UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: June 29, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from  to
 Commission File Number: 000-50373
 Horne International, Inc.
  Delaware
    
    90-0182158(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)2677 Prosperity Avenue, Suite 300, 
Fairfax, Virginia
    
    22031(Address of principal executive offices)
    
    (Zip Code)
 703-641-1100
  þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ  o þ




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TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets as of June 29, 2008 and December 30, 2007
    
    
    2Consolidated Statements of Operations for the three and six months ended June 29, 2008
and June 30, 2007
    
    
    3Consolidated Statement of Stockholders Equity for the six months ended
June 29, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended
June 29, 2008 and June 30, 2007
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    15Item 4. Controls and Procedures
    
    
    15PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    16Item 1A Risk Factors
    
    
    16Item 6. Exhibits
    
    
    16




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June
    
    
    December29, 2008
    
    

30, 2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12
    
    
    $
    577Receivables, net
    
    
    860
    
    
    
    1,085Inventories
    
    
    
    
    
    
    Prepaid expenses & Other current assets
    
    
    73
    
    
    
    832Current assets of Discontinued Operations
    
    
    217
    
    
    
    1,832Total current assets
    
    
    1,162
    
    
    
    4,326Property and equipment, net
    
    
    88
    
    
    
    914Investments in joint ventures
    
    
    142
    
    
    
    311Other assets
    
    
    156
    
    
    
    158Other assets of discontinued operations
    
    
    4,031
    
    
    
    4,623TOTAL ASSETS
    
    $
    5,579
    
    
    $
    10,332LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    520
    
    
    $
    247Accrued expenses
    
    
    978
    
    
    
    1,729Deferred revenues
    
    
    87
    
    
    
    86Current portion of long-term debt
    
    
    1,235
    
    
    
    Current liabilities of discontinued operations
    
    
    393
    
    
    
    682Total current liabilities
    
    
    3,213
    
    
    
    2,744Long-term liabilities:Non-current liabilities of discontinued operations
    
    
    1,867
    
    
    
    1,969TOTAL LIABILITIES
    
    
    5,080
    
    
    
    4,713Commitments and contingencies (Note 13)Stockholders equity:Preferred stock, $0.0001 par value; 20,000,000 shares
authorized, none issued
    
    
    
    
    
    
    Common stock, $0.0001 par value; 80,000,000 shares authorized,
42,687,324 and 41,774,082 issued and outstanding
    
    
    4
    
    
    
    4Additional paid-in capital
    
    
    78,759
    
    
    
    78,616Accumulated deficit
    
    
    (78,264
    )
    
    
    (73,001
    )Total stockholders equity
    
    
    499
    
    
    
    5,619TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    5,579
    
    
    $
    10,332
  2




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Three months ended
    
    
    Six months endedJune 29,
    
    
    June 30,
    
    
    June 29,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    1,005
    
    
    $
    8,767
    
    
    $
    2,222
    
    
    $
    10,732Cost of revenues
    
    
    1,219
    
    
    
    8,046
    
    
    
    2,363
    
    
    
    9,775Gross profit
    
    
    (214
    )
    
    
    721
    
    
    
    (141
    )
    
    
    957Operating expenses
    
    
    2,704
    
    
    
    1,319
    
    
    
    3,616
    
    
    
    2,897Loss from operations
    
    
    (2,918
    )
    
    
    (598
    )
    
    
    (3,757
    )
    
    
    (1,940
    )Total non-operating (expense)income, net
    
    
    (110
    )
    
    
    101
    
    
    
    (106
    )
    
    
    232Loss before provision for income taxes
    
    
    (3,028
    )
    
    
    (497
    )
    
    
    (3,863
    )
    
    
    (1,708
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss before discontinued operations
    
    
    (3,028
    )
    
    
    (497
    )
    
    
    (3,863
    )
    
    
    (1,708
    )Loss from discontinued operations
    
    
    (353
    )
    
    
    (689
    )
    
    
    (1,400
    )
    
    
    (1,446
    )Net Loss
    
    $
    (3,381
    )
    
    $
    (1,186
    )
    
    $
    (5,263
    )
    
    $
    (3,154
    )Weighted average common shares outstanding:Basic and diluted
    
    
    42,687,324
    
    
    
    41,774,082
    
    
    
    42,263,499
    
    
    
    41,553,254Basic and diluted earnings per shareLoss from continuing operations
    
    
    (0.07
    )
    
    
    (0.01
    )
    
    
    (0.09
    )
    
    
    (0.04
    )Loss from discontinued operations
    
    
    (0.01
    )
    
    
    (0.02
    )
    
    
    (0.03
    )
    
    
    (0.04
    )Net loss
    
    $
    (0.08
    )
    
    $
    (0.03
    )
    
    $
    (0.12
    )
    
    $
    (0.08
    )
  3




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Statement of Stockholders Equity
June 29, 2008
 Common Stock
    
    
    
    
    
    AccumulatedShares
    
    Amount
    
    APIC
    
    Deficit
    
    TotalBalance as of December 31, 2007
    
    
    41,774,082
    
    
    $
    4
    
    
    $
    78,617
    
    
    $
    (73,001
    )
    
    $
    5,620Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,263
    )
    
    
    (5,263
    )Stock Issuances
    
    
    913,242
    
    
    
    
    
    
    
    200
    
    
    
    
    
    
    
    200Share price guarantee settlement
    
    
    
    
    
    
    
    
    
    
    (90
    )
    
    
    
    
    
    
    (90
    )Option Issuances
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    32Balance as of June 29, 2008
    
    
    42,687,324
    
    
    $
    4
    
    
    $
    78,759
    
    
    $
    (78,264
    )
    
    $
    499
  4




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June 29,
    
    
    June 30,2008
    
    
    2007Net loss from continuing operations
    
    $
    (3,863
    )
    
    $
    (1,708
    )Adjustments to reconcile net loss from continuing operations to netCash used in operating activitiesStock option issuances
    
    
    32
    
    
    
    10Depreciation/Amortization
    
    
    124
    
    
    
    515Writedown of investments to fair value
    
    
    169
    
    
    
    Loss on disposal of equipment
    
    
    (12
    )
    
    
    Decrease (increase) in balance sheet itemsReceivables
    
    
    225
    
    
    
    1,348Prepaid Expenses
    
    
    1,280
    
    
    
    (14
    )Accounts Payable
    
    
    275
    
    
    
    (116
    )Accrued Expenses
    
    
    152
    
    
    
    (607
    )Deferred Revenue
    
    
    
    
    
    
    4Other balance sheet changes
    
    
    1
    
    
    
    230Net cash used in continuing operations
    
    
    (1,617
    )
    
    
    (338
    )Cash flows from investing activitiesCash settlement of share price guarantee
    
    
    (90
    )
    
    
    Cash invested in potential acquisition
    
    
    (521
    )Purchase of property and equipment
    
    
    (5
    )
    
    
    (62
    )Proceeds from the sale of equipment
    
    
    17
    
    
    
    40Net cash used in investing activities
    
    
    (599
    )
    
    
    (22
    )Cash flows from financing activitiesCash borrowings
    
    
    1,235
    
    
    
    Net cash provided by financing activities
    
    
    1,235
    
    
    
    0Cash flows provided by discontinued operationsOperating
    
    
    416
    
    
    
    (226
    )Investing
    
    
    
    
    
    
    (71
    )Financing
    
    
    
    
    
    
    (33
    )Net decrease in cash and cash equivalents
    
    
    (565
    )
    
    
    (690
    )Cash and cash equivalents at beginning of period
    
    
    577
    
    
    
    4,185Cash and cash equivalents at end of period
    
    $
    12
    
    
    $
    3,495
 Supplemental non-cash investing and financing activities.
   5




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1. BASIS OF PRESENTATION
   2. RECEIVABLES
  June
    
    
    December29, 2008
    
    

30, 2007Accounts ReceivableBilled AR
    
    $
    720
    
    
    $
    712Unbilled AR
    
    
    94
    
    
    
    335Holdbacks
    
    
    48
    
    
    
    48Bad Debt Reserve
    
    
    (10
    )
    
    
    (10
    )Other
    
    
    8
    
    
    
    Total AR
    
    $
    860
    
    
    $
    1,085
  3. PREPAID EXPENSES
   6




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4. PROPERTY AND EQUIPMENT
 June
    
    
    December29, 2008
    
    

30, 2006Property & EquipmentBuildings & Improvements
    
    
    3
    
    
    
    754Furniture & Fixtures
    
    
    
    
    
    
    270Office Equipment
    
    
    297
    
    
    
    294Vehicles
    
    
    29
    
    
    
    77Total
    
    $
    329
    
    
    $
    1,395Accumulated Depreciation
    
    
    (241
    )
    
    
    (481
    )Property & Equipment, net
    
    $
    88
    
    
    $
    914
  5. BORROWINGS
 Darryl Horne Notes
   Evan Auld-Susott Mortgage Note
  7




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John Krobath Note
  6. STOCK TRANSACTIONS
   7. STOCK-BASED COMPENSATION
   Number of shares
    
    
    Option PriceOptions Outstanding 12/30/2007
    
    
    1,912,514Granted
    
    
    100,000.00
    
    
    
    0.20Exercised
    
    
    Cancelled
    
    
    (1,407,514
    )
    
    
    0.40 - 1.65Options Outstanding 6/29/2008
    
    
    605,000
  8




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Options
Exercisable & Outstanding
 Exercise
    
    Shares
    
    Shares
    
    Weighted AveragePrice
    
    Outstanding
    
    Exercisable
    
    Remaining Life (yrs)0.20
    
    
    100,000
    
    
    
    30,000
    
    
    
    5.00.35
    
    
    180,000
    
    
    
    
    
    
    
    4.10.37
    
    
    50,000
    
    
    
    
    
    
    
    4.00.40
    
    
    50,000
    
    
    
    36,000
    
    
    
    4.10.50
    
    
    75,000
    
    
    
    65,000
    
    
    
    8.00.80
    
    
    150,000
    
    
    
    100,000
    
    
    
    1.0605,000
    
    
    
    231,000Total options available to issue
    
    
    
    
    
    
    
    
    
    
    30,000,000Total options outstanding or exercised
    
    
    
    
    
    
    
    
    
    
    20,726,200Total options Remaining
    
    
    
    
    
    
    
    
    
    
    9,273,800
 8. DISCONTINUED OPERATIONS
  9. COMMITMENTS AND CONTINGENCIES
 Legal Matters
  Garrison Lawsuit
  10. SUBSEQUENT EVENTS
 Financing
   9




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  FORWARD-LOOKING STATEMENTS
   DESCRIPTION OF THE COMPANY
   CRITICAL ACCOUNTING POLICIES
  10




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COMPARISON OF THREE MONTHS ENDED JUNE 29, 2008 AND JUNE 30, 2007
  Consolidated Overview
 Three months ended June,2008
    
    2007Total revenue
    
    $
    1,005
    
    
    
    100.0
    %
    
    $
    8,767
    
    
    
    100.0
    %Gross (Loss)Profit
    
    
    (214
    )
    
    
    -21.3
    %
    
    
    721
    
    
    
    8.2
    %Operating loss
    
    
    (2,919
    )
    
    
    -290.4
    %
    
    
    (599
    )
    
    
    -6.8
    %
   Services Segment
 Three months ended June,2008
    
    2007ServicesTotal revenue
    
    $
    1,005
    
    
    
    100.0
    %
    
    $
    8,767
    
    
    
    100.0
    %Gross (Loss)Profit
    
    
    (214
    )
    
    
    -21.3
    %
    
    
    721
    
    
    
    8.2
    %Operating (Loss)gain
    
    $
    (365
    )
    
    
    -36.3
    %
    
    $
    473
    
    
    
    5.4
    %
  11




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Corporate Expenses
 Three months ended June,2008
    
    2007Operating loss
    
    $
    (2,554
    )
    
    $
    (1,072
    )
  Other Income
  Discontinued Operations
  COMPARISON OF SIX MONTHS ENDED JUNE 29, 2008 AND JUNE 30, 2007
  SIX MONTHS ENDED JUNE 29, 2008 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2007
 Consolidated Overview
 Six months ended June,2008
    
    2007Total revenue
    
    $
    2,222
    
    
    
    100.0
    %
    
    $
    10,732
    
    
    
    100.0
    %Gross Profit
    
    
    (141
    )
    
    
    -6.3
    %
    
    
    957
    
    
    
    8.9
    %Operating loss
    
    
    (3,757
    )
    
    
    -169.1
    %
    
    
    (1,940
    )
    
    
    -18.1
    %
   12




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Services Segment
 Six months ended June,2008
    
    2007ServicesTotal revenue
    
    $
    2,222
    
    
    
    100.0
    %
    
    $
    10,732
    
    
    
    100.0
    %Gross Profit
    
    
    (141
    )
    
    
    -6.3
    %
    
    
    957
    
    
    
    8.9
    %Operating gain
    
    $
    398
    
    
    
    17.9
    %
    
    $
    368
    
    
    
    3.4
    %
   Corporate Expenses
 Six months ended June,2008
    
    2007Operating loss
    
    $
    (4,155
    )
    
    $
    (2,308
    )
  Other Income
  Liquidity and Capital Resources
  13




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14




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ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
   Foreign Exchange Risk
  ITEM 4.
    
    CONTROLS AND PROCEDURES
   15




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PART II  OTHER INFORMATION
 ITEM 1.
    
    LEGAL PROCEEDINGS
  Garrison Lawsuit
  Item 1A.
    
    Risk Factors.
  ITEM 6.
    
    EXHIBITS
        16




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17




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*
    
    Indicates management contract or compensatory arrangement. 18




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SIGNATURES
  HORNE INTERNATIONAL, INC.By:
    /s/ Darryl K. HorneDarryl K. HornePresident and Chief Executive OfficerBy:
    /s/ John E, KrobathJohn E. KrobathChief Financial Officer 19