-----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, Kokd5FrfSyduxCsJXq49XRB7fZ5A/Pr/+mBuwrCIMxyYierfpR1K4hLIhw6c6Ygd PqwmSUQQhkxXWbLghPJ99w== /in/edgar/work/0000950168-00-001659/0000950168-00-001659.txt : 20000714 0000950168-00-001659.hdr.sgml : 20000714 ACCESSION NUMBER: 0000950168-00-001659 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000429 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000713 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HLM DESIGN INC CENTRAL INDEX KEY: 0001049129 STANDARD INDUSTRIAL CLASSIFICATION: [8700 ] IRS NUMBER: 562018819 STATE OF INCORPORATION: DE FISCAL YEAR END: 0501 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 001-14137 FILM NUMBER: 672540 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 0001.txt HLM DESIGN, INC. 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): April 29, 2000 -------------- 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 April 29, 2000 that was filed with the Securities and Exchange Commission on May 15, 2000 (the "Initial Form 8-K Report"). This amending report contains the required financial statements referenced in the Initial Form 8-K Report. Item 2. Acquisition or Disposition of Assets - -------------------------------------------- As of April 29, 2000, HLM Design, Inc. (the "Company") purchased all of the issued and outstanding common stock of BL&P Engineers, Inc. ("BL&P") and related goodwill for $1.46 million in cash, subordinated promissory notes bearing interest at 7 percent in the aggregate amount of $2.0 million (the "Notes") and 50,000 shares of the Company's common stock having a value of $0.3 million to be delivered on a delayed delivery basis (the "Stock"). This acquisition was pursuant to a Stock Purchase Agreement dated April 28, 2000 (the "Agreement") and other contemporaneous agreements among the Company, BL&P and the BL&P shareholder. The 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 and BL&P entered into a Management and Services Agreement (the "MSA") whereby the Company will manage all aspects of BL&P other than the provision of professional engineering services. The cash portion of the purchase price has been financed by the Company's credit facility with IBJ Whitehall Business Credit Corporation dated as of February 7, 2000. For additional information concerning the transaction, reference is made to the Agreement and the MSA, which are attached as exhibits to 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 BL&P ENGINEERS, INC. Independent Auditors' Report Balance Sheets at December 31, 1998 and 1999 and April 28, 2000 (Unaudited) Statements of Operations for the Years Ended December 31, 1998 and 1999 and the Four Months Ended April 30, 1999 (Unaudited) and April 28, 2000 (Unaudited) Statements of Stockholders' Equity for the Years Ended December 31, 1998 and 1999 and the Four Months Ended April 28, 2000 (Unaudited) Statements of Cash Flows for the Years Ended December 31, 1998 and 1999 and the Four Months Ended April 30, 1999 (Unaudited) and April 28, 2000 (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 CONSOLIDATED FINANCIAL STATEMENTS REFLECTING THE ACQUISITION OF BL&P ENGINEERS, INC. ProForma Consolidated Statement of Income (For the Acquisition) for the Year Ended April 30, 1999 (Unaudited) and Notes thereto ProForma Consolidated Balance Sheet (For the Acquisition) as of January 28, 2000 (Unaudited) and Notes thereto 1 ProForma Consolidated Statement of Income (For the Acquisition) for the Nine Months Ended January 28, 2000 (Unaudited) and Notes thereto (c) Exhibits. Exhibit No. Description - ----------- ----------- 23 Consent of Deloitte & Touche LLP 99.1* Stock Purchase Agreement dated as of April 28, 2000 among HLM Design, Inc., BL&P Engineers, Inc., and Scott L. Brady, PE. (The Company agrees to furnish supplementally a copy of omitted schedules (or similar attachments) to the Commission upon request.) 99.2* Management and Services Agreement dated as of April 29, 2000 by and between HLM Design, Inc. and BL&P Engineers, Inc. 99.3 Financial Statements of BL&P Engineers, Inc., including Independent Auditors' Report 99.4 ProForma Financial Statements Reflecting the Acquisition of BL&P Engineers, Inc. - -------- *Previously filed. 2 SIGNATURES Pursuant to the requirements of the Securities and Exchange 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: July 13, 2000 By: /s/ Vernon B. Brannon --------------------- Senior Vice President, Chief Financial Officer, Treasurer, Assistant Secretary And Director 3 EX-23 2 0002.txt CONSENT OF DELOITTE & TOUCHE LLP Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement of HLM Design Inc. on Form S-8 of our report dated June 30, 2000 relating to the financial statements of BL&P Engineers, Inc. for each of the two years ended December 31, 1999, appearing in the Form 8-K/A of HLM Design Inc. dated July 13, 2000. DELOITTE & TOUCHE LLP Charlotte, North Carolina July 11, 2000 EX-99.3 3 0003.txt FINANCIAL STATEMENTS Exhibit 99.3 BL&P Engineers, Inc. Independent Auditors' Report Financial Statements Years Ended December 31, 1998 and 1999, and Four Months Ended April 28, 2000 BL&P ENGINEERS, INC. FINANCIAL STATEMENTS TABLE OF CONTENTS - --------------------------------------------------------------------------------
Page INDEPENDENT AUDITORS' REPORT F-1 FINANCIAL STATEMENTS: Balance Sheets at December 31, 1998 and 1999 and April 28, 2000 (Unaudited) F-2 - F-3 Statements of Operations for the Years Ended December 31, 1998 and 1999 for and the Four Months Ended April 30, 1999 and April 28, 2000 (Unaudited) F-4 Statements of Stockholders' Equity for the Years Ended December 31, 1998 and 1999 and for the Four Months Ended April 28, 2000 (Unaudited) F-5 Statements of Cash Flows for the Years Ended December 31, 1998 and 1999 and for the Four Months Ended April 30, 1999 and April 28, 2000 (Unaudited) F-6 - F-7 Notes to Financial Statements F-8 - F-13
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders BL&P Engineers, Inc. Dallas, Texas We have audited the accompanying balance sheets of BL&P Engineers, Inc. (the "Company") as of December 31, 1998 and 1999, and the related statements of operations, stockholders' equity, and of cash flows for the years then ended. 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 auditing standards generally accepted in the United States of America. 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, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1998 and 1999, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Deloitte & Touche LLP June 30, 2000 F-1 BL&P ENGINEERS, INC. BALANCE SHEETS DECEMBER 31, 1998 AND 1999 AND APRIL 28, 2000 - --------------------------------------------------------------------------------
Years Ended Four Months December 31, Ended ----------------------- April 28, ASSETS 1998 1999 2000 (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 383,526 $ 66,015 $ 91,840 Trade and other receivables, less allowance for doubtful accounts of $312,000, $337,000 and $333,000 at December 31, 1999 and 1998 and April 28, 2000, respectively 1,326,353 1,927,184 1,434,083 Costs and estimated earnings in excess of billings on uncompleted projects (Note 2) - 154,517 21,608 Costs inccurred under completed contract method (Note 2) 1,287,222 754,536 1,004,290 Prepaid expenses and other 46,797 60,964 99,795 ---------- ---------- ---------- Total current assets 3,043,898 2,963,216 2,651,616 ---------- ---------- ---------- PROPERTY AND EQUIPMENT - NET (Note 3) 319,683 406,162 294,793 OTHER 5,921 5,921 79,964 ---------- ---------- ---------- TOTAL ASSETS $ 3,369,502 $ 3,375,299 $ 3,026,373 ============ ============ ===========
F-2 BL&P ENGINEERS, INC. BALANCE SHEETS DECEMBER 31, 1998 AND 1999 AND APRIL 28, 2000 - --------------------------------------------------------------------------------
Years Ended Four Months December 31, Ended --------------------- April 28, LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1999 2000 (Unaudited) CURRENT LIABILITIES: Short-term debt (Note 4) $ 328,307 $ 304,307 $ 492,307 Current portion of long-term debt and capital lease obligation (Notes 3 and 4) 92,342 133,340 139,079 Accounts payable 199,692 94,602 64,281 Accrued expenses 179,746 65,227 205,149 Income taxes payable (Note 6) 22,513 12,856 12,856 Billings for contracts under completed contract method (Note 2) 1,645,591 926,365 780,546 Accrued construction administration costs for contracts under completed contract method (Note 1) 127,287 121,926 76,810 Billings in excess of costs and estimated earnings on uncompleted projects (Note 2) 38,798 44,312 92,888 Deferred income taxes (Note 6) 218,090 548,036 461,180 ----------- ----------- ----------- Total current liabilities 2,852,366 2,250,971 2,325,096 LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION (Notes 3 and 4) 369,010 339,058 261,537 DEFERRED INCOME TAXES (Note 6) 5,631 18,233 - ----------- ----------- ----------- Total liabilities 3,227,007 2,608,262 2,586,633 ----------- ----------- ----------- COMMITMENTS (Note 5) STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, noncumulative, participating, 100,000 shares authorized, 10,000 issued and outstanding 100 100 100 Common stock, $1 par value, 10,000 shares authorized, issued and outstanding 10,000 10,000 10,000 Additional paid-in capital 43,895 43,895 43,895 Retained earnings 616,807 1,241,349 1,004,052 Treasury stock, at cost - 11,447 shares at December 31, 1999 and 1998, 11,547 shares at April 28, 2000 (528,307) (528,307) (618,307) ----------- ----------- ----------- Total stockholders' equity 142,495 767,037 439,740 ----------- ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,369,502 $ 3,375,299 $ 3,026,373 =========== =========== ===========
See notes to financial statements. F-3 BL&P ENGINEERS, INC. STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998 AND 1999 AND FOUR MONTHS ENDED APRIL 30, 1999 AND APRIL 28, 2000 - --------------------------------------------------------------------------------
Years Ended Four Months Ended December 31, ---------------------------------- ---------------------- April 30, April 28, 1998 1999 1999 2000 (Unaudited) REVENUES: Fee income $ 3,551,240 $ 5,085,225 $ 1,483,881 $ 1,342,583 Reimbursable income 76,329 157,793 25,760 37,823 ----------- ----------- ----------- ----------- Total revenues 3,627,569 5,243,018 1,509,641 1,380,406 ----------- ----------- ----------- ----------- PROJECT EXPENSES: Direct expenses 876,482 266,022 124,257 123,411 Reimbursable expenses 57,622 192,279 35,934 61,904 ----------- ----------- ----------- ----------- Total project expenses 934,104 458,301 160,191 185,315 ----------- ----------- ----------- ----------- NET PRODUCTION INCOME 2,693,465 4,784,717 1,349,450 1,195,091 DIRECT LABOR 947,683 1,784,715 369,244 671,302 INDIRECT EXPENSES (Note 5) 1,432,106 1,932,616 486,741 913,813 ----------- ----------- ----------- ----------- OPERATING INCOME (LOSS) 313,676 1,067,386 493,465 (390,024) ----------- ----------- ----------- ----------- OTHER (INCOME) EXPENSE: Interest expense, net 49,586 67,196 22,603 23,152 Other (income) expense, net 1,468 15,743 (10,575) (44,769) ----------- ----------- ----------- ----------- Total other (income) expense, net 51,054 82,939 12,028 (21,617) ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES 262,622 984,447 481,437 (368,407) PROVISION (BENEFIT) FOR INCOME TAXES (Note 6) 102,650 359,905 180,158 (131,110) ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ 159,972 $ 624,542 $ 301,279 $ (237,297) =========== =========== =========== ===========
See notes to financial statements. F-4 BL&P ENGINEERS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1999 AND FOUR MONTHS ENDED APRIL 28, 2000 - --------------------------------------------------------------------------------
Preferred Stock Common Stock Additional --------------- -------------------- Paid-in Shares Amount Shares Amount Capital BALANCE, JANUARY 1, 1998 10,000 $ 100 10,000 $ 10,000 $ 43,895 Purchase of treasury stock - - - - - Net income - - - - - --------- --------- -------- --------- --------- BALANCE, DECEMBER 31, 1998 10,000 100 10,000 10,000 43,895 Net income - - - - - --------- --------- -------- --------- --------- BALANCE, DECEMBER 31, 1999 10,000 100 10,000 10,000 43,895 Purchase of treasury stock - - - - - Net loss - - - - - --------- --------- -------- --------- --------- BALANCE, APRIL 28, 2000 (Unaudited) 10,000 $ 100 10,000 $ 10,000 $ 43,895 ========= ========= ======== ========= ========= Retained Total Treasury Earnings Stockholders' Stock (Deficit) Equity BALANCE, JANUARY 1, 1998 $ (148,372) $ 456,835 $ 362,458 Purchase of treasury stock (379,935) - (379,935) Net income - 159,972 159,972 ----------- ------------ ----------- BALANCE, DECEMBER 31, 1998 (528,307) 616,807 142,495 Net income - 624,542 624,542 ----------- ------------ ----------- BALANCE, DECEMBER 31, 1999 (528,307) 1,241,349 767,037 Purchase of treasury stock (90,000) - (90,000) Net loss - (237,297) (237,297) ----------- ------------ ----------- BALANCE, APRIL 28, 2000 (Unaudited) $ (618,307) $ 1,004,052 $ 439,740 =========== ============ ===========
See notes to financial statements. F-5 BL&P ENGINEERS, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998 AND 1999 AND FOUR MONTHS ENDED APRIL 30, 1999 AND APRIL 28, 2000 - --------------------------------------------------------------------------------
Four Months Years Ended Ended December 31, --------------------------- --------------------- April 30, April 28, 1998 1999 1999 2000 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 159,972 $ 624,542 $ 301,279 $ (237,297) Adjustments to reconcile net income to net cash used in operating activities: (Gain) loss from disposals of property and equipment - 18,142 (9,675) 9,217 Bad debt expense 91,988 223,109 8,748 158,540 Depreciation and amortization 101,087 92,389 43,350 33,332 Write off of property and equipment - - - 68,820 Deferred income taxes 71,975 342,552 - (105,089) Changes in assets and liabilities which increased (decreased) cash: Trade and other receivables (431,054) (319,170) (768,132) 334,561 Costs and estimated earnings in excess of billings on uncompleted projects, net 38,798 (149,003) 101,578 181,485 Costs of construction under completed contract method (484,380) 27,916 (332,815) (249,754) Prepaid expenses and other assets 54,254 (14,165) 35,278 (112,874) Accounts payable (69) (105,090) (10,953) (30,321) Accrued expenses 1,359 (114,525) (78,322) 139,922 Billings for contracts under completed contract method 597,162 (719,225) 197,424 (145,819) Accrued construction administration costs for contracts under completed contract method 42,633 (5,361) 12,159 (45,116) Income taxes payable 28,513 (9,659) 157,642 - --------- -------- -------- -------- Net cash provided by (used in) operating activities 272,238 (107,548) (342,439) (393) --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (207,388) (97,020) (62,376) - Proceeds from disposals of property and equipment - 17,446 - - --------- -------- -------- -------- Net cash used in investing activities (207,388) (79,574) (62,376) - --------- -------- -------- --------
F-6 BL&P ENGINEERS, INC. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998 AND 1999 AND FOUR MONTHS ENDED APRIL 30, 1999 AND APRIL 28, 2000 - --------------------------------------------------------------------------------
Four Months Years Ended Ended December 31, ------------------------- --------------------- April 30, April 28, 1998 1999 1999 2000 (Unaudited) CASH FLOWS FROM FINANCING ACTIVITIES: Net advances (payments) on revolving line of credit $ 128,307 $ (24,000) $ 105,000 $ 188,000 Principal advances of long-term debt 428,208 - - - Principal payments on long-term debt and capital lease obligation (47,141) (106,389) (13,341) (71,782) Purchases of treasury stock (379,935) - - (90,000) ------------- --------- ---------- ---------- Net cash provided by (used in) financing activities 129,439 (130,389) 91,659 26,218 ------------- --------- ---------- ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 194,289 (317,511) (313,156) 25,825 CASH AND CASH EQUIVALENTS: Beginning of period 189,237 383,526 383,526 66,015 ------------- --------- ---------- ---------- End of period $ 383,526 $ 66,015 $ 70,370 $ 91,840 ============= ========= ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - Cash paid during the period for: Interest $ 59,442 $ 74,700 $ 23,426 $ 24,146 ============= ========= ========== ========== Income taxes $ 24,675 $ 19,840 $ - $ 3,459 ============= ========= ========== ========== SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES - Fixed assets acquired under capital leases $ - $ 117,435 $ 117,435 $ - ============= ========= ========== ==========
See notes to financial statements. F-7 BL&P ENGINEERS, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998 AND 1999 AND FOUR MONTHS ENDED APRIL 28, 2000 - -------------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Business - BL&P Engineers, Inc. (the "Company") is an engineering firm located in Dallas, Texas. The Company specializes in engineering services for architects, construction companies and the general public. 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 are typically liquidated in the normal course of contract completion, usually within one year. Cash and Cash Equivalents - The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Revenue and Cost Recognition - Revenue is recognized on certain longer term contracts (those six months or longer in length), at estimated collectible amounts, in the period the services are performed. More specifically, the Company recognizes revenues on these contracts 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. 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. For all other contracts, the Company recognizes revenues and reports profits under the completed contract method. This method is used because these contracts are completed in six months or less (execution of the contract until the engineering drawings are delivered and accepted by the customer) and the financial position and results of operations do not vary significantly from those results which would result from use of the percentage-of-completion method. Under the completed contract method, contract costs and billings are accumulated during periods of construction, but no revenues, costs or profits are recognized until the contract is substantially complete. Contracts are considered substantially complete when the engineering drawing for the project is complete and has been delivered and accepted by the customer. After the drawings are accepted and the contract has entered the construction administration phase, the Company estimates any liability for costs to be incurred and charges operations in the current period. Costs included in the liability "accrued construction administration costs for contracts under completed contract method" include direct material, direct labor and related overhead. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. F-8 Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 under the percentage-of-completion method. Property and Equipment - Property and equipment are recorded at cost. Assets held under capital leases are recorded at the lower of the net present value of the minimum lease payments required over the term of the lease or their fair value. Expenditures for maintenance and repairs are expensed as incurred. The estimated useful lives of property and equipment for financial reporting purposes are as follows:
Furniture and equipment 5 years Automobiles 5 years Assets held under capital leases 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 the years ended December 31, 1998 and 1999 were insignificant. Income Taxes - The provision for income taxes includes federal and state taxes currently payable adjusted for the net change in the deferred taxes during the year. Deferred income tax assets and liabilities represent the future income tax effect of temporary differences between book and tax bases of assets and liabilities assuming they will be realized and settled at the amounts reported in the accompanying financial statements. Recent Accounting Pronouncements - 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 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 was amended to be effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Management is in the process of evaluating the impact of SFAS No. 133 on the Company's financial statements. F-9 2. CONTRACTS IN PROGRESS Information relative to contracts in progress under the percentage-of-completion method as of December 31, 1998 and 1999 and April 28, 2000 is as follows:
December 31, -------------------------------- April 28, 1998 1999 2000 (Unaudited) Costs incurred on uncompleted projects (excluding overhead) $ 476,869 $ 799,229 $ 1,561,970 Estimated earnings (loss) thereon (6,317) 28,425 359,008 --------------- --------------- --------------- Total 470,552 770,804 1,202,962 Less billings to date 509,350 660,599 1,274,242 --------------- --------------- --------------- Net under (over) billings $ (38,798) $ 110,205 $ (71,280) ============== ============== ================
Net underbillings are included in the accompanying balance sheets as follows:
December 31, ------------------- April 28, 1998 1999 2000 (Unaudited) Costs and estimated earnings in excess of billings on uncompleted projects $ - $ 154,517 $ 21,608 Billings in excess of costs and estimated earnings on uncompleted projects (38,798) (44,312) (92,888) ----------- ----------- ----------- Net under (over) billings $ (38,798) $ 110,205 $ (71,280) =========== =========== ===========
The components of costs and billings for contracts under the completed contract method at December 31, 1998 and 1999 and April 28, 2000 are as follows:
December 31, ------------------- April 28, 1998 1999 2000 (Unaudited) Costs of construction under completed contract method $ 1,287,222 $ 754,536 $ 1,004,290 ============= =========== ============= Billings for contracts under completed contract method $ 1,645,591 $ 926,365 $ 599,061 ============= =========== =============
F-10 3. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1998 and 1999 consists of the following:
1998 1999 Furniture and equipment $ 609,438 $ 518,756 Automobiles 131,879 134,734 Assets held under capital leases 61,476 61,476 Leasehold improvements 57,011 52,827 ------------- ------------- 859,804 767,793 Less accumulated depreciation and amortization (540,121) (361,631) ------------- ------------- Property and equipment, net $ 319,683 $ 406,162 ============= =============
Certain automobiles and equipment are pledged as collateral for related debt. 4. FINANCING ARRANGEMENTS Short-term debt at December 31, 1998 and 1999 consists of the following:
1998 1999 Unsecured revolving credit facility, up to $500,000, interest at 9.75%, maturing March 31, 2000, guaranteed by stockholder $ 328,307 $ 304,307
A summary of long-term debt and capital lease obligation at December 31, 1998 and 1999 is as follows:
1998 1999 Unsecured note payable to related party, due in monthly installments of $2,917, including interest at 6.50%, maturing December 19, 2003 $ 325,479 $ 268,624 Note payable to related party, secured by automobile, due in monthly installments of $872, including interest at 8.50%, maturing April 14, 2001 22,078 13,148 Notes payable to bank, secured by automobiles and equipment due in monthly installments ranging from $529 to of $1,058, plus interest ranging from 8.50% to 10% maturing May 14, 1999 through October 8, 2003 53,976 56,431 Capital leases due in monthly installments ranging from $1,261 to $5,024 including interest ranging from 8.50% to 9.75%, maturing from February 5, 2001 to October 1, 2003 59,819 134,195 ------- ------- Total long-term debt and capital lease obligation 461,352 472,398 Less current maturities (92,342) (133,340) ------- ------- Long-term portion $ 369,010 $ 339,058 ======== =========
F-11 Annual principal payments on long-term debt and capital lease obligation are as follows: 2000 $ 133,340 2001 138,229 2002 105,814 2003 95,015 --------- Total $ 472,398 ========= 5. COMMITMENTS The Company leases office space and certain equipment under noncancelable operating lease arrangements. The office space lease is subject to renewal upon its expiration in 2003. The total minimum rental commitment under these arrangements at December 31, 1999 is as follows: 2000 $ 152,146 2001 160,871 2002 143,315 2003 106,490 2004 36,093 -------- Total $ 598,915 ========= Rent expense was approximately $97,000 and $133,000 during 1998 and 1999 and is included in indirect expenses within the accompanying financial statements. 6. INCOME TAXES The provision for income taxes at December 31, 1998 and 1999 is as follows: 1998 1999 $ 35,175 $ 12,858 67,475 347,047 ----------- ---------- Current payable Deferred taxes $ 102,650 $ 359,905 =========== =========== Total F-12 The tax effect of temporary differences giving rise to deferred income tax liabilities as of December 31, 1998 and 1999 are as follows:
1998 1999 Differences between the accrual basis and cash basis of accounting related to certain assets and liabilities $ 213,098 $ 548,036 Differences between book and tax bases of property and equipment 10,623 18,233 ------- -------- Deferred income tax liabilities, net $ 223,721 $ 566,269 ========= =========
The Company's effective income tax rate during 1998 and 1999 was higher than the statutory federal rate of 34%. The significant item that increased the Company's tax rate over the federal statutory rate is the effect of state income taxes. 7. RELATED PARTY TRANSACTIONS As of December 31, 1998 and 1999, the Company has approximately $77,000 and $129,000 due from the majority stockholder and approximately $45,000 and $33,000 due from an entity controlled by a former stockholder included within accounts receivable. In addition, the Company has indebtedness of approximately $22,000 and $13,000 for a vehicle owned by the majority stockholder and indebtedness of approximately $325,000 and $269,000 for treasury stock purchased from a former stockholder that is included within long-term debt in the accompanying financial statements. Interest expense of approximately $25,000 and $21,000, respectively was incurred in connection with this related party indebtedness. 8. EMPLOYEE BENEFIT PLAN 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 approximately $30,000 and $36,000 for the years ended December 31, 1998 and 1999, respectively. 9. SUBSEQUENT EVENT The stockholders of the Company have entered into an agreement with HLM Design, Inc. ("HLMD") whereby HLMD purchased all of the outstanding capital stock of the Company for $1.46 million in cash, promissory notes bearing interest at 7 percent in the aggregate amount of $2.0 million and an aggregate of 50,000 shares of HLMD common stock. The sale was finalized on April 29, 2000. ******** F-13 EX-99.4 4 0004.txt PROFORMA FINANCIAL STATEMENTS Exhibit 99.4 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF THE COMPANY The following unaudited pro forma consolidated financial information gives effect to the acquisition of BL&P Engineers, Inc. ("BL&P") by HLM Design, Inc. ("HLMD") as if it had occurred on May 1, 1998 and May 1, 1999, respectively, in the case of the Unaudited Pro Forma Consolidated Statements of Income of the Company for the fiscal year ended April 30, 1999 and the nine months ended January 28, 2000, and on January 28, 2000, in the case of the Unaudited Pro Forma Consolidated Balance Sheet of the Company. The acquisition will be accounted for using the purchase method of accounting. The total cost of the acquisition has been preliminarily allocated to the acquired assets and assumed liabilities on the assumption that the historical amounts of assets and liabilities recorded in the accompanying pro forma financial information approximate their respective fair values. The actual allocation of purchase cost, however, and the resulting effect on income may differ from the pro forma amounts included herein. The pro forma consolidated financial data is presented for illustrative purposes only and is not necessarily indicative of what the Company's financial position or results of operations would have been had the transaction occurred as of the above-referenced dates or of the financial position or results that may be reported by the Company in the future. The pro forma consolidated financial information should be read in conjunction with the historical consolidated financial statements of HLMD and other historical financial statements of BL&P and the footnotes thereto. HLM DESIGN, INC. AND AFFILIATES PROFORMA CONSOLIDATED STATEMENT OF INCOME (FOR THE ACQUISITION) FOR THE YEAR ENDED APRIL 30, 1999 (Unaudited)
Historical ---------------------------- BL&P HLM Engineers ProForma Design, Inc. Inc. Adjustments ProForma ------------ --------- ----------- -------- REVENUES: Fee Income $ 29,299,883 $ 4,417,430 785,375 (1) 34,502,688 Reimbursable Income 8,457,770 88,258 - 8,546,028 ---------- ---------- ---------- ---------- Total Revenues 37,757,653 4,505,688 785,375 43,048,716 ---------- ---------- ---------- ---------- CONSULTANT EXPENSE 7,525,208 5,109 - 7,530,317 ---------- ---------- ---------- ---------- PROJECT EXPENSES: Direct Expenses 742,633 669,573 21,621 1,433,827 Reimbursable expenses 1,504,094 43,063 - 1,547,157 ---------- ---------- ---------- ---------- Total project expenses 2,246,727 712,636 21,621 2,980,984 ---------- ---------- ---------- ---------- NET PRODUCTION INCOME 27,985,718 3,787,943 763,754 32,537,415 DIRECT LABOR 8,139,460 1,643,030 616,523 (1) 10,399,013 INDIRECT EXPENSES 17,110,728 1,531,098 73,256 (2) 18,715,082 ---------- ---------- ---------- ---------- OPERATING INCOME 2,735,530 613,815 73,975 3,423,320 ---------- ---------- ---------- ---------- OTHER EXPENSE: Interest Expense, net 719,611 61,383 388,426 (3) 1,169,420 Other income - (9,107) - (9,107) ---------- ---------- ---------- ---------- Total Other Expense 719,611 52,276 388,426 1,160,313 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 2,015,919 561,539 (314,451) 2,263,007 INCOME TAX 942,707 210,128 (117,668) (4) 1,035,167 ---------- ---------- ---------- ---------- NET INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM 1,073,212 351,411 (196,783) 1,227,840 MINORITY INTEREST IN EARNINGS 326 - - - ---------- ---------- ---------- ---------- NET INCOME BEFORE EXTRAORDINARY ITEM 1,072,886 351,411 (196,783) 1,227,840 EXTRAORDINARY ITEM FOR EARLY EXTINGUISHMENT OF DEBT, NET OF TAX OF $171,842 280,849 - - 280,849 ---------- ---------- ---------- ---------- NET INCOME $ 792,037 $ 351,411 $ (196,783) $ 946,991 ========== ========== ========== ========== NET INCOME PER SHARE Basic $ 0.39 $ 0.45 ========== ========== Diluted $ 0.39 $ 0.45 ========== ========== NUMBER OF SHARES USED TO COMPUTE PER SHARE DATA Basic 2,048,974 2,098,974 ========== ========== Diluted 2,048,974 2,098,974 ========== ==========
See notes to proforma financial statements. 1 Unaudited ProForma Consolidated Statement of Income (For the Acquisition) For the Year Ended April 30, 1999 (1) Reflects the change in revenue recognition from the method used by BL&P, which was the percentage of completion method for longer term contracts (those six months in duration or longer) and the completed contract method for the contracts with shorter durations to the HLMD method, which is the percentage of completion method for all contracts. (2) Reflects the amortization over a period of 25 years of approximately $4.0 million in goodwill as a result of the acquisition of BL&P. (3) Reflects an increase in interest expense for subordinated promissory notes as well as a borrowing made under the Company's line of credit to fund the acquisition of BL&P. (4) Reflects the net decrease in the provision for income taxes resulting from adjustments (1) through (3) above, computed using the historical effective income tax rate of BL&P. 2 HLM DESIGN, INC. AND AFFILIATES PROFORMA CONSOLIDATED BALANCE SHEET (FOR THE ACQUISITION) AS OF JANUARY 28, 2000 (Unaudited)
Historical ------------------------------ BL&P HLM Engineers ProForma ASSETS: Design, Inc. Inc. Adjustments ------------ ---------- ----------- Current Assets: Cash and cash equivalents $ 83,700 $ 70,322 - Trade and other receivables, less allowance for doubtful accounts of $401,641 and 337,119, respectively 9,913,959 1,667,723 - Costs and estimated earnings in excess of billings on uncompleted contracts 8,707,771 414,765 60,418 (1) Costs incurred under completed contract method 627,154 (627,154) (1) Prepaid expenses and other 581,895 12,916 - ---------- ---------- ----------- Total current assets 19,287,325 2,792,880 (566,736) ---------- ---------- ----------- Other Assets: Goodwill, net 8,227,620 - 1,776,453 (4) Other 938,942 5,921 - ---------- ---------- ----------- Total other assets 9,166,562 5,921 1,776,453 ---------- ---------- ----------- Property and equipment, net 2,452,053 406,162 (78,037) (2) ---------- ---------- ----------- TOTAL ASSETS $30,905,940 $3,204,963 $1,131,680 ========== ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Current maturities of long-term debt and capital lease obligations $1,325,363 $ 98,620 (98,620) (5) Accounts payable 8,012,710 121,756 - Billings in excess of costs and estimated earnings on uncompleted projects 1,106,050 86,735 207,205 (1) Accrued construction administration costs for contracts under completed contract method - 160,106 (160,106) (1) Billings for contracts under completed contract method - 1,081,106 (1,081,106) (1) Accrued expenses and other 3,043,305 121,019 - ---------- ---------- ----------- Total current liabilities 13,487,428 1,669,342 (1,132,627) ---------- ---------- ----------- LONG-TERM DEBT AND OTHER 7,724,009 767,234 2,732,766 (5) ---------- ---------- ----------- TOTAL LIABILITIES 21,211,437 2,436,576 1,600,139 ---------- ---------- ----------- STOCKHOLDERS' EQUITY: Common stock 2,355 10,000 (9,950) (4) Preferred stock 100 (100) (3) Additonal paid in capital and other 7,431,962 43,895 212,305 (4) Retained earnings 2,259,354 1,242,699 (1,199,021) (1)-(5) Treasury stock - (528,307) 528,307 (3) Other comprehensive income 832 - - ---------- ---------- ----------- TOTAL STOCKHOLDERS' EQUITY 9,694,503 768,387 (468,459) ---------- ---------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $30,905,940 $3,204,963 $1,131,680 ========== ========== =========== ASSETS: ProForma -------- Current Assets: Cash and cash equivalents 154,022 Trade and other receivables, less allowance for doubtful accounts of $401,641 and 337,119, respectively 11,581,682 Costs and estimated earnings in excess of billings on uncompleted contracts 9,182,954 Costs incurred under completed contract method - Prepaid expenses and other 594,811 ---------- Total current assets 21,513,469 ---------- Other Assets: Goodwill, net 10,004,073 Other 944,863 ---------- Total other assets 10,948,936 ---------- Property and equipment, net 2,780,178 ---------- TOTAL ASSETS $35,242,583 ========== LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Current maturities of long-term debt and capital lease obligations 1,325,363 Accounts payable 8,134,466 Billings in excess of costs and estimated earnings on uncompleted projects 1,399,990 Accrued construction administration costs for contracts under completed contract method - Billings for contracts under completed contract method - Accrued expenses and other 3,164,324 ---------- Total current liabilities 14,024,143 ---------- LONG-TERM DEBT AND OTHER 11,224,009 ---------- TOTAL LIABILITIES 25,248,152 ---------- STOCKHOLDERS' EQUITY: Common stock 2,405 Preferred stock - Additonal paid in capital and other 7,688,162 Retained earnings 2,303,032 Treasury stock - Other comprehensive income 832 ---------- TOTAL STOCKHOLDERS' EQUITY 9,994,431 ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $35,242,583 ==========
See notes to proforma financial statements. 3 Notes to Unaudited ProForma Consolidated Balance Sheet (For the Acquisition) As of January 28, 2000 (1) Reflects the change in revenue recognition from the method used by BL&P, which was for longer term contracts (those six months in duration or longer) the percentage of completion was used and for the contracts with shorter durations the completed contract method was used, to the HLMD method, which is for all contracts the percentage of completion method is used. (2) Reflects the sale of certain assets prior to the acquisition of BL&P. (3) Reflects redemption preferred stock and retirement of treasury stock of BL&P. (4) Reflects the acquisition of BL&P by HLMD effective April 29, 2000 and the preliminary allocation of purchase price of BL&P based on the estimated fair value of the net assets acquired. This assumes that the historical amounts of assets and liabilities recorded by BL&P as of January 28, 2000 represent their fair values at that date. The amount of the goodwill and the corresponding amortization actually recorded may ultimately differ from these amounts, depending upon the actual fair value of net assets acquired upon consummation of the acquisition. The estimated purchase price allocation consists of the following: Cash paid for BL&P $1,460,000 Subordinated debt issued 2,040,000 Issuance of 50,000 shares of HLM common stock 256,250 BL&P debt paid at closing 767,234 --------- Total purchase cost $4,523,484 Less estimated fair value of net assets acquired 2,692,089 --------- Goodwill $1,831,395 ========== (5) Reflects the borrowing made under HLMD's line of credit to fund the acquisition of BL&P, and subordinated debt issued net of the debt of BL&P, which was repaid as of the acquisition date as summarized below: Subordinated debt issued $2,040,000 Line of credit proceeds 2,227,234 ---------- Total proceeds $4,267,234 Less: Payoff of BL&P Debt (767,234) ---------- Debt outstanding $3,500,000 ========== Cash paid for BL&P $1,460,000 Payoff of BL&P debt 767,234 ---------- Line of credit drawn $2,227,234 ========== 4 HLM DESIGN, INC. AND AFFILIATES PROFORMA CONSOLIDATED STATEMENT OF INCOME (FOR THE ACQUISITION) FOR THE NINE MONTHS ENDED JANUARY 28, 2000 (Unaudited)
Historical ----------------------------- BL&P HLM Engineers ProForma Design, Inc. Inc. Adjustments ProForma ------------ --------- ----------- -------- REVENUES: Fee Income $ 35,212,629 $ 4,349,150 569,623 (1) 40,131,402 Reimbursable Income 2,883,291 138,463 - 3,021,754 ---------- ---------- ---------- ---------- Total Revenues 38,095,920 4,487,613 569,623 43,153,156 ---------- ---------- ---------- ---------- CONSULTANT EXPENSE 10,782,675 1,500 - 10,784,175 ---------- ---------- ---------- ---------- PROJECT EXPENSES: Direct Expenses 587,959 325,148 22,325 935,432 Reimbursable expenses 1,564,673 166,907 - 1,731,580 ---------- ---------- ---------- ---------- Total project expenses 2,152,632 492,055 22,325 2,667,012 ---------- ---------- ---------- ---------- NET PRODUCTION INCOME 25,160,613 3,994,058 547,298 29,701,969 DIRECT LABOR 7,403,527 1,219,121 480,810 (1) 9,103,458 INDIRECT EXPENSES 15,701,374 1,645,042 73,256 (2) 17,419,672 ---------- ---------- ---------- ---------- OPERATING INCOME 2,055,712 1,129,895 (6,768) 3,178,839 ---------- ---------- ---------- ---------- OTHER EXPENSE: Interest Expense, net 757,893 48,732 291,319 (3) 1,097,944 Other - 25,117 - 25,117 ---------- ---------- ---------- ---------- Total Other Expense 757,893 73,849 291,319 1,123,061 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 1,297,819 1,056,046 (298,087) 2,055,778 INCOME TAX 608,858 395,905 (111,751) (4) 893,012 ---------- ---------- ---------- ---------- NET INCOME $ 688,961 $ 660,141 $ (186,336) $ 1,162,766 ========== ========== ========== ========== NET INCOME PER SHARE Basic and diluted $ 0.29 $ 0.48 ========== ========== NUMBER OF SHARES USED TO COMPUTE PER SHARE DATA Basic and diluted 2,351,702 2,401,702 ========== ==========
See notes to proforma financial statements. 5 Notes to Unaudited ProForma Consolidated Statement of Income (For the Acquisition) For the Nine Months Ended January 28, 2000 (1) Reflects the change in revenue recognition from the method used by BL&P, which was the percentage of completion method for longer term contracts (those six months in duration or longer) and the completed contract method for the contracts with shorter durations to the HLMD method, which is the percentage of completion method for all contracts. (2) Reflects the amortization over a period of 25 years of approximately $4.0 million in goodwill as a result of the acquisition of BL&P. (3) Reflects an increase in interest expense for subordinated promissory notes as well as a borrowing made under the Company's line of credit to fund the acquisition of BL&P. (4) Reflects the net decrease in the provision for income taxes resulting from adjustments (1) through (3) above, computed using the historical effective income tax rate of BL&P. 6 -----END PRIVACY-ENHANCED MESSAGE-----