##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the Fiscal-year ended: December 30, 2007
 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
 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
  SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
  o þ
 o þ
 þ o
 þ
  Large accelerated filer: o
    
    Accelerated filer: o
    
    Non-accelerated filer: o
    
    Smaller reporting company: þ(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE.




---



##### 



TABLE OF CONTENTS
 Forward-Looking Statements
    
    
    2Item 1. Business
    
    
    2Item 1A. Risk Factors
    
    
    6Item 1B. Unresolved Staff Comments
    
    
    9Item 2. Properties
    
    
    9Item 3. Legal Proceedings
    
    
    9Item 4. Submission of Matters to a Vote of Security Holders
    
    
    9Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases
of Equity Securities
    
    
    9Item 6. Selected Financial Data
    
    
    10Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 8. Financial Statements and Supplementary Data
    
    
    20Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    45Item 9A. Controls and Procedures
    
    
    45Item 9B. Other Information
    
    
    46Item 10. Directors and Executive Officers of the Registrant
    
    
    46Item 11. Executive Compensation
    
    
    48Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    54Item 13. Certain Relationships and Related Transactions
    
    
    55Item 14. Principal Accountant Fees and Services
    
    
    55Item 15. Exhibits and Financial Statements Schedules
    
    
    56
 i




---



##### 



FORWARD-LOOKING STATEMENTS
  
 Item 1. Business.
      Subsequent Events
     - 2 -




---



##### 



Business Segments
  Security Solutions
     Repair and Overhaul
   Services
  - 3 -




---



##### 



Discontinued Operations
  Backlog
  Funded Backlog (all dollars in thousands)
 2008
    
    2009
    
    2010+Security Solutions
    
    $
    373
    
    
    $
    
    
    
    $
    Repair and Overhaul
    
    
    
    
    
    
    
    
    
    
    Services
    
    
    5,312
    
    
    
    
    
    
    
    Total Funded Backlog
    
    $
    5,685
    
    
    $
    
    
    
    $
    
   Government Contracts
  - 4 -




---



##### 



Material Government Contract Provisions
   
    
    Terminate existing contracts for convenience, which affords the U.S. government the
right to terminate the contract in whole or in part anytime it wants for any reason or
no reason, as well as for default;
    
    Reduce or modify contracts or subcontracts, if its requirements or budgetary
constraints change;
    
    Cancel multi-year contracts and related orders, if funds for contract performance
for any subsequent year become unavailable;
    
    Claim rights in products and systems produced by its contractor;
    
    Adjust contract costs and fees on the basis of audits completed by its agencies;
    
    Suspend or debar a contractor from doing business with the U.S. government; and
    
    Control or prohibit the export of products.
  Environmental Matters
  Available Information
 www.sec.gov.
 - 5 -




---



##### 



Item 1A. Risk Factors.
  We have experienced liquidity problems and may need to raise capital on terms unfavorable to our stockholders.
   Increased corporate overhead structure combined with a reduced operating base may impact our ability to operate at a profit.
   We may not receive the full amount of our contract awards.
  Our tax loss carry-forward may be adversely impacted by factors outside of our control which could
severely limit the value and amount of the tax loss carry-forward in future years.
 As of December 30, 2007, we have approximately $49 million of net operating loss carry-forward
available to offset future taxable income.
 - 6 -




---



##### 



Our acquisition of Amata, Inc. may not be successful and that may adversely affect our results of
operations and financial condition.
  There
is no assurance that we will realize the anticipated benefits we anticipate from the Amata
acquisition.
   Our quarterly operating results may fluctuate significantly as a result of factors outside of our
control, which could cause the market price of our common stock to decline.
  
    
    Fluctuations in revenue earned on contracts;
    
    Commencement, completion, or termination of contracts during any particular quarter;
    
    Variable purchasing patterns under GSA schedule contracts and agency-specific indefinite
delivery/indefinite quantity contracts;
    
    Provision of services under a share-in-savings or performance-based contract;
    
    Additions and departures of key personnel;
    
    Strategic decisions by us or our competitors, such as acquisitions, divestitures,
spin-offs, joint ventures, strategic investments, or changes in business strategy;
    
    Contract mix, the extent of use of subcontractors, and the level of third-party hardware
and software purchases for customers;
    
    Changes in presidential administrations and senior federal government officials that
affect the timing of procurements; and
    
    Changes in policy or budgetary measures that adversely affect government contracts in
general.
  - 7 -




---



##### 



We depend on contracts with U.S. federal government agencies or with prime contractors of such
agencies for substantially all of our revenue, and if our relationships with these agencies were
harmed, our business could be threatened.
  Our failure to comply with complex procurement laws and regulations could cause us to lose business
and subject us to a variety of penalties.
  
    
    The Federal Acquisition Regulation, and agency regulations analogous or supplemental to
the Federal Acquisition Regulation, which comprehensively regulates the formation,
administration, and performance of government contracts, including provisions relating to
the avoidance of conflicts of interest and intra-organizational conflicts of interest;
    
    The Truth in Negotiations Act, which requires certification and disclosure of all cost
and pricing data in connection with some contract negotiations;
    
    The Procurement Integrity Act, which requires evaluation of ethical conflicts
surrounding procurement activity and establishing certain employment restrictions for
individuals who participate in the procurement process;
    
    The Cost Accounting Standards, which impose accounting requirements that govern our
right and method to reimbursement under some cost-based government contracts;
    
    Laws, regulations, and executive orders restricting the use and dissemination of
information classified for national security purposes and the exportation of specified
products, technologies, and technical data;
    
    Laws surrounding lobbying activities a corporation may engage in to support corporate
interests; and
    
    Compliance with anti-trust laws.
 Unfavorable government audit results could force the Company to adjust previously reported
operating results and could subject us to a variety of penalties and sanctions.
    - 8 -




---



##### 



Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
  Segment
    
    Location
    
    Leased/Owned
    
    UsageSecurity Solutions
    
    Ft. Walton Beach, FL
    
    Owned
    
    ManufacturingFt. Walton Beach, FL
    
    Leased
    
    ManufacturingRepair and Overhaul
    
    Port Canaveral, FL
    
    Leased
    
    Fabrication
   
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  PART II
 
 Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 (a) Market Performance of Common Stock, Stockholders of Record, and Dividends on Common Stock.
 High
    
    Low2006First Quarter
    
    $
    1.22
    
    
    $
    0.65Second Quarter
    
    $
    1.15
    
    
    $
    0.68Third Quarter
    
    $
    0.93
    
    
    $
    0.42Fourth Quarter
    
    $
    0.60
    
    
    $
    0.332007First Quarter
    
    $
    0.60
    
    
    $
    0.36Second Quarter
    
    $
    0.42
    
    
    $
    0.24Third Quarter
    
    $
    0.50
    
    
    $
    0.32Fourth Quarter
    
    $
    0.37
    
    
    $
    0.16
 -9-




---



##### 



2004 Non-Statutory Stock Option Plan
  Amended and Restated Number 1 2004 Non-Statutory Stock Option Plan
  Amended and Restated Number 2 2004 Non-Statutory Stock Option Plan
   
 Item 6. Selected Financial Data (all dollars in $000s except per share data).
 2007
    
    2006
    
    2005
    
    2004
    
    2003Revenue
    
    
    17,676
    
    
    
    28,256
    
    
    
    53,698
    
    
    
    11,134
    
    
    
    13,330(Loss)income from Continuing Operations
    
    
    (19,143
    )
    
    
    (5,874
    )
    
    
    (4,492
    )
    
    
    (40,618
    )
    
    
    380Per share of Common Stock-basic & diluted
    
    
    (0.46
    )
    
    
    (0.14
    )
    
    
    (0.11
    )
    
    
    (1.21
    )
    
    
    0.02Net (Loss)Income
    
    
    (19,143
    )
    
    
    (8,594
    )
    
    
    (3,986
    )
    
    
    (40,307
    )
    
    
    206Per share of Common Stock-basic & diluted
    
    
    (0.46
    )
    
    
    (0.20
    )
    
    
    (0.09
    )
    
    
    (1.20
    )
    
    
    0.01Total Assets
    
    
    10,332
    
    
    
    30,064
    
    
    
    49,404
    
    
    
    31,213
    
    
    
    4,634Long-term Debt including current portion
    
    
    2,087
    
    
    
    1,994
    
    
    
    2,813
    
    
    
    
    
    
    
    1,763Shareholder Equity(Deficit)
    
    
    5,620
    
    
    
    24,517
    
    
    
    35,097
    
    
    
    28,623
    
    
    
    (889
    )EBITDA less stock option expense
    
    
    (17,901
    )
    
    
    (6,706
    )
    
    
    (2,098
    )
    
    
    (1,885
    )
    
    
    (38,878
    )Adjusted EBITDA
    
    
    (5,907
    )
    
    
    (4,012
    )
    
    
    (2,536
    )
    
    
    (38,878
    )
    
    
    732
 -10-




---



##### 



EBITDA Reconciliation
 2007
    
    2006
    
    2005
    
    2004
    
    2003Net (Loss)Income
    
    
    (19,143
    )
    
    
    (8,594
    )
    
    
    (3,986
    )
    
    
    (40,307
    )
    
    
    206Depreciation/Amortization
    
    
    1,333
    
    
    
    1,813
    
    
    
    464
    
    
    
    176
    
    
    
    139Interest expense (income)
    
    
    (137
    )
    
    
    (125
    )
    
    
    176
    
    
    
    (125
    )
    
    
    295Tax expense (benefit)
    
    
    
    
    
    
    26
    
    
    
    62
    
    
    
    (21
    )
    
    
    92Options issued to Employees/directors
    
    
    46
    
    
    
    174
    
    
    
    1,399
    
    
    
    1,399
    
    
    
    EBITDA
    
    
    (17,901
    )
    
    
    (6,706
    )
    
    
    (1,885
    )
    
    
    (38,878
    )
    
    
    732Cumulative effect of accounting change
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Write-off of intangibles
    
    
    11,994Loss(gain) from discontinued operations
    
    
    
    
    
    
    2,694
    
    
    
    (651
    )
    
    
    
    
    
    
    Adjusted EBITDA
    
    
    (5,907
    )
    
    
    (4,012
    )
    
    
    (2,536
    )
    
    
    (38,878
    )
    
    
    732
 -11-




---



##### 



Quarterly Financial Data
2007
 Q1
    
    Q2
    
    Q3
    
    Q4Revenue
    
    
    2,998
    
    
    
    9,748
    
    
    
    2,343
    
    
    
    2,587Gross Profit
    
    
    176
    
    
    
    720
    
    
    
    92
    
    
    
    31Net Loss
    
    
    (1,969
    )
    
    
    (1,186
    )
    
    
    (2,083
    )
    
    
    (13,905
    )Basic & diluted loss per share
    
    
    (0.04
    )
    
    
    (0.03
    )
    
    
    (0.05
    )
    
    
    (0.34
    )
 2006
 Q1
    
    Q2
    
    Q3
    
    Q4Revenue
    
    
    12,746
    
    
    
    6,233
    
    
    
    4,789
    
    
    
    4,488Gross Profit
    
    
    1,502
    
    
    
    910
    
    
    
    544
    
    
    
    796Net Loss
    
    
    (507
    )
    
    
    (4,562
    )
    
    
    (1,532
    )
    
    
    (1,994
    )Basic & diluted loss per share
    
    
    (0.01
    )
    
    
    (0.10
    )
    
    
    (0.04
    )
    
    
    (0.05
    )
 -12-




---



##### 



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
   Executive-Level Overview
   Basis of Presentation
  Critical Accounting Estimates
   -13-




---



##### 



Revenue Recognition
     Allowance for Bad Debts
  Net Operating Loss Carry-Forwards
  -14-




---



##### 



Goodwill and Other Intangibles
    Recent Accounting Pronouncements
      -15-




---



##### 



Overall Results of Operations
  For the Year ended December,(all dollars in 000s)2007
    
    2006Revenues
    
    
    17,676
    
    
    
    100.0
    %
    
    
    28,256
    
    
    
    100.0
    %Cost of Revenue
    
    
    16,657
    
    
    
    94.2
    %
    
    
    24,504
    
    
    
    86.7
    %Gross Profit
    
    
    1,019
    
    
    
    5.8
    %
    
    
    3,752
    
    
    
    13.3
    %Operating Loss
    
    
    (19,951
    )
    
    
    -112.9
    %
    
    
    (6,354
    )
    
    
    -22.5
    %
     Security Solutions
 For the Year ended December,(all dollars in 000s)2007
    
    2006Revenues
    
    
    2,703
    
    
    
    100.0
    %
    
    
    3,886
    
    
    
    100.0
    %Cost of Revenue
    
    
    3,163
    
    
    
    117.0
    %
    
    
    4,922
    
    
    
    126.7
    %Gross Loss
    
    
    (460
    )
    
    
    -17.0
    %
    
    
    (1,036
    )
    
    
    -26.7
    %Operating Loss
    
    
    (1,566
    )
    
    
    -57.9
    %
    
    
    (1,848
    )
    
    
    -47.6
    %
  -16-




---



##### 



Repair and Overhaul
 For the Year ended December,(all dollars in 000s)2007
    
    2006Revenues
    
    
    1,423
    
    
    
    100.0
    %
    
    
    2,711
    
    
    
    100.0
    %Cost of Revenue
    
    
    1,177
    
    
    
    82.7
    %
    
    
    1,745
    
    
    
    64.4
    %Gross Profit
    
    
    246
    
    
    
    17.3
    %
    
    
    966
    
    
    
    35.6
    %Operating (Loss)profit
    
    
    (348
    )
    
    
    -24.5
    %
    
    
    443
    
    
    
    16.3
    %
    Services
 For the Year ended December,(all dollars in 000s)2007
    
    2006Revenues
    
    
    13,550
    
    
    
    100.0
    %
    
    
    21,659
    
    
    
    100.0
    %Cost of Revenue
    
    
    12,317
    
    
    
    90.9
    %
    
    
    17,837
    
    
    
    82.4
    %Gross Profit
    
    
    1,233
    
    
    
    9.1
    %
    
    
    3,822
    
    
    
    17.6
    %Operating (Loss)profit
    
    
    (607
    )
    
    
    -4.5
    %
    
    
    1,291
    
    
    
    6.0
    %
    -17-




---



##### 



Corporate Expenses
 2007
    
    2006Operating Loss
    
    
    (17,430
    )
    
    
    (6,240
    )
  Discontinued Operations
 (all numbers in 000s)
 2007
    
    2006(Loss) earnings from discontinued operations
    
    $
    
    
    
    $
    (2,694
    )
  Backlog by Segment
  Funded Backlog (all dollars in thousands)
 For the Year ended December,(all dollars in 000s)2008
    
    2009
    
    2010+Security Solutions
    
    $
    373
    
    
    $
    
    
    
    $
    Repair and Overhaul
    
    
    
    
    
    
    
    
    
    
    Services
    
    
    5,312
    
    
    
    
    
    
    
    Total Funded Backlog
    
    $
    5,685
    
    
    $
    
    
    
    $
    
   Liquidity and Capital Resources
    -18-




---



##### 



Contractual
Obligations (all numbers in thousands)
  2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    2013+Operating Leases
    
    $
    613
    
    
    $
    504
    
    
    $
    527
    
    
    $
    362
    
    
    $
    
    
    
    $
    Capital Leases
    
    
    71
    
    
    
    74
    
    
    
    65
    
    
    
    19
    
    
    
    
    
    
    
    Mortgage Payable
    
    
    47
    
    
    
    51
    
    
    
    56
    
    
    
    61
    
    
    
    68
    
    
    
    1,575Total Lease Commitments
    
    $
    731
    
    
    $
    629
    
    
    $
    648
    
    
    $
    442
    
    
    $
    68
    
    
    $
    1,575
  Off-Balance Sheet Arrangements
  
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
 Interest Rate Risk
   Foreign Exchange Risk
   -19-




---



##### 



Item 8. Financial Statements and Supplementary Data.
  Financial Statements
 Report of Independent Registered Public Accounting Firm
    
    
    [21]Consolidated
Balance Sheets: December 30, 2007, and December 31, 2006
    
    
    [22]Consolidated Statements of Operations and Comprehensive Income
(Loss): Years ended December 30, 2007, and December 31, 2006
    
    
    [23]Consolidated Statements of Stockholders Equity: Years ended
December 30, 2007, and December 31, 2006
    
    
    [24]Consolidated Statements of Cash Flows: Years ended December 30,
2007, and December 31, 2006
    
    
    [25]Notes to Consolidated Financial Statements
    
    
    [26]
 - 20 -




---



##### 



- 21 -




---



##### 



December
    
    
    December30, 2007
    
    
    31, 2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    666
    
    
    $
    4,465Receivables, net
    
    
    2,464
    
    
    
    5,170Inventories
    
    
    331
    
    
    
    156Prepaid expenses & Other current assets
    
    
    865
    
    
    
    333Total current assets
    
    
    4,326
    
    
    
    10,124Property and equipment, net
    
    
    5,520
    
    
    
    5,737Goodwill
    
    
    
    
    
    
    3,529Other intangibles, net
    
    
    
    
    
    
    9,007Investments in joint ventures
    
    
    311
    
    
    
    311Other assets
    
    
    175
    
    
    
    1,356TOTAL ASSETS
    
    $
    10,332
    
    
    $
    30,064LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    638
    
    
    $
    717Accrued expenses
    
    
    1,884
    
    
    
    2,517Deferred revenues
    
    
    103
    
    
    
    319Current portion of long-term debt
    
    
    118
    
    
    
    68Total current liabilities
    
    
    2,743
    
    
    
    3,621Long-term liabilities:Long term debt, less current portion
    
    
    1,969
    
    
    
    1,926TOTAL LIABILITIES
    
    
    4,712
    
    
    
    5,547Commitments and contingencies (Note 18)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,
41,774,082 and 41,272,200 issued and outstanding
    
    
    4
    
    
    
    4Additional paid-in capital
    
    
    78,617
    
    
    
    78,371Accumulated deficit
    
    
    (73,001
    )
    
    
    (53,858
    )Total stockholders equity
    
    
    5,620
    
    
    
    24,517TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    10,332
    
    
    $
    30,064
  - 22 -




---



##### 



Twelve months endedDecember 30,
    
    
    December 31,2007
    
    
    2006RevenueServices
    
    $
    15,106
    
    
    $
    23,527Products
    
    
    2,570
    
    
    
    4,729Total
    
    
    17,676
    
    
    
    28,256Cost of RevenueServices
    
    
    13,631
    
    
    
    19,261Products
    
    
    3,026
    
    
    
    5,243Total
    
    
    16,657
    
    
    
    24,504Gross ProfitServices
    
    
    1,475
    
    
    
    4,266Products
    
    
    (456
    )
    
    
    (514
    )Total
    
    
    1,019
    
    
    
    3,752Operating Expense
    
    
    20,970
    
    
    
    10,106Net Operating Loss
    
    
    (19,951
    )
    
    
    (6,354
    )Non-operating income(expense), net
    
    
    808
    
    
    
    480Loss before income taxes
    
    
    (19,143
    )
    
    
    (5,874
    )Income tax expense
    
    
    
    
    
    
    (26
    )Loss from
continuing operations
    
    
    (19,143
    )
    
    
    (5,900
    )Loss from discontinued operations
    
    
    
    
    
    
    (2,694
    )Net and Total Comprehensive Loss
    
    $
    (19,143
    )
    
    $
    (8,594
    )Weighted average common shares outstanding:Basic and diluted
    
    
    41,683,331
    
    
    
    42,814,118Loss per share:Basic and diluted from continuing operations
    
    $
    (0.46
    )
    
    $
    (0.14
    )Basic and diluted from discontinued operations
    
    $
    0.00
    
    
    $
    (0.06
    )Total basic and diluted loss per share
    
    $
    (0.46
    )
    
    $
    (0.20
    )
  - 23 -




---



##### 



ComprehensiveCommon Stock
    
    
    
    
    
    
    
    
    
    Accumulated
    
    IncomeShares
    
    Amount
    
    APIC
    
    Deficit
    
    (Loss)
    
    TotalBalance
as of January 1, 2006
    
    
    44,072,200
    
    
    $
    4
    
    
    $
    79,866
    
    
    $
    (45,264
    )
    
    $
    491
    
    
    $
    35,097Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (8,594
    )
    
    
    
    
    
    $
    (8,594
    )Option Issuances
    
    
    
    
    
    
    
    
    
    $
    174
    
    
    
    
    
    
    
    
    
    
    $
    174Foreign currency translation M&M disposition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (491
    )
    
    $
    (491
    )M&M sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,494
    )Augenbaum settlement
    
    
    
    
    
    
    
    
    
    $
    705
    
    
    
    
    
    
    
    
    
    
    $
    (175
    )Treasury Stock retirement
    
    
    (2,800,000
    )
    
    $
    
    
    
    $
    (2,374
    )
    
    
    
    
    
    
    
    
    
    $
    Balance as of January 1, 2007
    
    
    41,272,200
    
    
    $
    4
    
    
    $
    78,371
    
    
    $
    (53,858
    )
    
    $
    
    
    
    $
    24,517Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (19,143
    )
    
    
    
    
    
    $
    (19,143
    )Stock Issuances
    
    
    501,882
    
    
    $
    
    
    
    $
    200
    
    
    
    
    
    
    
    
    
    
    $
    200Option Issuances
    
    
    
    
    
    
    
    
    
    $
    46
    
    
    
    
    
    
    
    
    
    
    $
    46Balance as of December 30, 2007
    
    
    41,774,082
    
    
    $
    4
    
    
    $
    78,617
    
    
    $
    (73,001
    )
    
    $
    
    
    
    $
    5,620
  - 24 -




---



##### 



2007
    
    
    2006Net loss from continuing operations
    
    $
    (19,143
    )
    
    $
    (5,900
    )Adjustments to reconcile net loss to netCash used in operating activitiesStock option issuances
    
    
    46
    
    
    
    174Depreciation/Amortization
    
    
    1,333
    
    
    
    1,813Allowance for bad debt
    
    
    200
    
    
    
    Write-off of goodwill and other acquired intangibles
    
    
    11,874
    
    
    
    Legal settlement costs not included in net income
    
    
    
    
    
    
    (175
    )Loss(gain) on disposal of equipment
    
    
    14
    
    
    
    (5
    )Decrease (increase) in balance sheet itemsReceivables
    
    
    2,506
    
    
    
    7,367Inventory
    
    
    (176
    )
    
    
    103Prepaid Expenses
    
    
    (117
    )
    
    
    54Accounts Payable
    
    
    (79
    )
    
    
    (5,129
    )Accrued Expenses
    
    
    (433
    )
    
    
    (357
    )Deferred Revenue
    
    
    (215
    )
    
    
    (58
    )Other balance sheet changes
    
    
    350
    
    
    
    (523
    )Net cash used in continuing operations
    
    
    (3,840
    )
    
    
    (2,636
    )Cash flows from investing activitiesCash received from sale of subsidiary
    
    
    830
    
    
    
    6,190Cash invested in potential acquisition
    
    
    (559
    )Purchase of property and equipment
    
    
    (183
    )
    
    
    (546
    )Proceeds from the sale of equipment
    
    
    46
    
    
    
    16Net cash provided by investing activities
    
    
    134
    
    
    
    5,660Cash flows from financing activitiesRepayment of debt, net
    
    
    (93
    )
    
    
    (102
    )Net cash used in financing activities
    
    
    (93
    )
    
    
    (102
    )Cash flows used in discontinued operations
    
    
    
    
    
    
    (270
    )Net (decrease)increase in cash and cash equivalents
    
    
    (3,799
    )
    
    
    2,652Cash and cash equivalents at beginning of period
    
    
    4,465
    
    
    
    1,813Cash and cash equivalents at end of period
    
    $
    666
    
    
    $
    4,465
  - 25 -




---



##### 



1. ORGANIZATION AND NATURE OF BUSINESS
 Organization
    Liquidity
  2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Revenue Recognition
    - 26 -




---



##### 



Use of Estimates
  Cash Equivalents
  Fair Value of Financial Instruments
  Significant Customers and Credit Risks
  Year Ended December 31,2007
    
    2006Customer A
    
    
    *
    
    
    
    24.8
    %Customer B
    
    
    39.6
    %
    
    
    *
 
 *
    
    Less than 10% of consolidated revenue as of the end of each period.  Concentration of Credit Risk
  - 27 -




---



##### 



Fiscal December2007
    
    2006Customer A
    
    
    *
    
    
    
    *Customer B
    
    
    *
    
    
    
    *Customer C
    
    
    26.6
    %
    
    
    *Customer D
    
    
    13.5
    %
    
    
    *
 
 *
    
    Less than 10% of consolidated accounts receivable and unbilled services as of the end of each
period.  Inventories
  Property & Equipment
  Goodwill
   Impairment of Long-Lived Assets
  - 28 -




---



##### 



Income Taxes
  Research and Development Costs
  Earnings (Loss) Per Share
   Foreign Currency Translation
  Stock Based Compensation
 
 Recent Accounting Pronouncements
  - 29 -




---



##### 



3. ACQUISITIONS & DISPOSITIONS
 M&M Engineering Limited
  
  - 30 -




---



##### 



4. RECEIVABLES (000s)
  December
    
    
    DecemberAccounts Receivable
    
    30, 2007
    
    
    31, 2006Billed AR
    
    $
    1,944
    
    
    $
    3,779Unbilled AR
    
    
    653
    
    
    
    1,197Holdbacks
    
    
    48
    
    
    
    194Bad Debt Reserve
    
    
    (211
    )
    
    
    Other
    
    
    30
    
    
    
    Total AR
    
    $
    2,464
    
    
    $
    5,170
  5. INVENTORIES (000s)
  December
    
    
    DecemberInventory
    
    30, 2007
    
    
    31, 2006Raw Materials
    
    $
    321
    
    
    $
    100Work in Process
    
    
    11
    
    
    
    56Total Inventory
    
    $
    332
    
    
    $
    156
 - 31 -




---



##### 



6. PROPERTY AND EQUIPMENT (000s)
 December
    
    
    DecemberProperty & Equipment
    
    30, 2007
    
    
    31, 2006Land
    
    $
    575
    
    
    $
    575Buildings & Improvements
    
    
    4,441
    
    
    
    4,270Furniture & Fixtures
    
    
    285
    
    
    
    256Manufacturing Equipment
    
    
    1,506
    
    
    
    1,283Tools & Equipment
    
    
    295
    
    
    
    354Office Equipment
    
    
    634
    
    
    
    644Vehicles
    
    
    223
    
    
    
    303Investment Property
    
    
    221
    
    
    
    221Total
    
    $
    8,180
    
    
    $
    7,906Accumulated Depreciation
    
    
    (2,660
    )
    
    
    (2,169
    )Property & Equipment, net
    
    $
    5,520
    
    
    $
    5,737
 7. GOODWILL AND OTHER INTANGIBLES (000s)
    Intangible
    
    Value(000s)
    
    Useful LifeCustomer Relationships
    
    $
    4,849
    
    
    15 yearsTrademarks
    
    
    3,365
    
    
    IndefiniteNon-Compete/Employment Agreements
    
    
    1,091
    
    
    5 yearsOrder Backlog
    
    
    906
    
    
    5 years
  - 32 -




---



##### 



8. ACCRUED EXPENSES (000s)
 December
    
    
    DecemberAccrued Expenses
    
    30, 2007
    
    
    31, 2006Salaries & payroll related items
    
    $
    638
    
    
    $
    535Accrued leave
    
    
    160
    
    
    
    381Property & sales tax
    
    
    
    
    
    
    38Professional Fees
    
    
    138
    
    
    
    464Deferred Rent
    
    
    623
    
    
    
    683Other
    
    
    325
    
    
    
    416Total Accrued Liabilities
    
    $
    1,884
    
    
    $
    2,517
 9. BORROWINGS AND LINES OF CREDIT
  Bank of America Facility
    2008
    
    2009
    
    2010
    
    2011
    
    2012+Mortgage
Payable
    
    $
    47
    
    
    $
    51
    
    
    $
    56
    
    
    $
    61
    
    
    $
    1,643Capital Leases
    
    
    71
    
    
    
    74
    
    
    
    65
    
    
    
    19
    
    
    
    Total Lease Commitments
    
    $
    118
    
    
    $
    125
    
    
    $
    121
    
    
    $
    80
    
    
    $
    1,643
 - 33 -




---



##### 



10. STOCKHOLDERS EQUITY
     11. RELATED PARTY TRANSACTIONS
 Transactions related to Coast Engine and Equipment Company
  12. EMPLOYEE BENEFIT PLAN
  13. STOCK OPTION PLAN
  - 34 -




---



##### 



Option
    
    Weighted AverageNumber of shares
    
    Exercise Price
    
    Exercise PriceOutstanding 1/1/2006
    
    
    5,837,800
    
    
    
    1.28 - 1.95Granted
    
    
    1,759,704
    
    
    
    0.50 - 1.55
    
    
    
    1.44Exercised
    
    
    Cancelled
    
    
    (4,493,028
    )
    
    
    1.28 - 1.95
    
    
    
    1.86Options Outstanding 12/31/2006
    
    
    3,104,476Granted
    
    
    535,000
    
    
    
    0.35 - 0.53
    
    
    
    0.51Exercised
    
    
    Cancelled
    
    
    (1,726,962
    )
    
    
    1.40 - 1.95
    
    
    
    1.55Options Outstanding 12/30/2007
    
    
    1,912,514
  - 35 -




---



##### 



Options Exercisable & Outstanding
 Exercise
    
    Shares
    
    Shares
    
    Weighted AveragePrice
    
    Outstanding
    
    Exercisable
    
    Remaining Life (yrs)0.35
    
    
    180,000
    
    
    
    
    
    
    
    4.50.37
    
    
    50,000
    
    
    
    
    
    
    
    4.50.40
    
    
    60,000
    
    
    
    39,000
    
    
    
    4.50.50
    
    
    75,000
    
    
    
    45,000
    
    
    
    8.50.80
    
    
    150,000
    
    
    
    50,000
    
    
    
    1.51.28
    
    
    2,000
    
    
    
    2,000
    
    
    
    0.51.55
    
    
    795,514
    
    
    
    795,514
    
    
    
    0.11.65
    
    
    600,000
    
    
    
    600,000
    
    
    
    0.11,912,514
    
    
    
    1,531,514
  14. INCOME TAXES
  Year EndedDecember 30, 2007
    
    December 31, 2006CurrentFederal
    
    
    
    
    
    
    33State
    
    
    
    
    
    
    Foreign
    
    
    
    
    
    
    Total Current
    
    
    
    
    
    
    33DeferredFederal
    
    
    
    
    
    
    Foreign
    
    
    
    
    
    
    Total Deferred
    
    
    
    
    
    
    Total Tax Provision
    
    
    
    
    
    
    33
  Rate Reconciliation:
    
    2007
    
    2006Statutory Federal Income Tax Rate
    
    
    34.00
    %
    
    
    34.0
    %State Taxes (Net of Federal Benefit)
    
    
    3.19
    %
    
    
    3.8
    %Goodwill Impairment
    
    
    -6.59
    %
    
    
    Permanent Difference
    
    
    -0.06
    %
    
    
    -1.7
    %Valuation Allowance
    
    
    -29.24
    %
    
    
    -32.2
    %Other
    
    
    -1.29
    %
    
    
    -4.3
    %Effective Tax Rate
    
    
    0.00
    %
    
    
    -0.4
    %
 - 36 -




---



##### 



Deferred Tax Asset/Liability:
    
    2007
    
    2006Accrued Expenses
    
    
    316
    
    
    
    175Depreciation
    
    
    122
    
    
    
    20Amortization of Intangibles
    
    
    9
    
    
    
    (3,406
    )Allowance for Doubtful Accounts
    
    
    80
    
    
    
    203Stock Compensation
    
    
    428
    
    
    
    653NOL Carry-forwards
    
    
    18,379
    
    
    
    16,776Other, Net
    
    
    (34
    )
    
    
    (15
    )Valuation Allowance
    
    
    (19,300
    )
    
    
    (14,406
    )Net Deferred Tax Asset/Liability
    
    
    
    
    
    
    
      - 37 -




---



##### 



15. NON-OPERATING INCOME (EXPENSE) (000s)
 2007
    
    2006IncomeBuilding Rent
    
    
    228
    
    
    
    228Interest
    
    
    125
    
    
    
    101Equity Investments
    
    
    317
    
    
    
    361Legal Settlement
    
    
    400
    
    
    
    ExpenseInterest
    
    
    (262
    )
    
    
    (226
    )Other
    
    
    
    
    
    
    16Total net non-operating income
    
    
    808
    
    
    
    480
 16. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (000S)
 2007
    
    2006Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    194
    
    
    $
    224Cash paid for taxes
    
    $
    132
    
    
    $
    156Leasehold improvements provided by lessor
    
    $
    
    
    
    $
    723Acquisition of property and equipment under capital lease
    
    $
    186
    
    
    $
    
   17. SEGMENT INFORMATION
  - 38 -




---



##### 



For the Year ended December,(all dollars in 000s)2007
    
    2006TotalRevenues
    
    
    17,676
    
    
    
    28,256Cost of Revenue
    
    
    16,657
    
    
    
    24,504Gross Profit
    
    
    1,019
    
    
    
    3,752Operating Loss
    
    
    (19,951
    )
    
    
    (6,354
    )2007
    
    2006Security SolutionsRevenues
    
    
    2,703
    
    
    
    3,886Cost of Revenue
    
    
    3,163
    
    
    
    4,922Gross Loss
    
    
    (460
    )
    
    
    (1,036
    )Operating Loss
    
    
    (1,566
    )
    
    
    (1,848
    )2007
    
    2006Repair & OverhaulRevenues
    
    
    1,423
    
    
    
    2,711Cost of Revenue
    
    
    1,177
    
    
    
    1,745Gross Profit
    
    
    246
    
    
    
    966Operating (Loss)profit
    
    
    (348
    )
    
    
    4432007
    
    2006ServicesRevenues
    
    
    13,550
    
    
    
    21,659Cost of Revenue
    
    
    12,317
    
    
    
    17,837Gross Profit
    
    
    1,233
    
    
    
    3,822Operating (Loss)profit
    
    
    (607
    )
    
    
    1,2912007
    
    2006CorpOperating Loss
    
    
    (17,430
    )
    
    
    (6,240
    )
  Identifiable Assets (000s)
    
    Fixed Asset Additions
    
    Depreciation ExpenseDecember
    
    12 months ended
    
    12 months ended2007
    
    2006
    
    2007
    
    2006
    
    2007
    
    2006Security Solutions
    
    $
    6,120
    
    
    $
    6,293
    
    
    $
    280
    
    
    $
    86
    
    
    $
    308
    
    
    $
    355Repair and Overhaul
    
    
    180
    
    
    
    1,042
    
    
    
    24
    
    
    
    37
    
    
    
    68
    
    
    
    58Services
    
    
    932
    
    
    
    10,007
    
    
    
    22
    
    
    
    124
    
    
    
    87
    
    
    
    106Corporate
    
    
    3,100
    
    
    
    12,722
    
    
    
    43
    
    
    
    1,031
    
    
    
    208
    
    
    
    90Total Assets
    
    $
    10,332
    
    
    $
    30,064
    
    
    $
    369
    
    
    $
    1,278
    
    
    $
    671
    
    
    $
    609
  -39-




---



##### 



Overhaul
    
    Services
    
    TotalBalance at January 1, 2006
    
    
    262
    
    
    
    13,285
    
    
    
    13,547Reclass intangibles out of goodwill
    
    
    
    
    
    
    (10,211
    )
    
    
    (10,211
    )CEECO earn-out
    
    
    200
    
    
    
    
    
    
    
    200Acquisition tax adjustment
    
    
    (7
    )
    
    
    
    
    
    
    (7
    )Balance at December 31, 2006
    
    $
    455
    
    
    $
    3,074
    
    
    $
    3,529CEECO earn-out
    
    
    200
    
    
    
    
    
    
    
    200Goodwill write-off
    
    
    (655
    )
    
    
    (3,074
    )
    
    
    (3,729
    )Balance at December 30, 2007
    
    $
    
    
    
    $
    
    
    
    $
    
 18.
    
    COMMITMENTS AND CONTINGENCIES
 Operating Leases
  2008
    
    2009
    
    2010
    
    2011
    
    2012+Operating Leases
    
    
    (000s
    )
    
    $
    613
    
    
    $
    504
    
    
    $
    527
    
    
    $
    362
    
    
    $
    
 Lessor
   2008
    
    $
    171,726
 Legal Matters
 Munitions Assembly Conveyor (MAC) Lawsuit
  -40-




---



##### 



Garrison Lawsuit
   Plum Island Claim
  19.
    
    INVESTMENTS IN JOINT VENTURES
  20.
    
    SUBSEQUENT EVENTS
 CEECO Closing
  CEECO Earnout
  -41-




---



##### 



Garrison Lawsuit
  Amata Transaction and Related Financing
     -42-




---



##### 



-43-




---



##### 



SSSI Closing
  Darryl Horne Notes
    Evan Auld-Susott and Trevor Foster Notes
  -44-




---



##### 



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  Management Report on Internal Control Over Financial Reporting
    Inherent Limitations on Effectiveness of Controls
   -45-




---



##### 



9B. Other Information
  PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
  Name
    
    Age
    
    PositionDarryl K. Horne
    
    
    47
    
    
    President, Chief Executive Officer and ChairmanMichael M. Megless
    
    
    61
    
    
    Executive Vice President, Chief Financial
Officer, and DirectorFrancis X. Ryan
    
    
    56
    
    
    DirectorEvan Auld-Susott
    
    
    28
    
    
    Director of Acquisitions and DirectorKelvin D. Armstrong
    
    
    66
    
    
    DirectorKarl Heer
    
    
    58
    
    
    DirectorJohn A. Moore
    
    
    55
    
    
    Director
 BIOGRAPHIES OF EXECUTIVE OFFICERS AND DIRECTORS
 Darryl K. Horne
 Michael M. Megless
 -46-




---



##### 



Francis X. Ryan
 Kelvin D. Armstrong
 Karl Heer
 John A. Moore, Jr.
 Evan Auld-Susott
 -47-




---



##### 



CODE OF ETHICS
  SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
  AUDIT COMMITTEE AND FINANCIAL EXPERT
  
 Item 11. Executive Compensation.
 Compensation Discussion and Analysis:
  Executive Compensation Policy and General Philosophy
  -48-




---



##### 



Components of Executive Compensation for 2007
  Base Salaries
    Performance and Incentive Cash Bonuses
  -49-




---



##### 



Equity Compensation
   Employee Benefits
  Severance Benefits
  Perquisites and Other Benefits
  -50-




---



##### 



Board of Directors Report on Compensation Discussion and Analysis
  Summary Compensation Table
 Name
    
    Position
    
    Year
    
    Salary
    
    Awards
    
    Bonus
    
    Compensation
    
    
    
    
    
    CompensationDarryl K. Horne
    
    Chief Executive Officer
    
    
    2007
    
    
    $
    347,514
    
    
    $
    
    
    
    $
    
    
    
    $
    26,281
    
    
    
    (1
    )
    
    $
    373,7952006
    
    
    $
    375,000
    
    
    $
    
    
    
    $
    
    
    
    $
    39,225
    
    
    
    (2
    )
    
    $
    414,225Michael M. Megless
    
    Chief Financial Officer
    
    
    2007
    
    
    $
    245,514
    
    
    $
    
    
    
    $
    
    
    
    $
    11,324
    
    
    
    (3
    )
    
    $
    256,8382006
    
    
    $
    260,000
    
    
    $
    35,897
    
    
    $
    
    
    
    $
    16,640
    
    
    
    (4
    )
    
    $
    312,537Robert M. Suthard
    
    Chief Operating Officer
    
    
    2007
    
    
    $
    103,769
    
    
    $
    13,415
    
    
    $
    20,000
    
    
    $
    
    
    
    
    (5
    )
    
    $
    137,184
 
  
  
   EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
  -51-




---



##### 



-52-




---



##### 



Compensation Committee Interlocks and Insider Participation in Compensation Decisions:
  -53-




---



##### 



Outstanding Equity Awards at Fiscal Year-end
 Number of Securities
Underlying Unexercised Options
 December 30, 2007
    
    Option
Exercise PriceName
    
    Exercisable
    
    UnexercisableDarryl K. Horne
    
    
    
    
    
    
    
    
    
    
    N/AMichael M. Megless
    
    
    326,353
    
    
    
    
    
    
    $
    1.55Robert M. Suthard
    
    
    
    
    
    
    50,000
    
    
    $
    0.37
  Director Compensation
 Fees Earned
    
    Option
    
    Option
    
    All Other
    
    TotalName
    
    or Paid in Cash
    
    Awards
    
    Value
    
    Compensation
    
    CompensationKelvin D. Armstrong
    
    $
    26,000
    
    
    
    30,000
    
    
    $
    4,178
    
    
    $
    
    
    
    $
    30,178Karl Heer
    
    $
    25,000
    
    
    
    30,000
    
    
    $
    4,178
    
    
    $
    
    
    
    $
    29,178Evan Auld-Susott
    
    $
    10,000
    
    
    
    30,000
    
    
    $
    1,269
    
    
    $
    
    
    
    $
    11,269L. Kenneth Johnson
    
    $
    25,000
    
    
    
    30,000
    
    
    $
    4,178
    
    
    $
    
    
    
    $
    29,178John A. Moore
    
    $
    31,000
    
    
    
    30,000
    
    
    $
    4,178
    
    
    $
    
    
    
    $
    35,178Francis X. Ryan
    
    $
    31,000
    
    
    
    30,000
    
    
    $
    4,178
    
    
    $
    
    
    
    $
    35,178
     
 Item 12. Security Ownership of Certain Beneficial Owners and Management.
  Name and Address
    
    Number of Shares
    
    Percentageof Beneficial Owner (1)
    
    Beneficially Owned (2)
    
    of ClassDarryl K. Horne
    
    
    4,877,007
    
    
    
    11.4
    %Michael M. Megless
    
    
    10,493
    
    
    
    *Kelvin D. Armstrong
    
    
    74,000
    a
    
    
    0.2
    %Karl Heer
    
    
    60,000
    a
    
    
    0.1
    %Evan Auld-Susott
    
    
    2,852,450
    b
    
    
    6.3
    %John A. Moore
    
    
    200,000
    a
    
    
    *Francis X. Ryan
    
    
    100,000
    a
    
    
    *Robert Suthard
    
    
    50,000
    c
    
    
    *Total Directors and Named Executive Officers
    
    
    8,223,950
    
    
    
    17.9
    %Trevor Foster (3)
    
    
    3,000,000
    
    
    
    7.0
    %P.O. Box 450Hickman, CA 95323
 
 *
    
    Less than 1% of the outstanding common stock. - 54 -




---



##### 



(1)
    
    Except as otherwise noted, the address for each person listed in this table is c/o Horne
International, Inc., 2677 Prosperity Avenue, Suite 300, Fairfax, Virginia 22031.(2)
    
    Beneficial ownership of shares is determined in accordance with the rules of the Securities
and Exchange Commission and generally includes any shares over which a person exercises sole
or shared voting or investment power. The number of shares beneficially owned by a person
includes shares of common stock that the person had the right to acquire pursuant to options
exercisable within 60 days of March 31, 2008. Shares issuable pursuant to options are deemed
outstanding for calculating the percentage ownership of the person holding the options but are
not deemed outstanding for the purposes of calculating the percentage ownership of any other
person.(3)
    
    Information is based solely upon a Schedule 13G/A filed by Trevor Foster on March 16,
2007.(a)
    
    Includes 60,000 shares of common stock issuable pursuant to options.(b)
    
    Includes 30,000 shares of common stock issuable pursuant to options.(c)
    
    Includes 50,000 shares of common stock issuable pursuant to options. (b) Equity Compensation Plans.
 Number of
    
    
    
    
    
    Number of securities remainingsecurities to be
    
    
    
    
    
    available for future issuanceissued upon exercise of
    
    Weighted-average exercise
    
    under equity compensationoutstanding options,
    
    price of outstanding options,
    
    plans (excluding securitieswarrants and rights
    
    warrants and rights
    
    reflected in column (a))Plan Category
    
    (a)
    
    (b)
    
    (c)Equity compensation
plans approved by
security holders
    
    
    0
    (1)
    
    $
    0
    
    
    
    1,000,000Equity compensation
plans not approved by
security holders
    
    
    1,912,514
    (2)
    
    $
    1.30
    
    
    
    6,966,286Total
    
    
    1,912,514
    
    
    
    
    
    
    
    7,966,286
 
 (1)
    
    Represents stock options issued pursuant to the Companys 2004 Non-Statutory Stock Option Plan.(2)
    
    Represents stock options issued pursuant to the Companys Amended and Restated Number 1 2004
Non-Statutory Stock Option Plan and the Companys Amended and Restated Number 2 2004
Non-Statutory Stock Option Plan.  
 Item 13.
Certain Relationships and Related Transactions.
  
 Item 14. Principal Accountant Fees and Services.
 Fees Paid to the Independent Auditors
  2007
    
    
    2006Audit Fees
    
    $
    239,330
    
    
    $
    219,230Audit Related Fees
    
    
    
    
    
    
    70,000Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    1,193$
    239,330
    
    
    $
    290,423
 - 55 -




---



##### 



Item 15. Exhibits and Financial Statements Schedules.
 (a)(1)
    
    The financial statements included in Item 8 hereof are incorporated herein by reference and
filed as part of this report.
 (2)
    
    All financial statement schedules are omitted because they are either not applicable, or
because the required information is shown in the consolidated financial statements or notes
thereto.
 (3)
    
    Exhibits: The response to this section of Item 15 is included in the Exhibit Index of this
report and is incorporated herein by reference.
 - 56 -




---



##### 



SIGNATURES
  Horne International, Inc.Date:
April 14, 2008
    
    By:
    /s/ Darryl K. HorneName:
    Darryl K. HorneTitle:
    Chief Executive Officer and President
   SIGNATURE
    
    TITLE
    
    DATE/s/ Darryl K. Horne
    
    Principal Executive Officer and Director
    
    April 14, 2008/s/ Michael M. Megless
    
    Principal Financial Officer and Director
    
    April 14, 2008/s/ Francis X. Ryan
    
    Director
    
    April 14, 2008/s/ Evan Auld-Susott
    
    Director
    
    April 14, 2008/s/ Kelvin D. Armstrong
    
    Director
    
    April 14, 2008/s/ Karl Heer
    
    Director
    
    April 14, 2008/s/ John A. Moore
    
    Director
    
    April 14, 2008
 - 57 -




---



##### 



EXHIBIT INDEX
 ExhibitNumber
    
    Description2.1
    
    Stock Purchase and Sale Agreement, dated as of
January 28, 2005, by and among Spectrum Sciences &
Software Holdings Corp., Coast Engine and Equipment
Co., Inc., Louis T. Rogers and Marilyn G. Rogers
(previously filed on Form 8-K, filed with the
Securities and Exchange Commission on March 3, 2005).2.2
    
    Agreement and Plan of Merger, dated as of April 14,
2005, by and among Spectrum Sciences & Software
Holdings Corp., Horne Acquisition LLC, Horne
Engineering Services, Inc., Darryl K. Horne, Charlene
M. Horne and Michael M. Megless (previously filed on
Form 8-K, filed with the Securities and Exchange
Commission on March 17, 2005).2.3
    
    Amendment and Waiver Agreement, dated as of May 11,
2005, by and among Spectrum Sciences & Software
Holdings Corp., Horne Acquisition LLC, Horne
Engineering Services, Inc., Darryl K. Horne, Charlene
M. Horne and Michael M. Megless (previously filed on
Form 8-K, filed with the Securities and Exchange
Commission on March 17, 2005).2.4
    
    Stock Purchase Agreement by and between Spectrum
Sciences & Software Holdings Corp. and 53341
Newfoundland and Labrador Ltd. dated June 21, 2006
(previously filed on Form 8-K, filed with the
Securities and Exchange Commission on June 26, 2006).2.5
    
    Retraction Agreement by and between Spectrum Sciences
& Software Holdings Corp. and M&M Engineering, Ltd.
dated June 21, 2006 (previously filed on Form 8-K,
filed with the Securities and Exchange Commission on
June 26, 2006).2.6
    
    Stock Purchase Agreement by and between Horne
International, Inc. and Amata Inc. dated January 17,
2008 (previously filed on Form 8-K, filed with the
Securities and Exchange Commission on January 24,
2008)3.1
    
    Certificate of Incorporation, filed August 28, 1998
(previously filed in registration statement on Form
10-SB File No. 1-31710, filed with the Securities and
Exchange Commission on June 10, 2003).3.2
    
    Certificate of Renewal and Revival, filed March 24,
2003 (previously filed in registration statement on
Form 10-SB File No. 1-31710, filed with the
Securities and Exchange Commission on June 10, 2003).3.3
    
    Certificate of Amendment of Certificate of
Incorporation, filed April 8, 2003 (previously filed
in registration statement on Form 10-SB File No.
1-31710, filed with the Securities and Exchange
Commission on June 10, 2003).3.4
    
    Certificate of Merger filed with the Delaware
Secretary of State (previously filed in registration
statement on Form 10-SB File No. 1-31710, filed with
the Securities and Exchange Commission on June 10,
2003).
 - 58 -




---



##### 



ExhibitNumber
    
    Description3.5
    
    Articles of Merger filed with the Florida Secretary
of State
(previously filed in registration statement
on Form 10-SB File No. 1-31710, filed with the
Securities and Exchange Commission on June 10, 2003).3.6
    
    Amended and Restated Bylaws of Spectrum Sciences &
Software Holdings Corp., as amended (previously filed
on Form 10-Q, filed with the Securities and Exchange
Commission on November 14, 2005).3.7
    
    Amended and Restated Bylaws of Spectrum Sciences &
Software Holdings Corp., as amended (previously filed
on Form 8-K, filed with the Securities and Exchange
Commission on May 2, 2006).3.8
    
    Amended Articles of Incorporation of Horne
International, Inc. (previously filed on Form 8-K,
filed with the Securities and Exchange Commission on
September 6, 2006).4.1
    
    Specimen Certificate of Common Stock (previously
filed in registration statement on Form 10-SB File
No. 1-31710, filed with the Securities and Exchange
Commission on June 10, 2003).4.2
    
    Registration Rights Agreement, dated as of May 11,
2005, by and among Spectrum Sciences & Software
Holdings Corp., Darryl K. Horne, Charlene M. Horne
and Michael M. Megless (previously filed on Form 8-K,
filed with the Securities and Exchange Commission on
March 17, 2005).4.3
    
    First Amendment to Promissory Note, dated May 25, 2005, by and
between Horne Engineering Services LLC and Darryl K. Horne
(previously filed on Form 8-K, filed with the Securities and Exchange
Commission on May 27, 2005).10.1
    
    Employment Agreement, dated as of May 11, 2005, by
and between Spectrum Sciences & Software Holdings
Corp. and Darryl K. Horne (previously filed on Form
8-K, filed with the Securities and Exchange
Commission on March 17, 2005).10.2
    
    First Amendment to Employment Agreement, dated as of
May 23, 2005, by and between Spectrum Sciences &
Software Holdings Corp. and Darryl K. Horne
(previously filed on Form 8-K, filed with the
Securities and Exchange Commission on May 27, 2005).10.3
    
    Employment Agreement, dated as of May 11, 2005, by
and between Spectrum Sciences & Software Holdings
Corp. and Michael M. Megless (previously filed on
Form 8-K, filed with the Securities and Exchange
Commission on March 17, 2005).10.4
    
    First Amendment to Employment Agreement, dated as of
May 23, 2005, by and between Spectrum Sciences &
Software Holdings Corp. and Michael M. Megless
(previously filed on Form 8-K, filed with the
Securities and Exchange Commission on May 27, 2005).10.5
    
    2004 Non-Statutory Stock Option Plan, dated March 11,
2004 (previously filed on Form 8-K, filed with the
Securities and Exchange Commission on March 12,
2004).10.6
    
    Amended and Restated Number 1 2004 Non-Statutory
Stock Option Plan, dated April 16, 2004 (previously
filed on Form S-8, filed with the Securities and
Exchange Commission on April 21, 2004).10.7
    
    Amended and Restated Number 2 2004 Non-Statutory
Stock Option Plan, dated November 15, 2004
(previously filed on Form 8-K, filed with the
Securities and Exchange Commission on November 19,
2004).
 - 59 -




---



##### 



ExhibitNumber
    
    Description10.8
    
    Form of Stock Option Agreement between Spectrum
Sciences & Software Holdings Corp. and each of Kelvin
D. Armstrong, Karl Heer, William H. Ham, Jr. and
Nancy C. Gontarek, dated November 15, 2004
(previously filed on Form 8-K, filed with the
Securities and Exchange Commission on November 19,
2004).10.9
    
    Form of Stock Option Agreement between Spectrum
Sciences & Software Holdings Corp. and each of Kelvin
D. Armstrong, Karl Heer, William H. Ham, Jr. and
Nancy C. Gontarek, dated January 12, 2005 (previously
filed on Form 8-K, filed with the Securities and
Exchange Commission on January 19, 2005).10.10
    
    Form of Stock Option Agreement between Spectrum
Sciences & Software Holdings Corp. and each of Kelvin
D. Armstrong, Karl Heer and William H. Ham, Jr.,
dated February 14, 2005 (previously filed on Form
8-K, filed with the Securities and Exchange
Commission on February 18, 2005).10.11
    
    Stock Option Agreement between Spectrum Sciences &
Software Holdings Corp. and Darryl K. Horne, dated
May 11, 2005 (previously filed on Form 8-K, filed
with the Securities and Exchange Commission on May
17, 2005).10.12
    
    Form of Stock Option Agreement between Spectrum
Sciences & Software Holdings Corp. and each of Darryl
K. Horne and Michael M. Megless, dated June 8, 2005
(previously filed on Form 8-K, filed with the
Securities and Exchange Commission on June 13, 2005).10.13
    
    Stock Option Agreement between Spectrum Sciences &
Software Holdings Corp. and Michael M. Megless, dated
January 23, 2006 (previously filed on Form 8-K, filed
with the Securities and Exchange Commission on
January 27, 2006).10.14
    
    Settlement and Standstill Agreement, dated November
17, 2005, by and among Robert Genovese, BG Capital
Group Ltd. and Spectrum Sciences & Software Holdings
Corp. (previously filed on Form 10-K, filed with the
Securities and Exchange Commission on March 30,
2006).10.15
    
    Subordinated Note and Common Stock Purchase Agreement
dated January 18, 2008, by and between Horne
International, Inc and various purchasers including
Evan Auld-Susott (previously filed on Form 8-K, filed
with the Securities and Exchange Commission on
January 24, 2008).10.16
    
    Demand Promissory Note, dated as of March 19, 2008, by Horne International, Inc. to Darryl K.
Horne (previously filed on Form 8-K/A, filed with the Securities and Exchange Commission on March 31, 2008).10.17
    
    Demand Promissory Note, dated as of April 1, 2008, by Horne International, Inc. to Darryl K.
Horne (previously filed on Form 8-K/A, filed with the Securities and Exchange Commission on April 3, 2008).10.18
    
    Term Sheet for Working Capital Loan, dated as of April 10, 2008, by and between Horne
International, Inc. and Darryl K. Horne (filed herewith).10.19
    
    Term Sheet for a Revolving Line of Credit Loan, dated as of April 10, 2008, by and among Horne
International, Inc., Evan Auld-Susott, as agent for the Susott Family Limited Partnership, and Trevor Foster (filed herewith).14
    
    Code of Ethics (previously filed on Form 10-KSB,
filed with the Securities and Exchange Commission on
April 13, 2004).16
    
    Letter of Tedder, James, Worden & Associates, P.A. to
the Securities and Exchange Commission dated April
17, 2006 (previously filed on Form 8-K, filed with
the Securities and Exchange Commission on April 17,
2006).21
    
    List of Subsidiaries (filed herewith).23.1
    
    Accountants Consent, Grant Thornton (filed herewith).24
    
    Powers of Authority (see signature page hereto).31.1
    
    Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).31.2
    
    Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).32.1
    
    Certification of Chief Executive
Officer and Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
 - 60 -