ITEM 1: DESCRIPTION OF BUSINESS
General
Hotel Outsource Management International, Inc. 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 minibar, the HOMI® 336 and the HOMI ® 330, which are the first in a new range of products currently under development and/or manufacture. The HOMI® 336 and the HOMI ® 330 are the first products to be designed and manufactured by the Company.
Hotel Outsource Management International, Inc. is a holding company for several subsidiaries which market, and operate computerized minibars in hotels located in the United States, Europe and Israel. Hotel Outsource Management International, Inc. and its subsidiaries may collectively be referred to as "we", "us", "our" or" HOMI." HOMI was incorporated in Delaware on November 9, 2000 under the name Benjamin Acquisitions, Inc.
Our core activities focus primarily on manufacturing, operating, servicing and marketing computerized minibars installed 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. In periods of economic slow-down, the interest in outsourcing solution may actually increase. 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 to the hotel, or managing the 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 many thousands of minibars for our customers, who are spread over four 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 wholly owned subsidiaries around the world, has been in place since 2001. Our common stock has been listed on the Over-the-Counter Bulletin Board, or "OTC Bulletin Board" since February 2004 under the symbol "HOUM.OB."
Our Growth Strategy
It is our objective to continue to increase the number of minibars which we manage in hotels, using the various business models which we have developed, in accordance with each customer’s needs, as well as to engage in rental, sale and installation and outsource programs using the HOMI ® 330 and additional minibar models. HOMI intends to design and manufacture peripheral products and/or accessories for the HOMI 330®. HOMI also intends to offer new and additional minibar models. Proposed additional models may be referred to as the “New Range of Products.”
During 2010, HOMI and Best Bar Services Ltd. ("Best Bar"), a third party company, began their cooperation regarding Best Bar’s Open Display - Open Access Computerized minibars. HOMI purchases minibars from Best Bar and then markets them as the HOMI ® 232 minibar. HOMI has already signed agreements with several hotels to install and operate the HOMI ® 232.
We also intend, among other things, to expand our activities in those hotels in which a minibar system is already installed and operational. These opportunities can be particularly attractive, as a simplified business model can be implemented, without it being necessary to address matters such as the purchase and installation of the minibars themselves.
Our activities currently focus on North America, Europe and Israel. We intend to consolidate and increase our business in the regions in which we are already active. We also believe that there are growth opportunities in new markets, and that by implementing the same models that have been successful for us in our current markets, we will be able to replicate our success in these other regions also.
Our services have to date been directed primarily at upscale and luxury hotels. We believe that by adjusting our existing business models, it will be possible to broaden the base of our activities so as to include midscale hotels. An integral part of this strategy involves the sale, rental, installation and outsource programs of the HOMI ® 330 and the New Range of Products. Features of the HOMI® 330 and the New Range of Products which we believe will make it easier to enter the mid-scale range of hotels include:
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Mechanism against mistaken charges. This has been designed to increase the accuracy of the automatic billing.
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Substantially lower operating costs. This should improve profit margins and means that HOMI will be able to offer the HOMI® 330 and the New Range of Products to midscale/mid-market hotels, a very large sector previously closed to HOMI in the past, as well as to upscale hotels.
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No need for infrastructure at hotel. A standard electrical outlet is the only infrastructure required. Minibar data is transferred automatically via an integral, dedicated wireless system. This makes installation easier, and more attractive to hotels.
By opening the midscale range of hotels to our services, we will be able to substantially increase the potential size of our target market, which should enable us to further improve our revenues and profitability.
Operations
To date our activities have focused primarily on managing the minibar departments in upscale hotels. We offer our customers a number of solutions ranging from consultation and supervision services, all the way to full outsource installation and operation services. We currently implement several general types of business models, further detailed below.
Complete Outsource Solution. This is currently the most prominent of the business models that we employ. Many hotels do not want to pay upfront for their minibars, and many do not want to allocate resources to operate the minibars either.
Accordingly, we manufacture our own New Range of Products, or purchase other manufacturers’ new minibars, and install them at the hotel’s premises, at no immediate cost to the hotel. In the case of computerized minibars, the installation also includes software designed to interface between the minibars and the customer’s existing management software, so that various actions relating to usage of the minibars such as, consumption of products from the minibars, and the locking/unlocking of the minibars, can be logged or controlled by the customer and by us. We then manage and operate the minibar department for the customer. We also supply full maintenance services for the minibars. We carry the operating expenses of the minibar department, and net revenues (after rebates and other discounts, if any) from the minibar department are shared, with us receiving the majority of the revenue and the hotel retaining the balance of the revenues. Generally, we offer incentives to the hotel so that the customer’s relative share increases as the net revenue per minibar rises.
In this model, the initial term of our agreement with the hotel is several years, and the customer typically has an option to extend the agreement and/or to purchase the turnkey system from us at one or more points in time during the term of the agreement. Our objective is to provide our services to the customer for the full term of the agreement, but this business model remains profitable even if the customer decides, at any stage, to exercise its option to purchase the system from us.
We offer this kind of model for the HOMI® 330 and the HOMI ® 232, but have made some adjustments, so that the agreements are typically for a shorter period, and the division of revenues is often based on a threshold, where HOMI is guaranteed all revenue up to the threshold, and anything above the threshold is divided between HOMI and the hotel at a fixed rate, with the majority going to HOMI.
We believe that this type of model offers the customer many advantages in relation to its minibar department, including the following:
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No capital expenditure on the minibars
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A new revenue stream, if no minibars were previously installed and operational
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No labor expenses and no operating costs
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No purchase of goods and no inventory management
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Added service to guests, thereby improving the customer’s competitive edge
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No downside: hotel is minimizing its risks, both financial and other
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Added flexibility, via the customer’s option to purchase the system
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Outsourcing allows the hotel to focus on major revenue sources
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Quality of service: we specialize in the field
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Increased control and management, extensive reporting
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No maintenance by customer
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Periodic technical and technological upgrades
Management & Operation of Installed Base. For customers who already have an installed, operational minibar system, we provide partial maintenance services, and full operation and management services. Essentially, the services which we provide in this case are the same as in the Outsource Solution for Leased Base model.
Management of Installed Base. This is the model that is preferred by customers who wish to receive the benefit of our know-how and our procedures, but would like to continue to manage the minibar department themselves, using their own staff. Typically, the customer receives a limited license to utilize our know-how, and is then taught how to manage the minibar department in a more efficient and profitable manner. We provide part-time supervision and support, and the customer carries the cost of operation of the department.
New Business Model
In 2009 we introduced a new business model, pursuant to which we sell to third parties minibars scheduled to be installed at specific hotels with which we have outsourcing agreements. The minibars, once installed and operational, remain in place at the hotel and we operate and maintain these minibars in accordance with our outsource operation agreement; the only difference is that title to the minibars now rests with the third party . The agreements with the third parties are to be in effect for most of the useful lives of the minibars .
According to this business model, we continue to invoice each hotel for the full amount of the net revenues from its outsource operation (“Net Revenues”). From this amount, we deduct operational payments (cost of goods, labor, $0.06 (in dollars) per minibar maintenance, 8% management fee) (“Operational Payments”). As long as Net Revenues exceeds Operational Payments ("Operating Cash Flow"), such Operating Cash Flow shall be divided between us and the third party in accordance with the terms of the agreement.
In other cases, instead of selling the minibars to a third party, we receive a loan from a third party in an amount equivalent to our turnkey installed cost price,$500 per HOMI® 330 minibar to be installed at a specific hotel(s) with which we have an outsourcing agreement. The loan repayment schedule and interest payments are made according to a calculation of the operational results of the minibars.
Other. The models discussed above are the primary types of arrangement that we offer our customers, but we approach each case with a certain amount of flexibility, which enables us to adjust a particular model so that it is tailor-made for the customer, but is still in line with the principles outlined above. Also, each model may be sub-divided into arrangements whereby we receive a fixed service charge, or a fixed percentage of gross revenues, instead of net revenues, and other similar adjustments. The models will also vary depending on the nature of the customer: upscale hotel, airport hotel or other hotel; and whether the minibars are computerized or manual. Sometimes, the existence of specific union rules in certain territories also require us to be flexible and adapt an arrangement so that it is workable for the customer, while still enabling us to manage and/or operate the minibar department in a way which is designed to be profitable for us, as well as for the customer. We may also be prepared to lease / rent minibars to customers, or enter into other financing arrangements, where circumstances so require. This may be applicable to the HOMI® 330,the HOMI ® 232 and a New Range of Products.
Competition
We have over a decade of hands-on experience in providing services to the hotel industry. Whether we are consulting to a hotel, or managing the 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.
Many of our competitors have experience in revenue-sharing business models, while others provide systems that are supposed to improve the efficiency of a hotel’s minibar department.
We believe that our ability to provide a range of services, up to a complete outsource solution, including a comprehensive financing solution as well as the full management and operation of the minibar department, places us in a favorable position, compared with some of our competitors.
Our hands-on management strategy, combined with on-site supervision, allows us to assume responsibility for the following matters, thereby enabling our customers to concentrate their efforts in other areas:
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Implementation of our exclusive operating procedures
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Procurement of the consumables that are offered in the minibars
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Management of inventory control and monitoring of expiry dates of consumables
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Implementation of procedures to handle and reduce rebates
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Periodic reconciliation of accounts
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Training of minibar attendants and front office employees
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Maintenance and support
Our objective is to enable our customers to increase the net revenues that are generated by their minibar departments, including by the following means:
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Taking active involvement in the selection and pricing of consumables
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Implementing innovative and attractive product mixes for different room categories
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Producing attractive, creative and novel menus
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Improving minibar visibility
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Proposing and implementing effective promotional activities
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Reducing rebates & manual emptying of minibars by guests
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In-depth and real-time data logging and reporting, thereby creating extensive sales statistics and enabling effective data-mining, designed to adapt the system to improve performance
A large number of hotels still manage and operate their minibar departments in-house, and the concept of outsourcing this to a company that specializes in this kind of activity is still relatively new. In some cases, there is a general lack of awareness on the part of the hotel, either of the existence of the kind of services which we offer, or of the advantages that can be gained by making use of them. Our marketing activities are directed at increasing awareness and painting a full picture for the hotels, so that they can make an educated decision, based on the relative pros and cons. We believe that our services can be of substantial benefit to our customers, but outsourcing of this type of services still accounts for a relatively small segment of the hotel industry market.
In addition, there are also other companies which offer some or all of the services which we offer. Presently, our main competitors are Minibar Systems, Bartech Systems International, Inc. and Domestic Holding AB which offer outsourcing or revenue sharing programs at prices that are competitive with ours. Other companies, such as Club Minibar, offer outsourcing programs utilizing manual minibars. In respect of the financing aspects of the solutions we offer to our clients, we are also in competition with certain manufacturers of the minibars themselves. With respect to the New Range of Products, we expect to be in competition with certain minibar manufacturers who offer minibars that may be perceived by our potential customers as being alternatives to our New Range of Products.
Whether in the regions in which we are currently active, or in territories into which we will expand our activities in the future, the arrival of other companies offering similar services may force down our profit margins if we are to remain competitive.
Customers and Markets
We currently market and provide our products and services primarily to upscale and luxury hotels.
As of December 31, 2010, we provide operation and/or management services to the minibar departments of 33 hotels, most of which are affiliated with prominent international hotel chains such as Sheraton, Hyatt, Radisson and others.
There seems to be a direct correlation between a hotel's occupancy level and average room rate and the quantity of purchases made by guests from a hotel's minibars. As a result, in the majority of our current projects, where our revenues are based on the net revenues of the minibar departments which we operate and/or manage, our revenues are dependent on hotel occupancy levels and average room rate. Decreases in hotel occupancy levels and its average room rate could result in corresponding decreases in our revenues.
Governmental Regulation
In accordance with regulations related to the sale of alcoholic beverages in various countries in which we provide our services, there are instances where we operate under a hotel's license to sell alcohol. In such cases, although we do not incur costs of meeting regulatory compliance, we cannot guarantee a hotel's compliance with applicable regulations. Failure of a hotel to comply with these regulations could result in our inability to sell alcoholic beverages in the minibars being operated and/or managed by us, which would probably result in a decrease in our revenues.
Intellectual Property
We own the trademark “HOMI” in respect of the services which we supply. In numerous countries around the world, we have registered, or are in the process of registering, this trademark in our name. In 2006, we filed for patent protection with regard to certain features of the HOMI® 336 and the HOMI® 330 and our New Range of Products and this patent has been registered and issued in the United States and Europe and an application is pending in Taiwan. In 2008, a further patent application was filed in the U.S., with regard to certain additional features of our New Range of Products, and this application is pending. In 2009, a further patent application was filed in the U.S., with regard to certain additional features of our New Range of Products, and this application is pending. We hold no other registered patents, trademarks, service marks or other registered intellectual property relating to our operations.
Employees
As of December 31, 2010, HOMI and its subsidiaries had 40 full time employees.
Corporate Structure
We have a fully owned United States subsidiary, HOMI USA, Inc. (“HOMI USA”), formerly known as Hotel Outsource Services, Inc., through which we conduct business in the United States.
Outside the United States, we carry on our business activities through regional subsidiaries, each of which is responsible for one or more territories in which we market and/or provide our services. These subsidiaries receive management services from us, and also retain staff of their own, either as employees or under management agreements or service agreements.
Our operating subsidiaries can, as of December 31, 2010, be summarized as follows:
HOMI USA, Inc. (“ HOMI USA ”)
HOMI Israel Ltd. (“HOMI Israel”)
HOMI Industries Ltd. (“HOMI Industries”)
HOMI France SAS
HOMI UK Limited.
All of our subsidiaries are currently wholly owned by us, directly or indirectly.
ITEM 1A:
ITEM 1A: RISK FACTORS
1. We are dependent on a small number of customers for a large percentage of our business.
In 2010, our three largest customers provided 30.0% of our sales revenues, and in 2009, our three largest customers provided 25.6 % of our sales revenues. The loss of any of these customers would cause a large decrease in our sales revenues and negatively affect our ability to operate.
2. We depend on key personnel, the loss of whom could adversely affect our ability to perform, market our company and obtain contracts with major hotels.
Our success is substantially dependent on the performance of our executive officers, Daniel Cohen and Jacob Ronnel. The loss of the services of either of these executive officers could have a material adverse effect on our business, results of operations and financial condition. In addition to being executive officers of HOMI, Mr. Cohen and Mr. Ronnel are executive officers of most of our subsidiaries. We are further dependent on the performance of Ariel Almog, Chief Executive Officer of HOMI USA, Inc. Competition for senior management, marketing personnel and other employees is intense, and there can be no assurance that we will be successful in attracting and retaining such personnel. Failure to successfully manage our personnel requirements could cause a decrease in sales and revenues. While we intend to purchase key person life insurance for our executive officers, currently we do not have any such insurance.
3. The economy of the hospitality industry is uncertain; a downturn could decrease our opportunities for contracting with new hotels.
HOMI's revenues are dependent in large part on the continued growth and profitability of the lodging industry, which, in turn, is dependent on levels on travel, tourism and business entertaining. There can be no assurance that profitability and growth will be achieved.
The current global economic crisis that began during 2008, had an adverse effect on the hospitality industry, and could continue to adversely affect this industry through the foreseeable future. A weak U.S. dollar and high rates of unemployment could result in the failure of many Americans to travel abroad, thereby resulting in decreased tourism. The ongoing crisis in the Middle East, likewise, has had a negative impact on the hospitality industry in that region, which may continue into the foreseeable future. Any or all of these events could result in hoteliers' decision to not install our minibars, which could have a materially adversely affect HOMI's business, operating results and financial condition.
4. In our outsource operations, we depend on the hotels' timely payment of our share of the minibar revenues, the failure of which could harm our credit, cash flow and corporate growth.
An integral part of our outsource operation program is in the collection of revenues from our minibars by the host hotel, and then the allocation of such revenues between HOMI and the hotel. As a result, we depend on each hotel's timely and accurate collection of revenues. To the extent we depend on our revenues to pay our expenses and/or fund our growth, hotels' failure to timely and/or accurately remit payment could adversely affect our credit, cash flow and expansion opportunities.
5. We will need, and may be unable to obtain, additional financing which could force us to slow down or suspend our operations.
HOMI needs to continue to market its products and services in order to expand its operations. We expect that our new business models wherein we sell new outsource installations to third parties and in other times receive a similar amount in loans for installations, will enable us to finance our operations and projected growth in 2011.We believe that by implementing our new business models, we will have sufficient funds to meet our needs for working capital for the next 12 months. However, there is no guarantee that our new business model will supply us with sufficient working capital, in which case we may need to obtain funding from other sources. There can be no assurance that additional capital will be available on acceptable terms. As such, we may not be able to fund our future operations, adequately promote our products, develop or enhance services or respond to competitive pressures. Any such inability could adversely affect our ability to enter into new contracts which would prevent us from growing the company.
6. If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.
Effective internal controls are necessary for us to provide reliable financial reports. If we cannot provide reliable financial reports, our business and operating results could be harmed. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement.
In evaluating the effectiveness of our internal controls over financial reporting as of December 31, 2008, we identified two material weaknesses: entity control level; and segregation of duties in the finance department. As a result, management implemented a comprehensive program designed to strengthen our internal controls over financial reporting. Among other things, the program provided for (i) the addition of staff to our finance department as well as to the operational department, (ii) the integration of updated financial software, (iii) the creation of a new mechanisms for the review and approval of invoices to customers and/or from suppliers, (iv) increased level of discussion and documentation by senior financial management, (v) increased frequency of sudden checks; and (vi) the establishment of additional controls over financial reporting.
During the year ended December 31, 2010, management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Such an evaluation requires the check and testing of the existence of the required controls. Based on this examination, as of December 31, 2010, management has concluded that its disclosure controls and procedures are effective.
ITEM 1B:
ITEM 1B: UNRESOLVED STAFF COMMENTS
Not applicable
ITEM 2:
ITEM 2: PROPERTIES
Our operations are based primarily at hotels in which we conduct our outsource operations. Most of these hotels allow us to utilize office space free of charge. We also make use of a small amount of office space in Hertzeliya, San Francisco, and New York.
Our facilities are as follows:
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Our corporate headquarters are located at 80 Wall Street, Suite 815, New York, New York, in the offices of Schonfeld & Weinstein, L.L.P., at no additional cost to us. Schonfeld & Weinstein, L.L.P. serves as our US Counsel and also owns shares in our company.
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HOMI Israel’s and HOMI Industry's corporate headquarters are currently located at 1 Abba Eban St. Hetrzeliya Pituach 47625, Israel with a monthly rent of $3,100. This office is leased from an unaffiliated third party. We also lease a virtual office at 116 West 23rd Street, New York, New York from Select Office Suites, an unrelated third party, for $100 per month on a month-to-month basis.
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HOMI USA has its corporate headquarters at 1 Embarcadero Center, Suite 500, San Francisco, California 94111. The monthly rent is $500. Most of HOMI USA’s operations are conducted from the office we utilize at the Hyatt Regency San Francisco, which is one of our customers.
The office space provided us by the hotels in which we operate are also usually used to store goods to be placed in the minibars and spare parts for the minibars. Generally, we do not keep a significant number of minibars in stock. Instead, we order them on an as needed basis. Typically, they are then shipped directly from the manufacturer to the customer. As we enter into additional outsource agreements with customers, we will expect to receive office space within the premises of these customers, from which we will conduct our operations.
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS
To the best of our knowledge, there are no legal proceedings pending or threatened against us.
ITEM 4:
ITEM 4: [REMOVED AND RESERVED]
PART II.
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market For Common Stock
As of December 31, 2010, HOMI has 89,453,364 shares of common stock outstanding held by a total of 108 shareholders. No dividends have been declared as of December 31, 2010.
Our common stock has been listed on the Over-the-Counter Bulletin Board, or "OTC Bulletin Board" since February 2004 under the symbol "HOUM.OB."
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings
On November 11, 2008, HOMI entered into a loan agreement with related parties, Daniel Cohen, President of HOMI and Avraham Bahry, Chairman of the Board of Directors of HOMI. The loan agreement had been approved by HOMI’s Board of Directors on November 10, 2008. Pursuant to this loan agreement, Mr. Cohen and Mr. Bahry loaned HOMI $100,000 and $200,000, respectively, for a maximum period of four months. The loans carried interest at a rate of 6% per annum. The entire sum of the loans and accrued interest was converted into HOMI’s common stock at a rate of $0.05 per share, the price that shares were offered to shareholders in HOMI's rights offering that closed on January 23, 2009.
On December 8, 2008, HOMI entered into a loan agreement with related parties, Jacob Ronnel, Chief Executive Officer of HOMI and Aryeh Reif, Corporate Secretary of HOMI. The loan agreement had been approved by HOMI’s Board of Directors on December 3, 2008. Pursuant to this loan agreement, Mr. Ronnel and Mr. Reif loaned HOMI $400,000 and $20,000, respectively, for a maximum period of four months. The loans carried interest at a rate of 6% per annum. The entire sum of the loans and accrued interest was converted into HOMI’s common stock at a rate of $0.05 per share, the price that shares were offered to shareholders in HOMI's rights offering that closed on January 23, 2009.
Between December 15, 2009 and February 3, 2009, HOMI completed a shareholder rights offering, pursuant to which it raised a total of $1,417,863, through the issuance of 28,357,262 shares of common stock at $.05 per share. This amount includes the conversion of $603,746 of loans into shares at $.05 per share.
On April 16, 2009, HOMI entered into a loan agreement with a related party, Daniel Cohen, President of HOMI. Pursuant to this loan agreement, Mr. Cohen loaned HOMI $150,000. This loan was repaid in full by means of its conversion into stock, at a price of $0.04 per share, in the context of HOMI’s rights offering which closed on August 27, 2009.
On May 12, 2009, HOMI entered into a loan agreement with a related party, Avraham Bahry, Chairman of the Board of Directors of HOMI. Pursuant to this loan agreement, Mr. Bahry loaned HOMI $200,000. This loan was repaid in full by means of its conversion into stock, at a price of $0.04 per share, in the context of HOMI’s rights offering which closed on August 27, 2009.
On June 23 2009, HOMI entered into loan agreements with related parties. Pursuant to one loan agreement, a total of $47,000 was loaned to HOMI, divided up as follows: Jacob Ronnel, Chief Executive Officer, $15,000; Ariel Almog, director, $7,000; and William and Pai-Wen Buckley, shareholders, $25,000. These loans were repaid in full by means of its conversion into stock, at a price of $0.04 per share, in the context of HOMI’s rights offering which closed on August 27, 2009.
Pursuant to a second loan agreement, Vental Holdings S.A., a Panamanian corporation, loaned HOMI $81,000. Vental Holdings S.A. is a shareholder of HOMI. The principal of Vental Holdings S.A. is Geoffrey Wolf, also a shareholder of HOMI. This loan was repaid in full by means of its conversion into stock, at a price of $0.04 per share, in the context of HOMI’s rights offering which closed on August 27, 2009.
In June 2009, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission to sell 20,000,000 shares at $0.04 per share in a shareholder rights offering. This offering was declared effective on June 25, 2009. A post-effective amendment to this registration statement was filed on August 6, 2009 and declared effective on August 12, 2009. In this offering, which closed on August 27, 2009, we raised a total of US$800,000 through new subscriptions and the conversion of shareholder loans, and we issued 20,000,000 shares of common stock. Proceeds from the issuance of shares have been applied toward working capital.
There were no underwriters in any of these offerings.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operations and financial condition for the year ended December 31, 2010. The following discussion should be read in conjunction with the financial statements for the year ended December 31, 2010.
Forward-Looking Statements
This annual 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 in United States Dollars (US$) and are prepared in accordance with accounting principles generally accepted in the United States of America. In this annual report, unless otherwise specified, all dollar amounts are expressed in United States Dollars.
As used in this annual report, the terms "we", "us", "our", and "HOMI" mean Hotel Outsource Management International, Inc. and its subsidiaries, unless otherwise indicated.
Critical Accounting Policies
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.
Revenue recognition, Accounts Receivable and Allowance for Doubtful Accounts
Revenues from minibars operation and product sales derived from outsource activity under the exclusive long-term revenue sharing agreements with hotels, net of the hotel’s portion, 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 collectibles is probable.
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 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 December 31, 2010 and 2009.
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, 2010 the Company’s balance sheet includes $ 4,169,000 of fixed assets, net. The Company has completed its impairment test for 2010 and has concluded that no impairment write-off is necessary.
Financial statements in US 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 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.
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 the average exchange rate for the period. The resulting translation adjustments are not included in determining net loss but are reported in a separate component of accumulated other comprehensive income (loss) in shareholders’ equity.
Overview
Hotel Outsource Management International, Inc. 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 minibar, the HOMI® 336/330, which is the first in a new range of products currently under development. The HOMI® 336/330 is the first product to be designed and manufactured by HOMI.
HOMI is a holding Company for several subsidiaries which market and operate computerized minibars in hotels located in the United States, Europe, Australia and Israel. HOMI was incorporated in Delaware on November 9, 2000 under the name Benjamin Acquisitions, Inc.
Our core activities focus primarily on manufacturing, operating, servicing and marketing computerized minibars installed 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. In periods of economic slow-down, the interest in outsourcing solution may actually increase. 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 to the hotel, or managing the 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 many thousands of minibars for our customers, who are spread over four 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 has been listed on the Over-the-Counter Bulletin Board, or "OTC Bulletin Board" since February 2004 under the symbol "HOUM.OB."
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 of the minibars system 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 of the minibar attendants;
(4)
General and Administrative, and marketing expenses;
(5)
Maintenance of the minibar systems;
(6)
Finance expenses.
RESULTS OF OPERATIONS FOR HOMI
YEAR ENDED DECEMBER 31, 2010 COMPARED TO YEAR ENDED DECEMBER 31, 2009.
Revenues
For the years ended December 31, 2009 and 2010, HOMI had revenues of $ 3,651,000 and $ 3,201,000 respectively, a decrease of $450,000 or 12%. These revenues come mainly from the sale of products in the minibars. According to our agreements with hotels in which we conduct our outsource programs, the hotels, which collect the revenues generated from our minibars, deduct their portion of the revenues before distributing the remainder to us.
This decrease in revenues is mainly due to the sale of two of HOMI's subsidiaries in Europe: HOMI - Hotel Outsource Management International (Deutschland) GmbH and HOMI Italia S.R.L on April 30th, 2010 and due to the fact that Homi Australia ceased operating the minibars in Hilton Sydney, the only hotel with which we conducted outsource operations in Australia, and transferred the operation and the minibars installed, to that hotel.
For the year ended December 31, 2010, our three largest customers accounted for 30.0 % of our total revenues, as compared to 25.6% in 2009..
As of December 31, 2010 and 2009, HOMI, through its operating subsidiaries had outsource operation programs to provide and operate minibars as follows:
Gross Profit
Gross profit decreased from $815,000 to $754,000, a decrease of $61,000 or by 7.5% for the years ended December 31, 2009 and 2010, respectively. Such decrease is in correlation to the decrease in revenues.
As a percentage of revenues, gross profit increased from 22.3% to 23.6 %. The increase in gross profit margin is mainly due to the fact that the new minibars are functioning more effectively and we are improving their revenue potential.
Cost of Revenues
Cost of Revenues, before consideration of depreciation expense, for the years ended December 31, 2009 and 2010 were $2,062,000 and $1,759,000 respectively, a decrease of $ 303,000 or 14.7%. As a percentage of gross revenues, costs of revenues, before consideration of depreciation expense, decreased, from 56.5% in 2009 to 55.0% in 2010. This decrease in cost of revenues is a result of the increased efficiency of our new minibars.
Depreciation expense for the years ended December 31, 2009 and 2010 was $774,000 and $688,000, respectively, a decrease of $86,000, or 11.1% The decrease in depreciation expense is mainly due to the sale of two of HOMI's subsidiaries in Europe , HOMI - Hotel Outsource Management International (Deutschland) GmbH; and HOMI Italia S.R.L on April 30th, 2010 and due to the fact that HOMI Australia ceased operating the minibars in Hilton Sydney, the only hotel with which we conducted outsource operations in Australia, and transferred the operation and the minibars installed to t that hotel.
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, is the first of the new range of products, the research and development of which, was completed in 2007. The research and development of an additional product, HOMI® 330, was completed in 2009. In 2010 we incurred additional expenses to improve the production and functionality of the minibars. Total research and development expenses for the year ended December 31, 2009 were $116,000 and $128,000 for the year ended December 31, 2010.
Operating Expenses
General and administrative expenses decreased from $1,983,000 to $1,734,000, a decrease of $249,000, or 12.6 % for the years ended December 2009 and 2010. As a percentage of revenues, general and administrative expenses slightly decreased from 54.3% to 54.2%.
This decrease in expenses is due to the sale of two of HOMI's subsidiaries in Europe: HOMI - Hotel Outsource Management International (Deutschland) GmbH; and HOMI Italia S.R.L in April 2010, and our increased efforts made to reduce expenses.
Selling and Marketing expenses decreased from $ 261,000 to $ 196,000 a decrease $ 65,000, or 24.9% primarily as a result of our efforts to reduce expenses.
Financial Income ( Expenses)
For the year ended December 31, 2009 we had $72,000 of interest and financial income, and in the year ended December 31, 2010, we had $251,000 in expenses, an increase in expense of $323,000. These amounts include interest expense (net) of approximately $126,000 and $185,000, respectively. The remaining amounts are due primarily to currency rates change on US$ dominated intercompany balances.
Other Income (Expenses)
For the year ended December 31, 2009 we had other expenses of $105,000, and for the year ended December 31, 2010, we had other expenses of $351,000. Of the expenses incurred in 2010, $85,000 was a capital loss from the sale of our subsidiaries in Germany and Italy, $126,00 was a capital loss from the sale of minibars in Australia, and $134,000 was a result of the dismantling of old HOMI 336 Minibars in Israel that were from the first batch of production.
Net Income (Loss)
As a result of the above, we finished 2010 with a net loss of $1,904,000 compared to a net loss of $ 1561,000 in 2009, including onetime expenses in the amount of $351,000. When excluding such onetime gains, we finished 2010 with a net loss of $ 1,553,000.
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 December 31, 2009 of $5,811,000 and $7,715,000 as of December 31, 2010. During the year ended December 31, 2009, we incurred a net loss of $1,561,000. During the year ended December 31, 2010, we incurred a net loss of $1,904,000.
Investing and operating activities have historically been funded through our financing activities, which provided cash of approximately $1,309,000 in 2010. In 2010 HOMI used $855,000. In 2006 HOMI raised $118,000 through the issuance of convertible notes. These notes accrue interest at a rate of 8% per annum, with the interest payable each quarter commencing 2007. Principal is repaid in eight equal quarterly installments commencing December 2008. These notes may be converted at a conversion price ranging between $0.50 and $0.80 on dates as defined in the agreement. The final payment is due March 31, 2011. During the year ended December 31, 2007, HOMI raised an additional $376,000 of these notes. As of December 31, 2010 there were $73,800 in notes outstanding
On December 31, 2010 HOMI had long term debt of $ 2,729,000, including, $ 351,000 in current maturities.
In January 1st, 2010, HOMI Australia ceased operating the minibars in Hilton Sydney, the only hotel with which we had outsource operations in Australia, and transferred the operation and the minibars installed to that hotel, for AUD 435,000 (approx. $ 396,000). The amount will be repaid over maximum of 50 monthly payments which will be based on the monthly performance of the hotel as detailed in the agreement. Title in the system shall immediately pass to Hilton Sydney after those repayments, for the nominal price of AUD$1. The balance of the debt is presented in the financial statements part at other accounts receivable and part at long term receivables.
On January 28, 2010, HOMI entered into two loan agreements with related parties as follows:
Pursuant to one loan agreement with a related company, which is a company owned by HOMI’s Chairman, the related party loaned HOMI NIS 1,125,000 (approximately $ 300,000). The loan is index linked to Israel’s Consumer Price Index and bears interest at a rate of 6% per annum. The loan is for a period of four years, with quarterly repayments. The first two years will be grace period on the principal. During the grace period, the lender is entitled to convert the loan into shares of HOMI’s common stock, at a price per share of $0.08 during the first year and $0.12 during the second year.
Pursuant to the second loan agreement dated January 28, 2010, HOMI’s President loaned HOMI $ 100,000. The loan bears interest at a rate of 8% per annum .The loan is for a period of four years, with quarterly payments.. The first two years will be a grace period on the principal. During the grace period, the lender is entitled to convert the loan into shares of HOMI’s common stock, at a price per share of $0.08 during the first year and $0.12 during the second year.
On February 18, 2010, HOMI Industries Ltd, ("HOMI industries") a wholly owned subsidiary of HOMI, entered into a loan agreement with Ilan Bahry (son of HOMI director Avraham Bahry), Amir Schechtman and Oded Yeoshoua, a related party, pursuant to which HOMI Industries received a loan of $ 140.,000. As security and collateral for repayment of the Loan, HOMI Industries agreed to encumber in lender's favor computerized minibar systems, including 280 HOMI® computerized minibars, a central unit and a license to HOMI® software, which HOMI’s affiliate installed during April to June 2010 at the Wyndham Hotel in New York, USA and operates for the Hotel under outsource operation agreement which HOMI’s affiliate signed with the hotel.
On June 14, 2010, HOMI Industries entered into a second loan agreement with the above mentioned related party, pursuant to which HOMI Industries received a loan of NIS 671 (approximately $ 173,000) for the installation of 363 HOMI 330 minibars in a Hotel in Israel. As security and collateral for repayment of this loan, HOMI Industries agreed to encumber in lender's favor computerized minibar systems, including 363 HOMI 330 ® computerized minibars, a central unit and a license to HOMI® software, which HOMI Industries installed in September 2010 at the Royal Beach Hotel in Eilat, Israel and operates for that hotel under an outsource operation agreement which HOMI Industries signed with the hotel.
Loans repayments for these four related party loans will be computed on the basis of revenues net of operational payments, allocated amongst the parties, in accordance with the terms detailed in the loans agreements.
On April 19, 2010, HOMI Europe S.A.R.L. (“HOMI Europe”), which is an indirectly held, wholly owned subsidiary of HOMI ,entered into a share sale agreement with Clevo Corporation S.A. (“Clevo”), which is a third party under the control of Mr. Geoffrey Wolf, a HOMI shareholder. Pursuant to this share sale agreement, HOMI Europe sold to Clevo 100% of the outstanding shares in HOMI - Hotel Outsource Management International (Deutschland) GmbH and 100% of the outstanding shares in HOMI Italia S.R.L., and also assigned to Clevo all of its rights to the shareholder loans which it has previously made to HOMI Italia S.R.L. The effective date for these transactions is April 30, 2010. The total purchase price paid by Clevo, for the shares and for the assignment of the shareholder loans, was $525,000, on a “no cash, no debt” basis. Upon consummation of this transaction, HOMI - Hotel Outsource Management International (Deutschland) GmbH and HOMI Italia S.R.L. ceased to be affiliated to HOMI. The abovementioned transaction caused HOMI Europe a capital loss of $ 85,000, which is presented among the Other Expenses. HOMI - Hotel Outsource Management International (Deutschland) GmbH and HOMI Italia S.R.L. were until now wholly owned subsidiaries of HOMI Europe, which managed and operated minibar systems in one hotel in Germany, one hotel in Italy and three hotels in Malta.
On October 5, 2010, HOMI Industries Ltd. signed a loan agreement with Tomwood Limited, which is a BVI company (“Tomwood”). Pursuant to this agreement, Tomwood shall loan to HOMI Industries $2,000,000. This loan will be made available to HOMI Industries in four, equal installments of $500,000 each. The first installment was received on October 3, 2010 the second installment was received on December 26, 2010. The next installments are due to be received on April 1, 2011 and July 1, 2011. These dates may be postponed by written notice of HOMI Industries.
The Tomwood loan bears interest at a rate of 10% per annum, to be paid quarterly, starting one quarter after the first installment of the loan. HOMI Industries will repay this loan in eight consecutive, quarterly payments, commencing as of September 30, 2013 and ending on June 30, 2015. HOMI Industries will use the proceeds of the Tomwood loan for the sole purpose of manufacturing and/or purchasing, and installing, minibar type products, and performing the logistics required in connection with these activities, including run-in of new installations and debugging of new installations. Until September 29, 2013, Tomwood shall have the right to convert all or any part of the principal sum of its loan to HOMI Industries into shares of the common stock of Hotel Outsource Management International, INC. For a conversion occurring no later than September 29, 2012, the conversion will be at a price per share of 6 cents, for a maximum of 33,333,333 shares (if the entire loan is converted during that period). For a conversion occurring between September 29, 2012 and September 29, 2013, the conversion will be at a price per share of 8 cents, for a maximum of 25,000,000 shares (if the entire loan is converted during that period). As security and collateral for repayment of the Loan, HOMI Industries will take all action necessary on its part to encumber the minibars purchased with the loan by registering a first degree lien over such minibars.
Subsequent Events
N/A
Off Balance Sheet Arrangements
HOMI has no significant 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.
International Tax Implications
Taxable income of Israeli companies is subject to tax at the rate of 26% in 2009 25% in 2010 and gradually will be reduced to18% in 2016 and thereafter. HOMI’s United States subsidiary is subject to a 15% -35% corporate tax rate. Subsidiaries in Europe are subject to 35% - 45% corporate tax rate. The Australia subsidiary is subject to 30% corporate tax rate.
As of December 31, 2010 HOMI Inc. had approximately $ 497,000 net operating loss carryforwards
As of December 31, 2010 HOMI Israel Ltd., a subsidiary in Israel, had approximately $1,092,000 net operating loss carry forwards. The loss carryforwards in Israel have no expiration date.
As of December 31, 2010 HOMI Industries Ltd., a subsidiary in Israel, had approximately $1,086,000 net operating loss carry forwards. The loss carryforwards in Israel have no expiration date.
As of December 31, 2010, HOMI USA had approximately $ 2,640,000 net operating loss carryforwards. Utilization of US net operating losses may be subject to substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses before utilization.
As of December 31, 2010 the subsidiary in Australia had net operating loss carryforwards of $360,000
As of December 31, 2010 the subsidiary in France had net operating loss carryforwards of $82,000.
As of December 31, 2010 the subsidiary in the United Kingdom had net operating loss carryforwards of $438,000.
As of December 31, 2010 the subsidiary in Europe (HOMI Europe Sarl) had net operating loss carryforwards of $ 667,000.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2010 AND 2009
INDEX
- - - - - - - - - - - - - - - - -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Directors of Hotel Outsource Management International, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Hotel Outsource Management International, Inc. and subsidiaries (the “Company”) as of December 31, 2010 and 2009 and the related consolidated statements of operations, changes in shareholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statements presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2010 and 2009, and the consolidated results of its operations, changes in shareholders' equity and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Barzily & Co.
Jerusalem, Israel
22 March, 2011
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
US Dollars in thousands
The accompanying notes are an integral part of the consolidated financial statements.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
US Dollars in thousands (except share data)
The accompanying notes are an integral part of the consolidated financial statements.
* Reclassified.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
US Dollars in thousands (except share and per share data)
The accompanying notes are an integral part of the consolidated financial statements.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
US Dollars in thousands (except shares data)
The accompanying notes are an integral part of the consolidated financial statements.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
US Dollars in thousands
The accompanying notes are an integral part of the consolidated financial statements.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
US Dollars in thousands
The accompanying notes are an integral part of the consolidated financial statements.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 1:- GENERAL
a.
Hotel Outsource Management International, Inc. ("HOMI") was incorporated in Delaware on November 9, 2000. HOMI and its subsidiaries, as identified in Note 2c below, are engaged in the distribution, marketing and operation of computerized minibars in hotels located in the United States, Europe, Israel and Canada.
Hereinafter, HOMI and its subsidiaries will be referred to as the "Company".
HOMI's common stock has been listed on the Over-the-Counter Bulletin Board since February 2004 under the symbol "HOUM.OB."
b.
During 2006, the Company commenced its own research and development program aimed at the development of a new range of products. The HOMI® 336 (the "System"), a novel, computerized minibar system designed to increase the accuracy of the automatic billing and reduce the cost of operating the minibars. Further, the HOMI® 330 system, a smaller version of the HOMI® 336, is currently in production.
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 beinstalled in various hotels to third parties. HOMI shall manage and operate these minibars for anagreed upon management fee and profit sharing agreements.
d.
On February 10, 2009, Remstone Limited, a wholly owned subsidiary of HOMI Israel Ltd., which is a wholly owned subsidiary of HOMI, sold its interest in HOMI's South African subsidiary to CLevo Corporation S.A., a Panama corporation. The purchase price was agreed on a "no cash no debt" basis. Total cash received amounted to $195. The transaction was effective as of January, 2009. As a result, HOMI South Africa changed its name, and ceased to be a subsidiary or affiliate of HOMI.
As a result of the abovementioned, HOMI had a loss of $57 that is recorded in other expenses.
e.
During March to June, 2010, HOMI Industries and Best Bar Services Ltd. ("Best Bar"), began to implement the cooperation pursuant to the Memorandum of Understanding they entered into as of 23 September 2009 ("the MOU”), with a partial test installation of Best Bar’s Open Display, Open Access Computerized Minibars, in one Hotel in Israel. Following this test, HOMI has included the Best Bar minibar in its catalogue of minibars, represented as the “HOMI® 232” model. Since then, HOMI has signed agreements with several Hotels for installation of the HOMI® 232. As of December 31, 2010, these minibars were not yet operated.
Pursuant to the MOU, the agreed price of each HOMI® 232 is $ 350, but HOMI will purchase the HOMI® 232 from Best Bar for half that price, namely, $ 175. HOMI then shares its operating profits from HOMI® 232 installations, with Best Bar (operating profits are computed as HOMI’s collection from the hotels, less cost of goods, labor and 8% of the collection as a HOMI management fee), with 60% being retained by HOMI and 40% being paid to Best Bar.
In the event of a direct sale of HOMI® 232 Minibars, by HOMI, to hotels or distributers, $350 from the revenues of such sale will be paid to Best Bar as the purchase price of the minibar and the remaining margin will be split 60% to HOMI and 40% to Best Bar.
Pursuant to the MOU HOMI Industries agreed to cooperate with Best Bar in order to register a fixed charge, in Best Bar’s favor, over HOMI® 232 minibars that will be operated by HOMI, to secure HOMI obligations to Best Bar up to an amount of $ 175 per minibar.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 1:- GENERAL (cont.)
f.
On April 19, 2010, HOMI Europe S.A.R.L. (“HOMI Europe”), which is an indirectly held, wholly owned subsidiary of HOMI, entered into a share sale agreement with Clevo Corporation S.A. (“Clevo”), which is a third party under the control of Mr. Geoffrey Wolf, who was one of the registered and beneficial owners of the HOMI shares.
Pursuant to this share sale agreement, HOMI Europe sold to Clevo 100% of the outstanding shares in HOMI - Hotel Outsource Management International (Deutschland) GmbH and 100% of the outstanding shares in HOMI Italia S.R.L., and also assigned to Clevo all of its rights to the shareholder loans which it has previously made to HOMI Italia S.R.L. The effective date for these transactions is April 30, 2010.
The total purchase price to be paid by Clevo, for the shares and for the assignment of the shareholder loans, is $525, on a "no cash, no debt" basis. An amount still due, for assets, net, $85, is presented in other receivables. In the context of this transaction, HOMI - Hotel Outsource Management International (Deutschland) GmbH and HOMI Italia S.R.L. ceased to be affiliated to HOMI. The abovementioned transaction caused HOMI Europe a loss of $85, which is among the Other Expenses.
HOMI - Hotel Outsource Management International (Deutschland) GmbH and HOMI Italia S.R.L. were until the above transaction, wholly owned subsidiaries of HOMI Europe, which managed and operated minibar systems in one hotel in Germany, one hotel in Italy and three hotels in Malta
g.
At December 31, 2010, the Company had $ 772 in cash, including short term deposits.
The Company continues to incur losses ($ 1,904 in 2010) and has a negative cashflow from operations amounting to approximately $ 855 in 2010.
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 Company's preferred method is the new business model, described in item c. above.
On October 5, 2010, HOMI Industries Ltd, which is a wholly owned subsidiary of HOMI, entered into a loan agreement with Tomwood Limited, which is a BVI company (“Tomwood”), a third party company. Pursuant to this agreement, HOMI Industries will receive $ 2,000. See also Note 8c (3).
As of 31 December 2010, the company received $ 1,000 out of the $ 2,000 mentioned above.
Management believes that the above mentioned loan and continued efforts to reduce corporate expenses will provide sufficient cash for the ongoing operations of the company for the next twelve months.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States ("US GAAP").
a.
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 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.
b.
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 in accordance with Statement of Financial Accounting Standard No. 52 "Foreign Currency Translation" ("SFAS No. 52"). 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 in accordance with FAS No. 52. 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 resulting translation adjustments are not included in determining net loss but are reported as a separate component of accumulated other comprehensive income (loss) in shareholders’ equity.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)
c.
Principles of consolidation and number of minibars:
The consolidated financial statements include the accounts of HOMI and its active subsidiaries listed below, which are fully owned by HOMI:
(1)
A quantity of minibars are owned by HOMI Industries and rented to the subsidiaries.
As of December 31, 2010 the minibars are located as follows:
(2)
Through subsidiaries in France and the U.K (including a branch in Spain). Until January 1, 2010, including Australia (565 minibars); until April 2010, including Italy and Germany (1,371 minibars).
(3)
Not including 276 units of HOMI 232 shared operated Minibars in France and 246 units in U.S.A. installed at 2010, but not yet operated. See Note 1e.
In 2010, 330 Minibars were removed from one hotel in Israel and were dismantled.
Inter-company transactions and balances, including profits from inter-company sales not yet realized outside the group, have been eliminated in consolidation.
d.
Cash and cash equivalents:
The Company considers all highly liquid investments originally purchased with maturities of three months or less at the date acquired to be cash equivalents.
e.
Short-term bank deposits:
The Company classifies bank deposits with maturities of more than three months and less than one year as short-term deposits. Short-term deposits are presented at cost, including accrued interest.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)
f.
Inventory:
Inventories are stated at the lower of cost or market value. Inventory write-offs are provided to cover risks arising from slow moving items. Cost is determined using the "first-in, first-out" method. Inventories are composed of the food products.
g.
Property and equipment:
Property and equipment are stated at cost net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, at the following annual rates:
h.
Other assets:
1.
Intangible assets -
Intellectual properties registered in several countries worldwide are capitalized and are amortized over the life span of the asset (twenty years).
2.
Deferred expenses represent loan acquisition costs arising from the other long-term loan originated in 2005 and convertible notes payable issued in 2007 and 2006.
See Notes 7 and 8c (1).
i.
Impairment of long-lived assets:
The Company's long-lived assets and certain identifiable intangibles are reviewed for impairment in accordance with Statement of Financial Accounting Standard No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144") whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. As of December 31, 2010, management believes that all of the Company’s long-lived assets are recoverable.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)
j.
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".
The Company’s payment terms are normally net 15 to 30 days from invoicing. The Company evaluates its 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 its 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. The Company performs ongoing credit evaluations of its customers and generally does not require collateral because (1) management believes it has certain collection measures in-place to limit the potential for significant losses, and (2) because of the nature of customers comprising the Company’s 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 the Company abandons its collection efforts. To date, the Company has not experienced any material losses. An allowance for doubtful accounts is provided with respect to those amounts that the Company has determined to be doubtful of collection. No allowance was deemed necessary as of December 31, 2010 and 2009.
k.
Research and Development costs:
Research and Development costs are charged to the statement of operations as incurred.
Costs and acquisitions related to pre-production, production support, tools and molds, are charged to property and equipment.
l.
Income taxes:
The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). This Statement prescribes the use of the liability method whereby deferred tax assets and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company provides a valuation allowance, if necessary to reduce the amount of deferred tax assets to their estimated realizable value.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)
m.
Severance pay:
The Company's liability for severance pay is calculated pursuant to the local law applicable in certain countries where the Company operates.
n.
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 is 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 NIS and U.S. dollar-linked instruments with major Israeli, U.S. bank.
Management believes that, minimal credit risk exists with respect to these investments. Trade receivables potentially expose the company to credit risk.
The Company has no off-balance sheet concentration of credit risk, such as foreign exchange contracts or other foreign currency hedging arrangements.
The Company monitors the amount of credit it allows each of its customers' using the customers prior payment history to determine how much credit it will aloe or whether any credit should be given at all. As a result of its monitoring of the outstanding credit allowed for each customer, as well as the fact that the majority of the Company's sales are to customers whose satisfactory credit and payment record has been established over a long period of time, the company believes that its account receivable credit risk has been reduced. However the company acknowledges that as of the date these financial statements the poor economic climate globally, has increased the chances of customers and financial institutions defaulting on their obligations.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)
o.
Basic and Diluted Net Income (Loss) per Share:
Basic net income (loss) per share is computed based on the weighted average number of common shares outstanding during each year. Diluted loss per share is computed based on the weighted average number of common shares outstanding during each year, plus dilutive potential common shares considered outstanding during the year, in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). There were no dilutive common equivalent shares outstanding at anytime during the year ended December 31, 2010 and 2009; accordingly basic and diluted net income (loss) per share are identical for both years.
p.
Exchange rates:
Exchange and linkage differences are charged or credited to operations as incurred.
Exchange rates:
q.
Advertising Costs:
Advertising costs are charged to the statements of operations as incurred.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (cont.)
r.
Implementation of new accounting Standards:
In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06), "Fair Value Measurement and Disclosures," which amends ASC Topic 820, adding new requirements for disclosures for Levels 1 and 2, separate disclosures of purchases, sales, issuances, and settlements relating to Level 3 measurements and clarification of existing fair value disclosures. ASU 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the requirement to provide Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010; early adoption is permitted. The adoption did not have an effect on the company's consolidated financial statements.
In February 2010, the FASB issued ASC No. 2010-09 "Amendments to Certain Recognition and Disclosure Requirements," which alters the original guidance in ASC 855 so as to require a reporting entity to evaluate subsequent events through the date that the financial statements are issued if the entity files with or furnishes financial statements to the SEC and eliminates the requirement for SEC filers to disclose the date through which an entity has evaluated subsequent events. This requirement also applies to certain "conduit bond obligors." The update also amends ASC 855 so as to require all other reporting entities to evaluate subsequent events through the date that the financial statements are available to be issued. The amendments are effective upon issuance, except for the provisions regarding the use of the issued date by conduit bond obligors, which will take effect for interim and annual reporting periods ending after June 15, 2010.
The adoption did not have an effect on the company's consolidated financial statements.
In July 2010, the FASB issued an update to ASC 310, "Receivables," that requires enhanced and additional disclosures that will provide financial statement users with greater transparency about a reporting entity's allowance for credit losses and the credit quality of its financial receivables. The new and amended disclosure requirements focus on such areas as nonaccrual and past due financing receivables, allowance for credit losses related to financing receivables, impaired loans, credit quality information and modifications. The ASU requires an entity to disaggregate new and existing disclosures based on how it develops its allowance for credit losses and how it manages credit exposures. For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.
In January 2011, the FASB issued an additional update to ASC 310 which temporarily delayed the effective date of the disclosures in regard to troubled debt restructuring abovementioned. Currently, that guidance is anticipated to be effective for interim and annual periods ending after June 15, 2011.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 3:- OTHER ACCOUNTS RECEIVABLE
NOTE 4:- PROPERTY AND EQUIPMENT, NET
a.
Depreciation expenses amounted to $ 714 and $ 798 for the years ended December 31, 2010 and 2009, respectively.
b.
Balance includes minibars at depreciated cost of $ 128, identified against a loan based on a refinancing agreement, see also Note 8c (2).
c.
As for liens, see Note 10c.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 5:- OTHER ASSETS
(1)
See Note 2h.
(2)
Deferred expenses in regard to loans received are amortized over the loan period of nine years (see note 8c (1)).
Deferred expenses in regard to the private offering are amortized over the period of the note (see Note 7).
NOTE 6:- LOANS FROM RELATED PARTIES
a.
Composed as follows:
b.
Aggregate maturities of long-term loans for years subsequent to December 31, 2010 are as follows:
c.
On January 28, 2010, HOMI entered into two loan agreements with related parties as follows:
Pursuant to a loan agreement with a related company, which is a company owned by HOMI’s Chairman, the related party loaned HOMI NIS 1,125 (approximately $ 300 when received). The loan is index linked to Israel’s Consumer Price Index and bears interest at a rate of 6% per annum. The loan is for a period of four years, with quarterly repayments. The first two years will be grace period on the principal. During the grace period, the lender is entitled to convert the loan into shares of HOMI’s common stock, at a price per share of 8 cents during the first year and 12 cents during the second year.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 6:- LOANS FROM RELATED PARTIES (cont.)
Pursuant to another loan agreement, HOMI’s President loaned HOMI $ 100. The loan bears interest at a rate of 8% per annum .The loan is for a period of four years, with quarterly repayments. The first two years will be a grace period on the principal. During the grace period, the lender is entitled to convert the loan into shares of HOMI’s common stock, at a price per share of 8 cents during the first year and 12 cents during the second year.
d.
On February 18, 2010, HOMI Industries Ltd, ("HOMI Industries") a wholly owned subsidiary of HOMI, entered into a loan agreement with a related party pursuant to which HOMI Industries received a loan of $ 140.
As security and collateral for repayment of the Loan, HOMI Industries will encumber in lender's favor computerized minibar systems, including 280 HOMI® computerized minibars, a central unit and a license to HOMI® software, which HOMI’s affiliate installed during April to June 2010 at the Wyndham Hotel in New York, USA and operates for the Hotel under outsource operation agreement which HOMI’s affiliate signed with the hotel.
e.
On June 14, 2010, HOMI Industries entered into a second loan agreement with the above mentioned related party, pursuant to which HOMI Industries received a loan of NIS 671 (approximately $ 173 when received) for the installation of 363 HOMI 330 minibars in a Hotel in Israel.
As security and collateral for repayment of the Loan, HOMI Industries will encumber in lender's favor computerized minibar systems, including 363 HOMI 330 ® computerized minibars, a central unit and a license to HOMI® software, which HOMI’s affiliate installed during September 2010 at the Royal Beach Hotel in Eilat, Israel and operates for the Hotel under outsource operation agreement which HOMI’s affiliate signed with the hotel.
Repayments of the loans mentioned in d. and e. above, computed on the basis of revenues net of operational payments, allocated amongst the parties, in accordance with the terms detailed in the loans agreements.
NOTE 7:- CONVERTIBLE NOTES
b.
During the years 2006 and 2007, HOMI raised $ 494 through the issuance of notes. The notes bear interest at a rate of 8% per annum and are convertible into common stock at a conversion price ranging between 50 cents and 80 cents per share, depending on the conversion dates.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 7:- CONVERTIBLE NOTES (cont.)
Interest on the notes is due and payable on a quarterly basis commencing March 2007. Principal is repaid in eight equal quarterly installments commencing December 2008. The principal repaid in 2010 and 2009 was $ 205 and $ 219, respectively.
NOTE 8:- LONG-TERM LOANS FROM OTHERS
a.
Composed as follows:
b.
Aggregate maturities of long-term loans for years subsequent to December 31, 2010 are as follows:
c.
(1)In March and June, 2005, HOMI and the subsidiary in the U.S. received from Horizon Challenges Investment Company Ltd. (“Horizon”) loans in the total amount of $ 1.1 million, which Horizon undertook to provide to the Company (“the Financing”), pursuant to a Financing Agreement, dated as of March 1, 2005, as amended on May 17, 2005. The loans bear interest at the rate of 11.67% and are to be repaid in monthly installments for nine years. The loans are secured by a lien on all minibars in respect of which the loan was received, and a security interest and assignment of a portion of HOMI and its subsidiaries’ monthly revenues from those minibars, in the amount required to pay each month’s repayments on all outstanding loans, principal plus interest. Total liabilities for the years ended December 31, 2010 and 2009 amounted to approximately $549 and $669, respectively.
(2)HOMI Industries Ltd (“HOMI Industries”), which is a wholly owned subsidiary, entered into two loan agreements with Moise Laurent Elkrief and Sonia Elkrief (“Elkrief”).
The two agreements were signed on November 12, 2009, and October 25, 2009 respectively. Pursuant to these agreements, Elkrief lent HOMI Industries $88.5 and $83 (the “Loans”).
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 8:- LONG-TERM LOANS FROM OTHERS (cont.)
As security and collateral for repayment of the Loans, HOMI Industries will encumber in Elkrief’s favor computerized minibar systems, including 177 and 166 HOMI® computerized minibars, a central unit and a license to HOMI® software, which HOMI’s Affiliates installed in January 2010 at the Strand Hotel in New York, USA, and in the Leonardo Ramat Hahayal Hotel, in Tel Aviv, Israel, respectively and operate for the Hotels under outsource operation agreements which HOMI’s Affiliates signed with the hotels.
Loans repayment will be computed on the basis of revenues net of operational payments, allocated amongst the parties, in accordance with the terms detailed in the loan Agreements.
(3)On October 5, 2010, HOMI Industries Ltd. signed a loan agreement with Tomwood Limited, which is a BVI company (“Tomwood”). Pursuant to this agreement, Tomwood shall loan to HOMI Industries $2,000. This loan will be made available to HOMI Industries in four, equal installments of $500 each. The first installment was received on October 3, 2010 the second installment was received on December 26, 2010. The next installments are due to be received on April 1, 2011 and July 1, 2011. These dates may be postponed by written notice of HOMI Industries.
The Tomwood loan bears interest at a rate of 10% per annum, to be paid quarterly, starting one quarter after the first installment of the loan.
HOMI Industries will repay this loan in eight consecutive, quarterly payments, commencing as of September 30, 2013 and ending on June 30, 2015.
HOMI Industries will use the proceeds of the Tomwood loan for the sole purpose of manufacturing and/or purchasing, and installing, minibar type products, and performing the logistics required in connection with these activities, including run-in of new installations and debugging of new installations.
Until September 29, 2013, Tomwood shall have the right to convert all or any part of the principal sum of its loan to HOMI Industries into shares of the common stock of Hotel Outsource Management International, INC. For a conversion occurring no later than September 29, 2012, the conversion will be at a price per share of 6 cents, for a maximum of 33,333,333 shares (if the entire loan is converted during that period). For a conversion occurring between September 29, 2012 and September 29, 2013, the conversion will be at a price per share of 8 cents, for a maximum of 25,000,000 shares (if the entire loan is converted during that period).
As security and collateral for repayment of the Loan, HOMI Industries will take all action necessary on its part to encumber the minibars purchased with the loan by registering a first degree lien over such minibars.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 9:- ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
NOTE 10:- COMMITMENTS, CONTINGENT LIABILITIES AND LIENS
a.
HOMI and its affiliates have contractual obligations towards hotels with regard to the operation of minibars in hotel rooms.
HOMI and its affiliates own most of these minibars. Several hotels have a contractual purchase option granted which enables them to purchase the minibars at a price which results in a profit for the Company, and the agreement with the hotel is then terminated. To date, no hotel has exercised such an option.
b.
On December 8, 2009, HOMI Israel Ltd. was served with a lawsuit filed by a former employee with the Regional Labor Court of Tel-Aviv (the “Lawsuit”). HOMI Israel Ltd. was the only defendant in the Lawsuit. The former employee had been employed by HOMI Israel Ltd. in the position of VP Operations, between June 2008 and May 2009, following which he had been dismissed by HOMI Israel Ltd. In the Lawsuit, the former employee claims to be entitled to wages and benefits over and above what he received from HOMI Israel. The former employee's total claim was for NIS 195 (approx. $53), exclusive of interest and fines for payment in arrears. HOMI Israel Ltd. filed a Statement of Defense on 25 January 2010. Following mediation and with the encouragement of the court, the parties entered into a compromise settlement, pursuant to which ,on September 2010, HOMI Israel paid the former employee the sum of NIS 30 (approx. $ 8).
c.
HOMI Industries has registered fixed charges over certain of its assets, including certain minibars and the rights to receivables generated by such minibars , in favor of third parties, as security for loans which were given to HOMI by such third parties, or to secure profit sharing payments which HOMI undertook to pay to such parties.. Total liabilities secured by these fixed charges as of December 31, 2010 and 2009 are in the amount of approximately $ 1,000 and $ 669, respectively. See Notes 1e, 8c, 6d. and 6e.
d.
Rent expenses -
The Company’s operations are based primarily at hotels where its outsource operations are conducted. Most of the hotels allow the Company to utilize office space free of charge.
In addition, the Company’s U.S. counsel (who is also a shareholder) allows the Company to use its office as their corporate headquarters at no charge. No amounts have been reflected as rent expense in the accompanying consolidated statements of operations for the value of this rent due to its insignificance
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 10:- COMMITMENTS, CONTINGENT LIABILITIES AND LIENS (cont.)
In addition, the Company rents space under various month to month arrangements for certain facilities. In September 2008, the Company began renting office space in Herzliya, Israel, primarily for HOMI’s finance department, its technical support and as the headquarters of HOMI Israel and HOMI Industries. In October 2010 the company relocated its offices to another location in Herzliya. During the years ended December 31, 2010 and 2009, rent expenses were $74 and $118, respectively.
e.
The Company received notice that the US Internal Revenue Service imposed on the Company automated late filing penalties for delay in filing a certain information schedule on foreign holdings. The Company has filed an appeal for full abatement of the penalties according to procedures of the IRS. Based on common practice and the nature of reasoning for the delay, Company advisors believe there is a good reason to believe that the abatement would be approved. Accordingly, no provision was recorded on the Company books of account.
f.
HOMI Industries subsequently entered into exclusive license agreements with HOMI Europe S.A.R.L. (for the territory of Europe), HOMI USA, Inc. (for the United States and Canada) and HOMI Israel Ltd. (for Israel). HOMI Europe (S.A.R.L.) granted a sub-license to HOMI UK Limited (for the United Kingdom, Spain and Ireland), and HOMI USA, Inc. granted a sub-license to HOMI Canada, Inc. (for Canada). All of the aforementioned companies are subsidiaries of HOMI.
g. On September 4, 2009, HOMI Industries Ltd (“Industries”), a wholly owned subsidiary of HOMI, entered into an Exclusive Distribution Agreement with Hotek Security B.V. (the “Agreement” and “Hotek”, respectively). Pursuant to the Agreement, Industries appointed Hotek as the exclusive distributor for resale of HOMI® products (the HOMI® 330 and the HOMI® 232) in the Netherlands and Belgium. During year 2010 Hotek purchased a quantity of 110 Minibars and intends to expand this business in 2011.
On November 16, 2010, Industries entered into an Exclusive Distribution Agreement with KCP Ltd (the “Agreement” and “KCP”, respectively).
Pursuant to the Agreement, Industries appointed KCP as the exclusive distributor for resale of HOMI® products (the HOMI® 330 and the HOMI® 232) in Great Britain and Ireland.
These agreements contain other commercial terms and provisions, of a kind customarilyfound in exclusive distribution agreements of this type.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 11:- SHAREHOLDERS’ EQUITY
Shareholders’ Rights:
The common shares confer upon the holders the right to receive a notice to participate and vote in the general meetings of the Company and to receive dividends, if and when declared.
Preferred share rights are yet to be determined. No preferred shares are issued and outstanding.
Additional information in regard to issue of shares:
In February 2009, HOMI completed a subscription rights offering. HOMI raised an amount of $1,396 net of issuance expenses, part by conversion of loans from shareholders and part by an additional mobilization of capital. In consideration, HOMI issued 28,331,286 common stock shares at 5 cents per share in dollars.
In August 2009 the Company raised a total of $ 800 through new subscriptions and the conversion of shareholder loans and issued 20,000,000 shares of common stock at 4 cents per share in dollars.
NOTE 12:- CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company manages its business on a basis of one reportable segment (see Note 1 for a brief description of the Company’s business) and follows the requirements of Statement of Financial Accounting Standard No. 131, "Disclosures About Segments of an Enterprise and Relation Information" ("SFAS No. 131").
a.
Major customers’ data as a percentage of total sales to unaffiliated customers:
b.
Breakdown of Consolidated Sales to unaffiliated Customers according to Geographic Regions:
c.
As of December 31, 2010, $ 3,170 of the consolidated long-lived assets were located in Israel; $ 934 in the USA; and $ 65 in ROW. As of December 31, 2009, $ 3,169 of the consolidated long-lived assets were located in Israel; $ 1,217 in the USA; and $1,210 in ROW.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 13: INEREST AND FOREIGN CURRENCY TRANLATION INCOME (EXPENSES), NET
(1) As for financial expenses to shareholders, see Note 16a.
NOTE 14:- OTHER EXPENSES
(a)
Homi Australia ceased operating the Minibars in Hilton Sydney, the only hotel operated in Australia, and transferred the operation and the Minibars installed to the hotel, for up to AUD 435 (approx. $ 396). The amount will be repaid over maximum of 50 monthly payments which will be based on the monthly performance of the hotel as detailed in the agreement. Title in the System shall immediately pass to Hilton, after those repayments, for the nominal price of one AUD.
The balance of the debt is presented in the financial statements part at other accounts receivable and part at long term receivables.
NOTE 15:- TAXES ON INCOME
a.
Corporate tax structure:
Taxable income of Israeli companies is subject to tax at the rate of 25% in 2010, 24% in 2011 and gradually will be reduced to 18% in 2016 and thereafter.
The subsidiary in the USA is subject to a 15% -35% corporate tax rate. Subsidiaries in Europe are subject to 35% - 45% corporate tax rate. The subsidiary in Australia is subject to 30% corporate tax rate.
b.
The subsidiary in the USA is subject to both federal and state tax. The federal tax is determined according to taxable income, for the first $ 50 taxable income the rate is 15%. In addition, a 9.3% California state tax is applicable.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 15:- TAXES ON INCOME (cont.)
c.
As of December 31, 2010, loss carryforwards are approximately:
*
Utilization of U.S. net operating losses may be subject to substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitations may result in the expiration of net operating losses before utilization
d.
Deferred income taxes:
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
As of December 31, 2010, the Company had provided valuation allowances of $ 1,710 in respect of deferred tax assets resulting from tax loss and temporary differences. Management currently believes that it is more likely than not that the deferred tax regarding the loss carryforwards and other temporary differences will not be realized in the foreseeable future. Deferred tax liability is presented in long-term liabilities. The valuation allowance increase by approximately $260 during the year ended December 31, 2010 and decreased by approximately $ 167 during the year ended December 31, 2009.
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 15:- TAXES ON INCOME (cont.)
e.
Composition of taxes on income:
f.
Breakdown of losses before taxes:
g.
The main items for reconciliation between the statutory tax rate of the Company and the effective tax rate are the non-recognition of tax benefits from accumulated net operating losses carryforward among the various subsidiaries worldwide due to uncertainty of the realization of such tax benefits.
NOTE 16:- RELATED PARTY TRANSACTIONS
a.
The following transactions with related parties are included in the financial statements:
b.
As for balances and loans as of December 31, 2010 and 2009 - see Note 6 and Note 9.
ITEM 9.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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.
During the year ending December 31, 2010, management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Such an evaluation requires the check and testing of the existence of the required controls. As of December 31, 2010, management had performed the examination with regard to all of HOMI’s material subsidiaries. As a result, management has concluded that its disclosure controls and procedures are currently effective.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Internal control over financial reporting refers to a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer and effected by the board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
•
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
•
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our board of directors; and
•
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence, compliance and is subject to lapses in judgment and breakdowns resulting from improper segregation of duties and human failures. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Management evaluated the effectiveness of our internal control over financial reporting as of December 31, 2010 using the framework set forth in the report of the Treadway Commission’s Committee of Sponsoring Organizations (COSO), “Internal Control - Integrated Framework.” The Public Company Accounting Oversight Board’s Auditing Standard No. 2 defines a material weakness as a significant deficiency, or combination of significant deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2010, management has examined all of HOMI’s material subsidiaries, and has concluded that all internal controls and procedures are effective.
Changes in Internal Control over Financial Reporting
Management has evaluated, with the participation of the Chief Financial Officer, whether any changes in our internal control over financial reporting that occurred during our last fiscal quarter have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on the evaluation we conducted, management has concluded that the company has made the following changes in order to increase the internal control over financial reporting:
(i)
integrated updated financial software;
(ii)
created new mechanisms for the review and approval of invoices to customers and/or from suppliers;
(iii)
increased the frequency of sudden checks;
(iv)
increased levels of discussions and documentation by senior financial management;
(v)
established additional controls over financial reporting.
This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
Our Board of Directors and executive officers and their respective ages as of December 31, 2010 are set forth in the table below. Each of the directors of HOMI will serve until the next annual meeting of shareholders or until his successor is elected and qualified.
Also provided is a brief description of the business experience of each director and executive officer and the key personnel during the past three years and an indication of directorships (if any) held by each director in other companies subject to the reporting requirements under the Federal securities laws.
Biographies
Avraham Bahry, 65 has been a director of HOMI since December 2004 and its Chairman from December 2004 to March 2007. Mr. Bahry established Mul-T-Lock Ltd., an Israeli corporation, in 1973, which he grew into a multi-national holding company in the business of products and services for the protection of life and property. Mr. Bahry sold Mul-T-Lock Ltd. in 1999 and has worked as a consultant since then.
Daniel Cohen, 55, was appointed President of HOMI in August 2008 and was elected to the Board of Directors on November 20, 2008. Mr. Cohen has been a consultant to HOMI since September 2007... Mr. Cohen created a number of highly successful businesses including DAC Systemes (exclusive distributor in France Lebanon, Mauritius and Israel) for Micros Systems - world leaders in hospitality management, and eventually selling to Micros in 1995 From 1997 to 2005, Mr. Cohen served as Chairman, President and Chief Executive Officer of Bartech Systems International, Inc., a U.S. corporation which creates automated mini-bar solutions for the hotel industry. Mr. Cohen is a director of several small companies. From 1991 to 2000 ($40m to $300m), he was a director at Micros Systems Inc, like HOMI, a NASDAQ listed company. Mr. Cohen is a graduate of Ecole Hoteliere de Lausanne (International Institute of Hospitality Management) and is a graduate of the Advanced Management Program, INSEAD.
Jacob Ronnel, 54, has been Chief Executive Officer and a director of HOMI since December 28, 2001, and a director of HOMI Israel Ltd. (formerly Bartech Mediterranean Ltd.) since May 1997. Mr. Ronnel served as President of HOMI from December 2001 to August 2008. Mr. Ronnel was appointed HOMI's CFO on March 26, 2009. In addition, he serves as a director and Chief Executive Officer of subsidiaries of HOMI. From July 1997 to September 1997, Mr. Ronnel was a consultant to and provisional manager of Brookside Investments, Ltd. From 1996 to 2002, he was a consultant for Kassel Financial Consultants, located in Israel. Mr. Ronnel obtained a degree in International Hotel Administration from Ecole Hoteliere de Lausanne, Switzerland.
Ariel Almog, 43, has been Chief Operating Officer, secretary and director of HOMI since December 28, 2001.He has been Chief Operating Officer and a director of HOMI Israel, Ltd. (formerly Bartech Mediterranean Ltd.) since May 1997 and a general manager since March 1998. In addition, he serves as an officer and director of each of HOMI's subsidiaries. From 1996 to 1998, Mr. Almog was an owner of a franchise Apropo Cafe restaurant in Israel. He received a Bachelor of Business Administration and Marketing from Schiller International University (American University, Paris, France).
Kalman Huber, 65, was elected to HOMI's board of directors as of April 2009. Mr Huber has many years of experience in the hotel industry .Mr Huber served as Senior Vice President and CFO of the Sheraton Moriah chain in Israel, a chain comprised of the Sheraton hotels in Israel and the Moriah hotels, from 1999 to 2007. Since 2007, Mr. Huber has been Senior Vice President and CFO of Azorim Tourism, which, in addition to the Sheraton Moriah hotels, included the Accor hotels in Israel. Before joining Sheraton Moriah, Mr Huber worked for many years at IBM where he served as Assistant General Manager and CFO, and Assistant General Manager Marketing and Sales in IBM Israel, as well as holding senior positions in finance at IBM’s European headquarters.
Yoav Ronen, 50, was elected to HOMI’s board of directors in December 2006. Mr. Ronen has years of experience managing hotels. Since 2005, he had been Supervisor and Director of Marketing for two hotels in Prague, Czech Republic: The Joe Hotel and Villa Schwaiger. Since 2003, he has been Supervisor and Director of Marketing for the Ros Maris Rob D.o.o. Hotel in Croatia. From 1995-2002 he served as Chief Executive Officer for the Hotel Jordan River in Tiberius, Israel, and Hotel Carmel in Netanya, Israel. Mr. Ronen received a Bachelor’s degree in Business and Accounting from Tel Aviv University.
Section 16(a) Beneficial Ownership Reporting Compliance
No officers, directors and/or beneficial owners of 10% or more of HOMI’s common stock who were required by Section 16(a) of the Securities Exchange Act of 1934, to file certain reports during the period covered by this annual report.
Code of Ethics
HOMI has adopted a code of ethics that applies to its principal executive officers, principal financial officer and principal accounting officer. HOMI will provide any person without charge, upon request, a copy of such code of ethics and explain the manner in which such request may be made.
Corporate Governance
There have been no material changes to the procedures by which security holders may recommend nominees to HOMI's board of directors.
Audit Committee Financial Expert
HOMI has a separately designated standing audit committee established in accordance with Section 3(a)(58)(a) of the Exchange Act. HOMI’s board of directors has determined that HOMI has one financial expert serving on its audit committee: Kalman Huber.
ITEM. 11 EXECUTIVE COMPENSATION
The following is a chart of compensation paid to all executive officers of the Company.
(1)
Mr. Ronnel served as President of HOMI until August 2008. He remains CEO of HOMI. Mr. Ronnel was appointed CFO of HOMI on March 26, 2009.
(2)
Ms. Labandter was appointed Chief Financial Officer in May 2007 and was an employee of HOMI Israel Ltd. Her salary was paid by HOMI Israel Ltd. On November 10, 2008, Ms. Labandter tendered her resignation, effective February 15, 2009.
(3)
Mr. Almog's entire salary was paid by HOMI USA, Inc.
Directors Compensation
Directors are reimbursed for the expenses they actually incur in attending board meetings. In addition, Directors are paid a fee of $1,000 per directors meeting, and $500 per committee meeting. The following is a chart of compensation paid to HOMI directors in 2010.
* Compensation for services as a director is fully reflected in the Executive Officer Compensation Table.
** On September 21, 2010, HOMI received the resignation of Jacob Faigenbaum as a director of HOMI dated September 10, 2010. The resignation took effect November 10, 2010.
Compensation Committee
Currently, HOMI does not have a compensation committee. All directors participate in deliberations concerning executive officer compensation.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Principal Stockholders
The following table sets forth certain information known to HOMI with respect to beneficial ownership of HOMI common stock as of March 15, 2011, the number and percentage of outstanding shares of common stock beneficially owned by each person who beneficially owns:
·
More than 5% of the outstanding shares of our common stock;
·
Each of our officers and directors;
·
All of our officers and directors as a group.
Except as otherwise noted, the persons named in this table, based upon information provided by these persons, have sole voting and investment power with respect to all shares of common stock owned by them.
(1)
Based on total of 89,453,364 shares outstanding as of March 15, 2011.
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
Other than as disclosed below, there have been no transactions or proposed transactions which have materially affected or will materially affect us in which all director, executive officer or beneficial holder of more than 5% of the outstanding common stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest.
On February 10, 2009, Remstone Limited, a wholly owned subsidiary of HOMI Israel Ltd., which is a wholly owned subsidiary of HOMI, sold its interest in HOMI SA subsidiary to Clevo Corporation S.A., a Panama corporation. The purchase price was $205,000. The transaction was effective as of January 28, 2008. As a result, HOMI SA changed its name, and ceased to be a subsidiary or affiliate of HOMI.
On November 11, 2008, HOMI entered into a loan agreement with related parties, Daniel Cohen, President of HOMI and Avraham Bahry, Chairman of the Board of Directors of HOMI. The loan agreement had been approved by HOMI’s Board of Directors on November 10, 2008. Pursuant to this loan agreement, Mr. Cohen and Mr. Bahry loaned HOMI $100,000 and $200,000, respectively, for a maximum period of four months. The loans carried interest at a rate of 6% per annum. The entire sum of the loans and accrued interest was converted into HOMI’s common stock at a rate of $0.05 per share, the price that shares were offered to shareholders in HOMI's rights offering that closed on January 23, 2009.
On December 8, 2008, HOMI entered into a loan agreement with related parties, Jacob Ronnel, Chief Executive Officer of HOMI and Aryeh Reif, Corporate Secretary of HOMI. The loan agreement had been approved by HOMI’s Board of Directors on December 3, 2008. Pursuant to this loan agreement, Mr. Ronnel and Mr. Reif loaned HOMI $400,000 and $20,000, respectively, for a maximum period of four months. The loans carried interest at a rate of 6% per annum. The entire sum of the loans and accrued interest was converted into HOMI common stock at a rate of $0.05 per share, the price that shares were offered to shareholders in HOMI's rights offering that closed on January 23, 2009.
On April 17, 2009, HOMI entered into a loan agreement with a related party, Daniel Cohen, President of HOMI. Pursuant to this loan agreement, Mr. Cohen loaned HOMI $150,000 for a maximum period of four months. This loan bore interest at a rate of 6% per annum. On August 12, 2009, Mr. Cohen lent the Company an additional $25,000 pursuant to the same terms. The entire loan amounts plus accrued interest was converted into shares of HOMI common stock at $.04 per share on August 27, 2009.
On May 12, 2009, HOMI entered into a loan agreement with a related party, Avraham Bahry, Chairman of the Board of Directors of HOMI. Pursuant to this loan agreement, Mr. Bahry loaned HOMI $200,000 for a maximum period of four months. This loan bore interest at a rate of 6% per annum. Mr. Bahry lent the Company an additional $100,000 on August 12, 2009. These loans plus accrued interest were converted into HOMI common stock at $.04 per share on August 27, 2009.
On June 30, 2009, four shareholders lent a total of $123,000 to HOMI; Ariel Almog - $7,000; Jacob Ronnel - $15,000; Geoffrey Wolf - $81,000; and William Buckley - $30,000. These loans were converted into shares of common stock at $.04 per share on August 27, 2009.
On July 20, 2009, HOMI Israel Ltd., which is a wholly owned subsidiary of HOMI, entered into an agreement with Globetrip Ltd., a company of which Daniel Cohen, HOMI’s President, owns 45.45%. Pursuant to this agreement, HOMI Israel sold 470 HOMI® 336 minibars installed at the Dan Panorama Hotel in Tel Aviv to Globetrip Ltd. at a price of $450 per minibar, for a total of $211,450. The minibars will remain in place at the hotel and HOMI Israel shall continue to operate and maintain these minibars in accordance with its existing outsource operation agreement with the Dan Panorama Hotel, the only difference being that instead of HOMI Israel having title to the minibars, title to the minibars now rests with Globetrip Ltd. HOMI Israel shall continue to invoice the Dan Panorama Hotel for the full amount of the net revenues from its outsource operation (“Net Revenues”). From this amount, HOMI Israel shall receive (a) the cost of goods to be sold in the minibars; (b) labor costs; (c) a maintenance fee of $0.06 per minibar per day; (d) a management fee of 8% of Net Revenues (collectively, “Operational Payments”). As long as Net Revenues less Operational Payments (“Operating Cashflow”) exceed $17,625 for a particular quarter, such Operating Cashflow shall be divided between HOMI Israel (40%) and Globetrip Ltd. (60%); however, if the quarterly Operating Cashflow is less than $10,575, Globetrip shall be entitled to 100% of the Operating Cashflow. If the Operating Cashflow for the quarter is between $10,575 and $17,625, Globetrip shall receive $10,575 and HOMI Israel shall receive the balance. Until such time as the aggregate payments to Globetrip Ltd under the agreement shall total $211,450, division of Operating Cashflow shall be reconciled on an annual basis at the end of each fiscal year. If during the first 8 years of the agreement the Dan Panorama Hotel terminates its outsourcing agreement with HOMI Israel and the minibar system is removed from the hotel, HOMI Israel will, at its own cost, reinstall the minibar system in another hotel with similar revenue earning capacity as the Dan Panorama Hotel within six months. In the event HOMI Israel does not place the minibar system in another similar hotel within six months of termination of its outsource agreement, HOMI Israel shall transfer title in a similar minibar system owned by HOMI Israel to Globetrip Ltd., instead of the initial minibar system, and the principles of the agreement between HOMI Israel and Globetrip Ltd will apply to the replacement minibar system.
On January 28 2010, HOMI entered into two loan agreements with related parties.
Pursuant to one loan agreement, Bahry Business & Finance (1994) Ltd, which is a company owned by HOMI’s Chairman, Mr. Avraham Bahry, loaned HOMI 1,125,000 New Israeli Shekels (c. $300,000). The loan is for a period of four years, with quarterly repayments and including two years’ grace on the principal. During the grace period, the lender is entitled to convert the loan into shares of HOMI’s common stock, at a price per share of $0.08 during the first year and $0.12 during the second year. The loan is index linked to Israel’s Consumer Price Index and bears interest at a rate of 6% per annum.
Pursuant to a second loan agreement, HOMI’s President, Mr Daniel Cohen, loaned HOMI $100,000. The loan is for a period of four years, with quarterly repayments and including two years’ grace on the principal. During the grace period, the lender is entitled to convert the loan into shares of HOMI’s common stock, at a price per share of $0.08 during the first year and $0.12 during the second year. The loan bears interest at a rate of 8% per annum.
On February 18, 2010, HOMI Industries Ltd (“HOMI Industries”), which is a wholly owned subsidiary of HOMI, entered into a loan agreement with Ilan Bahry, Amir Schechtman and Oded Yeoshoua (collectively, “Lender”) pursuant to which Lender loaned HOMI Industries $140,000 for an installation of minibars in the U.S. Ilan Bahry is the son of Avraham Bahry, the chairman of HOMI’s Board of Directors.
Pursuant to this agreement, HOMI INDUSTRIES will make monthly payments to Lender towards repayment of the Loan. These payments will not be in a fixed amount, but will be based on the revenues from an outsource operation HOMI USA, Inc., (“HOMI USA”) has in the Fashion 26 Wyndham Hotel in New York City. HOMI USA shall invoice the Fashion 26 Wyndham Hotel for the full amount of the net revenues from the outsource operation (“Net Revenues”). From the sum equal to the Net Revenues, HOMI Industries will deduct (a) the cost of goods to be sold in the minibars; (b) labor costs; (c) a maintenance fee of $0.06 per minibar per day; and (d) a management fee of 8% of Net Revenues (collectively, “Operational Payments”). Until completion of the first 8 years of this loan agreement , on a monthly basis, if Net Revenues, as collected by HOMI USA , exceed Operational Payments by at least $3,500, then the amount of the monthly repayment which HOMI Industries will pay to Lender shall be equal to 60% of all such excess; if Net Revenues from the hotel, as collected by HOMI USA, exceed Operational Payments by more $2,100 but less than $3,500, then the amount of the monthly repayment which HOMI Industries will pay to Lender shall be exactly $2,100. If Net Revenues from the hotel exceed Operational Payments by less than $2,100, then the amount of the monthly repayment which HOMI Industries will pay to Lender shall be a sum equal to 100% of all such excess; and if Net Revenues from the hotel, as collected by HOMI USA, do not exceed Operational Payments, then no Monthly Repayment will be made to Lender for that month.
After eight years, each monthly payment will be in an amount equal to 60% of the sum, if any, by which Net Revenues, as collected by HOMI USA, exceeded Operational Payments, for that month.
On June 14, 2010, HOMI Industries entered into a second loan agreement with Ilan Bahry, Amir Schechtman and Oded Yeoshoua , pursuant to which HOMI Industries received a loan equivalent to 671 NIS representing $ 173,000 received in June 2010, for the installation of 363 HOMI ® 330 minibars in a hotel in Israel. As security and collateral for repayment of this loan, HOMI Industries will cause its affiliate, HOMI Israel, LTD. which is also a wholly owned subsidiary of HOMI, to encumber in the lender’s favor computerized minibar systems, including 363 HOMI® computerized minibars, a central unit and a license to HOMI® software, which HOMI’s affiliate installed in September 2010 at the Royal Beach Hotel in Eilat, Israel and operates for that hotel under an outsource operation agreement which HOMI’s affiliate signed with that hotel.
Loans repayments for these related party loans will be computed on the basis of revenues net of operational payments, allocated amongst the parties, in accordance with the terms detailed in the loans agreements.
During the years ended December 31, 2010, HOMI incurred various related party expenses for the following::
Director Independence
Our current Board members consist of Daniel Cohen, Avraham Bahry, Jacob Ronnel, Ariel Almog, Yoav Ronen, and Kalman Huber. The Board has determined that Messrs. Ronen and Huber are independent applying the definition of independence under the listing standards of the American Stock Exchange. Messrs. Cohen, Bahry, Ronnel and Almog are not independent.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
The aggregate fees billed for the year ended December 31, 2010 for professional services rendered by Barzily & Company for the audit of the December 31, 2009 and 2010 financial statements approximated $ $ 89,000 and $83,000, respectively.
All services provided by independent accountants were approved by the audit committee of HOMI. Other than income tax preparation, Barzily and Company does not provide any non-audit services to the Company.
Audit Related Fees
In 2009and 2010, we paid $ 53,000 and $29,000 respectively,. for assurance and related services reasonably related to the performance of the audit.
Tax Fees
In 2009 and 2010 we paid, $0 for professional services rendered for tax compliance, tax advice and tax planning.
All Other Fees
In 2009 and 2010, we paid $4,000 and $29,000, respectively, for other products and services.
Audit Committee Pre-Approval Policies and Procedures
The Audit Committee is directly and solely responsible for oversight, engagement and termination of any independent auditor employed by the company for the purpose of preparing or issuing an audit report or related work.
The Committee discusses the planning and staffing of the audit and approves in advance the engagement of the independent auditor for all audit services and non-audit services and approve the fees and other terms of any such engagement and obtains periodically from the independent auditor communications of various matters required to be discussed by various Statements on Auditing Standards, Sarbanes Oxley and other standards. The communications include a description of all relationships between the auditor and the Company that may impact auditor objectivity and independence.
PART IV.
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) (3)
(a)
Exhibits required by Item 601 of Regulation S-K
___________________
(1)
Incorporated by reference.
(2)
Incorporated by reference from initial filing of registration statement on Form SB-2 filed July 7, 2002.
(3)
Incorporated by reference from Amendment No. 1 to registration statement on Form SB-2 filed October 15, 2002.
(4)
Incorporated by reference from Amendment No. 2 to registration statement on Form SB-2 filed January 21, 2003.
(5)
Incorporated by reference from Amendment No. 3 to registration statement on Form SB-2 filed July 3, 2003.
(6)
Incorporated by reference from Amendment No. 4 to registration statement on Form SB-2 filed August 6, 2003.
(7)
Incorporated by reference from Form 8-K filed April 8, 2004.
(8)
Incorporated by reference from Form 10-KSB filed on April 16, 2004.
(9)
Incorporated by reference from Form 8-k filed March 1, 2005
(10)
Incorporated by reference from Form 8-k filed May 19, 2005
(11)
Incorporated by reference from Form 8-K filed November 12, 2008.
(12)
Incorporated by reference from Form 8-K filed December 12, 2008
(13)
Incorporated by reference from Form 8-K filed January 28, 2009
(14)
Incorporated by reference from Form 8-K filed February 5, 2009
(15)
Incorporated by reference from Form 8-K filed April 21, 2009
(16)
Incorporated by reference from Form 8-K filed May 15, 2009
(17)
Incorporated by reference from Form 8-K filed June 25, 2009
(18)
Incorporated by reference from Form 8-K filed June 7, 2009
(19)
Incorporated by reference from Form 8-K filed July 29, 2009
(20)
Incorporated by reference from Form 8-K filed August 7, 2009
(21)
Incorporated by reference from Form 8-K filed October 14, 2009
(22)
Incorporated by reference from Form 8-K filed November 17, 2009
(23)
Incorporated by reference from Form 8-K filed February 2, 2010
(24)
Incorporated by reference from Form 8-K filed February 26, 2010
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
In accordance with the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
/s/ Daniel Cohen
/s/ Jacob Ronnel
Daniel Cohen, President, Principal Executive Officer, Director
Jacob Ronnel, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Director
Dated:
March 30, 2011
Dated:
March 30, 2011
/s/ Ariel Almot
/s/ Avraham Bahry
Ariel Almog, Director
Avraham Bahry, Director
Dated:
March 30, 2011
Dated:
March 30, 2011
/s/ Yoav Ronen
Yoav Ronen, Director
Kalman Huber, Director
Dated:
March 30, 2011
Dated: