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:September 28, 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)3975 University Drive, Suite 100,Fairfax, Virginia
    
    22030(Address of principal executive offices)
    
    (Zip Code)
 703-641-1100
  þ o
  Large Accelerated filer
o
    
    Accelerated Filer o
    
    Non-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 September 28, 2008 and December 30, 2007
    
    
    2Consolidated Statements of Operations for the three and nine months ended September 28,
2008 and September 30, 2007
    
    
    3Consolidated Statement of Stockholders Equity for the nine months ended
September 28, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the nine months ended
September 28, 2008 and September 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
    
    
    14Item 4. Controls and Procedures
    
    
    14PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    15Item 1A Risk Factors
    
    
    15Item 6. Exhibits
    
    
    15




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##### 



September
    
    
    December28, 2008
    
    
    30, 2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    57
    
    
    $
    577Receivables, net
    
    
    834
    
    
    
    1,085Prepaid expenses & Other current assets
    
    
    48
    
    
    
    832Current assets of Discontinued Operations
    
    
    84
    
    
    
    1,832Total current assets
    
    
    1,023
    
    
    
    4,326Property and equipment, net
    
    
    161
    
    
    
    914Investments in joint ventures
    
    
    132
    
    
    
    311Other assets
    
    
    59
    
    
    
    158Other assets of discontinued operations
    
    
    3,972
    
    
    
    4,623TOTAL ASSETS
    
    $
    5,347
    
    
    $
    10,332LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    311
    
    
    $
    247Accrued expenses
    
    
    721
    
    
    
    1,729Deferred revenues
    
    
    87
    
    
    
    86Current portion of long-term debt
    
    
    2,320
    
    
    
    Current liabilities of discontinued operations
    
    
    238
    
    
    
    682Total current liabilities
    
    
    3,677
    
    
    
    2,744Long-term liabilities:Non-current liabilities of discontinued operations
    
    
    1,840
    
    
    
    1,969TOTAL LIABILITIES
    
    
    5,517
    
    
    
    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
    
    
    78,770
    
    
    
    78,616Accumulated deficit
    
    
    (78,944
    )
    
    
    (73,001
    )Total stockholders equity
    
    
    (170
    )
    
    
    5,619TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    5,347
    
    
    $
    10,332
  2




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##### 



Three months ended
    
    
    Nine months endedSeptember 28,
    
    
    September 30,
    
    
    September 28,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues
    
    $
    1,093
    
    
    $
    1,419
    
    
    $
    3,315
    
    
    $
    12,151Cost of revenues
    
    
    1,006
    
    
    
    1,205
    
    
    
    3,369
    
    
    
    10,980Gross profit(loss)
    
    
    87
    
    
    
    214
    
    
    
    (54
    )
    
    
    1,171Operating expenses
    
    
    676
    
    
    
    1,701
    
    
    
    4,291
    
    
    
    4,598Loss from operations
    
    
    (589
    )
    
    
    (1,487
    )
    
    
    (4,345
    )
    
    
    (3,427
    )Total non-operating (loss)income, net
    
    
    (53
    )
    
    
    449
    
    
    
    (158
    )
    
    
    681Loss before provision for income taxes
    
    
    (642
    )
    
    
    (1,038
    )
    
    
    (4,503
    )
    
    
    (2,746
    )Income tax expense
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )
    
    
    (2
    )Loss before discontinued operations
    
    
    (643
    )
    
    
    (1,038
    )
    
    
    (4,504
    )
    
    
    (2,748
    )Loss from discontinued operations
    
    
    (38
    )
    
    
    (1,045
    )
    
    
    (1,439
    )
    
    
    (2,489
    )Net Loss
    
    $
    (681
    )
    
    $
    (2,083
    )
    
    $
    (5,943
    )
    
    $
    (5,237
    )Weighted average common shares
outstanding:Basic and diluted
    
    
    42,687,324
    
    
    
    41,774,082
    
    
    
    42,406,326
    
    
    
    41,617,836Basic and diluted earnings per shareLoss from continuing operations
    
    
    (0.02
    )
    
    
    (0.02
    )
    
    
    (0.11
    )
    
    
    (0.07
    )Loss from discontinued operations
    
    
    (0.00
    )
    
    
    (0.03
    )
    
    
    (0.03
    )
    
    
    (0.06
    )Net loss
    
    $
    (0.02
    )
    
    $
    (0.05
    )
    
    
    (0.14)$
    
    
    
    (0.13
    )
  3




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##### 



Statement of Stockholders Equity
September 28, 2008
 Common Stock
    
    AccumulatedShares
    
    Amount
    
    APIC
    
    Deficit
    
    TotalBalance as of December 31, 2007
    
    
    41,774,082
    
    
    $
    4
    
    
    $
    78,617
    
    
    $
    (73,001
    )
    
    $
    5,620Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (5,943
    )
    
    $
    (5,943
    )Stock Issuances
    
    
    913,242
    
    
    $
    
    
    
    $
    200
    
    
    
    
    
    
    $
    200Share price guarantee settlement
    
    
    
    
    
    
    
    
    
    $
    (90
    )
    
    
    
    
    
    $
    (90
    )Stock option charges
    
    
    
    
    
    
    
    
    
    $
    43
    
    
    
    
    
    
    $
    43Balance as of September 28, 2008
    
    
    42,687,324
    
    
    $
    4
    
    
    $
    78,770
    
    
    $
    (78,944
    )
    
    $
    (170
    )
  4




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##### 



Statement of Cash Flows
 September 28,
    
    
    September 30,2008
    
    
    2007Net loss
    
    $
    (5,943
    )
    
    $
    (5,237
    )Adjustments to reconcile net loss to netCash used in operating activitiesStock option issuances
    
    
    43
    
    
    
    36Depreciation/Amortization
    
    
    143
    
    
    
    766Writedown of investments to fair value
    
    
    169
    
    
    
    Gain on disposal of equipment
    
    
    (3
    )
    
    
    (2
    )Net loss and operating cash provided by
discontinued operations
    
    
    1,827
    
    
    
    510Decrease (increase) in balance sheet itemsReceivables
    
    
    250
    
    
    
    1,434Prepaid Expenses
    
    
    1,305
    
    
    
    (264
    )Accounts Payable
    
    
    65
    
    
    
    (134
    )Accrued Expenses
    
    
    (104
    )
    
    
    257Other balance sheet changes
    
    
    106
    
    
    
    313Net cash used in continuing operations
    
    
    (2,142
    )
    
    
    (2,321
    )Cash flows from investing activitiesSale of M&M
    
    
    
    
    
    
    830Cash settlement of share price guarantee
    
    
    (90
    )
    
    
    Cash flows used by discontinued operations
    
    
    
    
    
    
    (93
    )Cash invested in potential acquisition
    
    
    (521
    )
    
    
    Purchase of property and equipment
    
    
    (109
    )
    
    
    (62
    )Proceeds from the sale of equipment
    
    
    22
    
    
    
    35Net cash (used in)provided by investing activities
    
    
    (698
    )
    
    
    710Cash flows from financing activitiesCash borrowings
    
    
    2,320
    
    
    
    Cash flows used by discontinued operations
    
    
    
    
    
    
    (69
    )Net cash provided by financing activities
    
    
    2,320
    
    
    
    (69
    )Net decrease in cash and cash equivalents
    
    
    (520
    )
    
    
    (1,680
    )Cash and cash equivalents at beginning of period
    
    
    577
    
    
    
    4,185Cash and cash equivalents at end of period
    
    $
    57
    
    
    $
    2,505
 Supplemental non-cash investing and financing activities.
   5




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1. BASIS OF PRESENTATION
    2. RECEIVABLES
  September
    
    
    December28, 2008
    
    
    30, 2007Accounts ReceivableBilled AR
    
    $
    524
    
    
    $
    712Unbilled AR
    
    
    222
    
    
    
    335Holdbacks
    
    
    48
    
    
    
    48Other
    
    
    50
    
    
    
    Bad Debt Reserve
    
    
    (10
    )
    
    
    (10
    )Total AR
    
    $
    834
    
    
    $
    1,085
  6




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3. PREPAID EXPENSES
   4. PROPERTY AND EQUIPMENT
 September
    
    
    December28, 2008
    
    
    30, 2007Property & EquipmentBuildings & Improvements
    
    $
    8
    
    
    $
    754Furniture & Fixtures
    
    
    11
    
    
    
    270Office Equipment
    
    
    236
    
    
    
    294Vehicles
    
    
    38
    
    
    
    77Total
    
    $
    293
    
    
    $
    1,395Accumulated Depreciation
    
    
    (132
    )
    
    
    (481
    )Property & Equipment, net
    
    $
    161
    
    
    $
    914
  5. BORROWINGS
 Darryl Horne Notes
    7




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Evan Auld-Susott Mortgage Note
  John Krobath Note
  6. STOCK TRANSACTIONS
   7. STOCK-BASED COMPENSATION
   Number of shares
    
    
    Option PriceOptions Outstanding 12/30/2007
    
    
    1,912,514Granted
    
    
    100,000
    
    
    
    0.2Exercised
    
    
    Cancelled
    
    
    (1,537,514
    )
    
    
    0.40 - 1.65Options Outstanding 9/28/2008
    
    
    475,000
 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
    
    
    90,000
    
    
    
    30,000
    
    
    
    4.10.37
    
    
    50,000
    
    
    
    16,000
    
    
    
    4.00.40
    
    
    40,000
    
    
    
    36,000
    
    
    
    4.10.50
    
    
    75,000
    
    
    
    70,000
    
    
    
    8.00.80
    
    
    120,000
    
    
    
    100,000
    
    
    
    1.0475,000
    
    
    
    282,000
 8. DISCONTINUED OPERATIONS
  9. COMMITMENTS AND CONTINGENCIES
 Legal Matters
  Garrison Lawsuit
  10. SUBSEQUENT EVENTS
 Financing
   Real Estate Services Contract
  Robert Suthard Termination
  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 SEPTEMBER 28, 2008 AND SEPTEMBER 30, 2007
  Consolidated Overview
 Three months ended September,2008
    
    2007Total revenue
    
    $
    1,093
    
    
    
    100.0
    %
    
    $
    1,419
    
    
    
    100.0
    %Gross Profit
    
    
    87
    
    
    
    8.0
    %
    
    
    214
    
    
    
    15.1
    %Operating loss
    
    
    (589
    )
    
    
    -53.9
    %
    
    
    (1,487
    )
    
    
    -104.8
    %
   Services Segment
 Three months ended September,2008
    
    2007ServicesOperating income(loss)
    
    $
    15
    
    
    
    1.4
    %
    
    $
    (178
    )
    
    
    -12.5
    %
  11




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Corporate Expenses
 Three months ended September,2008
    
    2007Operating loss
    
    $
    (603
    )
    
    $
    (1,639
    )
  Other Income
  Discontinued Operations
  COMPARISON OF NINE MONTHS ENDED SEPTEMBER 28, 2008 AND SEPTEMBER 30, 2007
  NINE MONTHS ENDED SEPTEMBER 28, 2008 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 2007
 Consolidated Overview
 Nine months ended September,2008
    
    2007Total revenue
    
    $
    3,315
    
    
    
    100.0
    %
    
    $
    12,151
    
    
    
    100.0
    %Gross Profit
    
    
    (54
    )
    
    
    -1.6
    %
    
    
    1,171
    
    
    
    9.6
    %Operating loss
    
    
    (4,345
    )
    
    
    -131.1
    %
    
    
    (3,427
    )
    
    
    -28.2
    %
   12




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Services Segment
 Nine months ended September,2008
    
    2007ServicesOperating (loss)income
    
    $
    (631
    )
    
    
    -19.0
    %
    
    $
    189
    
    
    
    1.6
    %
  Corporate Expenses
 Nine months ended September,2008
    
    2007Operating loss
    
    $
    (3,858
    )
    
    $
    (4,711
    )
  Other Income
  Liquidity and Capital Resources
      13




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
   Foreign Exchange Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
   14




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PART II - OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  Garrison Lawsuit
  
 Item 1A. Risk Factors.
       
 ITEM 6. EXHIBITS
       15




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16




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17




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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
 18