indirect expenses are charged to expense as incurred.
Provisions for estimated losses on uncompleted projects are made in the period
in which such losses are first subject to reasonable estimation. Unanticipated
changes in project performance, project conditions and estimated profitability
may result in revisions to costs and income and are recognized in the period in
which the revisions are determined.

The asset "costs and estimated earnings in excess of billings on
uncompleted projects" represents revenues recognized in excess of amounts
billed. The liability "billings in excess of costs and estimated earnings on
uncompleted projects" represents billings in excess of revenues recognized.

USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The most significant estimate impacting the accompanying financial statements
relates to revenue recognition.

PROPERTY AND EQUIPMENT -- Leasehold improvements and equipment are stated
at cost. Depreciation is computed using the double-declining balance or
straight-line method over the estimated useful lives of the assets or the lease
term, including anticipated renewals. The estimated useful lives are as follows:

<TABLE>
<CAPTION>
PREDECESSOR COMBINED
----------------------------- -----------------------------
<S> <C> <C>
Computer equipment and
software..................... 5 years 5 years
Furniture...................... 7 years 5 years
Lease term, not to exceed Lease term, not to exceed
Leasehold improvements......... the useful life of the asset the useful life of the asset
</TABLE>

GOODWILL -- Goodwill represents the excess of purchase price over the
estimated fair value of the net assets acquired (HLMI) and is being amortized
over a fifteen-year period (Combined) and over a four year period for
predecessor acquisition of MPB Architects.

DEFERRED INCOME TAXES -- Deferred income tax assets and liabilities are
calculated based upon differences between the financial statement and tax basis
of assets and liabilities that will result in taxable or deductible amounts in
the future. Such deferred income tax asset or liability computations are based
on enacted tax laws and rates applicable to periods in which the differences are
expected to affect taxable income.

FINANCIAL INSTRUMENTS -- The carrying amount of cash, accounts receivable,
accounts payable and accrued liabilities approximates fair value because of the
short maturities of these instruments. The Company's bank borrowings approximate
fair value because their interest rates are based on variable reference rates.

PREFERRED STOCK -- HLM Design's Certificate of Incorporation authorizes the
Board of Directors of HLM Design to issue 1,000,000 shares of preferred stock
with such designations, rights and preferences as may be determined from time to
time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to issue preferred stock with dividend,
liquidation, conversion, voting or other rights that could adversely effect the
voting power or other rights of the holders of HLM Design's Common Stock. As of
January 30, 1998 there were no preferred shares outstanding.

F-8

<PAGE>
HLM DESIGN, INC. AND AFFILIATES

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
STOCK SUBSCRIPTIONS RECEIVABLE -- The amount due from shareholders for
outstanding Common Stock.

NEW ACCOUNTING STANDARD -- Effective April 27, 1996, HLMI adopted Statement
of Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
during the year. It requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Management has reviewed all long-lived assets and
intangible assets as of January 24, 1997 and January 30, 1998 and believes that
the carrying amounts reported in the balance sheet will be recovered over the
remaining useful lives of those assets.

In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Standards No. 128, "Earnings Per Share." This Statement specifies
the computation, presentation and disclosure requirements for earnings per
share. It will be effective for periods ending December 15, 1997. The Company
believes that the adoption of such statement would not result in earnings
materially different than pro forma earnings per share presented in accompanying
statements of income.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
Standard establishes standards of reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. This
Statement will be effective for the Company's fiscal year ending May 1, 1998,
and the Company does not intend to adopt this Statement prior to the effective
date.

On November 20, 1997, EITF 97-2, "Application of FASB Statement No. 94,
CONSOLIDATION OF ALL MAJORITY-OWNED SUBSIDIARIES, and APB Opinion No. 16,
BUSINESS COMBINATIONS, to Physician Practice Management Entities and Certain
Other Entities with Contractual Management Arrangements", was issued which
reached a consensus that arrangements similar to HLM Design and the Managed
Firms should be accounted for on a consolidated basis. The Company intends to
reflect this change prospectively in the fiscal year ended May 1, 1998 financial
statements. If the change had been effected for the nine months ended January
30, 1998, the effect would have been a reduction to Stockholder's Equity by
approximately $10,511, an increase in minority interest by approximately $10,511
and a decrease in Net Income of approximately $10,509.

INTERIM FINANCIAL INFORMATION -- The accompanying unaudited financial
information for the nine months ended January 24, 1997 (Predecessor) and January
30, 1998 (Combined) has been prepared on substantially the same basis as the
audited financial statements, and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
information set forth therein. The results for interim periods are not
necessarily indicative of the results to be expected for the entire fiscal year.

STOCK SPLIT AND PRO FORMA NET INCOME PER SHARE -- All share and per share
amounts included in the accompanying financial statements for all periods
presented have been adjusted to reflect an 11 for 1 stock split of the HLM
Design Common Stock effective as of January 30, 1998 and a 1.75 for 1 stock
split effective as of February 13, 1998, and a reverse stock split of .66 for 1
effective as of February 27, 1998 for an effective 12.75 for 1 stock split
("Stock Split"). In addition, there was a reduction in Common Stock par value to
$.001 effective as of February 13, 1998. Pro forma net income per share in the
accompanying financial statements has been prepared based upon the shares
outstanding without giving effect to the issuance of common stock related to the
offering.

F-9

<PAGE>
HLM DESIGN, INC. AND AFFILIATES

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

2. BUSINESS ACQUISITION

Effective May 23, 1997, HLMI sold 50,000 newly issued shares to BBH Corp.,
a Delaware corporation, for approximately $3.2 million. On May 23, 1997, BBH
Corp. merged into HLMI and each BBH Corp. share outstanding at the time of
merger was converted into one share of HLMI's stock. All HLMI shares held by BBH
Corp. were canceled and retired.

Effective as of May 31, 1997, HLMI repurchased all 46,858 shares from the
ESOP for $64 per share as part of a merger agreement with BBH Corp. As a result
of this transaction, the ESOP will effectively cease once the proceeds of the
sale have been distributed by the Trustee to the ESOP's participants following
IRS approval of the ESOP's termination.

The total purchase price as well as acquisition costs has been allocated to
the assets and liabilities acquired at their estimated fair market value at
acquisition date as follows:

<TABLE>
<S> <C>
Accounts receivable........................................................ $ 5,716,254
Property and equipment..................................................... 1,531,155
Other assets............................................................... 6,320,087
Liabilities assumed........................................................ (12,761,346)
Goodwill................................................................... 2,573,867
-----------
Total...................................................................... $ 3,380,017
-----------
-----------
</TABLE>

The following unaudited pro forma financial data is presented as if the
transaction had occured at the beginning of the respective nine month periods.

<TABLE>
<CAPTION>
9 MONTHS ENDED JANUARY 30,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Revenues................................................... $19,442,280 $23,776,453
----------- -----------
----------- -----------
Net Income (loss).......................................... $ (397,590) $ 617,655
----------- -----------
----------- -----------
</TABLE>

The pro forma information presented above is not necessarily indicative of
the operating results that would have occurred had the transaction occurred at
the beginning of the respective nine month periods. These results are also not
necessarily indicative of the results of future operations.

3. CONTRACTS IN PROGRESS

Information relative to contracts in progress at January 30, 1998 is as
follows:

<TABLE>
<CAPTION>
JANAURY 30,
1998
-----------
<S> <C>
Costs incurred on uncompleted projects (excluding overhead).................................................... $35,988,413
Estimated earnings thereon..................................................................................... 38,170,640
-----------
Total.......................................................................................................... 74,159,053
Less billings to date.......................................................................................... 71,876,045
-----------
Net underbillings.............................................................................................. $ 2,283,008
-----------
-----------
</TABLE>

Net underbillings are included in the accompanying balance sheet as
follows:

<TABLE>
<CAPTION>
JANUARY 30,
1998
-----------
<S> <C>
Costs and estimated earnings in excess of billings on
uncompleted projects......................................................................................... $ 5,471,799
Billings in excess of costs and estimated earnings on
uncompleted projects......................................................................................... (3,188,791)
-----------
Net underbillings.............................................................................................. $ 2,283,008
-----------
-----------
</TABLE>

F-10

<PAGE>
HLM DESIGN, INC. AND AFFILIATES

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

4. FINANCING ARRANGEMENTS

A summary of notes payable at January 30, 1998 is as follows:

In September 1996, the Company entered into a financing facility with First
Charter National Bank which provides a line of credit of up to $500,000.
Interest is charged at the bank's prime rate plus 1.5% and principal payments
are to be made at the Company's discretion. The loan has an annual maturity date
which is subject to review.

In May 1997, the Company entered into a financing facility with First
Charter National Bank which provides a line of credit of up to $1,000,000.
Interest is charged at the bank's prime rate plus 1.5% and principal payments
are to be made at the Company's discretion. The loan has maturity date of May
1998.

In September 1997, the Company entered into debt agreements with Berthel
Fisher, a planned Underwriter of the Offering, of $250,000 and $500,000.
Interest is charged at 12%, and monthly interest payments are due through May 1,
1998. The final payment for all accrued interest and principal is due on May 1,
1998.

A summary of long-term debt at January 30, 1998 is as follows:

<TABLE>
<CAPTION>
1/30/98
----------
<S> <C>
Notes payable to two key employees of the Company at 15%, with a final payment due December 31, 1997 in full.... $ 125,000
Notes payable to a former stockholder, due in annual payments of $49,522, plus interest at the prime interest
rate of Chase Manhattan Bank as of the date each installment is due (8.25% at April 25, 1997 and April 26,
1996); collateralized by 3,088 shares of the Company's unissued common stock, with a final payment due April
2000.......................................................................................................... 148,567
Notes payable to former stockholders, due in installments plus interest at prime plus 1% at various dates to
October 1999.................................................................................................. 13,594
Notes payable, MPB Architects, due in annual payments, including interest at a rate of 10.5%, with a final
payment due April 1, 1998..................................................................................... 114,850
Notes payable to Pacific Capital/Equitas, payable June 1, 2002 including interest of 13.5% due in monthly
payments...................................................................................................... 1,980,000
Notes payable to shareholders at 6% with final payment due at various dates to August 2002...................... 182,308
Lease financing with Berthel Fisher, due in monthly payments of $64,501, including interest at 14.07%, with
final lease and interest payments made on 4/30/2002........................................................... 2,536,049
----------
Total long-term debt............................................................................................ 5,100,368
----------
Less current maturities (based on refinanced terms)............................................................. 743,311
----------
Long-term portion............................................................................................... $4,357,057
----------
----------
</TABLE>

In May 1997 HLMI entered into a financing arrangement, in the form of a
capital lease agreement, with Berthel Fisher Leasing, a subsidiary of Berthel
Fisher, the proposed underwriter, for $2.8 million. The substance of such
agreement is a financing arrangement and has been presented as such in the
financial statements.

Substantially all assets are pledged under lending agreements.

Under certain of the lending arrangements the company is restricted from
paying cash dividends. Certain of the financing agreements contain debt service
coverage ratios. As of January 30, 1998 the Company was in compliance with such
covenants.

Repayment of the various financing agreements are as follows:

<TABLE>
<S> <C>
Three months ended May 1, 1998.................................. $ 401,675
Fiscal 1999..................................................... 517,255
Fiscal 2000..................................................... 579,679
Fiscal 2001..................................................... 976,438
Fiscal 2002..................................................... 2,463,660
Thereafter...................................................... 161,661
----------
Total......................................................... $5,100,368
----------
----------
</TABLE>

F-11

<PAGE>
HLM DESIGN, INC. AND AFFILIATES

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

4. FINANCING ARRANGEMENTS -- Continued
In May 1997, warrants to purchase 14,372 shares of common stock (183,244
shares after giving effect to the Stock Split) were attached to the notes issued
to Pacific Capital and Equitas. In addition, warrants to purchase 3,422 shares
of common stock (43,630 shares after giving effect to the Stock Split) were
attached to the notes issued to Berthel Fisher in September 1997 and in December
1997. Each warrant allows holders to purchase a share of stock for $.01 a share
for a five year period. At January 30, 1998, all of the warrants held by Berthel
Fisher were exercised. All other warrants issued with debt were outstanding at
January 30, 1998.

In the event that the indebtedness owed by HLM Design to the Holder
pursuant to that Note issued to Holder from HLM Design is not repaid in full on
or before the two year anniversary of the issuance then the number of shares of
HLM Design's Common Stock that may be purchased by the Holder of this Warrant
shall increase by a predetermined amount on each annual anniversary thereafter,
until the indebtedness is paid in full.

HLM Design issued to the Holders the right and option to sell to HLM Design
this warrant for a period of 30 days immediately prior to the expiration at a
purchase price equal to the fair market value of the shares of common stock
issuable to the Holder upon exercise of this warrant less the exercise price.

The Company obtained, as of May 1997, a valuation of the Company as a basis
for assigning value to the warrants. The portion of such determined value in
excess of the amounts paid for the warrants was $238,753 and has been reflected
as deferred financing fees and is being amortized over the respective loan terms
using an effective yield method.

See Note 9 for discussion of warrant activity subsequent to January 30,
1998.

5. LEASE COMMITMENTS

The total minimum rental commitment under non-cancellable operating leases
at January 30, 1998, which has been reduced by minimum rentals to be received
under subleases, are as follows:

<TABLE>
<S> <C>
3 months ended May 1, 1998............................................................. $ 531,441
Fiscal 1999............................................................................ 1,960,201
Fiscal 2000............................................................................ 1,939,163
Fiscal 2001............................................................................ 1,852,952
Fiscal 2002............................................................................ 1,714,856
Thereafter............................................................................. 6,539,818
-----------
Total $14,538,431
-----------
-----------
</TABLE>

6. CONTINGENCIES

The Company is involved in various disputes and legal actions related to
contract operations. In the opinion of Company management, the ultimate
resolution of these actions will not have a material effect on the Company's
financial position or future results of operations.

7. RELATED PARTY TRANSACTIONS

During the nine months ended January 30, 1998, the Company incurred $22,911
in financing advisory fees related to debt financings, for services provided by
a director. Such director resigned effective October 1997.

See Note 4 for related party transactions with respect to debt financing.

8. INCOME TAXES

The provision for income taxes is as follows:

F-12

<PAGE>
HLM DESIGN, INC. AND AFFILIATES

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

8. INCOME TAXES -- Continued

<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
JANUARY 24, JANUARY 30,
1997 1998
------------ -----------
<S> <C> <C>
Current:
Federal................................................................ $ (20,749) $ 50,750
State.................................................................. (2,964) 7,250
Deferred................................................................. (119,804) 456,063
------------ -----------
Provision for Income Taxes............................................... $ (143,517) $ 514,063
------------ -----------
------------ -----------
</TABLE>

The reconciliation of the statutory federal income tax rate with the
Company's federal and state overall effective income rate is as follows:

<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
JANUARY 24, JANUARY 30,
1997 1998
----------- -----------
<S> <C> <C>
Statutory federal rate...................................................... (35.0)% 35.0%
State Income Taxes, net of federal benefit.................................. (3.3) 3.3
Penalties................................................................... 9.8 2.7
Meals and Entertainment..................................................... 4.6 2.7
Other....................................................................... 0.1 4.3
----------- -----------
Effective Tax Rates....................................................... (23.8)% 48.0%
----------- -----------
----------- -----------
</TABLE>

The tax effect of temporary differences giving rise to deferred income tax
assets and liabilities as of January 30, 1998 is as follows:

<TABLE>
<CAPTION>
JANUARY 30,
1998
-----------
<S> <C>
Deferred income tax liabilities -- difference between the accrual basis and cash basis
of accounting related to certain assets and liabilities.............................. $(1,644,953)
-----------
Deferred income tax assets:
Contribution carryforwards........................................................... 46,410
Property and equipment............................................................... 257,598
Net operating loss carryforward...................................................... 258,812
-----------
Total deferred income tax assets....................................................... 562,820
-----------
Deferred income tax liabilities, net................................................... $(1,082,133)
-----------
-----------
</TABLE>

Management believes it is probable that the Company will realize the tax
benefits of these deductible differences that were available as of January 30,
1998.

At January 30, 1998, the Company has federal net operating loss
carryforwards of approximately $677,000 expiring in various amounts beginning in
2012; however, net operating loss carryforwards are subject to restriction under
Section 382 and the separate return limitation year rules of the Internal
Revenue Code due to the merger transaction.

HLM Design, Inc. and its Affiliates will file separate company federal and
state income tax returns.

9. SUBSEQUENT EVENTS (UNAUDITED)

In February 1998, 3,422 warrants were exercised resulting in the issuance
of 3,422 shares of common stock (43,630 shares after giving effect to the stock
split).

F-13

<PAGE>
HLM DESIGN, INC. AND AFFILIATES

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

10. HLM DESIGN FINANCIAL INFORMATION (UNAUDITED)

HLM Design's balance sheet and income statement for the nine months ended
January 30, 1998 are as follows:

<TABLE>
<S> <C>
BALANCE SHEET
Current assets........................................................................... 42,561
---------
Non-current assets....................................................................... 5,141,018
---------
Total assets............................................................................. 5,183,579
---------
---------
Current liabilities...................................................................... 2,182,886
---------
Non-current liabilities.................................................................. 2,162,307
---------
Total liabilities........................................................................ 4,345,193
---------
---------
Total stockholders equity................................................................ 838,386
---------
Total liabilities & S/E.................................................................. 5,183,579
---------
---------
INCOME STATEMENT
Revenues................................................................................. 1,034,008
Net interest, tax and other expense...................................................... 487,906
---------
Net income............................................................................... 546,102
---------
---------
</TABLE>

F-14

<PAGE>
INDEPENDENT AUDITORS' REPORT

BOARD OF DIRECTORS
HANSEN LIND MEYER INC.
Charlotte, North Carolina

We have audited the accompanying balance sheets of Hansen Lind Meyer Inc.
("HLMI") as of April 25, 1997 and April 26, 1996, and the related statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended April 25, 1997. These financial statements are the
responsibility of HLMI's management. Our responsibility is to express an opinion
on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HLMI as of April 25, 1997
and April 26, 1996, and the results of its operations and its cash flows for
each of the three years in the period ended April 25, 1997 in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP
October 31, 1997
Charlotte, North Carolina

F-15

<PAGE>
HLMI

BALANCE SHEETS

APRIL 26, 1996 AND APRIL 25, 1997

<TABLE>
<CAPTION>
APRIL 26, APRIL 25,
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash......................................................................................... $ 11,130 $ 2,321
Trade and other receivables, less allowance for doubtful accounts of $399,000 at April 26,
1996; $111,000 at April 25, 1997.......................................................... 5,559,290 4,215,782
Costs and estimated earnings in excess of billings on uncompleted projects (Note 3).......... 3,512,711 5,181,432
Refundable income taxes...................................................................... 141,521 59,891
Prepaid expenses............................................................................. 106,250 205,381
----------- -----------
Total current assets.................................................................... 9,330,902 9,664,807
----------- -----------
OTHER ASSETS:
Deferred income taxes (Note 8)............................................................... 492,505 464,694
Goodwill, less amortization of $93,193 at April 26, 1996; $196,646 at April 25, 1997......... 345,807 242,354
Other noncurrent assets...................................................................... 352,700 511,972
----------- -----------
Total other assets...................................................................... 1,191,012 1,219,020
----------- -----------
PROPERTY AND EQUIPMENT:
Leasehold improvements....................................................................... 2,153,312 2,307,040
Furniture and fixtures....................................................................... 6,953,360 7,365,909
Automobiles.................................................................................. 16,813 16,813
Construction in progress..................................................................... 28,309
----------- -----------
Total property and equipment............................................................ 9,151,794 9,689,762
----------- -----------
Less accumulated depreciation................................................................ (7,095,716) (7,699,086)
----------- -----------
Property and equipment, net............................................................. 2,056,078 1,990,676
----------- -----------
TOTAL ASSETS................................................................................... $12,577,992 $12,874,503
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 4)....................................................................... $ 2,450,000 $ 2,860,000
Current maturities of long-term debt (Note 4)................................................ 778,392 642,432
Accounts payable............................................................................. 4,579,651 4,227,034
Accrued expenses............................................................................. 1,139,812 920,853
Billings in excess of costs and estimated earnings on uncompleted projects (Note 3).......... 876,245 1,661,086
Deferred income taxes (Note 8)............................................................... 1,059,316 1,255,765
Deferred rent (Note 5)....................................................................... 67,974
----------- -----------
Total current liabilities............................................................... 10,951,390 11,567,170
----------- -----------
LONG-TERM DEBT (Note 4)........................................................................ 564,577 103,792
----------- -----------
DEFERRED RENT (Note 5)......................................................................... 288,829
----------- -----------
OTHER NONCURRENT LIABILITIES................................................................... 15,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 5, 7, 9 and 10)
STOCKHOLDERS' EQUITY:
Capital stock, common, $.01 par value (Note 6):
Class A, voting, authorized 2,000,000 shares; issued 55,998 and 54,700, respectively...... 560 547
Class B, nonvoting, authorized 1,000,000 shares; issued 740 and 1,111, respectively....... 7 11
Retained earnings......................................................................... 1,140,403 1,202,983
----------- -----------
1,140,970 1,203,541
Less ESOP debt guarantee (Notes 4 and 9)....................................................... (382,774)
----------- -----------
Total stockholders' equity.............................................................. 758,196 1,203,541
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................................... $12,577,992 $12,874,503
----------- -----------
----------- -----------
</TABLE>

See notes to financial statements.

F-16

<PAGE>
HLMI

STATEMENTS OF OPERATIONS

YEARS ENDED APRIL 30, 1995, APRIL 26, 1996 AND APRIL 25, 1997

<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
APRIL 30, APRIL 26, APRIL 25,
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Fee income.................................................................... $27,388,379 $27,206,637 $24,839,560
Reimbursable income........................................................... 1,734,178 1,347,787 1,915,150
----------- ----------- -----------
Total revenues........................................................... 29,122,557 28,554,424 26,754,710
----------- ----------- -----------
CONSULTANT EXPENSES............................................................. 5,351,073 4,782,482 4,857,891
----------- ----------- -----------
PROJECT EXPENSES:
Direct expenses............................................................... 854,540 936,962 716,449
Reimbursable expenses......................................................... 1,529,272 928,479 1,183,618
----------- ----------- -----------
Total project expenses................................................... 2,383,812 1,865,441 1,900,067
----------- ----------- -----------
NET PRODUCTION INCOME........................................................... 21,387,672 21,906,501 19,996,752
DIRECT LABOR.................................................................... 7,950,786 7,614,029 6,618,293
INDIRECT EXPENSES............................................................... 14,678,518 13,787,625 12,931,174
----------- ----------- -----------
OPERATING INCOME (LOSS)......................................................... (1,241,632) 504,847 447,285
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income............................................................... 13,936 10,516 6,502
Interest expense.............................................................. (156,680) (394,068) (402,509)
Gain on lease termination (Note 5)............................................ 841,809 344,059
Gain (loss) on sale of property............................................... 428,475 8,464 (58,424)
----------- ----------- -----------
Total other income (expense), net........................................ 285,731 466,721 (110,372)
----------- ----------- -----------
INCOME (LOSS) BEFORE TAXES...................................................... (955,901) 971,568 336,913
INCOME TAXES (Note 8):
Current tax benefit........................................................... (3,080) (114,560) (4,461)
Deferred tax expense (benefit)................................................ (357,000) 550,019 224,260
----------- ----------- -----------
Total income tax expense (benefit)....................................... (360,080) 435,459 219,799
----------- ----------- -----------
NET INCOME (LOSS)............................................................... $ (595,821) $ 536,109 $ 117,114
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

See notes to financial statements.

F-17

<PAGE>
HLMI

STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED APRIL 30, 1995, APRIL 26, 1996 AND APRIL 25, 1997
<TABLE>
<CAPTION>
COMMON STOCK ESOP DEBT
------------------ RETAINED GUARANTEE
CLASS A CLASS B EARNINGS (NOTES 4 AND 9)
------- ------- ---------- ---------------
<S> <C> <C> <C> <C>
BALANCE, APRIL 30, 1994....................................... $ 638 $ 3 $1,693,915 $(1,260,925)
Net Loss.................................................... (595,821)
Issuance of 2,119 shares of common stock.................... 21 135,616
Retirement of 7,782 shares of common stock.................. (75) (3) (528,185)
Class A common stock exchanged for Class B
common stock............................................. (11) 11
Proceeds on Employee Stock Ownership Plan debt.............. (106,000)
Payments on Employee Stock Ownership Plan debt.............. 490,603
------- ------- ---------- ---------------
BALANCE, APRIL 30, 1995....................................... 573 11 705,525 (876,322)
Net income.................................................. 536,109
Issuance of 44 shares of common stock....................... 2,489
Retirement of 1,743 shares of common stock.................. (10) (7) (103,720)
Payments on Employee Stock Ownership Plan debt.............. 493,548
Class A common stock exchanged for Class B
common stock............................................. (3) 3
------- ------- ---------- ---------------
BALANCE, APRIL 26, 1996....................................... 560 7 1,140,403 (382,774)
Net income.................................................. 117,114
Retirement of 927 shares of common stock.................... (9) (54,534)
Payments on Employee Stock Ownership Plan debt.............. 382,774
Class A common stock exchanged for Class B
common stock............................................. (13) 13
------- ------- ---------- ---------------
BALANCE, APRIL 25, 1997....................................... $ 547 $11 $1,202,983 $
------- ------- ---------- ---------------
------- ------- ---------- ---------------

<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE, APRIL 30, 1994....................................... $ 433,631
Net Loss.................................................... (595,821)
Issuance of 2,119 shares of common stock.................... 135,637
Retirement of 7,782 shares of common stock.................. (528,263)
Class A common stock exchanged for Class B
common stock.............................................
Proceeds on Employee Stock Ownership Plan debt.............. (106,000)
Payments on Employee Stock Ownership Plan debt.............. 490,603
-------------
BALANCE, APRIL 30, 1995....................................... (170,213)
Net income.................................................. 536,109
Issuance of 44 shares of common stock....................... 2,489
Retirement of 1,743 shares of common stock.................. (103,737)
Payments on Employee Stock Ownership Plan debt.............. 493,548
Class A common stock exchanged for Class B
common stock.............................................
-------------
BALANCE, APRIL 26, 1996....................................... 758,196
Net income.................................................. 117,114
Retirement of 927 shares of common stock.................... (54,543)
Payments on Employee Stock Ownership Plan debt.............. 382,774
Class A common stock exchanged for Class B
common stock.............................................
-------------
BALANCE, APRIL 25, 1997....................................... $ 1,203,541
-------------
-------------
</TABLE>

See notes to financial statements.

F-18

<PAGE>
HLMI

STATEMENTS OF CASH FLOWS

YEARS ENDED APRIL 30, 1995, APRIL 26, 1996 AND APRIL 25, 1997

<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
APRIL 30, APRIL 26, APRIL 25,
1995 1996 1997
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................................................... $ (595,821) $ 536,109 $ 117,114
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation................................................................. 515,636 680,779 671,877
Amortization................................................................. 5,952 99,145 107,670
Deferred rent................................................................ (384,644) (1,093,278) (356,803)
Loss (gain) on sale of property.............................................. (428,475) (8,464) 58,424
Deferred income taxes........................................................ (357,000) 550,019 224,260
Other, net................................................................... 3,229 (49,345) (15,000)
Changes in certain working capital items:
(Increase) decrease in trade and other receivables......................... 990,949 (1,181,640) 1,343,508
Increase in costs and estimated earnings compared to billings on
uncompleted contracts, net................................................ (1,540,637) (1,857,829) (883,880)
(Increase) decrease in refundable income taxes............................. 144,707 87,777 72,056
(Increase) decrease in prepaid expenses.................................... 160,417 (176,989) (99,131)
Increase in other assets................................................... (159,272)
Increase (decrease) in accounts payable.................................... 401,561 2,642,228 (352,617)
Increase (decrease) in accrued expenses.................................... 410,559 (455,379) (218,959)
----------- ----------- ----------
Net cash (used in) provided by operating activities..................... (673,567) (226,867) 509,247
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business............................................................ (206,500)
Proceeds from sale of equipment................................................. 600,000 12,084 2,635
Purchases of property and equipment............................................. (882,719) (708,479) (662,179)
Note receivable from officer.................................................... (30,000)
----------- ----------- ----------
Net cash used in investing activities................................... (489,219) (726,395) (659,544)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit................................................ 1,600,000 700,000 410,000
Proceeds from long-term borrowings.............................................. 500,000 145,000
Payments on long-term borrowings................................................ (90,189) (238,134) (410,952)
Proceeds from issuance of common stock.......................................... 135,616 2,489
Retirement of common stock...................................................... (528,185) (5,650) (2,560)
----------- ----------- ----------
Net cash provided by financing activities............................... 1,117,242 958,705 141,488
----------- ----------- ----------
(DECREASE) INCREASE IN CASH....................................................... (45,544) 5,443 (8,809)
CASH BALANCE:
Beginning of year............................................................... 51,231 5,687 11,130
----------- ----------- ----------
End of year..................................................................... $ 5,687 $ 11,130 $ 2,321
----------- ----------- ----------
----------- ----------- ----------
SUPPLEMENTAL DISCLOSURES:
Cash paid (received) during the year for:
Interest..................................................................... $ 138,783 $ 392,292 $ 370,167
Interest on Employee Stock Ownership Plan debt............................... $ 82,459 $ 55,199 $ 24,243
Income tax refunds........................................................... $ (150,867) $ (280,466) $ (86,091)
Noncash investing and financing transactions:
Retirement of common stock through issuance of note payable.................. $ $ 98,087 $ 51,983
Reduction of ESOP debt....................................................... $ 384,603 $ 493,548 $ 382,774
Purchase of business financed through issuance of note payable............... $ 311,500
</TABLE>

See notes to financial statements.

F-19

<PAGE>
HLMI

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED APRIL 25, 1997 AND APRIL 26, 1996

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS -- Hansen Lind Meyer Inc. ("HLMI") provides
architectural and engineering consulting and design services nationally from
offices in Iowa City, Chicago, Denver, Orlando, Philadelphia, Atlanta, Bethesda,
Sacramento and Portland. Approximately 75%, 70% and 73% of HLMI's 1997, 1996 and
1995 revenues, respectively, are related to health care projects and
approximately 25%, 30% and 27% are from criminal justice and other projects. The
Company operates in one business segment.

FISCAL YEAR-END POLICY -- HLMI uses a 52-53 week fiscal year for accounting
purposes which defines the fiscal year-end date as the last Friday in April.
Thus, the current fiscal year-end is April 25, 1997. There were 52 weeks in this
fiscal year.

REVENUE RECOGNITION -- Revenue is recognized, at estimated collectible
amounts, in the period the services are performed. More specifically, HLMI
recognizes revenues either on the percentage-of-completion method measured by
the percentage of cost incurred to date to estimated total cost for each
contract, or based upon a fixed hourly rate. Consultant expenses, project
expenses, direct labor and indirect expenses are charged to expense as incurred.
Provisions for estimated losses on uncompleted projects are made in the period
in which such losses are first subject to reasonable estimation. Unanticipated
changes in project performance, project conditions and estimated profitability
may result in revisions to costs and income and are recognized in the period in
which the revisions are determined.

<TABLE>
<S> <C>
Computer equipment and software......................... 5 years
Furniture............................................... 7 years
Leasehold improvements.................................. Lease term, not to exceed the useful life of the asset
</TABLE>

GOODWILL -- Goodwill represents the excess of purchase price over the
estimated fair value of the net assets acquired from MPB Architects and is being
amortized over a four-year period.

DEFERRED INCOME TAXES -- Deferred income tax assets and liabilities are
calculated based upon differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future. Such deferred income tax asset or liability computations are based
on enacted tax laws and rates applicable to periods in which the differences are
expected to affect taxable income.

FINANCIAL INSTRUMENTS -- The carrying amount of cash, accounts receivable,
accounts payable and accrued liabilities approximates fair value because of the
short maturities of these instruments. HLMI's bank borrowings approximate fair
value because their interest rates are based on variable reference rates.

F-20

<PAGE>
HLMI

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
RECLASSIFICATION -- Certain amounts in the 1996 financial statements have
been reclassified to conform with the 1997 financial statement presentation.

NEW ACCOUNTING STANDARD -- Effective April 27, 1996, HLMI adopted Statement
of Financial Accounting Standards ("SFAS") No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF,
during the year. It requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Management has reviewed all long-lived assets and
intangible assets as of April 25, 1997 and April 26, 1996 and believes that the
carrying amounts reported in the balance sheet will be recovered over the
remaining useful lives of those assets.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
Standard establishes standards of reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. This
Statement will be effective for HLMI's fiscal year ending April 24, 1998, and
HLMI does not intend to adopt this Statement prior to the effective date.

2. BUSINESS ACQUISITIONS

On April 1, 1995, HLMI acquired MPB Architects, Inc., an architectural firm
located in Philadelphia, Pennsylvania, for a total purchase price of $518,000.
The acquisition has been accounted for as a purchase and the results of
operations of MPB Architects, Inc., have been included in the accompanying
financial statements from the date of acquisition. The total purchase price has
been allocated to the assets acquired at their estimated fair market value at
acquisition date as follows:

<TABLE>
<S> <C>
Property and equipment........................................................ $ 79,000
Goodwill...................................................................... 439,000
--------
Total......................................................................... $518,000
--------
--------
</TABLE>

The following unaudited pro forma financial data is presented as if MPB
Architects, Inc. was acquired on May 1, 1994.

<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1995
-------------------------
<S> <C>
Revenues......................................................... $31,743,366
-------------------------
Net Loss......................................................... $ (782,024)
-------------------------
-------------------------
</TABLE>

The pro forma information presented above is not necessarily indicative of
the operating results that would have occurred had MPB Architects, Inc. been
acquired on May 1, 1994. These results are also not necessarily indicative of
the results of future operations.

3. CONTRACTS IN PROGRESS

Information relative to contracts in progress at April 30, 1995, April 26,
1996 and April 25, 1997 is as follows:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26, APRIL 25,
1995 1996 1997
------------ ------------ -----------
<S> <C> <C> <C>
Costs incurred on uncompleted projects....................................... $ 77,486,548 $ 67,612,169 $53,448,215
Estimated earnings thereon................................................... 46,358,806 42,252,119 33,500,189
------------ ------------ -----------
Total........................................................................ 123,845,354 109,864,288 86,948,404
Less billings to date........................................................ 123,066,717 107,227,822 83,428,058
------------ ------------ -----------
Net underbillings............................................................ $ 778,637 $ 2,636,466 $ 3,520,346
------------ ------------ -----------
------------ ------------ -----------
</TABLE>

F-21

<PAGE>
HLMI

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

3. CONTRACTS IN PROGRESS -- Continued
Net underbillings are included in the accompanying balance sheet as
follows:

<TABLE>
<CAPTION>
APRIL 30, APRIL 26, APRIL 25,
1995 1996 1997
----------- ---------- -----------
<S> <C> <C> <C>
Costs and estimated earnings in excess of billings on
uncompleted projects............................................................ $ 2,571,447 $3,512,711 $ 5,181,432
Billings in excess of costs and estimated earnings on
uncompleted projects............................................................ (1,792,810) (876,245) (1,661,086)
----------- ---------- -----------
Net underbillings................................................................. $ 778,637 $2,636,466 $ 3,520,346
----------- ---------- -----------
----------- ---------- -----------
</TABLE>

4. FINANCING ARRANGEMENTS

Effective October 14, 1996, HLMI entered into a new financing arrangement
with Firstar Bank Iowa, N.A. ("Firstar"). In connection with this new financing
arrangement, two previous lines of credit, with a combined balance outstanding
at April 26, 1996 of $2,450,000, were consolidated into one revolving line of
credit providing for availability up to the lesser of $2,450,000 or 80% of
eligible accounts receivable through March 1, 1997. The line of credit will be
payable in full on May 1, 1998. Interest is payable monthly at Firstar's prime
rate plus 3% (11.5% at April 25, 1997).

Three term loans payable to Firstar with a combined amount outstanding at
April 26, 1996 of $423,903 were consolidated into one new term loan. Interest is
charged at the bank's prime rate plus 2%, and monthly principal and interest
payments of $45,000 are payable through February 1, 1997. The original loans
were made to enable the Company's ESOP (see Note 8) to acquire common stock from
certain stockholders.

This financing facility is collateralized by substantially all of HLMI's
assets.

In September 1996, HLMI entered into a financing facility with First
Charter National Bank which provides a line of credit of up to $500,000.
Interest is charged at the bank's prime rate plus 1.5% and principal payments
are to be made at HLMI's discretion. The loan has an annual maturity date which
is subject to review.

See Note 12 for financing events occurring subsequent to April 25, 1997.

A summary of notes payable at April 26, 1996 and April 25, 1997 is as
follows:

<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Line of credit -- Firstar......................................................................... $$2,450,000 $2,360,000
Line of credit -- First Charter................................................................... 500,000
---------- ----------
Total............................................................................................. $2,450,000 $2,860,000
---------- ----------
---------- ----------
</TABLE>

F-22

<PAGE>
HLMI

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

4. FINANCING ARRANGEMENTS -- Continued
A summary of long-term debt at April 25, 1997 and April 26, 1996 is as
follows:

<TABLE>
<CAPTION>
1996 1997
---------- --------
<S> <C> <C>
Term loan payable to Firstar, due in monthly payments of $45,000, including interest at 2% over the
Bank's prime rate................................................................................. $ 423,903 $
Note payable to Firstar, due in monthly payments of $16,405, including interest at 2.5% over the
Bank's prime rate................................................................................. 428,399 271,134
Notes payable to two key employees of the Company at 15%, with a final payment due December 31, 1997
in full........................................................................................... 145,000
Notes payable to a former stockholder, due in annual payments of $49,522, plus interest at the prime
interest rate of Chase Manhattan Bank as of the date each installment is due (8.25% at April 25,
1997 and April 26, 1996); collateralized by 3,088 shares of the Company's unissued common stock,
with a final payment due April 2000............................................................... 198,090 148,567
Notes payable to former stockholders, due in installments plus interest at prime plus 1% at various
dates to October 1999............................................................................. 74,270 66,673
Notes payable, MPB Architects, due in annual payments of $127,500, including interest at a rate of
10.5%, with a final payment due April 1, 1998..................................................... 218,307 114,850
---------- --------
Total long-term debt................................................................................ 1,342,969 746,224
Less current maturities (based on refinanced terms)................................................. 778,392 642,432
---------- --------
Long-term portion................................................................................... $ 564,577 $103,792
---------- --------
---------- --------
</TABLE>

Scheduled maturities of long-term debt based on refinanced terms are as
follows:

<TABLE>
<S> <C>
Fiscal Year:
1999........................................................................... $642,432
2000........................................................................... 49,522
Thereafter..................................................................... 54,270
--------
Total............................................................................ $746,224
--------
--------
</TABLE>

Borrowings from Firstar are subject to certain restrictive covenants. At
April 25, 1997, HLMI was in violation of the negative working capital and the
current ratio requirements. As set forth in Note 12, all outstanding debt due to
Firstar has been repaid subsequent to April 25, 1997.

On May 30, 1997, HLMI entered into financing arrangement in the form of a
sale-leaseback agreement. Under this arrangement, HLMI sold all of its property,
excluding leasehold improvements, for $2.8 million. This property is being
leased back over 60 months. The proceeds of this transaction were used to repay
the line of credit and the note payable due to Firstar.

Under certain of the lending arrangements the Company is restricted from
paying cash dividends.

5. LEASE COMMITMENTS

At April 26, 1996, rent payments due under certain leases were less than
the amount of rent expense computed on a straight-line basis. The deferred rent
liability at April 26, 1996 was $356,803. There was no deferred rent liability
as of April 25, 1997.

In 1996, and 1997, HLMI terminated facility leases which were being
accounted for as operating leases, resulting in a gain of $841,809 and $344,059,
respectively. There were no facility lease terminations in 1995 which resulted
in a gain. The recorded gains represent the cumulative excess of lease expense
over the lease payments made as of the termination dates.

The Iowa City, Orlando, McLean and Charlotte facilities require the payment
of certain operating expenses in addition to the base rents.

F-23

<PAGE>
HLMI

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

5. LEASE COMMITMENTS -- Continued
Rent expense of $2,946,542 $1,112,562 and $1,606,678 as of April 30, 1995,
April 26, 1996 and April 25, 1997 is included in indirect expenses.

The total minimum rental commitment under non-cancellable operating leases,
at April 25, 1997, which has been reduced by minimum rentals to be received
under subleases, are as follows:

<TABLE>
<S> <C>
Fiscal Year:
1998..................................................................... $ 2,172,403
1999..................................................................... 1,899,397
2000..................................................................... 1,881,442
2001..................................................................... 1,798,392
2002..................................................................... 1,721,236
Thereafter............................................................... 6,664,881
-----------
Total...................................................................... $16,137,751
-----------
-----------
</TABLE>

6. CAPITAL STOCK

HLMI's authorized capital consists of 3,000,000 shares of $.01 par value
common stock, consisting of two classes, 2,000,000 shares of Class A voting and
1,000,000 shares of Class B nonvoting. Class A stock may only be owned by
employees of the Company. Class A stock will be immediately converted to Class B
stock following the termination of a shareholder's employment with the Company.
See Note 12 for subsequent events regarding HLMI's ESOP.

7. RESTRICTIONS OF TRANSFER OF COMMON STOCK

The bylaws of HLMI contain certain restrictions on transfer of common
stock. Upon the death, disability or retirement of a stockholder, HLMI is
obligated to purchase the common stock if the estate of the stockholder or the
stockholder offers to sell. The stockholder's estate or the stockholder has the
right to offer the shares to the Employee Stock Ownership Plan which has the
right of first refusal with regard to this stock. The sale price shall be based
upon the most recent appraised value of HLMI stock. If a stockholder voluntarily
terminates employment, the employee shall sell, and the ESOP may acquire the
shares, or HLMI shall purchase all of the stockholder's stock based on the most
recent appraisal. If a stockholder is involuntarily terminated, the stockholder
may offer his stock to the ESOP or HLMI, and the ESOP may, or HLMI shall
purchase all of the shares based on the most recent appraisal. A stockholder who
is terminated from employment for cause shall sell, and the ESOP may, or HLMI
shall purchase all of the stockholder's shares at a price equal to 80% of the
most recent appraisal. The purchase price of any purchase will be paid by first
applying life insurance proceeds, if any, with the balance being paid in a
single payment or installments depending upon the circumstances of the sale and
upon the amount of the purchase price. If the aggregate of principal payments
for the purchase of stock shall exceed $120,000 within any six-month period,
HLMI may adjust downward all current payments proportionately to limit the
payments to the $120,000 amount. Transfers of shares of HLMI's stock to or from
the Employee Stock Ownership Plan Trust are exempt from the provisions of the
bylaws on restrictions of transfer.

8. INCOME TAXES

The provision for income taxes is as follows:

<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- --------
<S> <C> <C> <C>
Current:
Federal............................................................................... $ (2,695) $(100,240) $ (3,903)
State................................................................................. (385) (14,320) (558)
Deferred................................................................................ (357,000) 550,019 224,260
--------- --------- --------
Provision for income taxes.............................................................. $(360,080) $ 435,459 $219,799
--------- --------- --------
--------- --------- --------
</TABLE>

F-24

<PAGE>
HLMI

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

8. INCOME TAXES -- Continued
The reconciliation of the statutory federal income tax rate with the
Company's federal and state overall effective income rate is as follows:

<TABLE>
<CAPTION>
1995 1996 1997
------ ----- -----
<S> <C> <C> <C>
Statutory federal rate.............................................................................. (35.0)% 35.0% 35.0%
State Income Taxes.................................................................................. (2.0) 3.3 3.3
Penalties........................................................................................... .2 .4 17.4
Meals and Entertainment............................................................................. 4.3 4.4 9.3
Other............................................................................................... (5.1) 1.8 .3
------ ----- -----
Effective Tax rates............................................................................... (37.6)% 44.9% 65.3%
------ ----- -----
------ ----- -----
</TABLE>

The tax effect of temporary differences giving rise to deferred income tax
assets and liabilities as of April 25, 1997 and April 26, 1996 is as follows:

<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Deferred income tax liabilities -- difference between the accrual basis and cash basis of
accounting related to certain assets and liabilities.......................................... $(1,059,316) $(1,255,765)
----------- -----------
Deferred income tax assets:
Contribution carryforwards.................................................................... 52,892 64,361
Property and equipment........................................................................ 63,368 96,177
Deferred rent liability....................................................................... 136,477 --
Net operating loss carryforward............................................................... 239,768 304,156
----------- -----------
Total deferred income tax assets................................................................ 492,505 464,694
----------- -----------
Deferred income tax liabilities, net............................................................ $ (566,811) $ (791,071)
----------- -----------
----------- -----------
</TABLE>

As of April 26, 1996 and April 25, 1997, HLMI had approximately $627,000
and $795,000 of net operating loss carryforwards, respectively, for federal tax
purposes and no loss carryforwards for financial reporting purposes. These tax
net operating losses will respectively expire in fiscal years 2012 and 2011.

9. EMPLOYEE STOCK OWNERSHIP PLAN

In September 1987, HLMI established an Employee Stock Ownership Plan to
provide retirement benefits to its employees. In October 1987, the Plan obtained
a $4,800,000 bank loan, the proceeds of which were used to purchase 32,000
shares of common stock from certain stockholders. During the year ended April
30, 1991, the Plan acquired 11,597 shares of common stock from a shareholder at
a cost of $1,054,389, a portion of which was financed by borrowings from a bank
in the amount of $687,389. During the year ended April 30, 1995, the Plan
acquired 2,000 shares of common stock from a shareholder at a cost of $106,000,
which was financed by borrowings from a bank. HLMI is committed to make cash
payments to the Plan in an amount sufficient for the Plan to meet the debt
service requirements of these three notes. Accordingly, the debt was recorded in
the accompanying financial statements with a corresponding deduction from
stockholders' equity. The debt and the deduction from stockholders' equity are
reduced as principal payments are made on the loans. The terms of the notes
payable are disclosed in Note 4. These notes were repaid in full during the year
ended April 25, 1997.

Subject to certain provisions of the Plan, in the event a terminated plan
participant desires to sell his or her shares of HLMI's stock, or for certain
employees who elect to diversify their account balances, HLMI may be required to
purchase the shares from the participant at their fair market value. During the
year ended April 26, 1996, HLMI had stock purchases of 557 shares from plan
participants. As of April 26, 1996, 43,343 shares were allocated to participant
accounts and the fair value per share was $56.50 based on an April 30, 1995
valuation.

During the year ended April 25, 1997, HLMI did not purchase any shares from
plan participants and as of April 25, 1997, 46,858 shares were allocated to
participant accounts.

F-25

<PAGE>
HLMI

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

10. CONTINGENCIES

HLMI is involved in various disputes and legal actions related to contract
operations. In the opinion of HLMI management, the ultimate resolution of these
actions will not have a material effect on HLMI's financial position or future
results of operations.

11. RELATED PARTY TRANSACTIONS

During the years ended April 26, 1996 and April 25, 1997, HLMI incurred
$254,137 and $257,017, respectively, in financing advisory fees related to debt
financings, for services provided by a director.

12. OTHER MATTERS

On May 29, 1997, HLMI executed a Management and Services Agreement with HLM
Design Inc ("HLM, Design"). The majority shareholders of Design are officers of
HLMI and own 100% of the common stock of HLMI. Under the Management and Services
Agreement, Design will manage all functions of HLMI except for architectural
services regulated by the various states in which HLMI operates. As compensation
for such management services, Design will be entitled to substantially all the
net cash flow generated by HLMI. In addition, HLM, Design and the shareholders
of HLMI have entered into agreements that provide HLM Design with the right of
first refusal, by selection of qualified individuals, for any purchase or sale
of shares of HLMI's stock.

Effective May 23, 1997, HLMI sold 50,000 newly issued shares to BBH Corp.,
a Delaware corporation, purchased 50,000 shares in HLMI for $3.2 million. On May
23, 1997, BBH Corp. merged into HLMI and each BBH Corp. share outstanding at the
time of merger was converted into one share of HLMI's stock. All of HLMI's
shares held by BBH Corp. were canceled and retired.

F-26

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

NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HLM DESIGN OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................................... 3
Risk Factors......................................... 7
Use of Proceeds...................................... 12
Dividend Policy...................................... 12
Capitalization....................................... 13
Dilution............................................. 14
Selected Financial Data.............................. 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 19
Business............................................. 24
Management........................................... 29
Certain Transactions................................. 35
Principal Stockholders............................... 35
Description of Capital Stock......................... 36
Shares Eligible for Future Sale...................... 39
Underwriting......................................... 40
Legal Matters........................................ 42
Experts.............................................. 42
Additional Information............................... 42
Index to Financial Statements........................ F-1
</TABLE>

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

UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

1,200,000 SHARES

[HLM LOGO APPEARS HERE]

COMMON STOCK
----------------
PROSPECTUS
----------------
BERTHEL FISHER & COMPANY
FINANCIAL SERVICES, INC.

WESTPORT RESOURCES
INVESTMENT SERVICES, INC.

MARION BASS
SECURITIES CORPORATION
, 1998
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------

<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses to be borne by the Registrant
in connection with the issuance and distribution of the securities being
registered hereby other than underwriting discounts and commissions. All the
amounts shown are estimates, except for the registration fee with the Securities
and Exchange Commission, the NASD filing fee and the Nasdaq fees.

<TABLE>
<S> <C>
SEC Registration fee................................................................... $ 2,121.22
NASD filing fee........................................................................ 1,200
Nasdaq fees............................................................................ 7,500
Transfer agent and registrar fees...................................................... 15,000
Accounting fees and expenses........................................................... 195,000
Legal fees and expenses................................................................ 120,000
"Blue Sky" fees and expenses (including legal fees).................................... 15,000
Costs of printing and engraving........................................................ 90,000
Reimbursable underwriters' expenses.................................................... 98,280
Miscellaneous.......................................................................... 14,178.78
-----------
Total............................................................................. $ 558,280
-----------
-----------
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Registrant's Bylaws effectively provide that the Registrant shall, to
the full extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as amended from time to time ("Section 145"), indemnify all
persons whom it may indemnify pursuant thereto. In addition, the Registrant's
Certificate of Incorporation eliminates personal liability of its directors to
the full extent permitted by Section 102(b)(7) of the General Corporation Law of
the State of Delaware, as amended from time to time ("Section 102(b)(7)").

Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by a third party if such directors or
officers acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit and only with respect to matters
as to which they shall have acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interest of the corporation, except
that no indemnification shall be made if such person shall have been adjudged
liable to the corporation, unless and only to the extent that the court in which
the action or suit was brought shall determine upon application that the
defendant officers or directors are reasonably entitled to indemnification for
such expenses despite such adjudication of liability.

Section 102(b)(7) provides that a corporation may eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for willful or negligent conduct
in paying dividends or repurchasing stock out of other than lawfully available
funds or (iv) for any transaction from which the director derived an improper
personal benefit. No such provisions shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date when such provision
becomes effective.

The Company intends to obtain, prior to the effective date of the
Registration Statement, insurance against liabilities under the Securities Act
of 1933 for the benefit of its officers and directors.

Section 6.01 of the Underwriting Agreement (filed as Exhibit 1.1 to this
Registration Statement) provides that the Underwriters severally and not jointly
will indemnify and hold harmless the Registrant and each director, officer or
controlling person of the Registrant from and against any liability caused by
any statement or omission in the Registration Statement or Prospectus based upon
information furnished to the Registrant by the Underwriters for use therein.

II-1

<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Except as hereinafter set forth, there have been no sales of unregistered
securities by the Registrant within the past three years.

As of March 20, 1997, as part of the original organization of HLM Design,
the Registrant issued 20,500 shares of Common Stock to Joseph Harris, 20,500
shares of Common Stock to Vernon Brannon and 7,500 shares of Common Stock to
William Blalock in exchange for $1,000 from each person.

On May 16, 1997, May 19, 1997, May 28, 1997, July 7, 1997, July 8, 1997,
July 14, 1997, August 22, 1997 and November 1, 1997 the Registrant issued an
aggregate of 2,340 shares of Common Stock to senior level employees of the
Company in exchange for $14.81 per share. As of May 30, 1997, September 10, 1997
and December 24, 1997, the Registrant issued warrants to purchase 17,794 shares
of Common Stock for an aggregate of $23,500 in connection with financing
arrangements. On November 10, 1997, Clay R. Caroland exercised his Warrant and
purchased 862 shares of Common Stock. On December 26, 1997 Berthel Leasing
exercised its Warrant and purchased 3,422 shares of Common Stock. On February
12, 1998 Equitas exercised its Warrant and purchased 5,749 shares of Common
Stock. In connection with each such exercise of Warrants, the Company received
consideration of $11.00, $43.64 and $110.67, respectively. In each of the
foregoing transactions, the securities were not registered under the Securities
Act, in reliance upon the exemption from registration provided by Section 4(2)
of said Act in view of the sophistication of the foregoing purchasers, their
access to material information, the disclosures actually made to them by the
Registrant and the absence of any general solicitation or advertising.

On or before the consummation of the Offering, the Registrant will issue to
Joseph Harris and Vernon Brannon, two of its officers and employees, pursuant to
the Registrant's Stock Option Plan, options to purchase 115,908 shares (taking
into account the Stock Split) of Common Stock in the aggregate. Such securities
will not be registered under the Securities Act because such grants will be
without consideration to the Registrant and, consequently, will not constitute
offers or sales within Section 5 of the Securities Act.

Pacific has undertaken that it will exercise Warrants to purchase 98,953
shares of Common Stock (taking into account the Stock Split) immediately prior
to the effective date of this Registration Statement. Such securities will not
be registered under the Securities Act, in reliance upon the exemption from
registration provided by Section 4(2) of said Act in view of the sophistication
of Pacific, its access to material information, the disclosures actually made to
it by the Registrant and the absence of any general solicitation or advertising.

For information concerning the Stock Split and the issuance of shares in
connection therewith, see the Prospectus which is included as part of this
Registration Statement.

ITEM 16. EXHIBITS.

II-2

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------------------------------
<C> <S>
10.7 Intentionally Left Blank.
10.8* Note Purchase Agreement dated as of May 30, 1997 by and among HLM Design, Inc., Hansen Lind Meyer Inc., BBH
Corp., Pacific Capital, L.P., and Equitas, L.P.
10.9* Promissory Note A-1 dated as of May 30, 1997 by HLM Design, Inc. in favor of Pacific Capital, L.P.
10.10* Promissory Note A-2 dated as of May 30, 1997 by HLM Design, Inc. in favor of Equitas, L.P.
10.11* Collateral Assignment of Contract Rights dated as of May 30, 1997 by and between HLM Design, Inc. and Pacific
Capital, L.P. and Equitas, L.P.
10.12* Security Agreement dated as of May 30, 1997 by and between HLM Design, Inc. and Pacific Capital, L.P. and
Equitas, L.P.
10.13* Affiliate Promissory Note dated May 30, 1997 by BBH Corp. in favor of HLM Design, Inc.
10.14* Collateral Assignment of Promissory Note dated as of May 30, 1997 by and between HLM Design, Inc. and Pacific
Capital, L.P. and Equitas, L.P.
10.15* Unconditional Guaranty dated as of May 30, 1997 by and between Hansen Lind Meyer Inc. and BBH Corp. in favor
of Pacific Capital, L.P. and Equitas, L.P.
10.16* Guaranty dated as of May 30, 1997 by Joe Harris in favor of Pacific Capital, L.P. and Equitas, L.P.
10.17* Guaranty dated as of May 30, 1997 by Vernon Brannon in favor of Pacific Capital, L.P. and Equitas, L.P.
10.18* Noncompetition Agreement dated as of May 30, 1997 by and between HLM Design, Inc., Hansen Lind Meyer Inc. and
Joseph M. Harris.
10.19* Noncompetition Agreement dated as of May 30, 1997 by and between HLM Design, Inc., Hansen Lind Meyer Inc. and
Vernon B. Brannon.
10.20* Lease Agreement dated as of May 30, 1997 by and between Berthel Fisher & Company Leasing, Inc. and Hansen
Lind Meyer Inc.
10.21* Security Agreement dated as of May 30, 1997 by and between Berthel Fisher & Company Leasing, Inc. and Hansen
Lind Meyer Inc.
10.22* Guaranty (Limited in Amount) dated as of May 30, 1997 by and among Vernon B. Brannon, Joseph M. Harris, and a
former director.
10.23 Form of HLM Design, Inc. Stock Option Plan.
10.24 Form of HLM Design, Inc. Employee Stock Purchase Plan.
10.25* Form of Employment Agreement between HLM Design, Inc. and Joseph M. Harris.
10.26* Form of Employment Agreement between HLM Design, Inc. and Vernon B. Brannon.
10.27* Promissory Note dated as of May 30, 1997 issued by HLM Design, Inc. in favor of First Charter National Bank.
10.28 First Amendment to Management and Services Agreement dated as of May 29, 1997 by and between HLM Design of
Northamerica, Inc. (formerly Hanson Lind Meyer Inc.) and HLM Design.
10.29 First Amendment to Management and Services Agreement dated as of May 29, 1997 by and between HLM Design of
North Carolina, P.C. and HLM Design.
10.30 First Amendment to Management and Services Agreement dated as of May 29, 1997 by and between HLM Design of
Oregon Architecture and Planning, P.C. and HLM Design.
21.1* Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2* Consent of Parker, Poe, Adams & Bernstein L.L.P. (included in Exhibit 5.1 to this Registration Statement)
24.1* Power of Attorney (contained on the signature page to the Registration Statement)
</TABLE>

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

* Filed previously

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing or closings specified in the Underwriting
Agreement, certificates in such denominations and registered in such names as
may be required by the Underwriters in order to permit prompt delivery to each
purchaser.

The undersigned Registrant hereby further undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed part of this Registration Statement as
of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-3

<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

II-4

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Charlotte, North
Carolina on April 28, 1998.

HLM DESIGN, INC.

By: /s/_______VERNON B. BRANNON________
VERNON B. BRANNON
SENIOR VICE PRESIDENT, TREASURER
AND CHIEF FINANCIAL OFFICER

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 Registration Statement has been signed by the following persons in the
capacities and on the date indicated:

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------------------- ------------------

<S> <C> <C>
/s/* President, Chief Executive Officer (principal April 28, 1998
JOSEPH M. HARRIS executive officer) and Chairman

/s/VERNON B. BRANNON Senior Vice President, Treasurer, Chief April 28, 1998
VERNON B. BRANNON Financial Officer (principal financial and
accounting officer) and Director

/s/* Director April 28, 1998
CLAY R. CAROLAND III

/s/* Director April 28, 1998
SHANNON LEROY
</TABLE>

*By: /s/_____VERNON B. BRANNON______
VERNON B. BRANNON
(ATTORNEY-IN-FACT FOR EACH
OF THE PERSONS INDICATED)

II-5

<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
1.2* Form of Agreement Among Underwriters
3.1 Certificate of Incorporation of the Registrant, as amended to date
3.2* Bylaws of the Registrant
4.1 Form of Common Stock Certificate
4.2* Form of Common Stock Purchase Warrant
4.3* Registration Rights Agreement dated as of May 30, 1997 by and among HLM Design, Inc., Pacific Capital, L.P.
and Equitas, L.P.
4.4* Registration Rights Agreement dated as of September 10, 1997 by and among HLM Design, Inc. and Berthel
Fisher & Company Leasing, Inc.
5.1* Form of opinion letter of Parker, Poe, Adams & Bernstein L.L.P. regarding the legality of the securities
registered.
10.1* Management and Services Agreement dated as of May 29, 1997 by and between Hansen Lind Meyer Inc. and HLM
Design.
10.2* Management and Services Agreement dated as of May 29, 1997 by and between HLM of North Carolina, P.C. and
HLM Design.
10.3* Management and Services Agreement dated as of May 29, 1997 by and between HLM of Oregon, Architecture and
Planning, P.C. and HLM Design.
10.4* Stockholders' Agreement dated as of May 29, 1997 by and among Joseph M. Harris, Vernon B. Brannon and
Hansen Lind Meyer Inc.
10.5* Stockholders' Agreement dated as of May 29, 1997, by and among Joseph M. Harris, Vernon B. Brannon, Phillip
J. Antis and HLM of North Carolina, P.C.
10.6* Stockholders' Agreememt dated as of May 29, 1997 by and among Joseph M. Harris, Vernon B. Brannon, Viktor
A. Lituczy and HLM of Oregon, Architecture and Planning, P.C.
10.7 Intentionally Left Blank.
10.8* Note Purchase Agreement dated as of May 30, 1997 by and among HLM Design, Inc., Hansen Lind Meyer Inc., BBH
Corp., Pacific Capital, L.P., and Equitas, L.P.
10.9* Promissory Note A-1 dated as of May 30, 1997 by HLM Design, Inc. in favor of Pacific Capital, L.P.
10.10* Promissory Note A-2 dated as of May 30, 1997 by HLM Design, Inc. in favor of Equitas, L.P.
10.11* Collateral Assignment of Contract Rights dated as of May 30, 1997 by and between HLM Design, Inc. and
Pacific Capital, L.P. and Equitas, L.P.
10.12* Security Agreement dated as of May 30, 1997 by and between HLM Design, Inc. and Pacific Capital, L.P. and
Equitas, L.P.
10.13* Affiliate Promissory Note dated May 30, 1997 by BBH Corp. in favor of HLM Design, Inc.
10.14* Collateral Assignment of Promissory Note dated as of May 30, 1997 by and between HLM Design, Inc. and
Pacific Capital, L.P. and Equitas, L.P.
10.15* Unconditional Guaranty dated as of May 30, 1997 by and between Hansen Lind Meyer Inc. and BBH Corp. in
favor of Pacific Capital, L.P. and Equitas, L.P.
10.16* Guaranty dated as of May 30, 1997 by Joe Harris in favor of Pacific Capital, L.P. and Equitas, L.P.
10.17* Guaranty dated as of May 30, 1997 by Vernon Brannon in favor of Pacific Capital, L.P. and Equitas, L.P.
10.18* Noncompetition Agreement dated as of May 30, 1997 by and between HLM Design, Inc., Hansen Lind Meyer Inc.
and Joseph M. Harris.
10.19* Noncompetition Agreement dated as of May 30, 1997 by and between HLM Design, Inc., Hansen Lind Meyer Inc.
and Vernon B. Brannon.
10.20* Lease Agreement dated as of May 30, 1997 by and between Berthel Fisher & Company Leasing, Inc. and Hansen
Lind Meyer Inc.
10.21* Security Agreement dated as of May 30, 1997 by and between Berthel Fisher & Company Leasing, Inc. and
Hansen Lind Meyer Inc.
10.22* Guaranty (Limited in Amount) dated as of May 30, 1997 by and among Vernon B. Brannon, Joseph M. Harris, and
a former director.
10.23 Form of HLM Design, Inc. Stock Option Plan.
10.24 Form of HLM Design, Inc. Employee Stock Purchase Plan.
10.25* Form of Employment Agreement between HLM Design, Inc. and Joseph M. Harris.
10.26* Form of Employment Agreement between HLM Design, Inc. and Vernon B. Brannon.
10.27* Promissory Note dated as of May 30, 1997 issued by HLM Design, Inc. in favor of First Charter National
Bank.
10.28 First Amendment to Management and Services Agreement dated as of May 29, 1997 by and between HLM Design of
Northamerica, Inc. (formerly Hanson Lind Meyer Inc.) and HLM Design.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------- -----------------------------------------------------------------------------------------------------------
10.29 First Amendment to Management and Services Agreement dated as of May 29, 1997 by and between HLM Design of
North Carolina, P.C. and HLM Design.
<C> <S>
10.30 First Amendment to Management and Services Agreement dated as of May 29, 1997 by and between HLM Design of
Oregon Architecture and Planning, P.C. and HLM Design.
21.1* Subsidiaries of the Registrant
23.1 Consent of Deloitte & Touche LLP
23.2* Consent of Parker, Poe, Adams & Bernstein L.L.P. (included in Exhibit 5.1 to this Registration Statement)
24.1* Power of Attorney (contained on the signature page to the Registration Statement)
</TABLE>

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

* Filed previously

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
HLM DESIGN, INC.

ARTICLE I

Name

The name of the corporation is HLM Design, Inc. (the "Corporation").

ARTICLE II

Registered Office and Agent

The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of the Corporation's registered agent at such address is The
Corporation Trust Company.

ARTICLE III

Purpose

The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.

ARTICLE IV

Capital Stock

Section 4.01. Authorized Capital Stock. The aggregate number of shares
of capital stock which the Corporation shall have authority to issue is Ten
Million (10,000,000) shares divided into the following classes:

(a) Nine Million (9,000,000) shares of Common Stock with a par
value of one cent ($0.01) per share (the "Common Stock"); and

(b) One Million (1,000,000) shares of Preferred Stock with a
par value of ten cents ($0.10) per share (the "Preferred Stock").

<PAGE>

Section 4.02. Voting. Except as may otherwise be required by law, this
Restated and Amended Certificate of Incorporation or, in the case of Preferred
Stock, the provision of such resolution as may be adopted by the Board of
Directors pursuant to Section 4.04 of this Article IV, each holder of Preferred
Stock and each holder of Common Stock shall have one (1) vote for each share of
Preferred Stock and each share of Common Stock standing in such holder's name on
the stock transfer records of the Corporation with respect to each matter
submitted to a vote of the stockholders.

Section 4.03. Dividends and Distributions on Common Stock.

(a) Subject to the preferential rights, if any, of the holders
of Preferred Stock, the holders of Common Stock shall be entitled to receive
such dividends, if any, as may be declared from time to time by the Board of
Directors from funds legally available therefor.

(b) After distribution in full of the preferential amount, if
any, to be distributed to the holders of Preferred Stock in the event of
voluntary or involuntary liquidation (either partially or completely),
distribution or sale of assets, dissolution or winding up of the Corporation,
the holders of the Common Stock shall be entitled to receive all the remaining
assets of the Corporation, tangible and intangible, of whatever kind available
for distributions to stockholders, ratably in proportion to the number of shares
of Common Stock held by each.

Section 4.04. Preferred Stock.

The Preferred Stock may be issued from time to time in one or
more series, each series to have distinctive designations. The powers,
preferences and rights of each such series of Preferred Stock and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series of Preferred Stock at any time outstanding.
The Board of Directors is hereby expressly granted the authority to cause the
Preferred Stock to be issued in one or more series and, with respect to each
such series, to fix by resolutions, the following characteristics prior to the
issuance thereof:

(a) The designation of the series, which may be by
distinguishing number, letter or title;

(b) The number of shares of the series, which number the Board
of Directors may (except as otherwise provided in the creation of the series)
increase or decrease (but not below the number of shares thereof then
outstanding);

(c) The voting rights of the shares of the series, which
rights may be full or limited, or which shares may be without voting power;

(d) The dividend rights of the shares of the series, if any,
including without limitation the dividend rates, the dividend payment dates,
whether dividends will be cumulative, any conditions for payment and any payment
preferences in relation to the dividends payable on any other class or classes
or series of stock of the Corporation;

<PAGE>

(e) The redemption rights, if any, and the price or prices for
the shares of the series;

(f) Sinking funds requirements, if any, for the purchase or
redemption of shares of the series;

(g) Rights upon liquidation, dissolution or winding up of the
Corporation or upon the distribution of the assets of the Corporation;

(h) Whether the shares of the series shall be convertible into
shares of any other class or classes or into shares of any other series of the
same or of any other class or classes of stock, and if so, the conversion price,
any adjustments thereof and all other terms and conditions upon which such
conversion may be made; and

(i) Such other powers, preferences, rights, qualifications,
limitations or restrictions as the Board of Directors shall determine;

all as shall be stated in the resolution or resolutions of the Board of
Directors providing for the issuance of such series of Preferred Stock.

The relative powers, preferences and rights of each series of
Preferred Stock in relation to the powers, preferences and rights of each other
series of Preferred Stock shall, in each case, be as fixed from time to time by
the Board of Directors in the resolution or resolutions adopted pursuant to the
authority granted in this Section 4.04, and the consent, by class or series vote
or otherwise, of the holders of Preferred Stock of such of the series of
Preferred Stock as are from time to time outstanding shall not be required for
the issuance by the Corporation, acting at the direction of the Board of
Directors, of any other series of Preferred Stock, regardless of whether the
powers, preferences and rights of such other series shall be fixed by the Board
of Directors as senior to, or on a parity with, the powers, preferences and
rights of such outstanding series, or any of them, unless and to the extent that
the Board of Directors may provide in such resolution or resolutions adopted
with respect to any series of Preferred Stock that the consent of the holders of
a majority (or such other proportions as shall be therein fixed) of the
outstanding shares of such series voting thereon shall be required for the
issuance of any or all other series of Preferred Stock.

The shares of any series of Preferred Stock that (i) have been
redeemed by the Corporation in accordance with the express terms thereof, (ii)
are purchased in satisfaction of any sinking fund requirements provided for
shares of such series, or (iii) are converted in accordance with the express
terms thereof, in each case shall be cancelled and not reissued. Any shares of
Preferred Stock otherwise acquired by the Corporation shall resume the status of
authorized and unissued shares of Preferred Stock without series designation.

Section 4.05. No Preemptive Rights. No holder of shares of any class of
stock of the Corporation shall, as such holder, have any preemptive right to
purchase shares of any class of stock of the Corporation or shares or other
securities convertible into or exchangeable for or carrying rights or options to
purchase shares of any class of stock of the Corporation, whether such class of
stock, shares or other securities are now or hereafter authorized, which at any
time may be proposed

<PAGE>

to be issued by the Corporation or subjected to rights or options to purchase
granted by the Corporation.

Section 4.06. Cumulative Voting. Cumulative voting of shares is
prohibited.

ARTICLE V

Amendment of Bylaws

In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the Bylaws of the Corporation by a majority vote at any regular or
special meeting of the Board of Directors or by written consent, subject to the
power of the stockholders of the Corporation to amend or repeal any Bylaw
whether adopted by the Board of Directors or the stockholders.

ARTICLE VI

Limitation of Liability

No director of the Corporation shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except that the foregoing provision shall not
eliminate or limit the liability of a director (i) for any breach of such
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which such director derived an
improper personal benefit. If the Delaware General Corporation Law hereafter is
amended to authorize the further elimination or limitation on personal liability
of directors, then the liability of a director of the Corporation, in addition
to the limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended Delaware General Corporation Law.

ARTICLE VII

Amendment of Certificate of Incorporation

Any of the provisions of this Amended and Restated Certificate of
Incorporation may, from time to time, be amended, altered or repealed, and other
provisions authorized by the laws of the State of Delaware at the time in force
may be added or inserted in the manner and at the time prescribed by said laws
and, subject to the provisions of Section 4.02 hereof, all rights at any time
conferred upon the stockholders of the Corporation by this Amended and Restated
Certificate of Incorporation are granted subject to the provisions of this
Article VII.

<PAGE>

ARTICLE VIII

Board of Directors

Section 8.01. Elections. Elections of directors need not be by written
ballot unless and except to the extent that the Bylaws of the Corporation shall
so require.

Section 8.02. Vacancies. Subject to any rights of the holders of
Preferred Stock, vacancies occurring in the Board of Directors, including any
vacancy resulting from any increase in the authorized number of directors,
removal, resignation or death, may only be filled by the affirmative vote of a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next election of the class for which such directors have been chosen, and until
their successors are duly elected and qualified, or until their successors are
duly elected and qualified, or until their earlier resignation or removal. In
the event of any increase or decrease in the number of directors, the additional
or eliminated directorships shall be classified or chosen so that all classes of
directors shall remain or become as nearly equal in number as possible.

<PAGE>

CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
HLM DESIGN, INC.

Pursuant to Sections 242 and 228 of the
General Corporation Law of the
State of Delaware

****************************
HLM DESIGN, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation") DOES HEREBY CERTIFY:

FIRST: That Section 4.01(a) of the Amended and Restated Certificate of
Incorporation of the Corporation is amended in its entirety to read as follows:

(a) Nine Million (9,000,000) shares of Common Stock with a par value of
one-tenth of one cent ($0.005) per share (the "Common Stock"); and

SECOND: That the foregoing amendment has been duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware and by the written consent of the majority of stockholders
of the Corporation in accordance with the provisions of Section 228 of the
General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, HLM Design, Inc. has caused its corporate seal to
be hereunto affixed and this amendment to its Amended and Restated Certificate
of Incorporation to be signed by Vernon B. Brannon, its Senior Vice President,
and attested by Jean Irwin, its Secretary, this 3rd day of February, 1998.

HLM DESIGN, INC.

By: /s/ Vernon B. Brannon
--------------------------
Vernon B. Brannon
Senior Vice President
[CORPORATE SEAL]

ATTEST:

By: /s/ Jean Irwin
--------------------------
Jean Irwin, Secretary

<PAGE>

CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
HLM DESIGN, INC.

Pursuant to Sections 242 and 228 of the
General Corporation Law of the
State of Delaware

****************************

HLM DESIGN, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation") DOES HEREBY CERTIFY:

FIRST: That Section 4.01(a) of the Amended and Restated Certificate of
Incorporation of the Corporation is amended in its entirety to read as follows:

(a) Nine Million (9,000,000) shares of Common Stock with a par value of
one-tenth of one cent ($0.001) per share (the "Common Stock"); and

HLM DESIGN, INC.

By: /s/ Vernon B. Brannon
--------------------------
Vernon B. Brannon
Senior Vice President
[CORPORATE SEAL]

ATTEST:

By: /s/ Jean Irwin
--------------------------
Jean Irwin, Secretary

<PAGE>

CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
HLM DESIGN, INC.

Pursuant to Section 242 and 228 of the
General Corporation Law of the
State of Delaware

**********************

HLM DESIGN, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation") DOES
HEREBY CERTIFY:

FIRST: That, in order to effect a .662337662 for 1 reverse stock split of
the Common Stock of the Corporation, Section 4.01(a) of the Amended and Restated
Certificate of Incorporation of the Corporation is amended in its entirety to
read as follows:

(a) Five Million Nine Hundred Sixty-One Thousand Thirty-Nine (5,961,039)
shares of Common Stock with a par value of .001509804 per share (the
"Common Stock"); and

SECOND: That the foregoing amendment has been duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware and by the written consent of the majority-in-interest of
stockholders of the Corporation, and with written notice of such action having
been given to the Corporation's other stockholders, in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.

IN WITNESS WHEREOF, HLM Design, Inc. has caused its corporate seal to be
hereunto affixed and this Certificate of Amendment of the Amended and Restated
Certificate of Incorporation to be signed by Vernon B. Brannon, its Senior Vice
President, and attested by Karen Kaplan, its Secretary, at 2:00 p.m., Eastern
Time, this 27th day of April, 1998.

HLM DESIGN, INC.

[CORPORATE SEAL] By: /s/ Vernon B. Brannon
--------------------------
Vernon B. Brannon
Senior Vice President

ATTEST

By: /s/ Karen Kaplan
-----------------------
Karen Kaplan, Secretary

<PAGE>

CERTIFICATE OF AMENDMENT
OF THE
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
HLM DESIGN, INC.

Pursuant to Section 242 and 228 of the
General Corporation Law of the
State of Delaware

**********************

HLM DESIGN, INC., a corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware (the "Corporation") DOES
HEREBY CERTIFY:

FIRST: That Section 4.01(a) of the Amended and Restated Certificate of
Incorporation of the Corporation is amended in its entirety to read as follows:

(a) Nine Million (9,000,000) shares of Common Stock with a par value of
one-tenth of one cent ($0.001) per share (the "Common Stock"); and

SECOND: That the foregoing amendment has been duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware and by the written consent of the majority-in-interest of
stockholders of the Corporation, and with written notice of such action having
been given to the Corporation's other stockholders, in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.

IN WITNESS WHEREOF, HLM Design, Inc. has caused its corporate seal to be
hereunto affixed and this Certificate of Amendment of the Amended and Restated
Certificate of Incorporation to be signed by Vernon B. Brannon, its Senior Vice
President, and attested by Karen Kaplan, its Secretary, at 4:00 p.m. Eastern
Time, this 27th day of April, 1998.

HLM DESIGN, INC.

[CORPORATE SEAL] By: /s/ Vernon B. Brannon
-------------------------
Vernon B. Brannon
Senior Vice President

ATTEST

By: /s/ Karen Kaplan
-----------------------
Karen Kaplan, Secretary

<PAGE>

- --------------- ----------------
Number Shares
- --------------- ----------------

COMMON STOCK (HLM LOGO) HLM
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

CUSIP 404217 10 1

SEE REVERSE FOR
CERTAIN DEFINITIONS

This certifies that

is the owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF $.001 PAR VALUE EACH OF
HLM DESIGN, INC.
transferable on the books of the Corporation in person or by attorney upon
surrender of this certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the State of Delaware,
and to the Certificate of Incorporation and Bylaws of the Corporation, as now or
hereafter amended. This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.

Dated:

COUNTERSIGNED AND REGISTERED:
FIRST UNION NATIONAL BANK
(Charlotte, North Carolina)
TRANSFER AGENT
AND REGISTRAR

AUTHORIZED SIGNATURE

/s/ Vernon B. Brannon (SEAL) /s/ Joseph M. Harris
SENIOR VICE PRESIDENT CHAIRMAN AND PRESIDENT

<PAGE>

HLM DESIGN, INC.

The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM UNIF GIFT MIN ACT--___________Custodian_________
TEN ENT (Cust) (Minor)
JT TEN--as tenants in common under Uniform Gifts to Minors
as tenants by the entireties Act _________________________
as joint tenants with right of (State)
survivorship and not as
tenants in common

Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------

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

- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

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

- ------------------------------------------------------------------------- Shares
of the stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint

- ----------------------------------------------------------------------- Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.

Dated ______________________

---------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.

SIGNATURE(S) GUARANTEED: _______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.

KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.

HLM DESIGN, INC.

1998 STOCK OPTION PLAN

1. PURPOSES OF PLAN. The purposes of the Plan, which shall be known as
the HLM Design, Inc. 1998 Stock Option Plan and is hereinafter referred to as
the "Plan", are (i) to provide incentives for key employees, directors,
consultants and other individuals providing services to HLM Design, Inc. (the
"Company") and its subsidiaries (within the meaning of Section 424(f) of the
Internal Revenue Code of 1986, as amended (the "Code"), each of which is
referred to herein as a "Subsidiary") by encouraging their ownership of the
Common Stock, $.001 par value, of the Company (the "Stock") and (ii) to aid the
Company in retaining such key employees, directors, consultants and other
individuals upon whose efforts the Company's success and future growth depends,
and attracting other such employees, directors, consultants and other
individuals.

2. ADMINISTRATION. The Plan shall be administered by a committee of the
Board of Directors of the Company (the "Committee"). The Committee shall be
appointed from time to time by the Board of Directors of the Company (the "Board
of Directors") and shall consist of not fewer than two of its members. Each
Committee member shall be a "non-employee director" within the meaning of Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the
"Act"). In the event that no such Committee exists or is appointed, the powers
to be exercised by the Committee hereunder shall be exercised by the Board of
Directors.

For purposes of administration, the Committee, subject to the terms of
the Plan, shall have plenary authority to establish such rules and procedures,
to make such determinations and interpretations, and to take such other
administrative actions, as it deems necessary or advisable. All determinations
and interpretations made by the Committee shall be final, conclusive and binding
on all persons, including those granted options hereunder ("Optionees") and
their legal representatives and beneficiaries.

Notwithstanding any other provisions of the Plan, the Committee may
impose such conditions on any options as may be required to satisfy the
requirements of Rule 16b-3 of the Act or Section 162(m) of the Code.

The Committee shall hold its meetings at such times and places as it
may determine. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members. Any
decision or determination reduced to writing and signed by all members shall be
as effective as if it had been made by a majority vote at a meeting duly called
and held. The Committee may appoint a secretary (who need not be a member of the
Committee). No member of the Committee shall be liable for any act or omission
with respect to such member's service on the Committee, if such member acts in
good faith and in a manner he or she reasonably believes to be in or not opposed
to the best interests of the Company.

3. STOCK AVAILABLE FOR OPTIONS. There shall be available for options
under the Plan a total of 159,955 shares of Stock, subject to any adjustments
which may be made pursuant to Section 5(f) hereof. Shares of Stock used for
purposes of the Plan may be either authorized and unissued shares, or previously
issued shares held in the treasury of the Company, or both. Shares of Stock
covered by options which have terminated or expired prior to exercise or which
have been tendered as payment upon exercise of other options pursuant to Section
5(c) shall be available for further option grants hereunder.

4. ELIGIBILITY. Options under the Plan may be granted to key employees
of the Company or any Subsidiary, including officers or directors of the Company
or any Subsidiary, and to directors, consultants and

<PAGE>

other individuals providing services to the Company or any Subsidiary. Options
may be granted to eligible employees whether or not they hold or have held
options previously granted under the Plan or otherwise granted or assumed by the
Company. In selecting employees for options, the Committee may take into
consideration any factors it may deem relevant, including its estimate of the
employee's present and potential contributions to the success of the Company and
its Subsidiaries. Service as a director, officer or consultant of or to the
Company or any Subsidiary shall be considered employment for purposes of the
Plan (and the period of such service shall be considered the period of
employment for purposes of Section 5(d) of the Plan); provided, however, that
incentive stock options may be granted under the Plan only to an individual who
is an "employee" (as such term is used in Section 422 of the Code) of the
Company or any Subsidiary.

5. TERMS AND CONDITIONS OF OPTIONS. The Committee shall, in its
discretion, prescribe the terms and conditions of the options to be granted
hereunder, which terms and conditions need not be the same in each case, subject
to the following:

(a) Option Price. The price at which each share of Stock
covered by an incentive stock option granted under the Plan may be
purchased shall not be less than the market value per share of Stock on
the date of grant of the option. In the case of any option intended to
be an incentive stock option granted to an individual owning (directly
or by attribution as provided in Section 424(d) of the Code), on the
date of grant, stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Subsidiary
(which individual shall hereinafter be referred to as a "10%
Stockholder"), the price at which each share of Stock covered by the
option may be purchased shall not be less than 110% of the market value
per share of Stock on the date of grant of the option. The date of the
grant of an option shall be the date specified by the Committee in its
grant of the option. The price at which each share of Stock covered by
an option granted under the Plan (but not as an incentive stock option)
may be purchased shall be the price determined by the Committee, in its
absolute discretion, to be suitable to attain the purposes of this
Plan. Notwithstanding the foregoing, the price at which each share of
Stock covered by an option that is not an incentive stock option shall
in no event be less than 85% of the market value of the Stock on the
date of grant of the option.

(b) Option Period. The period for exercise of an option shall
in no event be more than ten years from the date of grant, or in the
case of an option intended to be an incentive stock option granted to a
10% Stockholder, more than five years from the date of grant. Options
may, in the discretion of the Committee, be made exercisable in
installments during the option period. Any shares not purchased on any
applicable installment date may be purchased thereafter at any time
before the expiration of the option period.

(c) Exercise of Options. In order to exercise an option, the
Optionee shall deliver to the Company written notice specifying the
number of shares of Stock to be purchased, together with cash or a
certified or bank cashier's check payable to the order of the Company
in the full amount of the purchase price therefor; provided that, for
the purpose of assisting an Optionee to exercise an option, the Company
may make loans to the Optionee or guarantee loans made by third parties
to the Optionee, on such terms and conditions as the Board of Directors
may authorize; and provided further that such purchase price may be
paid in shares of Stock, or in nonstatutory options granted under the
Plan (provided, however, that the purchase price of Stock acquired
under an incentive stock option may not be paid in options), in either
case owned by the Optionee and having a market value on the date of
exercise not less than the aggregate purchase price, or in any
combination of cash, Stock and such options. For purposes of this
Section 5(c), the market value per share of Stock shall be the last
sale price regular way on the date of reference, or, in case no sales
take place on such date, the average of the

<PAGE>

closing high bid and low asked prices regular way, in either case on
the principal national securities exchange on which the Stock is listed
or admitted to trading, or if the Stock is not listed or admitted to
trading on any national securities exchange, the last sale price
reported on the National Market System of the National Association of
Securities Dealers Automated Quotation system ("NASDAQ") on such date,
or the average of the closing high bid and low asked prices of the
Stock in the over-the-counter market reported on NASDAQ on such date,
as furnished to the Committee by any New York Stock Exchange member
selected from time to time by the Committee for such purpose. If there
is no bid or asked price reported on any such date, the market value
shall be determined by the Committee in accordance with the regulations
promulgated under Section 2031 of the Code, or by any other appropriate
method selected by the Committee. For purposes of this Section 5(c),
the market value of an option granted under the Plan shall be the
market value of the underlying Stock, determined as aforesaid, less the
exercise price of the option. If the Optionee so requests, shares of
Stock purchased upon exercise of an option may be issued in the name of
the Optionee or another person. An Optionee shall have none of the
rights of a stockholder until the shares of Stock are issued to him.

(d) Effect of Termination of Employment.

(i) An option may not be exercised after the Optionee
has ceased to be in the employ of the Company or any
Subsidiary for any reason other than the Optionee's death,
Disability or Involuntary Termination Without Cause. Any
cessation of employment, for purposes of incentive stock
options only, shall include any leave of absence in excess of
90 days unless the Optionee's reemployment rights are
guaranteed by law or by contract. "Cause" shall mean any act,
action or series of acts or actions or any omission,
omissions, or series of omissions which result in, or which
have the effect of resulting in, (i) the commission of a crime
by the Optionee involving moral turpitude, which crime has a
material adverse impact on the Company or any Subsidiary, (ii)
gross negligence or willful misconduct which is continuous and
results in material damage to the Company or any Subsidiary,
or (iii) the continuous, willful failure of the person in
question to follow the reasonable directives of the Board of
Directors. "Disability" shall mean the inability or failure of
a person to perform those duties for the Company or any
Subsidiary traditionally assigned to and performed by such
person because of the person's then-existing physical or
mental condition, impairment or incapacity. The fact of
disability shall be determined by the Committee, which may
consider such evidence as it considers desirable under the
circumstances, the determination of which shall be final and
binding upon all parties. "Involuntary Termination Without
Cause" shall mean either (i) the dismissal of, or the request
for the resignation of, a person, by court order, order of any
court- appointed liquidator or trustee of the Company, or the
order or request of any creditors' committee of the Company
constituted under the federal bankruptcy laws, provided that
such order or request contains no specific reference to Cause;
or (ii) the dismissal of, or the request for the resignation
of, a person, by a duly constituted corporate officer of the
Company or any Subsidiary, or by the Board, for any reason
other than for Cause.

(ii) During the three months after the date of the
Optionee's Involuntary Termination Without Cause, the Optionee
shall have the right to exercise the options granted under the
Plan, but only to the extent the options were exercisable on
the date of the cessation of the Optionee's employment.

(iii) During the twelve months after termination of
the Optionee's employment with the Company or any Subsidiary
as a result of the Optionee's Disability, the Optionee shall
have

<PAGE>

the right to exercise the options granted under the Plan, but
only to the extent the options were exercisable on the date of
the cessation of the Optionee's employment.

(iv) In the event of the death of the Optionee while
employed or, in the event of the death of the Optionee after
cessation of employment described in subparagraph (ii) or
(iii) above, but within the three-month or twelve-month period
described in subparagraph (ii) or (iii) above, the option
shall thereupon become exercisable in full until the
expiration of twelve months following the Optionee's death.
During such extended period, the option may be exercised by
the person or persons to whom the deceased Optionee's rights
under the option agreement shall pass by will or by the laws
of descent and distribution, but only to the extent the option
was exercisable on the date of the cessation of the Optionee's
employment. The provisions of the foregoing sentence shall
apply to any outstanding options which are incentive stock
options to the extent permitted by Section 422(d) of the Code
and such outstanding options in excess thereof shall,
immediately upon the occurrence of the event described in the
preceding sentence, be treated for all purposes of the Plan as
nonstatutory stock options and shall be immediately
exercisable as such as provided in the foregoing sentence.

In no event shall any option be exercisable beyond the
applicable exercise period provided in Section 5(b) of the Plan.
Nothing in the Plan or in any option granted pursuant to the Plan (in
the absence of an express provision to the contrary) shall confer on
any individual any right to continue in the employ of the Company or
any Subsidiary or interfere in any way with the right of the Company or
Subsidiary to terminate the individual's employment at any time.

(e) Nontransferability of Options. Except as otherwise set
forth herein, during the lifetime of an Optionee, options held by the
Optionee shall be exercisable only by the Optionee, and no option shall
be transferable other than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, the Committee may, in its
absolute discretion, grant nonstatutory stock options that are
transferable, subject to applicable law and the terms and restrictions
imposed by the option agreement or otherwise by the Committee.

(f) Adjustments for Change in Stock Subject to Plan. In the
event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, rights offering
or any other change in the corporate structure or shares of the
Company, corresponding adjustments automatically shall be made to the
number and kind of shares available for issuance under this Plan and
the number and kind of shares and option price thereof covered by
outstanding options under this Plan.

(g) Acceleration of Exercisability of Options Upon Occurrence
of Certain Events. In connection with any merger or consolidation in
which the Company is not the surviving corporation and which results in
the holders of the outstanding voting securities of the Company
(determined immediately prior to such merger or consolidation) owning
less than a majority of the outstanding voting securities of the
surviving corporation (determined immediately following such merger or
consolidation), or any sale or transfer by the Company of all or
substantially all of its assets or any tender offer or exchange offer
for or the acquisition, directly or indirectly, by any person or group
of all or a majority of the then-outstanding voting securities of the
Company, all outstanding options under the Plan shall become
exercisable in full, notwithstanding any other provision of the Plan or
of any outstanding options granted thereunder, on and after (i) the
fifteenth day prior to the effective date of such merger,
consolidation, sale, transfer or acquisition or (ii) the date of
commencement of such tender offer or exchange offer, as the case may
be. The provisions of the foregoing sentence shall apply to any

<PAGE>

outstanding options which are incentive stock options to the extent
permitted by Section 422(d) of the Code and such outstanding options in
excess thereof shall, immediately upon the occurrence of the event
described in clause (i) or (ii) of the foregoing sentence, be treated
for all purposes of the Plan as nonstatutory stock options and shall be
immediately exercisable as such as provided in the foregoing sentence.
Notwithstanding the foregoing, in no event shall any option be
exercisable beyond the applicable period of such option specified in
Sections 5(b) and 5(d).

(h) Registration, Listing and Qualification of Shares of
Stock. Each option shall be subject to the requirement that if at any
time the Board of Directors shall determine that the registration,
listing or qualification of shares of Stock covered thereby upon any
securities exchange or under any federal or state law, or the consent
or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of
such option or the purchase of shares of Stock thereunder, no such
option may be exercised unless and until such registration, listing,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Board of Directors. The
Company may require that any person exercising an option shall make
such representations and agreements and furnish such information as it
deems appropriate to assure compliance with the foregoing or any other
applicable legal requirement.

(i) Other Terms and Conditions. The Committee may impose such
other terms and conditions, not inconsistent with the terms hereof, on
the grant or exercise of options, as it deems advisable.

(j) Reload Options. If upon the exercise of an option granted
under the Plan (the "Original Option") the Optionee pays the purchase
price for the Original Option pursuant to Section 5(c) in whole or in
part in shares of Stock owned by the Optionee for at least six months,
the Company shall grant to the Optionee on the date of such exercise an
additional option under the Plan (the "Reload Option") to purchase that
number of shares of Stock equal to the number of shares of Stock so
held for at least six months transferred to the Company in payment of
the purchase price in the exercise of the Original Option. The price at
which each share of Stock covered by the Reload Option may be purchased
shall be the market value per share of Stock (as specified in Section
5(c)) on the date of exercise of the Original Option. The Reload Option
shall not be exercisable until one year after the date the Reload
Option is granted or after the expiration date of the Original Option.
Upon the payment of the purchase price for a Reload Option granted
hereunder in whole or in part in shares of Stock held for more than six
months pursuant to Section 5(c), the Optionee is entitled to receive a
further Reload Option in accordance with this Section 5(j). Shares of
Stock covered by a Reload Option shall not reduce the number of shares
of Stock available under the Plan pursuant to Section 3.

6. ADDITIONAL PROVISIONS APPLICABLE TO INCENTIVE STOCK OPTIONS. The
Committee may, in its discretion, grant options under the Plan to eligible
employees which constitute "incentive stock options" within the meaning of
Section 422 of the Code, provided, however, that (a) the aggregate market value
of the Stock with respect to which incentive stock options are exercisable for
the first time by the Optionee during any calendar year shall not exceed the
limitation set forth in Section 422(d) of the Code and (b) Section 5(d)(ii)
hereof shall not apply to any incentive stock option.

7. EFFECTIVENESS OF PLAN. The Plan shall be effective when it is
adopted and approved by the Board of Directors, provided that the Plan is
approved within twelve months before or after such adoption by a majority of the
votes cast thereon by the stockholders of the Company at a meeting of
stockholders duly called and held for such purpose or by unanimous written
consent of such stockholders, and no option granted hereunder shall be
exercisable prior to such approval.

<PAGE>

8. AMENDMENT AND TERMINATION. The Board of Directors may at any time
amend the Plan or the term of any option outstanding under the Plan; provided,
however, that, except as contemplated in Section 5(f), the Board of Directors
shall not, without approval by a majority of the votes cast by the stockholders
of the Company at a meeting of stockholders at which a proposal to amend the
Plan is voted upon, (i) increase the maximum number of shares of Stock for which
options may be granted under the Plan, or (ii) except as otherwise provided in
the Plan, amend the requirements as to the class of employees eligible to
receive options. Unless the Plan shall theretofore have been terminated as
hereinafter provided, the Plan shall terminate, and no option shall be granted
hereunder, after ten years from the date the Plan is adopted by the Board of
Directors or approved by the stockholders as described in Section 7, whichever
first occurs; provided, however, that the Board of Directors may at any time
prior to that date terminate the Plan. No amendment or termination of the Plan
or any option outstanding under the Plan may, without the consent of an
Optionee, adversely affect the rights of such Optionee under any option held by
such Optionee.

9. WITHHOLDING. It shall be a condition to the obligation of the
Company to issue shares of Stock upon exercise of an option that the Optionee
(or any beneficiary or person entitled to act under Section 5(d) hereof) pay to
the Company, upon its demand, such amount as may be requested by the Company for
the purpose of satisfying any taxes. If the amount requested is not paid, the
Company may refuse to issue such shares of Stock.

10. OTHER ACTIONS. Nothing contained in the Plan shall be construed to
limit the authority of the Company to exercise its corporate rights and powers,
including, but not by way of limitation, the right of the Company to grant or
assume options for proper corporate purposes other than under the Plan with
respect to any employee or other person, firm, corporation or association.

HLM DESIGN, INC.

EMPLOYEE STOCK PURCHASE PLAN

<PAGE>

HLM DESIGN, INC.

EMPLOYEE STOCK PURCHASE PLAN

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S><C>
ARTICLE I PURPOSE; DEFINITIONS; CONSTRUCTION.....................................................................1
1.1 Purpose of Plan.................................................................................1
1.2 Definitions.....................................................................................1

(a) "Account"..............................................................................1
(b) "Base Pay".............................................................................1
(c) "Board of Directors"...................................................................1
(d) "Business Day".........................................................................1
(e) "Cause"................................................................................1
(f) "Code".................................................................................1
(g) "Committee"............................................................................1
(h) "Company"..............................................................................2
(i) "Company Stock"........................................................................2
(j) "Contributions"........................................................................2
(k) "Employee".............................................................................2
(l) "Employer".............................................................................2
(m) "Exercise Date"........................................................................2
(n) "Grant Date"...........................................................................2
(o) "Option"...............................................................................2
(p) "Participant"..........................................................................2
(q) "Plan".................................................................................2
1.3 Construction....................................................................................2

ARTICLE II ADMINISTRATION.........................................................................................3
2.1 Appointment and Procedures of Committee.........................................................3
2.2 Authority of Committee..........................................................................3

ARTICLE III PARTICIPATION........................................................................................3
3.1 Eligibility to Participate......................................................................3
3.2 Restrictions on Participation...................................................................3
3.3 Leave of Absence................................................................................4

ARTICLE IV CONTRIBUTIONS.........................................................................................4
4.1 Payroll Deductions..............................................................................4
4.2 Contributions to Accounts.......................................................................4
4.3 Leave of Absence................................................................................4
4.4 Withdrawal of Contributions from Plan...........................................................5
4.5 Termination of Employment.......................................................................5
</TABLE>

<PAGE>

<TABLE>
<S> <C>
ARTICLE V OPTIONS................................................................................................5
5.1 Company Stock Available for Options.............................................................5
5.2 Granting of Options.............................................................................5
5.3 Option Price....................................................................................5
5.4 Option Period...................................................................................6
5.5 Exercise of Options.............................................................................6

(a) Automatic Exercise.....................................................................6
(b) Nontransferability of Options..........................................................6
(c) Effect of Termination of Employment....................................................6

(i) Termination of Employment Related to Cause....................................6
(ii) Termination of Employment Due to Death........................................6
(iii) Other Termination of Employment...............................................7

(d) Leave of Absence.......................................................................7
(e) Delivery of Stock......................................................................8
(f) Acceleration of Exercisability of Options Upon Occurrence

of Certain Events......................................................................8
(g) Registration, Listing and Qualification of Shares of Stock.............................8

ARTICLE VI MISCELLANEOUS.........................................................................................8
6.1 Adjustments Upon Changes in Capitalization......................................................8
6.2 Approval of Shareholders........................................................................8
6.3 Amendment, Suspension and Termination...........................................................9
6.4 Intent to Comply With Code Section 423..........................................................9
6.5 Equal Rights and Privileges.....................................................................9
6.6 Use of Funds....................................................................................9
6.7 Withholding.....................................................................................9
6.8 Effect of Plan..................................................................................9
6.9 No Employment Rights............................................................................9
6.10 Governing Law..................................................................................10
6.11 Other Actions..................................................................................10
</TABLE>

<PAGE>

HLM DESIGN, INC.

EMPLOYEE STOCK PURCHASE PLAN

ARTICLE I

PURPOSE; DEFINITIONS; CONSTRUCTION

1.1 Purpose of Plan. The purpose of the Plan, which shall be known as
the HLM Design, Inc. Employee Stock Purchase Plan (the "Plan"), is to provide
employees of HLM Design, Inc. (the "Company") and its participating subsidiaries
(which hereinafter shall be referred to collectively with the Company as the
"Employer") an opportunity to acquire a proprietary interest in the Company
through the purchase of the Common Stock, $.001 par value, of the Company. This
Plan is intended to qualify as an "employee stock purchase plan" within the
meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the
"Code").

1.2 Definitions. Throughout this Plan, the following terms shall have
the meanings indicated:

(a) "Account" shall mean a memorandum account maintained to
record each Participant's Contributions pending purchase of Company Stock.

(b) "Base Pay" shall mean the Participant's regular base
salary (excluding overtime pay, bonuses, shift premiums, commissions, fringe
benefits, other special payments and imputed income) determined without
reduction for Contributions made under this Plan or contributions to any Code
Section 401(k) or Section 125 Plan. The Committee may establish additional rules
for determining a Participant's Base Pay for purposes of this Plan.

(d) "Business Day" shall mean any day other than a Saturday,
Sunday or holiday.

(e) "Cause" shall mean any act, action or series of acts or
actions or any omission, omissions or series of omissions which, in the opinion
of the Committee, result in, or which have the effect of resulting in, (i) the
commission of a crime by the Participant involving moral turpitude, which crime
has a material adverse impact on the Employer, (ii) gross negligence or willful
misconduct which is continuous and results in material damage to the Employer,
or (iii) the continuous, willful failure of the person in question to follow the
reasonable directives of the Employer.

(f) "Code" shall mean the Internal Revenue Code of 1986, as
amended, any successor revenue laws of the United States, and the rules and
regulations promulgated thereunder.

(g) "Committee" shall mean the committee of directors of the
Company appointed by the Board of Directors in accordance with Section 2.1 to
administer this Plan, or in the event that no such committee exists or is
appointed, "Committee" shall mean the Board of Directors.

<PAGE>

(h) "Company" shall mean HLM Design, Inc., a company organized
and existing under the laws of the State of Delaware.

(i) "Company Stock" shall mean the Common Stock, $.001
par value, of the Company.

(j) "Contributions" shall mean the after-tax payroll
deductions contributed to the Plan by Participants pursuant to Article IV.

(k) "Effective Date" shall mean the date of the closing of the
Company's initial public offering.

(l) "Employee" shall mean any person who (i) is employed on a
full-time or part-time basis by a participating Employer, (ii) is regularly
scheduled to work more than twenty hours per week, and (iii) is customarily
employed more than five months in any calendar year. Independent contractors and
outside directors shall not be included in the definition of Employee for
purposes of this Plan.

(m) "Employer" shall mean the Company and any of its present
or future subsidiaries (within the meaning of Section 424(f) of the Code) which
the Committee may designate from time to time as participating Employers under
this Plan.

(n) "Exercise Date" shall mean the last Business Day of March,
June, September and December on which the principal trading market for Company
Stock is open for trading, plus any other interim dates during the year which
the Committee designates as Exercise Dates.

(o) "Grant Date" shall mean (i) the date initial grants are
made pursuant to this Plan, which date shall be as soon as administratively
practicable following the Effective Date; and (ii) on or about each January 1
thereafter.

(p) "Option" shall mean an option to purchase shares of
Company Stock granted by the Committee to a Participant pursuant to this Plan.

(q) "Participant" shall mean an Employee participating in this
Plan in accordance with Article III.

(r) "Plan" shall mean this HLM Design, Inc. Employee Stock
Purchase Plan, as amended from time to time.

1.3 Construction. The masculine gender, where appearing in the Plan,
shall be deemed to include the feminine gender, unless the context clearly
indicates to the contrary. The words "hereof," "herein," "hereunder" and other
similar compounds of the word "here" shall mean and refer to the entire Plan and
not to any particular provision or Section.

<PAGE>

ARTICLE II

ADMINISTRATION

2.1 Appointment and Procedures of Committee. The Plan shall be
administered by the Committee as appointed from time to time by the Board of
Directors. The Committee shall consist of not fewer than two members of the
Board of Directors. Each Committee member shall be a "non-employee director"
within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act
of 1934, as amended. No member of the Board of Directors who serves on the
Committee shall be eligible to participate in the Plan. The Committee shall hold
its meetings at such times and places as it may determine. A majority of its
members shall constitute a quorum. All determinations of the Committee shall be
made by a majority of its members. Any decision or determination reduced to
writing and signed by all members shall be as effective as if it had been made
by a majority vote at a meeting duly called and held. The Committee may appoint
a secretary (who need not be a member of the Committee).

2.2 Authority of Committee. The Committee, subject to the terms of the
Plan, shall have plenary authority in its discretion to interpret and construe
the Plan (including, without limitation, any of its terms which are uncertain,
doubtful or disputed); to decide all questions of Employee eligibility
hereunder; to determine the amount, manner and timing of all Options and
purchases of Company Stock hereunder; to establish, amend and rescind rules and
regulations pertaining to the administration of the Plan; and to make
determinations and interpretations and take such other administrative actions as
it deems necessary or advisable for the administration of this Plan. The express
grant in the Plan of any specific power to the Committee shall not be construed
as limiting any power or authority of the Committee. No member of the Committee
shall be liable for any act, determination or omission with respect to his
service on the Committee, if he acts in good faith and in a manner he reasonably
believes to be in or not opposed to the best interest of the Employer. All
expenses of administering this Plan shall be borne by the Employer.

ARTICLE III

PARTICIPATION

3.1 Eligibility to Participate. Subject to the restrictions of Section
3.2 below, any Employee employed on the Effective Date shall be eligible to
participate in this Plan as of the initial Grant Date under the Plan (provided
that the Employee is still employed on such Grant Date). Each other Employee
shall be eligible to participate in the Plan as of the Grant Date coincident
with or next following his date of employment with the Employer (provided that
the Employee is still employed on such Grant Date).

3.2 Restrictions on Participation. Notwithstanding the foregoing
Section 3.1, no Employee shall be eligible to participate in the Plan if such
Employee owns or holds options to purchase (or upon participation in this Plan
would own or hold options to purchase) stock possessing an aggregate of 5% or
more of the total combined voting power or value of all classes of stock of the
Company or any Subsidiary (as determined in accordance with the rules of Section
424(d) of the Code relating to attribution of stock ownership).

<PAGE>

3.3 Leave of Absence. For purposes of becoming a participant in the
Plan, a person on a leave of absence shall be deemed to be an Employee for the
first ninety days of such leave of absence and such Employee's employment shall
be deemed to have terminated at the close of business on the ninetieth day of
such leave of absence unless such Employee shall have returned to regular
full-time or part-time employment prior to the close of business on such
ninetieth day. Termination by the Company of any Employee's leave of absence,
other than termination of such leave of absence on return to regular full-time
or part-time employment, shall terminate an Employee's employment for all
purposes of the Plan.

ARTICLE IV

CONTRIBUTIONS

4.1 Payroll Deductions. By written election, made and filed with the
Committee pursuant to the Committee's rules and procedures, a Participant may
elect to designate a whole percentage between one percent and ten percent (or
such higher or lower percentage as may be allowed by the Committee's rules and
procedures) of his Base Pay to be deferred by payroll deduction as a
Contribution to the Plan. Payroll deductions shall commence as soon as
administratively practicable following the filing of such written election with
the Committee. The Committee in its discretion may develop additional rules and
procedures regarding payroll deduction elections.

A Participant may change or revoke his payroll deduction amount by
filing, on such forms and in accordance with such rules and procedures as the
Committee in its discretion may prescribe, a revised written election with the
Committee. Such modification or revocation shall take effect as soon as
administratively practicable after the Committee's receipt of such revised
election. Notwithstanding the foregoing, a Participant may change his payroll
deduction election only once each calendar quarter, or as otherwise specifically
allowed by the Committee's rules and procedures. If payroll deductions are
discontinued, payroll deductions may not be resumed by the Participant until the
payroll period which begins on or after the next Exercise Date, or as otherwise
specifically allowed by the Committee's rules and procedures. Under no
circumstances may a Participant's payroll deduction election be made, modified
or revoked retroactively.

4.2 Contributions to Accounts. A memorandum Account shall be
established by the Committee for each Participant for the purpose of accounting
for Contributions. Contributions shall be credited to Accounts as soon as
administratively practicable following payroll withholding.

Amounts credited to Accounts will not accrue interest.

4.3 Leave of Absence. If a Participant is on a leave of absence, such
Participant shall have the right to elect to (a) withdraw from the Plan and
receive a distribution of the balance in his Account pursuant to Section 4.4,
(b) discontinue Contributions to the Plan but remain a Participant in the Plan,
or (c) remain a Participant in the Plan during such leave of absence,
authorizing deductions to be made from payments by the Company to the
Participant during such leave of absence.

<PAGE>

4.4 Withdrawal of Contributions from Plan. Prior to an Exercise Date, a
Participant may elect to withdraw the Contributions then credited to his Account
by filing written notice thereof with the Committee on such forms and in
accordance with such procedures as the Committee may prescribe. The
Participant's Contributions shall be distributed to him as soon as
administratively practicable after the Committee's receipt of his notice of
withdrawal and no further payroll deductions shall be made from his Base Pay.

4.5 Termination of Employment. Upon termination of a Participant's
employment for any reason, such Participant may no longer make Contributions to
the Plan or be granted Options under the Plan. A Participant's right, if any, to
exercise any unexpired Option he holds as of his termination of employment shall
be determined in accordance with Section 5.5(c).

ARTICLE V

OPTIONS

5.1 Company Stock Available for Options. There shall be available for
Options under the Plan an aggregate maximum of 57,954 shares of Company Stock,
subject to any adjustments which may be made pursuant to Section 6.1 of the Plan
in connection with changes in capitalization of the Company. Shares of Company
Stock used for purposes of the Plan may be either authorized and unissued
shares, or previously issued shares held in the treasury of the Company, or
both. Shares of Company Stock covered by Options which have expired prior to
exercise shall be available for further Options granted hereunder.

5.2 Granting of Options. The Plan shall be implemented by annual
offerings of approximately twelve months duration (except for the initial
offering or as otherwise provided in Section 5.4). As of each Grant Date, each
eligible Participant shall be deemed to have been granted an Option to purchase
that number of shares of Company Stock that equals: (i) the Participant's Base
Pay as of the Grant Date divided by 1000, with fractional amounts of .50 or more
rounded up to the next dollar and fractional amounts of less than .50
disregarded, multiplied by (ii) two. Notwithstanding the foregoing, no
Participant may be granted an Option which permits his rights to purchase stock
under this Plan and all other employee stock purchase plans of the Company or
Employer to accrue at a rate which exceeds $25,000 of the fair market value of
such stock (determined at the time such Option is granted) for each calendar
year in which such Option is outstanding at any time.

5.3 Option Price. The purchase price at which shares of Company Stock
may be acquired pursuant to the exercise of all or any portion of an Option
granted under this Plan shall be eighty-five percent of the lesser of (i) the
fair market value of the Company Stock on the applicable Grant Date, and (ii)
the fair market value of the Company Stock on the applicable Exercise Date. For
purposes of this Section 5.3, the fair market value per share of Company Stock
shall be the closing price on the last Business Day prior to the date of
reference, or in the event that no sales take place on such date, the average of
the closing high bid and low asked prices, in either case on the principal
national securities exchange on which the Company Stock is listed or admitted to
trading, or if the Company Stock is not listed or admitted to trading on any
national securities exchange, the last sale price reported on the National
Market System of the National Association of Securities Dealers Automated

<PAGE>

Quotation system ("NASDAQ") on such date, or the average of the closing high bid
and low asked prices of the Company Stock in the over-the-counter market
reported on NASDAQ on such date, as furnished to the Committee by any New York
Stock Exchange member selected from time to time by the Committee for such
purposes. If there is no bid or asked price reported on any such date, the
market value shall be determined by the Committee in accordance with the
regulations promulgated under Section 2031 of the Code, or by any other
appropriate method selected by the Committee.

5.4 Option Period. Each Option granted to a Participant under the Plan
shall expire on the earliest of (a) the last Exercise Date of the calendar year
in which the Option was granted, (b) the Participant's (or, in the case of the
Participant's death, his estate's) voluntary withdrawal from the Plan following
termination of employment, and (c) the date of the Participant's termination of
employment related to Cause, or the Exercise Date immediately following the
Participant's termination of employment for any reason unrelated to Cause. In no
event will the duration of an Option period exceed twenty-seven months (or such
other applicable period permitted under Section 423(b)(7) of the Code) from the
date on which such Option is granted.

5.5 Exercise of Options.

(a) Automatic Exercise. Any Option granted to a Participant
shall be exercised automatically on each Exercise Date during the calendar year
of the Option's Grant Date in whole or in part such that the Participant's
accumulated Contributions as of such Exercise Date shall be applied to the
purchase of the maximum number of whole shares of Company Stock that his
Contributions will allow at the applicable Option price (determined in
accordance with Section 5.3), limited to the number of shares subject to such
Option. In the event that the number of shares of Company Stock that may be
purchased by all Participants in the Plan exceeds the number of shares then
available for issuance under the Plan, the Committee shall make a pro rata
allocation of the available shares in as uniform a manner as it determines to be
practicable and equitable. Any remaining Contributions in the Participant's
Account amounting to less than the Option price of a whole share of Company
Stock shall be carried forward and applied on the next Exercise Date; provided
that, Contributions remaining after the last Exercise Date of the calendar year
may be distributed to the Participant at his election.

(b) Nontransferability of Options. During a Participant's
lifetime, Options held by such Participant shall be exercisable only by that
Participant. No Option shall be transferable other than by will or by the laws
of descent and distribution.

(i) Termination of Employment Related to Cause.
Upon termination of a Participant's employment related to Cause, the
Participant's participation in the Plan also shall terminate. Any unexpired
Option he holds will expire as of the date of his termination of employment.
Remaining contributions credited to his Account shall be distributed to the
Participant as soon as administratively practicable following termination of
employment.

(ii) Termination of Employment Due to Death. In
the event of the death of the Participant while employed, or during the period
following his termination of employment for

<PAGE>

any reason unrelated to Cause but prior to the next Exercise Date, the
Participant's estate shall have the right to elect by written notice to the
Committee prior to the earlier of the expiration of sixty days commencing with
the date of the Participant's death and the Exercise Date next following the
date of the Participant's death:

(A) To withdraw all of the Contributions
credited to the Participant's Account under the Plan, or

(B) To exercise any unexercised Option held
by the Participant as

of the date of his death for the purchase of Company Stock on the Exercise Date
next following the date of the Participant's death in accordance with Section
5.5(a) but only to the extent such Option was exercisable on the date of the
Participant's death, with any remaining Contributions credited to the
Participant's Account being distributed to the Participant's estate as soon as
administratively practicable after such Exercise Date.

In the event that no such written election is timely and properly received by
the Committee, all Contributions credited to the Participant's Account shall be
distributed to the Participant's estate. In no event shall any Option be
exercisable beyond the applicable exercise period specified in Section 5.4 of
the Plan.

(iii) Other Termination of Employment. Upon
termination of a Participant's employment for any reason unrelated to Cause or
death, the Participant may at his election:

(A) Withdraw from the Plan pursuant to
Section 4.4 and request the return of the remaining Contributions then credited
to his Account, or

(B) Continue participation in the Plan until
the Exercise Date next following his date of termination of employment for the
limited purpose of allowing any unexpired Option he holds as of his termination
of employment to be exercised automatically in accordance with Section 5.5(a) on
the Exercise Date next following his termination of employment but only to the
extent such Option was exercisable on the date of the Participant's termination
of employment, with any remaining Contributions credited to the Participant's
Account being distributed to the Participant as soon as administratively
practicable after such Exercise Date.

(d) Leave of Absence. A Participant on a leave of absence
shall, subject to the election made by such Participant pursuant to Section 4.3,
continue to be a Participant in the Plan so long as such Participant is on
continuous leave of absence. A Participant who has been on leave of absence for
more than ninety days and who therefore is not an Employee for the purposes of
the Plan shall not be entitled to participate in any offering commencing on any
Grant Date following the ninetieth day of such leave of absence. Notwithstanding
any other provisions of the Plan, unless a Participant on a leave of absence
returns to eligible regular full-time or part-time employment with the Employer
at the earlier of (i) the termination of such leave of absence, or (ii) three
months from the ninetieth day of such leave of absence, such Participant's
participation in the Plan shall terminate on whichever of such dates first
occurs.

<PAGE>

(e) Delivery of Stock. As soon as administratively practicable
after each Exercise Date, the Company or the Committee will deliver to each
Participant, as applicable, certificates evidencing shares of Company Stock
purchased under this Plan.

(f) Acceleration of Exercisability of Options Upon Occurrence
of Certain Events. In connection with any merger or consolidation in which the
Company is not the surviving corporation and which results in the holders of the
outstanding voting securities of the Company (determined immediately prior to
such merger or consolidation) owning less than a majority of the outstanding
voting securities of the surviving corporation (determined immediately following
such merger or consolidation), or any sale or transfer by the Company of all or
substantially all of its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then-outstanding voting securities of the Company, all outstanding
Options under the Plan shall become exercisable in full, notwithstanding any
other provision of the Plan or of any outstanding Options granted hereunder, on
and after (i) the fifteenth day prior to the effective date of such merger,
consolidation, sale, transfer or acquisition or (ii) the date of commencement of
such tender offer or exchange offer, as the case may be. Notwithstanding the
foregoing, in no event shall any Option be exercisable beyond the applicable
exercise period of such Option specified in Section 5.4.

(g) Registration, Listing and Qualification of Shares of
Stock. Each Option shall be subject to the requirement that if at any time the
Board of Directors shall determine that the registration, listing or
qualification of shares of Company Stock covered thereby upon any securities
exchange or under any federal or state law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such option or the purchase of shares of
Company Stock thereunder, no such Option may be exercised unless and until such
registration, listing, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Board of
Directors. The Employer may require that any person exercising an Option shall
make such representations and agreements and furnish such information as it
deems appropriate to assure compliance with the foregoing or any other
applicable legal requirement.

ARTICLE VI

MISCELLANEOUS

6.1 Adjustments Upon Changes in Capitalization. In the event of a
reorganization, stock split, stock dividend, combination of shares, merger,
consolidation, rights offering or any other change in the corporate structure of
shares of the Company, corresponding adjustments shall be made to the number and
kind of shares of Company Stock available for issuance under this Plan and the
number and kind of shares of Company Stock covered by outstanding Options under
this Plan. Any adjustments made pursuant to this Section 6.1 remain subject to
the limitations of Section 423 of the Code (including its $25,000 annual
limitation).

6.2 Approval of Shareholders. Within twelve months before or after the
Plan is adopted by the Board of Directors, this Plan must be approved by a
majority of the votes cast thereon by the stockholders of the Company at a
meeting of stockholders duly called and held for such purpose or

<PAGE>

by unanimous written consent of such stockholders, and no Option granted
hereunder shall be exercisable prior to such approval.

6.3 Amendment, Suspension and Termination. The Board of Directors may
at any time amend, suspend or terminate this Plan; provided, however, that the
Board of Directors shall not increase the maximum number of shares of Company
Stock for which Options may be granted under the Plan, except as provided in
Section 6.1, without obtaining approval of the stockholders in the manner
described in Section 6.2. The Plan will continue until terminated by the Board
of Directors or until all of the shares of Company Stock reserved for issuance
under the Plan have been issued, whichever first occurs. No amendment,
suspension or termination of the Plan may, without the consent of the
Participants then holding Options to purchase Company Stock, adversely affect
the rights of such Participants under such Options.

6.4 Intent to Comply With Code Section 423. It is intended that this
Plan qualify as an "employee stock purchase plan" under Section 423 of the Code.
The provisions of this Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that Section of
the Code. In the event of an inconsistency between the Plan and Section 423 of
the Code, the Plan shall be interpreted in a manner which complies with the
requirements of Section 423 of the Code and the regulations thereunder, without
further act or amendment by the Company or the Board of Directors unless
otherwise required pursuant to Section 6.3 of this Plan.

6.5 Equal Rights and Privileges. All Participants granted Options under
this Plan shall have equal rights and privileges within the meaning of Section
423(b)(5) of the Code and the regulations thereunder.

6.6 Use of Funds. All Contributions received and held by the Employer
under this Plan may be used by the Employer for any corporate purpose and the
Employer shall not be obligated to segregate such Contributions.

6.7 Withholding. It shall be a condition to the obligation of the
Company to issue shares of Company Stock upon exercise of an Option that the
Participant (or his estate pursuant to Section 5.5(c)(ii)) pay to the Company,
upon its demand, such amount as may be requested by the Company for the purpose
of satisfying taxes, including taxes owed by the Participant due to the
disposition of Company Stock by the Participant prior to the expiration of the
holding periods described in Section 423(a) of the Code.

6.8 Effect of Plan. This Plan shall be binding upon each Participant
and his successors, including, without limitation, such Participant's estate and
the executors, administrators or trustees thereof, heirs and legatees, and any
receiver, trustee in bankruptcy or representative of creditors of such
Participant.

6.9 No Employment Rights. Nothing in this Plan or in any Option granted
pursuant to the Plan shall be construed as a contract of employment between the
Employer and any employee, or as a right of any employee to continue in the
employ of the Employer, or as a limitation of the right of the Employer to
discharge any of its employees, with or without cause.

<PAGE>

6.10 Governing Law. This Plan and all rights and obligations hereunder
shall be construed in accordance with and governed by the laws of the State of
North Carolina, except to the extent such laws are preempted by the laws of the
United States.

6.11 Other Actions. Nothing contained in the Plan shall be construed to
limit the authority of the Company to exercise its corporate rights and powers,
including, but not by way of limitation, the right of the Company to grant or
assume options for proper corporate purposes other than under the Plan with
respect to any employee or other person, firm, corporation or association.

FIRST AMENDMENT TO
MANAGEMENT AND SERVICES AGREEMENT

THIS FIRST AMENDMENT (this "First Amendment") to that certain Management
and Services Agreement by and between HLM DESIGN, INC., a Delaware corporation
("Design") and HLM DESIGN OF NORTHAMERICA, INC., an Iowa corporation formerly
known as Hansen Lind Meyer Inc. ("HLM") as dated effective May 29, 1997 (the
"Agreement") is hereby executed and agreed to by the undersigned. In recognition
of the fact that the purpose of this First Amendment is to revise the section of
the Agreement subject hereto to reflect the original intent of the parties, this
First Amendment shall be effective retroactively as of May 29, 1997.

Section 13.e. of the Agreement is hereby amended and restated to read in
its entirety as follows:

ASSIGNABILITY. Design may assign this Agreement, and/or transfer, assign or
delegate any or all of its rights, obligations and responsibilities under
this Agreement, without the consent of HLM. This Agreement is not
transferrable or assignable by HLM without the prior written consent of
Design.

Amendment of the Agreement is subject to the approval of certain lenders of
Design, which approval has been or shall be sought. Should such approval not be
obtained by Design, then this First Amendment shall be void.

All other provisions of the Agreement shall remain unmodified and in full
force and effect.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed by their duly authorized representatives, effective as of the date
set forth above.

HLM DESIGN, INC.

By: /s/ Vernon B. Brannon
---------------------
Vernon B. Brannon

HLM DESIGN OF NORTHAMERICA, INC.
F/K/A HANSEN LIND MEYER INC.

By: /s/
-----------------------

FIRST AMENDMENT TO
MANAGEMENT AND SERVICES AGREEMENT

THIS FIRST AMENDMENT (this "First Amendment") to that certain Management
and Services Agreement by and between HLM DESIGN, INC., a Delaware corporation
("Design") and HLM OF NORTH CAROLINA, P.C., a North Carolina corporation ("HLM")
as dated effective May 29, 1997 (the "Agreement") is hereby executed and agreed
to by the undersigned. In recognition of the fact that the purpose of this First
Amendment is to revise the section of the Agreement subject hereto to reflect
the original intent of the parties, this First Amendment shall be effective
retroactively as of May 29, 1997.

Section 13.e. of the Agreement is hereby amended and restated to read in
its entirety as follows:

All other provisions of the Agreement shall remain unmodified and in full
force and effect.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed by their duly authorized representatives, effective as of the date
set forth above.

HLM DESIGN, INC.

By: /s/ Vernon B. Brannon
---------------------
Vernon B. Brannon

HLM OF NORTH CAROLINA, P.C.

By: /s/
-----------------------

FIRST AMENDMENT TO
MANAGEMENT AND SERVICES AGREEMENT

THIS FIRST AMENDMENT (this "First Amendment") to that certain Management
and Services Agreement by and between HLM DESIGN, INC., a Delaware corporation
("Design") and HLM OF OREGON, ARCHITECTURE AND PLANNING, P.C., an Oregon
corporation ("HLM") as dated effective May 29, 1997 (the "Agreement") is hereby
executed and agreed to by the undersigned. In recognition of the fact that the
purpose of this First Amendment is to revise the section of the Agreement
subject hereto to reflect the original intent of the parties, this First
Amendment shall be effective retroactively as of May 29, 1997.

Section 13.e. of the Agreement is hereby amended and restated to read in
its entirety as follows:

All other provisions of the Agreement shall remain unmodified and in full
force and effect.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed by their duly authorized representatives, effective as of the date
set forth above.

HLM DESIGN, INC.

By: /s/ Vernon B. Brannon
---------------------
Vernon B. Brannon

HLM OF OREGON,
ARCHITECTURE AND PLANNING, P.C.

By: /s/
-----------------------

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

To the Board of Directors and Stockholders

We consent to the use in this Amendment No. 4 to the Registration Statement
relating to the shares of Common Stock of HLM Design, Inc. on Form S-1 of our
report dated (i) November 11, 1997 (January 30, 1998, February 13, 1998 and
February 27, 1998 as to the last paragraph in Note 1) on the financial
statements of HLM Design, Inc. as of April 25, 1997 and for the period ended
April 25, 1997, (ii) our report dated October 31, 1997 on the financial
statements of Hansen Lind Meyer, Inc. as of April 26, 1996 and April 25, 1997
and for each of the three years in the period ended April 25, 1997 appearing in
the Prospectus, which is a part of this Amendment No. 4 to the Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.

DELOITTE & TOUCHE LLP

Charlotte, North Carolina
April 28, 1998