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 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
 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
(Do not check if a smaller reporting company)
    
    Smaller reporting company
þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE.




---



##### 



TABLE OF CONTENTS
 Forward-Looking Statements
    
    
    2PART I  FINANCIAL INFORMATIONItem 1.
    
    Business
    
    
    2Item 1A.
    
    Risk Factors
    
    
    6Item 1B.
    
    Unresolved Staff Comments
    
    
    10Item 2.
    
    Properties
    
    
    10Item 3.
    
    Legal Proceedings
    
    
    10Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    10Item 5.
    
    Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    10Item 6.
    
    Selected Financial Data
    
    
    11Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    17Item 8.
    
    Financial Statements and Supplementary Data
    
    
    18Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    38Item 9A.
    
    Controls and Procedures
    
    
    38Item 9B.
    
    Other Information
    
    
    39Item 10.
    
    Directors and Executive Officers of the Registrant
    
    
    39Item 11.
    
    Executive Compensation
    
    
    40Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
    
    
    45Item 13.
    
    Certain Relationships and Related Transactions
    
    
    47Item 14.
    
    Principal Accountant Fees and Services
    
    
    48Item 15.
    
    Exhibits and Financial Statements Schedules
    
    
    48
 i




---



##### 



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




---



##### 



Business Segments
  Services
   Discontinued Operations
  Backlog
  Funded Backlog (all dollars in thousands)2009
    
    2010
    
    2011+Total Funded Backlog
    
    $
    2,792
    
    
    $
    
    
    
    $
    
    - 3 -




---



##### 



Government Contracts
  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
  - 4 -




---



##### 



Available Information
 www.sec.gov.
 - 5 -




---



##### 



Item 1A. Risk Factors.
  Our independent registered public accountants have issued a modified opinion raising substantial
doubt about our financial viability.
  We have liquidity problems and may need to raise capital on terms unfavorable to our stockholders.
   We are
considering corporate strategic alternatives that may significantly change our company as it
stands today.
  Corporate overhead structure combined with a reduced operating base may impact our ability to
operate at a profit.
  - 6 -




---



##### 



We depend on revenues from a few significant contracts, and any loss or cancellation of, or any
reduction or delay in, any of these contracts could significantly harm our business.
  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.
  Our quarterly operating results may fluctuate significantly as a result of factors, 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;
 - 7 -




---



##### 




    
    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.
  Our stock price is likely to be highly volatile because of several factors, including a limited
public float.
  
    
    Earnings announcements and announcements regarding our strategic plans or any strategic
transaction;
    
    Results of litigation in which we are involved; and
    
    General market conditions.
 Our board of directors is authorized to issue shares of preferred stock, which may have rights and
preferences detrimental to the rights of the holders of our common stock.
  Our business commitments require our employees to travel to and operate in potentially dangerous
places, which may result in injury to our employees.
  - 8 -




---



##### 



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.
    - 9 -




---



##### 



Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
   
 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
    
    Low2007First Quarter
    
    $
    0.60
    
    
    $
    0.36Second Quarter
    
    $
    0.42
    
    
    $
    0.24Third Quarter
    
    $
    0.50
    
    
    $
    0.32Fourth Quarter
    
    $
    0.37
    
    
    $
    0.16
 2008First Quarter
    
    $
    0.28
    
    
    $
    0.16Second Quarter
    
    $
    0.25
    
    
    $
    0.10Third Quarter
    
    $
    0.12
    
    
    $
    0.03Fourth Quarter
    
    $
    0.09
    
    
    $
    0.02
   - 10 -




---



##### 



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).
 2008
    
    2007
    
    2006
    
    2005Revenue
    
    
    4,859
    
    
    
    13,549
    
    
    
    21,183
    
    
    
    25,611Loss from Continuing Operations
    
    
    (4,107
    )
    
    
    (15,767
    )
    
    
    (3,005
    )
    
    
    (3,314
    )Per share of Common
Stock-basic & diluted
    
    
    (0.10
    )
    
    
    (0.38
    )
    
    
    (0.07
    )
    
    
    (0.08
    )Net Loss
    
    
    (6,113
    )
    
    
    (19,142
    )
    
    
    (8,595
    )
    
    
    (3,986
    )Per share of Common
Stock-basic & diluted
    
    
    (0.14
    )
    
    
    (0.46
    )
    
    
    (0.20
    )
    
    
    (0.09
    )Total Assets
    
    
    5,332
    
    
    
    10,332
    
    
    
    30,064
    
    
    
    49,404Long-term Debt
    
    
    1,812
    
    
    
    1,969
    
    
    
    1,994
    
    
    
    2,813Shareholder Equity
    
    
    (338
    )
    
    
    5,620
    
    
    
    24,517
    
    
    
    35,097
  - 11 -




---



##### 



Quarterly Financial Data
 2008
 Q1
    
    Q2
    
    Q3
    
    Q4Revenue
    
    
    1,216
    
    
    
    1,005
    
    
    
    1,093
    
    
    
    1,545Gross Profit
    
    
    72
    
    
    
    (214
    )
    
    
    88
    
    
    
    1,098Income from continuing operations
    
    
    (835
    )
    
    
    (3,028
    )
    
    
    (641
    )
    
    
    397Loss from discontinued operations
    
    
    (1,047
    )
    
    
    (353
    )
    
    
    (38
    )
    
    
    (568
    )Basic & diluted earnings per share
    
    
    (0.04
    )
    
    
    (0.08
    )
    
    
    (0.02
    )
    
    
    (0.00
    )
 2007
 Q1
    
    Q2
    
    Q3
    
    Q4Revenue
    
    
    1,965
    
    
    
    8,767
    
    
    
    1,419
    
    
    
    1,398Gross Profit
    
    
    236
    
    
    
    721
    
    
    
    214
    
    
    
    61Income from continuing operations
    
    
    (1,213
    )
    
    
    (536
    )
    
    
    (999
    )
    
    
    (13,019
    )Loss from discontinued operations
    
    
    (755
    )
    
    
    (650
    )
    
    
    (1,084
    )
    
    
    (886
    )Basic & diluted earnings per share
    
    
    (0.04
    )
    
    
    (0.03
    )
    
    
    (0.05
    )
    
    
    (0.34
    )
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
   Executive-Level Overview
   Basis of Presentation
  - 12 -




---



##### 



Critical Accounting Estimates
   Revenue Recognition
   Allowance for Bad Debts
  Net Operating Loss Carry-Forwards
  - 13 -




---



##### 



Goodwill and Other Intangibles
    Recent Accounting Pronouncements
     - 14 -




---



##### 



Overall Results of Operations
  For the Year ended December,(all dollars in 000s)2008
    
    2007Revenues
    
    
    4,859
    
    
    
    100.0
    %
    
    
    13,549
    
    
    
    100.0
    %Cost of Revenue
    
    
    3,815
    
    
    
    78.5
    %
    
    
    12,317
    
    
    
    90.9
    %Gross Profit
    
    
    1,044
    
    
    
    21.5
    %
    
    
    1,232
    
    
    
    9.1
    %Operating Loss
    
    
    (3,886
    )
    
    
    -80.0
    %
    
    
    (16,523
    )
    
    
    -121.9
    %
    Corporate Expenses
 For the Year ended December,(all dollars in 000s)2008
    
    2007Operating Loss
    
    
    (4,336
    )
    
    
    (17,430
    )
  Discontinued Operations
 For the Year ended December,(all numbers in 000s)2008
    
    2007Loss from discontinued operations
    
    $
    (2,006
    )
    
    $
    (3,375
    )
  - 15 -




---



##### 



Backlog by Segment
  Funded Backlog (all dollars in thousands)2009
    
    2010
    
    2011+Total Funded Backlog
    
    $
    3,562
    
    
    $
    
    
    
    $
    
    Liquidity and Capital Resources
     - 16 -




---



##### 



Contractual
Obligations (000s)
  2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    2014+Operating Leases
    
    $
    132
    
    
    $
    128
    
    
    $
    90
    
    
    $
    7
    
    
    $
    
    
    
    $
    Capital Leases
    
    
    49
    
    
    
    50
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    Mortgage Payable
    
    
    61
    
    
    
    66
    
    
    
    71
    
    
    
    75
    
    
    
    81
    
    
    
    1,450Total Commitments
    
    $
    242
    
    
    $
    244
    
    
    $
    180
    
    
    $
    82
    
    
    $
    81
    
    
    $
    1,450
  Off-Balance Sheet Arrangements
  
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
 Interest Rate Risk
   Foreign Exchange Risk
   - 17 -




---



##### 



Item 8. Financial Statements and Supplementary Data.
  Financial Statements
 Reports of Independent Registered Public Accounting Firm
    
    
    [19]Consolidated Balance Sheets: December 28, 2008, and December 30, 2007
    
    
    [20]Consolidated Statements of Operations and Comprehensive Loss: Years
ended December 28, 2008, and December 30, 2007
    
    
    [21]Consolidated Statements of Stockholders Equity: Years ended
December 28, 2008, and December 30, 2007
    
    
    [22]Consolidated Statements of Cash Flows: Years ended December 28,
2008, and December 30, 2007
    
    
    [23]Notes to Consolidated Financial Statements
    
    
    [24]
 - 18 -




---



##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 - 19 -




---



##### 



December
    
    
    December28, 2008
    
    

30, 2007ASSETSCurrent assets:Cash and cash equivalents
    
    $
    22
    
    
    $
    577Receivables, net
    
    
    1,384
    
    
    
    1,085Prepaid expenses & other current assets
    
    
    98
    
    
    
    832Current assets of discontinued operations
    
    
    98
    
    
    
    1,832Total current assets
    
    
    1,602
    
    
    
    4,326Property and equipment, net
    
    
    132
    
    
    
    914Investments in joint ventures
    
    
    61
    
    
    
    311Other assets
    
    
    57
    
    
    
    158Other assets of discontinued operations
    
    
    3,480
    
    
    
    4,623TOTAL ASSETS
    
    $
    5,332
    
    
    $
    10,332LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    454
    
    
    $
    246Accrued expenses
    
    
    490
    
    
    
    1,729Deferred revenues
    
    
    97
    
    
    
    86Current portion of debt
    
    
    1,046
    
    
    
    Current liabilities of discontinued operations
    
    
    1,771
    
    
    
    682Total current liabilities
    
    
    3,858
    
    
    
    2,743Long-term liabilities:Non-current liabilities of discontinued operations
    
    
    1,812
    
    
    
    1,969TOTAL LIABILITIES
    
    
    5,670
    
    
    
    4,712Commitments and contingencies (Note 16)Stockholders (deficit)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
    
    
    78,772
    
    
    
    78,617Accumulated deficit
    
    
    (79,114
    )
    
    
    (73,001
    )Total stockholders (deficit)equity
    
    
    (338
    )
    
    
    5,620TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    5,332
    
    
    $
    10,332
  - 20 -




---



##### 



Twelve months endedDecember28, 2008
    
    
    30, 2007Revenue
    
    $
    4,859
    
    
    $
    13,549Cost of Revenue
    
    
    3,815
    
    
    
    12,317Gross Profit
    
    
    1,044
    
    
    
    1,232Operating Expense
    
    
    4,930
    
    
    
    17,755Net Operating Loss
    
    
    (3,886
    )
    
    
    (16,523
    )Non-operating (expense)income, net
    
    
    (220
    )
    
    
    756Loss before income taxes
    
    
    (4,106
    )
    
    
    (15,767
    )Income tax expense
    
    
    (1
    )
    
    
    0Loss from continuing operations
    
    
    (4,107
    )
    
    
    (15,767
    )Loss from discontinued operations
    
    
    (2,006
    )
    
    
    (3,375
    )Net and Total Comprehensive Loss
    
    $
    (6,113
    )
    
    $
    (19,142
    )Weighted average common shares outstanding:Basic and diluted
    
    
    42,477,153
    
    
    
    41,683,331Loss per share:Basic and diluted from continuing operations
    
    $
    (0.10
    )
    
    $
    (0.38
    )Basic and diluted from discontinued operations
    
    $
    (0.04
    )
    
    $
    (0.08
    )Total basic and diluted loss per share
    
    $
    (0.14
    )
    
    $
    (0.46
    )
  - 21 -




---



##### 



Common Stock
    
    
    
    
    
    AccumulatedShares
    
    Amount
    
    APIC
    
    Deficit
    
    TotalBalance 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
    
    
    
    
    
    
    $
    200Stock option compensation
    
    
    
    
    
    
    
    
    
    $
    46
    
    
    
    
    
    
    $
    46Balance as of December 31, 2007
    
    
    41,774,082
    
    
    $
    4
    
    
    $
    78,617
    
    
    $
    (73,001
    )
    
    $
    5,620Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (6,113
    )
    
    $
    (6,113
    )Stock Issuances
    
    
    913,242
    
    
    $
    
    
    
    $
    200
    
    
    
    
    
    
    $
    200Share price guarantee settlement
    
    
    
    
    
    
    
    
    
    $
    (90
    )
    
    
    
    
    
    $
    (90
    )Stock option compensation
    
    
    
    
    
    
    
    
    
    $
    45
    
    
    
    
    
    
    $
    45Balance as of December 28, 2008
    
    
    42,687,324
    
    
    $
    4
    
    
    $
    78,772
    
    
    $
    (79,114
    )
    
    $
    (338
    )
  - 22 -




---



##### 














December 28,
    
    
    December 30,2008
    
    
    2007Net loss
    
    $
    (6,113
    )
    
    $
    (19,142
    )Adjustments to reconcile net loss to netCash used in operating activitiesStock option compensation
    
    
    45
    
    
    
    46Depreciation/Amortization
    
    
    161
    
    
    
    957Writedown of investments to fair value
    
    
    169
    
    
    
    Gain on disposal of equipment
    
    
    7
    
    
    
    6Write-off of goodwill and intangibles
    
    
    
    
    
    
    11,874Non-cash impact of early lease termination
    
    
    (5
    )
    
    
    Cash provided by(used in) discontinued operations
    
    
    305
    
    
    
    (2,483
    )Net loss from discontinued operations
    
    
    2,006
    
    
    
    3,375Decrease (increase) in balance sheet itemsReceivables
    
    
    (299
    )
    
    
    1,601Prepaid Expenses
    
    
    1,255
    
    
    
    (69
    )Accounts Payable
    
    
    207
    
    
    
    17Accrued Expenses
    
    
    (335
    )
    
    
    (389
    )Deferred Revenue
    
    
    11
    
    
    
    (3
    )Other balance sheet changes
    
    
    111
    
    
    
    351Net cash used in continuing operations
    
    
    (2,475
    )
    
    
    (3,859
    )Cash flows from investing activitiesSale of M&M
    
    
    
    
    
    
    830Cash settlement of share price guarantee
    
    
    (90
    )
    
    
    Proceeds from joint ventures under the equity method
    
    
    71
    
    
    
    Cash invested in potential acquisition
    
    
    (521
    )
    
    
    (558
    )Purchase of property and equipment
    
    
    (109
    )
    
    
    (66
    )Proceeds from the sale of equipment
    
    
    23
    
    
    
    45Net cash (used in)provided by investing activities
    
    
    (626
    )
    
    
    251Cash flows from financing activitiesCash borrowings
    
    
    2,546
    
    
    
    Net cash provided by financing activities
    
    
    2,546
    
    
    
    0Net decrease in cash and cash equivalents
    
    
    (555
    )
    
    
    (3,608
    )Cash and cash equivalents at beginning of period
    
    
    577
    
    
    
    4,185Cash and cash equivalents at end of period
    
    $
    22
    
    
    $
    577


- 23 -




---



##### 



1. ORGANIZATION AND NATURE OF BUSINESS
     2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Revenue Recognition
   - 24 -




---



##### 



Use of Estimates
  Cash Equivalents
  Fair Value of Financial Instruments
  Significant Customers and Credit Risks
  Year Ended December,2008
    
    2007Customer A
    
    
    26.9
    %
    
    
    
    *Customer B
    
    
    
    *
    
    
    39.6
    %Customer C
    
    
    23.3
    %
    
    
    
    *Customer D
    
    
    35.3
    %
    
    
    10.1
    %
 
 *
    
    Less than 10% of consolidated revenue as of the end of each period.  Concentration of Credit Risk
  Year ended2008
    

2007Customer A
    
    
    57.0
    %
    
    
    
    *Customer B
    
    
    
    *
    
    
    
    *Customer C
    
    
    
    *
    
    
    16.7
    %Customer D
    
    
    25.5
    %
    
    
    
    *
 
 *
    
    Less than 10% of consolidated accounts receivable and unbilled services as of the end of each
period. - 25 -




---



##### 



Property & Equipment
  Goodwill
   Impairment of Long-Lived Assets
  Income Taxes
  - 26 -




---



##### 



Accounting for Uncertainty in Income Taxes 
An Interpretation of FASB Statement No. 109
 Earnings (Loss) Per Share
   Foreign Currency Translation
  Stock Based Compensation
 
 Recent Accounting Pronouncements
    - 27 -




---



##### 



3. Discontinued Operations
     4. RECEIVABLES (000s)
  December
    
    
    December28, 2008
    
    
    30, 2007Accounts ReceivableBilled AR
    
    $
    1,277
    
    
    $
    712Unbilled AR
    
    
    60
    
    
    
    335Holdbacks
    
    
    48
    
    
    
    48Bad Debt Reserve
    
    
    (1
    )
    
    
    (10
    )Total AR
    
    $
    1,384
    
    
    $
    1,085
  - 28 -




---



##### 



5. PROPERTY AND EQUIPMENT (000s)
 December
    
    
    December28, 2008
    
    
    30, 2007Property & EquipmentBuildings & Improvements
    
    
    5
    
    
    
    754Furniture & Fixtures
    
    
    11
    
    
    
    270Office Equipment
    
    
    292
    
    
    
    294Vehicles
    
    
    38
    
    
    
    77Total
    
    $
    346
    
    
    $
    1,395Accumulated Depreciation
    
    
    (214
    )
    
    
    (481
    )Property & Equipment, net
    
    $
    132
    
    
    $
    914
 6. 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
   - 29 -




---



##### 



7. ACCRUED EXPENSES (000s)
 December
    
    
    December28, 2008
    
    
    30, 2007Accrued ExpensesSalaries & payroll related items
    
    $
    124
    
    
    $
    586Accrued leave
    
    
    206
    
    
    
    107Professional Fees
    
    
    133
    
    
    
    188Deferred Rent
    
    
    
    
    
    
    573Other
    
    
    27
    
    
    
    275Total Accrued Liabilities
    
    $
    490
    
    
    $
    1,729
 8. BORROWINGS AND LINES OF CREDIT
  Bank of America Facility
    2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    2014+Capital Leases
    
    
    49
    
    
    
    50
    
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    Mortgage Payable
    
    
    61
    
    
    
    66
    
    
    
    71
    
    
    
    75
    
    
    
    81
    
    
    
    1,450Total Lease Commitments
    
    $
    110
    
    
    $
    116
    
    
    $
    90
    
    
    $
    75
    
    
    $
    81
    
    
    $
    1,450
 9. STOCKHOLDERS EQUITY
   - 30 -




---



##### 



10. RELATED PARTY TRANSACTIONS
 Darryl Horne Notes
    Evan Auld-Susott Mortgage Note
  - 31 -




---



##### 



John Krobath Note
   Transactions with Darryl Horne
  Transactions related to Coast Engine and Equipment Company
  11. EMPLOYEE BENEFIT PLAN
  12. STOCK OPTION PLAN
    - 32 -




---



##### 



Number of shares
    
    
    Option Price
    
    
    Weighted Average PriceOptions 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
    
    
    1,912,514Granted
    
    
    100,000
    
    
    
    0.20
    
    
    
    0.20Exercised
    
    
    Cancelled
    
    
    (1,567,514
    )
    
    
    0.40 - 1.65
    
    
    
    1.47Options
Outstanding 12/28/2008
    
    
    445,000
 Options Exercisable & Outstanding
 Exercise
    
    Shares
    
    
    Shares
    
    
    Weighted AveragePrice
    
    Outstanding
    
    
    Exercisable
    
    
    Remaining Life (yrs)0.20
    
    
    100,000
    
    
    
    30,000
    
    
    
    4.50.35
    
    
    70,000
    
    
    
    30,000
    
    
    
    3.60.37
    
    
    50,000
    
    
    
    16,000
    
    
    
    0.10.40
    
    
    40,000
    
    
    
    36,000
    
    
    
    3.60.50
    
    
    75,000
    
    
    
    70,000
    
    
    
    7.50.80
    
    
    110,000
    
    
    
    100,000
    
    
    
    1.0445,000
    
    
    
    282,000Total authorized options available to issue
    
    
    30,000,000Total options outstanding or exercised
    
    
    20,566,200Total authorized options remaining
    
    
    9,433,800
  - 33 -




---



##### 



13. INCOME TAXES
  Tax Provision:
    
    2008
    
    2007CurrentFederal
    
    
    
    
    
    
    State
    
    
    1
    
    
    
    Foreign
    
    
    
    
    
    
    Total Current
    
    
    1
    
    
    
    DeferredFederal
    
    
    
    
    
    
    5Foreign
    
    
    
    
    
    
    Total Deferred
    
    
    
    
    
    
    5Total Tax Provision
    
    
    1
    
    
    
    5
  Rate Reconciliation:
    
    2008
    
    
    2007Statutory Federal Income Tax Rate
    
    
    34.00
    %
    
    
    34.00
    %State Taxes (Net of Federal Benefit)
    
    
    3.95
    %
    
    
    3.02
    %Goodwill Impairment
    
    
    0.00
    %
    
    
    -8.01
    %Permanent Difference
    
    
    -0.05
    %
    
    
    -0.03
    %Valuation Allowance
    
    
    -33.61
    %
    
    
    -27.46
    %Other
    
    
    -4.29
    %
    
    
    -1.57
    %Effective Tax Rate
    
    
    0.00
    %
    
    
    -0.04
    %
  Deferred Tax Asset/Liability:
    
    2008
    
    2007Accrued Expenses
    
    
    53
    
    
    
    299Depreciation
    
    
    16
    
    
    
    143Amortization of Intangibles
    
    
    
    
    
    
    Allowance for Doubtful Accounts
    
    
    0
    
    
    
    4Stock Compensation
    
    
    272
    
    
    
    428NOL Carryforwards
    
    
    16,888
    
    
    
    14,949Other, Net
    
    
    (116
    )
    
    
    (37
    )Valuation Allowance
    
    
    (17,113
    )
    
    
    (15,786
    )Net Deferred Tax Asset/(Liability)
    
    
    
    
    
    
    
 - 34 -




---



##### 



14. NON-OPERATING INCOME (EXPENSE) (000s)
 2008
    
    2007IncomeInterest
    
    
    4
    
    
    
    120Equity Investments
    
    
    
    
    
    
    318Legal Settlement
    
    
    
    
    
    
    400ExpenseInterest
    
    
    (134
    )
    
    
    (82
    )Equity Investments
    
    
    (90
    )
    
    
    Total net non-operating (expense)income
    
    
    (220
    )
    
    
    756
 15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (000S)
 2008
    
    2007Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    32
    
    
    $
    8Cash paid for taxes
    
    $
    18
    
    
    $
    21
   16. COMMITMENTS AND CONTINGENCIES (000s)
 Operating Leases
   2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    2014+Operating Leases
    
    $
    132
    
    
    $
    128
    
    
    $
    90
    
    
    $
    7
    
    
    $
    
    
    
    $
    
 - 35 -




---



##### 



Legal Matters
 Munitions Assembly Conveyor (MAC) Lawsuit
   B-Stand Claim
  Garrison Lawsuit
   - 36 -




---



##### 



Plum Island Claim
  17. INVESTMENTS IN JOINT VENTURES
  18. SUBSEQUENT EVENTS
 Darryl K. Horne Note
  - 37 -




---



##### 



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
   - 38 -




---



##### 



9b. Other Information
  PART III
 
 Item 10. Directors and Executive Officers of the Registrant.
  Name
    
    Age
    
    PositionDarryl K. Horne
    
    48
    
    President, Chief Executive Officer and ChairmanJohn E. Krobath
    
    41
    
    Chief Financial OfficerEvan Auld-Susott
    
    29
    
    DirectorJohn A. Moore
    
    56
    
    Director
 BIOGRAPHIES OF EXECUTIVE OFFICERS AND DIRECTORS
 Darryl K. Horne
 John E. Krobath
 John A. Moore, Jr.
 - 39 -




---



##### 



Evan Auld-Susott
 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
  - 40 -




---



##### 



Components of Executive Compensation for 2008
  Base Salaries
     - 41 -




---



##### 



Performance and Incentive Cash Bonuses
  Equity Compensation
   Employee Benefits
  Severance Benefits
   - 42 -




---



##### 



Perquisites and Other Benefits
  Board of Directors Report on Compensation Discussion and Analysis
  Summary Compensation Table
 Principal
    
    
    
    
    
    Base
    
    
    
    
    
    Option
    
    All Other
    
    TotalName
    
    Position
    
    Year
    
    Salary
    
    Bonus
    
    Awards
    
    Compensation
    
    CompensationDarryl K. Horne
    
    Chief Executive Officer
    
    
    2008
    
    
    $
    240,865
    
    
    $
    
    
    
    $
    
    
    
    $
    8,788
    (1)
    
    $
    249,6532007
    
    
    $
    347,514
    
    
    $
    
    
    
    $
    
    
    
    $
    26,281
    (2)
    
    $
    373,795John E. Krobath
    
    Chief Financial Officer
    
    
    2008
    
    
    $
    158,625
    
    
    $
    
    
    
    $
    16,806
    
    
    $
    
    
    
    $
    175,431Michael M. Megless
    
    Former Chief Financial Officer
    
    
    2008
    
    
    $
    230,836
    
    
    $
    
    
    
    $
    
    
    
    $
    1,650
    (3)
    
    $
    232,4862007
    
    
    $
    245,514
    
    
    $
    
    
    
    $
    
    
    
    $
    11,324
    (4)
    
    $
    256,838Robert M. Suthard
    
    Former Chief Operating Officer
    
    
    2008
    
    
    $
    175,000
    
    
    $
    
    
    
    $
    
    
    
    $
    5,000
    (5)
    
    $
    180,0002007
    
    
    $
    103,769
    
    
    $
    20,000
    
    
    $
    13,415
    
    
    $
    
    (6)
    
    $
    137,184
 
 (1)
    
    Mr. Hornes all other compensation includes $6,493 for automobile and related expenses and
$2,295 for club dues.(2)
    
    Mr. Hornes all other compensation includes $21,521 for automobile and related expenses and
$4,760 for club dues.(3)
    
    Mr. Megless all other compensation includes $1,650
for club dues. Mr. Megless was terminated
in April 2008.(4)
    
    Mr. Megless all other compensation includes $7,389 for automobile and related expenses and
$3,935 for club dues.(5)
    
    The amount included in other compensation is a $5,000 car allowance. Mr. Suthard was
terminated in November 2008.(6)
    
    Mr. Suthards annual salary is $175,000. The amount included in the table includes the amount
paid since his hiring in mid 2007.   Estimated Future Payouts UnderEquity Incentive Plan Awards
    
    Number of
    
    Exercise Price
    
    Grant Date Fair ValueName
    
    Grant Date
    
    Threshold
    
    Target
    
    Maximum
    
    Options
    
    of Option awards
    
    of Option AwardJohn Krobath
    
    
    5/13/2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    $
    0.20
    
    
    
    16,805
 Outstanding Equity Awards at Fiscal Year-end
 Number of SecuritiesUnderlying Unexercised OptionsName
    
    at December 28, 2008
    
    Option PriceExercisable
    
    UnexercisableDarryl K. Horne
    
    
    
    
    
    
    
    
    
    
    N/AJohn E. Krobath
    
    
    36,000
    
    
    
    74,000
    
    
    $
    0.20 - 0.40
  - 43 -




---



##### 



EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS
   - 44 -




---



##### 



Compensation Committee Interlocks and Insider Participation in Compensation Decisions:
   Director Compensation
 Fees Earned
    
    Option
    
    Option
    
    All Other
    
    TotalName
    
    or Paid in Cash
    
    Awards
    
    Value
    
    Compensation
    
    CompensationJohn A. Moore
    
    $
    29,000
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    29,000Evan Auld-Susott
    
    $
    16,000
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    16,000Francis X. Ryan
    
    $
    16,000
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    16,000Kelvin D. Armstrong
    
    $
    12,500
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,500Karl Heer
    
    $
    7,000
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    7,000
       
 Item 12. Security Ownership of Certain Beneficial Owners and Management.
  - 45 -




---



##### 



Name and Address
    
    Number of Shares
    
    Percentageof Beneficial Owner (1)
    
    Beneficially Owned (2)
    
    of ClassDarryl K. Horne
    
    
    4,877,007
    
    
    
    11.4
    %John E. Krobath
    
    
    46,000
    a
    
    
    
    *Evan Auld-Susott
    
    
    2,852,450
    b
    
    
    6.7
    %John A. Moore
    
    
    200,000
    c
    
    
    
    *Total Directors and Named Executive Officers
    
    
    7,975,457
    
    
    
    18.6
    %Trevor Foster (3)
    
    
    3,000,000
    
    
    
    7.0
    %P.O. Box 450

Hickman CA 95323
 
 *
    
    Less than 1% of the outstanding common stock.(1)
    
    Except as otherwise noted, the address for each person listed in this table is c/o Horne
International, Inc., 3975 University Drive, Suite 100, Fairfax, Virginia 22030.(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 9, 2009. 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 36,000 shares of common stock issuable pursuant to options.(b)
    
    Includes 10,000 shares of common stock issuable pursuant to options.(c)
    
    Includes 40,000 shares of common stock issuable pursuant to options. Equity Compensation Plans.
 Number of securities remainingNumber of securities 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
    
    
    445,000
    (2)
    
    $
    0.46
    
    
    
    8,433,800Total
    
    
    445,000
    
    
    
    
    
    
    
    9,433,800
 
 (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.  - 46 -




---



##### 



Item 13. Certain Relationships and Related-Transactions.
 Darryl Horne Notes
    Evan Auld-Susott Mortgage Note
   - 47 -




---



##### 



Item 14. Principal Accountant Fees and Services.
 Fees Paid to the Independent Auditors
  2008
    
    
    2007Audit Fees
    
    $
    144,000
    
    
    $
    239,330Audit Related Fees
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    $
    144,000
    
    
    $
    239,330
    
 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.
 - 48 -




---



##### 



SIGNATURES
  Horne International, Inc.Date: March 9, 2009
    
    By: /s/ Darryl K. Horne

Name: Darryl K. Horne
Title: Chief Executive Officer and President
   SIGNATURE
    
    TITLE
    
    DATE/s/ Darryl K. Horne
    
    Principal Executive Officer and Director
    
    March 9, 2009/s/ John E. Krobath
    
    Principal Financial Officer
    
    March 9, 2009/s/ Evan Auld-Susott
    
    Director
    
    March 9, 2009/s/ John A. Moore
    
    Director
    
    March 9, 2009
 - 49 -




---



##### 



EXHIBIT INDEX
               - 50 -




---



##### 



*
    
    Indicates management contract or compensatory arrangement. 
 - 51 -