Attached files
file | filename |
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EX-21 - HORNE INTERNATIONAL, INC. | v178856_ex21.htm |
EX-31.1 - HORNE INTERNATIONAL, INC. | v178856_ex31-1.htm |
EX-23.2 - HORNE INTERNATIONAL, INC. | v178856_ex23-2.htm |
EX-23.1 - HORNE INTERNATIONAL, INC. | v178856_ex23-1.htm |
EX-31.2 - HORNE INTERNATIONAL, INC. | v178856_ex31-2.htm |
EX-32.1 - HORNE INTERNATIONAL, INC. | v178856_ex32-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-K
(Mark One)
|
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
Fiscal-year ended: December 27,
2009
OR
|
¨
|
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.
|
(Exact
name of registrant as specified in its charter)
Delaware
|
90-0182158
|
|
(State
or other jurisdiction of
incorporation
or organization)
3975
University Drive, Suite 100,
Fairfax,
Virginia
|
(I.R.S.
Employer
Identification
No.)
22030
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: 703-641-1100
SECURITIES
REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None.
SECURITIES
REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common
Stock, par value $.0001 per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. ¨ Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. ¨ Yes x No
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
x Yes ¨ No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
x Yes ¨ No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
Yes o
No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
Accelerated filer ¨
Accelerated Filer ¨
Non-Accelerated
Filer ¨ Smaller
Reporting Company x
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ¨ No
x
The
aggregate market value of the common stock held by non-affiliates of the
registrant as of the close of business on June 30, 2009, was approximately $4.6
million based on the closing sale price of the registrant’s common stock as
reported on the Over the Counter Bulletin Board on that date.
As of
March 19, 2010, there were 42,687,324 shares of the registrant’s common stock
outstanding.
DOCUMENTS INCORPORATED BY
REFERENCE. None.
HORNE
INTERNATIONAL, INC.
Notes To
Consolidated Financial Statements
TABLE
OF CONTENTS
Forward-Looking
Statements
|
1
|
|
PART
I
|
||
Item
1.
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Business
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1
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Item
1A.
|
Risk
Factors
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3
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Item
1B.
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Unresolved
Staff Comments
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6
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Item
2.
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Properties
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6
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Item
3.
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Legal
Proceedings
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6
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Item
4.
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(Removed
and Reserved)
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6
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PART
II
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||
Item
5.
|
Market
for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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6
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Item
6.
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Selected
Financial Data
|
8
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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8
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Item
7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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13
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Item
8.
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Financial
Statements and Supplementary Data
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15
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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35
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Item
9A.
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Controls
and Procedures
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35
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Item
9B.
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Other
Information
|
36
|
PART
III
|
||
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
36
|
Item
11.
|
Executive
Compensation
|
38
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
43
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
44
|
Item
14.
|
Principal
Accounting Fees and Services
|
44
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Item
15.
|
Exhibits,
Financial Statements Schedules
|
45
|
i
FORWARD-LOOKING
STATEMENTS
Except
for historical information, this report contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934.
Such forward-looking statements involve risks and uncertainties,
including, among other things, statements regarding our business strategy,
future revenues and anticipated costs and expenses. Such forward-looking
statements include, among others, those statements including the words
“expects,” “anticipates,” “intends,” “believes,” and similar language. Our
actual results may differ significantly from those projected in the
forward-looking statements. Factors that might cause or contribute to such
differences include, but are not limited to, those discussed in Part I, Item 1A.
“Risk Factors.” You are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this report.
We undertake no obligation to publicly release any revisions to the
forward-looking statements or reflect events or circumstances taking place after
the date of this document.
Item
1. Business.
Horne
International, Inc. (the “Company” or “we”, “us”, “our” or similar terms) is a
premier technology and technical engineering solutions company focused on two
primary target markets — environment, energy, and their inter-relationship to
critical infrastructure. The Company’s service areas encompass program
engineering, technology, environment, safety & health, acquisition services,
public outreach, and business process engineering to both commercial customers
and to the United States Government.
The
Company was incorporated as Silva Bay International, Inc., a Delaware
corporation, in August 1998. In April 2003, the Company changed its
name from Silva Bay to Spectrum Sciences & Software Holdings Corp. in
conjunction with the acquisition of Spectrum Sciences & Software, Inc.
(“SSSI”), a Florida corporation. The Company began trading on the
Over the Counter (“OTC”) Bulletin Board market in December 2003. In
August 2006, the Company changed its name from Spectrum Sciences & Software
Holdings Corp. to Horne International, Inc.
As the
result of a series of acquisitions the Company’s business changed
significantly. As of the end of 2005, the Company had three
reportable segments. However, over the course of the past several
years and with the closing of Coast Engine and Equipment, Inc. (“CEECO”) and
Spectrum Sciences and Software, Inc. (“Spectrum”) during 2008, the Company has
once again undergone significant change and currently has only one reportable
segment, Services.
Business
Segments
The
Company has only one reportable segment: Services. This segment is
predominantly focused in the U.S. defense markets, although some commercial work
is performed. Financial information can be found in Item 7
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations”. The Company previously reported the Security Solutions
segment that is no longer operating with the closing of Spectrum in 2008, and
the Repair and Overhaul segment that is no longer operating with the closing of
CEECO in 2008.
Services
The
Services segment focuses on providing technology and technical engineering, to
include security, energy, and the environment. Our primary customer
in this segment is the U.S. Government, with specific focus within the
Departments of Homeland Security, Defense, and Transportation. This
is a services-based segment that relies on its people to maintain the reputation
of the Company, to expand operations, and improve marketability. The
Company has been successful in recruiting top-level candidates to staff open
client-focused positions. The applicant pool for the required
expertise appears to be sufficiently deep to meet our needs. This
segment is primarily based out of our Fairfax, Virginia, headquarters and
employs approximately 40 people.
The
market addressed by the Services segment is a very large, competitive market
with some of the largest businesses and institutions in the country competing in
addition to numerous small and emerging businesses. Success is dependent
on high performance, expert personnel, intimate knowledge of the organizations
being served, and strong relationships with the clients and our private sector
partners. This market sector is dependent on the federal budget cycle,
federal expenditures, and related priorities.
- 1
-
Discontinued
Operations
Discontinued
operations include the results of our CEECO and Spectrum subsidiaries that were
closed in February 2008 and June 2008, respectively.
Backlog
The
Company is reporting two types of backlog: funded and unfunded. These
classifications differ significantly in terms of their expected value to the
Company and the expected realization of these amounts. The funded
backlog, as shown in the table below, includes all contracts that have been
awarded and funded by the client, in most cases a government
entity. Funded contracts are subject to changes in work scope, delays
in project startup, and cancellation by the client. The backlog
figures shown below are as of December 27, 2009.
Funded
Backlog (all dollars in thousands)
2009
|
2010
|
2011+
|
||||||||||
Total
Funded Backlog
|
$ | 4,701 | $ | - | $ | - |
The
Company previously reported funded backlog of $2,792 at February 20, 2009, for
our current operating business.
The
amount of unfunded backlog was approximately $21 million at December 27,
2009. The unfunded backlog comprises contract awards that, at
present, have no funding or confirmed orders on which to rely. An
example of this would be GSA schedule awards that are indefinite
delivery/indefinite quantity awards. While these contracts have the
potential to generate revenue, the amount, timing, and certainty of those
revenues are unknown. As such, the amount of revenue recognized under
these contracts may be significantly less than the amount of unfunded backlog
disclosed above.
Government
Contracts
Most of
our business is conducted under contracts with or related to U.S. government
entities. We are awarded government contracts either on a
sole-source basis or through a competitive bidding process. Our U.S.
government contract types may include fixed-price contracts, cost reimbursable
contracts (including cost-plus-fixed fee, cost-plus-award fee, and
cost-plus-incentive fee), and time and materials contracts.
Material
Government Contract Provisions
The
funding of U.S. government programs is subject to Congressional
appropriations. Although multi-year contracts may be authorized in connection
with major procurements, Congress generally appropriates funds on a fiscal-year
basis, even though a program may continue for many years. Consequently, programs
are often only partially funded initially, and additional funds are committed
only as Congress makes further appropriations.
All
contracts with the U.S. government contain provisions, and are subject to
laws and regulations, that give the government rights and remedies not typically
found in commercial contracts, including rights that allow the government to do
any of the following:
|
·
|
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;
|
- 2
-
|
·
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Claim
rights in products and systems produced by its
contractor;
|
|
·
|
Adjust
contract costs and fees on the basis of audits completed by its
agencies;
|
|
·
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Suspend
or debar a contractor from doing business with the U.S. government;
and
|
|
·
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Control
or prohibit the export of products.
|
Generally,
government contracts are subject to oversight audits by government
representatives. Provisions in these contracts permit termination, in whole or
in part, without prior notice, at the government’s convenience or upon
contractor default under the contract. Compensation in the event of a
termination, if any, is limited to work completed at the time of termination. In
the event of termination for convenience, the contractor may receive a certain
allowance for profit on the work performed.
Available
Information
Our
headquarters is located at 3975 University Drive, Suite 100, Fairfax, VA
22030. Our website address is www.Horne.com. The
information contained on our website is not incorporated by reference into this
Annual Report. All reports we filed electronically with the
Securities and Exchange Commission (SEC), including our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K, proxy statements, and other information and amendments to those
reports filed electronically (if applicable), are accessible at no cost on our
website as soon as reasonably practicable after such reports have been filed or
furnished to the SEC. These filings are also accessible on the SEC’s Web site at
www.sec.gov. The public may read and
copy any materials we filed with the SEC at the SEC’s Public Reference
Room at 100 F Street, NE, Washington, DC 20549. The public may obtain
information from the Public Reference Room by calling the SEC at
1-800-SEC-0330.
Item
1A. Risk Factors.
We are
subject to several risk factors that could have a direct and material impact on
the operations of the Company and the market price of our common
stock. Certain of these risk factors are described
below.
Our
independent registered public accountants have issued a "going concern" opinion
raising substantial doubt about our financial viability.
As a
result of our losses and negative cash flows, our independent registered public
accounting firms issued a “going concern” opinion in connection with their audit
of our financial statements for the years ended December 27, 2009 and December
28, 2008. This opinion expressed substantial doubt as to our ability to continue
as a going concern. Our ability to continue as a going concern is dependent
upon our ability to obtain additional equity or debt financing, attain
further operating efficiencies, reduce expenditures, dispose of selective
assets, and ultimately, generate additional revenue. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties. Accordingly, the
value of the Company in liquidation may be different from the amounts set forth
in our financial statements. The going concern opinion may also limit
our ability to access certain types of financing, prevent us from obtaining
financing on acceptable terms, and limit our ability to obtain new business due
to potential customers’ concern about our ability to deliver products or
services.
We
have liquidity problems and may need to raise capital on terms unfavorable to
our stockholders.
At
December 27, 2009, we had a negligible cash balance and for the year then ended
we had a net loss of approximately $337,000. In 2008 and 2009, our independent
registered public accounting firms, expressed substantial doubt about our
ability to continue as a going concern. While we continue to explore
growth opportunities for our business, we do not have complete control over the
timing and awarding of future contracts because it is subject to economic,
political, financial, competitive, regulatory, and other factors affecting the
defense and security industries.
- 3
-
We will
need additional capital to sustain our operations. However, our
current financial condition, combined with the 2009 and 2008 "going concern"
opinions received from our independent registered public accounting firm, makes
it more difficult for us to raise capital. There is no assurance that
we will be able to obtain the necessary financing to support our existing
business on acceptable terms, or at all; and even if we can, we may do so on
terms that are not favorable to our stockholders.
We
are considering corporate strategic alternatives the may significantly change
the Company as it stands today.
The
Company is currently reviewing several strategic options that could have a
material and significant impact on the structure, operating activities,
businesses, and/or assets of the Company. These decisions may or may
not have to be approved by our shareholders. Decisions that do not require
shareholder approval may not be in the best interests of some
shareholders.
Corporate overhead structure combined
with a reduced operating base may impact our ability to operate at
a profit.
We have
made a concerted effort to reduce our overhead costs to a minimal level and to
be in-line with our operating base. At the same time, we must
maintain certain organizational capabilities to continue to operate the
Company. Given our current revenue base, it is uncertain if that
revenue base will be sufficient to cover all of our overhead costs.
If we are
unable to grow our business, we may continue to incur operating losses that
could impact the Company’s ability to continue operations. We are
actively monitoring our cost structure to ensure that we are prudently incurring
expenses while we are actively pursuing growth opportunities for our
business.
We
may not receive the full amount of our contract awards.
The
Company receives many government contract awards that include both funded and
unfunded amounts. While the Company believes that most contracts will
become fully funded and executed, there are occasions where the final executed
amount of the contract may be substantially less than the contract
award. Congress often appropriates funds for our clients on an annual
basis, even though our contracts may call for services over a number of
years. As a result, Congress may elect not to fund a particular
contract in future years. Additionally, the funded amounts on
contracts may not be fully recognized as revenue if the priorities of the
contract-issuing agencies change and funding is re-appropriated for other uses,
the contract is terminated for convenience by the customer, or our inability to
find qualified employees or subcontractors to complete the work.
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 27, 2009, we had approximately $55 million of net operating loss
carry-forward available to offset future taxable income. The United States
Internal Revenue Service has certain rules regarding stock ownership changes
within a given three year period. While management is able to manage
within these guidelines without triggering the limitations that limit a
company’s ability to utilize net operating loss carry-forwards, management may
not be able to control or influence outside parties’ activity with regard to our
stock.
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.
Our
revenue and operating results could vary significantly from quarter to quarter.
In addition, we cannot predict with certainty our future revenue or results of
operations. As a consequence, our operating results may fall below the
expectations of securities analysts and investors, which could cause the price
of our common stock to decline. Factors that may affect our operating results
include, without limitation, the following:
|
·
|
Fluctuations
in revenue earned on contracts;
|
- 4
-
|
·
|
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;
|
|
·
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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.
|
Reductions
in revenue in a particular quarter could lead to lower profitability in that
quarter because a relatively large amount of our expenses are fixed in the
short-term. We may incur significant unanticipated expenses during
the startup and early stages of large contracts and may not receive
corresponding payments or revenue in that same quarter. We may also
incur significant or unanticipated expenses when contracts expire, are
terminated, or are not renewed. In addition, payments due to us from
government agencies may be delayed due to billing cycles or as a result of
failures of governmental budgets to gain Congressional and administration
approval in a timely manner.
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.
We
receive more than 90% of our revenue in any given year from contracts with U.S.
federal government agencies or with prime contractors of such
agencies. We believe that federal government contracts will continue
to be the source of substantially all of our revenue for the foreseeable
future. For this reason, any issue that compromises our relationship
with agencies of the federal government or their prime contractors could cause
serious harm to our business.
Our
failure to comply with complex procurement laws and regulations could cause us
to lose business and subject us to a variety of penalties.
We must
comply with laws and regulations relating to the formation, administration, and
performance of federal government contracts, which affect how we do business
with our government clients and may impose added costs on our
business. Among the most significant regulations are the
following:
|
·
|
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.
|
- 5
-
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.
A significant portion of our revenue
comes from payments made by the U.S. government on prime contracts and
subcontracts. The costs of these contracts are subject to audit by the Defense
Contract Audit Agency (DCAA). Disallowance of these contract costs by the DCAA
could adversely affect the Company’s financial statements. Management
periodically reviews its estimates of allowable and unallowable costs based on
the results of government audits and makes adjustments as
necessary.
If the
government discovers improper or illegal activities by the Company or its
employees, the Company may be subject to civil and criminal penalties and
administrative sanctions, including contract termination, forfeiture of profits,
suspension of payments, fines, and suspension or disbarment from conducting
future business with the government. In addition, the Company could
suffer serious harm to its reputation if allegations of impropriety were made
against it, whether or not true. The Company is not aware of any
instances of improper or illegal activities of its employees.
Horne
Engineering is the only subsidiary subject to incurred cost
audits. Horne Engineering is current on the DCAA audit through 2006
and has not had any significant audit findings in any recent DCAA
audit.
Item
1B. Unresolved Staff Comments.
None.
Item
2. Properties.
As of
March 1, 2010, the Company’s headquarters were located in offices leased by the
Company in Fairfax, Virginia. The facilities for the Services segment
include general office space that is provided by our clients.
In 2009,
the Company owned two pieces of property in Ft. Walton Beach, Florida that were
previously used in operations. In July, 2009, one of the pieces of
property was transferred to lien holders in return for the release of debt
secured by the property. In February, 2010 the remaining property was
returned, by Quitclaim Deed, to the mortgagors.
Item
3. Legal Proceedings.
Information
regarding material legal proceedings involving the Company is included in Note
15 to the Company’s consolidated financial statements under the heading “Legal
Matters” in Part II, Item 8 of this report, which is incorporated herein by
reference.
Item
4. (Removed and Reserved).
Not
applicable.
PART
II
Item
5.
|
Market
for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
|
Market
Information
The
common stock of the Company is listed on the OTC Bulletin Board electronic
quotation system and trades under the symbol “HNIN.” The common stock
was first traded on December 5, 2003, under the symbol “SPSC.” The
symbol was changed in conjunction with the corporate name change in August 2006
and began trading under the current symbol on September 12, 2006. The
following table sets forth the high and low bid prices for our common stock for
each quarterly period beginning in 2007 as reported on the OTC Bulletin
Board. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
- 6
-
High
|
Low
|
|||||||
2008
|
||||||||
First
Quarter
|
$ | 0.28 | $ | 0.16 | ||||
Second
Quarter
|
$ | 0.25 | $ | 0.10 | ||||
Third
Quarter
|
$ | 0.12 | $ | 0.03 | ||||
Fourth
Quarter
|
$ | 0.09 | $ | 0.02 | ||||
2009
|
||||||||
First
Quarter
|
$ | 0.09 | $ | 0.02 | ||||
Second
Quarter
|
$ | 0.15 | $ | 0.07 | ||||
Third
Quarter
|
$ | 0.20 | $ | 0.10 | ||||
Fourth
Quarter
|
$ | 0.14 | $ | 0.07 |
Holders
There
were approximately 80 stockholders of record of the common stock of the Company
on March 1, 2010. A significant number of the outstanding shares are
beneficially owned by individuals or entities registered in a street
name. The Company is unsure of how many beneficial owners of its
common stock there are as of March 1, 2010.
Dividends
The
Company has never paid any cash dividends and has no current intention to pay a
dividend in the foreseeable future.
Securities Authorized for
Issuance Under Equity Compensation Plans.
See the
Equity Compensation Plans subsection of Item 12 — Security Ownership of Certain
Beneficial Owners and Management on page 41 of this Annual Report on Form
10-K.
2004 Non-Statutory Stock
Option Plan
The
Company’s 2004 Non-Statutory Stock Option Plan was adopted by the Board of
Directors on March 11, 2004 and approved by the shareholders in March
2004. The plan was intended to advance the interests of the Company
by inducing individuals, and eligible entities, and by encouraging and enabling
eligible employees, non-employee directors, consultants and advisors to acquire
proprietary interests in the Company, and by providing the participating
employees, non-employee directors, consultants, and advisors with an additional
incentive to promote the success of the Company. Under this plan, a
maximum of 10,000,000 shares of the Company’s common stock, par value $.0001,
were authorized for issue. Options issued under this plan would
expire one year from the date of issuance.
Amended and Restated Number
1 2004 Non-Statutory Stock Option Plan
The
Amended and Restated Number 1, 2004, Non-Statutory Stock Option Plan was adopted
by the Board of Directors on April 16, 2004. This restated plan took
the same form as the 2004 Non-Statutory Stock Option Plan with the exception
that the maximum number of options authorized under this plan was increased to
30,000,000.
Amended and Restated Number
2 2004 Non-Statutory Stock Option Plan
The
Amended and Restated Number 2, 2004, Non-Statutory Stock Option Plan was adopted
by the Board of Directors on November 15, 2004. This restated plan
took the same form as the earlier plans, except that it amended the expiration
date on future stock options issued from one year to three years and likewise
extended the expiration date of any options issued pursuant to such prior stock
option plans. No additional options were authorized under this
amended plan.
The
amendments to the Stock Option Plan have not been approved by the
shareholders.
- 7
-
Item
6. Selected Financial Data (all dollars
in $000’s except per share data).
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
Revenue
|
$ | 4,680 | $ | 4,859 | $ | 13,549 | $ | 21,183 | $ | 25,611 | ||||||||||
Loss
from Continuing Operations
|
(183 | ) | (4,107 | ) | (15,767 | ) | (3,005 | ) | (3,314 | ) | ||||||||||
Per
share of Common Stock-basic & diluted
|
(0.00 | ) | (0.10 | ) | (0.38 | ) | (0.07 | ) | (0.08 | ) | ||||||||||
Net
Loss
|
(337 | ) | (6,113 | ) | (19,142 | ) | (8,595 | ) | (3,986 | ) | ||||||||||
Per
share of Common Stock-basic & diluted
|
0.01 | (0.14 | ) | (0.08 | ) | (0.20 | ) | (0.09 | ) | |||||||||||
Total
Assets
|
3,154 | 5,332 | 10,332 | 30,064 | 49,404 | |||||||||||||||
Long-term
Debt
|
1,696 | 1,812 | 1,969 | 1,994 | 2,813 | |||||||||||||||
Shareholder
(Deficit) Equity
|
(418 | ) | (338 | ) | 5,620 | 24,517 | 35,097 |
The
financial information above is reflective of the operations since
2005. The income statement data only reflects the operations of Horne
Engineering Services and Horne International, Inc. The operations of
Spectrum Sciences and Software, Inc and Coast Engine and Equipment Company have
been removed from the operating results and are now included in discontinued
operations along with M&M Engineering that was sold in June
2006. The balance sheet data includes discontinued operations
data. As the Company did not have reportable operations prior to the
acquisition of Horne in May 2005, prior years do not provide meaningful trend
data and are not being included in this chart.
Selected
Quarterly Financial Data
2009
|
||||||||||||||||
Q1
|
Q2
|
Q3
|
Q4
|
|||||||||||||
Revenue
|
$ | 950 | $ | 1,273 | $ | 1,007 | $ | 1,450 | ||||||||
Gross
Profit
|
328 | 364 | 293 | 372 | ||||||||||||
(Loss)
income from continuing operations
|
(184 | ) | (27 | ) | (69 | ) | 97 | |||||||||
Loss
from discontinued operations
|
(64 | ) | (5 | ) | (55 | ) | (30 | ) | ||||||||
Basic
& diluted loss per share
|
(0.01 | ) | (0.00 | ) | (0.00 | ) | (0.00 | ) | ||||||||
2008
|
||||||||||||||||
Q1
|
Q2
|
Q3
|
Q4
|
|||||||||||||
Revenue
|
$ | 1,216 | $ | 1,005 | $ | 1,093 | $ | 1,544 | ||||||||
Gross
Profit
|
72 | (214 | ) | 88 | 980 | |||||||||||
(Loss)
income from continuing operations
|
(835 | ) | (3,028 | ) | (641 | ) | 397 | |||||||||
Loss
from discontinued operations
|
(1,047 | ) | (353 | ) | (38 | ) | (567 | ) | ||||||||
Basic
& diluted loss per share
|
(0.04 | ) | (0.08 | ) | (0.02 | ) | (0.00 | ) |
The
selected financial data provided in this Item 6 should be read in conjunction
with the Notes to Consolidated Financial Statements beginning on page 8 of this
Annual Report on Form 10-K.
Item
7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
The
financial and business analysis below provides information that the Company
believes is relevant to an assessment and understanding of the Company’s
consolidated financial position, results of operations, and cash
flows. This financial and business analysis should be read in
conjunction with the consolidated financial statements and related
notes.
The
following discussion and certain other sections of this report contain
statements reflecting the Company’s views about its future performance and
constitute “forward-looking statements” under the Private Securities Litigation
Reform Act of 1995. These views involve risks and uncertainties that
are difficult to predict, and accordingly, the Company’s actual results may
differ materially from the results discussed in such forward-looking
statements. Readers should consider that various factors may affect
the Company’s performance. These factors include changes in general
economic conditions and competitive market conditions; price pressures;
relationships with key customers; and other factors discussed in Part I, Item
1A, “Risk Factors,” and the sections entitled “Executive-Level Overview” and
“Critical Accounting Estimates” below. The Company undertakes no
obligation to publicly update any forward-looking statements as a result of new
information, future events, or otherwise.
- 8
-
Executive-Level
Overview
The
Company provides a variety of services through its wholly owned subsidiary —
Horne Engineering Services, LLC. The provision of such services is
largely dependent on the amount of U.S. Government contracting in the areas of
homeland security, environmental management, and infrastructure
reconstruction.
The
Company made the strategic decision to terminate the operations of SSSI and
CEECO in the first quarter of 2008 due to continuing losses and to focus on its
core services business.
Basis
of Presentation
The
fiscal-year for Horne International, Inc. is the 52 or 53 week period ending on
the last Sunday in December. Fiscal 2009 and 2008 were 52-week fiscal-years. The
Consolidated Financial Statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. Investments in unconsolidated joint ventures were
adjusted to fair market value upon the acquisition of Horne Engineering in
2005. During 2008, the Company changed the accounting method for its
investment in the WESKEM joint venture due to the scheduled closing of the joint
venture in early 2009. This changed the Company’s accounting for this
investment to the equity method of accounting.
Critical
Accounting Estimates
Management’s
Discussion and Analysis of Financial Condition and Results of Operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and determine whether contingent assets and liabilities, if any, are
disclosed in the financial statements. On an ongoing basis, we
evaluate our estimates and assumptions, including those related to long-term
contracts, product returns, bad debts, inventories, fixed asset lives, income
taxes, environmental matters, litigation, and other contingencies. We
base our estimates and assumptions on historical experience and on various
factors that are believed to be reasonable under the circumstances, including
current and expected economic conditions, the results of which form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may
differ materially from our estimates under different assumptions or
conditions.
We
believe that the following critical accounting estimates, among others, require
us to make significant estimates and judgments in the preparation of our
financial statements:
Revenue
Recognition
The Company’s two
principal methods of revenue recognition are monthly fixed price contracts where
revenue is recognized ratably over the contract period and time and materials
contracts where revenue is recognized as costs are incurred.
Allowance
for Bad Debts
We
evaluate our accounts receivable through a continuous process of assessing our
portfolio on an individual and overall basis. The majority of our
contracts are with United States Government entities and as such we have minimal
risk of collectability. The few contracts we have with
non-governmental entities we review on a contract-by-contract
basis. During 2007, we recorded a $200,000 bad debt reserve on a
specific contract in our discontinued operations on a contract that we executed
as a subcontractor. We have filed suit related to this contract and
the receivable of $118,846 is reserved at December 27,
2009.
- 9
-
Net
Operating Loss Carry-Forwards
We have
not recognized the benefit in our financial statements with respect to the
approximately $55 million net operating loss carry-forwards for federal income
tax purposes as of December 27, 2009. This benefit was not recognized due to the
possibility that the net operating loss carry-forwards would not be utilized,
for various reasons; including the potential that we might not have sufficient
profits to use the carry-forward or that the carry-forwards may be limited as a
result of changes in our equity ownership. We intend to use these carry-forwards
to offset our future taxable income. If we were to use any of this net operating
loss carry-forwards to reduce our future taxable income and the Internal Revenue
Service were to then successfully assert that our carry-forwards are subject to
limitation as a result of capital transactions, we may be liable for back taxes,
interest, and, possibly, penalties.
Recent
Accounting Pronouncements
In June
2006, the FAASB issued guidance related to accounting for uncertainty in income
taxes, which was originally effective for fiscal years beginning after December
15, 2007. In December 2008, the FASB issued further guidance which
deferred the effective date for the Company until January 1, 2009. In
September 2009, the FASB issued new accounting guidance related to income taxes
which clarifies that management’s determination of the taxable status of an
entity is a tax position subject to the standards required for accounting for
uncertainty in income taxes and eliminates certain disclosures related to
unrecognized tax benefits for nonpublic companies.
In
December 2007, a new accounting standard was issued regarding the accounting
treatment for corporate acquisitions. The new standard moves closer to a fair
value model by requiring the acquirer to measure all assets acquired and all
liabilities assumed at their respective fair values at the date of acquisition,
including the measurement of non-controlling interests at fair value. This
standard also establishes principles and requirements as to how the acquirer
recognizes and measures goodwill acquired in a business combination or a gain
from a bargain purchase and determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination. In addition, the standard significantly changes the
accounting for business combinations in a number of areas, including the
treatment of contingent consideration, pre-acquisition contingencies, in-process
research and development, restructuring costs and requires the expensing of
acquisition-related costs as incurred. The effective date was for fiscal years
beginning after December 15, 2008. For transactions consummated after the
effective date prospective application of the new standard is applied. For
business combinations consummated prior to the effective date, the prior
guidance is applied. The adoption of this standard did not have a material
impact on our consolidated financial statements.
In
April 2008, the FASB issued an amendment to its guidance determining the
useful life of intangible assets which requires companies estimating the useful
life of a recognized intangible asset to consider their historical experience in
renewing or extending similar arrangements or, in the absence of historical
experience, to consider assumptions that market participants would use about
renewal or extension as adjusted for entity-specific factors. This guidance is
effective for fiscal years beginning after December 15, 2008. The Company
does not believe that the adoption of this guidance will have any material
effect on its consolidated financial position, results of operations, or cash
flows.
In May
2009, the FASB issued accounting guidance on subsequent events which requires
companies to address the accounting and disclosure of events that occur after
the balance sheet date but before the financial statements are issued or
available to be issued. The adoption of the accounting guidance that
was effective January 1, 2009 did not have a material impact on the Company’s
consolidated financial condition or results of operations.
In
June 2009, the FASB issued an amendment which requires entities to provide
more information about the sale of securitized financial assets and similar
transactions in which the entity retains some risk related to the assets. This
amendment is effective for fiscal years beginning after November 15, 2009.
The Company does not believe the adoption this amendment will have a material
impact on its consolidated financial position, results of operations, or cash
flows.
In June
2009, the FASB issued The
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles (the “Codification”) as the single source of
authoritative nongovernmental United States generally accepted accounting
principles. The Codification did not change generally accepted
accounting principles but rather enhanced the way accounting principles are
organized. The Codification was effective for the Company January 1,
2009 and its adoption did not have a material impact on the Company’s
consolidated financial condition or results of operations.
- 10
-
In
June 2009, the FASB issued an amendment, which changes how a company
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. Under this
guidance, determining whether a company is required to consolidate an entity
will be based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly
impact the entity’s economic performance. This amendment is effective for fiscal
years beginning after November 15, 2009. The Company does not believe the
adoption will have a material impact on its consolidated financial position,
results of operations, or cash flows.
In
October 2009, the FASB revised the accounting guidance for revenue
arrangements with multiple deliverables. The revision: (1) removes the
objective-and-reliable-evidence-of-fair-value criterion from the separation
criteria used to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting, (2) provides a
hierarchy that entities must use to estimate the selling price,
(3) eliminates the use of the residual method for allocation, and
(4) expands the ongoing disclosure requirements. This guidance is effective
for the Company beginning January 1, 2011 and can be applied prospectively or
retrospectively. The Company is currently assessing the impact of the revised
accounting guidance.
Overall
Results of Operations
For
the Year ended December,
|
||||||||||||||||
(all
dollars in 000's)
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
Revenues
|
$ | 4,680 | 100.0 | % | $ | 4,859 | 100.0 | % | ||||||||
Cost
of Revenue
|
3,323 | 71.0 | % | 3,815 | 78.5 | % | ||||||||||
Gross
Profit
|
1,357 | 29.0 | % | 1,044 | 21.5 | % | ||||||||||
Operating
Loss
|
(101 | ) | -2.2 | % | (3,886 | ) | -80.0 | % |
Revenue
remained relatively consistent as compared to 2008. Gross margin as a
percentage of sales improved as a result of the termination of the Staubach
contract in late 2008 and the change in revenue mix away from real estate
services to infrastructure support. The Staubach contract accounted
for an additional $101,000 of gross profit in 2009 with no 2009 cost associated
with that revenue as it was residual payouts. Our Company operation
cost decreased significantly in 2009 as compared with 2008. As a
result, our operating loss decreased by $3.8 million. See corporate expenses
below.
The
decreased operating costs are described in detail in the corporate expense
section below.
Based on
our on-going review of strategic alternatives, we are not able to reasonably
forecast our 2010 revenue or profitability. The strategic
alternatives being considered and their very different impacts on our operations
severely limits our ability to give a materially accurate financial
forecast.
Corporate
Expenses
For
the Year ended December,
|
||||||||
(all
dollars in 000's)
|
||||||||
2009
|
2008
|
|||||||
Operating
Loss
|
$ | (1,328 | ) | $ | (4,336 | ) |
The
decrease in corporate expenses is due to reduced personnel related costs of
$1,100 due to staffing reductions, the write-off of acquisition related costs of
$1,400, lower legal and consulting expenses of $350, and lower rent and utility
charges of $400 including the lease breakage costs incurred in
2008. Additionally, infrastructure support costs were reduced based
on the lower staffing and office space and the outsourcing of our IT
functions.
- 11
-
Discontinued
Operations
For
the Year ended December ,
|
||||||||
(all
numbers in 000's)
|
||||||||
2009
|
2008
|
|||||||
Loss
from discontinued operations
|
$ | (154 | ) | $ | (2,006 | ) |
The
discontinued operations include only the results of our Spectrum Sciences and
Software, Inc. and Coast Engine and Equipment subsidiaries for both
years. The smaller loss in 2009 is primarily a result of the lack of
activity in these dormant units with the exception of the property maintenance
costs in Ft. Walton Beach, Florida. The 2008 activity was primarily
the shuttering and subsequent asset sales for both units.
Backlog
by Segment
The
Company is reporting two types of backlog: funded and
unfunded. These classifications differ significantly in terms of
their expected value to the Company and the expected realization of these
amounts. The funded backlog, as shown in the table below, includes
all contracts that have been awarded and funded by the client, in most cases a
government entity. Funded contracts are subject to changes in work
scope, delays in project startup, and cancellation by the client. The
backlog figures shown below are as of December 27, 2009.
Funded
Backlog (all dollars in thousands)
2009
|
2010
|
2011+
|
||||||||||
Total
Funded Backlog
|
$ | 4,701 | $ | - | $ | - |
The
Company previously reported funded backlog of $2,792 at December 28, 2008, for
our current operating business.
The
amount of unfunded backlog was approximately $21 million December 27,
2009. The unfunded backlog comprises contract awards that, at
present, have no funding or confirmed orders on which to rely. An
example of this would be GSA schedule awards that are indefinite
delivery/indefinite quantity awards. While these contracts have the
potential to generate revenue, the amount, timing, and certainty of those
revenues are unknown. As such, the amount of revenue recognized under
these contracts may be significantly less than the amount of unfunded backlog
disclosed above.
Liquidity
and Capital Resources
Cash and
cash equivalents totaled approximately $15,000 at December 27,
2009. During 2009, continuing operations provided approximately
$100,00 of cash predominantly due to improvement in working capital and the
small net income loss from continuing operations. Discontinuing operations
provided $215,000 of additional cash before debt service. The Company
borrowed $2.5 million from related parties during 2008 in order to fund
operations. Of this related party debt, $1.5 million was secured by
property in Ft. Walton Beach, Florida which was deeded to the secured parties in
satisfaction of this debt in July 2009.
In
December 2009, the Company entered into a two-tear receivable noncancellable
financing agreement with Wells Fargo Bank National Association under which the
Company is able to factor certain eligible accounts receivable. The
agreement calls for a minimum monthly fee of $6,000 for the term of the
agreement. The Company is able to receive 85% of any invoices
factored to the lender.
During
2009, operations generated $315,000 of cash predominantly due to profit incurred
during the last quarter of the year. Our receivables improved during
the year as we have been able to reduce our unbilled accounts receivable
balances and bring our receivables aging more current.
- 12
-
As a
result of our continuing losses and negative cash flows, our independent
registered public accounting firm, issued a “going concern” opinion in
connection with its audit of our financial statements for the year ended
December 27, 2009. This opinion expressed substantial doubt as to our ability to
continue as a going concern. Our ability to continue as a going concern is
dependent upon our ability to obtain additional equity or debt financing,
attain further operating efficiencies, reduce expenditures, dispose of selective
assets, and ultimately generate additional revenue. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties. Accordingly, the
value of the Company in liquidation may be different from the amounts set forth
in our financial statements. The going concern opinion may also limit
our ability to access certain types of financing, prevent us from obtaining
financing on acceptable terms, and limit our ability to obtain new business due
to potential customers’ concern about our ability to deliver products or
services.
The
Company anticipates that funds from operations will not be sufficient to provide
for our 2010 operations and purchases of plant and equipment. While
we continue to seek financing alternatives to fund our 2010 operations, there is
no assurance that we will be able to obtain financing on terms acceptable to the
Company, or at all, and terms of any financing we do undertake may not be
favorable to our shareholders.
The
Company’s working capital position at December 27, 2009, was a deficit of $0.6
million, compared with a deficit of $2.2 million at December 28, 2008. The
negative working capital has resulted from our continuing operating
losses. The improvement from year ended 2008 is due to the retirement
of the debt related to the 91 Hill Avenue property as a result of the title
transfer in July 2009.
Contractual
Obligations
The
Company has certain obligations and commitments to make future payments under
contracts. At December 27, 2009, the aggregate contractual
obligations and commitments from continuing and discontinued operations
are:
2010
|
2011
|
2012
|
2013
|
2014
|
2015+
|
|||||||||||||||||||
Operating
Leases
|
$ | 146 | $ | 102 | $ | 7 | $ | - | $ | - | ||||||||||||||
Capital
Leases
|
50 | 19 | - | - | - | |||||||||||||||||||
Mortgage
Payable
|
66 | 71 | 75 | 81 | 87 | 1,363 | ||||||||||||||||||
Total
Lease Commitments
|
$ | 262 | $ | 192 | $ | 82 | $ | 81 | $ | 87 | $ | 1,363 |
The debt
service figures shown above reflect the principal amount of our commitments
including those commitments in our discontinued operations. The above
schedule does not include the $0.5 million in related party financing that is
callable but has no set payment dates.
In
February 2010, the mortgage holders on the Ft. Walton Beach, Florida
property accepted a Quitclaim on the property, thereby taking the property back
and releasing the Company from its obligation under the mortgage
note. With this release, the mortgage payable commitment is
terminated in its entirety.
Off-Balance
Sheet Arrangements
We have
no off-balance sheet arrangements that have or are reasonably likely to have a
current or future material effect on our financial condition, results of
operations, liquidity, capital expenditures, or capital resources.
Item
7A. Quantitative and Qualitative Disclosures about Market
Risk.
Interest
Rate Risk
At
December 27, 2009, the Company had no amounts outstanding under a revolving
credit facility. We have not historically mitigated our exposure to
fluctuations in interest rates by entering into interest rate hedge agreements,
nor do we have any plans to do so in the immediate future.
Cash and
cash equivalents, as of December 27, 2009, were $15,000 and are primarily
invested in money market interest-bearing accounts. A hypothetical
10% change in the average interest rate on our money market cash investments
would have had no material effect on net loss for the twelve months ended
December 27, 2009.
- 13
-
Foreign
Exchange Risk
We
currently do not have any foreign currency risk and accordingly, estimate that
an immediate 10% change in foreign exchange rates would have no impact on our
reported net loss. We do not currently utilize any derivative
financial instruments to hedge foreign currency risks.
- 14
-
Item
8. Financial Statements and
Supplementary Data.
The
following documents are filed as part of this Annual Report on Form
10-K:
Financial Statements
|
||
Reports
of Independent Registered Public Accounting Firms
|
[16]
|
|
Consolidated
Balance Sheets: December 27, 2009, and December 28, 2008
|
[18]
|
|
Consolidated
Statements of Operations and Comprehensive Loss: Years ended December 27,
2009, and December 28, 2008
|
[19]
|
|
Consolidated
Statements of Stockholders’ Deficit: Years ended December 27, 2009, and
December 28, 2008
|
[20]
|
|
Consolidated
Statements of Cash Flows: Years ended December 27, 2009, and December 28,
2008
|
[21]
|
|
Notes
to Consolidated Financial Statements
|
[22]
|
- 15
-
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Audit Committee of the
Board of
Directors and Stockholders of Horne International, Inc. and
Subsidiaries
We have
audited the accompanying consolidated balance sheet of Horne International and
Subsidiaries (the “Company”) as of December 27, 2009, and the related
consolidated statements of operations and comprehensive loss, changes in
stockholders’ deficit, and cash flows for the year then ended. The
Company’s management is responsible for these consolidated financial
statements. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Horne
International and Subsidiaries as of December 27, 2009, and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has experienced continuing
net losses for each of the last three years and as of December 27, 2009 current
liabilities exceeded current assets by $601,000. These conditions
raise substantial doubt as to the Company’s ability to continue as a going
concern. Management’s plan in regard to these matters is also
described in Note 1. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/
Stegman & Company
Baltimore,
Maryland
March 25,
2010
- 16
-
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of
Directors and Shareholders
Horne
International, Inc.
We have
audited the accompanying consolidated balance sheet of Horne International, Inc.
(a Delaware corporation) and subsidiaries as of December 28, 2008, and the
related consolidated statements of operations and comprehensive loss,
stockholders’ equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Horne International, Inc.
and subsidiaries as of December 28, 2008, and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1, the Company incurred a
net loss of $6,113,000 during the year ended December 28, 2008, and, as of that
date, the Company’s current liabilities exceeded its current assets by
$2,256,000 and its total liabilities exceeded its total assets by $338,000. The
Company has cash on hand and cash available totaling $22,000 at December 28,
2008 which management does not believe is sufficient to meets its operating
needs during the coming year. These factors, among others, as discussed in Note
1 to the financial statements, raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
/s/ GRANT
THORNTON LLP
Baltimore,
Maryland
March 4,
2009
- 17
-
HORNE
INTERNATIONAL, INC.
Consolidated
Balance Sheets
(Dollars
in thousands except share amounts)
December
27, 2009
|
December
28, 2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 15 | $ | 22 | ||||
Receivables,
net
|
1,228 | 1,384 | ||||||
Prepaid
expenses & other current assets
|
30 | 98 | ||||||
Current
assets of discontinued operations
|
2 | 98 | ||||||
Total
current assets
|
1,275 | 1,602 | ||||||
Property
and equipment, net
|
77 | 132 | ||||||
Investments
in joint ventures
|
- | 61 | ||||||
Other
assets
|
57 | 57 | ||||||
Other
assets of discontinued operations
|
1,745 | 3,480 | ||||||
TOTAL
ASSETS
|
$ | 3,154 | $ | 5,332 | ||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 419 | $ | 454 | ||||
Accrued
expenses
|
601 | 490 | ||||||
Deferred
revenues
|
57 | 97 | ||||||
Current
portion of debt
|
495 | 1,046 | ||||||
Current
liabilities of discontinued operations
|
304 | 1,771 | ||||||
Total
current liabilities
|
1,876 | 3,858 | ||||||
Long-term
liabilities:
|
||||||||
Non-current
liabilities of discontinued operations
|
1,696 | 1,812 | ||||||
TOTAL
LIABILITIES
|
3,572 | 5,670 | ||||||
Commitments
and contingencies (Note 15)
|
||||||||
Stockholders'
deficit
|
||||||||
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
42,687,324 issued and outstanding
|
4 | 4 | ||||||
Additional
paid-in capital
|
79,029 | 78,772 | ||||||
Accumulated
deficit
|
(79,451 | ) | (79,114 | ) | ||||
Total
stockholders' deficit
|
(418 | ) | (338 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 3,154 | $ | 5,332 | ||||
See accompanying notes to consolidated
financial statements.
- 18
-
HORNE
INTERNATIONAL, INC.
Consolidated
Statements of Operations and Comprehensive Loss
(Dollars
in thousands except share amounts)
Twelve
months ended
|
||||||||
December
27,
2009
|
December
28,
2008
|
|||||||
Revenue
|
$ | 4,680 | $ | 4,859 | ||||
Cost
of Revenue
|
3,323 | 3,815 | ||||||
Gross
Profit
|
1,357 | 1,044 | ||||||
Operating
Expense
|
1,458 | 4,930 | ||||||
Net
Operating Loss
|
(101 | ) | (3,886 | ) | ||||
Non-operating
expense, net
|
(78 | ) | (220 | ) | ||||
Loss
before income taxes
|
(179 | ) | (4,106 | ) | ||||
Income
tax expense
|
(4 | ) | (1 | ) | ||||
Loss
from continuing operations
|
(183 | ) | (4,107 | ) | ||||
Loss
from discontinued operations
|
(154 | ) | (2,006 | ) | ||||
Net
and total comprehensive loss
|
$ | (337 | ) | $ | (6,113 | ) | ||
Weighted
average common shares outstanding:
|
||||||||
Basic
and diluted
|
42,687,324 | 42,477,153 | ||||||
Loss
per share:
|
||||||||
Basic
and diluted from continuing operations
|
$ | (0.01 | ) | $ | (0.10 | ) | ||
Basic
and diluted from discontinued operations
|
$ | 0.00 | $ | (0.05 | ) | |||
Total
basic and diluted loss per share
|
$ | (0.01 | ) | $ | (0.14 | ) |
See
accompanying notes to consolidated financial statements.
- 19
-
HORNE
INTERNATIONAL, INC.
Consolidated
Statements of Stockholders’ Deficit
(Dollars
in thousands except share amounts)
Common Stock
|
Accumulated
|
|||||||||||||||||||
Shares
|
Amount
|
APIC
|
Deficit
|
Total
|
||||||||||||||||
Balance
as of December 31, 2007
|
41,774,082 | $ | 4 | $ | 78,617 | $ | (73,001 | ) | $ | 5,620 | ||||||||||
Net
loss
|
(6,113 | ) | (6,113 | ) | ||||||||||||||||
Stock
issuances
|
913,242 | - | 200 | 200 | ||||||||||||||||
Share
price guarantee settlement
|
(90 | ) | (90 | ) | ||||||||||||||||
Option
issuances
|
45 | 45 | ||||||||||||||||||
Balance
as of December 28, 2008
|
42,687,324 | $ | 4 | $ | 78,772 | $ | (79,114 | ) | $ | (338 | ) | |||||||||
Net
loss
|
(337 | ) | (336 | ) | ||||||||||||||||
Share
price guarantee settlement
|
(131 | ) | (131 | ) | ||||||||||||||||
Equity
activities related to 91 Hill property transfer
|
371 | 371 | ||||||||||||||||||
Option
issuances
|
17 | 17 | ||||||||||||||||||
Balance
as of December 27, 2009
|
42,687,324 | $ | 4 | $ | 79,029 | $ | (79,451 | ) | $ | (418 | ) |
See
accompanying notes to the consolidated financial statements.
- 20
-
HORNE
INTERNATIONAL, INC.
Consolidated
Statements of Cash Flows
(Dollars
in thousands)
December
27,
|
December
28,
|
|||||||
2009
|
2008
|
|||||||
Cash
flows from in operating activities:
|
||||||||
Continuing
Operations
|
||||||||
Net
loss from continuing operations
|
$ | (183 | ) | $ | (4,107 | ) | ||
Adjustments
to reconcile net loss to net cash flows
|
||||||||
Stock
based compensation
|
16 | 45 | ||||||
Depreciation
and Amortization
|
55 | 161 | ||||||
Write-down
of Weskem investment to fair value
|
(10 | ) | 169 | |||||
Gain
on disposal of equipment
|
7 | |||||||
Non-cash
impact of early lease termination
|
(5 | ) | ||||||
Decrease
(increase) in balance sheet items
|
||||||||
Receivables
|
155 | (299 | ) | |||||
Prepaid
expenses
|
69 | 1,255 | ||||||
Accounts
payable
|
(73 | ) | 207 | |||||
Accrued
expenses
|
112 | (335 | ) | |||||
Deferred
revenue
|
(41 | ) | 11 | |||||
Other
balance sheet changes
|
- | 111 | ||||||
Net
cash provided by(used in) continuing operations
|
100 | (2,780 | ) | |||||
Discontinued
Operations
|
||||||||
Loss
from discontinued operations
|
(154 | ) | (2,006 | ) | ||||
Cash
provided by discontinued operations
|
369 | 2,311 | ||||||
Net
cash provided by discontinued operations
|
215 | 305 | ||||||
Net
cash provided by(used in) operating activities
|
315 | (2,475 | ) | |||||
Cash
flows from investing activities
|
||||||||
Cash
settlement of share price guarantee
|
(93 | ) | (90 | ) | ||||
Proceeds
from joint ventures under the equity method
|
71 | 71 | ||||||
Cash
invested in potential acquisition
|
- | (521 | ) | |||||
Purchase
of property and equipment
|
- | (109 | ) | |||||
Proceeds
from the sale of equipment
|
- | 23 | ||||||
Net
cash used in investing activities
|
(22 | ) | (626 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Net
cash (repayments)borrowings
|
(300 | ) | 2,546 | |||||
Net
cash (used in)provided by financing activities
|
(300 | ) | 2,546 | |||||
Net
decrease in cash and cash equivalents
|
(7 | ) | (555 | ) | ||||
Cash
and cash equivalents at beginning of period
|
22 | 577 | ||||||
Cash
and cash equivalents at end of period
|
$ | 15 | $ | 22 |
See
accompanying notes to the consolidated financial statements.
- 21
-
HORNE
INTERNATIONAL, INC.
Notes to
Consolidated Financial Statements
1. ORGANIZATION
AND NATURE OF BUSINESS AND UNCERTAINTY
Horne
International, Inc. (the “Company” or “Horne”), headquartered in Fairfax,
Virginia, provides program engineering in the areas of environment, energy and
infrastructure.
The
Company decided to cease operations in the Spectrum Sciences & Software,
Inc., and Coast Engine and Equipment Co. subsidiaries during the first quarter
of 2008. These companies represented the entire operations of the
Security Solutions and Repair and Overhaul segments, respectively.
The
Company’s independent accountants stated in their report on the consolidated
financial statements of the Company for the year ended December 27, 2009, that
the Company has had recurring operating losses that raise substantial doubt
about its ability to continue as a going concern. For the year ended December
27, 2009, the Company incurred a loss from continuing operations of
approximately $183,000 and had a stockholder deficit of approximately $0.4
million as of that date. The consolidated financial statements do not include
any adjustments related to the recovery and classification of recorded assets,
or the amounts and classification of liabilities that might be necessary in the
event the Company cannot continue as a going concern.
The
Company is dependent upon available cash and operating cash flow to meet its
capital needs. The Company is considering all strategic options to improve its
liquidity and provide it with working capital to fund its continuing business
operations which include equity offerings, assets sales or debt financing as
alternatives to improve its cash needs.
In
December 2009, the Company entered into a two-year receivable noncancellable
financing agreement with Wells Fargo Bank National Association under which the
Company is able to factor certain eligible accounts receivable to a facility
maximum of $1,000,000. The agreement calls for a minimum monthly fee
of $6,000 for the term of the agreement. The Company is able to
receive 85% of any invoices factored to the lender.
During
2008, the Company entered into a loan agreement with Darryl K. Horne, the
Company’s President and Chief Executive Officer. The loan permitted
the Company to borrow up to $525,000 at 8%. As of December 27, 2009,
the outstanding balance is $275,000. On August 6, 2008, the Company entered into
a receivables financing agreement with Mr. Horne. Under
the terms of the agreement, Mr. Horne agreed to finance specific accounts
receivable under a line of credit for up to $790,000 at an interest rate of
8.5%. The Company has taken draws of $220,000 as of December 27,
2009. The loan is not convertible into any Company securities.
On March
22, 2010, the Company entered into a strategic partnership with Intelligent
Decisions, Inc. (“Intelligent”). Intelligent is an
information technology services company headquartered in Ashburn, Virginia
servicing both commercial and government customers. The agreement
between the parties will allow the Company to have a cash line of credit in the
amount of $250,000 for business/projects jointly developed by Intelligent and
the Company. This line of credit will be secured by the Company’s
eligible Accounts Receivable on such projects or the Company’s
full-time equivalent employees arising after the inception of this Agreement
that are billing against projects as decided by Intelligent in its sole
discretion. No cash will be advanced by Intelligent until Intelligent
receives a perfected security interest (i.e., first lien on the orders to be
advanced under this cash line of credit).
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
fiscal year for Horne International, Inc. is the 52-or 53-week period ending on
the last Sunday in December. Fiscal 2009 and 2008 were 52-week fiscal-years. The
Consolidated Financial Statements include the accounts of Horne International,
Inc., and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Investments in unconsolidated
joint ventures were adjusted to fair market value upon the acquisition of Horne
Engineering in 2005. Beginning in 2008, the Company began accounting
for its Weskem joint venture investment under the equity method. The
joint venture ceased operations in 2009.
Revenue
Recognition
The
Company’s two principal methods of revenue recognition are monthly fixed price
contracts where revenue is recognized ratably over the contract period and time
and materials contracts where revenue is recognized as costs are
incurred.
- 22
-
Use
of Estimates
The
preparation of financial statements, in conformity with accounting principles
generally accepted in the United States of America, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Accordingly, results could differ from
those estimates and assumptions.
Cash
Equivalents
The
Company considers all highly liquid investments with an original maturity of
three months or less to be cash equivalents.
Fair
Value of Financial Instruments
The
carrying amount of cash and cash equivalents, receivables, accounts payable and
accrued expenses approximates fair value because of the short-term nature of
those instruments. The carrying amount and fair market value of the
Company’s short-term investments are the same since short-term investments are
recorded at fair value. Debt is recorded at the cash settlement value
of the underlying notes and is not revalued.
Significant
Customers and Credit Risks
Revenues
from individual customers greater than 10% of consolidated revenues, in the
respective periods, were as follows:
Fiscal
Year
|
||||||||
2009
|
2008
|
|||||||
Customer
A
|
|
*
|
26.9 | % | ||||
Customer
B
|
32.6 | % | * | |||||
Customer
C
|
16.7 | % | 23.3 | % | ||||
Customer
D
|
37.6 | % | 35.3 | % |
*Less
than 10% of consolidated revenue as of the end of each period.
Due to
the nature of the Company’s business and the relative size of certain contracts,
it is not unusual for a significant customer in one year to be insignificant in
the next. However, it is possible that the loss of any single
significant customer could have a material adverse effect on the Company’s
results from operations. The Company’s primary customers are
government entities. If revenue from a single government entity
exceeds 10% of our total revenue, it is disclosed above.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to credit risk consist of cash
and cash equivalents, accounts receivable, and unbilled services. As
of December 27, 2009, all of the Company’s cash and cash equivalents were held
in or invested with domestic banks. Accounts receivable from
individual customers that are equal to or greater than 10% of consolidated
accounts receivable in the respective periods were as follows:
Fiscal
Year
|
||||||||
2009
|
2008
|
|||||||
Customer
A
|
* | 57.0 | % | |||||
Customer
B
|
65.15 | % | * | |||||
Customer
C
|
10.53 | % | 4.82 | % | ||||
Customer
D
|
21.68 | % | 25.5 | % |
*Less
than 10% of consolidated accounts receivable and unbilled services as of the end
of each period.
- 23
-
In
determining the allowance for doubtful accounts, the Company analyzes the aging
of the accounts receivable, historical bad debts, customer creditworthiness, and
specific situations involving our customers. As the majority of our
work is government related, the risk of uncollectiblity is greatly
reduced. We do take specific bad debt reserves when we consider our
ability to collect an amount to be in doubt.
Property
& Equipment
Property
and equipment acquired as part of the acquisitions were adjusted to their
approximate fair value at the time of acquisition. All other property
and equipment are recorded at cost less accumulated
depreciation. Depreciation is computed on both an accelerated basis
and straight-line methods over the estimated useful lives of the underlying
assets. The lives range from 3 to 40 years depending on asset
type. Routine maintenance and repairs are expensed as
incurred. Major replacements and improvements are
capitalized. Leasehold improvements are amortized over the shorter of
the useful life or the lease term.
Impairment
of Long-Lived Assets
The
Company reviews the recoverability of its long-lived asset groups, including
buildings, furniture and equipment, computer hardware and software, leasehold
improvements, and other finite-lived intangibles, when events or changes in
circumstances occur that indicate the carrying value of the asset may not be
recoverable. The assessment of possible impairment is based on the
Company’s ability to recover the carrying value of the asset from the expected
future pre-tax cash flows (undiscounted and without interest charges) of the
related operations. If these cash flows are less than the carrying
value of such asset, an impairment loss is recognized for the difference between
estimated fair value and carrying value. The Company’s primary
measure of fair value is based on discounted cash flows. The
measurement of impairment requires the Company to make estimates of these cash
flows related to long-lived assets, as well as other fair value
determinations.
Income
Taxes
The
Company accounts for income taxes utilizing the asset and liability
method. This approach requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences attributable to
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry-forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enacted date. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be
realized.
Loss
Per Share
Basic
loss per share is calculated by dividing net loss by the weighted-average number
of common shares outstanding during the reporting period. Diluted
loss per share is computed in a manner consistent with that of basic loss per
share while giving effect to the impact of common stock
equivalents. The Company’s common stock equivalents consist of
employee, director, and consultant stock options to purchase common
stock. Common stock equivalents of 2,211,000 and 445,000 were not
included in the computation of diluted loss per share for the twelve months
ended December 27, 2009 and December 28, 2008, respectively, as the inclusion of
these common stock equivalents would be anti-dilutive as the Company is in a net
loss position and including such shares would reduce the net loss per
share.
Foreign
Currency Translation
The
Company’s functional currency is the U.S. dollar.
- 24
-
HORNE
INTERNATIONAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Stock
Based Compensation
The fair
values of stock option awards are determined using the Black-Sholes
model. The compensation expense is recognized on a straight-line
basis over the vesting period. The Company, beginning in 2006, has
included a vesting period for most options granted. See Note 11 for a
detailed discussion of the Company’s stock-based compensation
plans.
Recent
Accounting Pronouncements
In June
2006, the FASB issued guidance related to accounting for uncertainty in income
taxes, which was originally effective for fiscal years beginning after December
15, 2007. In December 2008, the FASB issued further guidance which
deferred the effective date for the Company until January 1, 2009. In
September 2009, the FASB issued new accounting guidance related to income taxes
which clarifies that management’s determination of the taxable status of an
entity is a tax position subject to the standards required for accounting for
uncertainty in income taxes and eliminates certain disclosures related to
unrecognized tax benefits for nonpublic companies.
In
December 2007, the FASB issued guidance regarding the accounting treatment for
corporate acquisitions. The new standard moves closer to a fair value model by
requiring the acquirer to measure all assets acquired and all liabilities
assumed at their respective fair values at the date of acquisition, including
the measurement of non-controlling interests at fair value. This standard also
establishes principles and requirements as to how the acquirer recognizes and
measures goodwill acquired in a business combination or a gain from a bargain
purchase and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. In addition, the standard significantly changes the
accounting for business combinations in a number of areas, including the
treatment of contingent consideration, pre-acquisition contingencies, in-process
research and development, restructuring costs and requires the expensing of
acquisition-related costs as incurred. The effective date was for fiscal years
beginning after December 15, 2008. For transactions consummated after the
effective date prospective application of the new standard is applied. For
business combinations consummated prior to the effective date, the prior
guidance is applied. The adoption of this standard did not have a material
impact on our consolidated financial statements.
In
April 2008, the FASB issued an amendment to its guidance determining the
useful life of intangible assets which requires companies estimating the useful
life of a recognized intangible asset to consider their historical experience in
renewing or extending similar arrangements or, in the absence of historical
experience, to consider assumptions that market participants would use about
renewal or extension as adjusted for entity-specific factors. This guidance is
effective for fiscal years beginning after December 15, 2008. The Company
does not believe that the adoption of this guidance will have any material
effect on its consolidated financial position, results of operations, or cash
flows.
In May
2009, the FASB issued accounting guidance on subsequent events which requires
companies to address the accounting and disclosure of events that occur after
the balance sheet date but before the financial statements are issued or
available to be issued. The adoption of the accounting guidance that
was effective January 1, 2009 did not have a material impact on the Company’s
consolidated financial condition or results of operations.
In
June 2009, the FASB issued an amendment which requires entities to provide
more information about the sale of securitized financial assets and similar
transactions in which the entity retains some risk related to the assets. This
amendment is effective for fiscal years beginning after November 15, 2009.
The Company does not believe the adoption this amendment will have a material
impact on its consolidated financial position, results of operations, or cash
flows.
In June
2009, the FASB issued The
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles (the “Codification”) as the single source of
authoritative nongovernmental United States generally accepted accounting
principles. The Codification did not change generally accepted
accounting principles but rather enhanced the way accounting principles are
organized. The Codification was effective for the Company January 1,
2009 and its adoption did not have a material impact on the Company’s
consolidated financial condition or results of operations.
In
June 2009, the FASB issued an amendment, which changes how a company
determines when an entity that is insufficiently capitalized or is not
controlled through voting (or similar rights) should be consolidated. Under this
guidance, determining whether a company is required to consolidate an entity
will be based on, among other things, an entity’s purpose and design and a
company’s ability to direct the activities of the entity that most significantly
impact the entity’s economic performance. This amendment is effective for fiscal
years beginning after November 15, 2009. The Company does not believe the
adoption will have a material impact on its consolidated financial position,
results of operations, or cash flows.
- 25
-
HORNE
INTERNATIONAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
In
October 2009, the FASB revised the accounting guidance for revenue
arrangements with multiple deliverables. The revision: (1) removes the
objective-and-reliable-evidence-of-fair-value criterion from the separation
criteria used to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting, (2) provides a
hierarchy that entities must use to estimate the selling price,
(3) eliminates the use of the residual method for allocation, and
(4) expands the ongoing disclosure requirements. This guidance is effective
for the Company beginning January 1, 2011 and can be applied prospectively or
retrospectively. The Company is currently assessing the impact of the revised
accounting guidance.
3. DISCONTINUED
OPERATIONS
The
Company made the strategic decision to close the operations of its Spectrum
Sciences and Software, Inc. subsidiary and Coast Engine & Equipment
subsidiary in early 2008. Accordingly, the operating results of these
two entities are included in discontinued operations for all years
presented.
During
2009, the Company deeded one of the two real property sites to creditors who are
affiliated parties in return for the release of $1.75 million of debt owed to
the creditors by the Company, In February, 2010, the Company, by Quitclaim Deed
returned the second of the two real property sites to the mortgagors in return
for a release of all obligations and claims under the Contract for
Deed.
The
assets of discontinued operations during 2009 were primarily the land and
buildings located in Ft. Walton Beach, Florida. During 2008, the
Company conducted a review of its asset values and determined that two of its
assets had book values in excess of the fair market
value. Accordingly, the Company wrote down the value of these assets
to their market value. The amount of the write-down was
$455,000.
The
liabilities of discontinued operations at December 27, 2009, primarily consist
of mortgages and a capital lease obligation. The mortgages include a
$1.7 million note that is adjustable at the U.S. federal funds rate plus 4.6%
subject to certain interest rate floors and caps as specified in the agreement.
The adjustable mortgage rates in effect at December 27, 2009 and December 28,
2008, were both 7.0%. The interest rate on the capital lease is
7.1%. The fixed rate mortgage notes are detailed in Note 9 Related
Party Transactions.
4. RECEIVABLES
(000’s)
Receivables
primarily comprise amounts due to the Company for work performed on contracts
directly related to commercial and government customers. The U.S.
Department of Defense (including the Army Environmental Command and the Army
Corps of Engineers), , Department of Homeland Security, General Services
Administration (GSA Schedules), and other government agencies are our major
customers.
December
|
December
|
|||||||
Accounts
Receivable
|
27, 2009
|
28, 2008
|
||||||
Billed
|
$ | 1,119 | $ | 1,277 | ||||
Unbilled
|
62 | 60 | ||||||
Holdbacks
|
48 | 48 | ||||||
Bad
Debt Reserve
|
(1 | ) | (1 | ) | ||||
Total
|
$ | 1,228 | $ | 1,384 |
Unbilled
receivables represent recoverable costs and estimated earnings consisting
principally of contract revenues that have been recognized for accounting
purposes but are not yet billable to the customer based upon the respective
contract terms. Substantially all of these amounts will be billed in
the following year.
- 26
-
HORNE
INTERNATIONAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
5. PROPERTY
AND EQUIPMENT (000’s)
December
|
December
|
|||||||
Property
& Equipment
|
27, 2009
|
28, 2008
|
||||||
Buildings
and Improvements
|
$ | 5 | 5 | |||||
Furniture
and Fixtures
|
11 | 11 | ||||||
Office
Equipment
|
290 | 292 | ||||||
Vehicles
|
38 | 38 | ||||||
Total
|
$ | 344 | $ | 346 | ||||
Accumulated
Depreciation
|
(267 | ) | (214 | ) | ||||
Property
and Equipment, net
|
$ | 77 | $ | 132 |
6. ACCRUED
EXPENSES (000’s)
December
|
December
|
|||||||
Accrued
Expenses
|
27, 2009
|
28, 2008
|
||||||
Salaries
and payroll related items
|
$ | 165 | $ | 124 | ||||
Accrued
leave
|
263 | 206 | ||||||
Professional
fees
|
75 | 133 | ||||||
Other
|
98 | 27 | ||||||
Total
Accrued Liabilities
|
$ | 601 | $ | 490 |
7. BORROWINGS
AND LINES OF CREDIT
The
Company’s borrowings, not included in discontinued operations, consist of
related party receivable financing and unsecured notes of approximately $495
thousand. The rates on the related party notes are 8% and
8.5% and approximately half of these notes are secured against company
receivables and a company settlement award. See further detail in
Note 9 related to the related party notes.
Wells
Fargo
In
December 2009, the Company entered into a two-year receivable noncancellable
financing agreement with Wells Fargo Bank National Association under which the
Company is able to factor certain eligible accounts receivable. The
agreement calls for a minimum monthly fee of $6 thousand for the term of the
agreement. The Company is able to receive 85% of any invoices
factored to the lender. As of December 27, 2009, no receivables were
factored.
The
schedule below represents future principal payments under existing debt
agreements related to discontinued operations (000’s).
2010
|
2011
|
2012
|
2013
|
2014
|
2015+
|
|||||||||||||||||||
Capital
Leases
|
50 | 19 | - | - | ||||||||||||||||||||
Mortgage
Payable
|
66 | 71 | 75 | 81 | 87 | 1,363 | ||||||||||||||||||
Total
Lease Commitments
|
$ | 116 | $ | 90 | $ | 75 | $ | 81 | $ | 87 | $ | 1,363 |
In
February 2010, the Company, by Quitclaim Deed returned the second of the two
real property sites to the mortgagors in return for a release of all mortgage
obligations and claims under the Contract for Deed.
8.
|
STOCKHOLDERS’
EQUITY
|
During
2009, the Company had two equity transactions. The first was the
share price settlement with the former owners of CEECO. Under the terms of the
CEECO acquisition agreement from 2005, the 913,242 shares of stock that were
issued to Lou and Marilyn Rogers in March 2008 were subject to a share price
guarantee. Those shares were issued at $0.219 per share. The average
share price, calculated as the ten-day average closing share price centered on
February 28, 2009, was $.0755. As a result the Company recorded a
payable to the Rogers of $131,000 and reduced additional paid in capital by that
same amount. A payable of $38,500 is outstanding at December 27,
2009.
- 27
-
HORNE
INTERNATIONAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The
second 2009 equity transaction was the issuance of 2,000,000 options related to
the 91 Hill Avenue transaction described in detail in Note 9 to these financial
statements.
Additionally,
on March 24, 2008, the Company paid $90,088 to Lou and Marilyn Rogers for the
negative change in share price from the March 8, 2007, share
issuance. The share price for the 2007 issuance was $0.3985 and
resulted in a share issuance of 501,882. The current share price, as
stipulated in the share agreement and shown above was $0.219. This
share price difference of $0.1795 was multiplied by the 501,882 shares. This
transaction reduced the additional paid in capital recorded in the initial stock
issuance.
During
2007, the Company had only one equity transaction other than option
activity. On March 8, 2007, the Company issued 501,882 unregistered
shares of stock to Louis and Marilyn Rogers in accordance with the Coast Engine
and Equipment Co. acquisition agreement. This agreement contained an
earn-out provision of up to $200,000 worth of Company stock at a 10-day average
price centered on the two-year anniversary of the acquisition, or $0.3985 per
share. The agreement also included a share price guarantee based on
the 10 day average share-price centered on February 28, 2008.
During
2008, the Company had equity transactions related to stock option expense, the
final share issuances for the CEECO earn-out, and the related share price
guarantee payments for the 2007 CEECO earn-out share issuance.
9. RELATED
PARTY TRANSACTIONS
Darryl Horne
Notes
On August
6, 2009, Horne International, Inc. entered into an Agreement to Transfer
Property with Darryl K. Horne and The Susott Family Limited Partnership and 91
Hill Avenue, LLC. The Agreement states that Horne International, Inc.
will transfer the real property located at 91 Hill Avenue, Fort Walton Beach,
Florida to 91 Hill Avenue, LLC. In addition, the Company will also
issue to 91 Hill Avenue, LLC two million stock options with a price of the
greater of $0.10 or $0.25 less than the reported stock one day prior to the
exercise of the options. As consideration for the transfer of the
real property and the aforementioned stock options, Darryl K. Horne and the
Susott Family Limited Partnership will each forgive certain secured and
unsecured debt owed to each of them by the Company. Darryl K. Horne
will forgive both secured and unsecured debt owed to him by the Company in the
amount of $750,000. The Susott Family Limited Partnership will
forgive secured debt owed to it by the Company in the amount of
$1,000,000.
On August
7, 2009, the real property owned by Horne International, Inc. located at 91 Hill
Avenue, Fort Walton Beach, FL was transferred to 91 Hill Avenue, LLC pursuant to
the terms of the Agreement to Transfer Property dated August 6,
2009.
During
2008, the Company entered into three separate loan transactions with Darryl K.
Horne, the Company’s President and Chief Executive Officer. The first
loan permitted the Company to borrow up to $525,000 at 8%. As of
December 28, 2008, the Company has borrowed the full $525,000. The
interest is payable quarterly beginning in July 1, 2008 with principal payable
upon demand. The note is unsecured and is not convertible into any
Company securities. This loan was settled in part of the 91 Hill
avenue transaction. As of December 27, 2009, the outstanding balance
is $275,000.
In July
2008, the Company entered into a second loan transaction with Mr. Horne,
for a working capital loan to the Company. The terms of the loan
provide that the Company is able to borrow $500,000 at 8% interest, with such
interest payable quarterly beginning in October 2008. The Company has
borrowed $500,000 under this agreement as of December 28,
2008. Principal under the loan is payable in full at the earlier of
(a) twelve (12) months from the loan closing date and (b) the sale of the
Company's Ft Walton Beach, Florida commercial property formerly utilized for
SSSI's operations (the "SSSI Property"). The maturity date of the loan may
be extended for an additional six (6) months under certain conditions, including
the payment by the Company of a fee equal to one-half percent of the outstanding
principal balance. Mr. Horne's loan is secured by a second deed of
trust on the SSSI Property, which will be junior in priority and subordinate to
a first deed of trust securing the Company's obligations under the Revolving
Line of Credit to Evan Auld-Susott, as agent. The loan is not convertible
into any Company securities. The terms of the loan were approved by
the Company's Board of Directors, including each disinterested
director. The loan documentation contains customary terms and
conditions for financing of this type. This loan was discharged in
the 91 Hill Avenue transaction described above. There were no amounts
outstanding under this loan at December 27, 2009.
- 28
-
HORNE
INTERNATIONAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
On August
6, 2008, the Company entered into a receivables financing agreement with
Mr. Horne. Under the terms of the agreement, Mr. Horne
agreed to finance specific accounts receivable under a line of credit for up to
$790,000 at an interest rate of 8.5%. The Company has taken draws of
$220,000 as of December 27, 2009. The loan is
not convertible into any Company securities.
Evan Auld-Susott Mortgage
Note
In July
2009, the Company deeded the SSSI property against 91 Hill Avenue, LLC, a
limited liability company established by Darryl K. Horne and Evan Auld-Susott to
take title to the property. In return for the property, Evan
Auld-Susott released the $1,000,000 debt due under the April 10, 2008 revolving
line of credit. As of December 27, 2009, there were no amounts outstanding under
the agreement.
On April
10, 2008, the Company entered into a binding term sheet with Evan Auld-Susott as
agent for The Susott FLP for the provision to the Company of a revolving line of
credit. Evan Auld-Susott is a member of the Company's Board of
Directors. Under the line of credit, the Company is able to borrow
$1,000,000 at 12.5% interest upon the Company's certification to the lenders
that the Company has fully exhausted all funds available to the Company pursuant
to the $500,000 working capital loan from Darryl K. Horne, described
above. Interest on the line of credit will be payable quarterly beginning
in October 2008 with principal payable in full at the earlier of (a) twelve (12)
months from the line of credit closing date or (b) the sale of the SSSI
Property. The maturity date of the line of credit may be extended for an
additional six (6) months under certain conditions, including the payment by the
Company of a fee equal to the greater of (i) $2,500 and (ii) one-half percent of
the outstanding principal balance. The lender has a first deed of
trust on the SSSI Property, which is senior in priority and superior to the
second deed of trust in favor of Darryl K. Horne with respect to this working
capital loan described above. The loan is not convertible into any Company
securities. The terms of the line of credit were approved by the
Company's Board of Directors, including each disinterested
director. The Company settled on this line in July
2008. As of December 28, 2008, the entire $1,000,000 has been
advanced under the line. There was no balance as of December 27,
2009.
On
November 12, 2008, the Company entered into a short-term borrowing agreement
with Evan Auld-Susott as agent for The Susott FLP. Under this
agreement, the Company borrowed $70,000 at 8.5% interest. This note
is secured by certain receivables of the Company and is not convertible into any
Company securities.. This loan was repaid in January
2009. As of December 27, 2009, there were no amounts outstanding
under this agreement.
John Krobath
Notes
On June
12, 2008, the Company entered into a short-term borrowing arrangement with John
Krobath, the Company’s Chief Financial Officer, under which the Company borrowed
$70,000 at 8% interest. The loan and related interest were repaid on
June 17, 2008.
On
October 1, 2008, the Company entered into a short-term borrowing arrangement
with John Krobath, the Company’s Chief Financial Officer at such time, under
which the Company borrowed $43,000 at 8.5% interest. This loan is not
convertible into any Company securities but is secured by some of the Company’s
real property in Ft. Walton Beach, Florida. The loan and related
interest were repaid in June 2009.
10. EMPLOYEE
BENEFIT PLAN
The
Company has a defined contribution 401(k) plan available to all U.S. employees
who have completed minimum service requirements and meet minimum age
requirements. Eligible employees may defer a portion of their salary
as defined by Internal Revenue Service regulations. The Company
currently matches 50% of an employee’s contribution up to 5%, subject to legal
limits. The total expense for the years ended December 27, 2009 and
December 28, 2008 were approximately $27,000 and $61,000,
respectively.
- 29
-
HORNE
INTERNATIONAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
11.
STOCK OPTION PLAN
During
2006, the Company issued 15,000 stock options to each of its five advisory
board members, 75,000 options in total. The options vest over a
two-year period with 5,000 options vesting immediately and 5,000 options vesting
at the one and two year anniversaries of the grants. During 2007, the Company
issued an additional 15,000 options to a new advisory board member with the same
terms as prior advisory issuances and retired 15,000 options previously issued
to a departed advisory member. These options have an exercise price of $0.50 and
a ten year life from the grant date. The
weighted-average assumptions used in the Black-Scholes model to price the
options were as follows: a risk-free rate of 4.5%, no dividend yield, a
volatility factor of 0.63 and a life of 10 years. In 2009, the Company stopped
using the services of the advisory board; and therefore, recognized no further
expense related to these options. However these options remain
outstanding. Accordingly, the Company has recorded stock-based
compensation expense of $0 in 2009 and $8,334 in 2008. The expense
recognized is based on the fair value at each reporting date since the
recipients are non-employees.
On July
21, 2006, the Company issued 30,000 options to each of its five external Board
of Directors members. These options vest in 10,000 share increments
on July 21, 2007, 2008, and 2009. The option terms include an
exercise price of $0.80, a life of three years and a service obligation to
vest. The Company has recorded $6,665 and $14,240 of stock-based
compensation expense in 2009 and 2008, respectively, related to these
options.
During
2007, the Company granted 180,000 options to external members of its Board of
Directors, 15,000 options to a non-employee member of the advisory board and
340,000 options to employees. On August 1, 2007, the Company issued
external members of the Board of Directors options that vest over a three year
period, expire three years from the vesting date, and have a strike price of
$0.35. The Company has recorded $6,074 and $10,159 of expense related
to these options in 2009 and 2008, respectively. The employee options
were issued at various strike prices some with immediate partial vesting but
most with time requirements for vesting. As of December 27, 2009,
334,000 of the employee options have expired as the employees have left the
company prior to vesting.
In 2008,
the only options granted during the year were employee options of 100,000 with a
strike price of $0.20. Of these options, 30,000 were vested
immediately with the remaining 70,000 vesting over the next two
years. Expense of approximately $3,361 and $10,083, was recognized on
these options in 2009 and 2008, respectively.
In 2009,
the Company issued two million options with a strike price of the greater of
$0.10 or $0.25 less than current market value of the stock at the time of
exercise to 91 Hill Avenue, LLC as part of the satisfaction of the debt to Evan
Auld-Susott and Darryl K. Horne. The options vest on December 31,
2009. There was no option expense recorded on this transaction as it
was treated as a capital contribution.
There
were no options exercised in 2009 or 2008. As of December 27, 2009,
there was $3,000 of unrecognized compensation cost, net of estimated
forfeitures, related to non-vested stock options, which is expected to be
recognized over a weighted-average period of approximately one
year.
The
following table summarizes information about the Plan’s stock options at
December 27, 2009.
Number of shares
|
Option Price
|
Weighted Average Price
|
||||||||||
Options
Outstanding 12/30/2007
|
1,912,514 | |||||||||||
Granted
|
100,000 | $ | 0.20 | $ | 0.20 | |||||||
Exercised
|
- | |||||||||||
Cancelled
|
(1,567,514 | ) | 0.40 - 1.65 | 1.47 | ||||||||
Options
Outstanding 12/30/2008
|
445,000 | |||||||||||
Granted
|
2,000,000 | 0.10 | ||||||||||
Exercised
|
- | |||||||||||
Cancelled
|
(234,000 | ) | 0.20 - 0.80 | $ | 0.55 | |||||||
Options
Outstanding 12/27/2009
|
2,211,000 |
- 30
-
HORNE
INTERNATIONAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Exercise
|
Shares
|
Shares
|
Weighted
Average
|
|||||||||||
Price
|
Outstanding
|
Exercisable
|
Remaining Life (yrs)
|
|||||||||||
$ | 0.10 | 2,000,000 | - | 3.0 | ||||||||||
$ | 0.20 | 70,000 | 70,000 | 0.8 | ||||||||||
$ | 0.35 | 60,000 | 60,000 | 2.6 | ||||||||||
$ | 0.40 | 6,000 | 6,000 | 0.8 | ||||||||||
$ | 0.50 | 75,000 | 75,000 | 5.8 | ||||||||||
2,211,000 | 211,000 | |||||||||||||
Total
options available to issue
|
30,000,000 | |||||||||||||
Total
options outstanding or exercised
|
22,332,200 | |||||||||||||
Total
options Remaining
|
7,667,800 |
The
intrinsic value of the options outstanding at December 27, 2009, is zero as the
exercise price for all options is greater than our share price at that
date.
12. INCOME
TAXES
The
provision for income taxes consisted of the following (000’s)
Year
Ended
|
||||||||
December
27,2009
|
December
28, 2008
|
|||||||
Current
|
||||||||
Federal
|
- | - | ||||||
State
|
$ | 4 | $ | 1 | ||||
Foreign
|
- | - | ||||||
Total
Current
|
4 | 1 | ||||||
Deferred
|
||||||||
Federal
|
- | - | ||||||
Foreign
|
- | - | ||||||
Total
Deferred
|
- | - | ||||||
Total
Tax Provision
|
$ | 4 | $ | 1 |
The
difference between the tax provision at the statutory federal income tax rate
and the tax provision attributable to income before taxes was as
follows:
Rate Reconciliation:
|
||||||||
2009
|
2008
|
|||||||
Statutory
Federal Income Tax Rate
|
39.00 | % | 34.00 | % | ||||
State
Taxes (Net of Federal Benefit)
|
3.64 | % | 3.95 | % | ||||
Permanent
Difference
|
-0.19 | % | -0.05 | % | ||||
Valuation
Allowance
|
-42.45 | % | -33.61 | % | ||||
Other
|
0.00 | % | -4.29 | % | ||||
Effective
Tax Rate
|
0.00 | % | 0.00 | % |
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial and tax reporting
purposes. Significant components of the Company’s deferred taxes were
as follows (numbers in 000’s)
- 31
-
HORNE
INTERNATIONAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Deferred Tax
Asset/Liability:
|
||||||||
2009
|
2008
|
|||||||
Accrued
Expenses
|
$ | 58 | $ | 53 | ||||
Depreciation
|
17 | 16 | ||||||
Amortization
of Intangibles
|
- | - | ||||||
Allowance
for Doubtful Accounts
|
- | - | ||||||
Stock
Compensation
|
313 | 272 | ||||||
NOL
Carryforwards
|
18,857 | 16,888 | ||||||
Other,
Net
|
752 | (116 | ) | |||||
Valuation
Allowance
|
(19,998 | ) | (17,113 | ) | ||||
Net
Deferred Tax Asset/(Liability)
|
$ | - | $ | - |
As of
December 27, 2009, the Company has approximately $55 million of net operating
loss carry-forwards available to offset future income. The net
operating loss carry-forwards will expire on or before 2027.
In
determining the extent to which a valuation allowance for net deferred tax
assets is required, the Company evaluates all available evidence including
projections of future taxable income, carry-back opportunities, and other
tax-planning strategies. The valuation allowance relates to our U.S.
net operating losses. Due to the continued losses incurred by the
Company in 2009 and prior years, the Company believes that it is more likely
than not that the deferred tax asset related to these net operating losses will
not be realized. If, in the future, the Company determines that the
utilization of these net operating losses becomes more likely than not, the
Company will reduce the valuation allowance at that time.
The
Company adopted Accounting Standards Codification topic 740, subtopic 10 on
January 1, 2007, which requires financial statement benefits to be recognized
for positions taken for tax return purposes when it is more-likely-than-not that
the position will be sustained. There has been no change in our
financial position and results of operation due to the adoption of this
standard.
13. NON-OPERATING
INCOME (EXPENSE) (000’s)
2009
|
2008
|
|||||||
Income
|
||||||||
Interest
|
$ | - | $ | 4 | ||||
Equity
Investments
|
8 | - | ||||||
Expense
|
||||||||
Interest
|
(86 | ) | (134 | ) | ||||
Equity
Investments
|
- | (90 | ) | |||||
Total
net non-operating (expense)income
|
$ | (78 | ) | $ | (220 | ) |
14.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (000’S)
Supplemental
disclosure of cash flow information:
|
2009
|
2008
|
||||||
Cash
paid for interest
|
$ | 1 | $ | 32 | ||||
Cash
paid for taxes
|
$ | 4 | $ | 18 | ||||
Supplemental
schedule of non-cash investing and financing activities:
|
||||||||
Relief
of related party notes payable for property and 2,000,000 stock
options
|
$ | 1,750 | $ | 0.00 |
- 32
-
HORNE
INTERNATIONAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The CEECO
earn-out in 2008 of $200,000 was paid via the issuance of 913,242 shares of
Company common stock. The share price guarantee related to the 2008
share issuance resulted in a $131,000 reclass between additional paid in capital
and accrued liabilities in March 2009. The Company paid $100,000 and
$90,087 in 2009 and 2008, respectively.
15. COMMITMENTS
AND CONTINGENCIES (000’s)
Operating
Leases
The
Company leases office space at various locations in the United
States. Rent expense totaled approximately $128,000 and $482,000 for
2009 and 2008, respectively. Included in the 2008 expense is $227,000
of cost related to the early termination of our headquarters
lease. The Company also enters into various other non-cancellable
leases for office equipment and vehicles as necessary.
The table
below summarizes our future annual minimum lease payments under non-cancellable
agreements with an initial term of greater than one year at inception.
(000’s)
2010
|
2011
|
2012
|
2013
|
2014+
|
||||||||||||||||
Operating
Leases
|
$ | 146 | $ | 102 | $ | 7 | $ | - | $ | - |
Legal
Matters
Munitions Assembly Conveyor
(MAC) Lawsuit
On or
about August 23, 2004, Spectrum Sciences & Software, Inc. (SSSI) filed suit
against the United States alleging a breach of express contract, a breach of an
implied in fact contract, and misappropriation of trade secrets. SSSI
claims damages in the amount of $3,500,000. The complaint arose out
of the government’s actions associated with the procurement of the improved
Munitions Assembly Conveyor (MAC). Based upon SSSI’s previous
experience in both utilizing and producing the MAC, the Government and SSSI
entered into a Cooperative Research and Development Agreement (CRADA) for the
purpose of improving munitions support equipment, including the
MAC. As part of the CRADA negotiation, SSSI identified its prior
development, unique modifications, and improvements that constituted trade
secrets and intellectual property owned by SSSI. Subsequent to the
completion of the CRADA, SSSI alleges that the government deliberately breached
its obligations to protect the trade secrets, intellectual property, and
proprietary information identified by SSSI in the CRADA by disclosing and widely
disseminating to the general public SSSI’s proprietary information.
In
response to a Motion for Summary Judgment filed on behalf of the United States,
the Court dismissed the claim for misappropriation of trade
secrets. The surviving claims remain pending in the United States
Court of Federal Claims in Washington, DC. On November 13, 2007, a
trial on the merits as to liability was heard by the United States Court of
Federal Claims. The Court found in favor of SSSI on the merits of the
case. A trial on damages was held in January 2010. The
Court has not yet ruled on damages in this case.
B-Stand
Lawsuit
On April
8, 2009, the Company reached a settlement agreement with the U.S. Air Force
regarding the Company’s pending B-Stand litigation through the alternative
disputes resolution process. The U.S. Air Force agreed to pay
$122,500 in full settlement of all outstanding claims related to this
matter. The Company received this payment in the third quarter
of 2009.
16. INVESTMENTS
IN JOINT VENTURES
The
Company, through its Horne Engineering subsidiary, is a member of Weskem, a
limited liability company that specializes in environmental
remediation. During 1999, Horne Engineering invested $77,500 and
became a 5.6% partner in this joint venture. The investment has been
accounted for using the cost method of accounting until 2008. During
2008, the decision was made to cease Weskem’s operations during the first
quarter of 2009. At that time the Company performed an analysis of
the liquidation value of the investment. It was determined during
this analysis, that the expected liquidation value of the investment was
approximately $169,000 less than our carrying value. Accordingly, we
recorded a write-down of the Weskem investment to its liquidation
value. At the same time, we changed our accounting method to the
equity method. The investment was liquidated in 2009.
- 33
-
HORNE
INTERNATIONAL, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
17. SUBSEQUENT
EVENTS
In
February 2010, the mortgage holders on our Ft. Walton Beach, Florida property
accepted a Quitclaim on the property, thereby taking the property back and
releasing the Company from its obligation under the mortgage
note. With this release, the mortgage payable commitment is
terminated in its entirety.
On March
22, 2010, the Company entered into a strategic partnership with Intelligent
Decisions, Inc. (“Intelligent”) Intelligent is an
information technology services company headquartered in Ashburn, Virginia
servicing both commercial and government customers. The agreement
between the parties provides for Intelligent to provide business support
services to the Company. The business support services will include
business development support, bid and proposal support, contracting support,
investor relations and marketing support, accounting services support and
recruiting services. In addition, Intelligent will assist the Company
in achieving its long term and short term plans for revenue growth by providing
near term business opportunities including procurement and other acquisition
opportunities. In return for the described business support services,
the Company will award to Intelligent 8,333,333 options to purchase common stock
as well as up to 12,500,000 restricted stock units. 4,166,667 of the
awarded options will vest immediately and the remaining 4,166,666 options will
vest when the share price of Horne reaches $.50 or the company achieves revenue
in the amount of $15,000,000. The restricted stock units will be
issued in exchange for the aforementioned business support
services.
- 34
-
Item
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
(a)
Former Independent Registered Accounting Firm. On February 15, 2010 the
Company’s Audit Committee dismissed Grant Thornton LLP (Grant Thornton) as the
Company's independent registered accounting firm. Grant Thornton's reports on
the Company's consolidated financial statements as of and for the years ended
December 30, 2007 and December 28, 2008 did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to audit scope or
accounting principle. However, with respect to the Company’s financial
statements as of and for the year ended December 28, 2008, the accountant’s
report was modified to include an explanatory paragraph related to substantial
doubt about the Company’s ability to continue as a going concern.
In
connection with its audits of the Company’s financial statements as of and for
the year ended December 28, 2008 and reviews of the Company’s
financial statements as of and for the nine-months ended September 30, 2009 and
2008, and through February 15, 2010, there were no disagreements with Grant
Thornton on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Grant Thornton would have caused Grant
Thornton to make reference to the subject matter of the disagreements in
connection with its reports on the financial statements for such years.
Additionally, during these periods there were no reportable events, as defined
in Regulation S-K 304(a)(1)(v).
The
Company has provided Grant Thornton a copy of this Current Report prior to
filing thereof with the United States Securities and Exchange Commission. The
Company has requested Grant Thornton to furnish the Company with a letter
addressed to the Securities and Exchange Commission stating whether Grant
Thornton agrees with the statements made by the Company in the Current Report,
and if not, stating all respects in which it does not agree. A copy of Grant
Thornton's letter dated February 18, 2010, is filed as Exhibit 1 to this Current
Report.
(b) New
Independent Registered Accounting Firm. On February 15, 2010, the Audit
Committee of the Company engaged Stegman and Company as the Company's
independent registered public accounting firm to audit the Company's
consolidated financial statements for the year ended December 27,
2009.
During
the two most recent years, neither the Company nor any one acting on its behalf
consulted with Stegman and Company regarding (1) the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements;
or (2) any matter that was wither the subject of a disagreement as defined in
Item 304(a)(1)(iv) of Regulation S-K.
Item
9A. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Based on
management’s evaluation (with the participation of our CEO and Interim Chief
Financial Officer (CFO)), as of the end of the period covered by this report,
our CEO and CFO have concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended (the Exchange Act)), are effective to provide reasonable
assurance that information required to be disclosed by us in reports that we
file or submit under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in SEC rules and forms, and is
accumulated and communicated to management, including our principal executive
officer and principal financial officer, as appropriate to allow timely
decisions regarding required disclosure.
Attestation
Report of the Registered Public Accounting Firm
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by its
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management’s
report in this annual report.
- 35
-
Management’s
Annual Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. generally accepted
accounting principles.
Management
assessed our internal control over financial reporting as of December 27, 2009,
the end of our fiscal-year. Management based its assessment on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Management’s assessment
included evaluation of elements such as the design and operating effectiveness
of key financial reporting controls, process documentation, accounting policies,
and our overall control environment.
Based on
our assessment, management has concluded that our internal control over
financial reporting was effective as of the end of the fiscal-year to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external reporting purposes in
accordance with U.S. generally accepted accounting principles. We reviewed
the results of management’s assessment with the Audit Committee of our Board of
Directors.
Inherent
Limitations on Effectiveness of Controls
Our
management, including the CEO and CFO, does not expect that our disclosure
controls or our internal control over financial reporting will prevent or detect
all error and all fraud. A control system, no matter how well designed and
operated, can provide only reasonable, not absolute, assurance that the control
system’s objectives will be met. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Further, because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that misstatements due to error or fraud will not occur or that all control
issues and instances of fraud, if any, have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of simple error or mistake.
Controls can also be circumvented by the individual acts of some persons, by
collusion of two or more people, or by management override of the controls. The
design of any system of controls is based in part on certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions. Projections of any evaluation of controls effectiveness to future
periods are subject to risks. Over time, controls may become inadequate because
of changes in conditions or deterioration in the degree of compliance with
policies or procedures.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by its
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management’s
report in this annual report.
Changes
in Internal Control over Financial Reporting
There
were no changes to our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the
Company's fourth fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
9B.
Other Information
There is
no information that was required to be disclosed on a Form 8-K during the fourth
quarter but was not reported.
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance.
The names
of our executive officers and directors, their ages as of March 1, 2010, and the
positions currently held by each are as follows:
- 36
-
Name
|
Age
|
Position
|
||
Darryl
K. Horne
|
49
|
President,
Chief Executive Officer and Chairman, Director
|
||
Paige
E. Shannon
|
43
|
Interim
Chief Financial Officer
|
||
Evan
Auld-Susott
|
30
|
Director
|
||
John
A. Moore
|
57
|
Director
|
BIOGRAPHIES
OF EXECUTIVE OFFICERS AND DIRECTORS
Darryl K. Horne. In
June 2005, Darryl K. Horne was appointed President and Chief Executive Officer
(CEO) of Horne International, Inc. Mr. Horne also serves as Chairman
of the Board of Directors of Horne International, Inc. Mr. Horne
founded Horne Engineering Services, Inc., a Virginia corporation, in 1990 and
led the organization as the President and CEO until May 2005, when Horne
Engineering Services, Inc., dissolved and was superseded by Horne Engineering
Services, LLC. Horne Engineering Services, Inc., was a professional
engineering firm providing engineering solutions to issues primarily in the
areas of national security, energy and the environment, and transportation for
customers in the U.S. federal government, state and local governments, and the
private sector. As the President and CEO of Horne Engineering
Services, Inc., Mr. Horne was responsible for personnel, budgeting, performance
contracts, subcontract administration, proposals, business development, and the
general oversight of corporate operations. In 1999, Mr. Horne was
appointed by then Virginia Governor James Gilmore to the Virginia Military
Institute (VMI) Board of Visitors. Mr. Horne was re-appointed to the
VMI Board of Visitors by Governor Mark Warner in 2003. Mr. Horne was
honored by Ernst & Young in 1999 as a Greater Washington Entrepreneur of the
Year, and in 2002 he was a finalist for a National Capital Business Ethics
Award. In March 2004, he was invited to become a Trustee on the
Federal City Council, a non-profit, non-partisan organization dedicated to the
improvement of the Nation’s Capital and composed of and financed by the region’s
top business, professional, educational, and civic leaders. Mr. Horne
received a bachelor’s degree in civil engineering from VMI in
1982. He is a member of the National Society of Professional
Engineers and the Society of American Military Engineers, and he completed
service in the U.S. Army Reserve with the rank of Captain.
Paige E.
Shannon. In June, 2009, Paige E. Shannon was appointed Interim
Chief Financial Officer (CFO). Ms. Shannon has and continues to serve
as the General Counsel prior to being appointed Interim CFO. She has
extensive experience in the government contracting
industry. Ms. Shannon received a juris doctorate from The
Catholic University of America, Columbus School of Law and a Master’s in
Business Administration from George Mason University in 2002.
John A. Moore,
Jr. John A. Moore, Jr. was elected to the Horne
International, Inc., Board of Directors on April 27, 2006. Mr. Moore
currently serves as the Chairman of both the audit and compensation
committees. Mr. Moore has served as the Executive Vice President and Chief
Financial Officer of ManTech International Corporation. Mr. Moore has
extensive experience in strategic planning, acquisitions, corporate compliance,
proposal preparation and pricing in the Federal Solutions marketplace. Mr.
Moore has served on the Board of Directors for ManTech International Corporation
and Global Secure Corporation and currently serves on the Board of Directors of
Paradigm Holdings, Inc. Mr. Moore is also a former member of the Board of
Visitors for the University of Maryland, Robert H. Smith School of
Business.
Evan Auld-Susott Evan
Auld-Susott was elected to the Horne International, Inc., Board of Directors in
June 2007. Mr. Auld-Susott is an independent investment advisor based in Los
Angeles, California, and serves as General Partner for the Susott
FLP. Previously, he worked as an investment advisor at Morgan Stanley
on a private wealth management team with responsibility for $6 billion in
assets. Mr. Auld-Susott has a B.A. in economics and a B.A. in
international relations from the University of Southern California in Los
Angeles.
None of
the events set forth in Item 401(f) of Regulation S-K occurred during the past
ten years.
CODE
OF ETHICS
The
Company has adopted a Code of Ethics applicable to its Principal Executive
Officer, Principal
Financial Officer,
Principal Accounting Officer or Controller, and/or other persons performing
similar functions. A copy of the written Code of Ethics is
incorporated by reference as an exhibit to this Annual Report. The
Code of Ethics can also be found in the Corporate Governance section of the
Company’s website located on the web at http://www.horne.com.
- 37
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SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934 requires officers and directors of
the Company and persons who own more than ten percent (10%) of a registered
class of Horne International, Inc., equity securities to file reports of
ownership and changes in their ownership on Forms 3, 4, and 5 with the
Securities and Exchange Commission and forward copies of such filings to the
Company. Based on the copies of filings received by the Company
during the most recent fiscal-year, the directors, officers, and beneficial
owners of more than ten percent (10%) of the equity securities of the Company
registered pursuant to Section 12 of the Exchange Act have timely filed all
required Forms 3, 4, and 5 and any amendments thereto.
AUDIT
COMMITTEE
The
Company formed an audit committee on October 4, 2005, and adopted the Charter of
the Audit Committee on April 27, 2006. Francis X. Ryan was appointed
as Chairman upon the Committee’s formation. On July 20, 2006, John A.
Moore, Jr., was appointed by the Board of Directors to serve as a member of the
Audit Committee. Upon Mr. Ryan’s resignation form the Board of
Directors in July, 2008, Mr. Moore was appointed Chairman of the Audit
Committee. The Company’s Board has determined that Mr. Moore
qualifies as an audit committee financial expert as defined in Item 401(h) of
Regulation S-K of the Securities Act of 1933, as amended and is independent as
defined in NASDAQ marketplace Rule 5605(a)(2).
Item
11. Executive Compensation.
Although
our executive compensation program is generally applicable to each of our senior
management, this Compensation Discussion and Analysis focuses primarily on the
program as applied to our CEO, CFO, and each of our other “named executive
officers” as defined under applicable SEC rules. Our “named executive
officers” for 2009 were our CEO, Darryl K. Horne, our interim CFO, Paige
Shannon, and our former CFO John E. Krobath.
Executive
Compensation Policy and General Philosophy
We
recognize that our long term success depends on our ability to provide
innovative, comprehensive and quality services and products to the
marketplace. Attracting and retaining highly talented individuals at
all levels of the organization that are committed to the Company’s core values
of excellence and integrity requires us to maintain competitive compensation
programs. Our Executive Compensation Program is based upon the same
objectives that guide us in establishing all of our Compensation
Programs. The Company compensates its senior management with a blend
of base salary, bonus and equity compensation designed to be competitive with
comparable employers and to align management’s incentives with our long term
goals and the best interests of our stockholders.
Compensation
of our Chief Executive Officer and former Chief Financial Officer (Michael
Megless) are substantially affected by the employment agreements each of these
individuals entered into in connection with our acquisition of Horne Engineering
in May 2005. As described herein under the section titled “Employment
Contracts and Termination of Employment and Change of Control Agreements” these
employment agreements establish minimum base salaries for these executives,
subject to annual review and increase by the Board of Directors, discretionary
annual cash bonuses, certain payments and benefits upon termination of
employment, including accelerated vesting of options and participation in any
executive bonus and stock based incentive programs established by us from time
to time. The employment agreements were a condition to the closing of
the Horne Engineering acquisition, and reflected our view of the value of
obtaining the experience and leadership skills of each of Mr. Horne and Mr.
Megless. In addition, Mr. Horne received a substantial equity
interest in our Company in consideration for his Horne Engineering
shares. We believe that for compensatory purposes, Mr. Horne’s equity
interest aligns his interests with those of the stockholders generally, and our
Board takes this factor into account in compensation determinations with respect
to Mr. Horne.
- 38
-
A
Compensation Committee was established by the Board of Directors on January 1,
2007. In 2009, the Compensation Committee set the performance goals
and objectives and recommended to the Board of Directors the overall
compensation of the Chief Executive Officer. In addition, the
Compensation Committee will further review the compensation of each of the five
(5) most highly compensated employees. The Compensation Committee
will recommend performance objectives and guidelines for the award of bonuses to
senior level management. The executive management of Horne
International, Inc. with the advice of the members of the Board of Directors
determines the compensation for senior level management. Executives
and members of the Board of Directors participated in deliberations concerning
executive officer compensation and senior level management compensation. Darryl
Horne and John Krobath did not participate in any deliberations concerning the
compensation of the Chief Executive Officer and Chief Financial Officer,
respectively.
Components
of Executive Compensation for 2009
For 2009,
the compensation of the named executive officers consisted of the same three
components as were provided to other levels of management—base salary, cash
bonus award, and equity compensation.
Base
Salaries
Base
salary is the fixed element of employees’ annual compensation. The
value of base salary reflects the employee’s long term performance, skill set
and the market value of that skill set. For both the Chief Executive
Officer and the former Chief Financial Officer (Mr. Megless), minimum base
salaries are established by employment contracts which were entered into on May
11, 2005, in connections with the Company’s acquisition of Horne Engineering as
amended in February 2007. For a period of five (5) years beginning on
May 11, 2005, Darryl K. Horne, Chief Executive Officer is entitled to receive an
annual base salary of $375,000. The base salaries of the Chief Executive Officer
and the Chief Financial Officer were determined to be appropriate based upon
their skill sets, knowledge of the marketplace, and historical knowledge of
Horne Engineering Services, LLC. For former our Chief Financial
Officer, John Krobath, minimum base salary of $158,625 was established by an
employment agreement signed in October 2008. Paige Shannon receives
an annual salary of $160,000 while serving as Interim CFO. Each of the base
salaries paid to our “named executive officers” who include our CEO and CFO are
comparable to other government contractors of similar size and
revenue. The Compensation Committee of the Board will review the base
salaries of Mr, Horne and Ms. Shannon periodically in the future.
In
January 2008, our Board at the request of the CEO decreased his salary to
$237,000. Mr. Horne has not waived the base salary provisions of his employment
contracts.
For 2009
the Company determined that a range of $140,000 to $190,000 for base annual
salaries for senior level management was appropriate. In determining
the base salaries of senior level management, we considered the individual
employee’s skill set and the market value of that skill set and for employees
who have served the Company for at least twelve (12) months, that employee’s
overall performance.
Performance
and Incentive Cash Bonuses
The
Company’s practice is to award annual cash bonuses with the purpose of aligning
employees’ goals with the Company’s overall performance
objectives. Cash bonuses are awarded to senior level management based
upon the Company’s overall performance and the individual employee’s overall
performance. In 2009, we did not award any cash bonuses to the Chief
Executive Officer, Chief Financial Officer or any other named
executive. In 2010 the Compensation Committee of the Board of
Directors will set the performance goals and objectives as well as recommend to
the Board of Directors the overall compensation of the Chief Executive Officer
and Chief Financial Officer. In addition, the Compensation Committee
will further review the compensation of each of the five (5) most highly
compensated employees. The Compensation Committee will recommend
performance objectives and guidelines for the award of bonuses to senior level
management.
Equity
Compensation
Historically,
the primary form of equity compensation awarded by the Company has been
non-statutory stock options. The Spectrum Sciences & Software
Holdings Corp. Non-Statutory Stock Option Plan was approved by the stockholders
in 2004. The Plan permits the Company to distribute up to 30 million
stock options to employees, consultants and advisors of the
Company.
- 39
-
In 2009,
no named executives received any equity award. In 2008, then Chief
Financial Officer, John Krobath was the only named executive to have received
any equity award as compensation. Mr, Krobath was granted 100,000
equity options upon being promoted to Chief Financial Officer. In
2010, the amount of equity compensation to which the Chief Executive Officer and
the Chief Financial Officer may be entitled shall be determined by the
Compensation Committee and recommended for approval by the Board of
Directors. The equity compensation of the top five (5) most highly
compensated employees will be reviewed by the Compensation Committee of the
Board of Directors.
Employee
Benefits
The
Company offers core employees benefits coverage in order to provide our
workforce with a reasonable level of financial support in the event of illness
or injury and enhance productivity and job satisfaction with programs that
recognize the importance of achieving a balance between work and the employee’s
personal goals. The benefits available to all employees, including
executive officers and senior level management of Horne International, Inc. and
each of its subsidiaries are substantially similar and include medical and
dental coverage, short term and long term disability insurance, basic life
insurance and a 401(K) Retirement Savings Plan. The cost of employee
benefits is partially borne by the employee, including each executive
officer.
Severance
Benefits
The
Company does not currently have a comprehensive severance plan. In
general, Company employees who are involuntarily terminated not for cause are
granted one week of their base salary for each year the employee served the
Company up to a maximum of eight weeks of pay. In the event Darryl K.
Horne, Chief Executive Officer, is terminated not for cause or voluntarily
terminates his employment for good reason, he may be entitled to continue to
receive his base annual salary, bonus compensation, if any, and any and all
fringe and medical benefits as provided for by the terms of his Employment
Agreement for a period of twelve (12) months. The termination benefits afforded
Mr. Horne was negotiated at the time of the acquisition of Horne Engineering and
was deemed by the Board at that time as necessary and desirable to procure his
services for the Company and to consummate the acquisition.
During
2008, the Company terminated the contracts of our former Chief Financial
Officer, Michael M. Megless, and our former Chief Operating Officer, Robert M.
Suthard. These individuals were paid severance benefits in accordance
with their employment agreements. In the case of Mr. Megless, he was
paid 6 months salary, $130,000, plus fringe benefits, limited to insurance and
taxes. In the case of Mr. Suthard, he was paid three months salary,
$43,750. Approximately $31,550 of Mr. Suthard’s severance was
paid in 2009.
Perquisites
and Other Benefits
The
Company does not provide significant perquisites to the executive officers
except the Company during 2008, did provide Mr. Horne with memberships to
certain clubs. The annual value of the club membership does not
exceed $5,000. In 2010, the Compensation Committee will review and
recommend all perquisites and other benefits afforded to our CEO, CFO, and other
named executive officers.
Board
of Directors Report on Compensation Discussion and Analysis
The Board
of Directors has reviewed and discussed with management the Compensation
Discussion and Analysis contained in this Annual Report. Based on the
foregoing review and discussions, the Board of Directors recommends that the
Compensation Discussion and Analysis be included in this Annual
Report.
- 40
-
Summary Compensation
Table
Principal
|
Base
|
Option
|
All Other
|
Total
|
||||||||||||||||||||
Name
|
Position
|
Year
|
Salary
|
Bonus
|
Awards
|
Compensation
|
Compensation
|
|||||||||||||||||
Darryl
K. Horne
|
Chief
Executive Officer
|
2009
|
$ | 237,000 | $ | - | $ | - | $ | 2,600 | (1) | $ | 239,600 | |||||||||||
2008
|
$ | 240,865 | $ | - | $ | - | $ | 8,788 | (2) | $ | 249,653 | |||||||||||||
Paige
Shannon
|
Chief
Financial Officer
|
2009
|
$ | 113,151 | $ | - | $ | - | $ | - | $ | 113,151 | ||||||||||||
John
E. Krobath
|
Former
Chief Financial Officer
|
2009
|
$ | 80,751 | $ | - | $ | - | $ | - | $ | 80,751 | ||||||||||||
2008
|
$ | 158,625 | $ | - | $ | 16,806 | $ | - | $ | 175,431 | ||||||||||||||
Michael
M. Megless
|
Former
Chief Financial Officer
|
2008
|
$ | 230,836 | $ | - | $ | - | $ | 1,650 | (3) | $ | 232,486 | |||||||||||
Robert
M. Suthard
|
Former
Chief Operating Officer
|
2009
|
$ | 31,500 | $ | - | $ | - | $ | 31,500 | ||||||||||||||
2008
|
$ | 175,000 | $ | - | $ | - | $ | 5,000 | (4) | $ | 180,000 |
(1) Mr.
Horne's all other Compensation includes $2,600 for automobile related
expenses.
(2) Mr.
Horne's all other compensation includes $6,493 for automobile and related
expenses and $2,295 for club dues.
(3) Mr.
Megless' all other compensation includes $1,650 for club dues.
(4) The
amount included in other compensation is a $500 monthly car
allowance.
(5)
Represents the aggregate grant date fair value computed in accordance with FASB
ASC Topic 718.
(6) There
was no additional compensation received by employee-directors.
For
further information regarding the base salaries and bonuses of the named
executive officers set forth above, see “Compensation Discussion and Analysis –
Base Salaries” and “Performance and Incentive Cash Bonuses” above.
Employment
Contracts and Termination of Employment and Change in Control
Agreements
On May
11, 2005, Darryl K. Horne entered into an employment agreement with the Company
that provided for his appointment as CEO and President upon the filing of our
quarterly report with the Securities and Exchange Commission (SEC) for the
quarter ending March 31, 2005. The employment agreement was
subsequently amended on May 23, 2005, to provide for Mr. Horne’s appointment
upon our filing with the SEC of a certain amendment to the quarterly
report. On June 7, 2005, the amendment to the quarterly report was
filed with the SEC, and Mr. Horne assumed the position of CEO and
President. Mr. Horne’s employment agreement provides for his
employment as the CEO and President of the Company until May 11, 2010, with
automatic renewals thereafter for one-year terms unless either party provides
notice of intent to terminate the agreement. Mr. Horne will be
compensated with an annual base salary in the amount of $375,000, subject to
annual increase by the Board, and will be eligible to participate in any
Company-sponsored incentive program that permits, allows or provides for award
of stock, restricted stock or options in the Company or similar incentive equity
interest plan. Mr. Horne will also be entitled to reimbursement for
necessary and properly vouchered client-related business or entertainment
expenses incurred in the performance of his duties, five (5) weeks of paid
vacation (200 hours) annually, a reasonable monthly car allowance and fringe
benefits generally available to Company employees in accordance with Company
programs, including personal leave, paid holidays, and disability, dental,
vision, and group health insurance plans. In the event Mr. Horne’s
employment is terminated by the Company, without just cause or if Mr. Horne were
to terminate for good reason, as defined by the agreement, prior to the
expiration of the original employment period or any renewal term, Mr. Horne
shall be entitled to certain benefits including the continuation for a period of
twelve months from the date of termination of his base salary, bonus
compensation, and medical benefits provided by the Company. In
addition, Mr. Horne’s interest in any stock options, restricted stock or other
equity interest in the Company for which he is eligible or may have become
eligible during the employment period shall vest fully on the date of
termination. The benefits payable to Mr. Horne would have a value of
$375,000 for base salary and $10,850 for medical and other benefits provided by
the Company. The total benefits payable to Mr. Horne in the event of
his termination without cause or his resignation for good reason is
$385,850. In the event Mr. Horne was to become permanently disabled,
the Company, upon thirty days notice could terminate Mr. Horne’s
employment. If Mr. Horne’s employment is terminated due to his
permanent disability, the Company is obligated to pay to Mr. Horne an amount
equal to three months of his base pay and all bonuses to which was entitled at
the time of his termination and the Company must provide Mr. Horne benefits,
including health benefits for a period of three months from the date of
termination. The benefits payable to Mr. Horne in the event of
termination due to disability would have a value of $93,750 for base salary and
$2,712 for other benefits provided by the Company. The total benefits
payable to Mr. Horne in the event of his termination due to disability is
$96,462. In the event Mr. Horne were to be terminated for cause then
he would only be entitled to receive payment of salary accrued up to the date of
termination. In addition, upon the termination of his employment, Mr.
Horne is prohibited, for a period of no more than two years depending upon the
cause for termination, from (a) owning, managing, controlling, or financing or
being connected, with certain exceptions, as a proprietor, partner, stockholder,
officer, director, principal, agent, representative, joint venturer, investor,
lender, consultant with or permit his name to be used in connection with any
business engaged in competition with business conducted by the Company; (b)
solicit from a customer or client of the Company to cease to do business with or
limit the amount of business done with the Company; and (c) solicit any employee
to terminate their employment with the Company. The employment
agreement does also indemnify Mr. Horne, to the extent permitted by the law, for
all losses, claims, damage and liabilities, expenses, judgments, fines,
settlements and other amounts arising from claims and demands in which he may be
involved or threatened to be involved by reason of his status as an officer or
director provided Mr. Horne has acted in good faith and without gross negligence
or willful misconduct.
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Compensation
Committee Interlocks and Insider Participation in Compensation
Decisions
A
Compensation Committee was established by the Board of Directors on January 1,
2007. In 2009, the Compensation Committee set the performance goals
and objectives and recommended to the Board of Directors the overall
compensation of the Chief Executive Officer. In addition, the
Compensation Committee will further review the compensation of each of the five
(5) most highly compensated employees. The Compensation Committee
will recommend performance objectives and guidelines for the award of bonuses to
senior level management. The executive management of Horne
International, Inc. with the advice of the members of the Board of Directors
determines the compensation for senior level management. Executives
and members of the Board of Directors participated in deliberations concerning
executive officer compensation and senior level management compensation. Darryl
Horne, John Krobath and Paige Shannon did not participate in any deliberations
concerning the compensation of the Chief Executive Officer and Chief Financial
Officer, respectively. No executive officer of our company has served
on the board of directors or compensation committee of any other entity that has
or had at any time during 2009 an executive officer who served as a member of
our board of directors.
Outstanding
Equity Awards at Fiscal Year-end
Number of Securities
|
||||||||||||
Underlying Unexercised Options
|
||||||||||||
Name
|
for the year ending December 27, 2009
|
Option Price
|
||||||||||
Exercisable
|
Unexercisable
|
|||||||||||
Darryl
K. Horne
|
- | - | N/A | |||||||||
Paige
Shannon
|
- | - | N/A |
Director
Compensation
Option
|
Option
|
All Other
|
Total
|
|||||||||||||||||
Name
|
Fees Earned
|
Awards
|
Value
|
Compensation
|
Compensation
|
|||||||||||||||
John
A. Moore
|
$ | 21,000 | - | $ | - | $ | - | $ | 21,000 | |||||||||||
Evan
Auld-Susott
|
$ | 14,000 | - | $ | - | $ | - | $ | 14,000 |
1.
Directors who are also employees of the Company do not receive any additional
compensation
for their service on the Board of Directors.
2. Total
number of options held by each Director is disclosed Item 12 Security
Ownership
of Certain Beneficial Owners and Management.
The fees
earned by the Directors were accrued for 2009 but unpaid as of year
end.
During
fiscal 2009, non-employee members of the Board of Directors were entitled to
receive $14,000 per year payable quarterly, and $1,000 for each meeting
attended.
- 42
-
Item
12. Security Ownership of Certain Beneficial Owners and
Management.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth as of March 25, 2010 certain information with respect
to the beneficial ownership of the Company’s common stock by each beneficial
owner of more than 5% of the Company’s voting securities, each director and each
named executive officer, and all directors and executive officers of the Company
as a group. Unless otherwise specified in the table below, such
information, other than information with respect to the directors and officers
of the Company, is based on a review of statements filed with the Securities and
Exchange Commission pursuant to the Exchange Act with respect to ownership of
the Company’s common stock. As of March 25, 2010, there were
42,687,324 shares
of the Company’s common stock outstanding.
Name and Address
|
Number of Shares
|
Percentage
|
||||||
of Beneficial Owner (1)
|
Beneficially Owned (2)
|
of Class
|
||||||
Darryl
K. Horne
|
4,877,007 | 11.4 | % | |||||
91
Hill Avenue LLC (4)
|
2,000,000 |
a
|
4.7 | % | ||||
Evan
Auld-Susott
|
2,862,450 |
b
|
6.3 | % | ||||
John
A. Moore
|
52,500 |
c
|
* | |||||
Paige
E Shannon
|
- | * | ||||||
Total
Directors and Named Executive Officers
|
9,791,957 | 20.6 | % | |||||
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,
VA 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 1,
2010. 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.
|
(4)
|
This
LLC is owned by Darryl K. Horne and Evan
Auld-Susott.
|
(a)
|
Includes
2,000,000 shares of common stock issuable pursuant to options [exercisable
within 60 days].
|
(b)
|
Includes
20,000 shares of common stock issuable pursuant to options[exercisable
within 60 days].
|
(c)
|
Includes
50,000 shares of common stock issuable pursuant to options[exercisable
within 60 days].
|
(d)
|
Equity Compensation Plans.
The following table summarizes our equity compensation plans as of
December 27, 2009:
|
Plan Category
|
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
|
Weighted-average exercise
price of outstanding options,
warrants and rights
(b)
|
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
(c)
|
|||||||||
Equity
compensation plans approved by security holders
|
0 | (1) | $ | 0 | 1,000,000 | |||||||
Equity
compensation plans not approved by security holders
|
2,211,000 | (2) | (3) | 7,667,800 | ||||||||
Total
|
2,211,000 | 8,667,800 |
- 43
-
(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.
|
(3)
|
The
weighted average exercise price is dependent on the underlying price of
the Company’s stock. The 2,000,000 options issued in
conjunction with the 91 Hill Avenue transaction are exercisable at the
greater of $0.10 or $0.25 less than the current stock
price.
|
In March
2004, shareholders approved the Company’s 2004 Non-Statutory Stock Option Plan,
which provided for the issuance of up to 10,000,000 shares. Under
this plan, the Company issued 9,000,000 options that were subsequently exercised
in 2004. In April 2004, the Company’s Board of Directors amended the
plan to increase the amount of options available under the plan to
30,000,000. All option grants subsequent to this amendment have been
issued under the amended plan. The amended plan has not been approved
by shareholders.
Changes
in Control
There are
no arrangements known to the Company, the operation of which may at a subsequent
date result in a change in control of the Company.
Item
13. Certain Relationships and Related-Transactions.
Transactions
with related persons
Information
regarding transactions with related persons is included in Note 10 to the
Company’s consolidated financial statements under the heading “Related Party
Transactions” in Part II, Item 8 of this report, which is incorporated herein by
reference.
Director
Independence
Darryl K.
Horne, John A. Moore and Evan Auld-Susott serve as the directors of the
Company. Mr. Moore and Mr. Auld-Susott are considered "independent"
as defined in NASDAQ marketplace Rule 5605(a)(2). [There were no
transactions, relationships or arrangements not disclosed in this Item 13 that
were considered by the Company's board of directors under the applicable
independence definitions in determining that Mr. Moore and Mr. Auld-Susott are
independent.]
Item
14. Principal Accounting Fees and Services.
Fees
Paid to the Independent Auditors
The
following table presents fees for professional audit services rendered by
Stegman & Company for the audit of the Company’s annual financial statements
for the year ended December 27, 2009 and Grant Thornton for the audit of the
Company’s annual financial statements for the year ended December 28, 2008,
quarterly filings for 2009, and fees filed for other services rendered by the
respective firms during those periods.
Stegman
|
Grant
Thornton
|
Grant
Thornton
|
||||||||||
2009
|
2009
|
2008
|
||||||||||
Audit
Fees
|
$ | 45,000 | $ | 42,000 | $ | 144,000 | ||||||
Audit
Related Fees
|
- | - | - | |||||||||
Tax
Fees
|
- | - | - | |||||||||
All
Other Fees
|
- | - | - | |||||||||
$ | 45,000 | $ | 42,000 | $ | 144,000 |
All of
the fees listed above were approved under the approval provisions of paragraph
(c)(7)(i) of Rule 2-01 of Regulation S-X. The fees listed above under
“Audit Fees” relate to the audit of our annual financial statement over
financial reporting for the year ended December 27, 2009, including services for
the reviews of the financial statements included in our quarterly reports filed
on Form 10-Q for the 2009 period, and for services in connection with the audit
of our annual financial statements for the fiscal-year ended December 30,
2008.
- 44
-
The Audit
Committee is responsible for appointing our independent registered public
accounting firm and overseeing the services it provides to us. The
Audit Committee has established a policy regarding pre-approval of all audit and
permissible non-audit services provided by our independent registered public
accounting firm. Under this policy, the Audit Committee has specified
categories of audit services, audit-related services, and tax services that are
pre-approved, subject to appropriate documentation and other
requirements. In addition, the Audit Committee has specified
categories of other services that our independent registered public accounting
firm is precluded from providing to us.
See accompanying notes to consolidated
financial statements.
Item
15. Exhibits, 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.
|
- 45
-
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Horne
International, Inc.
|
||
Date: March
29, 2010
|
By:
|
/s/ DARRYL
K. HORNE
|
Name: Darryl
K. Horne
Title: Chief
Executive Officer and President
|
||
Date:
March 29, 2010
|
By:
|
/s/ PAIGE
E. SHANNON
|
Name:
Paige E. Shannon
Title:
Interim Chief Financial
Officer
|
Know by
all persons by these presents, that each person whose signature appears below
constitutes and appoints jointly and severally, Darryl K. Horne and Paige E.
Shannon, and each one of them, his or her attorneys-in-fact, each with the power
of substitution, for him or her in any and all capacities, to sign any and all
amendments to this Annual Report on Form 10-K and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each said attorneys –in-fact, or his substitute or substitutes, may do or cause
to be done by virtue hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURE
|
TITLE
|
DATE
|
||
/s/ DARRY K. HORNE |
Principal
Executive Officer and Director
|
March
29, 2010
|
||
/s/ PAIGE E. SHANNON |
Interim
Chief Financial Officer
|
March
29, 2010
|
||
/s/ JOHN A. MOORE, JR. |
Director
|
March
29, 2010
|
||
/s/ EVAN AULD-SUSOTT
|
Director
|
March
29,
2010
|
- 46
-
EXHIBIT
INDEX
Exhibit
Number
|
Description
|
|
2.1
|
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).
|
|
3.5
|
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).
|
- 47
-
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 October 1, 2008, by and between Horne
International, Inc. and John E. Krobath. (previously filed on Form 10-Q,
filed with the Securities and Exchange Commission on November 6,
2008)
|
|
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).
|
- 48
-
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).
|
|
10.18
|
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).
|
|
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).
|
|
23.2 |
Accountant’s
Consent, Stegman & Company (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).
|
- 49
-
31.2
|
Certification
of Interim Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (filed herewith).
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (filed herewith).
|
|
32.2
|
Certification
of Interim Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (filed
herewith).
|
- 50
-