Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - SKY RESORT INTERNATIONAL Ltd | Financial_Report.xls |
| EX-31.2 - CERTIFICATION - SKY RESORT INTERNATIONAL Ltd | f10q0913ex31ii_hotelout.htm |
| EX-31.1 - CERTIFICATION - SKY RESORT INTERNATIONAL Ltd | f10q0913ex31i_hoteloutsource.htm |
| EX-32.1 - CERTIFICATION - SKY RESORT INTERNATIONAL Ltd | f10q0913ex32i_hoteloutsource.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, 2013
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
Commission File No. 000-50306
HOTEL OUTSOURCE MANAGEMENT INTERNATIONAL, INC.
(Name of Small Business Issuer in its Charter)
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Delaware
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13-4167393
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|
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(State of Incorporation)
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(IRS Identification Number)
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80 Wall Street, Suite 815
New York, New York 10005
(Address of Principal Executive Offices)
Registrant's telephone number, including area code (212) 344-1600
Indicate by a check mark whether the issuer has (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
(1) Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.
Yes o No o
Indicate by a check mark whether the issuer is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer
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o
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Accelerated Filer
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o
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||||
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Non-Accelerated Filer
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o
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Smaller Reporting Company
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x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act. Yes o No x
State the number of shares outstanding of each of the Registrant's classes of common equity, as of the latest applicable date: 2,903,984 as of September 30, 2013.
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ITEM 1.
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FINANCIAL STATEMENTS (UNAUDITED)
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HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND CONSOLIDATED SUBSIDIARIES
INTERIM FINANCIAL STATEMENTS
AS OF
September 30, 2013
UNAUDITED
INDEX
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PART I - FINANCIAL INFORMATION
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PAGE
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|
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Item 1 CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1 | |
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Balance Sheets -
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||
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September 30, 2013 and December 31, 2012
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2-3
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Statements of Comprehensive Loss -
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||
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Nine and three months ended September 30, 2013 and 2012
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4
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Statements of Cash Flows -
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||
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Nine months ended September 30, 2013 and 2012
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5-6
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Notes to Financial Statements
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7-12
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- - - - - - - - - - - - - - - - -
-1-
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
US Dollars in thousands
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As of
September 30,
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As of
December 31,
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|||||||
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2013
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2012
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|||||||
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(Unaudited)
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(Audited)
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|||||||
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ASSETS
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||||||||
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CURRENT ASSETS:
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||||||||
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Cash and cash equivalents
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135 | 195 | ||||||
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Short-term bank deposits
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22 | 26 | ||||||
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Trade receivables (net of allowance for doubtful accounts of $ zero as of September 30, 2013 and December 31, 2012)
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409 | 453 | ||||||
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Other accounts receivable
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111 | 140 | ||||||
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Inventories
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322 | 350 | ||||||
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TOTAL CURRENT ASSETS
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999 | 1,164 | ||||||
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PROPERTY AND EQUIPMENT, NET:
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||||||||
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Minibars and related equipment
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4,059 | 3,857 | ||||||
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Other property and equipment
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26 | 22 | ||||||
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TOTAL PROPERTY AND EQUIPMENT
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4,085 | 3,879 | ||||||
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OTHER ASSETS:
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||||||||
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Deferred expenses, net
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4 | 10 | ||||||
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Intangible assets
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42 | 44 | ||||||
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TOTAL OTHER ASSETS
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46 | 54 | ||||||
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TOTAL
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5,130 | 5,097 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
-2-
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
US Dollars in thousands (except share data)
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As of
September 30,
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As of
December 31,
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|||||||
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2013
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2012* | |||||||
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LIABILITIES AND SHAREHOLDERS' EQUITY
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(Unaudited)
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(Audited)
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||||||
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CURRENT LIABILITIES:
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||||||||
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Current maturities of loans from related parties
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73 | 170 | ||||||
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Current maturities of long-term loans from others
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360 | 459 | ||||||
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Trade payables
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1,173 | 567 | ||||||
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Accrued expenses and other current liabilities
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373 | 555 | ||||||
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TOTAL CURRENT LIABILITIES
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1,979 | 1,751 | ||||||
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LONG-TERM LIABILITIES:
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||||||||
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Long-term loans from related parties, net of current maturities
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557 | 1,232 | ||||||
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Long-term loans from others, net of current maturities
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1,493 | 708 | ||||||
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Accrued severance pay, net
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70 | 47 | ||||||
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TOTAL LONG-TERM LIABILITIES
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2,120 | 1,987 | ||||||
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SHAREHOLDERS' EQUITY:
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||||||||
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Share capital -
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||||||||
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Preferred stock of $ 0.001 par value –
5,000,000 shares authorized; zero shares issued and outstanding as of September 30, 2013 and December 31, 2012;
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- | - | ||||||
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Common stock of $ 0.001 par value–
200,000,000 shares authorized, 2,903,984 shares issued and outstanding as of September 30, 2013 and 1,999,506 as of December 31, 2012;
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3 | 2 | ||||||
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Additional paid-in capital
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13,175 | 12,272 | ||||||
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Capital Reserve
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1,414 | 1,414 | ||||||
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Accumulated other comprehensive income
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77 | 21 | ||||||
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Accumulated deficit
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(13,638 | ) | (12,350 | ) | ||||
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TOTAL SHAREHOLDERS' EQUITY
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1,031 | 1,359 | ||||||
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TOTAL
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5,130 | 5,097 | ||||||
*Reclassified
The accompanying notes are an integral part of the consolidated financial statements.
-3-
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
US Dollars in thousands (except share data)
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For the Three
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For the Nine
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|||||||||||||||
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Months Ended September 30,
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Months Ended September 30,
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|||||||||||||||
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2013
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2012
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2013
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2012
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|||||||||||||
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(Unaudited)
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||||||||||||||||
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Revenues
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754 | 780 | 2,501 | 2,509 | ||||||||||||
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Costs of revenues:
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||||||||||||||||
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Depreciation
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(112 | ) | (146 | ) | (389 | ) | (436 | ) | ||||||||
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Other
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(550 | ) | (504 | ) | (1,748 | ) | (1,647 | ) | ||||||||
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Gross profit
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92 | 130 | 364 | 426 | ||||||||||||
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Operating expenses:
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||||||||||||||||
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Research and development
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(10 | ) | (44 | ) | (39 | ) | (110 | ) | ||||||||
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Selling and marketing
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(97 | ) | (70 | ) | (267 | ) | (205 | ) | ||||||||
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General and administrative
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(365 | ) | (339 | ) | (1,017 | ) | (945 | ) | ||||||||
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Operating loss
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(380 | ) | (323 | ) | (959 | ) | (834 | ) | ||||||||
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Financing income (expenses) and foreign currency translation, net
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14 | (9 | ) | (193 | ) | (191 | ) | |||||||||
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Other expenses
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(6 | ) | (89 | ) | (80 | ) | (101 | ) | ||||||||
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Benefit Reduction for Loan
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(47 | ) | - | (56 | ) | (1,296 | ) | |||||||||
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Net loss
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(419 | ) | (421 | ) | (1,288 | ) | (2,422 | ) | ||||||||
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Basic and diluted net loss per share
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(0.0002 | ) | (0.0002 | ) | (0.0006 | ) | (0.0019 | ) | ||||||||
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Weighted average number of shares used in computing basic and diluted loss per share
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2,753,238 | 1,999,506 | 2,250,750 | 1,276,399 | ||||||||||||
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Other Comprehensive Loss:
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||||||||||||||||
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Net Loss
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(419 | ) | (421 | ) | (1,288 | ) | (2,422 | ) | ||||||||
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Foreign currency translation adjustments
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(48 | ) | (32 | ) | 56 | (50 | ) | |||||||||
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Comprehensive Loss
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(467 | ) | (459 | ) | (1,232 | ) | (2,427 | ) | ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
-4-
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
US Dollars in thousands
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For the Nine Months Ended
September 30,
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||||||||
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2013
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2012
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|||||||
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(Unaudited)
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||||||||
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CASH FLOWS FROM OPERATING ACTIVITIES:
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||||||||
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Net loss
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(1,288 | ) | (2,422 | ) | ||||
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Adjustments to reconcile net loss to net cash used in operating activities:
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||||||||
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Capital loss
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74 | 86 | ||||||
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Depreciation and amortization
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402 | 450 | ||||||
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Increase in accrued severance pay, net
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23 | 2 | ||||||
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Interest and linkage differences in regard to related parties and subsidiaries
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60 | (17 | ) | |||||
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Financial expenses for the benefit component in converting a loan into shares
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- | 1,296 | ||||||
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Benefit component in loans amortization
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56 | 56 | ||||||
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Changes in assets and liabilities:
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||||||||
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Decrease in inventories
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25 | 30 | ||||||
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Decrease (increase) in trade receivables
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44 | (122 | ) | |||||
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Related parties, net
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31 | 35 | ||||||
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Increase in other accounts receivable
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(42 | ) | (10 | ) | ||||
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Increase (decrease) in trade payables
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165 | (94 | ) | |||||
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Increase (decrease )in accounts payable and accrued expenses
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(176 | ) | 61 | |||||
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Net cash used in operating activities
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(626 | ) | (649 | ) | ||||
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CASH FLOWS FROM INVESTING ACTIVITIES:
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||||||||
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Proceeds from sale of property and equipment
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351 | 89 | ||||||
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Purchases and production of property and equipment
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(493 | ) | (279 | ) | ||||
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Short-term bank deposits, net
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4 | - | ||||||
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Net cash used ininvesting activities
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(138 | ) | (190 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
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Proceeds from (payments to) related parties, net
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245 | 543 | ||||||
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Proceeds from long term loans from others, net
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461 | 100 | ||||||
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Net cash provided by financing activities
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706 | 643 | ||||||
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Effect of exchange rate changes on cash and cash equivalents
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(2 | ) | (1 | ) | ||||
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Decrease in cash and cash equivalents
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(60 | ) | (197 | ) | ||||
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Cash and cash equivalents at the beginning of the period
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195 | 291 | ||||||
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Cash and cash equivalents at the end of the period
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135 | 94 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
-5-
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
US Dollars in thousands
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Appendix A -
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||||||||
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Supplemental disclosure of non-cash investing and financing activities and cash flow information:
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For the Nine Months Ended September 30,
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|||||||
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2013
|
2012
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|||||||
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(Unaudited)
|
||||||||
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Non-cash investing and financing activities:
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||||||||
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Acquisition of property and equipment on short-term credit
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445 | 270 | ||||||
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Conversion of loans into shares
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904 | 2,000 | ||||||
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Receivables in regard to property and equipment
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87 | 89 | ||||||
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Cash paid during the period for interest
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80 | 194 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
-6-
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 1:- NATURE OF OPERATIONS AND BASIS OF PRESENTATION
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a.
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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”.
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b.
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During 2006, the Company commenced its own research and development program aimed at the development of a new range of products.
Currently the HOMI® 330, a "sealed-access" type wireless Computerized Minibar system and the newer HOMI® 226, an "Open-Access" type wireless Computerized Minibar system, are both being produced and installed.
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c.
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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.
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d.
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As of September 30, 2013, the Company had $ 157 in cash, including short term deposits. The Company continues to incur losses ($ 1,288 in the nine months ended September 30, 2013) and has a negative cash flow from operations amounting to approximately $ 626 for this period. In order to implement the Company's basic business plan for completion of the installation of additional minibars, the Company will need additional funds.
The financial statements have been prepared assuming that the Company will continue as a "going concern". The Company has suffered recurring losses from operations and has a net working capital deficiency that raises substantial doubt about its ability to continue as "going concern" .The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The continuation of the company as a going concern is dependent upon implementation of management's plans as well as raising additional funds from shareholders or other. The Company's preferred method is the new business model, described in item c. above.
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-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, 2013 are not necessarily indicative of the results that may be expected for the year ended December 31, 2013. 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, 2012 included in the Company's Form 10-K filed April 15, 2013.
|
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b.
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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.
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c.
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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.
|
-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.
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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.
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e.
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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,
|
|||||||
|
2013
|
2012
|
|||||||
|
New Israeli Shekel (NIS)
|
$ | 0.282 | $ | 0.268 | ||||
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Euro (EU)
|
$ | 1.350 | $ | 1.318 | ||||
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Australian Dollar (AU$)
|
$ | 0.933 | $ | 1.037 | ||||
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Pound Sterling (GBP)
|
$ | 1.613 | $ | 1.617 | ||||
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Canadian Dollar (CAN$)
|
$ | 0.970 | $ | 1.044 | ||||
|
Consumer Price Index ("CPI")
|
124.57 | 122.12 | ||||||
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Nine Months Ended
September 30,
|
||||||||
|
Increase (Decrease) in Rate of Exchange:
|
2013 | 2012 | ||||||
|
NIS
|
5.2 | % | (2.4 | ) % | ||||
|
EU
|
2.4 | % | 0.2 | % | ||||
|
AU$
|
(11.1 | ) % | 3.0 | % | ||||
|
GBP
|
0 | % | 5.2 | % | ||||
|
CAN$
|
(7.6 | ) % | 4.3 | % | ||||
|
Consumer Price Index ("CPI")*
|
2.0 | % | 2.1 | % | ||||
|
*Based on the year 2002 average rate.
|
-9-
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 3:- FIXED ASSETS
|
|
Number of minibars
The consolidated financial statements include the accounts of HOMI and its active subsidiaries listed below, which are owned by HOMI:
|
|
Number of Minibars Operated
|
||||||||||
|
Subsidiary Name
|
Area
|
30.09.2013 | 30.09.2012 | |||||||
|
HOMI Industries Ltd. (1)
|
Israel
|
|||||||||
|
HOMI Israel Ltd. (1), (3)
|
Israel
|
5,430 | 4,455 | |||||||
|
HOMI USA, Inc. and
HOMI Canada, Inc. (1)
|
U.S.A.
and Canada
|
2,104 | 3,289 | |||||||
|
HOMI Europe S.A.R.L. (1), (2)
|
Europe
|
1,499 | 1,499 | |||||||
| 9,033 | 9,243 | |||||||||
|
(1)
|
A quantity of minibars are owned by HOMI Industries and rented to the subsidiaries.
As of September 30, 2013 the minibars are located as follows:
|
|
U.S.A.
|
Israel
|
Europe
|
Total
|
|||||||||||||
|
Number of minibars
|
1,614 | 2,888 | 1,499 | 6,001 | ||||||||||||
|
(2)
|
Through subsidiaries in France and the U.K (including a branch in Spain).
|
|
(3)
|
Including 333 HOMI® 232 shared operated minibars. As of September 30, 2013 located in Israel.
|
-10-
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 4:- RELATED PARTIES TRANSACTIONS
|
|
During the nine and three months ended September 30, 2013 and 2012, the Company incurred various related parties expenses as follows:
|
|
For the Three Months Ended
September 30,
|
For the Nine Months Ended
September 30,
|
|||||||||||||||
|
2013
|
2012
|
2013
|
2012
|
|||||||||||||
|
Unaudited
|
Unaudited
|
|||||||||||||||
|
Directors' fees and liability Insurance
|
8 | 9 | 25 | 27 | ||||||||||||
|
Consulting and management Fees
|
123 | 89 | 360 | 291 | ||||||||||||
|
Financial expenses
|
9 | 37 | 61 | 119 | ||||||||||||
|
Benefit reduction for loan
|
47 | - | 56 | 1,296 | ||||||||||||
| 187 | 135 | 502 | 1,733 | |||||||||||||
NOTE 5: - SIGNIFICANT EVENTS DURING THE PERIOD
|
a.
|
On January 28, 2013 the Company executed a reverse split of one -for- hundred of all of HOMI’s shares of common stock. Following the reverse split, the number of outstanding shares of common stock decreased from approximately 200,000,000 to 2,000,000. The corporation issued no fractional shares of common stock and fractional shares resulting from the reverse split were rounded up to the nearest whole share.
|
|
b.
|
On September 9, 2013, HOMI closed a rights offering, pursuant to which HOMI raised an amount of approximately $ 904. In consideration, HOMI issued 904,478 shares of its common stock at a price of $ 1.00 per share.
|
|
c.
|
On January 10, 2013, HOMI Industries entered into a loan agreement with a related party owned and operated by the President of HOMI. Pursuant to this loan agreement the related party agreed to loan HOMI Industries the sum of $45.5.
On July 28, 2013, HOMI agreed to the related party’s request to cancel this loan, and the related party authorized HOMI to apply the full loan amount toward payment for shares purchased by the related party in HOMI’s shareholders rights offering mentioned in b above, declared effective by the United States Securities and Exchange Commission on July 12, 2013.
For technical reasons, HOMI did not issue such shares to the President in the context of the rights offering, but intends to issue them in the near future, at the same price per share that was applied in the rights offering.
|
|
d.
|
On October 9, 2013, HOMI entered into two new loan agreements, with the President and with the majority shareholder of HOMI, respectively, pursuant to which they agreed to loan HOMI $ 50 and $50 respectively, bearing 8% annual interest. The loans are for a period of four years, including two years’ grace on the principal. HOMI received the loan funds in September, 2013. Pursuant to these loan agreements, within thirty days of closing an equity investment of $600 or more, HOMI may elect to repay all or any portion of the outstanding loans and/or accrued interest in shares of HOMI common stock which shares shall be valued at the same price per share as in the corresponding equity investment.
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-11-
HOTEL OUTSOURCE MANAGEMENT
INTERNATIONAL, INC. AND ITS SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
US Dollars in thousands
NOTE 6:- EVENTS SUBSEQUENT TO BALANCE SHEET DATE
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a.
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On October 2, 2013, a director of HOMI tendered his resignation as a director, effective November 8, 2013, and notified HOMI, that he will not stand for re-election as a director. In addition, this director has resigned from his position as a director of HOMI USA, Inc., a wholly owned subsidiary of HOMI, and all other HOMI subsidiaries, effective immediately. By mutual consent of that director the HOMI subsidiaries, his management position as Chief Executive Officer of HOMI USA, Inc., and his management positions in all HOMI subsidiaries will terminate, as of December 31, 2013. Those resignations are unrelated to HOMI’s operations, policies or practices.
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b.
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On October 2, 2013, by mutual consent of the Chief Executive Officer and HOMI and its subsidiaries, it was agreed that his management position as Chief Executive Officer and Chief Financial Officer of HOMI, and his management positions in all HOMI subsidiaries, will terminate, as of December 31, 2013. In addition, he will resign from all director positions he currently holds with HOMI subsidiaries effective December 31, 2013. He shall remain a director of HOMI. Those resignations are unrelated to HOMI’s operations, policies or practices.
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-12-
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ITEM 2.
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MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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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, 2013 and our results of operations for the three months ended September 30, 2012 and 2013. 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, 2012 10-K filed with the Securities and Exchange Commission on April 15, 2013.
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.
-13-
Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts
Revenues from minibars operation and product sales derived from outsource activity (minibar's content), under the exclusive long-term revenue sharing agreements with hotels, net of the hotel’s portion and/or other participation of, or payments due from the hotel, and revenues from disposal of minibars are recognized in accordance with Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB No. 101") and SAB No. 104 when delivery has occurred, persuasive evidence of an arrangement exists, the vendor’s fee is fixed or determinable and collectability is probable. Revenues from sales of minibars are recognized in accordance with compliance with the conditions designated in SAB No. 104, as abovementioned. Sales of minibars that are classified as refinancing arrangements are shown as a long-term loan to be repaid in accordance with terms of the agreement as required in FAS 13 "Accounting for Leases".
Our payment terms are normally net 15 to 30 days from invoicing. We evaluate our allowance for doubtful accounts on a regular basis through periodic reviews of the collectability of the receivables in light of historical experience, adverse situations that may affect our customers’ ability to repay, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. We perform ongoing credit evaluations of our customers and generally do not require collateral because (1) we believe we have certain collection measures in-place to limit the potential for significant losses, and (2) because of the nature of customers comprising our customer base. Accounts receivable are determined to be past due based on how recently payments have been received and bad debts are charged in the form of an allowance account in the period the receivables are deemed uncollectible. Receivables are written off when we abandon our collection efforts. To date, we have not experienced any material losses. An allowance for doubtful accounts is provided with respect to those amounts that we have determined to be doubtful of collection. No allowance was deemed necessary as of September 30, 2013 and 2012.
Long-Lived Assets
We assess the recoverability of the carrying value of long-lived assets periodically. If circumstances suggest that long-lived assets may be impaired, and a review indicates that the carrying value will not be recoverable, as determined based on the projected undiscounted future cash flow, the carrying value is reduced to its estimated fair value. The determination of cash flow is based upon assumptions and forecasts that may not occur. As of December 31, 2012 the Company’s balance sheet includes $3,879,000 of fixed assets, net. As of September 30, 2013, our balance sheet included $4,085,000 of fixed assets net. The Company has completed its impairment test for the nine months ended September 30, 2013 and has concluded that no impairment write-off is necessary.
Financial Statements in US dollars:
Financial statements in U.S. dollars:
The currency of the primary economic environment in which the operations of the Company are conducted is the U.S. dollar (hereinafter: "dollar"); thus, the dollar is the functional currency of the Company.
The Company's transactions and balances denominated in dollars are presented at their original amounts. Non-dollar transactions and balances have been remeasured to dollars. All transaction gains and losses from remeasurement of monetary balance sheet items denominated in non-dollar currencies are reflected in the statements of operations as financial income or expenses, as appropriate.
-14-
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.
-15-
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:
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(1)
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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;
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(2)
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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;
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(3)
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Labor costs relating to the minibar attendants;
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(4)
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General and Administrative, and Marketing expenses;
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(5)
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Maintenance costs relating to the minibar systems;
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(6)
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Finance expenses.
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RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2013 COMPARED TO SEPTEMBER 30, 2012.
REVENUES
For the three months ended September 30, 2013 and 2012, HOMI had revenues of $754,000 and $780,000, respectively, a decrease of $26,000 or 3.3 %. These revenues arise primarily from the sale of refreshments in the minibars. The decrease is mainly due to a decrease in the quantity of minibars operated, as agreements with some hotels in the United States reached the end of their terms.
For the three months ended September 30, 2013, our three largest customers accounted for approximately 24.49 % of our total revenues. During the same period of 2012, our three largest customers collectively comprised 27.49 % of our total revenues.
GROSS PROFIT
Gross profit, before consideration of depreciation expense, decreased from $276,000 for the three months ended September 30, 2012 to $204,000 for the three months ended September 30, 2013, a decrease of $72,000. Comparing the three month periods ended September 30, 2012 and 2013, gross profit margin, before consideration of depreciation expense, decreased from 35.38 % to 27.71%. The decrease is mainly due to a decrease in the quantity of minibars operated in hotels in the Unites States, as agreements with some hotels in the United States reached the end of their terms.
-16-
Gross profit, after consideration of depreciation expense, decreased from $130,000 for the three months ended September 30, 2012 to $92,000 for the three months ended September 30, 2013, a decrease of $38,000. Gross profit margin decreased from 16.7 % to 12.2 %. See the same clarification as above.
COSTS OF REVENUES
Cost of Revenues, before consideration of depreciation expense, for the three months ended September 30, 2012 and 2013 were $504,000 and $550,000, respectively, an increase of $46,000 or 9.1 %, primarily because the costs of labor remained unchanged while revenues decreased. The costs, mainly of labor, were not reduced during the same time frame as the reduction in the revenues.
Depreciation expense for the three months ended September 30, 2012 and 2013 approximated $146,000 and $112,000, respectively, a decrease of $34,000. As a percentage of revenues, depreciation expense decreased from 18.7 % to 14.9 %.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT
During 2006, HOMI commenced its own research and development program aimed at the development of a new range of products. The HOMI® 336, a novel, computerized Minibar system designed to increase the accuracy of automatic billing, was the first of the new range of products, the research and development of which, was completed in 2007. The HOMI ® 336 was discontinued and replaced by the HOMI® 330 in 2009. The research and development of an additional product, the HOMI® 226 Minibar, was completed in 2012. Production of HOMI® 226 began in 2012. Total research and development expenses for the three months ended September 30, 2012 were $44,000, and $10,000 for the three months ended September 30, 2013.
General and Administrative expenses were $339,000 for the three months ended September 30, 2012 and $365,000 for the three months ended September 30, 2013. As a percentage of revenues, general and administrative expenses increased from 43.5 % to 48.4 %.
Selling and Marketing expenses increased from $70,000 for the three months ended September 30, 2012 to $97,000 for the three months ended September 30, 2013, or by 38.6 %.The increase is mainly due to a renewed effort in sales and marketing in the United States.
FINANCIAL INCOME (EXPENSES)
For the three months ended September 30, 2012 we had financial expenses (net) of $ 9,000, and for the three months ending September 30, 2013, we had financial income (net) of $14,000.
OTHER EXPENSES
For the three months ended September 30, 2012 and 2013 we had other expenses of $89,000 and $6,000, respectively.
-17-
NET LOSS
For the three months ended September 30, 2012 and 2013 we had net loss of $ 421,000 and $ 419,000, respectively.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2013 COMPARED TO SEPTEMBER 30, 2012.
REVENUES
For the nine months ended September 30, 2013 and 2012, HOMI had revenues of $2,501,000 and $2,509,000, respectively, a decrease of $ 8,000 or 0.003 %.
For the nine months ended September 30, 2013, our three largest customers accounted for approximately 23.0 % of our total revenues. For the nine months ended September 30, 2012, our three largest customers accounted for approximately 26.3 % of our total revenues.
GROSS PROFIT
Gross profit, before consideration of depreciation expense, decreased from $ 862,000 for the nine months ended September 30, 2012 to $753,000, for the nine months ended September 30, 2013, a decrease of $109,000. Gross profit margin, before consideration of depreciation expense, decreased from 34.4 % to 30.1 %. The decrease is mainly due to a decrease in the quantity of minibars we operate in the United States, as agreements with some hotels in the United States reached the end of their terms.
Gross profit, after consideration of depreciation expenses, decreased from $426,000 for the nine months ended September 30, 2012 to $ 364,000 for the nine months ended September 30, 2013, a decrease of $62,000. Gross profit margin decreased from 17.0 % to 14.6%.
COSTS OF REVENUES
Cost of Revenues, before consideration of depreciation expenses, for the nine months ended September 30, 2012 and 2013 were $ 1,647,000 and $ 1,748,000, respectively, an increase $101,000 or 6.1 %.
Depreciation expenses for the nine months ended September 30, 2012 and 2013 approximated $436,000 and $389,000, respectively, a decrease of $ 47,000, or 10.8 %. As a percentage of revenues, depreciation expense decreased from 17.4 % to 15.6%.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT
During 2006, HOMI commenced its own research and development program aimed at the development of a new range of products. The HOMI® 336, a novel, computerized minibar system designed to increase the accuracy of automatic billing, was the first of the new range of products, the research and development of which, was completed in 2007. The HOMI ® 336 was discontinued and replaced by the HOMI® 330 in 2009. The research and development of an additional product, the HOMI® 226 Minibar, was completed in 2012. Production of HOMI® 226 began in 2012. Total research and development expenses for the nine months ended September 30, 2012 were $110,000 and $ 39,000 for the nine months ended September 30, 2013.
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General and Administrative expenses increased from $945,000 for the nine months ended September 30, 2012 to $1,017,000 for the nine months ended September 30 2013, an increase of $72,000, or 7.6%. As a percentage of revenues, general and administrative expenses increased from 37.7 % to 40.7%.
Selling and Marketing expenses increased from $205,000 for the nine months ended September 30, 2012 to $267,000 for the nine months ended September 30, 2013, an increase of $62,000 or 30.2% .The increase is mainly due to a renewed effort in sales and marketing in the United States.
FINANCIAL INCOME (EXPENSES)
For the nine months ended September 30, 2012 and 2013 we had financial expenses (net) of $191,000 and $193,000 of financial expenses (net), respectively.
These amounts include interest expense (net) of approximately $192,000 and $126,000, respectively. The remaining amounts are due primarily to currency exchange differences on US$ dominated intercompany balances.
OTHER EXPENSES
For the nine months ended September 30, 2012 we had other expenses of $101,000 and for the nine months ended September 30, 2013, we had other expenses of $80,000. The expenses incurred during this 2013 nine month period are mainly due to the dismantling of minibars from three hotels in the United States following the expiration of the outsource operation agreements for these hotels.
BENEFIT REDUCTION FOR LOAN
Value of the costed benefit component of a transaction converting a loan in 2012, in the amount of approximately $1,296,000, was charged to capital and offset against expenses.
NET LOSS
As a result of the above, for the nine months ended September 30, 2012 we had net loss of $2,422,000 and for the nine months ended September 30, 2013, we had a net loss of $1,288,000.
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, 2013 of $13,638,000. During the nine months ended September 30, 2013, we had net loss of $1,288,000.
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Our financing activities resulted in cash of approximately $706,000 during the nine months ended September 30, 2013 and during the nine months ended September 30, 2013 we used cash in the amount of $626,000.
On September 30, 2013, we had long term liabilities of approximately $2,120,000 which are mainly comprised of loans from related parties and others.
At September 30, 2013, HOMI had $157,000 in cash, including short term deposits.
During the quarter ended September 30, 2013, HOMI closed on a rights offering pursuant to which we offered existing shareholders the right to purchase a total of 1,100,000 shares at $1.00 per share. Pursuant to this rights offering, we raised $1,447.05 and issued 2,631 shares. In addition, the Company converted a total of $904,478, in loans and accrued interest at $1.00 per share for an issuance of 904,478 shares. In total, between the rights offering and the loan conversion, HOMI raised $903,347 and issued 904,478 shares. The proceeds of the rights offering and the converted loans were applied toward general corporate purposes, including finance and other corporate expenses.
In order to implement the Company's basic business plan for the installation of additional minibars, the Company will need additional funds from shareholders or others. The Company'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. We believe that these measures should provide sufficient cash for the ongoing operations of the Company for the next twelve months.
OFF BALANCE SHEET ARRANGEMENTS
HOMI has no off balance sheet arrangements.
INFLATION
We do not believe that inflation has had a significant impact on our consolidated results of operations or financial condition.
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Item 3.
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QUANTATATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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N/A
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Item 4.
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CONTROLS AND PROCEDURES
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Management is required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 to evaluate, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.
Management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures. Based on their evaluation, as of the end of the period covered by this Form 10-Q, the Chief Executive Officer and Chief Financial Officer has concluded that such disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II.
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OTHER INFORMATION
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Item 1.
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LEGAL PROCEEDINGS
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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.
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Item 1A.
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RISK FACTORS
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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, 2012.
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Item 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND PROCEEDS
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During the quarter ended September 30, 2013, we issued a total of 904,478 shares through the conversion of debt. These shares were converted at a rate of $1.00 per share.
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-21-
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Item 3.
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DEFAULTS UPON SENIOR SECURITIES
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None.
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Item 4.
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[Removed and Reserved]
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Item 5.
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OTHER INFORMATION
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The following exhibits are filed as part of this Form 10-Q.
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(a)
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Exhibits required by Item 601 of Regulation S-K
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Exhibit No.
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Description
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31.1
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Certification of HOMI’s Chief Executive Officer pursuant to Rule13a- 14(a) of the Securities Exchange Act of 1934
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31.2
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Certification of HOMI’s Chief Financial Officer pursuant to Rule13a- 14(a) of the Securities Exchange Act of 1934
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| 32.1 |
Certification of HOMI’s Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) under the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 the United States Code (18 U.S.C. 1350)
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-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.
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HOTEL OUTSOURCE MANAGEMENT INTERNATIONAL, INC.
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Dated: November 13, 2013
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By:
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/s/ Daniel Cohen
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Name:
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Daniel Cohen
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Title:
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President
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(Principal Executive Officer)
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Dated: November 13, 2013
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By:
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/s/ Jacob Ronnel
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Name:
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Jacob Ronnel
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Title:
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Chief Financial Officer
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(Principal Accounting Officer)
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