U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 28, 2000
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file Number 001-14137
---------
HLM Design, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 56-2018819
(State or Other Jurisdiction (I.R.S Employer Identification No.)
of Incorporation or
Organization)
121 West Trade Street, Suite 2950
Charlotte, North Carolina 28202
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (704) 358-0779
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Title of Each Class Outstanding at September 5, 2000
------------------- --------------------------------
Common stock, par value $.001 per share 2,105,438 shares
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
INDEX TO FORM 10-Q
PAGE
NO.
PART I--FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets--April 28, 2000 and
July 28, 2000 3
Condensed Consolidated Statements of Income--Three Month Periods
Ended July 30, 1999 and July 28, 2000 5
Condensed Consolidated Statement of Stockholders' Equity--Three
Month Period Ended July 28, 2000 6
Condensed Consolidated Statements of Cash Flows--Three Month
Periods Ended July 30, 1999 and July 28, 2000 7
Notes to Unaudited Condensed Consolidated Financial Statements 8
ITEM 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 12
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HLM DESIGN, INC. AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 28, July 28,
2000 2000
----- ----
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash $ 285,616 $ 173,777
Trade and other receivables, less allowance for
doubtful accounts at April 28 and July 28
of $346,060 and $776,277, respectively 11,286,334 9,872,905
Costs and estimated earnings in excess of billings on
uncompleted projects, net 8,412,159 10,309,164
Prepaid expenses and other 788,015 849,960
----------------------------------
Total Current Assets 20,772,124 21,205,806
----------------------------------
Other Assets:
Goodwill, net 8,136,010 12,365,547
Other 887,137 767,254
----------------------------------
Total Other Assets 9,023,147 13,132,801
----------------------------------
Property and Equipment:
Leasehold improvements 1,508,208 1,578,319
Furniture and fixtures 3,898,288 4,175,614
----------------------------------
Property and Equipment, at cost 5,406,496 5,753,933
Less Accumulated depreciation 3,101,004 3,437,069
----------------------------------
Property and equipment, net 2,305,492 2,316,864
----------------------------------
TOTAL ASSETS $ 32,100,763 $ 36,655,471
==================================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 28, July 28,
2000 2000
----- ----
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current maturities of long-term debt
and capital lease obligations $ 1,216,468 $ 1,270,922
Accounts payable 7,425,799 8,176,059
Billings in excess of costs and estimated earnings
on uncompleted projects 1,752,736 1,775,738
Accrued expenses and other 2,264,244 3,475,257
--------------------------------
Total Current Liabilities 12,659,247 14,697,976
--------------------------------
LONG-TERM DEBT AND OTHER 9,673,523 11,675,589
--------------------------------
TOTAL LIABILITIES 22,332,770 26,373,565
--------------------------------
COMMITMENT AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Capital Stock:
Preferred, $.10 par value, voting, authorized 1,000,000
shares, no shares outstanding
Common, $.001 par value, voting, authorized 9,000,000 shares; issued 2,359,975
and 2,413,882 at April 28, 2000 and July 28, 2000, respectively (includes
258,444 and 308,444 to be issued on a delayed delivery schedule at April 28,
2000 and July 28, 2000, respectively) 2,360 2,414
Additional paid in capital 7,450,261 7,718,911
Retained earnings 2,324,817 2,561,954
Accumulated other comprehensive loss (9,445) (1,373)
--------------------------------
TOTAL STOCKHOLDERS' EQUITY 9,767,993 10,281,906
--------------------------------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 32,100,763 $ 36,655,471
================================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
CONDENDSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
July 30, July 28,
1999 2000
---- ----
<S> <C> <C>
REVENUES:
Fee Income $ 10,664,066 $ 14,779,823
Reimbursable Income 789,129 1,090,853
--------------------------------
Total Revenues 11,453,195 15,870,676
CONSULTANT EXPENSE 2,773,549 4,515,618
PROJECT EXPENSES:
Direct Expenses 214,000 242,867
Reimbursable expenses 384,360 559,891
--------------------------------
Total project expenses 598,360 802,758
--------------------------------
NET PRODUCTION INCOME 8,081,286 10,552,300
DIRECT LABOR 2,306,424 3,277,698
INDIRECT EXPENSES 5,115,503 6,322,161
--------------------------------
OPERATING INCOME 659,359 952,441
--------------------------------
OTHER EXPENSE:
Interest Expense, net 217,365 448,927
--------------------------------
Total Other Expense 217,365 448,927
--------------------------------
INCOME BEFORE INCOME TAXES 441,994 503,514
INCOME TAX EXPENSE 215,024 266,377
--------------------------------
NET INCOME $ 226,970 $ 237,137
================================
NET INCOME PER SHARE
Basic $ 0.10 $ 0.10
================================
NUMBER OF SHARES USED TO COMPUTE PER SHARE DATA
Basic 2,347,503 2,411,220
================================
NET INCOME PER SHARE
Diluted $ 0.10 $ 0.10
================================
NUMBER OF SHARES USED TO COMPUTE PER SHARE DATA
Diluted 2,347,503 2,417,115
================================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Total
---------------------- Paid-In Retained Comprehensive Stockholders'
Shares Amount Capital Earnings Loss Equity
------ ------ ------- -------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 28, 2000 2,359,975 $ 2,360 $ 7,450,261 $ 2,324,817 $ (9,445) $ 9,767,993
Issuance of common stock
for purchase of BL&P
Engineers, Inc. (Note 3) 50,000 50 256,200 256,250
Issuance of Common Stock
(Note 5) 3,907 4 12,450 12,454
Foreign Currency Translation 8,072 8,072
Adjustment
Net Income 237,137 237,137
---------------------------------------------------------------------------------------
Balance, July 28, 2000 2,413,882 $ 2,414 $ 7,718,911 $ 2,561,954 $ (1,373) $ 10,281,906
=======================================================================================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
July 30, July 28,
1999 2000
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 226,970 $ 237,137
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 175,512 240,144
Amortization of intangible assets 99,979 162,050
Amortization of deferred loan fees 19,637 52,117
Changes in assets and liabilities, net of effects from purchase of
acquired companies:
(Increase) decrease in trade and other accounts receivable (247,964) 2,897,512
Net increase in costs and estimated earnings in excess of billings
on uncompleted projects (1,476,948) (2,317,609)
(Increase) decrease in prepaid expenses and other assets (1,136,157) 107,161
Decrease in accounts payable 330,466 682,436
Decrease in accrued expenses and other 549,273 144,211
--------------------------------------
Net cash (used in) provided by operating activities (1,459,232) 2,205,159
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (346,856) (251,516)
Payment for purchase of BL&P Engineers, Inc., net of cash acquired - (2,135,394)
--------------------------------------
Net cash used in investing activities (346,856) (2,386,910)
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on long-term borrowings (113,240) (145,126)
Net borrowings on revolving credit facility 202,584
Increase in short term borrowings 3,424 -
Borrowings on long-term debt 1,750,000 -
Proceeds from issuance of common stock under the Employee Stock Purchase Plan 17,024 12,454
--------------------------------------
Net cash provided by financing activities 1,657,208 69,912
--------------------------------------
DECREASE IN CASH (148,880) (111,839)
CASH BALANCE:
Beginning of period 250,575 285,616
--------------------------------------
End of period $ 101,695 $ 173,777
======================================
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 185,957 $ 403,468
Income tax payments $ 645,158 $ 118,020
Noncash investing and financing transactions:
Acquisition of BL&P Engineers, Inc. (net of imputed interest):
Notes payable isued to BL&P Engineers, Inc. shareholder $ 1,871,496
Fair value of assets acquired and liabilities assumed, net $ 281,126
Common stock to be issued on delayed delivery schedule $ 256,250
</TABLE>
See notes to unaudited condensed consolidated financial statements.
7
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business-HLM Design, Inc. (the "Company" or "HLM
Design") is a management services company that provides management and
services to architectural, engineering and planning design entities
under long term management and services agreements ("MSAs"). As of July
28, 2000, the Company had wholly-owned subsidiaries of HLM Design and
affiliates as follows:
o HLM Design of North America, Inc. ("HLMNA");
o HLM Design USA, Inc. ("HLMUSA");
o HLM Design Architecture, Engineering and Planning, P.C. ("HLMAEP");
o JPJ Architects, Inc. ("JPJ");
o G.A. Design International Holdings, Ltd. ("GAIH"); and
o BL&P Engineers, Inc. ("BL&P").
JPJ, GAIH and BL&P are subsidiaries of the Company. HLMNA, HLMUSA,
HLMAEP, JPJ, GAIH and BL&P are referred to herein collectively as
"Managed Firms".
Financial Statement Presentation - The accompanying unaudited financial
information for the three month periods ended July 30, 1999 and July
28, 2000 has been prepared in accordance with generally accepted
accounting principles pursuant to the rules and regulations of the
Securities and Exchange Commission. All significant intercompany
accounts and transactions have been eliminated. These unaudited
consolidated financial statements reflect, in the opinion of
management, all material adjustments (which include only normal
recurring adjustments) necessary to fairly state the financial position
and the results of operations for the interim periods presented. The
results for interim periods are not necessarily indicative of the
results to be expected for the entire fiscal year. These interim
financial statements should be read in conjunction with the Company's
audited consolidated financial statements for the year ended April 28,
2000.
8
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. CONTRACTS IN PROGRESS
Information relative to contracts in progress is as follows:
April 28, July 28,
2000 2000
---- ----
Costs incurred on uncompleted projects
(excluding overhead) $ 64,016,964 $ 73,621,133
Estimated earnings thereon 58,470,955 66,105,050
------------ ------------
Total 122,487,919 139,726,183
Less billings to date 115,828,496 131,192,757
------------ ------------
Net underbillings $ 6,659,423 $ 8,533,426
============ ============
Net underbillings are included in the accompanying balance sheets as
follows:
<TABLE>
<CAPTION>
April 28, July 28,
2000 2000
---- ----
<S> <C> <C>
Costs and estimated earnings in excess of billings
On uncompleted projects $8,412,159 $10,309,164
Billings in excess of costs and estimated earnings
On uncompleted projects (1,752,736) (1,775,738)
------------ -------------
Net underbillings $6,659,423 $ 8,533,426
========== ============
</TABLE>
3. ACQUISITIONS
BL&P Engineers, Inc.
As of April 29, 2000, the Company purchased all of the issued and
outstanding common stock and related goodwill of BL&P for $1.46 million
in cash, subordinated promissory notes bearing interest at 7 percent in
the aggregate amount of $2.04 million (the "Notes") and 50,000 shares
of the Company's common stock having a value of $0.26 million to be
delivered on a delayed delivery basis.
The Stock Purchase Agreement ("Agreement") provides for, among other
things, the delivery to BL&P's former stockholder of 30% of the number
of shares of the stock on each of April 29, 2002 and April 29, 2003 and
40% of the number of shares of stock on April 29, 2004. The Notes
provide for payment of 30% of the principal amount on each of October
29, 2001 and April 29, 2003 and 40% of the principal amount on April
29, 2004. Following the consummation of the Agreement, the Company
entered into a Management and Services Agreement, whereby the Company
will manage all aspects of BL&P other than the provision of
professional engineering services.
In addition, the Company paid BL&P debt of $0.76 million upon closing.
9
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. ACQUISITIONS-(Continued)
The acquisition has been accounted for using the purchase method of
accounting. The purchase price has been preliminarily allocated to the
assets and liabilities acquired based on their estimated fair value at
the acquisition date.
Working capital $ 662,344
Property and equipment 79,964
Other assets (461,180)
Goodwill 4,385,337
---------
Total $4,666,465
==========
4. FINANCING ARRANGEMENTS
A summary of changes in financing arrangements are as follows:
Revolving Credit: The maximum revolving advance amount is $17,000,000.
The amount available to borrow is calculated based on the aging of
certain assets. As of July 28, 2000, the Company has borrowings
outstanding of $7,460,054.
Substantially all assets are pledged under this financing arrangement.
This financing arrangement requires that certain financial requirements
be maintained such as minimum net worth, maximum leverage and senior
leverage ratios, maximum fixed charge coverage and senior fixed charge
coverage ratios and maximum capital expenditure commitments. At July
28, 2000, the Company was in compliance with these financial covenants.
5. STOCKHOLDERS' EQUITY
In June 2000, 3,907 shares of common stock were issued under the HLM
Design, Inc. Employee Stock Purchase Plan.
10
<PAGE>
HLM DESIGN, INC. AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. HLM DESIGN, INC. FINANCIAL INFORMATION (UNAUDITED)
HLM Design's unconsolidated balance sheet and statement of income as of
and for the three month period ended July 28, 2000 are as follows:
Balance Sheet
Current assets $18,116,395
Non-current assets 14,444,699
-----------
Total assets $32,561,094
===========
Current liabilities 11,029,517
Non-current liabilities 11,249,671
-----------
Total liabilities 22,279,188
Total stockholders' equity 10,281,906
-----------
Total liabilities and stockholders' equity $32,561,094
===========
Statement of Income
Equity in earnings of affiliates $ 553,002
Net interest, income tax and other expense 315,865
-----------
Net income $ 237,137
===========
7. NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 requires
an entity to recognize all derivatives as either assets or liabilities
in the consolidated balance sheet and measure those instruments at fair
value. SFAS No. 133 was amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the
Effective Date for FASB Statement No. 133", which delays the Company's
effective date until the fiscal year ending April 2002. Management is
currently calculating the effects of SFAS No. 133 on the Company's
financial statements and current disclosures.
11
<PAGE>
ITEM 2. 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 the financial
statements and related notes thereto included elsewhere in this report.
RESULTS OF OPERATIONS
Three Months Three Months
Ended Ended
July 30, July 28,
1999 2000
------------- -------------
Revenues $ 11,453,195 $ 15,870,676
Consultant and project expenses 3,371,909 5,318,376
------------- -------------
Net production income 8,081,286 10,552,300
------------- -------------
Direct labor 2,306,424 3,277,698
Operating costs 5,015,524 6,160,111
Amortization of intangible assets 99,979 162,050
--------------- --------------
Total costs and expenses 7,421,927 9,599,859
------------- -------------
Operating income 659,359 952,441
Interest expense, net 217,365 448,927
-------------- --------------
Income before income taxes 441,994 503,514
Income tax expense 215,024 266,377
------------- -------------
Net income $ 226,970 $ 237,137
============= =============
EBITDA (1) $ 934,850 $ 1,354,635
============= =============
(1) EBITDA represents net income before interest expense, income taxes,
depreciation, amortization and extraordinary items. While EBITDA is not
intended to represent cash flow from operations as defined by GAAP and
should not be considered as an indicator of operating performance or an
alternative to cash flow (as measured by GAAP) as a measure of liquidity,
it is included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital
expenditure, and working capital requirements. EBITDA, as calculated
herein, may not be comparable to similarly entitled measures of other
entities.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
RESULTS OF OPERATIONS
For the three months ended July 28, 2000 and July 30, 1999
Revenues were $15.9 million for the three month period ended July 28,
2000 as compared to $11.5 million for the three month period ended July 30,
1999. This increase of 39% is due to internal growth in existing operations as
well as the acquisition of BL&P which contributed 9% of the revenue growth.
Direct costs, which include consultant costs and reimbursable
project expenses, total $5.3 million, or 34% of revenues, for the three month
period ended July 28, 2000 as compared to $3.4 million, or 29% of revenues, for
the three month period ended July 30, 1999. This increase as a percentage of
revenue is due to an increased use of consultants to meet project requirements
primarily due to the tight labor market. Management believes that this trend may
continue which will cause direct costs as a percent of revenues to increase in
future periods.
Direct labor cost was $3.3 million, or 31% of net production income,
for the three month period ended July 28, 2000 as compared to $2.3 million, or
29% of net production income, for the three month period ended July 30, 1999.
Although the volume of architecture, planning and engineering services has
increased, it has been offset by (a) an increase in salary and salary related
costs which has not been passed through to the Company's clients in all cases;
and (b) a reduction in certain higher margin projects.
Operating costs were $6.2 million, or 58% of net production income, for
the three month period ended July28, 2000 as compared to $5.0 million, or 62% of
net production income, for the three month period ended July 30, 1999. This
decrease as a percentage of net production income is principally due to fixed
costs which do not increase at the same pace as net production income. This
decrease as a percentage of net production income is partially offset by an
increase in depreciation expense due to the Company's continued focus on
improvement of certain computer and related equipment.
Amortization of intangible assets was $162,050 for the three months
ended July 28, 2000 as compared to $99,979 for the three months ended July 30,
1999. This increase is attributable to amortization expense arising from the
acquisitions of BL&P and ESS.
Income from operations were $1.0 million, or 9% of net production
income, for the three month period ended July 28, 2000 as compared to $0.7
million, or 8% of net production income for the three months ended July 30,
1999. This increase as a percentage of net production income is principally due
to a decrease in operating costs as a percent of net production income which is
partially offset by an increase in direct labor cost as a percent of net
production income.
Interest expense was $0.4 million for the three month period ended July
28, 2000 as compared to $0.2 million for the three month period ended July 30,
1999. This increase is principally due to the Company's increase in borrowings
on its line of credit as well as debt resulting from the acquisitions of ESS and
BL&P and to a lesser extent, the effective interest rate has increased in the
current year as compared to the prior year.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
Income tax expense was $0.3 million for the three month period ended
July 28, 2000 as compared to $0.2 million for the three month period ended July
30, 1999. The effective income tax rate was 53% and 49% for the three month
periods ended July 28, 2000 and July 30, 1999, respectively. This effective tax
rate is higher principally due to the increase in non-deductible goodwill
amortization.
LIQUIDITY AND CAPITAL RESOURCES
At July 28, 2000, the Company's current assets of $21.2 million
exceeded current liabilities of $14.7 million, resulting in net working capital
of $6.5 million. During the three month period ended July 28, 2000, the
Company's operating activities provided $2.3 million cash, primarily due to the
decrease in trade and other accounts receivable and an increase in accounts
payable which is partially offset by an increase in costs and estimated earnings
compared to billings on uncompleted projects. The Company used $2.5 million for
investing activities, primarily as payment for the purchase of BL&P on April 29,
2000, and to a lesser extent, the purchase of equipment. As of April 29, 2000,
the Company purchased all of the issued and outstanding common stock and related
goodwill of BL&P for $1.46 million in cash, subordinated promissory notes
bearing interest at 7 percent in the aggregate amount of $2.04 million (the
"Notes") and 50,000 shares of the Company's common stock having a value of $0.26
million (to be delivered on a delayed delivery basis). The Company generated
cash of $ 0.1 million from financing activities primarily on borrowings under
the Company's revolving credit facility with IBJ Whitehall Business Credit
Corporation.
The Company's growth and operating strategy will require substantial
capital and may result in the Company from time to time incurring additional
debt, issuing equity securities or obtaining additional bank financing. As a
management company, HLM Design is responsible for the financing of working
capital growth, capital growth and other cash needs of its managed firms.
During fiscal year end April 28, 2000, the Company entered into a
revolving credit, term loan and capital expenditure loan for a total of $20
million. At July 28, 2000, the Company had borrowings outstanding of $7.5
million under the revolving credit arrangement and $1.7 million under the term
loan agreement. At July 28, 2000 there were no borrowings outstanding under the
capital expenditure loan. Substantially all assets are pledged under this
financing arrangement. This financing arrangement requires that certain
financial requirements be maintained such as minimum net worth, maximum leverage
and senior leverage ratios, maximum fixed charge coverage and senior fixed
charge coverage ratios and maximum capital expenditure commitments. At July 28,
2000, the Company was in compliance with these financial covenants.
The Company believes that its revolving line of credit and anticipated
funds from future operations will be sufficient to meet the Company's operating
needs for at least the next twelve months. However, in order to continue its
expansion program through acquisitions, the Company will require additional
capital. If the Company is unable to obtain additional capital, its ability to
continue its growth strategy will be adversely affected.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the opinion of management, there has been no material change in
market risk since April 28, 2000.
15
<PAGE>
PART II-OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits filed as part of this Form 10-Q are:
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
On May 15 , 2000, the Company filed a Current Report on Form 8-K reporting the
acquisition of BL&P (the "BL&P 8-K"). On July 13, 2000, the Company filed an
amendment to the BL&P 8-K which included the financial statements for the years
ended December 31, 1999 and 1998 and pro forma financial information relating
the acquisition of BL&P.
16
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HLM DESIGN, INC.
(Registrant)
Date: September 11, 2000 By: /s/ Joseph M. Harris
------------------- ---------------------
Joseph M. Harris
President, Chairman and Director
Date: September 11, 2000 By: /s/ Vernon B. Brannon
------------------ ---------------------
Vernon B. Brannon
Senior Vice President, Chief Financial
Officer, Treasurer, Assistant Secretary
And Director
17
