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EX-31.1 - CERTIFICATION - SKY RESORT INTERNATIONAL Ltdf10q0614ex31i_hoteloutsource.htm
EX-32.1 - CERTIFICATION - SKY RESORT INTERNATIONAL Ltdf10q0614ex32i_hoteloutsource.htm

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Amendment No. 1 to

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934.

 

For the quarterly period ended June 30, 2014

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934.

 

Commission File No. 000-50306

 

HOTEL OUTSOURCE MANAGEMENT INTERNATIONAL, INC.

(Name of Small Business Issuer in its Charter)

 

Delaware   13-4167393
(State of Incorporation)   (IRS Identification Number)

 

80 Wall Street, Suite 815

New York, New York 10005

(Address of Principal Executive Offices)

 

Registrant's telephone number, including area code (212) 344-1600

 

Indicate by a check mark whether the issuer has (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 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.

 

Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.

 

Yes ☐  No ☐

  

Indicate by a check mark whether the issuer is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer   Accelerated Filer      
Non-Accelerated Filer     Smaller Reporting Company    

  

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

 

State the number of shares outstanding of each of the Registrant's classes of common equity, as of the latest applicable date:  2,949,484 as of June 30, 2014.

 

 

 

 
 

 

EXPLANATORY NOTE

The purpose of this Amendment No. 1 to the Quarterly Report on Form 10-Q of Hotel Outsource Management International, Inc. for the period ended June 30, 2014, filed with the Securities and Exchange Commission on September 5, 2014 (the “Form 10-Q”), is solely to furnish Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T. Exhibit 101 to this report provides the consolidated financial statements and related notes from the Form 10-K formatted in XBRL (extensible Business Reporting Language).

 

No other changes have been made to the Form 10-Q. 

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES 

 

INTERIM FINANCIAL STATEMENTS

 

AS OF 

June 30, 2014 

UNAUDITED 

 

INDEX 

 

  PAGE
PART I - FINANCIAL INFORMATION
   
Item 1 – CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  
   
  Balance Sheets -  
    June 30, 2014 and December 31, 2013 3-4

 

  Statements of  Comprehensive Loss -  
    Six and three months ended June 30, 2014 and 2013 5

 

   
  Statements of Cash Flows -  
    Six months ended June 30, 2014 and 2013 6-7

 

 
Notes to the Financial Statements 8-12

 

- - - - - - - - - - - - - - - - -

 

2
 

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

US Dollars in thousands 

 

   As of
June 30,
   As of 
December 31,
 
   2014   2013 
   (Unaudited)   (Audited) 
ASSETS          
           
CURRENT ASSETS:          
           
Cash and cash equivalents   21    81 
Short-term bank deposits   33    47 
Trade receivables (net of allowance for doubtful accounts of $ zero as of June 30, 2014 and December 31, 2013)   554    444 
Other accounts receivable   114    66 
Inventories   294    283 
           
TOTAL CURRENT ASSETS   1,016    921 
           
PROPERTY AND EQUIPMENT, NET:          
           
Minibars and related equipment   3,359    3,817 
Other property and equipment   29    30 
           
TOTAL PROPERTY AND EQUIPMENT   3,388    3,847 
           
OTHER ASSETS:          
           
Deferred expenses, net   2    3 
Intangible assets   40    41 
           
TOTAL OTHER ASSETS   42    44 
           
TOTAL   4,446   4,812 

  

The accompanying notes are an integral part of the consolidated financial statements.

 

3
 

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

US Dollars in thousands (except share data)

 

   As of
June 30,
   As of 
December 31,
 
   2014   2013 
   (Unaudited)   (Audited) 
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFFICIENCY)        
         
CURRENT LIABILITIES:        
         
Current maturities of long-term loans from related parties   1,147    100 
Current maturities of long-term loans from others   326    446 
Trade payables   531    818 
Accrued expenses and other current liabilities   366    598 
           
TOTAL CURRENT LIABILITIES   2,370    1,962 
           
LONG-TERM LIABILITIES:          
           
Long-term loans from related parties, net of current maturities   349    675 
Long-term loans from others, net of current maturities   1,664    1,516 
Accrued severance pay, net   82    78 
           
TOTAL LONG-TERM LIABILITIES   2,095    2,269 
           
SHAREHOLDERS' EQUITY (DEFFICIENCY):          
           
Share capital -          
Preferred stock of $ 0.001 par value –
5,000,000 shares authorized; no shares issued or outstanding as of June 30, 2014 and as of December 31, 2013.
   -    - 
Common stock of $ 0.001 par value –
200,000,000 shares authorized; 2,949,484 shares issued and outstanding as of June 30, 2014 and as of December 31, 2013.
   3    3 
Additional paid-in capital   13,221    13,221 
Capital reserve   1,414    1,414 
Accumulated other comprehensive income   47    74 
Accumulated deficit   (14,704)   (14,131)
           
TOTAL SHAREHOLDERS' EQUITY (DEFFICIENCY)   (19)   581 
           
TOTAL  4,446    4,812 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

4
 

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

US Dollars in thousands (except share and per share data) 

 

   For the Three   For the Six 
   Months Ended June 30,   Months Ended June 30, 
   2014   2013   2014   2013 
   (Unaudited) 
                 
Revenues   821    765    1,463    1,747 
                     
Costs of revenues:                    
Depreciation   (114)   (121)   (228)   (277)
Other   (580)   (552)   (1,007)   (1,198)
                     
Gross profit   127    92    228    272 
                     
Operating expenses:                    
                     
Research and development   (12)   (14)   (23)   (29)
                     
Selling and marketing   (39)   (102)   (80)   (170)
                     
General and administrative   (258)   (329)   (633)   (652)
                     
Operating loss   (182)   (353)   (508)   (579)
                     
Financing expenses and foreign currency translation, net   (32)   (100)   (91)   (207)
                     
Other expenses, net   26    -    26    (74)
                     
Benefit reduction for loans   -    (4)   -    (9)
                     
Net Loss   (188)   (457)  (573)  (869)
                     
Basic and diluted net loss per share   (0.06)   (0.23)  (0.19)  (0.43)
                     
Weighted average number of shares used in computing basic and diluted  loss per share   2,949,484    1,999,506   2,949,484   1,999,506 
                     
Other Comprehensive Loss:                    
                     
Net Loss   (188)   (457)   (573)   (869)
                     
Foreign currency translation adjustments   (25)   (65)   (27)   (104)
                     
Comprehensive Loss  (213)   (522)   (600)  (973)

 

The accompanying notes are an integral part of the consolidated financial statements 

5
 

  

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

US Dollars in thousands

 

   For the
Six Months Ended
June 30,
 
   2014   2013 
   (Unaudited) 
CASH FLOWS  FOR OPERATING ACTIVITIES:          
Net loss   (573)   (869)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   234    281 
Capital gain   -    70 
Increase in accrued severance pay, net   4    20 
Interest and linkage differences in regard to shareholders and subsidiaries   27    101 
Benefit component   -    9 
Changes in assets and liabilities:          
Increase  in inventories   (11)   (4)
Decrease (Increase) in trade receivables   (109)   53 
Decrease in related parties   (4)   - 
Increase in other accounts receivable   (51)   (54)
Increase (Decrease) in trade payables   (96)   142 
Decrease in accrued expenses and other current liabilities   (229)   (128)
           
Net cash used in operating activities   (808)   (379)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Proceeds from sale of property and equipment   237    340 
Purchases and production of property and equipment   (201)   (332)
Short-term bank deposits, net   14    5 
           
Net cash provided by investing activities   50    13 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from related parties, net   -    6 
Proceeds from long term loans from others, net   28    286 
Proceeds from long-term loans from shareholders, net   670    100 
           
Net cash provided by financing activities   698    392 
           
Effect of exchange rate changes on cash and cash equivalents   -    (3)
Decrease (Increase) in cash and cash equivalents   (60)   23 
Cash and cash equivalents at the beginning of the period   81    195 
Cash and cash equivalents at the end of the period  21   218 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

6
 

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

US Dollars in thousands 

 

Appendix A -    
     
Supplemental disclosure of non-cash investing and financing activities and cash flow information: 
     

  For the
Six Months Ended
June 30,
 
   2014   2013 
   (Unaudited) 
         
Acquisition of property and equipment on short-term credit  (191)  217 
           
Receivables in regard to property and equipment  -    73 
           
Cash paid during the year for interest  33    65 

  

The accompanying notes are an integral part of the consolidated financial statements.

 

7
 

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

US Dollars in thousands

 

NOTE 1:-       NATURE OF OPERATIONS AND BASIS OF PRESENTATION

 

a.Hotel Outsource Management International, Inc. ("HOMI") was incorporated in Delaware on November 9, 2000. HOMI and its subsidiaries are engaged in the distribution, marketing and operation of computerized minibars in hotels located in the United States, Europe, Israel and Canada.
   
  Hereinafter, HOMI together with its subsidiaries will be referred to as the "Company."
   
  The Company has been doing business since 1997 through various subsidiaries. The current corporate structure, in which it is holding company for various wholly owned subsidiaries around the world, has been in place since 2001. The Company common stock was listed on the Over-the-Counter Bulletin Board, or "OTC Bulletin Board" from February 2004 until February 2011.  It now trades on the OTCQB under the symbol "HOUM.PK."

 

b.During 2006, the Company commenced its own research and development program aimed at the development of a new range of products.
    
   Currently the HOMI® 330, a "sealed-access" type wireless Computerized Minibar system and the newer HOMI® 226, an "Open-Access" type wireless Computerized Minibar system, are both being produced and installed.
    
  c.Commencing 2009, HOMI has begun to implement a new business model. Under the new business model, the Company sells or receives loans against HOMI minibars, installed or to be installed in various hotels. Under this model, HOMI shall continue to manage and operate these minibars in return for a management fee and profit sharing arrangements.
    
  d.As of August 21, 2013, HOMI France S.A.S., which had been a fully, indirectly owned subsidiary of HOMI was dissolved, with voluntary liquidation procedures having been completed as of June 25, 2013. Operations previously handled by HOMI France were transferred to HOMI UK Limited, which is another fully, indirectly owned subsidiary of HOMI.
    
   HOMI Australia, a subsidiary of HOMI, began the process of deregistration to close down the company, which process was completed as of February 6, 2014.
    
  e.

On March 25, 2014, HOMI entered into an agreement with HOMI Industries, the President, and the beneficial owner of the HOMI shares held by the majority shareholder of HOMI. The agreement was approved by the holders of a majority of HOMI’s issued and outstanding shares that are not held directly or beneficially by the purchasers, pursuant to shareholder resolutions dated April 1, 2014. On April 9, 2014, a preliminary information statement was submitted to SEC. On August 7 ,2014 the definitive information statement was declared effective. The closing of the agreement will take place on September 5 ,2014

    
   Pursuant to the agreement, there will be a restructuring of HOMI’s subsidiaries such that all of its operations subsidiaries, namely, Industries, HOMI Israel Ltd., HOMI UK Limited, HOMI USA, Inc., HOMI Canada Inc. and HOMI Florida, LLC, will be wholly owned subsidiaries of HOMI Industries. In return for payment of $1.00 (one US Dollar) and in return for assuming (via HOMI Industries) approximately $900 of HOMI's debts and approximately $3,200 of the subsidiaries’ debts, the purchasers will acquire HOMI Industries, with all of such subsidiaries and debt.
    
   The impact of the abovementioned transaction shall be a capital loss amounting to $4.2 million
    
   The purchasers have also agreed to indemnify HOMI in respect of certain liabilities.
    
   HOMI’s Board of Directors is now considering other possible business opportunities.

 

8
 

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

US Dollars in thousands

 

NOTE 1:-       NATURE OF OPERATIONS AND BASIS OF PRESENTATION (cont.)

 

f.As of June 30, 2014, the Company had $ 21 in cash, including short term deposits.
    
   The Company continues to incur losses ($573 in the six months ended June 30, 2014) and has a negative cash flow from operations amounting to approximately $808 for this period. In order to implement the Company's basic business plan for completion of the installation of additional minibars, the Company will need additional funds.
    
   The financial statements have been prepared assuming that the Company will continue as a "going concern". The Company has suffered recurring losses from operations and has a net working capital deficiency that raises substantial doubt about its ability to continue a "going concern" .The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
    
   The continuation of the company as a “going concern” is dependent upon implementation of management's plans as well as raising additional funds from shareholders or others. The Company's preferred method is the new business model, described in item c. above.
    
NOTE 2:-       SIGNIFICANT ACCOUNTING POLICIES
    
  a.Basis of Presentation
    
   The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ended December 31, 2014. The accompanying interim consolidated financial statements and the notes thereto should be read in conjunction with the Company's audited consolidated financial statements as of and for the year ended December 31, 2013 included in the Company's Form 10-K filed March 31, 2014.
    
  b.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 amounts reported in the financial statements and accompanying notes. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions management is required to make. Estimates that are critical to the accompanying unaudited consolidated financial statements relate principally to depreciation and recoverability of long lived assets. The markets for the Company’s products are characterized by intense price competition, rapid technological development, evolving standards and short product life cycles; all of which could impact the future realization of its assets. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary. It is at least reasonably possible that management’s estimates could change in the near term with respect to these matters.
    
  c.Financial statements in U.S. dollars
    
   The majority of the Company's sales are in U.S. dollars or in dollar linked currencies. In addition, the majority of the Company's financing is received in U.S. dollars. Accordingly, the Company has determined the U.S. dollar as the currency of its primary economic environment and thus, its functional and reporting currency. Non-dollar transactions and balances have been remeasured into US dollars. All transaction gains and losses from the re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of operations as financial income or expenses, as appropriate.

 

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HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

US Dollars in thousands

 

NOTE 2:-       SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

    The financial statements of foreign subsidiaries, whose functional currency is not the U.S. dollar, have been translated into U.S. dollars. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Statements of operations amounts have been translated using the average exchange rate for the period. The translation differences are attributed to the capital reserve from translation differences.
     
  d. Concentrations of Credit Risk and Fair Value of Financial Instruments
     
   

The financial instruments of the Company consist mainly of cash and cash equivalents, short-term bank deposits, trade receivables, other accounts receivable, short-term bank credit, trade payables, other accounts payable and notes payable to shareholders and others.

 

In view of their short term nature, the fair value of the financial instruments included in working capital of the Company is usually identical, or close, to their carrying values. The fair values of long-term notes payable also approximates their carrying values, since such notes bear interest at rates that management believes are approximately the same as prevailing market rates.

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, and trade receivables. The majority of the Company's cash and cash equivalents are invested in interest bearing U.S. dollar and U.S. dollar-linked instruments or in NIS and Euro interest bearing deposits with major Israeli, U.S. and European banks. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company's investments are financially sound, and accordingly, minimal credit risk exists with respect to these investments.

     
  e. Exchange rates
     
    Exchange and linkage differences are charged or credited to operations as incurred.
     
    Exchange rates and the Consumer Price Index ("CPI") in Israel:

 

     June 30,   December 31, 
     2014   2013 
  New Israeli Shekel (NIS)  $0.291   $0.288 
  Euro (EU)  $1.365   $1.377 
  Australian Dollar (AU$)  $0.939   $0.894 
  Pound Sterling (GBP)  $1.704   $1.654 
  Canadian Dollar (CAN$)  $0.936   $0.940 
  Consumer Price Index ("CPI")*   124.21    124.45 

 

     Six Months Ended
June 30,
 
  Increase (Decrease) in Rate of Exchange and the Consumer Price Index ("CPI") in Israel:  2014   2013 
  NIS   1.04%   2.98%
  EU   (0.87)%   (0.1)%
  AU$   5.03%   - %
  GBP   3.02%   (5.63)%
  CAN$   (0.43)%   (2.15)%
  Consumer Price Index ("CPI")   (0.19)%   0.71%

 

*Based on the year 2002 average rate.

 

10
 

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

US Dollars in thousands

 

NOTE 3:-       FIXED ASSETS 

 

  Number of minibars
     
  The consolidated financial statements include the accounts of HOMI and its active subsidiaries listed low, which are fully owned by HOMI:

 

        Number of Minibars Operated 
  Subsidiary Name  Area  30.06.2014   30.06.2013 
  HOMI Industries Ltd. (1)  Israel          
  HOMI Israel Ltd. (1), (3)  Israel   4,949    4,974 
  HOMI USA, Inc. and
HOMI Canada, Inc. (1)
  U.S.A. and Canada   1,620    2,219 
  HOMI Europe S.A.R.L. (1), (2)  Europe   1,499    1,499 
         8,068    8,692 

 

(1)A quantity of minibars are owned by HOMI Industries and rented to the subsidiaries.
    
   As of June 30, 2014 the minibars are located as follows:

 

    U.S.A.   Israel   Europe   Total 
 Number of minibars    1,620    3,173    1,499    6,292 

 

(2)Through subsidiaries in France and the U.K (including a branch in Spain and activity in France).

 

(3)Including 333 HOMI® 232 shared operated minibars. As of June 30, 2014 located in Israel.

 

NOTE 4:-      RELATED PARTIES TRANSACTIONS

 

During the six months ended June 30, 2014 and 2013, the Company incurred various related parties expenses as follows:

 

     For the Three Months Ended June 30,   For the Six  Months Ended June 30, 
     2014   2013   2014   2013 
     Unaudited   Unaudited 
                   
  Directors' fees and liability insurance   1    8    11    17 
  Consulting and management fees   66    131    122    237 
  Financial expenses   26    26    52    52 
                       
  Benefit reduction for loan   -    4    -    9 
                       
      93    169    185    315 

 

11
 

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

US Dollars in thousands

 

NOTE 5: -      SIGNIFICANT EVENTS DURING THE PERIOD

 

a.On February 5, 2014, HOMI Industries Ltd entered into two new loan agreements, with, the President of HOMI and the beneficial owner of a majority of HOMI’s shares. Pursuant to which they agreed to loan HOMI $300 and $200 respectively, bearing 8% annual interest. Some of the funds were wired to HOMI in January 2014 and the balance during February 2014. The principal and all accrued interest shall be repaid in a single payment, on or before July 14, 2014.

An additional amount of $100 was wired during March 2014; an agreement was not yet signed. An Israeli company which has lent HOMI in the past various sums under the new business model, has made an additional loan (outside the new business model) to HOMI Industries Ltd, in the amount of $302, of which $243 was funded in the current reporting period, and the remaining $59 was funded subsequent to the current reporting period. No written agreement has yet been signed defining the terms of this loan, but the parties have an understanding that standard commercial loan terms will apply, with interest rates that are comparable to other loans that have been made to HOMI in recent years.

 

b.An Israeli company which has lent HOMI in the past various sums under the new business model, has made an additional loan (outside the new business model) to HOMI Industries Ltd, in the amount of $302, of which $243 was funded in the current reporting period, and the remaining $59 was funded subsequent to the current reporting period. No written agreement has yet been signed defining the terms of this loan, but the parties have an understanding that standard commercial loan terms will apply, with interest rates that are comparable to other loans that have been made to HOMI in recent years.

 

c.See also Notes 1d.

 

NOTE 6:-       EVENTS SUBSEQUENT TO BALANCE SHEET DATE

See Note 1e.

  

12
 

 

ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

 

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our financial condition as of June 30, 2014 and our results of operations for the three months ended June 30, 2013 and 2014. The following discussion should be read in conjunction with the financial statements for such periods as well as our financial statements included in our December 31, 2013 10-K filed with the Securities and Exchange Commission on March 31, 2014.

 

FORWARD-LOOKING STATEMENTS

 

This report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  These statements relate to future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or out industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

 

Our financial statements are stated and prepared in US Dollars and are prepared in accordance with accounting principles generally accepted in the United States of America.

 

As used in this quarterly report, the term "HOMI" means Hotel Outsource Management International, Inc. The terms, the “Company”, “we”, “us”, “our” means Hotel Outsource Management International, Inc and its subsidiaries, unless otherwise indicated.

 

Critical Accounting Policies and Estimates

 

In connection with the issuance of Securities and Exchange Commission FR-60, the following disclosure is provided to supplement the Company’s accounting policies in regard to significant areas of judgment. Management of the Company is required to make certain estimates and assumptions during the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. These estimates also impact the reported amount of net earnings during any period. Actual results could differ from those estimates. Because of the size of the financial statement elements to which they relate, some of our accounting policies and estimates have a more significant impact on our financial statements than others.

 

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Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts

 

Revenues from minibars operation and product sales derived from outsource activity (minibar's content), under the exclusive long-term revenue sharing agreements with hotels, net of the hotel’s portion and/or other participation of, or payments due from the hotel, and revenues from disposal of minibars are recognized in accordance with Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB No. 101") and SAB No. 104 when delivery has occurred, persuasive evidence of an arrangement exists, the vendor’s fee is fixed or determinable and collectability is probable. Revenues from sales of minibars are recognized in accordance with compliance with the conditions designated in SAB No. 104, as abovementioned. Sales of minibars that are classified as refinancing arrangements are shown as a long-term loan to be repaid in accordance with terms of the agreement as required in FAS 13 "Accounting for Leases".

 

Our payment terms are normally net 15 to 30 days from invoicing. We evaluate our allowance for doubtful accounts on a regular basis through periodic reviews of the collectability of the receivables in light of historical experience, adverse situations that may affect our customers’ ability to repay, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. We perform ongoing credit evaluations of our customers and generally do not require collateral because (1) we believe we have certain collection measures in-place to limit the potential for significant losses, and (2) because of the nature of customers comprising our customer base. Accounts receivable are determined to be past due based on how recently payments have been received and bad debts are charged in the form of an allowance account in the period the receivables are deemed uncollectible. Receivables are written off when we abandon our collection efforts. To date, we have not experienced any material losses. An allowance for doubtful accounts is provided with respect to those amounts that we have determined to be doubtful of collection. No allowance was deemed necessary as of June 30, 2013 and 2012.

 

Long-Lived Assets

 

We assess the recoverability of the carrying value of long-lived assets periodically. If circumstances suggest that long-lived assets may be impaired, and a review indicates that the carrying value will not be recoverable, as determined based on the projected undiscounted future cash flow, the carrying value is reduced to its estimated fair value. The determination of cash flow is based upon assumptions and forecasts that may not occur. As of December 31, 2013 the Company’s balance sheet includes $3,847,000 of fixed assets, net.  As of June 30, 2014, our balance sheet included $3,388,000 of fixed assets net. The Company has completed its impairment test for the six months ended June 30, 2014 and has concluded that no impairment write-off is necessary.

 

Financial Statements in US dollars:

 

The majority of HOMI's sales are in U.S. dollars or in dollar linked currencies. In addition, the majority of our financing is received in U.S. dollars. Accordingly, we have determined the U.S. dollar as the currency of its primary economic environment and thus, its functional and reporting currency. Non-dollar transactions and balances have been remeasured into U.S. dollars in accordance with Statement of Financial Accounting Standard No. 52 "Foreign Currency Translation" ("SFAS No. 52"). All transaction gains and losses from the remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of operations as financial income or expenses, as appropriate. 

 

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The financial statements of foreign subsidiaries, whose functional currency is not the U.S. dollar, have been translated into US dollars. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Statements of operations amounts have been translated using specific exchange rates or the average exchange rate for the period. The resulting translation adjustments are not included in determining net income (loss) but are reported in a separate component of accumulated other comprehensive income (loss) in shareholders’ equity.

 

Investments in Affiliates:

 

The investment in companies over which the Company can exercise significant influence is presented using the equity method of accounting. The Company generally discontinues applying the equity method when its investment (including advances and loans) is reduced to zero and it has not guaranteed obligations of the affiliate or otherwise committed to provide further financial support to the affiliate. Where the Company’s share of an affiliate’s losses is greater than the investment in such an affiliate and in which the Company has guaranteed obligations of the affiliate, the excess amount is presented as a liability.

 

OVERVIEW

 

Hotel Outsource Management International, Inc. (“HOMI”) is a multi-national service provider in the hospitality industry, supplying a range of services in relation to computerized minibars that are primarily intended for in-room refreshments. In addition, we manufacture and install our own proprietary computerized minibars, the HOMI® 330 and HOMI® 226.

 

HOMI is a holding company for several subsidiaries which market and operate computerized minibars in hotels located in the United States, Canada, Europe and Israel. HOMI was incorporated in Delaware on November 9, 2000 under the name Benjamin Acquisitions, Inc.

 

Our core activities focus on operating, servicing and marketing computerized minibars located in upscale hotels throughout the world.

 

We believe that by using the appropriate equipment, including technologically advanced computerized minibars, we are able to materially improve the performance of the minibar departments, thereby improving the hotel’s bottom line.

 

For some years now, the hotel industry has been focusing on outsourcing many of the functions related to its key activities, in order to increase efficiency and lower fixed costs. We offer our customers a number of solutions that are designed to meet this need, in relation to the minibar departments, ranging from consultation and supervision services, all the way to full outsource installation and operation arrangements.

 

Whether we are consulting for a hotel, or managing its entire minibar department, we focus on hands-on, expert and dedicated management, on-site supervision, and disciplined implementation of specialized procedures which we have developed, in order to achieve our goals and improve the department’s performance.  Using these methods, we already manage thousands of minibars for our customers, who are spread over five continents around the world. We have been doing business since 1997 through various subsidiaries. The current corporate structure, in which we are a holding company for various subsidiaries around the world, has been in place since 2001. Our common stock was listed on the Over-the-Counter Bulletin Board, or "OTC Bulletin Board" from February 2004 to February 2011 under the symbol "HOUM.OB." It is currently listed on the OTCQB under the symbol HOUM.PK.

 

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COSTS AND EXPENSES

 

Costs and expenses incurred in our outsource operations are generally as follows, but can vary depending on the circumstances and the nature and terms of specific agreements with customers:

 

  (1) The purchase and / or manufacturing of the minibar systems to be installed in hotels; this capital expense is charged to property and equipment and depreciated over a period of ten years;

 

  (2) The purchase of the consumables to be placed in the minibars; we purchase these products from various vendors; sometimes the customer will purchase the alcoholic beverages to be placed in the minibars and we reimburse the customer for such purchases;

 

  (3) Labor costs relating to the minibar attendants;

 

  (4) General and Administrative, and Marketing expenses;

 

  (5) Maintenance costs relating to the minibar systems;

 

  (6) Finance expenses.

  

RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2014 COMPARED TO JUNE 30, 2013.

 

REVENUES

 

For the three months ended June 30, 2014 and 2013, HOMI had revenues of $821,000 and $765,000, respectively, an increase of $56,000 or 7.30 %. These revenues arise primarily from the sale of refreshments in the minibars. The increase is mainly due sales of minibars.

 

For the three months ended June 30, 2014, our three largest customers accounted for approximately 25.63 % of our total revenues.  During the same period of 2013, our three largest customers collectively comprised 22.34 % of our total revenues.

 

GROSS PROFIT

 

Gross profit, before consideration of depreciation expense, increased from $213,000 for the three months ended June 30, 2013 to $241,000 for the three months ended June 30, 2014, an increase of $28,000. Comparing the three month periods ended June 30 2013 and 2014, gross profit margin, before consideration of depreciation expense, increased from 27.84 % to 29.35 %.

 

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Gross profit, after consideration of depreciation expense, increased from $92,000 for the three months ended June 30, 2013 to $127,000 for the three months ended June 30, 2014, an increase of $35,000.  This increase is mainly due to the above mentioned increase in revenues, termination of operating losing hotels and due to the efforts to reduce costs.

 

Gross profit margin increased from 12.0 % to 15.0 %.

  

COSTS OF REVENUES

 

Cost of Revenues, before consideration of depreciation expense, for the three months ended June 30, 2013 and 2014 were $552,000 and $580,000, respectively, an increase of $28,000 or 5.1 %, primarily as a result of the increase in revenues.

 

Depreciation expense for the three months ended June 30, 2013 and 2014 approximated $121,000 and $114,000, respectively, a decrease of $7,000. As a percentage of revenues, depreciation expense decreased from 15.8 % to 13.9 %.

  

OPERATING EXPENSES

 

RESEARCH AND DEVELOPMENT

 

During 2006, HOMI commenced its own research and development program aimed at the development of a new range of products. The HOMI® 336, a novel, computerized Minibar system designed to increase the accuracy of automatic billing, was the first of the new range of products, the research and development of which, was completed in 2007. The HOMI ® 336 was discontinued and replaced by the HOMI® 330 in 2009. The research and development of an additional product, the HOMI® 226 Minibar, was completed in 2012. Production of HOMI® 226 began in 2012. Total research and development expenses for the three months ended June 30, 2013 and 2014 were $14,000 and $12,000, respectively.

  

General and Administrative expenses were $329,000 for the three months ended June 30, 2013 and $258,000 for the three months ended June 30, 2014. As a percentage of revenues, general and administrative expenses decreased from 43.0 % to 31.4 % due to efforts to reduce expenses.  

 

Selling and Marketing expenses decreased from $102,000 for the three months ended June 30, 2013 to $39,000 for the three months ended June 30, 2014, or by 61.8 %.The decrease is mainly due to efforts to reduce sales and marketing expenses.

 

FINANCIAL EXPENSES AND FOREIGN CURRENCY TRANSLATION, NET

 

For the three months ended June 30, 2013 we had financial expense (net) of $100,000, and for the three months ending June 30, 2014, we had financial expense (net) of $32,000.

 

The decrease is mainly due to loans that were converted to shares.

  

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OTHER EXPENSES

 

For the three months ended June 30, 2013 and 2014 we had other expenses of $0 and income of $26, respectively. The income is due a reduction in a loan amount. The balance of this loan was paid in full.

 

NET LOSS

 

For the three months ended June 30, 2013 and 2014 we had net loss of $ 457,000 and $ 188,000, respectively.

 

RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2014 COMPARED TO JUNE 30, 2013.

 

REVENUES

 

For the six months ended June 30, 2014 and 2013, HOMI had revenues of $ 1,463,000 and $1,747,000, respectively, a decrease of $ 284,000 or 16.3 %.

 

The decrease is mainly due to a decrease in the quantity of minibars operated, as agreements with some hotels in the United States reached the end of their terms, as well as a reduction in minibar sales.

 

For the six months ended June 30, 2014, our three largest customers accounted for approximately 24.8 % of our total revenues.  For the six months ended June 30, 2013, our three largest customers accounted for approximately 22.3 % of our total revenues.

  

GROSS PROFIT

 

Gross profit, before consideration of depreciation expense, decreased by $93,000, from $ 549,000 for the six months ended June 30, 2013 to $456,000, for the six months ended June 30, 2014. Gross profit margin, before consideration of depreciation expense, decreased from 31.4 % to 31.2%.

 

Gross profit, after consideration of depreciation expenses, decreased by $44,000, from $272,000 for the six months ended June 30, 2013 to $ 228,000 for the six months ended June 30, 2014. Gross profit margin stayed identical at 15.6 % for both periods.

   

COSTS OF REVENUES

 

Cost of Revenues, before consideration of depreciation expenses, for the six months ended June 30, 2013 and 2014 were $ 1,198,000 and $ 1,007,000, respectively, a decrease of $191,000 or 15.9 %.The decrease is mainly due the decrease in revenues.

 

Depreciation expenses for the six months ended June 30, 2013and 2014 approximated $277,000 and $228,000, respectively, a decrease of $ 49,000, or 17.7 %. As a percentage of revenues, depreciation expense decreased from 15.9 % to 15.6 %.

 

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OPERATING EXPENSES

 

RESEARCH AND DEVELOPMENT

 

During 2006, HOMI commenced its own research and development program aimed at the development of a new range of products. The HOMI® 336, a novel, computerized minibar system designed to increase the accuracy of automatic billing, was the first of the new range of products, the research and development of which, was completed in 2007. The HOMI ® 336 was discontinued and replaced by the HOMI® 330 in 2009. The research and development of an additional product, the HOMI® 226 Minibar, was completed in 2012. Production of HOMI® 226 began in 2012. Total research and development expenses for the six months ended June 30, 2013 were $29,000 and $ 23,000 for the six months ended June 30, 2014.

  

General and Administrative expenses decreased from $652,000 for the six months ended June 30, 2013 to $633,000 for the six months ended June 30 2014, a decrease of $19,000, or 2.9%.

 

As a percentage of revenues, general and administrative expenses increased from 37.3 % to 43.3%.

 

Selling and Marketing expenses decreased from $170,000 for the six months ended June 30, 2013 to $80,000 for the six months ended June 30, 2014, a decrease of $90,000 or 52.9%. The decrease is mainly due to a reduction in sales and marketing expenses mainly in the United States.

   

FINANCIAL EXPENSES AND FOREIGN CURRENCY TRANSLATION, NET

 

For the six months ended June 30, 2013 and 2014 we had financial expenses (net) of $207,000 and $91,000, respectively.

 

These amounts include interest expense (net) of approximately $96,000 and $104,000, respectively. The remaining amounts are due primarily to currency exchange differences on US$ dominated intercompany balances.

  

OTHER EXPENSES, NET

 

For the six months ended June 30, 2013 we had other expenses of $74,000 and for the six months ended June 30, 2014, we had other income of $26,000. The expenses incurred during this 2013 six months period are mainly due the dismantling of minibars from two hotels in the United States, following the expiration of the outsource operation agreements for these hotels. The income incurred in 2014 is a result of forgiveness of a portion of a loan, the balance of which we repaid in full.

  

NET LOSS

 

For the six months ended June 30, 2013 we had net loss of $869,000 and for the six months ended June 30, 2014, we had a net loss of $ 573,000.

 

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LIQUIDITY AND CAPITAL RESOURCES

 

Since our inception, we have been dependent on investment capital as our primary source of liquidity. We had an accumulated deficit at June 30, 2014 of $14,704,000. During the six months ended June 30, 2014, we had net loss of $ 573,000.

 

Our financing activities resulted in cash of approximately $698,000 during the six months ended June 30, 2014. During this same six month period, we used cash in the amount of $808,000.

 

On June 30, 2014, we had long term liabilities of approximately $2,095,000 which are mainly comprised of loans from related parties and others.

 

At June 30, 2014, HOMI had $ 54,000 in cash, including short term deposits.

 

The continuation of the company as a going concern is dependent upon implementation of management's plans as well as raising additional funds from shareholders or others. We believe that these measures should provide sufficient cash for the ongoing operations of the Company for the next twelve months.

 

OFF BALANCE SHEET ARRANGEMENTS

 

HOMI has no off balance sheet arrangements.

 

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INFLATION

 

We do not believe that inflation has had a significant impact on our consolidated results of operations or financial condition.

 

Item 3. QUANTATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

N/A

 

Item 4. CONTROLS AND PROCEDURES

 

Management is required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 to evaluate, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.

 

Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based on their evaluation, as of the end of the period covered by this Form 10-Q, the Chief Executive Officer and Chief Financial Officer have concluded that such disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective.

  

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

PART II. OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

 

To the best of our knowledge, as of the date hereof, there are no material pending or threatened legal proceedings to which HOMI or any of its subsidiaries is a party, or of which any of our property is subject.

 

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As of the date of this Quarterly Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings.

 

Item 1A. RISK FACTORS

 

There have been no material changes in the risk factors described in “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2013.

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND PROCEEDS

 

During the six months ended June 30, 2014, there were no sales of unregistered equity securities.

 

Item 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

Item 4. [Removed and Reserved]

  

Item 5. OTHER INFORMATION

 

 On March 20, 2014, the Board of Directors of HOMI approved a transaction pursuant to which the Company’s operations, trademark rights, operating subsidiaries, along with the debt of the Company and the debt of its subsidiaries will be acquired by by Daniel Cohen and Moise Laurent Elkrief, currently the two largest shareholders of the Company (the “Transaction”). On April 1 2014 shareholders representing a total of 2,606,319 shares executed a written consent approving the Transaction. On August 7, 2014, we filed an information statement with the Commission, outlining the terms of the Transaction.

 

Item 6.    EXHIBITS

 

The following exhibits are filed as part of this Form 10-Q.

 

(a)   Exhibits required by Item 601 of Regulation S-K

  

Exhibit No.   Description
     
31.1   Certification of HOMI’s Chief Executive Officer pursuant to Rule13a- 14(a) of the Securities Exchange Act of 1934
32.1   Certification of HOMI’s Chief Executive Officer  and Chief Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 the United States Code (18 U.S.C. 1350)

  

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SIGNATURE

 

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  

HOTEL OUTSOURCE MANAGEMENT INTERNATIONAL, INC.
     
Dated: September 3, 2014 By: /s/ Daniel Cohen
  Name:   Daniel Cohen
  Title: President, Chief Financial Officer
    (Principal Executive Officer and Principal Accounting  Officer)

 

 

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