UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal year ended: December 31, 2006

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 000-50373

Horne International, Inc.

(Exact name of registrant as specified in its charter)

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. o Yes þ 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. o Yes þ 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. þ Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12-b2 of the Exchange Act. (Check one):

Large Accelerated filer o       Accelerated Filer o       Non-Accelerated Filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of the common stock held by non-affiliates of the registrant as of the close of business on June 30, 2006, was approximately $33.9 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 15, 2007, there were 41,774,082 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE. None.

 

 

TABLE OF CONTENTS

Forward-Looking Statements					1
PART I — FINANCIAL INFORMATION
Item 1.		Business			1
Item 1A.		Risk Factors			5
Item 1B.		Unresolved Staff Comments			7
Item 2.		Properties			8
Item 3.		Legal Proceedings			8
Item 4.		Submission of Matters to a Vote of Security Holders			8
Item 5.		Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			8
Item 6.		Selected Financial Data			9
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
Item 7A.		Quantitative and Qualitative Disclosures about Market Risk			18
Item 8.		Financial Statements and Supplementary Data			18
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			47
Item 9A.		Controls and Procedures			47
Item 9B.		Other Information			47
Item 10.		Directors and Executive Officers of the Registrant			47
Item 11.		Executive Compensation			50
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			56
Item 13.		Certain Relationships and Related Transactions			57
Item 14.		Principal Accountant Fees and Services			58
Item 15.		Exhibits and Financial Statements Schedules			58

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 three primary target markets — national security, energy and environment, and transportation — with an emphasis on homeland security. The Company’s service areas encompass program engineering, technology, manufacturing, maritime and industrial repair, environment, safety & health, acquisition services, public outreach, and business process engineering.

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.

The Company acquired three companies during 2005: M&M Engineering, Ltd. (“M&M”), Coast Engine and Equipment Company, Inc. (“CEECO”), and Horne Engineering Services, LLC (“Horne Engineering”). M&M was subsequently sold in June 2006. The Horne Engineering acquisition was a merger that resulted in the management of Horne Engineering assuming managerial control of the Company effective June 2005. More information related to these acquisitions and dispositions is included in Note 3 of our audited financial statements.

As a result of these acquisitions and dispositions, the nature of the Company’s business has changed significantly, including our reportable segments. Prior to the 2005 acquisitions, the Company had three reportable segments: Management Services, Engineering and Information Technology, and Manufacturing. In 2005, these segments were consolidated into one segment, Security Solutions, and as a result of our 2005 acquisitions, we added Industrial and Offshore, Repair and Overhaul, Procurement Services, and Engineering Services. For the year ended December 31, 2006, we have amended our reportable segments back to three due to the disposition of our M&M subsidiary (Industrial and Offshore) and to better reflect how we manage our businesses. We have consolidated the Engineering and Procurement Services into the Services segment. These segments better reflect how we manage the business and allocate our resources. The Industrial and Offshore segment reported in 2005 related solely to the operations of M&M and is no longer reported as a result of the sale of M&M.

Prior to the sale of M&M, the Company operated in both the United States and Canada with some contract work being performed at customer sites in the Middle East. The sale of M&M concluded the Company’s Canadian operations.

Business Segments

The Company comprises three distinct operating companies that each operate in their own reportable segments: Security Solutions (SSSI), Repair and Overhaul (CEECO), and Services (Horne Engineering). These segments are predominantly focused in the U.S. defense markets, although all segments also serve commercial customers. Financial information for each segment can be found in Item 7., “Management’s Discussion and Analysis of

Financial Condition and Results of Operations,” and Note 17 to the audited financial statements in Item 8. The Company previously reported the Industrial and Offshore segment that was disposed of with the sale of M&M Engineering Ltd. in June 2006.

Security Solutions

Our Security Solutions segment specializes in the manufacturing of aircraft and munitions support equipment for the U.S. Department of Defense. The Security Solutions segment, which employs approximately 50 employees, is based out of and operates in Ft. Walton Beach, Florida. Most of the Company’s contracts in this segment are with the U.S. Department of Defense.

The segment’s manufacturing operations, with revenue of $3.6 million, accounted for approximately 92% of the segment’s revenues in 2006. The main products of the manufacturing group are U.S. Navy containers and launch tubes, missile shipment and storage containers, and aircraft maintenance stands for military aircraft. The group is expanding its services into military aircraft specialty parts based on successful first-article testing and the needs of the customers. This segment is participating in the Defense Department’s Mentor-Protégé program and in the Foreign Military Sales area with a small disadvantaged business in Alabama. This teaming arrangement may help provide additional work in the future under this program.

The pricing of raw materials, primarily steel and aluminum, has directly affected the manufacturing unit. The increased price of these materials has negatively affected some of the longer-term manufacturing contracts. The group has worked to limit the impact of rising material prices by renegotiating contracts and including price-escalation clauses in new contracts.

The primary competitors for the manufacturing group are smaller manufacturing companies with the flexibility to support larger contracts. The market is fragmented, and the number of competitors on the manufacturing side has been decreasing. Competition is primarily based on product quality and service offerings combined with pricing. The ability to compete for defense contracts depends on a manufacturer’s ability to pass the first-article testing for new products and on its past performance on similar contracts.

Repair and Overhaul

The Repair and Overhaul segment provides services to the maritime industry, predominantly for on-board ship repair of HVAC and refrigeration systems, welding services, and custom flooring, insulation, and machinery installations. The group has also performed extensive work replacing navigation towers destroyed by Hurricane Katrina. This unit is based out of Port Canaveral, Florida, and employs approximately 20 people.

The competitive environment of the segment is fairly limited, with the major competitor of the Company being Standard Marine. Many contract awards are issued with minimal competitive bidding; past performance is a key component of award decisions. The major clients of this segment are the U.S. Coast Guard, Disney Cruise Lines, Rinker Cement, and the U.S. Navy.

Services

The Services segment focuses on providing program engineering, occupational safety and health, environmental sciences, acquisition and procurement, business process engineering, public outreach, and information technology services, including modeling and simulation, software development, GIS/geospatial products and services, and technology integration. 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 service-based segment that relies on its people to maintain the reputation of the Company to expand operations and improve our 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 100 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 dependant 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 dependant on the federal budget cycle, federal expenditures, and related priorities.

The segment’s software group focuses primarily on modeling and simulation through both the Safe Range and Safe Borders tracking software. The group has developed the technology to simulate the effect and impact of various weapon systems based on the weapons’ “footprints,” which allows targeting simulation and analysis. The greater focus, however, is on the Safe Borders software and its integration with the upcoming Secure Borders Initiative. This software allows the tracking and monitoring of border areas.

We have certain intellectual property rights with respect to our coding for the Safe Borders tracking software, including certain algorithms and processing procedures that are proprietary. The names “Safe Borders” and “Safe Range” (the modeling and simulation software we developed for weapon system range safety) are registered trade names of the Company.

Discontinued Operations

Discontinued operations includes the results of our M&M Engineering Ltd. subsidiary that was sold in June 2006 and represented our Industrial and Offshore segment.

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 March 15, 2007.

Funded Backlog (all dollars in thousands)

The Company reported funded backlog of $30,751 at March 15, 2006 with Security Solutions having $1,579, Repair and Overhaul $141, and Services $29,031,

The amount of unfunded backlog was approximately $97 million at March 15, 2007. 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 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:

	•		terminate existing contracts for convenience, which affords the U.S. government the right to terminate the contract in whole or in part anytime it wants for any reason or no reason, as well as for default;
	•		reduce or modify contracts or subcontracts, if its requirements or budgetary constraints change;
	•		cancel multi-year contracts and related orders, if funds for contract performance for any subsequent year become unavailable;
	•		claim rights in products and systems produced by its contractor;
	•		adjust contract costs and fees on the basis of audits completed by its agencies;
	•		suspend or debar a contractor from doing business with the U.S. government; and
	•		control or prohibit the export of products.

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.

Environmental Matters

Our operations may include the use and disposal of hazardous materials. The Company never takes title to any hazardous materials used in its operations. We are subject to various federal, state, and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites, and the maintenance of a safe workplace. We believe that we are in substantial compliance with environmental laws and regulations and that we have no known liabilities under environmental requirements that would have a material adverse impact on our business, results of operations, or financial condition. Over the past three years, we have not incurred any material costs relating to environmental compliance.

Available Information

Our headquarters is located at 2677 Prosperity Avenue, Suite 300, Fairfax, VA, 22031. 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. These risk factors are described below.

Increased corporate overhead structure combined with a reduced operating base may impact our ability to operate.

We have made a significant investment in our corporate structure to provide the organizational capabilities to expand our business both organically and through acquisitions. This investment has increased our on-going cost structure and may impair our ability to earn a net profit. This increase in organizational structure has occurred at the same time that we have disposed of our second largest operating subsidiary thereby putting additional cost burdens on our remaining subsidiaries.

If we are unable to grow our business, we may incur significant operating losses. If we were to incur significant operating losses, that may impact the Company’s ability to continue operations. We are actively monitoring our cost structure to ensure that we are prudently incurring expenses and we are actively pursuing growth opportunities for all of our businesses.

Continued losses in our Security Solutions segment may require the Company to consider strategic alternatives.

The Company has incurred significant losses within this segment over the past three years due to factors including raw material price increases, multi-year fixed-price contracts bid under lower cost structures than currently exist, and management issues. The failure of this unit to deliver improved performance may require the Company to evaluate strategic alternatives related to this subsidiary.

Continued poor financial performance may require the Company to seek alternative financing.

Given our operating losses, we may not be able to renew our line of credit that expires in April 2007. We are currently in default of a financial net worth covenant under that line that could restrict future borrowings. This situation may cause us to seek additional sources of financing including using second tier lenders that may increase our cost of borrowing.

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.

Increased raw material prices may adversely affect contract profitability.

The Company has experienced significant increases in both steel and aluminum raw material prices. Continued increases in the price of raw materials could have a negative impact on the profitability of the Company. Many of our contracts in our Security Solutions segment are fixed-price contracts and are not automatically re-priced when raw material costs increase. We aggressively pursue our contract rights to receive compensation for these increased costs, where available, but not all contracts have price-adjustment clauses that allow the Company to recover such cost increases.

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;
	•		Commencement, completion, or termination of contracts during any particular quarter;
	•		Variable purchasing patterns under GSA schedule contracts and agency-specific indefinite delivery/indefinite quantity contracts;
	•		Provision of services under a share-in-savings or performance-based contract;
	•		Additions and departures of key personnel;
	•		Strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments, or changes in business strategy;
	•		Contract mix, the extent of use of subcontractors, and the level of third-party hardware and software purchases for customers;
	•		Changes in presidential administrations and senior federal government officials that affect the timing of procurements; and
	•		Changes in policy or budgetary measures that adversely affect government contracts in general.

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 operating 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 or 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 effect how we do business with our government clients and may impose added costs on our business. Among the most significant regulations are:

	•		The Federal Acquisition Regulation, and agency regulations analogous or supplemental to the Federal Acquisition Regulation, which comprehensively regulate the formation, administration, and performance of government contracts, including provisions relating to the avoidance of conflicts of interest and intra-organizational conflicts of interest;
	•		The Truth in Negotiations Act, which requires certification and disclosure of all cost and pricing data in connection with some contract negotiations;

	•		The Procurement Integrity Act, which requires evaluation of ethical conflicts surrounding procurement activity and establishing certain employment restrictions for individuals who participate in the procurement process;
	•		The Cost Accounting Standards, which impose accounting requirements that govern our right and method to reimbursement under some cost-based government contracts;
	•		Laws, regulations, and executive orders restricting the use and dissemination of information classified for national security purposes and the exportation of specified products, technologies, and technical data;
	•		Laws surrounding lobbying activities a corporation may engage in to support corporate interests; and
	•		Compliance with anti-trust laws.

Unfavorable government audit results could force the Company to adjust previously reported operating results and could subject us to a variety of penalties and sanctions.

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 at this time. Horne Engineering is current on the DCAA audit through 2002 and has not had any significant audit findings in any recent DCAA audit.

Item 1B. Unresolved Staff Comments.

None.

There were approximately 100 stockholders of record on March 15, 2007. A significant number of the outstanding shares are beneficially owned by individuals or entities registered in a street name. The Company believes there are approximately 8,500 beneficial owners of its common stock as of March 15, 2007.

The Company has never paid any cash dividends and has no current intention to pay a dividend in the foreseeable future.

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 issue.

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 shares were authorized under this amended plan.

The amendments to the Stock Option Plan have not been approved by the shareholders.

Item 6. Selected Financial Data (all dollars in $000’s except per share data).

The financial information above is reflective of the operations since 2002. Prior to April 2003, the predecessor company of Spectrum Sciences & Software Holdings Corp. Silva Bay International, Inc., was a non-reporting entity that had no financial activity. The information shown above for the year 2002 is for SSSI, which the Company acquired on April 3, 2003. The above data includes the results of the 2005 acquisitions of CEECO and Horne Engineering subsequent to their respective dates of acquisition. The above data excludes the results of M&M, which the Company acquired in 2005 and disposed of in 2006.

The Company uses certain measures of performance that are not required by, or presented in accordance with generally accepted accounting principles (GAAP). These non-GAAP financial measures are EBITDA less stock option expense and Adjusted EBITDA. These measures should not be considered as an alternative to income from operations, net income, net income per share, or any other performance measure derived in accordance with GAAP.

EBITDA less stock option expense represents net income before interest, taxes, depreciation and amortization, and stock option expense for employees and directors. We use this measure to facilitate operating performance comparisons from period to period. We believe this measure facilitates company-to-company comparisons by backing out potential differences caused by variations in capital structures (affecting interest expense), taxation, and the age and book depreciation of facilities and equipment (affecting depreciation expense), which may vary from company to company. We also use this measure to evaluate and price potential acquisition candidates. We have excluded stock option expense to employees and directors due to the magnitude of the option awards in 2004 and 2005 that were a result of actions of a different Board of Directors and executive management. The compensation philosophy of that Board and management is no longer applicable to our Company, and we expect our stock option compensation expense, in the foreseeable future, to be significantly lower than the 2004 and 2005 levels.

In addition to EBITDA less stock option expense, we use a measure called Adjusted EBITDA, which we define as EBITDA less stock option expense excluding the effects of discontinued operations, cumulative effects of accounting changes, and other non-operating items that represent one-time events. Our management does not view these types of charges as indicative of the status of our operations.

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.

Executive-Level Overview

The Company provides a variety of goods and services through its wholly owned subsidiaries — SSSI, CEECO, and Horne Engineering. The provision of such goods and services is largely dependent on the amount of U.S. Government contracting in the areas of homeland security, environmental management, infrastructure reconstruction, and munitions management. Significant changes to the spending levels in these areas may have a direct impact on the operations of the Company.

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 principal method of revenue recognition varies by segment. The Security Solutions segment uses percentage of completion, our Repair and Overhaul segment uses the completed contract method of revenue recognition, and our Service segment primarily uses cost plus on reimbursable time-and-materials contracts. The revenue on these contracts is recognized as costs are incurred. The Service segment does have a limited number of short-term fixed-price contracts where revenue is recognized as milestones are achieved. Although the Repair and Overhaul segment uses the completed contract method of revenue recognition, there is no material difference in the results of using completed contract versus percentage of completion due to the short-term nature of their contracts.

Security Solution’s revenue on fixed-price contracts is generally recognized using the percentage-of-completion method based on the ratio of total costs incurred to date compared to estimated total costs to complete the contract, which the Company believes is the best measure of progress towards completion. Estimates of costs to complete include material, direct labor, overhead, and allowable general and administrative expenses for our government

contracts. These cost estimates are reviewed and, as necessary, revised on a contract-by-contract basis. If, as a result of this review, we determine that a loss on a contract is probable, then the full amount of estimated loss is charged to operations in the period it is determined that it is probable a loss will be realized from the full performance of the contract. Significant management judgments and estimates, including but not limited to the estimated costs to complete projects, must be made and used in connection with the revenue recognized in any accounting period.

Management believes the above methods and criteria are the best available measures of progress for such contracts. Because of the inherent uncertainties in estimating costs and revenues, it is reasonably possible that the estimates used will change in the future.

The Company, through its Services segment, performs equipment and material procurement contracts as a subcontractor. These contracts require the Company to acquire large dollar items for federal governmental entities through prime contractors. The Company has recognized revenue under these contracts on a gross basis when the goods are shipped to the end user. The Company uses the gross method of revenue recognition, as prescribed under EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” as the Company is the primary obligor in the transaction and is obligated to pay the supplier for work performed regardless of whether the customer accepts the work. The Company is responsible for the acceptability of the product and has the latitude and negotiability to determine both the suppliers and the price in the transaction. The customer has the right of return. Although the Company does not take title to the goods, the Company conducts all business under these contracts as a stand-alone entity using its own financial, staffing and facility resources. The Company is compensated for the material purchases at a fixed fee percentage.

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. Our allowance for bad debts has been and is less than .1% of our outstanding receivables at any time.

Net Operating Loss Carry-Forwards

We have not recognized the benefit in our financial statements with respect to the approximately $44 million net operating loss carry-forward for federal income tax purposes as of December 31, 2006. This benefit was not recognized due to the possibility that the net operating loss carry-forward 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-forward may be limited as a result of changes in our equity ownership. We intend to use this carry-forward to offset our future taxable income. If we were to use any of this net operating loss carry-forward to reduce our future taxable income and the Internal Revenue Service were to then successfully assert that our carry-forward is subject to limitation as a result of capital transactions occurring in 2003 or otherwise, we may be liable for back taxes, interest, and, possibly, penalties.

Goodwill

The Company records the excess of purchase price over the fair value of net assets of acquired companies as goodwill. In accordance with SFAS No. 142 “Goodwill and Other Intangible Assets,” the Company does not record amortization expense related to goodwill. In the fourth quarter of each year, or as an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, the Company completes a review of the market value of that investment and related goodwill.

Determining market values requires the Company to make significant estimates and assumptions. The Company’s judgments are based on historical experience, current market trends, consultations with external valuation specialists, and other information. While the Company believes that the estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in a different market value.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements,” to define fair value, establish a framework for measuring fair value in accordance with generally accepted accounting principles, and expand disclosures about fair value measurements. SFAS No. 157 will be effective for fiscal years beginning after November 15, 2007, thus it will start affecting the Company on January 1, 2008, the beginning of the Company’s 2008 fiscal year. The Company is assessing the impact the adoption of SFAS No. 157 will have on the Company’s consolidated financial position and results of operations.

In February 2006, the FASB issued FAS 155, “Accounting for Certain Hybrid Financial Instruments,” which clarifies when certain financial instruments and features of financial instruments must be treated as derivatives and reported on the balance sheet at fair value with changes in fair value reported in net income. We will implement FAS 155 beginning with financial instruments acquired on or after January 1, 2007, which is the effective date of FAS 155. We do not expect the adoption of FAS 155 to have a material impact on our financial position at our date of adoption. However, FAS 155 may affect future income recognition for certain financial instruments that contain certain embedded derivatives as any changes in their fair values will be recognized in net income each period.

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 108, “Considering the Effects on Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”). SAB 108 requires registrants to quantify errors using both the income statement method (that is, iron curtain method) and the rollover method and requires adjustment if either method indicates a material error. If a correction in the current year relating to prior year errors is material to the current year, then the prior year financial information needs to be corrected. A correction to the prior year results that are not material to those years would not require prior financials be amended. SAB 108 is effective for fiscal years ending after November 15, 2006. We have determined that SAB 108 will not have a material effect on our financial position, results of operations, or cash flows.

On July 13, 2006, the FASB issued Interpretation No. 48 (“FIN No. 48”), “Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement No. 109.” This interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a recognition threshold and measurement principles for financial statement disclosure of tax positions taken or expected to be taken on a tax return. This interpretation is effective for fiscal years beginning after December 15, 2006, and the Company will adopt FIN No. 48 as of the beginning of the Company’s 2007 fiscal year. The company is assessing the impact the adoption of FIN No. 48 will have on the Company’s consolidated financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits entities to measure eligible assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We will adopt SFAS 159 on January 1, 2008, and have not yet determined the impact, if any, on our consolidated financial statements.

Overall Results of Operations

The results of operations, for the year ended December 31, 2005, include a full twelve months of operations for Security Solutions, ten months of operations for Repair and Overhaul (beginning March 1, 2005), and eight months of operations for Services (beginning May 1, 2005). For the year ended December 31, 2004, the segment results represent only those of our subsidiary SSSI. Note that the previously reported segments of Engineering Services and Procurement Services have been combined into Services, and the Industrial and Offshore Segment was terminated with the sale of M&M. The software group that was previously part of the Security Solutions segment is now included in the Services segment. The 2004 information in the Services segment is only for the software group.

For the Year ended December 31,
(all dollars in 000’s)

Revenue declined in 2006, as compared to 2005, primarily due to approximately $7 million less material procurement activity, the loss of one of our large TSA contracts, and a significant client mandated reduction in staffing on an environmental contract —all within the Services segment, and fewer new orders in Security Solutions. Specific details are provided in the individual segment sections. Given the uncertainty of several large contracts we are pursuing and the variability of our material procurement work, we are unable to give an accurate full-year forecast for 2007.

Gross margin improved both in dollars and as a percentage of sales despite increased losses in Security Solutions, as the reduction in our low-margin material procurement revenue was combined with an increase in our higher-margin acquisition support revenue within the Services segment. We expect our 2007 gross profit margin percentage to continue to improve assuming comparable material procurement revenue and margins and gross margin improvement in Security Solutions. The gross profit margin dollar contribution is uncertain due to the variability of our revenue forecast.

Operating profit decreased from 2005 mainly due to higher infrastructure costs to support our business development efforts, amortization costs associated with the Horne Engineering intangibles, and increased staffing costs. We expect our operating profit change to align with our gross profit dollar change. Operating expenses are expected to decrease from 2006 levels specifically related to the catch-up amortization of intangibles recorded in 2006.

The significant increase in revenue and gross profit in 2005 relative to 2004 primarily resulted from the addition of CEECO and Horne Engineering. The large operating loss in 2004 was the result of stock options issued to a consultant.

Security Solutions

For the Year ended December 31,
(all dollars in 000’s)

The Security Solutions segment has evolved from a segment that generated most of its revenue from range maintenance contracts in 2004 to a segment that was primarily in manufacturing during 2006. Manufacturing revenue has grown significantly over the past two years, while range maintenance revenue has decreased by 100%. Range maintenance revenue was approximately $7.0 million in 2004, $0.3 million in 2005 and zero in 2006. This contrasts with the manufacturing group’s revenue of $2.7 million in 2004, $4.2 million in 2005 and $3.7 million in 2006. The decline in revenue for 2006 is due to a lack of significant new contract wins in 2006 combined with significant reductions in similar contracts from 2005. Collectively, our maintenance stand and launch tube contracts had a year-over-year revenue decline of $850,000 between 2005 and 2006 due to reduced orders under these contracts.

Gross profit continued to be negative in 2006 as several long-term contracts signed in 2003 and 2004, have experienced significant increases in the raw material costs that now make these contracts unprofitable. We have worked with our customers to resolve these issues and have been successful in limiting the adverse effect of rising material prices on a going-forward basis. We also incurred significant costs as a result of a contracting issue on

some of our maintenance stand contracts. We are currently pursuing reimbursement for these costs with our customer. We are unable to quantify the timing, probability, or the amount of any cost recovery at this time. Gross profit margins in 2005 were low due to costs incurred on several “first-article” items manufactured during 2005. First articles are required by customers to validate our ability to perform the work. These costs are expensed as incurred.

Operating costs have continued to decline over the three-year period as a percentage of revenue as we have been able to reduce our overall costs each year. In 2006, we implemented a shared services group, to include accounting, contracts and human resources, to help reduce costs.

Repair and Overhaul

For the Year ended December 31,
(all dollars in 000’s)

The Repair and Overhaul segment was created with the acquisition of CEECO in March 2005. CEECO benefited from late 2005 through the first half of 2006 as a result of the Hurricane Katrina related clean-up work. Specifically, in the fourth quarter of 2005 this segment obtained several new contracts for navigational buoy and tower related work. This Katrina related work has expanded CEECO’s core capabilities and has resulted in follow-on tower work in late 2006. The added boost to revenue in the first half of 2006 was approximately $500,000.

Gross profit margin decreased in 2006, as compared with 2005, as the highly profitable navigation buoy work was not repeated in 2006. Overall, gross profit margins met management’s expectations for 2006. We have expanded the management team within this segment to better address future revenue opportunities and to continue the growth of the business. The result of this increase in senior staffing is higher operating costs and a slight decrease in operating profit as a percentage of revenue.

Services

For the Year ended December 31,
(all dollars in 000’s)

This segment, with the exception of the software group, was acquired as part of the Horne Engineering acquisition in May 2005. The previously reported segments of Engineering Services and Procurement Services are now combined into the Services segment. The 2004 data represents the software group that previously was included as part of Security Solutions.

Revenue decreased in 2006 from 2005 due to a $7 million decline in material procurement activity, downsizing of our environmental sampling contract, the completion of our FAA work, decreased software revenue, and the termination of one of our TSA contracts beginning in the fourth quarter of 2006. These decreases were partially offset by new contracts with the U.S. Customs and Border Protection that provided significant fourth quarter revenue. The reduction in material procurement revenue was a direct result of a shift in priorities within Iraq on the part of the U.S. government. We had acquired approximately $14 million of goods in 2005 compared with approximately $7 million in 2006.

Gross margin increased significantly in 2006 as our low margin material procurement revenue decreased by approximately $7 million and was partially replaced by higher-margin acquisition support revenue.

Operating profit decreased both in dollars and as a percentage of sales due to the amortization of intangibles associated with the Horne Engineering acquisition partially offset by the move to a shared services environment in our accounting and contracts group.

Corporate Expenses

For the Year ended December 31,
(all dollars in 000’s)

		2006				2005				2004
Selling, General & Administrative Expenses		$	6,240			$	4,970			$	38,806

The increase in operating expenses is primarily due to increases in the holding company staffing and the amortization of certain intangibles related to the Horne Engineering acquisition. The Horne Engineering intangibles were allocated between the holding company and Horne Engineering as determined by the type and benefit provided by the particular intangible. We increased our staffing to improve our business development function and to ensure that we can meet all of our public company requirements. The large expense in 2004 is primarily related to stock option expense for a consultant.

Discontinued Operations

For the Year ended December 31,
(all dollars in 000’s)

		2006				2005				2004
(Loss) earnings from discontinued operations		$	(2,694	)		$	651				—

The discontinued operations only include the results of our M&M subsidiary, formerly the Repair and Overhaul segment. This subsidiary was not acquired until January 2005.

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 March 15, 2007.

Funded Backlog (all dollars in thousands)

The Company reported funded backlog of $30,751 at March 15, 2006 with Security Solutions having $1,579, Repair and Overhaul $141, and Services $29,031,

The amount of unfunded backlog was approximately $97 million at March 15, 2007. 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 $4.5 million at December 31, 2006. During 2006, the Company generated approximately $6.2 million in cash from the sale of M&M and the related release of the cash backed bonding funds. Operations consumed $2.6 million of cash primarily due to operating losses in Security Solutions. Our receivables improved during the year as we have been able to reduce our unbilled accounts receivable balances and bring our receivables aging much more current. Cash provided by operations has improved each year since 2004.

During 2005, the Company used approximately $12.3 million cash for the three acquisitions that occurred during the year. These funds were provided by liquidating our short-term investments. The Company’s operations consumed $4.3 million of cash in 2005 primarily due to losses at Security Solutions and costs incurred by the holding company related to the SEC investigation and associated activity.

The Company has a $6.0 million line of credit facility with Bank of America. Under the terms of the agreement, the Company may borrow up to $6.0 million to fund its operations. This agreement also provides for a $750,000 letter of credit sub-facility. The amount available under the line is determined by outstanding accounts receivable less than 90 days old. The interest rate is calculated as the London Inter-Bank Offering Rate, plus 2.5% (7.85% at December 31, 2006). As of December 31, 2006, the Company is in default on one of its liquidity covenants. As the Company is in default, our ability to borrow funds under the line may be restricted. The Company has no borrowings outstanding under the line and has not used the line since its inception. Based on the Company’s forecasts of its cash position and related revenue from operations, it does not foresee the need to draw against the line. The Company is in discussions regarding the line of credit including the covenants, size of the line, and duration of the line.

The Company anticipates that funds from operations will be sufficient to provide for our 2007 operations and purchases of plant and equipment. The Company is pursuing additional funding sources in the event that funds from operations are not sufficient to provide for our operations. These funding sources include both lines of credit and term loans secured by our assets. Given our past financial performance, the costs and fees associated with these funding sources may be more expensive than the Company has historically paid. The Company can not determine if the funds available from operations will be sufficient for any acquisitions or facility expansions that may be undertaken during the year. Should the Company make any acquisitions or expansions, other sources of financing may or may not be required.

The Company’s working capital position at December 31, 2006, was $6.5 million, compared with $14.0 million at December 31, 2005. The decrease in working capital is primarily a result of the sale of M&M which accounted for $8.2 million of the working capital balance at December 31, 2005. Absent the M&M change, working capital remained consistent between the periods. Individually, accounts receivable and accounts payable both decreased by approximately $5.0 million specifically due to a material procurement transaction that was outstanding in both accounts at year-end 2005.

Contractual Obligations

The Company has certain obligations and commitments to make future payments under contracts. At December 31, 2006, the aggregate contractual obligations and commitments are:

The debt service figures shown above reflect the principal amount of our commitments.

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 31, 2006, 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 31, 2006, were approximately $4.5 million and are primarily invested in money market interest-bearing accounts. A hypothetical 10% adverse change in the average interest rate on our money market cash investments would have had no material effect on net income for the twelve months ended December 31, 2006.

Foreign Exchange Risk

We were exposed to foreign currency risks due to both transactions and translations between functional and reporting currencies prior to the disposition of our Canadian subsidiaries. We were exposed to the impact of foreign currency fluctuations due to the operations of and net monetary asset and liability positions in our Canadian subsidiaries.

We currently have no foreign currency risk and accordingly, we estimate that an immediate 10% change in foreign exchange rates would have no impact on our reported net income or loss. We do not currently utilize any derivative financial instruments to hedge foreign currency risks.

Item 8. Financial Statements and Supplementary Data.

The following documents are filed as part of this Annual Report on Form 10-K:

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 31, 2006, and the related consolidated statements of income and comprehensive income, 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 31, 2006, 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.

/s/ GRANT THORNTON LLP

Baltimore, Maryland

March 29, 2007

Report of Independent Registered Certified Public Accounting Firm

To the Board of Directors and Stockholders

Spectrum Sciences & Software Holdings Corp. (currently known as Horne International, Inc.):

We have audited the accompanying consolidated balance sheet of Spectrum Sciences & Software Holdings Corp. and Subsidiaries (currently known as Horne International, Inc.) as of December 31, 2005, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2005. 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 audits.

We conducted our audits 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide 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 Spectrum Sciences & Software Holdings Corp. and Subsidiaries (currently known as Horne International, Inc.) as of December 31, 2005, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

/s/ TEDDER, JAMES, WORDEN & ASSOCIATES, P.A.

Orlando, Florida

March 10, 2006, except for Note 3 – M&M Engineering, Ltd. and Note 17

as to which the date is March 30, 2007

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

See accompanying notes to the consolidated financial statements.

See accompanying notes to the consolidated financial statements.

HORNE INTERNATIONAL, INC.
Notes To Consolidated Financial Statements

1. ORGANIZATION AND NATURE OF BUSINESS

Horne International, Inc. (the “Company” or “Horne”), headquartered in Fairfax, Virginia, has three reportable segments: Security Solutions, Repair and Overhaul, and Services. Security Solutions includes the design and construction of munitions ground support equipment and containers for the shipping and storage of munitions. Repair and Overhaul provides specialized fabrication and maintenance for ships, lifeboats and maritime navigation systems. The Services segment provides program engineering, occupational safety and health, environmental sciences, acquisition and procurement, business process engineering, technology integration, and public outreach services. The Services segment comprises the previously reported segments of Engineering and Procurement Services.

The Company acquired M&M Engineering Limited (M&M), Coast Engine and Equipment Company, Inc. (CEECO), and Horne Engineering Services, Inc. (Horne Engineering) during the 2005 fiscal year. The Company disposed of M&M in June 2006. Details of these acquisitions and the related divestiture are included in Note 3.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Financial Statement Presentation

The consolidated financial statements include the accounts of majority-owned subsidiaries: inter-company transactions are eliminated. Investments in unconsolidated joint ventures were adjusted to fair market value upon the acquisition of M&M and Horne Engineering, respectively. The investments are now recorded under the cost or equity method.

Revenue Recognition

The Company’s principal method of revenue recognition varies by segment. The Security Solutions segment uses percentage of completion, our Repair and Overhaul segment uses the completed contract method of revenue recognition, and our Service segment primarily uses cost plus on reimbursable time-and-materials contracts. The revenue on these contracts is recognized as costs are incurred. The Service segment does have a limited number of short-term fixed-price contracts where revenue is recognized as milestones are achieved. Although the Repair and Overhaul segment uses the completed-contract method of revenue recognition, there is no material difference in the results of using completed contract versus percentage-of-completion due to the short-term nature of its contracts.

Security Solution’s revenue on fixed price contracts is generally recognized using the percentage-of-completion method based on the ratio of total costs incurred to date compared to estimated total costs to complete the contract, which the Company believes is the best measure of progress toward completion. Estimates of costs to complete include material, direct labor, overhead, and allowable general and administrative expenses for our government contracts. These cost estimates are reviewed and, as necessary, revised on a contract-by-contract basis. If, as a result of this review, we determine that a loss on a contract is probable, then the full amount of estimated loss is charged to operations in the period it is determined that it is probable a loss will be realized from the full performance of the contract. Significant management judgments and estimates, including but not limited to the estimated costs to complete projects, must be made and used in connection with the revenue recognized in any accounting period.

Management believes the above methods and criteria are the best available measures of progress for such contracts. Because of the inherent uncertainties in estimating costs and revenues, it is reasonably possible that the estimates used will change in the future.

The Company, through its Services segment, performs equipment and material procurement contracts as a subcontractor. These contracts require the Company to acquire large dollar items for federal governmental entities through prime contractors. The Company has recognized revenue under these contracts on a gross basis when the goods are shipped to the end user. The Company uses the gross method of revenue recognition, as prescribed under EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent,” as the Company is the primary obligor in the transaction and is obligated to pay the supplier for work performed regardless of whether the customer

HORNE INTERNATIONAL, INC.
Notes To Consolidated Financial Statements

accepts the work. The Company is responsible for the acceptability of the product and has the latitude and negotiability to determine both the suppliers and the price in the transaction. The customer has the right of return. Although the Company does not take title to the goods, the Company conducts all business under these contracts as a stand-alone entity using its own financial, staffing, and facility resources. The Company is compensated for the material purchases at a fixed fee percentage.

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:

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 31, 2006, 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:

HORNE INTERNATIONAL, INC.
Notes To Consolidated Financial Statements

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.

Inventories

Inventory costs are stated at the lower of cost or market, determined by either the average cost or first-in, first-out method. Inventory costs normally consist of work in progress with minimal raw materials or finished goods. The Company strives to order raw materials and parts for delivery as needed. On occasion, the Company will advance purchase raw materials if the discounted price of those materials is sufficient to justify the carrying costs of said material.

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.

Goodwill

The Company records the excess of purchase price over the fair value of net assets of acquired companies as goodwill. In accordance with SFAS No. 142 “Goodwill and Other Intangible Assets,” the Company does not record amortization expense related to goodwill. In the fourth quarter of each year, or as an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, the Company completes a review of the market value of that investment and related goodwill.

Determining market values requires the Company to make significant estimates and assumptions. The Company’s judgments are based on historical experience, current market trends, consultations with external valuation specialists, and other information. While the Company believes that the estimates and assumptions underlying the valuation methodology are reasonable, different assumptions could result in a different market value. Our annual impairment tests resulted in no goodwill impairment.

Impairment of Long-Lived Assets

The Company reviews the recoverability of its long-lived asset groups, including 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

HORNE INTERNATIONAL, INC.
Notes To Consolidated Financial Statements

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.

Research and Development Costs

Research and development costs are expensed as incurred. The Company incurred approximately $22,000, $216,000, and $225,700 in 2006, 2005, and 2004, respectively. These costs are included in accompanying statements of operations and comprehensive income (loss).

Earnings (Loss) Per Share

The Company reports its earnings (loss) per share in accordance with Financial Accounting Standards Board (FASB) Statement No. 128, “Earnings Per Share.” Statement No. 128 requires the presentation of basic and diluted loss per share on the face of the statement of operations.

Basic earnings (loss) per share (“EPS”) is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. Diluted EPS is computed in a manner consistent with that of basic EPS 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 4,124,950, 5,840,700, and 3,104,476 were not included in the computation of diluted earnings (loss) per share for the twelve months ended December 31, 2006, 2005, and 2004, 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, except that the functional currency of M&M was the Canadian dollar. In the accompanying consolidated financial statements, the monetary assets, with the exception of plant and equipment, and liabilities of M&M were translated to U.S. dollars using the December 31, 2005, exchange rate of 0.858 Canadian dollar to 1.00 U.S. dollar. All monetary consolidated statements of operations items of M&M were translated at the average exchange rate for the six months ended June 30, 2006, and the eleven months ended December 31, 2005, of 0.8662 and 0.8249 Canadian dollar to 1.00 U.S. dollar, respectively. The Company had no foreign operations prior to the acquisition of M&M on February 1, 2005, and has had no foreign operations since the disposition of M&M on June 21, 2006.

Stock Based Compensation

The Company adopted the fair value recognition provisions of the Statement of Financial Accounting Standards No. 123R, “Share-Based Payment, ” in 2004. Accordingly, 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 has traditionally not included a vesting period for option grants, however, beginning in 2006, the Company has included a vesting period for options granted to both the Board of Directors and the Advisory Board. See note 13 for a detailed discussion of the Company’s stock-based compensation plans.

Recent Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements,” to define fair value, establish a framework for measuring fair value in accordance with generally accepted accounting principles, and expand disclosures about fair value measurements. SFAS No. 157 will be effective for fiscal years beginning after November 15, 2007, thus it will start affecting the Company on January 1, 2008, the beginning of the Company’s 2008 fiscal year. The Company is assessing the impact the adoption of SFAS No. 157 will have on the Company’s consolidated financial position and results of operations.

In February 2006, the FASB issued FAS 155, “Accounting for Certain Hybrid Financial Instruments,” which clarifies when certain financial instruments and features of financial instruments must be treated as derivatives and reported on the balance sheet at fair value with changes in fair value reported in net income. We will implement FAS 155 beginning with financial instruments acquired on or after January 1, 2007, which is the effective date of FAS 155. We do not expect the adoption of FAS 155 to have a material impact on our financial position at our date

HORNE INTERNATIONAL, INC.
Notes To Consolidated Financial Statements

of adoption. However, FAS 155 may affect future income recognition for certain financial instruments that contain certain embedded derivatives as any changes in their fair values will be recognized in net income each period.

In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin 108, “Considering the Effects on Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”). SAB 108 requires registrants to quantify errors using both the income statement method (that is, iron curtain method) and the rollover method and requires adjustment if either method indicates a material error. If a correction in the current year relating to prior year errors is material to the current year, then the prior year financial information needs to be corrected. A correction to the prior year results that are not material to those years would not require a “restatement process” where prior financials would be amended. SAB 108 is effective for fiscal years ending after November 15, 2006. We have determined that SAB 108 will not have a material effect on our financial position, results of operations, or cash flows.

On July 13, 2006, the FASB issued Interpretation No. 48 (“FIN No. 48”), “Accounting for Uncertainty in Income Taxes: An Interpretation of FASB Statement No. 109.” This interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN No. 48 prescribes a recognition threshold and measurement principles for financial statement disclosure of tax positions taken or expected to be taken on a tax return. This interpretation is effective for fiscal years beginning after December 15, 2006, and the Company will adopt FIN No. 48 as of the beginning of the Company’s 2007 fiscal year. The Company is assessing the impact the adoption of FIN No. 48 will have on the Company’s consolidated financial position and results of operations. The Company does not believe there will be an adverse effect on the Company’s financial results.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of FASB Statement No. 115 (SFAS 159). SFAS 159 permits entities to measure eligible assets and liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We will adopt SFAS 159 on January 1, 2008, and have not yet determined the impact, if any, on our consolidated financial statements.

3. ACQUISITIONS & DISPOSITIONS

M&M Engineering Limited

On February 1, 2005, the Company acquired M&M, a provider of a complete range of mechanical contracting and steel fabrication services to the industrial and offshore energy sector, for $6,768,202 in cash; a combination of the purchase of 100% of the common stock of M&M and an issuance of 1,000 preferred shares to the Company. The purchase price for the common stock of M&M was $5,958,802 in cash. Pursuant to the Purchase Agreement, M&M redeemed 1,000 of its preferred shares held by EnerNorth Industries Inc., for $809,400 immediately prior to closing the acquisition and issued the same number of preferred shares to the Company for $809,400. The total cost of the acquisition includes approximately $353,000 of acquisition-related expenses – for a total cost of approximately $7,121,000. The primary purpose of this acquisition was to diversify the Company’s corporate customer base beyond U.S. federal government contracting and to capitalize on the growth potential in the natural resource sector to include: the offshore oil and gas industries, the hydroelectric sector, mining, and the pulp and paper industries in Newfoundland and Labrador, Canada.

On June 21, 2006, the Company sold the M&M subsidiary to a management-led partnership. The total sale price was approximately $5.0 million and consisted of cash, the redemption of Company stock, and a two-year interest-bearing note receivable due June 2008. The sale also included the repayment, to the Company, of approximately $4.6 million of cash-backed bonding advanced to M&M in 2005. The total cash received by the Company, as of December 31, 2006, is $7.3 million excluding expenses incurred related to the sale.

In accordance with FAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets, ” we have segregated the financial results for M&M as discontinued operations in our accompanying consolidated financial statements. This includes both current-year statements and the comparative prior-year information.

The following table (000’s) summarizes the major classes of assets and liabilities reclassed in the 2005 balance sheet to discontinued operations as a result of the M&M disposition.

Coast Engine and Equipment Company, Inc.

On February 25, 2005, the Company acquired 100% of CEECO, a provider of service to the maritime industry predominantly for on-board ship repair of HVAC and refrigeration systems; welding services; and custom flooring, insulation, and machinery installations, with an initial cash payment of $300,000 plus an earn-out over the next three years. Under the terms of the purchase agreement, the Company will pay the former shareholders of CEECO a total purchase price of up to $900,000 over a three-year period. The purchase price is payable in cash and common stock of the Company and is subject to certain adjustments, including, without limitation, adjustments based on CEECO’s

HORNE INTERNATIONAL, INC.
Notes To Consolidated Financial Statements

earnings during such three-year period. The purchase agreement also provides certain share-price guarantees for any shares issued under this agreement. The second and third year payouts are payable in Company stock. In addition to the $300,000 cash payment for CEECO, there were approximately $36,000 of acquisition related expenses. Pursuant to a security agreement executed in connection with the purchase agreement, the former shareholders of CEECO will retain a security interest in all of the assets of CEECO until the total purchase price has been paid. Although, the Company has a three-year employment contract with Louis T. Rogers, former owner of CEECO, he has decided to retire effective February 28, 2007. The CEECO acquisition allows the Company to take advantage of other non-government customer bases in the south-central Florida region. It also provides the opportunity to pursue business opportunities within the U.S. Coast Guard and U.S. Navy by increasing the Company’s presence in that market. As of December 31, 2006, CEECO has met the purchase price EBITDA goals for the first and second year, as defined in the purchase agreement. While these results must be verified through an audit, an earn-out of $400,000 has been recorded of which $200,000 was paid in 2006. The Company issued stock to the former shareholders of CEECO in March 2007. See subsequent events footnote 20 to these financial statements.

The stock issued under this agreement for the second year earn-out is subject to certain share price guarantees extending into future periods. The value of the shares issued under this agreement is the average share price of our stock over a ten day period centered on February 28, 2007. The value of these shares is guaranteed for one year to be not less than the share price at which they were issued. The share price will be recomputed, using a date of February 28, 2008, based on the same averaging methodology as the initial issuance. Should the value of these shares be less that the issued price, the difference is to be paid in cash to the former owners of CEECO.

Horne Engineering Services, Inc.

On May 11, 2005, the Company acquired all of the issued and outstanding capital stock of Horne Engineering Services, Inc. (“Horne Engineering”), from its shareholders, Darryl K. Horne, Charlene M. Horne, and Michael M. Megless (the “Horne Shareholders”), pursuant to an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, Horne Engineering was merged with and into Horne Acquisition LLC, a wholly owned subsidiary of the Company. The purchase price for the capital stock of Horne Engineering was $4.5 million in cash and 6.1 million unregistered shares of the Company’s common stock (the “Shares”). Additional shares of common stock could subsequently become issuable by the Company to the Horne Shareholders to the extent that the average closing price of the Company’s common stock on NASD OTC Bulletin Board, or other public securities market, for the trading days during the two month period ending on May 11, 2007 is less than $3.25 per share, subject to Horne Engineering (on a stand alone basis) meeting or exceeding 2005 gross revenues of $75 million with EBITDA (as defined in the Merger Agreement) of $3.25 million (the “2005 EBITDA”) and EBITDA of not less than $3.25 million in 2006. Pursuant to an Amendment and Waiver Agreement entered into among the parties to the Merger Agreement on May 11, 2005 (the “Amendment”), the Company held back 4.0 million of the Shares payable to the former Horne Shareholders under the Merger Agreement (the “Hold Back Shares”), with the disposition of those shares subject to two conditions. First, the Amendment requires the Company to release 3.0 million of the Hold Back Shares to the former Horne Shareholders promptly upon receiving certain third-party consents relating to certain of Horne Engineering’s contracts, which are specified in the Amendment. As of November 11, 2005, the Company received the required consents. Second, if Horne Engineering’s 2005 EBITDA is less than $3.25 million (the “EBITDA Shortfall”), the Company will be entitled to recover any remaining Hold Back Shares limited such that the value of the recovered Hold Back Shares, based on the closing price of the Company’s common stock on May 11, 2005, does not exceed three times the EBITDA Shortfall. Based on Horne Engineering’s operating results for 2005, the remaining 1.0 million shares were not issued to the Horne Shareholders and the price guarantee on the issued shares is no longer effective.

The total cost of the Horne Engineering acquisition was approximately $13.6 million, consisting of cash of $4.5 million, acquisition costs of $524,000 and stock of 5.1 million shares valued at $1.68 per share, or $8.6 million. The share price was determined based on the average stock price at the time of the acquisition.

In connection with the Merger Agreement, the Company and the Horne Shareholders entered into a Registration Rights Agreement, dated May 11, 2005 (the “Rights Agreement”), pursuant to which the Company agreed to prepare and file a registration statement pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), covering the resale from time to time of all of the shares of the Company’s common stock issued to the Horne Shareholders pursuant to the Merger Agreement.

HORNE INTERNATIONAL, INC.
Notes To Consolidated Financial Statements

Upon the closing of the Merger Agreement, Messrs. Horne and Megless were appointed to the Company’s Board of Directors. In connection with the Merger Agreement, Messrs. Horne and Megless executed employment agreements with the Company, dated as of May 11, 2005 (the “Employment Agreements”), pursuant to which such individuals were appointed Chief Executive Officer (“CEO”), and Chief Financial Officer (“CFO”), respectively. Pursuant to a Stock Option Agreement executed in connection with the Merger Agreement, Mr. Horne received an option to purchase 1.0 million shares of the Company’s common stock at an exercise price of $1.65 per share, subject to Horne Engineering meeting the revenue and EBITDA targets for 2005 as described above. Based on Horne Engineering’s operating results for 2005, these options were forfeited. The Company also reserved 2.0 million shares of the Company’s common stock for the issuance of stock options to be granted to the employees of Horne Engineering at the discretion of Mr. Horne. In January 2006, 1,444,704 of these options were issued to employees.

The primary purpose of the Horne Engineering acquisition was to effectuate a reverse merger, with the management of Horne replacing the then-current Spectrum management team. While the acquisition did not meet the accounting requirements for a reverse merger, operationally that is one of the reasons why the acquisition occurred as Messrs. Horne and Megless assumed the CEO and CFO positions within the Company.

Each acquisition described above was accounted for under the purchase method of accounting. Accordingly, the purchase price has been allocated to reflect the fair value of assets and liabilities acquired at the date of acquisition.

Pro Forma Results (Unaudited)

The results of these acquisitions, had they been consummated at the beginning of each period shown, are included in the pro forma information below. The historical revenues and earnings of CEECO and Horne Engineering for the twelve months ended December 31, 2005 and 2004, have been combined with the revenues and earnings of the Company for the twelve months ended December 31, 2005 and 2004, respectively. This pro forma information does not necessarily reflect the results of operations that would have occurred had the acquisitions taken place at the beginning of each twelve month period and is not necessarily indicative of results that may be obtained in the future. The revenues and expenses for M&M have been excluded from both years as M&M was disposed of in 2006.

For the twelve months ended December 31, 2005, the Company incurred $1.4 million in stock-based compensation expense, a $1.8 million loss for SSSI, and positive earnings contributions from the acquired companies; the 2005 pro forma net loss reported above was also significantly affected by merger and acquisition activity during the period, including costs for accounting and legal fees, investor relations, and consulting, as well as by Hurricane Dennis, the second hurricane to hit the Florida Gulf Coast in less than a year. The loss for the twelve months ended December 31, 2004, includes approximately $37.4 million of stock compensation expense.

The goodwill from the CEECO and Horne Engineering acquisitions was fully allocated to the Repair and Overhaul and Services segments, respectively. None of the goodwill is deductible for tax purposes. During 2006, we made two changes to the previously disclosed purchase price allocation. We identified and segregated the intangibles associated with the Horne acquisition, and we recorded an additional $200,000 of goodwill for the CEECO acquisition in accordance with the earn-out described in the purchase agreement and recorded a $7,000 tax related goodwill adjustment.

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 Company’s Security Solution segment’s customers include: the U.S. Navy and the U.S. Air Force. Repair and Overhaul’s customers include U.S. Coast Guard, Military Sealift Command, Rinker Cement, and Disney Cruise Lines. The U.S. Department of Defense (including the Army Environmental Center and the Army Corp of Engineers), Lockheed Martin, Bechtel International, Inc., Battelle, Staubach, Louisiana State University, Department of Homeland Security (including the Transportation Security Administration), Federal Aviation Administration, the General Services Administration (GSA Schedules), USAID, and other government agencies are the major customers for the Company’s Services segment.