<PAGE>

                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]    QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

       For the quarterly period ended November 2, 2001

[_]    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

       For the transition period from ____________ to ____________


                        Commission file Number 001-14137
                                               ---------

                                HLM Design, Inc.
             (Exact Name of Registrant as Specified in Its Charter)

                  Delaware                           56-2018819
       (State or Other Jurisdiction         (I.R.S Employer Identification No.)
     of Incorporation or Organization)

     121 West Trade Street, Suite 2950
         Charlotte, North Carolina                      28202
  (Address of principal executive offices)            (Zip Code)

       Registrant's Telephone Number, Including Area Code: (704) 358-0779

Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes   X     No
    -----

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

Title of Each Class                             Outstanding at December 3, 2001
-------------------                             -------------------------------
Common stock, par value $.001 per share                 2,213,193 shares

<PAGE>

HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                                      PAGE
                                                                                       NO.
<S>                                                                                   <C>
PART I.  FINANCIAL INFORMATION

ITEM 1   Financial Statements

         Condensed Consolidated Balance Sheets - April 27, 2001 and
          November 2, 2001                                                             3

         Condensed Consolidated Statements of Operations - Six Month Periods
          Ended October 27, 2000 and November 2, 2001 and Three Month
          Periods Ended October 27, 2000 and November 2, 2001                          5

         Condensed Consolidated Statement of Stockholders' Equity - Six
          Month Period Ended November 2, 2001                                          6

         Condensed Consolidated Statements of Cash Flows - Six Month
          Periods Ended October 27, 2000 and November 2, 2001                          7

         Notes to Unaudited Condensed Consolidated Financial Statements                8

ITEM 2.  Management's Discussion and Analysis of Financial Condition
          And Results of Operations                                                    14

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk                    21

PART II. OTHER INFORMATION

ITEM 2.  Changes in Securities and Use of Proceeds                                     21

ITEM 4.  Submission of Matters to a Vote of Security Holders                           22

ITEM 5.  Other Information                                                             22

ITEM 6.  Exhibits and  Reports on Form 8-K                                             23

SIGNATURES                                                                             24
</TABLE>

<PAGE>

PART I FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                 April 27,       November 2,
                                                                   2001            2001
                                                                   ----            ----
                                                                                (Unaudited)
<S>                                                         <C>                <C>
ASSETS:
Current Assets:
Cash                                                        $      243,148     $  1,620,920
Trade and other receivables, less allowance for
   doubtful accounts at April 27, 2001 and November 2, 2001
   of $726,473 and $579,804, respectively                       11,977,393       11,855,984
Costs and estimated earnings in excess of billings on
   uncompleted projects, net                                     9,767,618        8,438,589
Prepaid expenses and other                                       1,423,399        1,026,400
                                                            --------------------------------
          Total Current Assets                                  23,411,558       22,941,893
                                                            --------------------------------

Other Assets:
Goodwill, net                                                   12,166,149       12,264,435
Non-compete agreement                                              60,417          331,250
Other                                                            1,019,785        1,151,428
                                                            --------------------------------
          Total Other Assets                                    13,246,351       13,747,113
                                                            --------------------------------

Property and Equipment:
  Leasehold improvements                                         1,925,075        2,031,775
  Furniture and fixtures                                         4,523,544        4,841,811
                                                            --------------------------------
Property and equipment, at cost                                  6,448,619        6,873,586
Less Accumulated depreciation                                    4,362,817        5,044,313
                                                            --------------------------------
          Property and equipment, net                            2,085,802        1,829,273
                                                            --------------------------------
TOTAL ASSETS                                                $   38,743,711     $ 38,518,279
                                                            ================================
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                       3

<PAGE>


HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
CONDENSED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                      April 27,        November 2,
                                                                                        2001              2001
                                                                                        ----              ----
                                                                                                       (Unaudited)
<S>                                                                                 <C>              <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current maturities of long-term debt
  and capital lease obligations                                                     $  1,848,248     $  3,099,250
Accounts payable                                                                       8,864,277        8,922,556
Billings in excess of costs and estimated earnings
  on uncompleted projects                                                              1,646,954        2,206,984
Accrued expenses and other                                                             4,883,141        5,057,619
                                                                                   -------------------------------
          Total Current Liabilities                                                   17,242,620       19,286,409
                                                                                   -------------------------------
Long-term debt and other                                                              10,730,764        8,692,792
                                                                                   -------------------------------
TOTAL LIABILITIES                                                                     27,973,384       27,979,201
                                                                                   -------------------------------
Commitments and contingencies

STOCKHOLDERS' EQUITY:
Capital Stock:
  Preferred, $.10 par value, voting, authorized 1,000,000
    shares, no shares outstanding
  Common, $.001 par value, voting, authorized 9,000,000 shares; issued 2,426,330
    and 2,530,414 at April 27, 2001 and November 2, 2001, respectively (includes
    227,221 and 317,221 to be issued on a delayed delivery schedule at April 27,
    2001 and November 2, 2001, respectively)                                               2,427            2,531
Additional paid in capital                                                             7,744,023        7,980,888
Retained earnings                                                                      3,066,074        2,574,348
Accumulated other comprehensive loss                                                     (42,197)         (18,689)
                                                                                   -------------------------------
Total stockholders' equity                                                            10,770,327       10,539,078
                                                                                   -------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                          $ 38,743,711     $ 38,518,279
                                                                                   ===============================
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                       4

<PAGE>

HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
CONDENDSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

<TABLE>
<CAPTION>
                                                                             Six            Six            Three          Three
                                                                            Months         Months          Months         Months
                                                                             Ended          Ended           Ended         Ended
                                                                          October 27,    November 2,     October 27,    November 2,
                                                                             2000           2001            2000           2001
                                                                             ----           ----            ----           ----
<S>                                                                     <C>             <C>             <C>            <C>
REVENUES:
 Fee Income                                                             $ 29,976,567    $ 28,042,919    $ 15,196,744   $ 13,685,307
 Reimbursable Income                                                       1,963,189       1,829,867         872,336        559,680
                                                                        ----------------------------    ---------------------------
     Total Revenues                                                       31,939,756      29,872,786      16,069,080     14,244,987
                                                                        ----------------------------    ---------------------------
CONSULTANT EXPENSE                                                         9,173,995       9,751,352       4,658,377      5,158,579
                                                                        ----------------------------    ---------------------------
PROJECT EXPENSES:
 Direct Expenses                                                             539,091         479,188         296,224        222,545
 Reimbursable expenses                                                     1,171,004       1,295,789         611,113        646,119
                                                                        ----------------------------    ---------------------------
     Total project expenses                                                1,710,095       1,774,977         907,337        868,664
                                                                        ----------------------------    ---------------------------
NET PRODUCTION INCOME                                                     21,055,666      18,346,457      10,503,366      8,217,744
DIRECT LABOR                                                               6,717,173       6,539,676       3,439,475      3,035,629
INDIRECT EXPENSES                                                         12,339,773      12,000,714       6,017,612      5,784,499
                                                                        ----------------------------    ---------------------------
OPERATING INCOME (LOSS)                                                    1,998,720        (193,933)      1,046,279       (602,384)
INTEREST EXPENSE                                                             920,295         671,795         471,368        333,408
                                                                        ----------------------------    ---------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST                    1,078,425        (865,728)        574,911       (935,792)
INCOME TAX EXPENSE (BENEFIT)                                                 571,543        (358,068)        305,166       (395,368)
                                                                        ----------------------------    ---------------------------
INCOME (LOSS) BEFORE MINORITY INTEREST                                       506,882        (507,660)        269,745       (540,424)
MINORITY INTEREST IN INCOME (LOSS)                                                           (15,934)                           896
                                                                        ----------------------------    ---------------------------
NET INCOME (LOSS)                                                       $    506,882    $   (491,726)   $    269,745   $   (541,320)
                                                                        ============================    ===========================

NET INCOME (LOSS) PER SHARE
 Basic                                                                  $       0.21    $      (0.20)   $       0.11   $      (0.21)
                                                                        ============================    ===========================
NUMBER OF SHARES USED TO COMPUTE PER SHARE DATA
 Basic                                                                     2,412,870       2,521,517       2,414,519      2,526,205
                                                                        ============================    ===========================

NET INCOME (LOSS) PER SHARE
 Diluted                                                                $       0.21    $      (0.20)   $       0.11   $      (0.21)
                                                                        ============================    ===========================
NUMBER OF SHARES USED TO COMPUTE PER SHARE DATA
 Diluted                                                                   2,416,121       2,521,517       2,414,556      2,526,205
                                                                        ============================    ===========================
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                        5

<PAGE>

HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(Unaudited)

<TABLE>
<CAPTION>
                                                                                            Accumulated
                                                               Additional                      Other             Total
                                          Common Stock          Paid-In        Retained     Comprehensive     Stockholders'
                                          ------------
                                     Shares         Amount      Capital        Earnings     Income (Loss)       Equity
                                     ------         ------      -------        --------     -------------       ------
<S>                              <C>              <C>        <C>            <C>              <C>             <C>
Balance, April 27, 2001             2,426,330     $  2,427   $ 7,744,023    $  3,066,074     $     (42,197)  $   10,770,327

Foreign Currency Translation
  Adjustment, net of tax                                                                            23,508           23,508

Net Loss                                                                        (491,726)                          (491,726)

                                                                                                             ---------------
Total Comprehensive Loss                                                                                           (468,218)
                                                                                                             ---------------

Issuance of Common Stock
  for Purchase of Business             90,000           90       211,440                                            211,530

Issuance of Common Stock               14,084           14        25,425                                             25,439

                                 -------------------------------------------------------------------------------------------
Balance,  November 2, 2001          2,530,414     $  2,531   $ 7,980,888    $  2,574,348     $     (18,689)  $   10,539,078
                                 ===========================================================================================
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                       6

<PAGE>

HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
(Unaudited)                                                                                               Six            Six
                                                                                                       Months           Months
                                                                                                        Ended            Ended
                                                                                                     October 27,       November 2,
                                                                                                        2000             2001
                                                                                                        ----             ----
<S>                                                                                                <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income  (loss)                                                                                $       506,882   $     (491,726)
 Adjustments to reconcile net income (loss) to net cash provided by operating activities:
  Depreciation                                                                                             480,598          483,124
  Amortization of intangible assets                                                                        330,302           29,168
  Amortization of deferred loan fees                                                                       100,906           99,870
  Changes in assets and liabilities, net of effects from purchase of
   acquired companies:
  Decrease (increase) in trade and other accounts receivable                                               562,426          (86,802)
  Net (increase) decrease in costs and estimated earnings in excess of billings
   on uncompleted projects                                                                              (2,157,740)       1,889,059
  (Increase) decrease in prepaid expenses and other assets                                                  (4,810)         487,720
  Increase (decrease) in accounts payable                                                                1,426,845          (51,697)
  Decrease in accrued expenses and other                                                                  (202,379)         (88,457)
                                                                                                   --------------------------------
    Net cash provided by operating activities                                                            1,043,030        2,270,259
                                                                                                   --------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of property and equipment                                                                      (376,977)        (226,595)
 Payment for acquisition activities and purchase of business, net of cash acquired                      (2,135,394)        (141,576)
                                                                                                   --------------------------------
    Net cash used in investing activities                                                               (2,512,371)        (368,171)
                                                                                                   --------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Net borrowings on revolving credit facility                                                             1,735,918         (531,385)
 Borrowings on long-term debt                                                                                    -          457,593
 Payment on long-term borrowings                                                                          (486,189)        (475,963)
 Proceeds from issuance of common stock under the Employee Stock Purchase Plan                              18,835           25,439
                                                                                                   --------------------------------
    Net cash provided by (used in) financing activities                                                  1,268,564         (524,316)
                                                                                                   --------------------------------
 (DECREASE) INCREASE IN CASH                                                                              (200,777)       1,377,772
CASH BALANCE:
 Beginning of period                                                                                       285,616          243,148
                                                                                                   --------------------------------
 End of period                                                                                     $        84,839   $    1,620,920
                                                                                                   ================================
SUPPLEMENTAL DISCLOSURES:
 Interest paid                                                                                     $     1,005,146   $      475,391
 Income tax payments (refunds)                                                                     $       163,920   $     (732,788)
 Noncash investing and financing transactions:
 Acquisition of acquired businesses, net of imputed interest:

    Notes payable issued to former acquired company shareholder                                    $     1,871,496   $            -
    Fair value of assets acquired and liabilities assumed, net                                     $       281,126   $      243,669
    Common stock to be issued on delayed delivery schedule                                         $       256,250   $      211,530
 Payment of note payable with trade accounts receivable                                            $             -   $      237,213
</TABLE>

See notes to unaudited condensed consolidated financial statements.

                                        7

<PAGE>

HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Organization and Business-HLM Design, Inc. ("HLM Design") and Subsidiaries
     and Affiliates ("the Company") is a professional consultancy that provides
     management services to architectural, engineering and planning design
     entities ("Managed Firms") under long-term management and services
     agreements ("MSAs"). As of November 2, 2001, the Company had wholly-owned
     affiliates and subsidiaries as follows:

         Affiliates:

          .    HLM Design of North America, Inc. ("HLMNA");
          .    HLM Design USA, Inc. ("HLMUSA");
          .    HLM Design Architecture, Engineering and Planning, P.C.
               ("HLMAEP");
         Subsidiaries:
          .    JPJ Architects, Inc. ("JPJ");
          .    G.A. Design International Holdings, Ltd. ("GAIH"); and
          .    BL&P Engineers, Inc. ("BL&P").

     Financial Statement Presentation - The accompanying unaudited financial
     information for the three and six month periods ended October 27, 2000 and
     November 2, 2001 has been prepared in accordance with accounting principles
     generally accepted in the United States of America. All significant
     intercompany accounts and transactions have been eliminated. These
     unaudited consolidated financial statements reflect, in the opinion of
     management, all material adjustments (which include only normal recurring
     adjustments) necessary to fairly state the financial position and the
     results of operations for the interim periods presented. The results for
     interim periods are not necessarily indicative of the results to be
     expected for the entire fiscal year. These interim financial statements
     should be read in conjunction with the Company's audited consolidated
     financial statements for the year ended April 27, 2001.

     New Accounting Standards -In June 1998, the Financial Accounting Standards
     Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS")
     No. 133, Accounting for Derivative Instruments and Hedging Activities. This
     statement establishes accounting and reporting standards for derivative
     instruments, including certain derivative instruments embedded in other
     contracts (collectively referred to as derivatives) and for hedging
     activities. This new standard requires that an entity recognize all
     derivatives as either assets or liabilities in the balance sheet and
     measure those instruments at fair value. As of April 28, 2001, the Company
     adopted SFAS No. 133. The adoption of this statement did not have a
     material impact on the Company's consolidated financial statements.

                                       8

<PAGE>

HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
     POLICIES-continued

     In June 2001, the FASB issued SFAS 141, "Business Combinations", which
     requires all business combinations initiated after June 30, 2001 to be
     accounted for under the purchase method. SFAS 141 also sets forth
     guidelines for applying the purchase method of accounting in the
     determination of intangible assets, including goodwill acquired in a
     business combination, and expands financial disclosures concerning business
     combinations consummated after June 30, 2001. The application of SFAS 141
     did not affect any of our previously reported amounts included in goodwill
     or other intangible assets.

     Effective April 28, 2001, the Company early adopted SFAS 142, "Goodwill
     and Other Intangible Assets", which establishes new accounting and
     reporting requirements for goodwill and other intangible assets. Under SFAS
     142, all goodwill amortization ceased effective April 28, 2001. The Company
     identified reporting units based on the current reporting structure,
     assigned all goodwill to the reporting units, as well as other assets and
     liabilities, to the extent that they related to the reporting unit. The
     Company has completed the first step of the transitional goodwill
     impairment test by comparing the fair value of each reporting unit to its
     carrying value and have determined that no impairment exists at the
     effective date of the implementation of the new standard. Fair value of
     each reporting unit was measured using a valuation by an independent third
     party as of April 28, 2001 which was based on the market multiple,
     comparable transactions and discounted cash flow methodologies.

     The valuation indicated an aggregate fair value of the reporting units
     significantly in excess of the Company's market capitalization as of April
     28, 2001. The Company believes the market capitalization is not
     representative of the fair value of the Company because the common stock is
     not actively traded.

     On an ongoing basis the Company will obtain an independent valuation and
     perform our annual goodwill test. Impairment indicators which may be
     considered include, but are not limited to, the following:

         [X] A significant adverse change on legal factors or in the business
             climate
         [X] Unanticipated competition
         [X] A significant decline in the operating performance
         [X] Adverse action or assessment by a regulator.

     The Company's operations have improved significantly for the months of
     October and November 2001. At least quarterly, management will evaluate to
     determine if an event has occurred that would more likely than not reduce
     the fair value of a reporting unit below its carrying amount. The Company
     will, if appropriate, perform a goodwill impairment test between the
     annual dates. Impairment adjustments recognized after adoption, if any,
     will be recognized as operating expenses.

                                       9

<PAGE>

HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-
     continued

     The following financial information is presented as if SFAS No. 142
     was adopted at the beginning of the fiscal year ended
     April 27, 2001:

<TABLE>
<CAPTION>
                                                        Six Months         Three Months
                                                        October 27,         October 27,
                                                           2000                2000
                                                           ----                ----
     <S>                                                <C>                 <C>
     Reported net income (loss)                         $   506,882         $   237,135
     Goodwill amortization                                  317,802             155,800
                                                        -----------         -----------
     Adjusted net income (loss)                         $   824,684         $   392,937
                                                        ===========         ===========
     Goodwill                                           $12,440,851         $12,365,547
                                                        ===========         ===========


     Basic income (loss) per share:
     Reported net income (loss)                         $      0.21         $      0.10
     Goodwill amortization                                     0.13                0.06
                                                        -----------         -----------
     Adjusted net income (loss)                         $      0.34         $      0.16
                                                        ===========         ===========

     Reported diluted income (loss) per share:
     Reported net income (loss)                         $      0.21         $      0.10
     Goodwill amortization                                     0.13                0.06
                                                        -----------         -----------
     Adjusted net income (loss)                         $      0.34         $      0.16
                                                        ===========         ===========
</TABLE>

     The financial information for acquired intangible assets included in other
     non-current assets is as follows:

<TABLE>
<CAPTION>
                                                                 April 27,       November 2,
                                                                   2001             2001
                                                                   ----             ----
     <S>                                                         <C>             <C>
     Amortized intangible assets-non compete agreements:

        Original Cost                                            $100,000        $ 400,000
        Accumulated Amortization                                 $ 39,583        $  68,750
</TABLE>

     The non-compete intangible assets are amortized over their contractual
     life ranging from four to nine years. Amortization expense for the three
     and six months ended November 2, 2001 was $14,585 and $29,168,
     respectively, and annual estimated amortization for the non-compete
     agreements are as follows:

     Estimated Amortization Expense
     ------------------------------
     Fiscal 2002                         $58,336
     Fiscal 2003                         $58,336
     Fiscal 2004                         $43,753
     Fiscal 2005                         $33,336
     Fiscal 2006                         $33,336

                                       10

<PAGE>

HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-
   continued

   The changes in carrying amount of goodwill for the six months ended November
   2, 2001 are as follows:

<TABLE>
<CAPTION>

                                                    Total
                                                    -----
<S>                                         <C>               <C>               <C>
   Balance, April 27, 2001                         $12,166,149

   Goodwill acquired during the period                  98,286
                                                   -----------
   Balance, November 2, 2001                       $12,264,435
                                                   ===========
</TABLE>

   Newly Issued Accounting Standards-In October 2001, the FASB issued SFAS No.
   144, "Accounting for Impairment or Disposal of Long-Lived Assets," which
   supercedes SFAS No. 121, "Accounting for the Impairment or Disposal of
   Long-Lived Assets and for Long-Lived Assets to be Disposed Of," but retains
   many of its fundamental provision. Additionally, this statement expands the
   scope of discontinued operations to include more disposal transactions. The
   Company is currently assessing the impact of this statement, which will be
   effective for the Company for fiscal year 2003.

2. CONTRACTS IN PROGRESS
   Information relative to contracts in progress is as follows:

                                                     April 27,     November 2,
                                                       2001           2001
                                                       ----           ----
   Costs incurred on uncompleted projects
    (excluding overhead)                         $ 90,872,392     $ 131,876,973
   Estimated earnings thereon                      77,505,622       103,307,413
                                                 ------------     -------------
   Total                                          168,378,014       235,184,386
   Less billings to date                          160,257,350       228,952,781
                                                 ------------     -------------
   Net underbillings                             $  8,120,664     $   6,231,605
                                                 ============     =============


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

                                                      April 27,    November 2,
                                                        2001          2001
                                                        ----          ----
   Costs and estimated earnings in excess of
    billings on uncompleted projects                $ 9,767,618     $ 8,438,589
   Billings in excess of costs and estimated
    earnings on uncompleted projects                 (1,646,954)     (2,206,984)
                                                    -----------     -----------
   Net underbillings                                $ 8,120,664     $ 6,231,605
                                                    ===========     ===========

                                       11

<PAGE>

HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. FINANCING ARRANGEMENTS


   Effective December 18, 2001, the Company entered into an amendment to its
   revolving credit, term loan and capital expenditure loan with IBJ Whitehall
   Business Credit Corporation ("IBJ").  The amendment is summarized as follows:

   a.  Revolving credit-The maximum revolving advance amount is $10,500,000.
   b.  Revolving credit-Waiver of the leverage and senior leverage financial
       covenants as of quarter ended November 2, 2001.
   c.  Revolving credit-Modification of certain future financial covenants.

   The amount available to borrow is calculated based on the aging of certain
   assets. As of November 2, 2001 the Company had borrowings outstanding under
   the revolver of $7,659,646.

   Substantially all assets are pledged under this financing arrangement. This
   financing arrangement requires that certain financial requirements be
   maintained such as minimum net worth, minimum earnings before interest,
   taxes, depreciation and amortization, maximum leverage and
   senior leverage ratios, maximum fixed charge coverage and senior fixed
   charge coverage ratios and maximum capital expenditure commitments.
   All covenants are determined quarterly and the leverage and senior
   leverage covenants are based on a trailing four quarters ending on each
   determination date.

   Due to lower than anticipated cash flow during the first and second quarter
   of fiscal year ended May 3, 2002, the Company extended its current year
   payment obligations under certain note agreements with former acquired
   company shareholders (the subordinated notes payable) as follows:

   Notes payable to former JPJ Architect, Inc. shareholders: The current year
   installment due October 2001 of $348,000 plus interest has been modified to
   agreed upon payments of $31,628 plus interest, $40,953 plus interest, $63,274
   plus interest, $94,911 plus interest, $94,911 plus interest and $22,323 plus
   interest for the quarter ended November 2, 2001, February 1, 2002, May 3,
   2002, August 2, 2002, November 1, 2002, and January 4, 2003, respectively. In
   addition, 72,001 shares scheduled to be delivered October 2001 were delayed
   until January 2002.

   Notes payable to former ESS Architects, Inc. shareholders: The current year
   installment due September 2001 of $125,000 plus interest has been modified to
   agreed upon payments of $31,285 plus interest and $93,715 plus interest for
   the quarter ended November 2, 2001 and May 3, 2002, respectively.

   Notes payable to former BL&P shareholder: The current year installment due
   October 2001 of $612,000 plus interest has been modified to agreed upon
   payments of $61,200 plus interest, $122,400 plus interest, $183,600 plus
   interest, $183,600 plus interest, and $61,200 plus interest for the quarter
   ended February 1, 2002, May 3, 2002, August 2, 2002, November 1, 2002, and
   January 4, 2003, respectively. In addition, in October 2001, the Company
   negotiated approximately $237,000 reduction in this note payable in exchange
   for a like amount of the Company's trade accounts receivable.

   The Company has obtained approval from IBJ Whitehall Business Credit
   Corporation(as required by The Revolving Credit, Term Loan and Capital
   Expenditure Loan Agreement) for the modification of the repayment dates of
   the subordinated notes payable discussed above.

                                       12

<PAGE>

HLM DESIGN, INC. AND SUBSIDIARIES AND AFFILIATES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. STOCKHOLDERS' EQUITY In June 2001 7,480 shares of common stock were issued
   under the HLM Design, Inc. Employee Stock Purchase Plan. In September 2001
   6,604 shares of common stock were issued under the HLM Design, Inc. Employee
   Stock Purchase Plan.


5. HLM DESIGN, INC. FINANCIAL INFORMATION (UNAUDITED)

   HLM Design's parent company condensed unconsolidated balance sheet and
   statement of income as of and for the six month period ended November 2, 2001
   are as follows:

   Balance Sheet
   Current assets                                             $ 17,149,885
   Non-current assets                                           13,429,971
                                                              ------------
   Total assets                                               $ 30,579,856
                                                              ============

   Current liabilities                                          12,008,571
   Non-current liabilities                                       8,032,207
                                                              ------------
   Total liabilities                                            20,040,778
   Total stockholders' equity                                   10,539,078
                                                              ------------
   Total liabilities and stockholders' equity                 $ 30,579,856
                                                              ============

   Statement of Income
   Equity in earnings (loss) of affiliates                    $   (191,994)
   Net interest, income tax and other expense                      299,732
                                                              ------------
   Net income                                                 $   (491,726)
                                                              ============

                                       13

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the financial
statements and related notes thereto included elsewhere in this report.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                Three           Three            Six              Six
                                                               Months           Months          Months           Months
                                                               Ended            Ended            Ended           Ended
                                                             October 27,      November 2,      October 27,    November 2,
                                                                2000             2001            2000            2001
                                                                ----             ----            ----            ----
<S>                                                        <C>              <C>              <C>              <C>
Revenues                                                   $ 16,069,080     $ 14,244,987     $ 31,939,756     $ 29,872,786
Consultant and project expenses                               5,565,714        6,027,243       10,884,090       11,526,329
                                                           ------------     ------------     ------------     ------------
Net production income                                        10,503,366        8,217,744       21,055,666       18,346,457
                                                           ------------     ------------     ------------     ------------
Direct labor                                                  3,439,475        3,035,629        6,717,173        6,539,676
Operating costs                                               5,849,361        5,769,914       12,009,471       11,971,546
Amortization of intangible assets                               168,251           14,585          330,302           29,168
                                                           ------------     ------------     ------------     ------------
Total costs and expenses                                      9,457,087        8,820,128       19,056,946       18,540,390
                                                           ------------     ------------     ------------     ------------
Operating income (loss)                                       1,046,279         (602,384)       1,998,720         (193,933)
Interest expense, net                                           471,368          333,408          920,295          671,795
                                                           ------------     ------------     ------------     ------------

Income (loss) before income taxes and
minority interest                                               574,911         (935,792)       1,078,425         (865,728)
Income tax expense (benefit)                                    305,166         (395,368)         571,543         (358,068)
                                                           ------------     ------------     ------------     ------------


Income (loss) before minority interest                          269,745         (540,424)         506,882         (507,660)

Minority interest in income (loss)                                   --              896               --          (15,934)
                                                           ------------     ------------     ------------     ------------
Net income (loss)                                          $    269,745     $   (541,320)    $    506,882     $   (491,726)
                                                           ============     ============     ============     ============

</TABLE>

                                       14

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED

RESULTS OF OPERATIONS

For the three months ended November 2, 2001 and October 27, 2000

    Revenues were $14.2 million for the three-month period ended November 2,
2001 as compared to $16.1 million for the three-month period ended October 27,
2000. This decrease of 11% is due to the (a) impact of the September 11, 2001
terrorist act as the Company's work was virtually stopped for ten days which
resulted in a revenue loss through inefficiency and loss of productivity of more
than $750,000, (b) economic downturn in the United States economy resulting in
certain clients delaying project start dates which has delayed related revenue
recognition, and (c) lack of new projects of certain clients in markets affected
by the nation's economic downturn, principally in the commercial segment. The
firm returned to profitability in October. Management believes that clients may
continue to delay project start dates through the remainder of fiscal year ended
2002.

    Direct costs, which include consultant costs and reimbursable project
expenses, total $6.0 million, or 42% of revenues, for the three month period
ended November 2, 2001 as compared to $5.6 million, or 35% of revenues, for the
three month period ended October 27, 2000. This increase is due to an increased
use of consultants to meet certain project requirements.

    Direct labor cost was $3.0 million, or 37% of net production income, for the
three month period ended November 2, 2001 as compared to $3.4 million, or 33% of
net production income, for the three-month period ended October 27, 2000. This
continued increase as a percentage of net production income is due to the: (a)
over-utilization of personnel on projects, (b) tightening of project profit
margins (c) certain clients delaying project start dates, (d) lack of new
projects of certain clients and the time required to adjust to these changes,
and (e) increase in salary and salary related costs which has not been passed
through to the clients in all cases. During the second quarter ended November 2,
2001, the management reduced salary costs in an effort to offset the economic
downturn. The Company's Chief Operating Officer is continuing to work directly
with the project managers of the Managed Firms to improve the effectiveness and
efficiency of each project and ultimately decrease direct labor cost as a
percentage of net production income. As a result, the Company achieved
profitable operations for the month of October 2001. Management believes for the
last six months of fiscal year ending 2002, the financial statements will be
positively impacted by this focus on operations as well as the labor savings
which occurred during the second quarter ended November 2, 2001.

    Operating costs were $5.8 million, or 70% of net production income, for the
three-month period ended November 2, 2001 as compared to $5.8 million, or 56% of
net production income, for the three-month period ended October 27, 2000. This
increase as a percentage of net production income is principally due to an
increase in indirect labor due in part to the effects of September 11, 2001 and
related fringe benefits, professional liability insurance, equipment rentals,
and rent and occupancy expenses. This increase as a percentage of net production
income is partially offset by a decrease in travel expenses. Management plans to
increase efforts to control operating costs over the last six months of fiscal
year ending 2002.

                                       15

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED

     Amortization of intangible assets was $14,585 for the three months ended
November 2, 2001 as compared to $168,251 for the three months ended October 27,
2000. This decrease is due to the Company's adoption of SFAS 142, Goodwill and
Other Intangible Assets. In June 2001, the FASB issued SFAS 141, "Business
Combinations", which requires all business combinations initiated after June 20,
2001 to be accounted for under the purchase method. SFAS 141 also sets forth
guidelines for applying the purchase method of accounting in the determination
of intangible assets, including goodwill acquired in a business combination, and
expands financial disclosures concerning business combinations consummated after
June 30, 2001. The application of SFAS 141 did not affect any of our previously
reported amounts included in goodwill or other intangible assets.


     Effective April 28, 2001, the Company early adopted SFAS 142, "Goodwill and
Other Intangible Assets", which establishes new accounting and reporting
requirements for goodwill and other intangible assets. Under SFAS 142, all
goodwill amortization ceased effective April 28, 2001. The Company identified
reporting units based on the current reporting structure, assigned all goodwill
to the reporting units, as well as other assets and liabilities, to the extent
that they related to the reporting unit. The Company has completed the first
step of the transitional goodwill impairment test by comparing the fair value of
each reporting unit to its carrying value and have determined that no impairment
exists at the effective date of the implementation of the new standard. Fair
value was measured using a valuation by an independent third party as of April
28, 2001 which was based on the market multiple, comparable transactions and
discounted cash flow methodologies.


     This valuation indicated an aggregate fair value of the reporting units
slightly higher than recorded book value as of April 28, 2001. The Company
believes the market capitalization is not representative of the fair value of
the Company because the common stock of the Company is not actively traded.


     On an ongoing basis the Company will obtain an independent valuation and
perform our annual goodwill test. Impairment indicators which may be considered
include, but are not limited to, the following:

        . A significant adverse change on legal factors or in the business
          climate
        . Unanticipated competition
        . A significant decline in the operating performance
        . Adverse action or assessment by a regulator.


     The Company's operations have improved significantly for the months of
October and November 2001. At least quarterly, management will evaluate to
determine if an event has occurred that would more likely than not reduce the
fair value of a reporting unit below its carrying amount. The Company will, if
appropriate, perform a goodwill impairment test between the annual dates.
Impairment adjustments recognized after adoption, if any, generally are required
to be recognized as operating expenses.

                                       16

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED

        The following financial information is presented as if the statement
was adopted at the beginning of the fiscal year ended April 27, 2001:


<TABLE>
<CAPTION>
                                                                     Six Months          Three Months
                                                                     October 27,         October 27,
                                                                        2000                2000
                                                                        ----                ----
        <S>                                                          <C>                 <C>
        Reported net income (loss)                                   $    506,882        $    237,135
        Goodwill amortization                                             317,802             155,800
                                                                     ------------        ------------
        Adjusted net income (loss)                                   $    824,684        $    392,937
                                                                     ============        ============
        Goodwill                                                     $ 12,440,851        $ 12,365,547
                                                                     ============        ============

        Basic income (loss) per share:
        Reported net income (loss)                                   $       0.21        $       0.10
        Goodwill amortization                                                0.13                0.06
                                                                     ------------        ------------
        Adjusted net income (loss)                                   $       0.34        $       0.16
                                                                     ============        ============

        Reported diluted income (loss) per share:
        Reported net income (loss)                                   $       0.21        $       0.10
        Goodwill amortization                                                0.13                0.06
                                                                     ------------        ------------
        Adjusted net income (loss)                                   $       0.34        $       0.16
                                                                     ============        =============
</TABLE>

        The financial information for acquired intangible assets is as follows:

<TABLE>
<CAPTION>
                                                                       April 27,          November 2,
                                                                         2001                2001
                                                                         ----                ----
        <S>                                                          <C>                 <C>
        Amortized intangible assets-non compete agreements:
          Original Cost                                              $    100,000        $    400,000
          Accumulated Amortization                                   $     39,583        $     68,750
</TABLE>

        The non-compete intangible assets are amortized over their contractual
        life ranging from four to nine years. Amortization expense for the three
        and the six months ended November 2, 2001 was 14,585 and $29,168,
        respectively, and annual estimated amortization for the non-compete
        agreements are as follows:

        Estimated Amortization Expense
        ------------------------------
        Fiscal 2002                              $58,336
        Fiscal 2003                              $58,336
        Fiscal 2004                              $43,753
        Fiscal 2005                              $33,336
        Fiscal 2006                              $33,336

                                       17

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED

        The changes in carrying amount of goodwill for the six months ended
        November 2, 2001 are as follows:

<TABLE>
<CAPTION>

                                                   Total
                                                   -----
        <S>                                      <C>
        Balance, April 27, 2001                  $12,166,149

        Goodwill acquired during the period           98,286
                                                 -----------
        Balance, November 2, 2001                $12,264,435
                                                 ===========
</TABLE>

        Interest expense was $0.3 million for the three-month period ended
November 2, 2001 as compared to $0.5 million for the three-month period ended
October 27, 2000. This decrease is principally due to: (a) a decrease in the
Company's effective interest rate in the current year and (b) a decrease in the
borrowings under the Company's revolving credit facility with IBJ Whitehall
Business Credit Corporation ("IBJ").

        Income tax expense (benefit) was ($0.4) million benefit for the
three-month period ended November 2, 2001 as compared to $0.3 million expense
for the three-month period ended October 27, 2000. The effective income tax rate
was 42% and 53% for the three-month periods ended November 2, 2001 and October
27, 2000, respectively. This effective rate is lower principally due to the
decrease in non-deductible goodwill amortization resulting from the adoption of
SFAS No. 142 for the fiscal year beginning April 28, 2001.

For the six months ended November 2, 2001 and October 27, 2000

        Revenues were $29.9 million for the six-month period ended November 2,
2001 as compared to $31.9 million for the six-month period ended October 27,
2000. This decrease of 6% is due to the: (a) economic downturn in the United
States economy resulting in certain clients delaying project start dates which
has delayed related revenue recognition, (b) impact of the September 11, 2001
terrorist act as the Company's work was virtually stopped for ten days which
resulted in a revenue loss through inefficiency and loss of productivity of more
than $750,000, and (c) lack of new projects of certain clients in markets
affected by the nation's economic downturn, principally in the commercial
segment. The firm returned to profitability in October. Management believes that
clients may continue to delay project start dates through the remainder of
fiscal year ended 2002.

        Direct costs, which include consultant costs and reimbursable project
expenses, total $11.5 million, or 39% of revenues, for the six-month period
ended November 2, 2001 as compared to $10.9 million, or 34% of revenues, for the
six-month period ended October 27, 2000. This increase is due to an increased
use of consultants to meet certain project requirements.

                                       18

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED

     Direct labor cost was $6.5 million, or 36% of net production income, for
the six-month period ended November 2, 2001 as compared to $6.7 million, or 32%
of net production income, for the six-month period ended October 27, 2000. This
increase as a percentage of net production income is due to the: (a)
over-utilization of personnel on projects, (b) tightening of project profit
margins, (c) certain clients delaying project start dates, (d) lack of new
projects of certain clients and the time required to adjust to these changes,
and (e) increase in salary and salary related costs which has not been passed
through to the clients in all cases. During the second quarter ended November 2,
2001, the management reduced salary cost in an effort to offset the economic
downturn. The Company's Chief Operating Officer is continuing to work directly
with the project managers of the Managed Firms to improve the effectiveness and
efficiency of each project and ultimately decrease direct labor cost as a
percentage of net production income. As a result, the Company achieved
profitable operations for the month of October 2001. Management believes for the
last six months of fiscal year ending 2002, the financial statements will be
positively impacted by this focus on operations as well as the labor savings
which occurred during the second quarter ended November 2, 2001.

     Operating costs were $12.0 million, or 65% of net production income, for
the six-month period ended November 2, 2001 as compared to $12.0 million, or 57%
of net production income, for the six-month period ended October 27, 2000. This
increase as a percentage of net production income is principally due to an
increase in indirect labor due in part to the effects of September 11, 2001 and
related fringe benefits, professional liability insurance, and rent and
occupancy expenses. This increase as a percentage of net production income is
partially offset by a decrease in travel expenses. Management plans to increase
efforts to control operating costs over the last six months of fiscal year
ending 2002.

     Amortization of intangible assets was $29,168 for the six months ended
November 2, 2001 as compared to $330,302 for the six months ended October 27,
2000. This decrease is due to the Company's adoption of SFAS 142, Goodwill and
Other Intangible Assets as discussed in the three months ended November 2, 2002
section beginning on page 16 in Management's Discussion and Analysis of
Financial Condition and Results of Operations.

     Interest expense was $0.7 million for the six-month period ended November
2, 2001 as compared to $0.9 million for the six-month period ended October 27,
2000. This decrease is principally due to: (a) a decrease in the Company's
effective interest rate in the current year and (b) a decrease in the borrowings
under the Company's revolving credit facility with IBJ.

     Income tax expense (benefit) was ($0.4) million benefit for the six-month
period ended November 2, 2001 as compared to $0.6 million expense for the
six-month period ended October 27, 2000. The effective income tax rate was 41%
and 53% for the six-month periods ended November 2, 2001 and October 27, 2000,
respectively. This effective rate is lower principally due to the decrease in
non-deductible goodwill amortization resulting from the adoption of SFAS No. 142
for the fiscal year beginning April 28, 2001.

                                       19

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED

LIQUIDITY AND CAPITAL RESOURCES

          Historically, the Company has met working capital and capital
expenditure needs through cash from operations and bank financing. At November
2, 2001, the Company's current assets of $22.9 million exceeded current
liabilities of $19.3 million, resulting in net working capital of $3.7 million.
During the six month period ended November 2, 2001, the Company's operating
activities provided $2.3 million cash from operations. The Company used $0.4
million primarily for capital expenditures, and to a lesser extent, acquisition
activities. The Company used cash of $0.5 million from financing activities
primarily on borrowings under the Company's revolving credit facility with IBJ,
which was partially offset by an increase in borrowings under the term loan
agreement with IBJ.

          The Company's growth and operating strategy will require substantial
capital and may result in the Company from time to time incurring additional
debt, issuing equity securities or obtaining additional bank financing. As a
management company, HLM Design is responsible for the financing of working
capital growth, capital growth and other cash needs of its managed firms.

          During fiscal year end April 27, 2001, the Company entered into a
revolving credit, term loan and capital expenditure loan for a total of $20
million. Effective June 2001, the Company entered into an amendment to (a)
reduce the maximum revolving advance amount; (b) cancel the capital expenditure
loan commitment and (c) increase the unpaid principal of the term loan to repay
amounts under the revolving credit facility, which was based on an evaluation of
the Company's revolving advance, term loan and capital expenditure loan needs.
The amendment is summarized as follows:

          a.   Revolving credit--The maximum revolving advance amount is
               $12,500,000. At November 2, 2001, the Company had
               borrowings outstanding of $7.7 million. The amount available to
               borrow is calculated based on the aging of certain assets and
               generally, the Company borrows the maximum amount available under
               the terms of this agreement.

          b.   Term loan--The unpaid principal balance was increased to $1.6
               million. At November 2, 2001, the Company had borrowings
               outstanding of $1.2 million.

          c.   Capital expenditure loan--The Capital Expenditure Loan commitment
               has been cancelled.

          Effective December 18, 2001, the Company entered into an amendment to
its revolving credit, term loan and capital expenditure loan with IBJ Whitehall
Business Credit Corporation ("IBJ"). The amendment is summarized as follows:

          a.   Revolving credit-The maximum revolving advance amount is
               $10,500,000.

          b.   Revolving credit-Waiver of the leverage and senior leverage
               financial convenants as of quarter ended November 2, 2001.

          c.   Revolving credit-Modification of certain future financial
               convenants.

          Substantially all assets are pledged under this financing arrangement.
This financing arrangement requires that certain financial requirements be
maintained such as minimum net worth, minimum earnings before interest, taxes,
depreciation and amortization, maximum leverage and senior leverage ratios,
maximum fixed charge coverage and senior fixed charge coverage ratios and
maximum capital expenditure commitments. All covenants are determined quarterly
and the leverage and senior leverage covenants are based on a trailing four
quarters ending on each determination date.

          Due to lower than anticipated cash flow during the first and second
quarter of fiscal year ended May 3, 2002, the Company extended its current year
payment obligations under certain note agreements with former acquired company
shareholders (the subordinated notes payable) as discussed in Note 3 in Notes to
Unaudited Condensed Consolidated Financial Statements. The Company has obtained
approval from IBJ (as required by The Revolving Credit, Term Loan and Capital
Expenditure Loan Agreement) for the modification of the repayment dates of the
subordinated notes payable.

                                       20

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS-CONTINUED

          The Company believes that its revolving line of credit, anticipated
funds from future operations coupled with the modification of repayment terms on
certain notes payable discussed above will be sufficient to meet the Company's
operating needs for the next twelve months. However, in order to continue its
expansion program through acquisitions, the Company will require additional
capital. If the Company is unable to obtain additional capital, its growth
strategy will be adversely affected.

          This discussion contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Actual results
could differ materially from those forward-looking statements. Factors that may
cause actual results to differ materially include the Company's ability to
contract with architectural engineering and planning firms, the limited number
of management services agreements with such firms, the ability to receive
payments from the managed firms, dependence on key personnel, dependence on the
managed firms, the risks inherent in the provision of professional services,
competition, the uncertainties concerning additional financings by the Company
and government regulation, as described in Exhibit 99.1 to this Form 10-Q.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          The Company is exposed to market risk from changes in interest rates
affecting our credit arrangements, including a variable rate revolving credit
arrangement and term loan agreement, which may adversely affect our results of
operations and cash flows. We seek to minimize our interest rate risk through
our day-to-day operating and financing activities. We do not engage in
speculative or derivative financial or trading activities.

          A hypothetical 100 basis point adverse change (increase) in interest
rates relating to our revolving credit arrangement and term loan agreement would
have decreased pre-tax income for the period ended November 2, 2001 by
approximately $41,000.

          The Company has no other material exposure to market risk sensitive
instruments.

PART II. OTHER INFORMATION

Item 2.   Changes in Securities and Use of Proceeds

          The Company's Revolving Credit, Term Loan, Capital Expenditure Loan,
Guaranty and Security Agreement, as amended as of June 29, 2001, provide that
the Company may not pay cash dividends on its common stock.

Item 4.   Submission of Matters to a Vote of Security Holders

          The Company held its Annual Meeting of Stockholders on September 18,
2001 for the purpose of electing two directors, approving an amendment to the
1998 Stock Option Plan, and approving an amendment to the Employee Stock
Purchase Plan. Proxies were solicited pursuant to Regulation 14A of the
Securities Exchange Act of 1934 and there was no solicitation in opposition to
management's solicitations.

                                       21

<PAGE>

PART II. OTHER INFORMATION-CONTINUED

Item 4. Submission of Matters to a Vote of Security Holders -continued

Proposal 1:

Election of directors for term indicated:


                           Year of Annual
                             Meeting of
                          Stockholders that         Shares Voted       Shares
           Name             Term Expires               "For"         "Withheld"
           ----             ------------               -----         ----------
     James E. Finley            2004                 2,041,558          1,200
     L. Fred Pounds             2004                 2,041,558          1,200

The following directors terms of office continued after the meeting: Joseph M.
Harris, Vernon B. Brannon and D. Shannon LeRoy.

Proposal 2:

Amendment of the HLM Design, Inc. 1998 Stock Option Plan was approved with the
following vote:

         Shares Voted              Shares Voted                Shares
            "For"                   "Against"               "Abstaining"
            -----                   ---------               ------------
           990,946                    47,312                   5,903

Proposal 3:

Amendment of the HLM Design, Inc. Employee Stock Purchase Plan was approved with
the following vote:

         Shares Voted              Shares Voted                Shares
            "For"                   "Against"               "Abstaining"
            -----                   ---------               ------------
           991,183                    48,075                   4,903

Item 5. Other Information

V. Reitzel Snider Named to HLM Design, Inc. Board of Directors:
---------------------------------------------------------------
          On November 6, 2001, V. Reitzel Snider was named to the HLM Design,
Inc. Board of Directors. He was elected to fill the vacancy created by the death
of James E. Finley. Mr. Snider is President and Chief Financial Officer of First
LandMark, U.S.A., Inc. and President and Chief Executive Officer of SYNCO, both
of Charlotte, North Carolina. First LandMark or its subsidiary, SYNCO, acquire,
develop, hold and manage and selectively sell investment real estate. Mr. Snider
has an AB Degree in Economics from Davidson College.

James B. Huff Resigns as Chief Financial Officer:
-------------------------------------------------
          On December 4, 2001, James B. Huff resigned his position as Chief
Financial Officer to pursue other interests within the Company. His position
will be replaced by Vernon B. Brannon, Chief Operating Officer. Mr. Brannon was
formerly the Chief Financial Officer prior to Mr. Huff joining the Company.

                                       22

<PAGE>

PART II. OTHER INFORMATION-CONTINUED

Item 6.  Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit No.     Description
-----------     -----------
10.29.2             Second Amendment to Revolving Credit, Term Loan, Capital
                Expenditure Loan, Guaranty and Security Agreement.

99.1                Cautionary Statement under Safe Harbor Provisions of the
                Private Securities Litigation Reform Act of 1995.

(b) Reports on Form 8-K
None.

Items 1 and 3 are not applicable and have been omitted.

                                       23

<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                  HLM DESIGN, INC.
                                   (Registrant)



Date: December 17,  2001          By: /s/ Joseph M. Harris
      ------------------              --------------------
                                  Joseph M. Harris
                                  President, Chairman and Director



Date: December 17, 2001           By: /s/ Vernon B. Brannon
      -----------------               ---------------------
                                  Vernon B. Brannon
                                  Senior Vice President, Chief Operating Officer
                                  and Chief Financial Officer

                                       24