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EXCEL - IDEA: XBRL DOCUMENT - HOTEL OUTSOURCE MANAGEMENT INTERNATIONAL INCFinancial_Report.xls
EX-31.2 - CERTIFICATION OF HOMI?S CFO PURSUANT TO RULE13A- 14(A) - HOTEL OUTSOURCE MANAGEMENT INTERNATIONAL INCexhibit31_2.htm
EX-31.1 - CERTIFICATION OF HOMI?S CEO PURSUANT TO RULE13A- 14(A) - HOTEL OUTSOURCE MANAGEMENT INTERNATIONAL INCexhibit31_1.htm
EX-32.1 - CERTIFICATION OF HOMI?S CEO AND CFO REQUIRED BY RULE 13A-14(B) - HOTEL OUTSOURCE MANAGEMENT INTERNATIONAL INCexhibit32_1.htm


U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
(X)  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
 
For the quarterly period ended September 30, 2012
 
( )  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
 
Commission File No.  000-50306
 
HOTEL OUTSOURCE MANAGEMENT INTERNATIONAL, INC.
(Name of Small Business Issuer in its Charter)
 
Delaware
 
13-4167393
(State of Incorporation)
 
(IRS Identification Number)
 
80 Wall Street, Suite 815
New York, New York 10005
(Address of Principal Executive Offices)
 
Registrant's telephone number, including area code (212) 344-1600
 
Indicate by a check mark whether the issuer has (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
(1) Yes [X]      No [    ]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.
 
Yes [    ]           No [    ]
  
Indicate by a check mark whether the issuer is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
             
Large Accelerated Filer  
 
[     ]  
 
Accelerated Filer      
[     ] 
 
             
Non-Accelerated Filer    
 
[     ]
 
Smaller Reporting Company    
[X]
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.  Yes [   ] No [X]
 
State the number of shares outstanding of each of the Registrant's classes of common equity, as of the latest applicable date:  199,950,602 as of September 30, 2012.  

 
 

 

PART I.
FINANCIAL INFORMATION
 
ITEM 1.
 
FINANCIAL STATEMENTS (UNAUDITED)
 
       
 






HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

AS OF

September 30, 2012

UNAUDITED


INDEX


PART I - FINANCIAL INFORMATION
PAGE
   
Item 1 – INTERIM  CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
   
 
Balance Sheets -
 
 
September 30, 2012 and December 31, 2011
F2-F3
     
 
Statements of Operations -
 
 
Nine and three months ended September 30, 2012 and 2011
F4
     
 
Statements of Cash Flows -
 
 
Nine months ended September 30, 2012 and 2011
F5-F6
     
 
Notes to Financial Statements
F7-F12
     
 
 
- - - - - - - - - - - - - - - - -
 
 
 
 
 

 
F-1 

 
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

US Dollars in thousands
 
 
     
As of
September 30,
 
As of December 31,
 
     
2012
 
2011
     
(Unaudited)
 
(Audited)
ASSETS
         
           
CURRENT ASSETS:
         
           
Cash and cash equivalents
   
94
 
291
Short-term bank deposits
   
54
 
54
Trade receivables (net of allowance for doubtful accounts of $ zero as of September 30, 2012 and December 31, 2011)
   
560
 
436
Other accounts receivable
   
169
 
240
Inventories
   
326
 
355
           
TOTAL CURRENT ASSETS
   
 1,203
 
1,376
           
           
PROPERTY AND EQUIPMENT, NET:
         
           
Minibars and related equipment
   
3,975
 
3,964
Other property and equipment
   
23
 
13
           
TOTAL PROPERTY AND EQUIPMENT
   
3,998
 
3,977
           
OTHER ASSETS:
         
           
Deferred expenses, net
   
11
 
17
Intangible assets
   
45
 
 47
           
TOTAL OTHER ASSETS
   
56
 
64
           
TOTAL
   
5,257
 
5,417
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 

 
F-2 

 
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

US Dollars in thousands (except share data)
 
     
 
As of
September 30,
 
 
As of December 31,
     
2012
 
2011
 LIABILITIES AND SHAREHOLDERS' EQUITY
   
(Unaudited)
 
(Audited)
           
CURRENT LIABILITIES:
         
           
Current maturities of loans from related parties
   
218
 
133
Current maturities of long-term loans from others
   
306
 
228
Trade payables
   
732
 
555
Accrued expenses and other current liabilities
   
495
 
389
           
TOTAL CURRENT LIABILITIES
   
 1,751
 
1,305
           
LONG-TERM LIABILITIES:
         
           
Long-term loans from related parties, net of current maturities
   
1,035
 
557
Long-term loans from others, net of current maturities
   
431
 
2,341
Accrued severance pay, net
   
40
 
38
           
TOTAL LONG-TERM LIABILITIES
   
1,506
 
2,936
           
           
SHAREHOLDERS' EQUITY:
         
           
Share capital -
         
 Preferred stock of $ 0.001 par value –
5,000,000 shares  authorized; zero shares  issued and outstanding as of  September 30, 2012 and December 31, 2011;
   
-
 
-
 Common stock of $ 0.001 par value –
200,000,000 shares authorized; 199,950,602 shares issued and   outstanding as of  September 30, 2012 and 89,453,364 as of December 31, 2011;
   
200
 
89
Additional paid-in capital
   
12,074
 
10,185
Capital Reserve
   
1,596
 
300
Accumulated other comprehensive income
   
12
 
62
Accumulated deficit
   
(11,882)
 
(9,460)
           
TOTAL SHAREHOLDERS' EQUITY
   
2,000
 
1,176
           
TOTAL
   
 5,257
 
5,417
 
 
The accompanying notes are an integral part of the consolidated financial statements.

 
F-3 

 

HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

US Dollars in thousands (except share and per share data)
 
   
For the Three
 
For the Nine
   
Months Ended September  30,
 
Months Ended September 30,
   
2012
 
2011
 
2012
 
2011
   
(Unaudited)
                 
Revenues
 
780
 
 885
 
2,509
 
 2,458
                 
Costs of revenues:
               
Depreciation
 
(146)
 
(163)
 
(436)
 
(493)
Other
 
(504)
 
(599)
 
(1,647)
 
(1,568)
                 
Gross profit
 
130
 
 123
 
426
 
  397
                 
Operating expenses:
               
                 
Research and development
 
(44)
 
(25)
 
(110)
 
(75)
                 
Selling and marketing
 
(70)
 
(92)
 
(205)
 
(268)
                 
General and administrative
 
(339)
 
(345)
 
(945)
 
(1,078)
                 
Operating loss
 
(323)
 
(339)
 
(834)
 
(1,024)
                 
Financing expenses  and foreign currency translation, net
 
(9)
 
(149)
 
(191)
 
(332)
                 
Other expenses, net
 
(89)
 
(1)
 
(101)
 
(2)
                 
Benefit Reduction for Loan *
 
-
 
-
 
(1,296)
 
-
                 
Loss before taxes on income
 
(421)
 
(489)
 
(2,422)
 
(1,358)
                 
Provision for income taxes
 
-
 
(1)
 
-
 
(1)
                 
Net loss
 
(421)
 
(490)
 
(2,422)
 
(1,359)
                 
Basic and diluted net loss per share
 
(0.002)
 
(0.005)
 
(0.019)
 
(0.015)
                 
Number of shares used in
  computing basic and diluted net loss per share
 
199,950,602
 
89,453,364
 
127,639,909
 
 89,453,364

* See also Note 5a.

 
F-4 

 
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

US Dollars in thousands
 
     
 
For the Nine Months Ended
September 30,
     
2012
 
2011
     
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
         
Net loss
   
(2,422)
 
(1,359)
Adjustments to reconcile net loss to net cash used in operating activities:
     
Capital  loss
   
86
 
-
Depreciation and amortization
   
450
 
517
Increase in accrued severance pay, net
   
2
 
6
Interest and linkage differences in regard to related parties and subsidiaries
   
(17)
 
(19)
Financial expenses for the benefit component in converting a loan into shares
   
1,296
 
-
Benefit component in loans amortization
   
56
 
-
Changes in assets and liabilities:
         
Decrease (Increase) in inventories
   
30
 
(84)
Increase  in trade receivables
   
(122)
 
(101)
Related parties, net
   
35
 
(1)
Decrease (Increase) in other accounts receivable
   
(10)
 
69
Increase (Decrease) in trade payables
   
(94)
 
184
Increase in accounts payable and accrued expenses
   
61
 
    72
           
Net cash used in operating activities
   
(649)
 
(716)
           
CASH FLOWS FROM INVESTING ACTIVITIES:
         
Proceeds from sale of property and equipment
   
89
 
80
Purchases and production of property and equipment
   
(279)
 
(470)
Short-term bank deposits, net
   
-
 
5
           
Net cash used ininvesting activities
   
(190)
 
(385)
           
CASH FLOWS FROM FINANCING ACTIVITIES:
         
Proceeds from (payments to) related parties, net
   
479
 
(59)
Proceeds from  long term loans from others, net
   
164
 
828
           
Net cash provided by financing activities
   
643
 
            769
           
Effect of exchange rate changes on cash and cash equivalents
   
(1)
 
32
Decrease in cash and cash equivalents
   
(197)
 
(300)
Cash and cash equivalents at the beginning of the period
   
291
 
       709
Cash and cash equivalents at the end of the period
   
94
 
         409
 
The accompanying notes are an integral part of the consolidated financial statements.

 
F-5 

 
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

US Dollars in thousands
 
Appendix A -
 
Supplemental disclosure of non-cash investing and financing activities and cash flow information:
For the Nine Months Ended September 30,
       
2012
 
2011
     
(Unaudited)
 
Non-cash investing and financing activities:
         
             
Acquisition of property and equipment on short-term credit
   
270
 
52
             
Conversion  of  loan  into shares
   
2,000
 
-
           
Receivables  in regard to property and equipment
   
89
 
79
             
Cash paid during the period for interest
   
194
 
270
 
 
 
The accompanying notes are an integral part of the consolidated financial statements.
 
 
 
 
 
 
 
 
 
 

 
F-6 

 
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

US Dollars in thousands
 
NOTE 1:-                 NATURE OF OPERATIONS AND BASIS OF PRESENTATION
 
a.  
Hotel Outsource Management International, Inc. ("HOMI") was incorporated in Delaware on November 9, 2000. HOMI and its subsidiaries 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."
 
The Company has been doing business since 1997 through various subsidiaries. The current corporate structure, in which it is holding company for various wholly owned subsidiaries around the world, has been in place since 2001. The Company common stock was listed on the Over-the-Counter Bulletin Board, or "OTC Bulletin Board" from February 2004 until February 2011.  It now trades on the OTCQB under the symbol "HOUM.PK."
 
b.  
During 2006, the Company commenced its own research and development program aimed at the development of a new range of products. The HOMI® 336 (the "System"), a novel, computerizedminibar 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.
An additional model “HOMI® 232” of Open Display, Open Access Computerized Minibars, was installed during 2010 in several Hotels.
During the current period, the company finalized the research and development of an additional product, HOMI® 226 and started its 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 be installed in various hotels. Under this model, HOMI shall continue to manage and operate these minibars in return for a management fee and profit sharing arrangements.
 
d.  
As of September 30, 2012, the Company had $ 148 in cash, including short term deposits.
The Company continues to incur losses ($ 2,422 in the nine months ended September 30, 2012) and also has a deficit in working capital of $ 548 for this period.
In order to implement the Company's basic business plan for completion of the installation of additional minibars, the Company will need additional funds.
 
The Company's preferred method is the business model, described in item c. above.
In addition, the Company signed two new loan agreements with shareholders, for the amount of $ 200, see also Note 6.
 
 
The continuation of the company as a going concern is dependent upon implementation of management's plans as well as raising additional funds from shareholders or others.
 
The financial statements do not include any adjustments regarding asset and liability valuations and their restatement that would likely be required in the event that the company would not be able to continue its operations as a "going concern".
 
e.  
See also Note 5.

 
F-7 

 

HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

US Dollars in thousands
 
NOTE 2:-                 SIGNIFICANT ACCOUNTING POLICIES
 
a.  
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ended December 31, 2012. The accompanying interim consolidated financial statements and the notes thereto should be read in conjunction with the Company's audited consolidated financial statements as of and for the year ended December 31, 2011 included in the Company's Form 10-K filed March 30, 2012.
 
b.  
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The reported amounts of revenues and expenses during the reporting period may be affected by the estimates and assumptions management is required to make.  Estimates that are critical to the accompanying consolidated financial statements relate principally to depreciation and recoverability of long lived assets.  The markets for the Company’s products are characterized by intense price competition, rapid technological development, evolving standards and short product life cycles; all of which could impact the future realization of its assets. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary.  It is at least reasonably possible that management’s estimates could change in the near term with respect to these matters.
 
c.  
Financial Statements in 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 US dollars. All transaction gains and losses from the re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of operations as financial income or expenses, as appropriate.
 
The financial statements of foreign subsidiaries, whose functional currency is not the U.S. dollar, have been translated into U.S. dollars. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Statements of operations amounts have been translated using the average exchange rate for the period. The translation differences are attributed to the capital reserve from translation differences.

 
F-8 

 
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

US Dollars in thousands
 
NOTE 2:-                 SIGNIFICANT ACCOUNTING POLICIES (con.)
 
d.  
Concentrations of Credit Risk and Fair Value of Financial Instruments (con.)
 
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 U.S. dollar and U.S. dollar-linked instruments or in NIS and Euro interest bearing deposits with major Israeli, U.S. and European banks. Such deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company's investments are financially sound, and accordingly, minimal credit risk exists with respect to these investments.
 
e.  
Exchange rates
 
 
Exchange and linkage differences are charged or credited to operations as incurred.
 
 
Exchange rates and the Consumer Price Index ("CPI") in Israel:
 
Exchange rates:
 
   
 
September 30,
 
December 31,
   
2012
 
2011
New Israeli Shekel (NIS)
 
$  0.256
 
              $  0.262
Euro (EU)
 
$  1.295
 
   $  1.292
Australian Dollar (AU$)
 
$  1.045
 
   $  1.015
Pound Sterling (GBP)
 
$  1.622
 
   $  1.542
Canadian Dollar (CAN$)
 
$  1.021
 
               $  0.979
Consumer Price Index ("CPI")
 
122.93
 
120.38
         
   
Nine Months Ended
September 30,
Increase (Decrease) in Rate of Exchange:
 
2012
 
2011
NIS
 
 (2.4) %
 
 (4.6) %
EU
 
0.2 %
 
1.8 %
AU$
 
3.0 %
 
 (2.5) %
GBP
 
5.2 %
 
0.9 %
CAN$
 
4.3 %
 
(2.6) %
Consumer Price Index ("CPI")
 
2.1%
 
1.1%

 
  F-9

 
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

US Dollars in thousands
 
NOTE 2:-                 SIGNIFICANT ACCOUNTING POLICIES (con.)
 
f.  
Implementation of new accounting Standards
 
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. The adoption of this Standard does not have an effect on the Company.
 
 
NOTE 3:-                 FIXED ASSETS
 
Number of minibars
 
The consolidated financial statements include the accounts of HOMI and its active subsidiaries listed below, which are fully owned by HOMI:
 
   
Number of Minibars Operated
Subsidiary Name
Area
30.09.2012
 
30.09.2011
HOMI Israel Ltd. (1), (3)
Israel
4,455
 
4,279
HOMI USA, Inc. and
HOMI Canada, Inc. (1), (3)
U.S.A. and Canada
 
3,289
 
 
4,187
HOMI Europe (1), (2), (3)
Europe
1,499
 
1,499
   
9,243
 
9,965
 
(1)  
A quantity of minibars are owned by HOMI Industries and rented to the subsidiaries.
 
As of September 30, 2012 the minibars are located as follows:
 
 
HOMI U.S.A.
 
HOMI
Israel Ltd.
 
 
Europe
 
 
Total
Number of minibars
1,620
 
2,341
 
1,499
 
5,460
 
(2)  
Through subsidiaries in France and the U.K (including a branch in Spain).
 
 

 
F-10 

 
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

US Dollars in thousands
 
NOTE 3:-                 FIXED ASSETS (con.)
 
(3)  
Including HOMI® 232 shared operated minibars. As of  September 30, 2012 located as follows:
 
 
HOMI U.S.A.
 
HOMI
Israel Ltd.
 
 
Europe
 
 
Total
Number of minibars
246
 
708
 
0
 
954
 
In addition   the Company operates 1,157 minibars in Israel and 72 minibars in the U.S.A. that are not owned by the Company.
 
NOTE 4:-                 RELATED PARTIES TRANSACTIONS
 
During the nine months ended September 30, 2012 and 2011, the Company incurred various related parties expenses as follows:
 
 
For the Three Months Ended
September 30,
 
For the Nine  Months Ended September 30,
 
2012
 
2011
 
2012
 
2011
 
Unaudited
 
Unaudited
Directors' Fees and Liability Insurance
9
 
8
 
27
 
28
Consulting and Management Fees
89
 
141
 
291
 
435
Financial Expenses
37
 
18
 
119
 
54
Total
135
 
167
 
437
 
517
 
See also Notes 5 and 6.
 
NOTE 5: - SIGNIFICANT EVENTS DURING THE PERIOD
 
a.  
On October 5, 2010, HOMI Industries Ltd, (hereinafter- HOMI Industries) which is a wholly owned subsidiary of HOMI, entered into a loan agreement with Tomwood Limited, a BVI company.  Pursuant to this agreement, HOMI Industries received $ 2,000. 
This amount was presented as of December 31, 2011 in long-term liabilities as a loan from others.
On June 29, 2012, the loan was converted and Tomwood received an allocation of 110,497,238 Company shares in the price of $ 0.0181 dollar per share. As a result of the conversion, Tomwood now holds approximately 55% of the Company's issued share capital.Value of the costed benefit component of this transaction in the amount of approximately $ 1,296 was charged to capital and offset against benefit reduction expenses.
Any and all liens on HOMI assets used as security for the Tomwood loan were removed.
 
b.  
On July 12, 2012, HOMI received two new loans from shareholders amounting to $ 300, bearing 8% annual interest. Each loan is for a period of four years, including two years’ grace on the principal. Pursuant to the loan agreements, HOMI stated its intention to perform a rights offering. In the event of such rights offering, HOMI will have the right to repay all or part of the loans by issuing shares of HOMI’s common stock, to the lenders, at the same price per share as in the rights offering.
 

 
F-11 

 
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

US Dollars in thousands
 
NOTE 5: - SIGNIFICANT EVENTS DURING THE PERIOD (con.)
 
 
c.  
On January 8, 2012 and December 15, 2011, HOMI entered into loan agreements with a related company which is a company owned by HOMI's Chairman, the related party loaned HOMI NIS 850 and NIS 1,125 respectively.  HOMI has paid interest on these loans, but not any principal.
On September 1, 2012, the related party agreed to HOMI’s request to recycle these two loan agreements as follows:
 
(1)  
An amount of NIS 1,660 approximately ($ 412) out of the above mentioned loans ,was recycled into 3 loan agreements with HOMI Industries Ltd, pursuant to which the related party shall receive a portion of the revenue from minibar systems operated by HOMI subsidiaries in three hotels.
 
(2)  
As a result, approximately NIS 315 ($ 78) of principal, remains outstanding and payable under the December 15, 2011 loan and in accordance with its terms.
 
 
NOTE 6:-                 EVENTS SUBSEQUENT TO BALANCE SHEET DATE
 
 
a.  
On October 15, 2012, HOMI received a new loan from a shareholder amounting to $ 200, bearing 8% annual interest.  The loan is for a period of four years, including two years’ grace on the principal. Pursuant to the loan agreements, HOMI stated its intention to perform a rights offering. In the event of such rights offering, HOMI will have the right to repay all or part of the loan by issuing shares of HOMI’s common stock, to the lender, at the same price per share as in the rights offering.
 
b.  
At the Annual Meeting of Shareholders held on October 10, 2012, it was resolved to execute a one -for- hundred reverse split of all of HOMI’s shares of common stock. Accordingly, following the reverse split, the number of outstanding shares of common stock will decrease from approximately 200,000,000 to 2,000,000 par value per share $ 0.001. The corporation shall issue no fractional shares of common stock and fractional shares resulting from the reverse split will be rounded up to the nearest whole share.

 
F-12 

 
 
ITEM 2.
 
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 
       
 
The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our financial condition as of September 30, 2012 and our results of operations for the three months ended September 30, 2011 and 2012. The following discussion should be read in conjunction with the financial statements for such periods as well as our financial statements included in our December 31, 2011 10-K filed with the Securities and Exchange Commission on March 30, 2012.
 
FORWARD-LOOKING STATEMENTS
 
This report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  These statements relate to future events or our future financial performance.  In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology.  These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or out industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements; except as required by applicable law, including the securities laws of the United States.  We do not intend to update any of the forward-looking statements to conform these statements to actual results.
 
Our financial statements are stated and prepared in US Dollars and are prepared in accordance with accounting principles generally accepted in the United States of America.
 
As used in this quarterly report, the term "HOMI" means Hotel Outsource Management International, Inc. The terms, the “Company”, “we”, “us”, “our” means Hotel Outsource Management International, Inc and its subsidiaries, unless otherwise indicated.
 
Critical Accounting Policies and Estimates
 
In connection with the issuance of Securities and Exchange Commission FR-60, the following disclosure is provided to supplement the Company’s accounting policies in regard to significant areas of judgment. Management of the Company is required to make certain estimates and assumptions during the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. These estimates also impact the reported amount of net earnings during any period. Actual results could differ from those estimates. Because of the size of the financial statement elements to which they relate, some of our accounting policies and estimates have a more significant impact on our financial statements than others. 

 
14 

 
Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts
 
Revenues from minibars operation and product sales derived from outsource activities (minibars 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, are recognized.  When delivery has occurred, persuasive evidence of an arrangement exists, the vendor’s fee is fixed or determinable and collectability is probable.
 
Revenues from rental of minibars are recognized over the lease term.
 
Revenues from sales of minibars are recognized in accordance with compliance with the conditions as abovementioned.
 
Sales of minibars that are classified as refinancing arrangements are shown as a long-term loan to be repaid.
 
Our payment terms are normally net 15 to 30 days from invoicing. We evaluate our allowance for doubtful accounts on a regular basis through periodic reviews of the collectability of the receivables in light of historical experience, adverse situations that may affect our customers’ ability to repay, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. We perform ongoing credit evaluations of our customers and generally do not require collateral because (1) we believe we have certain collection measures in-place to limit the potential for significant losses, and (2) because of the nature of customers comprising our customer base. Accounts receivable are determined to be past due based on how recently payments have been received and bad debts are charged in the form of an allowance account in the period the receivables are deemed uncollectible. Receivables are written off when we abandon our collection efforts. To date, we have not experienced any material losses. An allowance for doubtful accounts is provided with respect to those amounts that we have determined to be doubtful of collection. No allowance was deemed necessary as of September 30, 2012 and 2011.
 
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, 2011 the Company’s balance sheet includes $3,977,000 of fixed assets, net.  As of September 30, 2012, our balance sheet included $3,998,000 of fixed assets net. The Company has completed its impairment test for the nine months ended September 30, 2012 and has concluded that no impairment write-off is necessary.
 
Financial Statements in US dollars:
 
The currency of the primary economic environment in which the operations of the Company are conducted is the U.S. dollar (hereinafter: "dollar"); thus, the dollar is the functional currency of the Company.
 
The Company's transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured to dollars. All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of operations as financial income or expenses, as appropriate.

 
15 

 
The financial statements of foreign subsidiaries, whose functional currency is not the U.S. dollar, have been translated into US dollars. All balance sheet accounts have been translated using the exchange rates in effect at the balance sheet date. Statements of operations amounts have been translated using specific exchange rates or the average exchange rate for the period. The resulting translation adjustments are not included in determining net income (loss) but are reported in a separate component of accumulated other comprehensive income (loss) in shareholders’ equity.
 
Investments in Affiliates:
 
The investment in companies over which the Company can exercise significant influence is presented using the equity method of accounting. The Company generally discontinues applying the equity method when its investment (including advances and loans) is reduced to zero and it has not guaranteed obligations of the affiliate or otherwise committed to provide further financial support to the affiliate. Where the Company’s share of an affiliate’s losses is greater than the investment in such an affiliate and in which the Company has guaranteed obligations of the affiliate, the excess amount is presented as a liability.
 
OVERVIEW
 
Hotel Outsource Management International, Inc. (“HOMI”) is a multi-national service provider in the hospitality industry, supplying a range of services in relation to computerized minibars that are primarily intended for in-room refreshments. In addition, we manufacture and install our own proprietary computerized minibar, the HOMI® 330 and HOMI® 226.
 
HOMI is a holding company for several subsidiaries which market and operate computerized minibars in hotels located in the United States, Canada, Europe and Israel. HOMI was incorporated in Delaware on November 9, 2000 under the name Benjamin Acquisitions, Inc.
  
Our core activities focus on manufacturing, operating, servicing and sales and marketing of computerized minibars located in upscale hotels throughout the world.
 
We believe that by using the appropriate equipment, including technologically advanced computerized minibars, we are able to materially improve the performance of the minibar departments, thereby improving the hotel’s bottom line.
 
For some years now, the hotel industry has been focusing on outsourcing many of the functions related to its key activities, in order to increase efficiency and lower fixed costs. We offer our customers a number of solutions that are designed to meet this need, in relation to the minibar departments, ranging from consultation and supervision services, all the way to full outsource installation and operation arrangements.
 
Whether we are consulting for a hotel, or managing its entire minibar department, we focus on hands-on, expert and dedicated management, on-site supervision, and disciplined implementation of specialized procedures which we have developed, in order to achieve our goals and improve the department’s performance.  Using these methods, we already manage thousands of minibars for our customers, who are spread over five continents around the world. We have been doing business since 1997 through various subsidiaries. The current corporate structure, in which we are a holding company for various subsidiaries around the world, has been in place since 2001. Our common stock was listed on the Over-the-Counter Bulletin Board, or "OTC Bulletin Board" from February 2004 to February 2011 under the symbol "HOUM.OB."  It is currently listed on the OTCQB under the symbol HOUM.PK.
 

 
16 

 
COSTS AND EXPENSES
 
Costs and expenses incurred in our outsource operations are generally as follows, but can vary depending on the circumstances and the nature and terms of specific agreements with customers:
 
           
(1)
 
The purchase and / or manufacturing of the minibar systems to be installed in hotels; this capital expense is charged to property and equipment and depreciated over a period of ten years;
           
 
           
(2)
 
The purchase of the consumables to be placed in the minibars; we purchase these products from various vendors; sometimes the customer will purchase the alcoholic beverages to be placed in the minibars and we reimburse the customer for such purchases;
           
 
           
(3)
 
Labor costs relating to the minibar attendants;
           
 
           
(4)
 
General and Administrative, and Marketing expenses;
           
 
           
(5)
 
Maintenance costs relating to the minibar systems;
           
 
           
(6)
 
Finance expenses.
           
 
 
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2012 COMPARED TO SEPTEMBER 30, 2011.
 
REVENUES
 
For the three months ended September 30, 2012 and 2011, HOMI had revenues of $780,000 and $885,000, respectively, a decrease of $105,000 or 11.9 %. These revenues arise primarily from the sale of refreshments in the minibars.  The decrease is mainly due to both the expiration of our agreement with a large customer in the United States, as well as a decrease in occupancy rates in Israel during this period
 
For the three months ended September 30, 2012, our three largest customers accounted for approximately 27.49 % of our total revenues.  During the same period of 2011, our three largest customers collectively comprised 29.56 % of our total revenues.
  
GROSS PROFIT
 
Gross profit, before consideration of depreciation expense, decreased $10,000 from $286,000 for the three months ended September 30, 2011 to $276,000 for the three months ended September 30, 2012.   Comparing the three month periods ended September 30, 2011 and 2012, gross profit margin, before consideration of depreciation expense, increased from
 32.32 % to 35.38 %.
 
Gross profit, after consideration of depreciation expense, increased from $123,000 for the three months ended September 30, 2011 to $130,000 for the three months ended September 30, 2012,   an increase of $7,000.  Gross profit margin increased from 13.9 % to 16.7 %.
 

 
17 

 
COSTS OF REVENUES
 
Cost of Revenues, before consideration of depreciation expense, for the three months ended September 30, 2011 and 2012 were $599,000 and $504,000, respectively, a decrease of $95,000 or 15.9 %.  
 
Depreciation expense for the three months ended September 30, 2011 and 2012 approximated $163,000 and $146,000, respectively, a decrease of $17,000. As a percentage of revenues, depreciation expense increased from 18.4 % to 18.7 %.
  
RESEARCH AND DEVELOPMENT
 
During 2006, HOMI commenced its own research and development program aimed at the development of a 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, the HOMI® 330, was completed in the first quarter of 2009. In 2010 and 2011, we incurred additional expenses to improve the production and functionality of the minibars. The research and development of an additional product, HOMI® 226, began in the first quarter of 2012. Total research and development expenses for the three months ended September 30, 2011 were $25,000, and $44,000 for the three months ended September 30, 2012.
 
OPERATING EXPENSES
 
General and Administrative expenses were $345,000 for the three months ended September 30, 2011 and $339,000 for the three months ended September 30, 2012. As a percentage of revenues, general and administrative expenses increased from 39.0 % to 43.5 %.  
 
Selling and Marketing expenses decreased from $92,000 for the three months ended September 30, 2011 to $70,000 for the three months ended September 30, 2012, or by 23.9 %, primarily as a result of the reduction of marketing expenses.
 
FINANCIAL INCOME (EXPENSES)
 
For the three months ended September 30, 2011 we had financial expenses (net) of $149,000, and for the three months ending September 30, 2012, we had financial expenses (net) of $9,000.
    
OTHER EXPENSES
 
For the three months ended September 30, 2011 and 2012 we had other expenses of $1,000 and $89,000, respectively.  The increase in expenses is due primarily to dismantling of old minibars from a hotel in the United State we ceased to operate.
 
NET LOSS
 
For the three months ended September 30, 2011 and 2012 we had net loss of $ 490,000 and  $421,000, respectively.
 
 
  18

 
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2012 COMPARED TO SEPTEMBER 30, 2011.
 
REVENUES
 
For the nine months ended September 30, 2012 and 2011, HOMI had revenues of $ 2,509,000 and $2,458,000, respectively, an increase of $ 51,000 or 2.1 %.
 
For the nine months ended September 30, 2012, our three largest customers accounted for approximately 26.3 % of our total revenues.  For the nine months ended September 30, 2011, our three largest customers accounted for approximately 29.6 % of our total revenues.
 
GROSS PROFIT
 
Gross profit, before consideration of depreciation expense, decreased from $ 890,000 for the nine months ended September 30, 2011 to $862,000, for the nine months ended September 30, 2012, a decrease of $28,000. Gross profit margin, before consideration of depreciation expense, decreased from 36.2 % to 34.4 %.
  
Gross profit, after consideration of depreciation expenses, increased from $397,000 for the nine months ended September 30, 2011 to $ 426,000 for the nine months ended September 30, 2012, an increase of $29,000.  Gross profit margin increased from 16.2 % to 17.0%.
 
COSTS OF REVENUES
 
Cost of Revenues, before consideration of depreciation expenses, for the nine months ended September 30, 2011 and 2012 were $ 1,568,000 and $ 1,647,000, respectively, an increase $79,000 or 5.0 %.
 
Depreciation expenses for the nine months ended June 30, 2011 and 2012 approximated $493,000 and $436,000, respectively, a decrease of $ 57,000, or 11.6 %. As a percentage of revenues, depreciation expense decreased from 20.0 % to 17.4%.
 
RESEARCH AND DEVELOPMENT
 
During 2006, HOMI commenced its own research and development program aimed at the development of a 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 2011 and 2012, we incurred additional expenses to improve the production of the minibars. The research and development of an additional product, HOMI® 226, began in the first quarter of 2012.  Total research and development expenses for the nine months ended September 30, 2011 were $75,000 and $110,000 for the nine months ended September 30, 2012.
 
OPERATING EXPENSES
 
General and Administrative expenses decreased from $1,078,000 for the nine months ended September 30, 2011 to $945,000 for the nine months ended September 30 2012, a decrease of $133,000, or 12.3%.  As a percentage of revenues, general and administrative expenses decreased from 43.9 % to 37.7%.  
 
Selling and Marketing expenses decreased from $268,000 for the nine months ended September 30, 2011 to $205,000 for the nine months ended September 30, 2012, a decrease of $63,000 or by 23.5%.
 
The decrease is mainly due to our continued efforts to reduce expenses.

 
19 

 
FINANCIAL INCOME (EXPENSES)
 
For the nine months ended September 30, 2011 and 2012 we had financial expenses (net) of $332,000 and $191,000 of financial expenses (net), respectively.
 
These amounts include interest expense (net) of approximately $120,000 and $192,000, respectively.  The remaining amounts are due primarily to currency exchange differences on US$ dominated intercompany balances.
 
BENEFIT REDUCTION FOR LOAN
 
On October 5, 2010, HOMI Industries Ltd, which is a wholly owned subsidiary of HOMI, entered into a loan agreement with Tomwood Limited, a BVI company.  Pursuant to this agreement, HOMI Industries received $2,000,000. This amount was presented as of December 31, 2011 in long-term liabilities as a loan from others.
 
On June 29, 2012, the loan was converted and Tomwood received an allocation of 110,497,238 HOMI common shares at a price of $0.0181 dollar per share. As a result of the conversion, Tomwood now holds approximately 55% of HOMI’s issued and outstanding shares. 
 
Value of the costed benefit component of this transaction in the amount of approximately $1,296,000 was charged to capital and offset against expenses.
 
OTHER EXPENSES
 
For the nine months ended September 30, 2011 we had other expenses of $2,000 and for the nine months ended September 30, 2012, we had other expenses of $101,000. The increase in expenses is due primarily to dismantling of old minibars from a hotel in the United State we ceased to operate.
  
NET LOSS
 
As a result of the above, for the nine months ended September 30, 2011 we had net loss of $1,358,000 and for the nine months ended September 30, 2012, we had a net loss of $2,422,000.
 
LIQUIDITY AND CAPITAL RESOURCES 
 
Since our inception, we have been dependent on investment capital as our primary source of liquidity. We had an accumulated deficit at September 30, 2012 of $11,882,000. During the nine months ended September 30, 2012, we had net loss of $2,422,000.
 
Our financing activities resulted in cash of approximately $643,000 during the nine months ended June 30, 2012 and during the nine months ended September 30, 2012 we used cash in the amount of $649,000.
 
On September 30, 2012, we had long term liabilities of approximately $1,506,000 which are mainly comprised of loans from related parties and others.
 
At September 30, 2012, HOMI had $148,000 in cash, including short term deposits.
 

 
20 

 
In order to implement HOMI’s basic business plan for completion of the installation of additional minibars, HOMI will need additional funds from shareholders or others.  HOMI's preferred method is its new business model, pursuant to which we obtain a loan from a third party in order to finance the purchase and installation of minibars at a specific hotel with which we have an outsourcing agreement. The minibars, once installed and operational, remain in place at the hotel, and we operate and maintain these minibars in accordance with our outsourcing agreement. A sum equal to a portion of our revenues from the outsourcing agreement is paid to the third party each month, towards repayment of the loan, usually for the duration of the outsourcing agreement, and a minimum of 8-9 years.
 
The continuation of the company as a going concern is dependent upon implementation of management's plans as well as raising additional funds from shareholders or others. These measures will provide sufficient cash for the ongoing operations of the Company for the next twelve months.
 
OFF BALANCE SHEET ARRANGEMENTS
 
HOMI has no off balance sheet arrangements.
 
INFLATION
 
We do not believe that inflation has had a significant impact on our consolidated results of operations or financial condition.
 
       
Item 3.
 
QUANTATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
       
 
N/A
 
       
Item 4.
 
CONTROLS AND PROCEDURES
 
       
 
Management is required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 to evaluate, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.
 
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based on their evaluation, as of the end of the period covered by this Form 10-Q, the Chief Executive Officer and Chief Financial Officer has concluded that such disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective.
 
 
21

 
Changes in Internal Control over Financial Reporting
 
There have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 
       
PART II.
 
OTHER INFORMATION
 
       
       
 
       
Item 1.
 
LEGAL PROCEEDINGS
 
       
 
To the best of our knowledge, as of the date hereof, there are no material pending or threatened legal proceedings to which HOMI or any of its subsidiaries is a party, or of which any of our property is subject.
 
As of the date of this Quarterly Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings.
 
       
Item 1A.
 
RISK FACTORS
 
       
 
There have been no material changes in the risk factors described in “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2011.
 
       
Item 2.
 
UNREGISTERED SALES OF EQUITY SECURITIES AND PROCEEDS
 
       
 
During the nine months ended September 30, 2012, there were no sales of unregistered equity securities.  However, a $2,000,000 loan was converted at a rate of $.0181 per share for a total of 110,497,238 shares.
 
       
Item 3.
 
DEFAULTS UPON SENIOR SECURITIES
 
       
 
None.
 
       
Item 4.
 
[Removed and Reserved]
 
       
 
 
       
Item 5.
 
OTHER INFORMATION
 
 
 None.
 
Item 6. 
EXHIBITS
 
The following exhibits are filed as part of this Form 10-Q.
 
(a)  
Exhibits required by Item 601 of Regulation S-K
  
Exhibit No.
Description
   
31.1
Certification of HOMI’s Chief Executive Officer pursuant to Rule13a- 14(a) of the Securities Exchange Act of 1934
31.2
Certification of HOMI’s Chief Financial Officer pursuant to Rule13a- 14(a) of the Securities Exchange Act of 1934
 
32.1
Certification of HOMI’s Chief Executive Officer  and Chief Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 the United States Code (18 U.S.C. 1350)
  

 
  22

 

 
 
SIGNATURE
 
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
HOTEL OUTSOURCE MANAGEMENT INTERNATIONAL, INC.
     
Dated: November 13, 2012
 By:
/s/ Daniel Cohen
 
 Name:
Daniel Cohen
 
 Title:
President
   
(Principal Executive Officer)
     
     
Dated: November 13, 2012
 By:
/s/ Jacob Ronnel
 
 Name:
Jacob Ronnel
 
 Title:
Chief Financial Officer
   
(Principal Accounting Officer)
     
 
 
 
 
 
 
 
 

 
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