EXHIBIT 99.3
ProForma Combined Financial Statements
UNAUDITED COMBINED FINANCIAL INFORMATION OF THE COMPANY
The following unaudited proforma combined financial information gives effect to
the acquisition of HLM Design International Limited ("HLM Ltd.") by G.A. Design
International Holding Ltd ("GAIH"), a wholly owned subsidiary of HLM Design,
Inc. and Subsidiaries and Affiliates(the"Company") as if it had occurred on May
1, 2000 and May 1, 2001, respectively, in the case of the Unaudited ProForma
Combined Balance Sheet of the Company of the Company as of February 1, 2002 and
in the case of the Unaudited ProForma Statement of Operation for the nine months
ended February 1, 2002, and in the case of the Unaudited ProForma Combined
Statements of Income for the year ended April 27, 2001.
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 proforma
financial information approximate their respective fair values. The actual
allocation of purchase cost, however, and the resulting effect on income may
differ from the proforma amounts included herein.
The proforma combined 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 proforma combined financial information should be read in conjunction with
the historical consolidated financial statements of the Company and other
historical financials statements of HLM Ltd. and notes thereto.
HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
COMBINED BALANCE SHEET (FOR THE ACQUISITION)
AS OF FEBRUARY 1, 2002
(Unaudited)
Historical
----------
HLM Design
HLM International ProForma
Design, Inc. Limited (6) Adjustments Proforma
------------ ------- ----------- --------
ASSETS:
Current Assets:
Cash $ 1,565,374 1,805 1,567,179
Trade and other receivables, less allowance for doutbtful
accounts of $623,311 and $1,202,120, respectively 13,360,173 2,159,130 15,519,303
Costs and estimated earnings in excess of billings on
uncompleted projects, net 7,786,571 7,786,571
Prepaid expenses and other 1,196,064 441,384 12,890 (3) 1,650,338
----------- ----------- ----------- -----------
Total Current Assets 23,908,182 2,602,319 12,890 26,523,391
----------- ----------- ----------- -----------
Other Assets:
Goodwill, net 12,276,868 43,346 8,904,180 (1) 21,224,394
Non-compete agreements 316,667 316,667
Deferred income taxes 712,765 712,765
Other noncurrent assets 701,239 701,239
----------- ----------- ----------- -----------
Total Other Assets 14,007,539 43,346 8,904,180 22,955,065
----------- ----------- ----------- -----------
Property and Equipment:
Leasehold improvements 2,057,970 2,057,970
Furniture and fixtures 5,058,949 1,860,088 (1,406,068) (1) 5,512,969
----------- ----------- ----------- -----------
Property and equipment, at cost 7,116,919 1,860,088 (1,406,068) 7,570,939
Less Accumulated depreciation 5,379,256 1,306,068 (1,306,068) (1) 5,379,256
----------- ----------- ----------- -----------
Property and equipment, net 1,737,663 554,020 (100,000) 2,191,683
----------- ----------- ----------- -----------
TOTAL ASSETS $39,653,384 $ 3,199,685 $ 8,817,070 $51,670,139
=========== =========== =========== ===========
See notes to proforma combined financial statements.
1
HLM DESIGN, INC AND SUBSIDIARIES AND AFFILIATES
COMBINED BALANCE SHEET (FOR THE ACQUISITION)
AS OF FEBRUARY 1, 2002
(Unaudited)
Historical
----------
HLM Design
HLM International ProForma
Design, Inc. Limited Adjustments Proforma
------------ ------------- ----------- --------
(6)
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current maturities of long-term debt
and capital lease obligations $ 2,903,631 $ 2,363,548.00 (2) $ 5,267,179.00
Accounts payable 10,441,644 1,230,787 538,520 (1) 12,210,951
Billings in excess of costs and estimated earnings
on uncompleted projects 1,478,793 637,329 2,116,122
Accrued payroll 738,043 738,043
Income taxes payable 1,212,185 1,212,185
Deferred income taxes 1,544,490 1,544,490
Accrued expenses and other 900,260 843,229 1,743,489
--------------- --------------- -------------- ---------------
Total Current Liabilities 19,219,046 2,711,345 2,902,068 24,832,459
--------------- --------------- -------------- ---------------
Long-term debt and other 9,653,325 4,422,452 (2) 14,075,777
--------------- --------------- -------------- ---------------
TOTAL LIABILITIES 28,872,371 2,711,345 7,324,520 38,908,236
--------------- --------------- -------------- ---------------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock 2,534 240,798 (240,398)(1) 2,934
Additional paid in capital 7,986,612 155,252 1,812,348 (1) 9,954,212
Retained earnings 2,837,290 109,228 (96,338)(1)(3) 2,850,180
Accumulated other comprehensive loss (45,423) (16,938) 16,938 (1) (45,423)
--------------- --------------- -------------- ---------------
Total stockholders' equity 10,781,013 488,340 1,492,550 12,761,903
--------------- --------------- -------------- ---------------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 9,653,384 $ 3,199,685 $ 8,817,070 $ 51,670,139
=============== =============== ============== ===============
See notes to proforma combined financial statements.
2
HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
PROFORMA COMBINED STATEMENT OF OPERATION (FOR THE ACQUISITION)
FOR THE NINE MONTHS ENDED FEBRUARY 1, 2002
(Unaudited)
Historical
----------
HLM Design
HLM International ProForma
Design, Inc. Limited Adjustments ProForma
------------- ------------- ----------- --------
REVENUES: (6)
Fee Income $ 41,836,122 $ 6,681,489 48,517,611
Reimbursable Income 3,222,006 3,222,006
-------------- ---------------- --------------------------------------
Total Revenues 45,058,128 6,681,489 - 51,739,617
-------------- ---------------- --------------------------------------
CONSULTANT EXPENSE 15,201,523 92,804 15,294,327
-------------- ---------------- --------------------------------------
PROJECT EXPENSES:
Direct Expenses 700,853 302,340 1,003,193
Reimbursable Expenses 1,793,155 1,793,155
-------------- ---------------- --------------------------------------
Total Project Expenses 2,494,008 302,340 - 2,796,348
-------------- ---------------- --------------------------------------
NET PRODUCTION INCOME 27,362,597 6,286,345 - 33,648,942
DIRECT LABOR 9,237,700 2,230,797 11,468,497
INDIRECT EXPENSES 17,564,533 5,018,973 22,583,506
-------------- ---------------- --------------------------------------
OPERATING INCOME (LOSS) 560,364 (963,425) - (403,061)
-------------- ---------------- --------------------------------------
OTHER EXPENSE (INCOME):
Interest Expense (Income), net 882,643 (14,356) 349,604 (4) 1,217,891
-------------- ---------------- --------------------------------------
Total Other Expense (Income) 882,643 (14,356) 349,604 1,217,891
-------------- ---------------- --------------------------------------
LOSS BEFORE INCOME TAXES (322,279) (949,069) (349,604) (1,620,952)
INCOME TAX BENEFIT (92,929) (229,989) (78,145) (5) (401,063)
-------------- ---------------- --------------------------------------
NET LOSS $ (229,350) $ (719,080) $ (271,459) $ (1,219,889)
=========================================================================
NET LOSS PER SHARE
Basic $ (0.09) $ (0.42)
============= =================
Diluted $ (0.09) $ (0.41)
============= =================
NUMBER OF SHARES USED TO COMPUTE PER SHARE DATA
Basic 2,524,782 2,924,782
============= =================
Diluted 2,450,449 2,940,449
============= =================
See notes to proforma combined financial statements.
3
HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
PROFORMA COMBINED STATEMENT OF INCOME (FOR THE ACQUISITION)
FOR THE YEAR ENDED APRIL 27, 2001
(Unaudited)
Historical
--------------------------
HLM Design
HLM International ProForma
Design, Inc. Limited (6) Adjustments ProForma
------------ ------- ----------- --------
REVENUES:
Fee Income $ 60,288,709 $ 12,607,080 72,895,789
Reimbursable Income 4,002,653 - 4,002,653
------------ ------------- -------------------------------
Total Revenues 64,291,362 12,607,080 - 76,898,442
------------ ------------- -------------------------------
CONSULTANT EXPENSE 19,559,667 180,373 19,740,040
------------ ------------- -------------------------------
PROJECT EXPENSES:
Direct Expenses 1,112,544 933,740 2,046,284
Reimbursable Expenses 2,203,142 - 2,203,142
------------ ------------- -------------------------------
Total Project Expenses 3,315,686 933,740 - 4,249,426
------------ ------------- -------------------------------
NET PRODUCTION INCOME 41,416,009 11,492,967 - 52,908,976
DIRECT LABOR 13,223,850 3,688,306 16,912,156
INDIRECT EXPENSES 24,787,155 6,071,908 30,859,063
------------ ------------- -------------------------------
OPERATING INCOME 3,405,004 1,732,753 - 5,137,757
------------ ------------- -------------------------------
OTHER EXPENSE (INCOME):
Interest Expense (Income), net 1,734,141 (86,084) 461,697 (4) 2,109,754
Other income - (137,766) (137,766)
------------ ------------- -------------------------------
Total Other Expense (Income) 1,734,141 (223,850) 461,697 1,971,988
------------ ------------- -------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 1,670,863 1,956,603 (461,697) 3,165,769
INCOME TAX EXPENSE 903,905 617,721 (145,403) (5) 1,376,223
------------ ------------- -------------------------------
NET INCOME BEFORE MINORITY INTEREST 766,958 1,338,882 (316,294) 1,789,546
MINORITY INTEREST IN EARNINGS 25,701 25,701
------------ ------------- -------------------------------
NET INCOME $ 741,257.00 $1,338,882.00 ($316,294) $ 1,763,845
============ ============= ===============================
NET INCOME PER SHARE
Basic $ 0.31 $ 0.63
============ ===========
Diluted $ 0.30 $ 0.62
============ ===========
NUMBER OF SHARES USED TO COMPUTE PER SHARE DATA
Basic 2,415,238 2,815,238
============ ===========
Diluted 2,437,611 2,837,611
============ ===========
See notes to proforma combined financial statements.
4
Notes to ProForma Combined Financial Statements (For the Acquisition)(Unaudited)
(1) Reflects the acquisition of HLM Ltd. by the Company effective February 26,
2002 and the preliminary allocation of the purchase price of HLM Ltd. based
on the estimated fair value of the net assets and liabilities recorded by
HLM Ltd. as of February 1, 2002. Proforma's reflect assumption that the
historical amounts approximate their respective fair values as of February
1, 2002. The amount of the goodwill and the corresponding amortization
actually recorded may ultimately differ from upon consummation of the
acquisition. The estimated purchase price allocation consists of the
following:
Cash paid for HLM Ltd. $ 3,083,635
Subordinated promissory notes 3,702,365
Issuance of 400,000 shares of the Company's
common stock (A) 1,968,000
Direct costs associated with purchase of HLM Ltd. 538,520
----------------
Total purchase price 9,292,520
Less: estimated fair value of net assets acquired 388,340
----------------
Goodwill $ 8,904,180
================
(A) The shareholders of HLM Ltd. will receive 400,000 shares on a delayed
delivery basis.
(B) Property and equipment was valued approximately at net book value. A
reserve of $100,000 was established for obsolete equipment.
(2) Reflects the borrowing from Bank of Scotland, Joe Harris, CEO, and Vernon
Brannon, COO and CFO, to fund the acquisition of HLM Ltd. as summarized
below:
Subordinated promissory notes with former HLM Ltd shareholders $ 3,702,365
Bank of Scotland 2,900,000
Subordinated promissory notes with two Officers of HLM
Design, Inc. 183,636
-------------
Total borrowings of GAIH $ 6,786,001
=============
Subordinated promissory notes ("Notes") totaling $3.2 million which provide
for a payment of 42.2% of the principal amount on each of February 26, 2003
and February 26, 2004 and 7.8% of the principal amount on February 26, 2005
and February 26, 2006. A note for $0.2 million provides for six month
installments beginning August 26, 2002 with final payment on February 26,
2006. A note for $0.3 million provides for payment on September 4, 2002.
All subordinated promissory note payment terms will be made provided there
exists sufficient cash flow in HLM Ltd. as defined in the Notes.
Bank of Scotland-Loan provides for $0.6 million payment on January 31, 2003
and $0.3 million for six month installments beginning July 31, 2003 with
final payment on January 31, 2007.
Subordinated promissory notes with two Officers of HLM Design, Inc.-Notes
provide for annual installments of $45,908 each beginning February 26, 2003
with final payment on February 26, 2005. All subordinated promissory note
payment terms will be made provided there exists sufficient cash flow in
HLM Ltd. as defined in the Notes.
(3) Reflects an adjustment to the deferred tax asset resulting from a
difference between UK and US GAAP for financial statement reporting.
5
Notes to ProForma Combined Financial Statements (For the Acquisition)
(Unaudited)
(4) To fund the acquisition of HLM Ltd. this adjustment reflects an increase in
interest expense for subordinated promissory notes and borrowings from
Joseph Harris, CEO, and Vernon Brannon, CFO, at 7% per annum. In addition,
borrowings with the Bank of Scotland, at a rate of LIBOR plus 2% and such
other costs prescribed in the facility letter between the Bank of Scotland
and GAIH, were used to fund the acquisition of HLM Ltd.
(5) Reflects the net increase in the income tax benefit resulting from
adjustment (4) above, computed using the historical effective income tax
rate of HLM Ltd. as well as an adjustment for deferred income taxes as a
result of a difference between UK and US GAAP for financial statement
reporting.
(6) Assets and liabilities denominated in foreign currencies have been
translated into U.S. dollars at the period end exchange rate. Revenue and
expenses denominated in foreign currencies have been translated into U.S.
dollars at the weighted average exchange rate.
6