-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ERk9fAIR5VWVeBx+G7GKa/4USqKZdTHIEGgxMNPglOrUlwDUH4ASRemAsnT1DEWL 2Omtf5AADrXbpezpSyiD5g== 0000950168-99-000061.txt : 19990118 0000950168-99-000061.hdr.sgml : 19990118 ACCESSION NUMBER: 0000950168-99-000061 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981030 ITEM INFORMATION: FILED AS OF DATE: 19990115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HLM DESIGN INC CENTRAL INDEX KEY: 0001049129 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 562018819 STATE OF INCORPORATION: DE FISCAL YEAR END: 0501 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-24279 FILM NUMBER: 99506827 BUSINESS ADDRESS: STREET 1: 121 W TRADE ST STREET 2: STE 2950 CITY: CHARLOTTE STATE: NC ZIP: 28202 BUSINESS PHONE: 7043580779 MAIL ADDRESS: STREET 1: 121 WEST TRADE STREET STREET 2: SUITE 2950 CITY: CHARLOTTE STATE: NC ZIP: 28202 8-K/A 1 HLM DESIGN, INC. 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): October 30, 1998 HLM DESIGN, INC. ----------------- (Exact name of Registrant as Specified in Charter) Delaware 001-14137 56-2018819 -------- --------- ---------- (State or Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 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 -------------- - -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) This report is an amendment to the Registrant's report on Form 8-K dated October 30, 1998 that was filed with the Securities and Exchange Commission on November 16, 1998 (the "Initial Form 8-K Report"). This amending report contains the required financial statements referenced in the Initial Form 8-K Report. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Attached as an exhibit to this amending report on Form 8-K are the following: FINANCIAL STATEMENTS OF JPJ ARCHITECTS, INC. Independent Auditors' Report Balance Sheet at April 30, 1997 and 1998 and at October 31, 1998 (unaudited) Statements of Income for the Year Ended April 30, 1997 and 1998 and for the Six Months Ended October 31, 1998 and 1997 (unaudited) Statements of Stockholders' Equity for the Year Ended April 30, 1998 and for the Six Months Ended October 31, 1998 (unaudited) Statement of Cash Flows for the Year Ended April 31, 1997 and 1998 and for the Six Month Period Ended October 31, 1998 and 1997 (unaudited) Notes to Financial Statements (B) PROFORMA FINANCIAL INFORMATION. Attached as an exhibit to this amending report on Form 8-K are the following: PROFORMA FINANCIAL STATEMENTS REFLECTING THE ACQUISITION OF JPJ ARCHITECTS, INC. ProForma Statement of Income (For the Acquisitions) for the Year Ended May 1, 1998 (unaudited) and Notes thereto ProForma Statement of Income (For the Acquisitions and the Offering) for the Year Ended May 1, 1998 (unaudited) and Notes thereto ProForma Statement of Income (For the Acquisition) for the Six Months Ended October 31, 1998 (unaudited) and Notes thereto (c) EXHIBITS. Exhibit No. Description 99.1* Stock Purchase Agreement dated as of October 30, 1998 among HLM Design, Inc. Bill D. Smith, FAIA, Walter J. Viney, AIA Richard E. Morgan, AIA, Weldon W. Nash, Jr., FCSI, Ken G. Rowley, AIA, Douglas R. Bissell, AIA, Paul H. Woodard, AIA, Jan G. Blackmon, FAIA, and JPJ Architects, Inc. 99.2* Management and Services Agreement dated as of October 30, 1998 by and between HLM Design, Inc. and JPJ Architects, Inc. 99.3* Press Releases dated November 3, 1998 99.4 Financial Statements of JPJ Architects, Inc., including Independent Auditors' Report 99.5 ProForma Financial Statements Reflecting the Acquisition of JPJ Architecture, Inc. - -------- *Previously filed. 1 SIGNATURES Pursuant to the requirements of the Securities and Exhange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. HLM DESIGN, INC. Date: January 15, 1999 By: /s/ Vernon B. Brannon ----------------------------------- Senior Vice President, Chief Financial Officer, Treasurer, Assistant Secretary And Director 2 EX-99.4 2 EXHIBIT 99.4 EXHIBIT 99.4 JPJ ARCHITECTS, INC.
FINANCIAL STATEMENTS TABLE OF CONTENTS - -------------------------------------------------------------------------------------------------- PAGE INDEPENDENT AUDITORS' REPORT F-1 FINANCIAL STATEMENTS: Balance Sheets as of April 30, 1997 and 1998 and October 31, 1998 F-2 Statements of Income for the Years Ended April 30, 1997 and 1998 and the Six Months Ended October 31, 1997 and 1998 F-3 Statement of Stockholders' Equity for the Years Ended April 30, 1997 and 1998 and the Six Months Ended October 31, 1998 F-4 Statements of Cash Flows for the Years Ended April 30, 1997 and 1998 and the Six Months Ended October 31, 1998 and 1997 F-5 Notes to Financial Statements F-6 - F-10
INDEPENDENT AUDITORS' REPORT Board of Directors JPJ Architects, Inc. Dallas, Texas We have audited the accompanying balance sheets of JPJ Architects, Inc. (the "Company") as of April 30, 1998 and 1997, and the related statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended April 30, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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, such financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 1998 and 1997, and the results of its operations and its cash flows for each of the three years in the period ended April 30, 1998 in conformity with generally accepted accounting principles. September 25, 1998 F-1 JPJ ARCHITECTS, INC.
BALANCE SHEETS APRIL 30, 1997 AND 1998 AND OCTOBER 31, 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Years Ended Six Months April 30, Ended ----------------------------- October 31, ASSETS 1997 1998 1998 (Unaudited) CURRENT ASSETS: Cash $ 194,907 $ 102,573 $ 565,721 Trade and other receivables, less allowance for doubtful accounts of $18,100 at April 30, 1997 and $118,285 at April 30, 1998 and October 31, 1998 1,420,886 3,132,732 2,528,327 Costs and estimated earnings in excess of billings on uncompleted projects (Note 2) 132,893 236,982 239,333 Refundable income taxes 63,016 27,898 95,070 Prepaid expenses 18,301 19,382 27,701 ------------- ---------- ----------- Total current assets 1,830,003 3,519,567 3,456,152 ------------- ---------- ----------- OTHER ASSETS: Other noncurrent assets 134,789 133,103 136,894 Investment in affiliate 45,385 47,466 12,000 ------------- ---------- ----------- Total other assets 180,174 180,569 148,894 ------------- ---------- ----------- PROPERTY AND EQUIPMENT: Leasehold improvements 28,546 60,579 60,579 Furniture and fixtures 343,960 354,955 374,586 Computer equipment 225,801 300,025 300,025 ------------- ---------- ----------- Total property and equipment 598,307 715,559 735,190 Less accumulated depreciation (464,792) (539,245) (576,921) ------------- ---------- ----------- Property and equipment, net 133,515 176,314 158,269 ------------- ---------- ----------- TOTAL ASSETS $ 2,143,69 $ 3,876,450 $ 3,763,315 ============ =========== ============ See notes to financial statements. Years Ended Six Months April 30, Ended ----------------------------- October 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1998 1998 (Unaudited) CURRENT LIABILITIES: Notes payable (Note 3) $ 335,000 $ - $ - Current portion of long-term debt (Note 3) 59,367 30,703 - Accounts payable 736,363 1,730,384 1,406,109 Billings in excess of costs and estimated earnings on uncompleted projects (Note 2) 397,643 639,296 644,845 Deferred income taxes 28,064 304,768 367,516 Other accrued expenses 500,550 544,850 498,974 ----------- ---------- ---------- Total current liabilities 2,056,987 3,250,001 2,917,444 LONG-TERM DEBT (Note 3) 14,400 32,607 - ----------- ---------- ---------- TOTAL LIABILITIES 2,071,387 3,282,608 2,917,444 ----------- ---------- ---------- COMMITMENTS (Note 4) STOCKHOLDERS' EQUITY: Capital stock - common, $1 par value, voting, authorized 1,000,000 shares; issued 10,000 shares at April 30, 1998 and 4,401 at October 31, 1998 10,000 10,000 4,401 Additional paid-in capital 8,980 8,980 - Treasury stock (766,577) (850,093) - Retained earnings 819,902 1,424,955 841,470 ---------- ----------- ---------- Total stockholders' equity 72,305 593,842 845,871 ---------- ----------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,143,692 $3,876,450 $3,763,315 ========== =========== ==========
F-2 JPJ ARCHITECTS, INC.
STATEMENTS OF INCOME YEARS ENDED APRIL 30, 1997 AND 1998 AND SIX MONTHS ENDED OCTOBER 31, 1998 AND 1997 - ----------------------------------------------------------------------------------------------------------------------------------- Years Ended Six Months Ended April 30, October 31, ---------------------------- ------------------------- 1997 1998 1997 1998 (Unaudited) REVENUES: Fee income $5,173,663 $11,430,555 $4,932,961 $6,301,730 Reimbursable income 882,985 2,717,515 1,380,850 1,206,163 ------------ ------------- ------------ ------------ Total revenues 6,056,648 14,148,070 6,313,811 7,507,893 CONSULTANT EXPENSES 2,091,516 6,730,598 2,980,458 4,260,562 PROJECT EXPENSES: Direct expenses 117,009 206,365 59,874 101,082 Reimbursable expenses 247,582 605,313 245,274 381,437 ------------ ------------- ------------ ------------ Total project expenses 364,591 811,678 305,148 482,519 ------------ ------------- ------------ ------------ NET PRODUCTION INCOME 3,600,541 6,605,794 3,028,205 2,764,812 DIRECT LABOR 1,273,571 2,038,914 957,319 1,078,950 INDIRECT EXPENSES 2,291,875 3,639,546 1,669,113 1,358,876 ------------ ------------- ------------ ------------ OPERATING INCOME (LOSS) 35,095 927,334 401,773 326,986 ------------ ------------- ------------ ------------ OTHER INCOME (EXPENSE): Interest expense (36,295) (16,423) (8,341) (2,574) Other income 219,186 70,842 57,696 110,284 ------------ ------------- ------------ ------------ Total other income (expense), net 182,891 54,419 49,355 107,710 ------------ ------------- ------------ ------------ INCOME BEFORE TAXES 217,986 981,753 451,128 434,696 PROVISION FOR INCOME TAXES (80,658) (376,700) (171,429) (171,912) ------------ ------------- ------------ ------------ NET INCOME $ 137,328 $ 605,053 $ 279,699 $ 262,784 ============ ============= ============ ============ See notes to financial statements.
F-3 JPJ ARCHITECTS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED APRIL 30, 1997 AND 1998 AND THE SIX MONTHS ENDED OCTOBER 31, 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock Additional Total ------------------- Paid-in Treasury Retained Stockholders' Shares Amount Capital Stock Earnings Equity BALANCE, APRIL 30, 1996 10,000 $10,000 $8,980 $(636,437) $ 682,574 $ 65,117 Redemption of common stock - - - (130,140) - (130,140) Net income - - - - 137,328 137,328 ------- ------- ------ ---------- ---------- ---------- BALANCE, APRIL 30, 1997 10,000 10,000 8,980 (766,577) 819,902 72,305 Redemption of common stock - - - (83,516) - (83,516) Net income - - - - 605,053 605,053 ------- ------- ------ ---------- ---------- ---------- BALANCE, APRIL 30, 1998 10,000 10,000 8,980 (850,093) 1,424,955 593,842 Retirement of treasury stock - (5,599) (8,980) 850,093 (846,269) (10,755) Net income - - - - 262,784 262,784 ------- ------- ------ ---------- ---------- ---------- BALANCE, OCTOBER 31, 1998 (Unaudited) 10,000 $ 4,401 $ - $ - $ 841,470 $ 845,871 ======= ======= ====== ========== ========== ========== See notes to financial statements.
F-4 JPJ ARCHITECTS, INC.
STATEMENTS OF CASH FLOWS YEARS ENDED APRIL 30, 1997 AND 1998 AND THE SIX MONTHS ENDED OCTOBER 31, 1997 AND 1998 - -------------------------------------------------------------------------------------------------- Six Months Years Ended Ended April 30, October 31, ----------------------- ------------------ 1997 1998 1997 1998 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 137,328 $ 605,053 $ 279,699 $ 262,784 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 45,548 74,453 44,232 37,676 Deferred income taxes (5,590) 276,704 138,400 62,748 Income from investment in affiliate (49,371) (90,081) (57,696) (110,284) Changes in certain working capital items: (Increase) decrease in trade and other receivables (792,831) (1,711,846) (2,120,754) 604,405 (Increase) decrease in costs and estimated earnings in excess of billings on uncompleted projects (66,751) (104,089) 15,959 (2,351) Increase in billings in excess of costs and estimated earnings on uncompleted contracts, net 224,941 241,653 591,950 5,549 (Increase) decrease in prepaid expenses 3,362 (1,081) 46,142 (8,319) Decrease (increase) in other assets 25,211 1,686 (38,887) (3,791) Increase (decrease) in accounts payable 259,859 994,021 1,028,146 (324,275) Increase (decrease) in accrued expenses 443,700 44,300 414,434 (45,876) Increase (decrease) in income taxes payable 78,748 35,118 28,464 (67,172) -------------- ---------- ----------- --------- Net cash provided by operating activities 304,154 365,891 370,089 411,094 -------------- ---------- ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (81,008) (117,252) (87,022) (19,631) Dividends from affiliate 17,500 88,000 88,000 145,750 -------------- ---------- ----------- --------- Net cash (used in) provided by investing activities (63,508) (29,252) 978 126,119 --------- ---------- ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on line of credit (15,000) (335,000) (310,000) - Proceeds from long-term borrowings - - 88,367 - Payments on long-term borrowings 60,050 (10,457) (44,967) (63,310) Repurchase of common stock (130,140) (83,516) (80,925) (10,755) ----------------- ---------- ----------- ---------- Net cash used in financing activities (85,090) (428,973) (347,525) (74,065) ----------------- ---------- ----------- ---------- INCREASE (DECREASE) IN CASH 155,556 (92,334) 23,542 463,148 CASH BALANCE: Beginning of year 39,351 194,907 194,907 102,573 ----------------- ---------- ----------- --------- End of year $ 194,907 $ 102,573 $ 218,449 $565,721 ================= =========== =========== ========= SUPPLEMENTAL DISCLOSURES - Cash paid during the year for: Interest $ 33,018 $ 16,363 $ 32,372 $ 2,574 ================= =========== =========== ========= Income tax payments $ 7,500 $ 57,800 $ 5,742 $ - ================= =========== =========== =========
See notes to financial statements. F-5 JPJ ARCHITECTS, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED APRIL 30, 1997 AND 1998 AND THE SIX MONTHS ENDED OCTOBER 31, 1998 - ----------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS - JPJ Architects, Inc. (the "Company") is an architectural and interior design firm located in Dallas, Texas. The Company specializes in the design of corporate headquarters and office buildings, higher education facilities and K-12 schools, and buildings for public agencies, institutions, and local, state, and federal governments. The Company's financial statements are prepared on the accrual basis of accounting. 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 whereby the extent of the contract performance is measured by the percentage of cost incurred to date to estimated total cost for each contract, or based upon actual hours spent on the project times the agreed upon 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. MAJOR CUSTOMERS - Sales to two customers represented 21% and 16% of total revenues in 1997 and 56% and 15% of total revenues in 1998. 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. F-6 PROPERTY AND EQUIPMENT - Leasehold improvements and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the lease term, including anticipated renewals. The estimated useful lives of property and equipment for financial reporting purposes are as follows:
Computer equipment and software 5 years Furniture and fixtures 5 years Leasehold improvements Lease term, not to exceed the useful life of the asset
ADVERTISING COSTS - Advertising costs are expensed as incurred. Amounts expensed for each of the three years ending April 30, 1998 were immaterial. 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 their fair value because of the short maturities of these instruments. LONG-LIVED ASSETS - During fiscal 1996, the Company 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. 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 of the Company reviewed all long-lived assets and intangible assets as of April 30, 1997 and 1998 and believes that the carrying amounts reported in the balance sheets will be recovered over the remaining useful lives of those assets. 2. CONTRACTS IN PROGRESS Information relative to contracts in progress as of April 30, 1997 and 1998 and October 31, 1998 is as follows:
APRIL 30, ----------------------- OCTOBER 31, 1997 1998 1998 Costs incurred on uncompleted projects (excluding overhead) $ 1,806,549 $ 2,949,032 $ 3,893,472 Estimated earnings thereon 1,729,333 2,568,575 2,533,603 --------------- ------------ ------------ Total 3,535,882 5,517,607 6,427,075 Less billings to date 3,800,632 5,919,921 6,832,587 --------------- ------------ ------------ Net overbillings $ (264,750) $ (402,314) $ (405,512) =============== ============ ============
F-7 Net overbillings as of April 30, 1997 and 1998 and October 31, 1998 are included in the accompanying balance sheets as follows:
APRIL 30, ------------------------ OCTOBER 31, 1997 1998 1998 Costs and estimated earnings in excess of billings on uncompleted projects $ 132,893 $ 236,982 $ 239,333 Billings in excess of costs and estimated earnings on uncompleted projects (397,643) (639,296) (644,845) ------------ ------------ ------------ Net overbillings $ (264,750) $ (402,314) $ (405,512) ============ ============ ============
3. FINANCING ARRANGEMENTS A summary of notes payable as of April 30, 1997 and 1998 is as follows:
1997 1998 Line of credit, up to $500,000 and interest at prime plus 0.75%, maturity date of July 2, 1998 $335,000 $ ========= ======
A summary of long-term debt as of April 30, 1997 and 1998 is as follows:
1997 1998 Note payable to Everett D. Spaeth due in three annual installments of $14,400 plus interest at a rate of 10% per annum, with a final payment due April 1999 $28,800 $14,400 Note payable to James R. Baker due in three annual installments of $16,303 plus interest at a rate of 10% per annum, with a final payment due June 2000 - 48,910 Notes payable to CAN Insurance Company (paid off in fiscal 1998) 44,967 - ------- ------ Total long-term debt 73,767 63,310 Less current maturities 59,367 30,703 ------- ------ Long-term portion $14,400 $32,607 ======== ======= Annual principal payments on long-term debt are as follows: Fiscal 1999 $30,703 Fiscal 2000 32,607 ------ Total $63,310 ========
F-8 4. LEASE COMMITMENTS The Company leases office space and certain office equipment under operating lease arrangements. The total minimum rental commitment under noncancelable operating leases at April 30, 1998 are as follows: Fiscal 1999 $428,127 Fiscal 2000 90 -- Total $428,217 =========== Rent expense was $453,816 and $450,885 during 1997 and 1998, respectively, and is included in indirect expenses. 5. INCOME TAXES The provision for income taxes for the years ended April 30, 1997 and 1998 is as follows: 1997 1998 Current provision (benefit): Federal $ 86,248 $ 87,411 State - 12,585 Deferred (5,590) 276,704 ---------- --------- Provision (benefit) for income taxes $ 80,658 $ 376,700 ========== ========= The reconciliation of the statutory federal income tax rate with the Company's overall effective federal and state income rate for the years ended April 30, 1997 and 1998 is as follows: 1997 1998 Statutory federal rate 34.0% 34.0% State income taxes, net of federal benefit 4.8 3.1 Meals and entertainment 2.9 .8 Officers life insurance (3.2) .8 Other (1.5) (.4) -------- ------- Effective tax rates 37.0% 38.3% ======== ======= F-9 The tax effect of temporary differences giving rise to deferred income tax assets and liabilities as of April 30, 1997 and 1998 is as follows:
1997 1998 Deferred income tax liabilities - differences between the accrual basis and cash basis of accounting related to certain assets and liabilities $(66,951) $(362,921) ---------- ---------- Deferred income tax assets: Allowance for bad debts 6,969 45,540 State net operating loss carryforwards - - Deferred state taxes 1,161 12,613 Nondeductible reserve 30,757 - --------- ---------- Total deferred income tax assets 38,887 58,153 -------- ---------- Deferred income tax liabilities, net $(28,064) $(304,768) ========= ===========
The net deferred tax assets and liabilities are allocated between current and noncurrent amounts in the accompanying balance sheets according to the classification of the related asset and liability. 6. RELATED PARTY TRANSACTIONS The Company holds a 50% ownership in Premier Reprographics, Inc. ("Premier"). Premier, which is accounted for under the equity method of accounting, was formed in 1991 and provides blue line reprographic services to the Company. During 1997 and 1998, the Company purchased services from Premier amounting to $234,177 and $518,177, respectively. 7. EMPLOYEE BENEFIT PLANS The Company has a defined contribution plan (the "Plan") that provides retirement and other related benefits to eligible employees. Employees can make contributions up to a specified level. Company contributions to the Plan were $16,588, and $25,926 for the years ended April 30, 1997, and 1998, respectively. 8. SUBSEQUENT EVENTS The Company has entered into an agreement with HLM Design ("HLM") whereby HLM will purchase all of the outstanding capital stock of the Company for $2.4 million in cash, promissory notes bearing interest at 7 percent in the aggregate amount of $1.1 million and aggregate of 240,000 shares of HLM Design common stock. This sale was finalized on October 30, 1998. The Company is in the process of negotiating a new lease for office space. The Company's current lease expires in April 1999. ******** F-10 EX-99 3 EXHIBIT 99.5 HLM DESIGN, INC. AND AFFILIATES PROFORMA CONSOLIDATED STATEMENTS OF INCOME (FOR THE ACQUISITIONS) FOR THE YEAR ENDED MAY 1, 1998 (UNAUDITED)
ProForma (1) Historical ------------ ------------ JPJ ProForma HLM Architecture, ProForma For The Design, Inc. Inc. Adjustments Acquisitions ------------- ------------ ------------ ------------ REVENUES: Fee Income $ 29,399,733 $ 11,430,555 40,830,288 Reimbursable Income 2,129,993 2,717,515 4,847,508 ------------- ------------- ------------------------------- Total Revenues 31,529,726 14,148,070 - 45,677,796 ------------- ------------- ------------------------------- CONSULTANT EXPENSE 4,857,467 6,730,598 11,588,065 ------------- ------------- ------------------------------- PROJECT EXPENSES: Direct Expenses 926,277 206,365 1,132,642 Reimbursable expenses 905,811 605,313 1,511,124 ------------- ------------- ------------------------------- Total project expenses 1,832,088 811,678 - 2,643,766 ------------- ------------- ------------------------------- NET PRODUCTION INCOME 24,840,171 6,605,794 - 31,445,965 DIRECT LABOR 7,334,167 2,038,914 9,373,081 INDIRECT EXPENSES 14,810,415 3,639,546 130,000 (2) 18,579,961 ------------- ------------- ------------------------------- OPERATING INCOME 2,695,589 927,334 (130,000) 3,492,923 ------------- ------------- ------------------------------- OTHER EXPENSE: Interest Expense, net 1,124,357 16,423 284,000 (3) 1,424,780 Other - (70,842) (70,842) ------------- ------------- ------------------------------- Total Other Expense 1,124,357 (54,419) 284,000 1,353,938 ------------- ------------- ------------------------------- INCOME BEFORE INCOME TAXES 1,571,232 981,753 (414,000) 2,138,985 INCOME TAX 714,897 376,700 (186,300) (4) 905,297 ============= ============= =============================== NET INCOME $ 856,335 $ 605,053 $ (227,700) $ 1,233,688 ============================================================= NET INCOME PER SHARE Basic $ 1.23 $ 1.32 ============= ============= Diluted $ 1.00 $ 1.13 ============= ============= NUMBER OF SHARES USED TO COMPUTE PER SHARE DATA Basic 697,255 937,255 ============= ============= Diluted 854,453 1,094,457 ============= =============
See notes to proforma financial statements. 1 NOTES TO UNAUDITED PROFORMA STATEMENT OF INCOME (FOR THE ACQUISITIONS) FOR THE YEAR ENDED MAY 1, 1998 ADJUSTMENT (1) Reflects the acquisition of assets of HLM Design of North America, Inc. (HLMNA) through the merger of BBH Corp. into HLMNA and the consummation of the Management and Services Agreements and Stockholders' Agreements as though the occurred at the beginning of the period. (2) Reflects the amortization over an amortization period of 25 years of approximately $4,343,320 in goodwill resulting from the acquisition of JPJ Architects, Inc. which was assumed to have occurred on April 26, 1997. (3) Reflects the increase in interest expense for subordinated promissory notes in the aggregate principal amount of $1,160,000 as well as borrowing made under the Company's line of credit with First Charter National Bank associated with the acquisition of JPJ Architects, Inc. (4) Reflects the net decrease in the provision for income taxes resulting from adjustments (2) through (3) above, computed using an effective income tax rate of 45%. 2
HLM DESIGN, INC. AND AFFILIATES PROFORMA CONSOLIDATED STATEMENTS OF INCOME (FOR THE ACQUISITIONS AND THE OFFERING) FOR THE YEAR ENDED MAY 1, 1998 (UNAUDITED) ProForma For The ProForma Acquistions For The ProForma And The Acquistions Adjustments Offering ------------ ------------ --------- REVENUES: Fee Income $ 40,830,288 40,830,288 Reimbursable Income 4,847,508 4,847,508 ------------- -------------------------------- Total Revenues 45,677,796 - 45,677,796 ------------- -------------------------------- CONSULTANT EXPENSE 11,588,065 11,588,065 ------------- ------------------- PROJECT EXPENSES: Direct Expenses 1,132,642 1,132,642 Reimbursable expenses 1,511,124 1,511,124 ------------- -------------------------------- Total project expenses 2,643,766 - 2,643,766 ------------- -------------------------------- NET PRODUCTION INCOME 31,445,965 - 31,445,965 DIRECT LABOR 9,373,081 9,373,081 INDIRECT EXPENSES 18,579,961 18,579,961 ------------- -------------------------------- OPERATING INCOME 3,492,923 - 3,492,923 ------------- -------------------------------- OTHER EXPENSE: Interest Expense, net 1,424,780 (357,849) (1) 1,066,931 Other (70,842) (70,842) ------------- -------------------------------- Total Other Expense 1,353,938 (357,849) 996,089 ------------- -------------------------------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 2,138,985 357,849 2,496,834 INCOME TAX 905,297 161,032 (2) 1,066,329 ------------- -------------------------------- NET INCOME BEFORE EXTRAORDINARY ITEM 1,233,688 196,817 1,430,505 EXTRAORDINARY ITEM FOR EARLY EXTINGUISHMENT OF DEBT, NET OF TAX OF $171,842 280,849 (3) 280,849 ============= ============== ============= NET INCOME $ 1,233,688 $ (84,032) $ 1,149,656 ============= ============== ============= SUPPLEMENTAL NET INCOME PER SHARE: (4) NET INCOME PER SHARE BEFORE EXTRAORDINARY ITEM Basic $ 0.67 ============= Diluted $ 0.62 ============= NET INCOME PER SHARE Basic $ 0.54 ============= Diluted $ 0.50 ============= NUMBER OF SHARES USED TO COMPUTE PER SHARE DATA Basic 2,137,255 ============= Diluted 2,294,457 =============
See notes to proforma financial statements. 3 NOTES TO UNAUDITED PROFORMA STATEMENT OF INCOME (FOR THE ACQUISITIONS AND THE OFFERING) FOR THE YEAR ENDED MAY 1, 1998 (1) Reflects the decrease in interest expense resulting from the repayment of certain indebtedness through of the Initial Public Offering (the "Offering"). (2) Reflects the change in provision for income taxes resulting from adjustment (1) above. (3) Reflects the write-off of related unamortized financing costs related to certain indebtedness which was repaid with the proceeds of the Offering. (4) Supplemental net income per share in the accompanying proforma financial statements has been prepared based upon the shares outstanding given effect to the issuance of common stock related to the initial public offering. In addition, net income per share has been adjusted to give effect to the initial public offering and the business acquisition (discussed (1) above) as if the transactions had occurred at the beginning of the period. 4
HLM DESIGN, INC. AND AFFILIATES PROFORMA CONSOLIDATED STATEMENTS OF INCOME (FOR THE ACQUISITION) FOR THE SIX MONTHS ENDED OCTOBER 31, 1998 (UNAUDITED) Historical ----------------------------- JPJ HLM Architecture ProForma Design, Inc. Inc. Adjustments ProForma ------------ ------------- ------------ -------- REVENUES: Fee Income $ 12,815,480 $ 6,301,730 19,117,210 Reimbursable Income 2,829,066 1,206,163 4,035,229 --------- ---------- ----------- ---------- Total Revenues 15,644,546 7,507,893 - 23,152,439 --------- ---------- ----------- ---------- CONSULTANT EXPENSE 2,142,048 - 2,142,048 --------- ---------- ----------- ---------- PROJECT EXPENSES: Direct Expenses 345,968 3,627,084 3,973,052 Reimbursable expenses 568,437 1,116,024 1,684,461 --------- ---------- ----------- ---------- Total project expenses 914,405 4,743,108 - 5,657,513 --------- ---------- ----------- ---------- NET PRODUCTION INCOME 12,588,093 2,764,785 - 15,352,878 DIRECT LABOR 3,601,546 1,078,950 4,680,496 INDIRECT EXPENSES 7,852,607 1,358,849 65,000 (1) 9,276,456 --------- ---------- ----------- ---------- OPERATING INCOME 1,133,940 326,986 (65,000) 1,395,926 --------- ---------- ----------- ---------- OTHER EXPENSE: Interest Expense, net 327,547 2,574 112,000 (2) 442,121 Other 835 (110,284) (109,449) --------- ---------- ----------- ---------- Total Other Expense 328,382 (107,710) 112,000 332,672 --------- ---------- ----------- ---------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 805,558 434,696 (177,000) 1,063,254 INCOME TAX 364,151 171,912 (79,650) (3) 456,413 --------- ---------- ----------- ---------- NET INCOME BEFORE EXTRAORDINARY ITEM 441,407 262,784 (97,350) 606,841 EXTRAORDINARY ITEM FOR EARLY EXTINGUISHMENT OF DEBT, NET OF TAX OF $171,842 280,849 280,849 --------- ---------- ----------- ---------- NET INCOME $ 160,558 $ 262,784 $ (97,350) $ 325,992 ========= ========== =========== ========== NET INCOME PER SHARE BEFORE EXTRAORDINARY ITEM: Basic and diluted $ 0.24 $ 0.30 ====== ====== NET INCOME PER SHARE Basic and diluted $ 0.09 $ 0.16 ====== ====== NUMBER OF SHARES USED TO COMPUTE PER SHARE DATA Basic and diluted 1,812,339 2,056,362 ========= =========
See notes to proforma financial statements. 5 NOTES TO UNAUDITED PROFORMA STATEMENT OF INCOME (FOR THE ACQUISITION) FOR THE SIX MONTHS ENDED OCTOBER 31, 1998 ADJUSTMENT (1) Reflects the amortization over an amortization period of 25 years of approximately $4,343,320 in goodwill resulting from the acquisition of JPJ Architects, Inc. which was assumed to have occurred on May 2, 1998. (2) Reflects the increase in interest expense for subordinated promissory notes in the aggregate principal amount of $1,160,000 as well as borrowing made under the Company's line of credit with First Charter National Bank associated with the acquisition of JPJ Architects, Inc. (3) Reflects the net decrease in the provision for income taxes resulting from adjustments (2) through (3) above, computed using an effective income tax rate of 45%. 6 -----END PRIVACY-ENHANCED MESSAGE-----