10-Q 1 f10q0914_hoteloutsource.htm QUARTERLY REPORT

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

EXCHANGE ACT OF 1934.

 

For the quarterly period ended September 30, 2014

 

o  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.

 

(1) Yes x      No o

 

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 o      No o

 

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   o   Accelerated Filer   o  
               
Non-Accelerated Filer   o   Smaller Reporting Company   x  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.  

 

Yes o    No x

 

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 September 30, 2014.

  

 

 

 
 

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND CONSOLIDATED
SUBSIDIARIES

 

INTERIM FINANCIAL STATEMENTS

 

AS OF

 

September 30, 2014

 

UNAUDITED

 

INDEX

 

PART I - FINANCIAL INFORMATION PAGE
   
Item 1 – CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  
   
  Balance Sheets -  
  September 30, 2014 and December 31, 2013 2-3

 

   
  Statements of Comprehensive Loss -  
  Nine and three months ended September 30, 2014 and 2013 4

 

   
  Statements of Cash Flows -  
  Nine months ended September 30, 2014 and 2013 5-6

 

   
  Notes to the Financial Statements 7-9

 

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

 

1
 

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

US Dollars in thousands

 

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

 

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

 

2
 

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

US Dollars in thousands (except share data)

 

      As of
September 30,
   As of
December 31,
 
      2014   2013 
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFFICIENCY)  Note  (Unaudited)   (Audited) 
              
CURRENT LIABILITIES:             
              
Short term bank credit      -    - 
Current maturities of long-term loans from related parties      -    100 
Current maturities of long-term loans from others      -    446 
Trade payables      -    818 
Accrued expenses and other current liabilities  1c   56    598 
              
TOTAL CURRENT LIABILITIES      56    1,962 
              
LONG-TERM LIABILITIES:             
              
Long-term loans from related parties, net of current maturities      -    675 
Long-term loans from others, net of current maturities      -    1,516 
Accrued severance pay, net      -    78 
              
TOTAL LONG-TERM LIABILITIES      -    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
September 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 September 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      -    74 
Accumulated deficit      (14,694)   (14,131)
              
TOTAL SHAREHOLDERS' EQUITY (DEFFICIENCY)      (56)   581 
              
TOTAL      -    4,812 

 

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

 

3
 

 

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 Months Ended   For the Nine Months Ended 
   September 30,   September 30, 
   2014   2013   2014   2013 
   (Unaudited) 
                 
Revenues   -    754    1,463    2,501 
                     
Costs of revenues:                    
Depreciation   -    (112)   (228)   (389)
Other   -    (550)   (1,007)   (1,748)
                     
Gross profit   -    92    228    364 
                     
Operating expenses:                    
                     
Research and development   -    (10)   (23)   (39)
                     
Selling and marketing   -    (97)   (80)   (267)
                     
General and administrative   (36)   (365)   (669)   (1,017)
                     
Operating loss   (36)   (380)   (544)   (959)
                     
Financing income (expenses) and foreign currency translation, net   -    14    (91)   (193)
                     
Other income (expenses), net   46    (6)   72    (80)
                     
Benefit reduction for loans   -    (47)   -    (56)
                     
Net Profit (Loss)   10    (419)   (563)   (1,288)
                     
Basic and diluted net profit (loss) per share   0.00    (0.15)   (0.19)   (0.57)
                     
Weighted average number of shares used in computing basic and diluted profit (loss) per share   2,949,484    2,753,238    2,949,484    2,250,750 
                     
Other Comprehensive Loss:                    
                     
Net Profit (Loss)   10    (419)   (563)   (1,288)
                     
Foreign currency translation adjustments   (47)   (48)   (74)   56 
                     
Comprehensive Loss   (37)   (467)   (637)   (1,232)

 

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

 

4
 

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

US Dollars in thousands

 

   For the Nine Months Ended
September 30,
 
   2014   2013 
   (Unaudited) 
CASH FLOWS  FOR OPERATING ACTIVITIES:        
Net Loss   (563)   (1,288)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   234    402 
Capital loss (gain)   -    74 
Increase in accrued severance pay, net   4    23 
Interest and linkage differences in regard to shareholders and subsidiaries   27    60 
Benefit component   -    56 
Changes in assets and liabilities:          
Decrease (Increase)  in inventories   (11)   25 
Decrease (Increase) in trade receivables   (109)   44 
Related parties, net   (4)   31 
Increase in other accounts receivable   (29)   (42)
Increase (Decrease) in trade payables   (133)   165 
Decrease in accrued expenses and other current liabilities   (227)   (176)
           
Net cash used in operating activities   (811)   (626)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Proceeds from sale of property and equipment   237    351 
Purchases and production of property and equipment   (201)   (493)
Short-term bank deposits, net   14    4 
Proceeds from sale of investments in previously consolidated subsidiaries (b)   (18)   - 
           
Net cash provided by (used in) investing activities   32    (138)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from long term loans from others, net   28    461 
Proceeds from long-term loans from shareholders, net   670    245 
           
Net cash provided by financing activities   698    706 
           
Effect of exchange rate changes on cash and cash equivalents   -    (2)
Decrease in cash and cash equivalents   (81)   (60)
Cash and cash equivalents at the beginning of the period   81    195 
Cash and cash equivalents at the end of the period   -    135 

 

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

 

Appendix A -

 

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

 

   For the Nine Months Ended
September 30,
 
   2014   2013 
   (Unaudited) 
         
Acquisition of property and equipment on short-term credit   (191)   445 
           
Conversion of loans into shares   -    904 
           
Receivables in regard to property and equipment   -    87 
           
Cash paid during the period for interest   33    80 

 

Appendix B -

 

Proceeds from sale of investments in previously consolidated subsidiaries:

 

   For the 
Nine Months 
Ended
September 30,
2014
 
The subsidiaries' assets and liabilities at date of sale:  (Unaudited) 
Short-term bank deposits   33 
Working capital (excluding cash and cash equivalents)   88 
Property, plant and equipment   3,388 
Intangible assets   42 
Long-term loans from related parties   (1,496)
Long-term loans from others   (1,990)
Accrued severance pay, net   (82)
Gain from sale of subsidiaries   46 
Foreign currency capital reserve   (47)
    (18)

 

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

 

6
 

 

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 was 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 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. On March 25, 2014, HOMI entered into an agreement with HOMI Industries (hereinafter - “Industries”), Daniel Cohen (hereinafter - “Cohen”) and Moise Laurent Elkrief (hereinafter - “Elkrief”). Cohen was at that time the President, a Director and a shareholder of HOMI. Elkrief was the beneficial owner of the HOMI shares which were held in the name of Tomwood Limited, which was the majority shareholder of HOMI (Cohen and Elkrief will be termed hereinafter as the “Purchasers”). Pursuant to the agreement, which closed on September 5, 2014, there was a restructuring of HOMI’s subsidiaries such that all of its operations subsidiaries, namely, HOMI Israel Ltd., HOMI UK Limited, HOMI USA, Inc., HOMI Canada Inc. and HOMI Florida, LLC, became wholly owned subsidiaries of Industries. In return for payment of $1.00 (one US Dollar) and in return for assuming (via Industries) approximately $900 of HOMI's debts and approximately $3,200 of the subsidiaries’ debts, the Purchasers acquired HOMI Industries, with all of such subsidiaries and debt.

 

The Purchasers and Industries also agreed to indemnify HOMI in respect of certain liabilities.

 

The agreement was approved by the holders of a majority of HOMI’s issued and outstanding shares that were 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.

 

Since the closing of that agreement, HOMI’s Board of Directors has been considering other possible business opportunities.

 

c.Industries took upon itself the Company’s liabilities as of September 30, 2014. Final reconciliation between the Company, Industries and current shareholders is to be completed after balance sheet date.

  

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 nine months ended September 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.

 

7
 

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

US Dollars in thousands

 

NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)

 

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.

 

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.

 

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.

 

8
 

 

HOTEL OUTSOURCE MANAGEMENT

INTERNATIONAL, INC. AND ITS SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

US Dollars in thousands

 

  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:

 

     September 30,   December 31, 
     2014   2013 
  New Israeli Shekel (NIS)  $0.271   $0.288 
  Euro (EU)  $1.262   $1.377 
  Australian Dollar (AU$)  $0.873   $0.894 
  Pound Sterling (GBP)  $1.622   $1.654 
  Canadian Dollar (CAN$)  $0.892   $0.940 
  Consumer Price Index ("CPI")*   124.57    124.45 

 

     Nine Months Ended
September 30,
 
  Increase (Decrease) in Rate of Exchange and the Consumer Price Index ("CPI") in Israel:  2014  2013 
  NIS   (6.06%)   5.2%
  EU   (8.35%)   2.4%
  AU$   (2.35%)   (11.1%)
  GBP   (1.93%)   0%
  CAN$   (5.1%)   (7.6%)
  Consumer Price Index ("CPI")   0%   2.0%

 

*Based on the year 2002 average rate.

 

NOTE 3:- RELATED PARTIES TRANSACTIONS

 

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

 

     For the Three Months Ended
September 30,
   For the Nine Months Ended
September 30,
 
     2014   2013   2014   2013 
     Unaudited   Unaudited 
                   
  Directors' fees and liability insurance   -    8    11    25 
  Consulting and management fees   -    123    122    360 
  Financial expenses   -    9    52    61 
  Benefit reduction for loan   -    47    -    56 
                       
      -    187    185    502 

 

9
 

  

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 September 30, 2014 and our results of operations for the three months ended September 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.

 

10
 

 

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 September 30, 2014 and 2013.

 

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 September 30, 2014, our balance sheet included $0 of fixed assets net. The Company has completed its impairment test for the nine months ended September 30, 2014 and has concluded that no impairment write-off is necessary.

 

Financial Statements in US dollars:

 

Financial statements in U.S. dollars:

 

The currency of the primary economic environment in which the operations of the Company are conducted is the U.S. dollar (hereinafter: "dollar"); thus, the dollar is the functional currency of the Company.

 

The Company's transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured to dollars. All transaction gains and losses from 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.

 

11
 

 

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

 

Until recently, Hotel Outsource Management International, Inc. (“HOMI”) was 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 minibar, the HOMI® 330 and HOMI® 226.

 

HOMI served as 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 focused on manufacturing, operating, servicing and sales and marketing of computerized minibars located in upscale hotels throughout the world.

 

On March 25, 2014, HOMI entered into an agreement with HOMI Industries Ltd., a subsidiary of HOMI (“Industries”), Daniel Cohen (“Cohen”) and Moise Laurent Elkrief (“Elkrief”). Cohen was at that time the President, a Director and a shareholder of HOMI. Elkrief was the beneficial owner of the HOMI shares which were held in the name of Tomwood Limited, which was the majority shareholder of HOMI. Pursuant to the agreement, which closed on September 5, 2014, there was a restructuring of HOMI’s subsidiaries such that all of its operational subsidiaries, namely, HOMI Israel Ltd., HOMI UK Limited, HOMI USA, Inc., HOMI Canada Inc. and HOMI Florida, LLC, became wholly owned subsidiaries of Industries. In return for payment of $1.00 (one US Dollar) and in return for assuming (via Industries) approximately $900,000 of HOMI's debts and approximately $3,200,000 of the subsidiaries’ debts, Elkrief and Cohen acquired HOMI Industries, with all of such subsidiaries and debt.

 

Elkrief and Cohen and Industries also agreed to indemnify HOMI in respect of certain liabilities.

 

This agreement was approved by the holders of a majority of HOMI’s issued and outstanding shares that were not held directly or beneficially by the Elkrief or Cohen, pursuant to shareholder resolutions dated April 1, 2014. On April 9, 2014, a preliminary information statement was submitted to SEC, and on August 7, 2014 the definitive information statement was declared effective. The transaction closed on September 5, 2014.

 

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.

 

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

 

REVENUES

 

For the three months ended September 30, 2014 and 2013, HOMI had revenues of $0 and $754,000, respectively, a decrease of 100%. These revenues arose primarily from the sale of refreshments in the minibars. The decrease is due to the sale of HOMI’s assets and liabilities as described herein.

 

For the three months ended September 30, 2013, our three largest customers accounted for approximately 24.49 % of our total revenues.  

 

GROSS PROFIT

 

Gross profit, before consideration of depreciation expense, decreased from $92,000 for the three months ended September 30, 2013 to $0 for the three months ended September 30, 2014, a decrease of $92,000 or 100%, due to the sale of HOMI’s assets and liabilities.

 

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COSTS OF REVENUES

 

Cost of Revenues, before consideration of depreciation expense, for the three months ended September 30, 2013 and 2014 were $550,000 and $0, respectively, a decrease of $550,000 or 100% due to the transfer of HOMI’s assets and liabilities.

 

Depreciation expense for the three months ended September 30, 2013 and 2014 approximated $112,000 and $0, respectively, a decrease of $112,000 or 100%.

 

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 September 30, 2013 were $10,000, and $0 for the three months ended September 30, 2014.

 

General and Administrative expenses were $365,000 for the three months ended September 30, 2013 and $36,000 for the three months ended September 30, 2014.

 

Selling and Marketing expenses decreased from $97,000 for the three months ended September 30, 2013 to $0 for the three months ended September 30, 2014.

 

FINANCIAL INCOME (EXPENSES)

 

For the three months ended September 30, 2013 we had financial income (net) of $ 14,000, and for the three months ending September 30, 2014, we had financial income (net) of $0.

 

OTHER EXPENSES

 

For the three months ended September 30, 2013 we had other expenses of $6,000, and for the three months ended September 30, 2014, we had other income of $46,000.

 

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NET LOSS

 

For the three months ended September 30, 2013 we had net loss of $419,000, and for the three months ended September 30, 2014, we had net profit of $10,000.

 

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2014 COMPARED TO SEPTEMBER 30, 2013

 

REVENUES

 

For the nine months ended September 30, 2014 and 2013, HOMI had revenues of $1,463,000 and $2,501,000, respectively, an decrease of $1,038,000 or 41.5 %.

  

GROSS PROFIT

 

Gross profit, before consideration of depreciation expense, decreased from $ 753,000 for the nine months ended September 30, 2013 to $456,000, for the nine months ended September 30, 2014, a decrease of $297,000. Gross profit margin, before consideration of depreciation expense, increased from 30.1 % to 31.2%..

 

Gross profit, after consideration of depreciation expenses, decreased from $364,000 for the nine months ended September 30, 2013 to $ 228,000 for the nine months ended September 30, 2014, a decrease of $136,000.  Gross profit margin increased from 14.6% to 15.6%.

 

COSTS OF REVENUES

 

Cost of Revenues, before consideration of depreciation expenses, for the nine months ended September 30, 2013 and 2014 were $1,748,000 and $1,007,000, respectively, a decrease $741,000 or 42.4 %.

 

Depreciation expenses for the nine months ended September 30, 2013 and 2014 approximated $389,000 and $228,000, respectively, a decrease of $ 161,000, or 41.4 %. As a percentage of revenues, depreciation expense remained the same for both periods at 15.6%.

 

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 nine months ended September 30, 2013 were $ 39,000 and $0 for the nine months ended September 30, 2014.

 

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General and Administrative expenses decreased from $1,017,000 for the nine months ended September 30 2013 to $669,000 for the nine months ended September 30, 2014, a decrease of $348,000, or 34.2%.  As a percentage of revenues, general and administrative expenses increased from 40.7 to 45.7%.

 

Selling and Marketing expenses decreased from $267,000 for the nine months ended September 30, 2013 to $80,000 for the nine months ended September 30, 2014, a decrease of $187,000 or 70%.

 

FINANCIAL INCOME (EXPENSES)

 

For the nine months ended September 30, 2013 and 2014 we had financial expenses (net) of $193,000 and $91,000, respectively.

  

OTHER EXPENSES

 

For the nine months ended September 30, 2013 we had other expenses of $80,000 and for the nine months ended September 30, 2014, we had other income of $72,000. The expenses incurred during this 2013 nine month period are mainly due to the dismantling of minibars from three hotels in the United States following the expiration of the outsource operation agreements for these hotels.

 

NET LOSS

 

As a result of the above, for the nine months ended September 30, 2013 we had net loss of $1,288,000 and for the nine months ended September 30, 2014, we had a net loss of $563,000.

 

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 September 30, 2014 of $14,694,000. During the nine months ended September 30, 2014, we had net loss of $563,000.

 

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Our financing activities resulted in cash of approximately $698,000 during the nine months ended September 30, 2014.

 

On September 30, 2014, we had long term liabilities of approximately $0.

 

At September 30, 2014, HOMI had $0 in cash.

 

OFF BALANCE SHEET ARRANGEMENTS

 

HOMI has no off balance sheet arrangements.

 

INFLATION

 

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

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

N/A

 

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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 has 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.

 

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

 

None.

 

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Item 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

Item 4. [Removed and Reserved]

 

Item 5. OTHER INFORMATION

 

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
31.2   Certification of HOMI’s Chief Financial 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: November 18, 2014 By: /s/ Avraham Bahry
  Name: Avraham Bahry
  Title: President, Chief Financial Officer
    (Principal Executive Officer, Principal Accounting Officer)

 

  

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